XING FA (HONG KONG) IMP. & EXP. LTD v. SUNGSAN INTERNATIONAL CO., LTD

HCA 2511/2018

[2019] HKCFI 2466

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2511 OF 2018

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REASONS FOR DECISION

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Introduction

1.  There are three summonses before the court issued by Sungsan International Co Ltd (“the defendant”), the defendant in an action brought against it by Xing Fa (Hong Kong) Imp & Exp Ltd (“the plaintiff”).  They arise out of a world-wide Mareva injunction with ancillary disclosure order (“the injunction order”) obtained ex parte from DHCJ To (“the judge”) on 23 October 2018 by the plaintiff against the defendant.  The injunction order covered assets up to a value of USD 9.276 million including funds in the sum of USD 6.6 million payable under five letters of credit.

2.  The defendant’s summonses are the following: (1) a summons dated 15 November 2018 (“the leave summons”) for leave to appeal against the decision to grant the injunction order; (2) summonses both dated 8 January 2019 (collectively “the summonses”) for (a) the discharge of the injunction order; and alternatively, (b) the variation of the injunction order.

3.  At the hearing, the summonses were dismissed with written reasons to be handed down. These are the Reasons.

Procedural history

4.  The inter partes hearing was held on 2 November 2018 before the judge.  Apart from seeking the discharge of the injunction, the defendant’s counsel made an oral application at the hearing to vary the terms of the injunction order to provide for business and legal expenses. As appears from §1 of the Reasons for Decision (“Reasons”) handed down on 31 January 2019, the judge dismissed the defendant’s application and continued the injunction order.

5.  On 15 November 2018, the defendant took out its leave summons to which was appended a draft notice of appeal returnable before the judge on 16 January 2019.

6.  On 7 December 2018, the Seoul branch of the Bank of China (“BOC”), the negotiating bank for the letters of credit applied to vary the injunction order.  On 20 December 2018, Mr Recorder Manzoni SC varied the injunction order by allowing payment to be made under the five letters of credit.

7.  On 28 December 2018, the master made an unless order for the plaintiff to file and serve its statement of claim by 11 January 2019.

8.  It should be noted that the defendant chose not to appeal the dismissal of the variation application.  Rather, it sought to have a second bite at the cherry by filing the summonses on 8 January 2019 to be heard before a different judge although such summonses were premature since the Reasons had yet to be handed down by the judge. 

9.  In any event, the defendant caused summonses to be listed for hearing by DHCJ K Yeung SC (as he then was) on 11 January 2019 knowing full well (as to which see §5 above) that the leave summons was to be heard only five days later by the judge.

10.  The summonses were adjourned to 16 January 2019.  As the scheduled hearing for the leave summons was only for 30 minutes,the judge ordered that all three summonses be re-fixed for a three-hour hearing.  Inexplicably, for reasons not readily apparent, those summonses came to be listed for hearing by this court.

11.  On 30 September 2019, F Zimmern & Co (“FZ”), the solicitors for the defendant informed the court that they had applied for an order to cease to act on 26 June 2019, adjourned to 10 January 2020 pending service out of the jurisdiction on the defendant.

12.  FZ being the solicitors on record were not excused from attending the hearing.  However, they could not assist as the defendant has apparently made it clear that it does not wish FZ to act in respect of these proceedings. 

13.  In the circumstances, for the purposes of the present hearing,the best that can be done for the defendant is for the court to treat the defendant’s case as having been made on the basis of the evidence filed in support of the summonses as well as written submissions prepared and filed for the earlier hearings.

Background facts

14.  The background to this action is set out in §§5 – 14 of the Reasons which I gratefully adopt and reproduced below:

“ 5. The plaintiff is a company incorporated in Hong Kong engaged in trading business. It is a subsidiary of a listed company in Shanghai.

6. The defendant is a company incorporated in the Republic of Korea engaged in the business of rubber trading.

7. Lonkey Industrial Co Ltd Guangzhou (‘Lonkey’) is a company incorporated in the People’s Republic of China (the ‘PRC’) engaged in the business of manufacturing and trading of detergents and industrial products, including acrylonitrile butadiene styrene (‘ABS’) and linear low-density polyethylene (‘LLDPE’).

8. The plaintiff and Lonkey have a long-term relationship in import and export business since 2016. Lonkey had limited credit facilities with banks which limited its ability in applying for letters of credit for its trading activities with the plaintiff. They entered into an arrangement under which the plaintiff would, in accordance with Lonkey’s instruction, place order for goods from a supplier specified by Lonkey, pay by a 90-day term letter of credit, and then resell the ordered goods to Lonkey. Lonkey would pay the plaintiff for the goods ordered before the expiry of the letter of credit. As at 2018, the plaintiff and Lonkey had conducted transactions in this manner in the total value of US$28 million.

9. Starting from February 2018, Lonkey specified the defendant as its specified suppliers. Since then, 16 such transactions have been made among the plaintiff, the defendant and Lonkey under the above arrangements. The goods ordered were to be delivered to a warehouse in Shanghai managed by a company known as Shanghai Pinju International Logistics Co, Ltd(‘Shanghai Warehouse’), which would then issue a certificate of title to the goods.

10. According to the plaintiff’s chief financial officer (‘Tan’),the processing of these transactions was as follows. The process began with Lonkey sending scanned copies of two sets of a sale and purchase agreement for the goods between the defendant and the plaintiff (a PRC version with a PRC arbitration clause and a Korean version with a Korean arbitration clause) and a set of sale and purchase agreement for the same goods between the plaintiff and Lonkey. After approval by the plaintiff, the plaintiff would send hard copies of the three sets of signed and chopped sale and purchase agreements to Lonkey. Lonkey would then request the plaintiff to open a letter of credit with the defendant as beneficiary. On the same day, the plaintiff would submit the above documents to Industrial and Commercial Bank of China (‘ICBC’) for opening a letter of credit in favour of the defendant. When the letter of credit was issued, the plaintiff would inform Lonkey via WeChat the particulars of the letter of credit.Lonkey would pay the plaintiff five days before the letter of credit was due to expire.

11. Upon receipt of the letter of credit, the defendant would prepare the documents required under the letter of credit and forward them to ICBC. These documents include commercial invoice, packing list and delivery order. It would deliver the goods ordered to Shanghai Warehouse which would issue the certificate of title to the goods. Lonkey would also send a copy of the same documents to the plaintiff. Upon payment to ICBC,the bank would release the above documents to the plaintiff. The plaintiff would deliver the above documents and the certificate of title to the goods received from Shanghai Warehouse to Lonkey for collecting the goods from Shanghai Warehouse.

12. All went well until the last seven transactions when Lonkey informed the plaintiff that the delivery orders and certificates of title given to Lonkey by the plaintiff, which were issued by the defendant, could not be used to retrieve goods from Shanghai Warehouse. Upon enquiry with Shanghai Warehouse,it was discovered that the certificates of title and delivery orders were forged and no such ordered goods had been delivered to Shanghai Warehouse.

13. At an interview with the defendant’s general manager (‘Sung’), Sung gave a statement dated 19 October 2018 confirming the following. He was the general manager of the defendant and was in charge of the transactions in question. He had known a person named Mao Zheng Xin (‘Mao’) who introduced himself as the President of Zhejiang Maxway Import & Export Co Ltd (‘Zhejiang Maxway’). He communicated with Mao by WeChat. Mao offered him a business opportunity involving transaction of letters of credit wherein the defendant was to enter into sales contracts with some traders. Under the arrangement, the defendant would be paid by a 90-day letter of credit and would pay the buyers by telegraphic transfer upon the date of negotiation of the letter of credit. The defendant did not have to manufacture or ship the goods but would take a commission for its services from the price difference between the sale and resale.

14.  Sung confirmed entering into the seven contracts of sale of ABS or LLDPE with Long Contin on behalf of the defendant and seven resale contracts with the plaintiff under the above arrangements.  He admitted preparing the resale contract between the defendant and the plaintiff, applying the defendant’s company chop to the documents and sending them to Mao, not to the plaintiff.  He received from Mao or his associates, not from the seller Long Contin, through WeChat images of the delivery orders, commercial invoices and packing lists under the contract between the defendant and Long Contin.  Then, Sung prepared similar sales and purchase agreement between the plaintiff and defendant by amending the price to give the defendant a profit which he called ‘commission’.  He reproduced similar delivery orders, commercial invoices and packing lists for the contract between the plaintiff and defendant.  Then he presented the documents to KEB Hana Bank, the negotiating bank.  Presumably, he also presented the letter of credit issued by ICBC which he received from the plaintiff.  He said the defendant had an arrangement with KEB Hana Bank under which the bank would pay the defendant immediately upon the confirmation of the documents after deducting interest for the 90-day period.  Then, he immediately remitted the purchase price under the sale and purchase agreement with Long Contin by telegraphic transfer.”

(1)  The leave summons

15.  §1 of the draft notice of appeal set out five grounds being the arguments that the defendant had raised before the judge.  In his Reasons, the judge meticulously addressed each of those grounds and explained his reasons for rejecting them. 

16.  For ease of reference, set out below are the grounds and the corresponding paragraphs in the Reasons: 

Ground	Reasons
(1)  material non-disclosure	§§41 – 51
(2)  no need for urgency or secrecy	§§52 – 54
(3)  no assets within or outside the jurisdiction	§§34 – 36
(4)  no good arguable case	§§19 – 33
(5)  no evidence of real risk of dissipation of assets	§§37 – 40

17.  In order to be granted leave to appeal, the defendant bears the burden of showing that it has reasonable prospects of success on appeal. The draft notice of appeal is patently deficient given that it was prepared without sight of the Reasons and is a rehash of its submissions made at the inter partes hearing. 

18.  The defendant has taken no steps to amend or recast his draft notice after 31 January 2019.  It has failed to identify in which respects it is alleged that the judge had erred.

19.  In the circumstances, the ineluctable conclusion is that the defendant has not shown any prospects of success of its intended appeal. The leave summons falls to be dismissed.

(2)  The variation summons

20.  The variation summons was issued on 8 January 2019 and sought to vary the injunction order by allowing the withdrawal of USD 30,408 on account of business expenses and liabilities said to be due and payable by 30 November 2018, KRW 63,230,105 per month from November 2018 for ordinary business expenses and a lump sum of HK$550,000 for legal fees.

21.  However, the affirmation in support (being the 2^nd affirmation of Sung Jong Wan) made on 13 November 2018 sought a variation in different amounts.  While in Mr Sung’s 3^rd affirmation dated 8 January 2019 the variations sought corresponded to those in the variation summons,there was no explanation whatsoever of the discrepancies nor was evidence adduced in support.  In those circumstances, the variation application could not possibly succeed.

22.  Leaving aside the unsatisfactory state of the supporting evidence, the defendant was plainly forum shopping in having the variation summons listed before a different judge (see §8 above) when it knew that only five days later there was an appointment before the judge.  This manoeuvre is objectionable as it is wasteful of judicial time and resources and deprived other litigants of the opportunity of having their matter heard on 11 January 2019.

(3)  The discharge summons

23.  This summons was wholly misconceived: having failed at the inter partes hearing, the proper course for the defendant to take was to appeal the judge’s decision rather than attempting a second bite at the cherry.  It is a misuse of court procedure and objectionable in wasting judicial time and resources.

24.  Accordingly, the discharge summons falls to be dismissed.

Costs

25.  The plaintiff sought indemnity costs.  In my view, the defendant’s egregious conduct cries out for such an award.  The manner in which the applications have been instituted and prosecuted is an affront to the court.  The defendant has resorted to forum shopping and sought to undermine the decision of the judge.  Its applications are entirely devoid of merit and a total waste of court time. Such conduct was a flagrant abuse of process.

26.  Accordingly, all three summonses are dismissed with costs (with certificate for counsel), such costs to be payable to the plaintiff on an indemnity basis.