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HCCL 8/1998
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMMERCIAL ACTION NO. 8 OF 1998
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BETWEEN
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KIN CHING
CHINA LIMITED
(formerly known as B + B ASIA LIMITED) |
Plaintiff |
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and |
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STANDARD
CHARTERED BANK (HONG KONG)
LIMITED
(formerly known as STANDARD CHARTERED
BANK) |
1st
Defendant |
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SAS-CTAMAD
CO. LTD |
2nd Defendant |
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Before : Hon Stone J in Court
Date of Hearing : 3 April 2006
Date of Reasons of Judgment : 4 April 2006
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REASONS FOR JUDGMENT
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This action
1. This is an action with some history.
2. It is about a performance bond, in particular the effort of the party procuring the issue of such bond, the plaintiff, to ensure that it is declared discharged and spent in order to preclude wrongful payment out thereunder.
3. On 9 January 1998 this court granted an interlocutory injunction preventing payment out under this bond.
4. That interlocutory injunction has remained in place since that time, and this is the trial of the action in which that interlocutory relief was granted.
5. At the conclusion of the hearing, this court granted formal declaratory and permanent injunctive relief in the terms following :
(1) The 1st defendant by its directors, officers, servants or agents or otherwise howsoever be restrained, and a permanent injunction hereby is granted restraining the 1st defendant from paying to the 2nd defendant, SAS-CTAMAD Company Limited, their servants or agents, any sums pursuant to a Letter of Guarantee dated 30 January 1996 referenced 149020097139 – RP (‘the Bond’);
(2) It is hereby declared that the Bond is discharged and spent and no longer subsisting;
(3) Save that there be no order as to costs as between the plaintiff and the 1st defendant, the costs of this action be paid by the 2nd defendant to the plaintiff and the 1st defendant, such costs to be taxed if not agreed.
6. I now set out the reasons underpinning the grant of such relief.
The parties
7. The plaintiff, Kin Ching China Ltd (‘Kin Ching’), formerly known as B + B Asia Limited, was the contractor and the 2nd defendant (‘SAS’) the employer which engaged the plaintiff in relation to a construction project in Vietnam known as the Hanoi Central Hotel.
8. This contract between the Kin Ching and SAS required the plaintiff to procure a Performance Bond equivalent to 10% of the Contract Sum.
9. This Bond was to be provided by the 1st defendant, the Standard Chartered Bank, and such bond, which took the form of a Letter of Guarantee, was issued by the bank on 30 January 1996 in favour of SAS in the amount of HK$3 million.
10. The plaintiff was given leave to serve the writ on the 2nd defendant in Vietnam. The writ duly was served on the 2nd defendant, but no notice of intention to defend has been filed and served.
11. In such circumstances, it would have been open to the plaintiff to have obtained interlocutory default judgment against the 2nd defendant; however, as the plaintiff is seeking declaratory relief it was thought appropriate that the plaintiff should proceed to trial, notwithstanding the absence of the 2nd defendant : see Wallersteiner v. Moir [1974] 1 WLR 991, at 1029C; Hong Kong Civil Procedure 2006, at M/N 19/7/2.
12. The 2nd defendant, SAS, made no appearance at this trial, and from the outset of this action has not appeared at any stage in order to contest the plaintiff’s claims.
The plaintiff’s case
13. The plaintiff’s case is that the contract between itself and SAS provided that the bond would be released to the plaintiff once certain conditions had been fulfilled. The plaintiff says that those conditions were complied with, and that the bond should have been released. However, the 2nd defendant refused to give instructions to the bank to release the bond, but instead purported to make a call on that bond.
14. Such purported call resulted in this court granting interlocutory injunctive relief until trial or further order, for the reasons given in its written decision rendered on 9 January 1998. That decision speaks for itself.
15. The contractual provisions relating to the supply of a performance bond by the plaintiff for the benefit of the 2nd defendant are contained in clause 5.4 of the Preliminaries and Specific Conditions of Contract between the plaintiff and the 2nd defendant. The salient terms are that, by clause 5.4(a) the plaintiff was to provide a performance bond in the amount equivalent to 10% of the contract sum, and, by clause 5.4(c), that the performance bond would be released or refunded to the plaintiff contractor on the date of issuance of the Certificate of Practical Completion of the Whole Works or upon the satisfactory submission of all written warranties, as-built drawings and manuals, whichever is the later.
16. The evidence before the court, in the form of the witness statement of Mr Matthew Peter Duly, establishes that the Certificate of Practical Completion of the whole of the Works was issued by the Project Manager on 9 September 1997, and the plaintiff submitted as-built drawings and manuals, as specified in the Contract, to the Project Manager on 8 September 1997; no warranties were required for the Works, and thus the plaintiff was not required to submit any.
17. I am satisfied on the evidence, and so find, that the conditions laid down in clause 5.4 of the Preliminaries and Specific Conditions of Contract have been satisfied as at 9 September 1997, and accordingly that the 2nd defendant thereby came under a contractual obligation to release the bond.
18. The plaintiff in fact wrote to the 2nd defendant demanding release of the bond on 9 September, 11 and 13 November 1997, but the 2nd defendant declined to agree to such release : see the letter from the 2nd defendant dated 12 November 1997.
19. Far from agreeing to the release of the bond, given that the conditions for such release were satisfied, the 2nd defendant instead made a purported demand under the bond for the payment of HK$2 million, which led to the plaintiff seeking, and obtaining, on 9 January 1998, the interlocutory injunctive relief to which earlier I have made reference.
20. Mr Smith SC, who appeared for the plaintiff, characterized this purported call on the bond by the 2nd defendant as fraudulent, because at the time of such call the 2nd defendant was fully aware that the plaintiff had demanded release of the bond in accordance with the contract, and that the conditions for expiry had been met; thus, he said, by making the call under the bond the 2nd defendant impliedly had represented to the Bank that the call was validly made when in fact the 2nd defendant knew that the bond had expired, and that as a consequence the plaintiff was entitled to its release.
21. Mr Smith also submitted, in my view correctly, that in this situation of a fraudulent call the plaintiff was entitled to restrain payment by the 1st defendant bank under the fraud exception to the general rule relating to the autonomy of a documentary credit or performance bond : see, for example, UCM v. Royal Bank of Canada, [1983] AC 168, at 183G-184A.
22. In this connection Mr Smith stated that his client made no criticism of the 1st defendant, and that there was no suggestion of any improper conduct on the part of the bank; however, since the bank had been made aware of facts that rendered the 2nd defendant’s call on the bond fraudulent, this justified the grant of injunctive relief against the bank itself : see, for example, Edward Owen Engineering v. Barclays Bank [1978] QB 159 at 169G.
Position of the 1st defendant bank
23. For the 1st defendant Mr Harris made it clear that there was no real dispute in this case between his client and the plaintiff, although he was keen to make the point that at the time of the 2nd defendant’s call on the bond in 1998 that the bank had had no knowledge of whether such call was fraudulent, although it knew that the plaintiff asserted this to be the position.
24. In any event, said Mr Harris, it was because the bond issued by the 1st defendant was payable on demand and that the 1st defendant did not know with any certainty whether it had lapsed that the 1st defendant had had to be enjoined from meeting the 2nd defendant’s demand for payment under the bond. His client’s only concern, he said, was that this trial now should determine conclusively whether or not the bond indeed had lapsed.
25. Mr Harris noted that, pursuant to clause 5.4(c) of the Preliminaries and Specifications of Contract between the plaintiff and the 2nd defendant, it appeared that Practical Completion had been certified as the plaintiff asserted, that is, on 9 September 1997 and prior to demand being made by the 2nd defendant on the bond, and this being the case it further appeared that the plaintiff in fact was entitled to the release of the bond, although in this regard his client simply wanted certainty, and had no real interest in whether the plaintiff was successful at trial.
26. He also made the point that if the court was satisfied that this was the position, and saw fit to grant the declaration sought that the plaintiff was entitled to release of the bond, then his client, the bank, would not object to the grant of a permanent injunction enjoining the bank from making payment under the bond.
Decision
27. Against this matrix of facts, as established, and in the absence of any representation of any kind from the 2nd defendant in this action, this court saw fit to grant the declaratory and injunctive relief as specified at the outset of this judgment.
28. It was so ordered.
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(William Stone)
Judge of the Court of First Instance
High Court |
Mr Clifford Smith SC, instructed by Messrs Mallesons Stephen Jacques, for the plaintiff
Mr Jonathan Harris, instructed by Messrs Deacons, for the 1st defendant
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