COCONUT TREE HOLDINGS LTD. v. VERENIGD SPAARBANK NV

HCA 9465/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9465 OF 1995

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J U D G M E N T

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1. The Plaintiff has at all material times been a company with limited liability carrying on business in Hong Kong as a manufacturer, marketer and exporter of garments. The Defendant has at all material times been a bank carrying on business in Amsterdam, the Netherlands.

2. In 1992, the Plaintiff contracted with a trading company in the Netherlands (the buyer) in terms of which the buyer agreed to purchase from a Plaintiff a quantity of knitted cotton garments for a total consideration of US$180,285.27 on "CFR" terms, with payment to be made against documents at sight.

3. Pursuant to the agreement and in December 1992, the Plaintiff, through its agent in Bangladesh, shipped two consignments of knitted garments on board two different vessels for delivery to the port of Rotterdam.

4. In January 1993, the Plaintiff through 2 collection orders numbered 300368 and 300369 instructed its bank, the Hong Kong and Shanghai Banking Corporation Limited ("the Remitting Bank") to arrange the collection of the purchase price for the goods from the buyer by the Defendant ("the Collecting Bank"). The Plaintiff expressly stipulated in the said collection orders that the documents were to be released only against payment.

5. The Plaintiff's case as pleaded is that the Remitting Bank duly passed on the collection orders together with the relevant documents to the Defendant on 12 January 1993, expressly stipulating that the Defendant was to "release documents against payment". The Defendant was thereby placed under a duty to ensure that it complied with the instructions, and particularly to ensure that the documents were released to the buyer only against payment.

6. In breach of its duty, the Defendant released the documents to the buyer without collecting payment. There is no dispute that the Plaintiff has never received payment for the said goods, and the Plaintiff alleges that as a result of the Defendant's wrongful actions the Plaintiff lost the security which it had under the "documents against payment" arrangement, and has thereby suffered loss and damage in the amount of the purchase price of the goods namely US$180,285.27, which it claims from the Defendant together with interest and costs.

7. The Defendant admitted that it received the shipping documents from the Remitting Bank, and also that it released such documents to the buyer without obtaining payment for the goods. It denies, however, that it ever received any collection orders or collection instructions from the Remitting Bank or from the Plaintiff. (A further defence which was pleaded, to the effect that the goods were transhipped at Singapore, and that further bills of lading were issued in Singapore in relation thereto, and that the goods were eventually released to the buyer, not by virtue of the bills of lading which were presented by the Defendant, but on the strength of the other bills of lading which had been issued in Singapore and presented by another party, has not been pursued and is not in issue in these proceedings).

8. The issue therefore is a narrow one, namely whether the Defendant did receive collection orders, or perhaps more generally, collection instructions from the Remitting Bank.

9. Apart from the Plaintiff's managing director, Mr Andies Wan, who confirmed that the Plaintiff had sold the goods to the buyer, arranged the shipment of the goods and issued to its bank the two collection orders in question, together with the accompanying shipping documents, the Plaintiff called a witness from the bank, Mr Eddie Tang. He testified that he is a Staff Officer of the Trade Services Department of the bank, which deals with bills and related international trade documents, and that he had been working in the same department without a break since 1978. He confirmed that the bank had received the 2 collection orders in question from the Plaintiff in January 1993, together with the relevant accompanying documents, namely in relation to each collection order two bills of exchange, two invoices, two packing lists, one certificate of origin and three original bills of lading. The collection orders, which are entitled as such, contain the Plaintiff's instructions to the Bank for collecting payment for the goods, including the vital instruction "Release Documents Against Payment", and the general instruction "Pls send these docs by DHL Verenigd Spaarbank NV ... (address provided)."

10. He described the system which prevailed in the department at the time to process such collection orders. It is important to note at the outset that the bank's system was not to send the collection orders or copies thereof to the collecting bank; rather, it prepared its own instructions to the Defendant, in a document entitled "D/P Bill Schedule". It prepared two such documents, both dated 12 January 1993, one each in relation to each of the collection orders received from the Plaintiff. The document is headed "D/P Bill Schedule" and contains, inter alia, the following information: "The Bill Amount, the identity of the Drawer (the Plaintiff), the identity of the Drawee (the name of the buyer in Holland), the Tenor of Bill (Sight), the name of the ship, the port of destination, and the nature of the Goods; after itemising the accompanying documents enclosed, the following appears:

"INSTRUCTIONS:

SUBJECT TO THE UNIFORM RULES FOR COLLECTIONS (1978 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 322.

RELEASE DOCUMENTS AGAINST PAYMENT.

IF UNPAID AFTER ARRIVAL OF CARRYING VESSEL STORE AND INSURE GOODS AGAINST ALL RISKS FOR A MINIMUM PERIOD OF 30 DAYS UNDER IMMEDIATE
CABLE ADVICE TO US.
CABLE ADVICE OF NON-PAYMENT AND STATING REASONS.
PROTEST FOR NON-PAYMENT.
DEDUCT CHARGES FROM THE PROCEEDS.
ALL DOCUMENTS IN ONE LOT.

PLEASE ADVISE PAYMENT BY CABLE
PLEASE REMIT PROCEEDS BY CABLE
IN USD TO MARINE MIDLAND BANK (ADDRESS AND PAYMENT DETAILS PROVIDED)
THIS BILL SHCEDULE DOES NOT REQUIRE AN AUTHORISED SIGNATURE OF THE BANK."

11. The document bears the name and address of the Exports Department, Hung Hom IMP/EXP Department of the Hong Kong Bank, and is addressed to the Defendant.

12. There were at the time 5 teams in the Import/Export Department at the Mongkok branch of the bank who processed these and similar transactions. One of these teams, which was called the Remote Bills Centre, operated in Hung Hom, and Mr Tang was the section head or supervisor of that team at the time in question, in charge of approximately 18 clerks.

13. One of the clerks prepared "the D/P Bill Schedule", the standard form of which was contained in a template stored in the computer, and in respect of which the clerk simply inputted the details relevant to the particular transaction, and the document was then typed out by the computer. Another clerk then stapled together the accompanying documents as described in the D/P Bill Schedule, and then stapled the D/P Bill Schedule itself to that sheaf of documents, constituting it one single set of documents. This set of documents was then sent to a Supervisor for checking: he checked the D/P Bill Schedule and the documents against the collection order which had been received from the Plaintiff, to ensure that all the relevant instructions had been included, and that all the relevant documents had been attached. If he was satisfied that everything was in order the Supervisor placed his initial at the end of the D/P Bill Schedule to confirm that it was in order. A mailing clerk then prepared a DHL waybill, inserting as the "Shippers Reference Number" the same Bill Reference No. as appeared at the top of the D/P Bill Schedule; also the addresses of the Remitting Bank and the Defendant. The mailing clerk then submitted the waybill together with the set of the documents to the supervisor, who checked to ensure that the information on the waybill was correct, and once satisfied he initialed the waybill. The mailing clerk then finally put the set of documents in a DHL envelope, the waybill was attached to the top of the envelope, and every afternoon DHL collected the envelopes for delivery.

14. Mr Tang testified that the system as described above has been used by the bank for at least the past 20 years, and still is. He had started as a Grade 3 clerk and been steadily promoted through the ranks; at the time in question he was either a section head or a supervisor, he could not recall which. He recognised the signature on the D/P Bill Schedules and the DHL waybill in question as being that of Mr Fergus Shum, who was a supervisor in the Import/Export Department at the relevant time. Mr Shum had been employed by the bank for at least 3 years by that stage, and he subsequently resigned of his own accord to take up a promotion with a another bank. To his knowledge Mr Shum had never made any mistake in his checking and handling of such documents, nor had there ever been any complaints that any mistake had been made in the processing of these documents. It was not possible to tell the identity of the clerk who had produced these D/P Bill Schedules in question, nor did he have any independent recollection of the handling of these particular documents.

Admissability of the D/P Bill Schedules

15. An important question has arisen as to the admissibility in these proceedings of these two office copies of the D/P Bill Schedules in question, which the Plaintiff sought to produce through Mr Tang. It seems clear that if these documents are not properly admissible in these proceedings, the Plaintiff will be unable to prove its case. Mr Bartlett for the Defendant has submitted that they are not admissible, and should be excluded from the evidence, since Mr Tang is, on his own admission, not the maker of the documents, and has no recollection and therefore no first-hand knowledge of the processing and production of them, as distinct from the general practice which prevailed at the time. No evidence has been led as to what efforts, if any, the Plaintiff has made to attempt to identify who the clerk was who produced the D/P Bill Schedules in question, nor to procure Mr Fergus Shum to give evidence as to his role in the processing of the documents.

16. I note that the Plaintiff issued a comprehensive hearsay notice prior to the commencement of the trial, referring inter alia to the accompanying shipping documents which were sent to the Defendant and all the correspondence which subsequently ensued between the parties, but did not include the two D/P Bill Schedules in question. Mr Lam's primary submission is that the two Bill Schedules do not constitute hearsay evidence, and that no hearsay notice is therefore required to render them admissible; however as a fall-back position the Plaintiff has very belatedly produced a hearsay notice dated 21 November 2000, and which, in the alternative (if I find against him on his primary submissions) he seeks leave to file out of time. He relies upon the statement of the law in Subramaniam v. Public Prosecutor [1956] 1 WLR 965 (Privy Council):

"Evidence of a statement made to a witness by a person who is not himself called as a witness may or may not be hearsay. It is hearsay and inadmissible when the object of the evidence is to establish the truth of what is contained in the statement. It is not hearsay and is admissible when it is proposed to establish by the evidence, not the truth of the statement but the fact it was made."

17. He submits that the 2 D/P Bill Schedules in question are not hearsay evidence, since the issue in respect of which the Plaintiff seeks to produce them, does not concern the truthfulness or accuracy of any of the contents of such Bill Schedules, but only the question whether they were in fact made and sent to the Defendant.

18. It is correct that no issue has been taken by the Defendant as to the contents of the D/P Bill Schedules. It has not been suggested, nor was it explored in cross-examination of the witnesses, that even if the bank did issue such D/P Bill Schedules, the contents thereof might not have been the same as in the office copies thereof which the Plaintiff seeks to produce. The issue is whether the Defendant received collection instructions from the Remitting Bank, in addition to the accompanying documents which it admits that it did receive. The existence (if they are admissable in evidence) of the office copies of the Bill Schedules in question, duly addressed to the Defendant, is powerful evidence in support of the Plaintiff's case that such instructions were sent to the Defendant. Mr Tang's evidence as to the apparently very well-established system which prevailed in the Remitting Bank at the time, reinforces the Plaintiff's case that the Bill Schedules in question were indeed produced by the bank and sent to the Defendant in the normal way.

19. It is not correct to say that the Plaintiff does not rely upon the contents of the D/P Bill Schedules in question: clearly it does rely upon the fact that the Bill Schedules were duly addressed to the Defendant; and that they contained the all-important instruction to "RELEASE DOCUMENTS AGAINST PAYMENT"; and the instruction that the transaction was subject to the ICC Uniform Rules for Collections. However, applying the dictum of the Privy Council aforesaid, the purpose of calling Mr Tang and seeking to produce the D/P Bill Schedules in question was not to establish the truth of their contents, (which was not in issue), but rather to establish that they were duly made and sent.

20. Different considerations apply to the initials in the Bill Schedules and the waybill: to the extent that the Plaintiff does place some reliance upon their presence, and the significance thereof, they are hearsay since the purpose of the evidence is to establish, not simply that the signatures in question were appended, but also why they were appended, namely to signify that Mr Shum had checked that all the documents had been duly stapled to the D/P Bill Schedules.

21. Insofar as the Plaintiff's belated Hearsay Notice in relation to these two office copies of the D/P Bill Schedules is concerned, Mr Bartlett contends that it is defective from the outset because it fails to specify the particulars necessary to bring it under section 49 of the Evidence Ordinance, in terms of which it purports to be issued. Section 49 of the Ordinance states as follows:

"49. Admissibility of certain records as evidence of facts stated

(1) Without prejudice to section 50, in any civil proceedings a statement contained in a document shall, subject to this section and to rules, be admissible as evidence of any fact stated therein of which direct oral evidence would be admissible, if the document is, or forms part of, a record compiled by a person acting under a duty from information which -

(a) was supplied by a person (whether acting under a duty or not) who had, or may reasonably be supposed to have had, personal knowledge of the matters dealt with in that information; and

(b) if not supplied by that person to the compiler of the record directly, was supplied by him to the compiler of the record indirectly through one or more intermediaries each acting under a duty.

22. It is not, in my view, necessary for the notice to address itself to satisfying the criteria set out in the section: it is sufficient if the documents which are sought to be put in do in fact comply with those criteria. I am satisfied that the D/P Bill Schedules in question do so comply, since they are records compiled by a person acting under a duty (the Bills Clerk) from information (the collection orders) which were issued by the Plaintiff, the Plaintiff obviously being a person who had personal knowledge of the matters dealt with in those collection orders.

23. The governing provisions in the Rules of the Supreme Court are contained in Order 38. There is no dispute that the hearsay Notice fails to comply with the time period specified in rule 21. Mr Bartlett submits that the Notice is further defective in failing to comply with the provisions of Order 38 rule 23, since it failed to set out the particulars required by subsections (a), (b) and (c) of rule 23(1). While it is true that these matters have not been set out in the Notice, they have all been elucidated by the evidence of Mr Tang. In these circumstances the failure to set out the particulars in the Notice does not prejudice the Defendant in any way, and is not in my view fatal to the validity of the Notice.

24. Mr Bartlett has also attacked the reasons cited in the notice as to why the makers of the documents should not be called as witnesses, as being "demonstrably false". The reasons cited are that:

"(1) despite the exercise of reasonable diligence it has not been possible to identify them; and/or

(2) they cannot reasonably be expected to have any recollection of matters relevant to the accuracy or otherwise of the said statement."

25. In my view, the reasons cited are unexceptionable: Mr Tang testified that he was unable to either recall, or to tell from the documents themselves, the identity of the clerk who had caused the documents to be produced - a conclusion which accords with common sense, bearing in mind that there is nothing in any way out of the ordinary about these two particular D/P Bill Schedules, which were produced in the course of the routine performance of the clerks' duties (Mr Fergus Shum's initials have been identified on the documents, but only as having checked them: he was not the maker of the documents).

26. For the same reasons, the statement that "they cannot reasonably be expected to have any recollection of matters relevant to the accuracy or otherwise of the said statement", is clearly correct. This in itself is sufficient reason not to call the makers of the documents, even if they had been identified.

27. Rule 29 confers a discretion on the Court to allow a statement falling within, inter alia, section 49 of the Evidence Ordinance to be given in evidence at the trial notwithstanding that the Plaintiff has failed to comply with the requirements of rule 21(1), "if it thinks it just to do so".

28. Mr Bartlett submits that the circumstances in which the Notice has been so belatedly issued, at the conclusion of the evidence, has deprived the Defendant of the opportunity to serve a Counter Notice and of utilising the procedures afforded by the rules to enable it to test the validity of the reasons given as to why the makers of the statement should not be called as witnesses. However, since it is abundantly clear, to my mind, that on the facts of this case the makers of the statements could not reasonably be expected to have any recollection of matters relevant to the accuracy or otherwise of the said statements, I fail to see how utilising such procedures could have been to the Defendant's advantage. The same considerations would apply to Mr Fergus Shum, even had he been located, and available to give evidence.

29. Even if this Notice had been issued at the commencement of these proceedings in October 1995, over two and a half years after the documents were processed by the bank, it would have been equally true that the witnesses, including Mr Fergus Shum, could not reasonably be expected to have had any recollection of matters relevant to the accuracy or otherwise of the statements, bearing in mind the routine nature of the documents themselves and the processing procedures.

30. It is also important to note that this is not a situation where the Defendant has been taken by surprise by the sudden emergence of new documents: although the D/P Bill Schedules were not disclosed by the Plaintiff in its list of documents, nor were they specifically pleaded, they were disclosed by the Defendant in its list of documents (copies of them had been subsequently provided to the Defendant in correspondence between the Defendant and the Remitting Bank). There is therefore no element of the Defendant having been taken by surprise as to the existence of these documents.

31. As the Court stated in Cheung Shing Yuk Tong Co. Ltd v. Hip Hing Construction Co. Ltd [1996] 4 HKC 267 at 272F:

"The alleged prejudice suffered by the (Defendant) in the present case is nothing more than prejudice that will usually be suffered by any litigant in a trial when a witness for the other party, whose statement is admitted in evidence, is not called to give oral testimony. The prejudice is that the (Defendant) is deprived of the opportunity to obtain evidence or admissions from the witness or to cross-examine him. The prejudice is not caused by or related to the lateness of the hearsay notice; rather it is caused by the fact that the witness does not go into the witness box."

32. I notice also the observation of the Court of Appeal in Chan Hoi Yan v. Arctic Trading Co. Ltd [1988] HKC 242 at 250D:

"The action arises from a commercial dispute. In such cases the practice of the court is not to attach undue weight to the technicalities of the rules of evidence but to incline to admit documents if they are relevant and are not alleged to be false, in order to get to the heart of the matter in dispute."

33. In all the circumstances, I can see no prejudice to the Defendant in admitting these office copies of the D/P Bill Schedules into evidence, and it will in my view be just to do so: I order accordingly.

34. Returning to the merits of the case, on all the evidence I am satisfied that the Plaintiff has proved on the balance of probabilities that the Remitting Bank did send the two D/P Bill Schedules in question together with all the accompanying documents to the Defendant; and, particularly bearing in mind the Defendant's admission that it received the accompanying documents, I am satisfied that it also received the two D/P Bill Schedules.

35. As already noted the Instructions in the D/P Bill Schedules commence with the provision that the transaction is: "Subject to the Uniform Rules for Collections (1978 revision), International Chamber of Commerce Publication No. 322".

36. I note that the rules provide, inter alia, as follows:

"General Provisions and Definitions

A These provisions and definitions and the following articles apply to all collections as defined in (B) below and are binding upon all parties thereto unless otherwise expressly agreed or unless contrary to the provisions of a national, state or local law and/or regulation which cannot be departed from.

B ... ...

1. "Collection" means the handling by banks, on instructions received, of (financial or commercial) documents ... in order to obtain acceptance and/or, as the case may be, payment ... ..."

37. The "parties thereto" are:

"(i) the "principal" who is the customer entrusting the operation of collection to his bank;

(ii) the "remitting bank" which is the bank to which the principal has entrusted the operation of collection;

(iii) the "collecting bank" which is any bank, other than the remitting bank, involved in processing the collection order;

(iv) the "presenting bank" which is the collecting bank making presentation to the drawee. ...

All documents sent for collection must be accompanied by a collection order giving complete and precise instructions. Banks are only permitted to act upon the instructions given in such collection order, and in accordance with these Rules.

If any bank cannot, for any reason, comply with the instructions given in the collection order received by it, it must immediately advise the party from whom it received the collection order."

38. Mr Bartlett submits that no basis has been laid for finding that the Defendant was bound by these Rules in relation to this transaction, either in contract (since there is no evidence that it had agreed to be bound by such rules) nor by way of trade usage, of which there was no evidence.

39. It appears from the tenor of the Rules, and in particular the provision that they apply to all collections and are binding upon all parties thereto unless otherwise expressly agreed or unless contrary to any local laws or regulations, that they have been devised precisely in order to govern the relationship of the parties to international collections, and to regulate their rights and duties arising thereunder.

40. I note also that nowhere in the correspondence which ensued between it and the Remitting Bank when the latter attempted to enforce payment, nor in the separate correspondence between the Defendant and the Remitting Bank's solicitors, has the Defendant suggested that the Rules did not apply or that it was not bound by them. Nor was this ever pleaded on the Defendant's behalf. I am satisfied that the parties intended and accepted that the International Rules applied to their dealings in relation to this transaction.

41. Mr Bartlett has also submitted that the Remitting Bank was in any event in breach of these Rules, in that it failed to comply with the provision therein that:

"all documents sent for the collection must be accompanied by a collection order giving complete and precise instructions ..."

42. It will be recalled that the Plaintiff's case was pleaded on the basis that the two collection orders which the Plaintiff sent to its bank were subsequently sent by courier to the Defendant together with the shipping documents on 12 January 1993. However it transpired from the evidence that it was not the remitting bank's system, and never has been, to send the Plaintiff's collection orders, or any document of its own entitled "collection order", to the collecting bank. Its system was rather to create its own instruction document which it entitled "D/P Bill Schedule", into which it incorporated all the relevant instructions and details from the Plaintiff's collection orders.

43. There is in my view no merit in the submission that this practice was in breach of the International Rules. There is no magic in the words or title "collection order". While it was open to the bank to copy the Plaintiff's collection orders to the Defendant if it chose to do so, it was perfectly rational for the bank instead, (bearing in mind that the Plaintiff's collection order was addressed to the remitting bank), to draw up its own instruction document specifically addressed and directed to the Defendant. The heading which the bank chose for the documents, namely "D/P Bill Schedule", was unexceptionable, and indeed arguably had the advantage of containing within it the most important of all the instructions, namely "D/P", that is documents against payment. The D/P Bill Schedules themselves are admirably informative and clear in setting out the relevant details and instructions to the collecting bank, including the important instruction: "Release Documents Against Payment". In sum these D/P Bill Schedules in my view fully complied with the International Rules, since each is "a collection order giving complete and precise instructions".

44. A further point was taken that the D/P Bill Schedules failed to specify the address of the drawee, in contravention of Article 8 of the international rules which reads:

"Collection orders should bear the complete address of the drawee or of the domicile at which presentation is to be made. If the address is incomplete or incorrect, the collecting bank may, without obligation and responsibility on its part, endeavour to ascertain the proper address."

45. While it may be preferable for the Bill Schedule itself to specify the drawee's address, it was in my view sufficient to comply with the Rules that the drawee's address was clearly stated in the invoices which were amongst the documents enclosed to the Defendant. In any event, this did not occasion the Defendant any difficulty in the present case, since it is not being suggested that it had any difficulty in locating and contacting the drawee.

46. Upon receipt of the D/P Bill Schedules and collection documents, whether in terms of the International Rules or at Common Law, the Defendant came under a clear duty to act in good faith and to exercise reasonable care to ensure that the documents of title to the goods, entrusted it to it by the Remitting Bank, were not released to the buyer/drawee except upon payment for the goods.

47. The Defendant's actions in releasing the bills of lading, which were documents of title to the goods, to the buyer/drawee without collecting payment were clearly in breach of its duty to the Remitting Bank and its principal, the Plaintiff, and renders it liable for any damages sustained by the Plaintiff in consequence. There is no dispute that the Plaintiff has not received any payment for the goods, either from the buyer or the Defendant: the consequence of the Defendant's breach is that the Plaintiff has been prejudiced in the total amount of the purchase price of the goods, namely US$76,914.37 and US$103,370.90.

48. I grant judgment for the Plaintiff in the sums of US$76,914.37, and US$103.370.90, plus interest at the rate of 10% per annum from the date upon which the writ was issued to the date of judgment.

49. I make an order nisi that the Defendant is to pay the Plaintiff's costs of these proceedings.