WEALLAND ENTERPRISES CO. v. TAM TING WAI ALIAS TAM WAI TRADING AS WAI BO TRADING CO.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. In early 1985, the defendant was under contract to supply 30,000 sets humidifiers to China. The defendant had a Letter of Credit. Time expired. I need not go into any particular details. The defendant sent one Miss Tse to China for negotiation. Negotiation was not fruitful. In the course of an encounter with her Chinese counterpart, Miss Tse came to know Mr. Chiu, the middleman in the sale of 5,000 sets humidifiers to China. The seller of these 5,000 units at that particular time was supposed to be a Hing Tex Trading Company. Mr. Chiu also experienced difficulty. It was through Mr. Chiu's personal effort that the defendant's Letter of Credit was extended. The arrangement between Mr. Chiu and the defendant, through Miss Tse was that once the defendant's Letter of Credit was extended, the defendant was to take over those 5,000 sets humidifier from the hands of Mr. Chiu. After the extension of the defendant's Letter of Credit, on the 15th March, 1985 in a hotel, Miss Tse signed an agreement in the Chinese language with Mr. Chiu ostensibly representing Hing Tex. There was certain difficulty in transacting these 5,000 sets humidifiers with Hing Tex as seller. The obstacle need not be gone into. Suffice it for me to say, as it is common ground, that subsequently the 5,000 sets were to be supplied to the defendant by the plaintiff, Wealland Enterprises Co. A Letter of Credit was to be opened in favour of Wealland by the defendant through the Chiyu Bank of Hong Kong. Such a Letter of Credit was promised within three days, but the Letter of Credit did not come. As a result, there was certain manipulation leading to a number of amendments to the shipment date and the LC expiry date in the defendant's Letter of Credit from Bank of China, Foshan branch. But again, I need not go into the particulars of the various amendments. Suffice it to refer to the last: the Letter of Credit to the defendant from the Chinese ultimate buyer set a time limit for shipment up to the 5th April 1985, and expiry of the Letter of Credit itself was up to the 10th of the same month. Finally, the Letter of Credit opened by the defendant through the Chiyu Bank in favour of the plaintiff came. This credit was opened back-to-back to the China Letter of Credit. Shipment date was expressly stipulated to be latest, the 4th April 1985. Among the shipping documents to accompany any draft drawn under the Chiyu Bank Letter of Credit, a Bill of Lading indorsed in blank was required.

2. Goods under the contract between the plaintiff and the defendant for the 5,000 sets were partially shipped. The Court was told that 3,000 sets were shipped and paid for. Payment was not straight-forward but ultimately the defendant was paid and so was the plaintiff under the respective Letters of Credit. Of the 5,000 sets, therefore, 2,000 were outstanding. The 2,000 sets were not shipped on or before the 4th April. They were shipped on the 9th April 1985. From this late shipment, the plaintiff's claim in this case arose.

3. The plaintiff's case may be briefly stated thus : Miss Tse had throughout urged the plaintiff to effect shipment of these 2,000 sets. When the goods were expected to come to Hong Kong, the plaintiff, through Mr. Chiu, constantly approached Miss Tse. On the 6th April, when the goods finally arrived, according to Mr. Chiu, the defendant then had arranged for goods to be shipped to China, and extra shipping space was available. Miss Tse allegedly invited Mr. Chiu to ship the 2,000 sets on the same day, the 6th April. Due to the intervening holidays and inspection of goods as well as the transhipment procedure, the 2,000 sets could not be loaded by the plaintiff on the 6th April. The difficulty was allegedly conveyed by Mr. Chiu to Miss Tse, and thereupon, according to the plaintiff, Miss Tse urged Mr. Chiu to ship the 2,000 sets as soon as possible in a different ship to be found by the plaintiff company. Another ship was booked by the plaintiff company, and the 2,000 sets were shipped on the 9th. Allegedly pursuant to the agreement between Miss Tse and Mr. Chiu, Mr. Paul Wong of the plaintiff contacted Mr. Koo of the defendant and sought his consent for effecting a blank indorsement on a Bill of Lading for the 2,000 sets shipped by the plaintiff on the 9th April. Mr. Wong testified that thereupon he instructed one Sandy Chung to take the Bill of Lading over to the offices of the defendant for that purpose. According to him, Miss Chung left with the Bill of Lading and returned on the same day, the 10th April, with the indorsement. So, it is the plaintiff's case that late shipment was accepted by the defendant through Miss Tse and such acceptance was confirmed by the subsequent endorsement of Mr. Koo on the Bill of Lading obtained by Miss Sandy Chung on instructions.

4. The defendant denies all these allegations. The defendant denies that there was any agreement on the part of the defendant made through Miss Tse or anybody else to accept late shipment. The defendant denies that there was any endorsement on the said Bill of Lading on the 10th. The defendant's version is that the Bill of Lading was not indorsed until sometime after the 22nd April 1985 by Mr. Koo in the Chiyu Bank's offices the defendant's bank.

5. The defendant's case may be summarised as below: When the Chinese agreement dated the 15th March 1985 was signed in China, it was clearly understood by Mr. Chiu, then representing Hing Tex and subsequently as middleman for the plaintiff, that the defendant's Letter of Credit would not be further extended. Consequently, Mr. Chiu knew perfectly well that as the plaintiff's Letter of Credit from the defendant was a back-to-back credit on the force of the defendant's China Letter of Credit, it would likewise not be extended after expiry, both in shipment date as well as the LC expiry date. When shipping documents were presented to the defendant's banker, the Chiyu Bank, the defendant's banker was well aware of the discrepancies as to late shipment date, the expired LC date and late cable instructions sent only after shipment. On behalf of the defendant, usual cable negotiation was followed. In a sense, a cable together with documents was sent to China in the hope that the discrepancies could be accepted. If the Chinese ultimate buyer had accepted the discrepancies and paid the defendant, the plaintiff would likewise have been paid. As far as the defendant was concerned, the cable negotiation could bring it no harm and if the attempt happened to be successful, it would stand to gain the profit of the resale at US$1 per unit. The cable negotiation failed, and with a letter from the plaintiff's bank dated the 22nd April 1985, consenting to collection by a third party, the defendant's banker invited the defendant to indorse the Bill of Lading for that particular purpose i.e. presentation for collection by a third party through the Foshan branch of the Bank of China from the Chinese ultimate buyer. Mr. Koo of the defendant was invited by the defendant's banker to be present at the offices of Chiyu Bank after the 22nd April 1985, and he signed on the Bill of Lading for the 9th April shipment of the 2,000 sets humidifiers. According to Mr. Koo, when he was in the bank's offices, he sought and obtained advice to the effect that if the collection by the third party would be successful, then the defendant would get paid under the China LC, so would the plaintiff under the Chiyu Bank LC but that even with the endorsement on the Bill of Lading as requested, if the collection by third party failed, the defendant would not be held responsible. On this understanding and advice from the bank, Mr. Koo signed, indorsing the Bill of Lading blank on behalf of the defendant. Before this Court, we have these two conflicting versions.

6. On behalf of the plaintiff, it was suggested that circumstances were suspicious because of the bank's amendment of the shipment date and the name of the vessel for the purpose, of the Insurance Policy. The bank officer, Mr. Choi explained to the Court that such amendment would have had to be made whether or not there had been any special arrangement between the plaintiff and the defendant. Come what may, it was the duty of the bank, according to Mr. Choi, to have the Insurance Policy brought up-to-date. Mr. Choi explained that possibly the new shipping information came from the defendant, but it was also possible that such information could come from elsewhere. The other possible sources of such information are obvious, either from the plaintiff or the plaintiff's banker, The Hong Kong Industrial & Commercial Bank.

7. Mr. Choi, as well as Mr. Tse, of the Chiyu Bank explained as to why the absence of an endorsement in blank on the Bill of Lading upon its initial presentation was not cited as one of the discrepancies either to the Bank of China, Foshan branch or to the ultimate Chinese buyer. I accept these explanations from the defendant's bank officers. In no way could I impute to the defendant from such omission any adverse inference. It was further suggested by counsel for the plaintiff that the defendant's banker ought to have at least notified the plaintiff's banker as to this absence of endorsement on the Bill of Lading. I do not accept such criticism. The Bill of Lading, according to the defendant's banker, was presented to the Chiyu Bank by The Hong Kong Industrial & Commercial Bank. The plaintiff's banker must have been well aware in such presentation that the same was not indorsed in blank. In any way, the endorsement was to be effected by the defendant's banker's customer, i.e. the defendant. There was no necessity for the defendant's banker to have so notified The Hong Kong Industrial & Commercial Bank as suggested by counsel for the plaintiff.

8. There are three matters which would, in my view, defy any reasonable or logical explanation unless the defendant's version is true. (1) It was conceded by Mr. Chiu that between the 9th to the 11th April 1985, he requested Miss Tse, Mr. Tam, proprietor of the defendant, as well as Mr. Koo, an accountant working part-time for the defendant, to issue a Letter of Indemnity to the shipping company for the purpose of persuading the shipping company to backdate the shipment of the 2,000 sets humidifiers. Shipment was made on the 9th April. Backdating, if successfully negotiated, would have constituted false information. Such false information would have been used for obtaining payment under the China LC. Such request, properly or improperly made, was rejected by the defendant. If in fact there had been an agreement between Miss Tse and Mr. Chiu, one on behalf of the defendant and another on behalf of the plaintiff, for accepting late shipment, there would have been no necessity or incentive on the part of Mr. Chiu to seek this Letter of Indemnity. It was suggested by counsel for the plaintiff that Mr. Chiu was minded to ensure that every party in all these transactions would come out perfectly satisfied. I do not accept counsel's suggestion. The attempted manipulation to secure admittedly false information, not at the request of the defendant but on the own volition of Mr. Chiu could hardly have been motivated by any intention to have the defendant fully covered or his interest duly protected. The second matter was the letter of the 22nd April 1985 coming from the plaintiff's banker. According to the explanation of Mr. Tse of the Chiyu Bank, this letter was necessary for having the collection by a third party implemented. It was also necessary, in order to put through the third party collection, to have the Bill of Lading thereafter indorsed blank. If there had been an agreement between the plaintiff and the defendant through Mr. Chiu and Miss Tse, there would have been again no necessity or incentive for the plaintiff to have instructed or allowed his own banker, The Hong Kong Industrial & Commercial Bank, to send this letter of the 22nd April 1985 consenting to collection by a third party. If there had been an agreement between the plaintiff and the defendant, the plaintiff would have been perfectly entitled to seek and sue for payment by the defendant in the transaction between the parties to this action irrespective of the LC terms.

9. Lastly, bank records and reliable independent witnesses were caused to be produced by the defendant in support of the fact that the blank endorsement on the Bill of Lading was not made on the 10th April 1985 but after the 22nd April. Mr. Choi and Mr. Tse from Chiyu Bank, the defendant's banker, were both adamant that the Bill of Lading for the 2,000 sets was not indorsed before the plaintiff through their banker agreed to the collection by a third party in the latter part of April. That is the purport and effect given by those two Chiyu Bank officers to the letter of the 22nd April 1985 from The Hong Kong Industrial & Commercial Bank, the plaintiff's banker. According to them, the indorsement on the Bill of Lading was effected only after this letter. The plaintiff did not call their own banker to challenge the effect of this letter so given. The plaintiff's banker had earlier sent over to the defendant's banker shipping documents including this Bill of. Lading, but unindorsed. These two officers of the defendant's banker referred to internal notes from its Inward Bills Department and Outward Bills Department as records of this Bill of Lading not having then been indorsed by the defendant in blank. The plaintiff's banker was again not called to challenge the unindorsed state of the Bill of Lading said to have been so initially presented. Mr. Koo from the defendant also categorically maintained that he indorsed this Bill of Lading in the Chiyu Bank's offices for the subsequently proposed collection by a third party. Therefore, in addition to his cogent account, the Court received evidence from two independent witnesses, reinforced by internal records and the plaintiff's banker's letter dated the 22nd April 1985. All, without exception, supports the making of an indorsement on this Bill of Lading well after its presentation. It is undeniable that the Bill of Lading for the 2,000 sets was not indorsed on the 10th April 1985 as alleged by the plaintiff through Mr. Chiu and Mr. Paul Wong Why then did these men lie about the time of indorsement? Without an indorsement on the 10th April, the plaintiff could hardly have advanced any credible claim of an accepted late shipment. It would have been difficult for the plaintiff to explain why they shipped before securing an amended shipment date on the Chiyu Bank L/C, which could have been easily effected on the defendant's instructions to the bank. Such well-confirmed time of indorsement after the 22nd April has rendered as grossly improbable the plaintiff's allegation that the defendant through Miss Tse accepted late shipment effected on the 9th.

10. Mr. Chiu, according to Miss Tse, had many conversations with her on various days during that period in connection with this and other transactions. The contents of some of the conversations could have been vague but never as alleged by Mr. Chiu. There could have been loose statements made by Miss Tse, but I do not accept that there was any agreement made by Miss Tse on behalf of the defendant to accept late shipment. Miss Tse denied categorically that she ever agreed to accept late shipment. She denied strenuously that she had ever urged the defendant through Mr. Chiu to ship the 2,000 sets as soon as possible either on the 6th of April in the same boat or on another date in a boat to be looked for by the plaintiff. It is not quite necessary for me to decide what she precisely said. Suffice it for me to say, nothing in the conversation between Miss Tee and Mr. Chiu could be understood or taken as acceptance by the defendant of the late shipment effected by the plaintiff. However, on the balance of probabilities, I prefer Miss Tse's version.

11. Naturally, I also prefer and accept the evidence of Mr. Koo and the two Chiyu Bank officers.

12. There was, therefore, no agreement on behalf of the defendant made by Miss Tse to accept late shipment. There was no indorsement, as alleged by the plaintiff, by Mr. Koo on the 10th April. The Bill of Lading presented on behalf of the plaintiff by the plaintiff's banker, The Hong Kong Industrial & Commercial Bank Ltd., did not contain an endorsement in blank. I find that the endorsement in blank was made by Mr. Koo on behalf of the defendant subsequent to the letter of the plaintiff's banker dated the 22nd April 1985. Consequently, the plaintiff's claim must fail.

13. The defendant would have made a US$1 per unit. It is not necessary for me to refer to the documents. Counsel for the plaintiff suggested that Miss Tse was not quite serious on the defendant's counterclaim. I disagree. The defendant did not accept late shipment. The defendant has thus been deprived of the opportunity of making the US$1 per unit profit out of the 2,000 sets in the transaction between the defendant and the plaintiff, and to that extent, the defendant has suffered damages. I find in favour of the defendant on his counterclaim for US$2,000 for the balance of the 2,000 sets humidifiers shipped late beyond the LC shipment date. I would award interest on the $2,000 from the date of the Counterclaim to today at 4% per annum, subject to what counsel have to say.

(No submissions made)

Therefore, I order: