BEL NICKEL RESOURCES LTD v. EASTBOURNE TRADING PTE LTD AND OTHERS

HCA 2042/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2042 OF 2009

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J U D G M E N T
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1.  This is a claim for US$1,581,220.06 plus interest, being the freight and insurance charges incurred when in September 2008 a cargo of nickel ore was shipped from Indonesia to China.  The 51,893 wet metric tons on board was defective.  This is not in dispute.  It did not meet the required minimum percentage of nickel content.

2.  The 1^st defendant was the broker who supplied the defective goods.  The 2^nd defendant (Mr Choo senior) and 3^rd defendant (Mr Choo Tek) are father and son and directors of the 1^st defendant.

PLAINTIFF’S CASE

3.  The plaintiff was the buyer of the nickel ore.  The contract was for 100,000 tons.  The defective goods were the first, and as things turned out the only, consignment.

4.  Their case is straightforward.  They say that on 30 August 2008 the 1^st defendant entered into a contract with Good Year Corporation (“Good Year”).  The sole purpose of this contract was to facilitate the banking requirement involved in arranging the necessary letter of credit to ship the nickel ore being purchased by the plaintiff.  The plaintiff had only recently been incorporated and could not easily arrange letters of credit in its own name.  A director of the plaintiff, Mr Stephen Sy, was married to Ms Anita Hung who was a senior manager with Good Year.  It was a convenient and simple arrangement for banking purposes only, namely that Good Year would apply for the letter of credit as agent for the plaintiff who was the true buyer of the nickel ore from the 1^st defendant.

5.  On 30 August 2008 the 2^nd defendant was only in Hong Kong for about two hours before catching a flight to Singapore (his place of business). He signed the Good Year agreement.  However, the written agreement between the plaintiff, the true buyer, and the 1^st defendant had not been prepared in time.  It was agreed that once the letter of credit had been arranged, the second agreement (“the Bel Nickel agreement”) would supersede the Good Year agreement.  The 2^nd defendant said he would sign it at a convenient time when he was next in Hong Kong.

6.  In fact it was not until 9 December 2008 that the Bel Nickel agreement was signed.  It was signed by the 3^rd defendant who is also a director of the 1^st defendant.  It was back‑dated to 30 August 2008.  The plaintiff’s witness at trial, Pat Sze Shan Shan, a director of Bel Nickel, said she had made a number of phone calls to the Choos to arrange a time for them to sign.  It took until December.

7.  The plaintiff’s case is that it was clearly known that the Good Year agreement was for letter of credit purposes only, it was also clearly known that the real contract for purchase was the Bel Nickel agreement which would supersede the Good Year agreement and it was clearly known that Mr Sy’s wife was a senior manager with Good Year.

8.  The second limb of the plaintiff’s case is that both the 2^nd and 3^rd defendants on different occasions, gave personal guarantees that they would accept liability for any costs incurred by the plaintiff.

9.  It is not challenged that Bel Nickel in fact paid the freight and insurance charges arising from the defective cargo supplied by the 1^st defendant. Neither is it challenged that, in 2009, the sub‑standard cargo was disposed of for about RMB6.2 million which was used to offset the accrued port charges incurred by the plaintiff’s end buyer in China of approximately RMB6.45 million.

10.  The plaintiff’s case is well supported by contemporaneous documentation.

11.  In short, Mr Adrian Leung, counsel for the plaintiff, submits that their claim will be established if the court is satisfied that Good Year entered the Good Year agreement as agent for Bel Nickel for the purpose of the letter of credit application and that this was known to the defendants and who were thereby bound by the terms and conditions of the Bel Nickel agreement.  The fact that it was only signed in December is due only to the fact that the 2^nd and 3^rd defendants did not respond to Pat Sze’s many requests to do so until then.  It nonetheless bound the parties at all material times.

DEFENDANTS’ CASE

12.  The defence is also straightforward.  Whilst accepting that the goods were defective and that Bel Nickel has, in fact, paid the freight and insurance charges the defendants say that their contract to sell the nickel ore was with Good Year pursuant to the Good Year agreement dated 30 August 2008.  They say that the Bel Nickel contract, signed by the 3^rd defendant, did not supersede the Good Year contract and has no binding legal consequences. When it was signed the 3^rd defendant was told it was “merely for record purposes”.  He thought throughout that Pat Sze was a director of Good Year.  He did not know anything about Bel Nickel.  The Good Year contract was the true contract for the sale of the nickel ore.

13.  The 2^nd and 3^rd defendants agreed that Good Year has never taken any steps to recover the freight and insurance charges from them.  However, they were concerned that if they paid Bel Nickel they might be sued by Good Year as well.  In short, as Bel Nickel was not a party to the Good Year agreement the 1^st defendant owed them nothing.

14.  As for the plaintiff’s pleaded case Mr Liu Man Kin, counsel for the defendants, submits that it cannot succeed.  In short, he makes four primary submissions.  Firstly, he argues that when the Bel Nickel contract was actually signed in December 2008 the breach had already occurred (in September/October when the cargo was certified as defective) and thus it is not permissible to claim on a contract signed after a breach has occurred.  Secondly, the Bel Nickel agreement cannot govern the parties’ obligations because it is the plaintiff’s pleaded case that the Bel Nickel agreement would supersede the Good Year agreement. The alleged superseding must, it is submitted, commence on the day it was signed and not before.  Thirdly, on the defendants’ case there was a purported novation of the rights and obligations under the Good Year agreement to the plaintiff (who was not a party to it) but there is no evidence of Good Year consenting to such a novation therefore it must fail.  Fourthly, even on the plaintiff’s case that Good Year entered into the Good Year agreement as Bel Nickel’s agent (for the purpose of facilitating the letter of credit) the superseding Bel Nickel agreement lacks consideration.

15.  Further, both father and son deny making any personal oral guarantee to accept liability.

WITNESSES

16.  Ms Pat Sze and Ms Anita Hung gave evidence for the plaintiff.  The 2^nd and 3^rd defendants gave evidence for the defendants plus Mr Wang Jian, the managing director of a company called Sinosteel.

DECISION

17.  For the reasons which follow I am satisfied that the plaintiff has proved the veracity and validity of their claim against the 1^st defendant and demonstrated the defence to be a forlorn attempt to evade a legitimate liability.

18.  In so far as the second limb of the plaintiff’s case is concerned, I have concluded that the evidence in support of personal guarantees being given by the 2^nd and 3^rd defendants has fallen short of the required standard of proof on the balance of probabilities (see page 14 of this judgment).

REASONS

19.  The reasons fall under three broad headings:

(i) contemporaneous documentation;

(ii) the witnesses’ oral testimony on factual issues and their credibility; and

(iii) legal considerations.

20.  When evaluating the evidence in order to determine factual issues it is important to consider its cumulative effect.  In isolation a piece of evidence may, arguably, be ambiguous or of little apparent significance.  However, in context, it may become less ambiguous and more significant.

(i) Contemporaneous documentation

21.  In this case I consider it appropriate to deal with the contemporaneous documents at the outset.  I shall not refer to every document that was adduced in evidence.  Suffice it to say that looked at in the round the documents reveal a telling framework from which, taken with the oral testimony, important proven facts emerge.

22.  Before the ship sailed Ms Anita Hung of Good Year sent several emails to the defendants.  Everyone is headed “application for L.C.”. After the goods were certified as defective she sent several more headed “cancellation of L.C.”.  None of them make any reference to the purchase of nickel ore.  These are all consistent with Anita Hung of Good Year being solely involved with the application for a letter of credit as the plaintiff’s agent.

23.  All the documentation in connection with freight charges and insurance were billed to and paid for by the plaintiff.  The goods were shipped by the plaintiff.  Good Year’s involvement in these matters was nil.  Moreover in the bill of lading dated 21 September 2008 and the certificate of quality dated 29 September 2008 the plaintiff is recorded as being the “Notify Party”. The 2^nd and 3^rd defendants said that these documents did not concern them and had no knowledge of them.  Whilst this may be so they nonetheless form part of the overall picture consistent with the plaintiff’s case.

24.  Prior to the signing of the Good Year agreement on 30 August 2008 the 2^nd defendant emailed (on 21 August 2008) Pat Sze, the plaintiff’s witness, urging a speedy signing of the contract for the sale and purchase of the nickel ore. A week later he wrote again concerning the signing of the contract.  The email is headed “Eastbourne‑Bel Global SC doc.”.  Bel Global is the plaintiff’s parent company.

25.  On 10 September 2008 the 3^rd defendant signed a letter from the 1^st defendant addressed to “Bel Nickel: Attention Pat Sze” concerning letter of credit details.

26.  On 13 October 2008 a letter was sent “from Bel Nickel” for the attention of the 3^rd defendant which referred to “our director Miss Pat Sze” and sought payment “in favour of Bel Nickel” for freight charges and asked that written authorization be sent to Bel Nickel to dispose of the defective cargo.  Six weeks later the 3^rd defendant wrote to the plaintiff on the same subject and included the following:

“Fyi, we have explained to Stephen & Pat Sze last week during their visit to Jakarta. Mine owner has in principle accepted the fate of government auction of this cargo.

Therefore, he feels there is no need to issue another letter after his last letter to give full authorization to Bel Nickel company to dispose of this cargo, as Bel Nickel already has full rights to appoint Huai Gang for the job.

…”

27.  In my judgment there is a compelling inference that the 3^rd defendant fully appreciated that Bel Nickel was the buyer and was the party concerned that the goods were defective and that “Stephen and Pat” were Bel Nickel people.

(ii) Oral evidence

28.  In broad terms I found Pat Sze to be a clear and impressive witness whose evidence in almost all respects could be safely relied on.  In particular, that the plaintiff was the true buyer which the defendants well knew and that Good Year’s involvement was limited as stated by her.

29.  Having heard the whole of the evidence I was able to make the following findings of fact.

30.  The 2^nd and 3^rd defendants knew at the time of signing the Good Year agreement that its purpose was solely related to the application for the letter of credit.  It contained all the terms and conditions agreed between Eastbourne and Bel Nickel which were repeated in the Bel Nickel agreement (save for price which I shall refer to below).

31.  Good Year signed the Good Year agreement as agent for Bel Nickel.  The 2^nd defendant knew, on 30 August 2008, that he was required to sign the true contract for sale and purchase of nickel ore between the parties but it had to be delayed because it was not ready.  The delay of three months was due to his failure in responding to Pat Sze’s requests for him to sign it.  The Choos knew that when it was eventually signed it would bear the date of 30 August 2008 as a true reflection of the date of their agreement.

32.  From the outset the 2^nd defendant knew the Bel Nickel was the true buyer and not Good Year.  At an early meeting both Pat Sze and Stephen Sy had given him Bel Global (the parent company) name cards.  Both agreements were signed in the Bel Global offices in Hong Kong.  No business was ever carried out in Good Year offices.

33.  The 2^nd defendant knew why Bel Nickel sought assistance from Good Year for the letter of credit. It was he, the 2^nd defendant, who was pressing for a speedy signing as he had expressed concern about the price of the nickel ore.  The choice of Good Year as the helper was because Stephen Sy was married to Anita Hung and such assistance had been utilized about three times before whilst Bel Nickel was in its infancy as a company.  I accepted the evidence of both Pat Sze and Anita Hung that these matters were explained to the 2^nd defendant.

34.  The only significant difference between the two contracts related to the price.  It was US$37 in the Good Year agreement but US$38.10 in the Bel Nickel agreement. The higher price was the price in the letter of credit.  The plaintiff’s explanation for the difference was logical and straightforward.  The price had gone up. The Choos’ explanation was curious and, I considered, disingenuous.  The 2^nd defendant said that the difference was calculated so that he could receive compensation that was due to him from Good Year in relation to an earlier transaction.  Thus the defence was able to submit that the price of US$38.1 related to dealings with Good Year.  However, further details of this “compensation” were not forthcoming.  It was not explained why more conventional methods of recouping outstanding compensation in relation to a wholly different matter had not been previously engaged.  It was not explained why there had been no subsequent efforts to recoup this unspecified sum after the cargo in question had turned out to be defective.  Moreover, Anita Hung of Good Year denied any knowledge that compensation was due or that it explained the price difference.

35.  Anita Hung corroborated further important issues in relation to the Good Year agreement.  She also was a good witness who gave credible reliable evidence.  She confirmed that Good Year had helped out with Bel Nickel letters of credit before, she confirmed that the reason was explained to the 2^nd defendant, she said it was a “mutual understanding”.  She also said that because of the relationship between her and her husband there were no concerns about Bel Nickel re‑imbursing Good Year on the letter of credit had the transaction gone smoothly.  She described the assistance given to Bel Bickel by Good Year as “unconditional”.

36.  The 2^nd defendant did not offer an explanation as to why the shipping company had invoiced Bel Nickel rather than Good Year.  On the totality of the evidence I was not able to accept his contention that he believed, on 30 August 2008, that he was dealing exclusively with Good Year, that Good Year was the buyer of the nickel ore, that Pat Sze was an employee of Good Year and that he knew nothing of Bel Nickel (even though he was sitting in Bel Global’s office).  When cross‑examined about the various documents which were consistent with Bel Nickel’s case his answers were frequently such as “those matters did not concern us” or “you had better ask my son about that”.

37.  The 2^nd defendant was not present when the back‑dated Bel Nickel agreement was signed by his son in December.  His evidence about this was unimpressive.  He said his son had telephoned him for his approval prior to signing it.  Even though he knew the goods had been rejected and therefore, on his account, he was at risk of being sued by Good Year, he nonetheless authorized his son to sign on the basis that he had been told that it was for “record purposes” and “filing only” and had no legal consequences.  He agreed that, in his business life, a similar scenario had never arisen before.  He had no satisfactory explanation as to what he actually understood by for “record purposes only”.  The ring of truth was plainly absent from his evidence on this matter and I did not place weight on his version of events.

38.  The 3^rd defendant’s evidence was similarly unimpressive, at times evasive, and ultimately unreliable.  When confronted with simple questions about key documents he often embarked on long answers of a general nature not directed to the question.  He tried to evade questions by referring to general background matters, general information about the mining and shipping industries, the importance of trust in business dealings and his suggestion that there should have been more effort to negotiate and settle the dispute (the blame for which, in passing, I regarded to be the defendants’ rather than the plaintiff’s).

39.  His purported concern about the “double jeopardy” of being liable to pay compensation to both Bel Nickel and Good Year if the former had legal consequences was disingenuous.  The reality was plainly that Good Year had played no part at all in the legal proceedings from the outset.  He, also, did not satisfactorily explain what he understood by the Bel Nickel agreement being signed “for record purposes only” actually meant.

40.  The following are merely examples of the 3^rd defendant’s unsatisfactory responses to questions about telling documents; I do not regard it as necessary to deal with every one.  When confronted with a clear email from Pat Sze described as Bel Nickel’s “director” seeking compensation to and authorization from “Bel Nickel” to dispose of the goods, he said he “did not pay attention”.  When asked about a “minute of meeting” drafted by his younger brother in April 2009 when various parties met to discuss outstanding matters he accepted that any reference to Good Year being a party to the purchase was absent.

(iii) Legal considerations

41.  The legal ingredients of a valid and successful claim by the plaintiff are well established and are as follows:

(1) Good Year signed the Good Year agreement as agent for its principal, Bel Nickel.

(2) Good Year’s consent to the Bel Nickel agreement replacing the Good Year agreement with an identical (save for price) back‑dated version in December 2008 was not necessary.  The arrangement between Bel Nickel and the 1^st defendant to enter into contractual relations to purchase the nickel ore existed from late August onwards.  As described by the plaintiff’s witnesses it was a “mutual understanding”.  In these circumstances there is no substance to Mr Liu’s submission that at the time the Bel Nickel agreement was signed the goods had already been rejected and therefore “the breach was in the past”.  Neither, by the same token, is there merit in the submission that the Bel Nickel lacked consideration.

(3) If consent was necessary it could be readily inferred from the conduct of the parties.  There was no misunderstanding by Anita Hung as to Good Year’s consensual role in the entire matter, which was also well known to the 2^nd and 3^rd defendants.  Chan PJ in Guandong Native Produce Co Ltd v Tam Tze Ying (2008) 11 HKCFAR 455 stated:

“14. The Court of Appeal agreed with the trial judge’s conclusion and his reasoning on this issue. The court accepted that novation occurs by operation of law: this need not have been expressly stated and can arise by way of inference from the conduct of the parties where it can be said that there was a substitute contract to replace the old contract. …”

(4) There was no serious or meaningful dispute (i) that the goods were defective and so certified; (ii) that Bel Nickel’s end buyer, Jang Su Huaigan (“JSH”) rejected the goods; (iii) that JSH played its part in disposing of the goods on their arrival in China with the defendants’ knowledge, consent and approval.

(5) The proceeds of sale to JSH were marginally less than the charges and taxes incurred by JSH but they waived the small shortfall.

(6) Bel Nickel received nothing from the transaction.  They only incurred expenses.  There had been an unsuccessful attempt by Bel Nickel to on‑sell the cargo to a company called “Sinosteel” but this did not prove successful.

(7) Bel Nickel’s total unrecovered expenses were US$1,562,284.49 (detailed below).

ORAL GUARANTEES

42.  Earlier in this judgment I indicated that the plaintiff’s case alleging oral personal guarantees by the 2^nd and 3^rd defendants would not succeed on the basis that the required standard of proof had not been reached.

43.  Pat Sze was the only witness for the plaintiff on this issue.  My reluctance to rely on her evidence on this particular issue has had no adverse effect on my acceptance of her testimony on other matters.

44.  Whilst I accept that both the 2^nd and 3^rd defendants probably made comments consistent with a wish and a desire and an intent that the purchasers be properly re‑imbursed I do not think that such comments amounted to personal oral guarantees.  They may have been misinterpreted by Pat Sze as such but her evidence as to specific times and dates and venues as to what was said and by whom was somewhat confused and insufficient to found a case against the Choo family personally.

QUANTUM

45.  There are four items to which the plaintiff is entitled:

(a)	Ocean freight	US$1,556,760.00
(b)	Freight insurance	1,943.61
(c)	Charter’s liability and marine defence insurance	3,520.00
(d)	Bank charges	60.88
		-----------------------
		US$1,562,284.49
		=============

46.  There will be judgment for the plaintiff against the 1^st defendant in the sum of US$1,562,284.49, plus interest up to 31 January 2009 in the sum of US$18,935.57, plus interest thereafter at a rate to be agreed between the parties from the date of the writ to the date of judgment and thereafter at the judgment rate until payment.  The 1^st defendant’s counterclaim is dismissed with costs to the plaintiff.  There shall be a costs order that the 1^st defendant pay the plaintiff’s costs of its claim against the 1^st defendant and the plaintiff pay the 2^nd and 3^rd defendants’ costs arising out of the claim concerning the issue of oral guarantees, all to be taxed if not agreed.  All costs orders shall be on a nisi basis.

47.  For the assistance of taxation, if necessary, on the issue concerning the plaintiff’s claim of personal guarantees against the 2^nd and 3^rd defendants a reasonable apportionment of costs would, in my judgment, not exceed 10% of the overall costs.