SINOM (HONG KONG) LTD v. SWATI INTERNATIONAL

cacv 365/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 365 of 2005

(on appeal from HCA NO. 2493 of 2004)

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J U D G M E N T

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Hon Rogers VP:

1.  This is an appeal from a judgment of Deputy High Court Judge Fung, given on 29 October 2005.  The matter before the judge was an application to discharge a Mareva injunction that had been granted on 1 November 2004 and had been continued four days later.  After what was a somewhat lengthy delay the matter came to be heard.  The judge discharged the injunction but granted a stay of the discharge until the hearing of this appeal.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.  The stay of discharge was continued by this court until after this judgment was handed down.

Background

2.  The plaintiff is a Hong Kong company and the defendant is a partnership located in Kolkata, India engaged in the business of mining, trading and exporting iron ore.  The plaintiff and the defendant entered into two contracts on 9 October 2004; the first in respect of iron ore lumps and the other in respect of iron ore fines.  The contracts were in similar form.  Importantly for the purposes of this case clause 7 of each contract provided:

“The Buyer shall establish an Irrevocable & non-transferable Letter of Credit at sight within 5 working days after signing of this contract in favour of the Seller, for an amount in US Dollar sufficient to cover 100% value of the shipment …”

3.  On 19 October 2004 the parties agreed an addendum to each contract which has been entitled Addendum-1.  That provided amongst other things:

“It is hereby agreed by and between the both parties of Buyer and Seller to the above contract which shall be revised as follows:

To delete the paragraphs “The Buyer shall establish…….. prior to the issuance of the amendment”

A) Provisional Payment

Buyer shall, after receipt the full set of valid cargo documents as stipulated in clause 8, pay by T/T 98% of the shipment value of the Seller’s designated bank account within 3 banking days, …”

4.  By letter dated 19 October the defendant indicated to the plaintiff that it had difficulty in paying the freight costs which came to nearly US$100,000 in each case.  On 22 October the plaintiff faxed a document headed Addendum-2.  Again there was a mirror addendum for each case.  The document was in similar form to Addendum-1 and provided as follows:

“It is hereby agreed by and between the both parties of Buyer and Seller to the above contract which shall be revised as follows:

CLAUSE 7 Payment

Buyer will make USD 96688.10 TT Advance payment after signing the contract.

A) Provisional Payment

The said Letter of Credit shall be payable by telegraphic transfer payment by the issuing Bank against Seller’s sight draft for the amount of 98% (ninety eight percent) of the balance of shipment value accompanied by the documents as stipulated in clause 8……”

5.  It should be mentioned that on this appeal Mr Kerr, who appeared on behalf of the plaintiff, drew attention to the fact that Addendum-2 had not been signed by the plaintiff.  Quite apart from that, it also emerged that this document was not signed by the defendant and faxed back to the plaintiff until after the plaintiff had sent a further fax to the defendant indicating yet another change in stance.  This emerges from an e-mail sent at 3:11 p.m. from the plaintiff to the defendant.  The copy exhibited read:

“Please sign back the new addendum x-udd on LC only, not deduct the freight.  This mail has sent to you early this morning.  The previous addendums should be cancelled at the same time.  We will open the LC for you tomorrow….”

6.  From what can be determined, therefore, the contracts were in the form as provided for in the original contract as amended by Addendum-1.  Before Addendum-2 had been signed and faxed back to the plaintiff, the plaintiff had already withdrawn its offer to be bound by it, by requesting the defendant to adhere to new proposals.  There is no dispute between the parties that there was a meeting between one of the partners of the defendant and a director of the plaintiff on 26 October 2004.  At that meeting they discussed issues relating the shipments and, in particular, the payment for the freight.  It is the plaintiff’s case that the meeting ended with an agreement that the plaintiff would pay the freight by telegraphic transfer and that thereafter the defendant would send the original shipping documents in relation to the shipment so that the plaintiff could take delivery of the shipment at the port of discharge in China and then sell the shipment in China and that part of the proceeds of the sale would be paid to the defendant.  It is the defendant’s case that although there was a meeting there was no agreement.  In paragraph 50 of his affirmation filed on 25 April 2005 Mr Amit Kejriwal, the defendant’s partner who attended that meeting, said:

“The Plaintiff insisted that it would pay the Freight only if the Defendant sent the original documents in relation to the October Shipment Contracts to the Plaintiff’s office in Shanghai.”

7.  On 27 October 2004 the defendant sold the shipments of iron ore to another company.  Whereas the total contract price with the plaintiff had been US$531,993 the sale price to the new party was US$283,257.33.  Even taking into account the fact that the new buyer would pay the freight at a total of US$192,197.19, there was still a shortfall, seemingly of US$56,478.48.

8.  The plaintiff applied for a Mareva injunction and that application was founded on an affirmation of Mr Ho Fung Man.  The affirmation is full; it sets out the history of the contracts and, in particular, it exhibited a letter of 25 October 2004 from the defendant which said amongst other things:

“We hereby confirm that no letter of Credit is requested from your company as your USD 200,000 is already lying with us and the same shall be adjusted in the provisional invoice the regarding balance payment you shall remitt it as you get back your funds cleared.

The documents shall be handed over to your office directly once you pay the freight payments to the vessel owner which is USD 192,197.10”

9.  Having set out the various matters in the affirmation, the skeleton argument indicated that it was possible that there may be a dispute as to the applicable terms of the contract.  It was said that various addenda to the contract were agreed but some were not signed.  It went on to say that these did not alter the defendant’s obligation to sell the cargo to the plaintiff.  In my view paragraph 9 of the skeleton argument was a fair summary of the state of affairs.  Although the conclusion to which I have come is that Addendum-2 was never effective it is still possible that evidence at a trial would lead to a different conclusion.

10.  The defendant’s complaint of nondisclosure, which the judge upheld and was the basis for the decision that the injunction should be discharged, was that there was a failure to disclose the e-mail that was sent immediately following that referred to in paragraph 5 above.  That e-mail read as follows:

“We have clearly mentioned that our company is not having any funds to remitt the freight payment, and it was upon your request have diverted the cargo to your company, and you have promised to release the freight payment on Monday that is today.

n spite of your commitments we have been asked to take the l/c which is of no use to us now.

u would have mentioned it earlier we would have arranged it earlier.

e to receive the same help and cooperation from your end so that the owners get paid at the earliest .

tds/ amit kejriwal”

(The obvious omissions at the beginning of some of the lines has been caused by the absence of the relevant part in the documents copied for the court.)

11.  Quite apart from the fact that the plaintiff did exhibit a reply e-mail which repeated the e-mail set out in paragraph 5 above (this time the word “x-udd” is shown as “based”) it can be seen from the defendant’s own affirmation that it is indeed the defendant’s case that the plaintiff was offering to pay the freight.  Thus the failure to exhibit what was referred to in the judgment below as the second e-mail becomes irrelevant.

12.  In opening the appeal Mr Kerr was at pains to demonstrate that the plaintiff had an arguable case.  As already indicated, despite the rather convoluted direction which the negotiations took, it would appear that the plaintiff does have a good arguable case and that it was not late in providing the 98% of the contract amount because it was only required to do so within three days after receipt of the full set of valid cargo documents.

13.  It was argued by Mr Chong, on behalf of the defendant, that the court should not permit the injunction to remain in view of the fact that the plaintiff has not progressed the action beyond the pleadings stage.  Although there is no evidence about it, the suggestion made on behalf of the plaintiff that any recovery in the action against the defendant might be fraught with difficulties is not necessarily fanciful.  Indeed, the plaintiff’s avers that it has so far not recovered a sum of US$200,000 which had been an advance payment for a contract made in July which was never performed.  Apparently that sum can only be recovered in an arbitration.  It does seem that this payment of US$200,000 was to be taken into account when the plaintiff was to pay the contract price under the present contracts.  As an aside, it may not be unfair to observe that despite the fact that the defendant apparently sold the cargoes for less than the contract price, the cash flow situation as a result of selling the cargoes to a different party was considerably better than if it had sold the cargoes to the plaintiff.  By selling the cargoes to a third party, the defendant did not have to take the US$200,000 into account.  As will have been noted, at the time the defendant was pleading that it did not have sufficient cash flow to pay the freight charges.

14.  In my view, for the reasons which I have endeavoured to explain, there was no material nondisclosure and, therefore, the injunction should not have been discharged.  I would set aside the order below and order that the injunction should remain until trial.  The plaintiff has offered an undertaking to proceed with the action with all proper dispatch.  That undertaking will be accepted.  I would make an order nisi that the costs below should be costs in the cause and that the costs of this appeal should be to the plaintiff.

Hon Le Pichon JA:

15.  I agree.