LG ELECTRONICS HONG KONG LTD. v. BANK OF TAIWAN

HCCL 7/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 7 of 2001

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DECISION

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1. This is an application taken out by the defendant, Bank of Taiwan, seeking the following relief by its amended summons:

(1) a declaration that the writ has not been duly served on the defendant and/or the service of the writ be set aside on the ground that the purported service failed to comply with Section 338 of the Companies Ordinance, Cap. 32;

(2) a declaration that the court has no jurisdiction over the defendant in respect of the subject matter of the claim or the relief sought on the ground that the defendant as named in the writ of summons is not a proper party to the proceedings; and

(3) further or alternatively, all further proceedings herein be stayed on the ground of forum non conveniens.

The Claim

2. It may be appropriate to summarise the matters giving rise to the dispute before I deal with the reliefs sought by the defendant in this application.

3. The plaintiff LG Electronics Hong Kong Limited is a company incorporated in Hong Kong carrying on the business of the sale of electronic products. The defendant named in the writ is a full licensed bank registered in Hong Kong under the Banking Ordinance, Cap. 155, having its head office in Taiwan and carrying on business at, inter alia, its branch in Hong Kong and its branch in Panchiao, Taipei, Taiwan. The defendant has been registered as an oversea company under Part XI of the Companies Ordinance.

4. The plaintiff agreed to sell to Royal Information Electronics Company Limited ("Royal") 17,472 pieces of 17 inches colour display tube with deflection at US$1,485,120.00. It was a term of the agreement between them that payment for the goods should be by drafts at sight drawn on the Panchiao branch of the defendant under an irrevocable letter of credit.

5. On 31 August 2000, on the application of Royal, the Panchiao branch opened an irrevocable letter of credit ("the Credit") in favour of the plaintiff on, inter alia, the following terms:

(1) the latest date of shipment to Hong Kong was 23 September 2000 and the expiry date of the Credit was 14 October 2000;

(2) the period for presentation of the documents to the Panchiao branch was within 21 days of the cargo receipt but not later than the validity of the Credit;

(3) the documents required for presentation to the Panchiao branch were as follows:

(a) commercial invoice in quadruplicate manually signed;

(b) cargo receipt issued and signed by Royal; and

(c) packing list in triplicate;

(4) the Credit was governed by and subject to the terms of the Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500 ("UCP 500").

6. It is alleged by the plaintiff that the goods were delivered to Royal in Hong Kong on 6 September 2000.

7. On 12 September 2000, HSBC as the collecting bank for the plaintiff, presented to the Panchiao branch the bills of exchange and the three documents as required under the Credit. On 21 September 2000, the Panchiao branch informed HSBC of three discrepancies as follows:

(1) the commercial invoice and the packing list described the goods as 17 feet (the description of the goods in the Credit was 17 inches);

(2) the Credit number stated on the commercial invoice and packing list was different from the Credit number stated on the cargo receipt (the Credit number typed on the first two documents was "OAEER 22702801025" whereas the number typed on the cargo receipt was "0AEER 22702801025"); and

(3) the cargo receipt dated 6 September 2000 was stamped by a signature stamp on behalf of Royal instead of being manually signed.

8. HSBC replied to the Panchiao branch on 27 September 2000 stating that the discrepancies in (1) and (2) were "of immaterial nature" and "obvious typing errors". As for the alleged discrepancy that the cargo receipt was not manually signed, HSBC pointed out that according to Article 20(b) of UCP 500, a document may be signed "by handwriting, by facsimile signature, by perforated signature, by stamp, by symbol, or by any other mechanical or electronic method of authentication." HSBC further stated that the Credit did not stipulate that the cargo receipt must be manually signed, in contrast to the requirement that the commercial invoice must be manually signed. On the same day, HSBC delivered to the Panchiao branch revised bills of exchange, commercial invoice and packing list in replacement of the documents presented on 12 September 2000. The Credit number on the bills of exchange, the commercial invoice and the packing list was corrected, as was the description of the goods in the invoice and packing list.

9. On 5 October 2000, the Panchiao branch replied to the HSBC quoting UCP 500 Case Studies No. 58 relating to "bills of lading authentication by stamp signature" and asserting that any legal document must be manually signed, in accordance with the law of Taiwan. The other point made by the Panchiao branch was that there was "late negotiation" of "non-conforming documents".

10. On 12 October 2000, HSBC presented again a full set of documents to the Panchiao branch. In the commercial invoice and the packing list, the original delivery date of 6 September 2000 was deleted and substituted by "23 September 2000". A cargo receipt bearing the date of 9 October 2000 manually signed by one Mr Huang on behalf of Royal was presented, stating that the delivery date was 23 September 2000.

11. On 17 October 2000, the Panchiao branch refused to pay under the Credit because of these alleged discrepancies:

(1) the documents were presented late in that they were not presented within 21 days of the cargo receipt. The date of the cargo receipt was taken as 6 September 2000 (being the date of the document presented on 12 September 2000 and not 9 October 2000, being the date of the cargo receipt presented on 12 October 2000);

(2) the delivery date stated in the cargo receipt dated 9 October 2000 was "23 September 2000", this was different from the cargo receipt dated 6 September 2000, which did not give a delivery date. It was alleged that the deletion of the delivery date of "6 September 2000" and replacement of "23 September 2000" on the invoice and packing list presented on 12 October 2000 was "considered to be against [the law of Taiwan] as a forgery".

12. Between 20 and 26 October, there were further exchanges between HSBC and the Panchiao branch, the effect of which was that each side was taking opposite positions along the lines as set out above. HSBC maintained that the new set of documents presented on 12 October 2000 was within the presentation period, that the commercial invoice and packing list were prepared according to the cargo receipt and were not forged, and that according to Article 15 of UCP 500, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal affect of any documents. On the part of the Panchiao branch, it was alleged on 23 October 2000 that the cargo receipt (not just the commercial invoice and the packing list as alleged earlier on 17 October 2000) was forged and that forged documents are an exception to Article 15 of UCP 500. The basis of that allegation would appear to be that the original delivery date was "6 September 2000" as stated in the invoice and the packing list presented on 12 September 2000. Hence, insofar as the cargo receipt dated 9 October 2000 stated that the delivery date was "23 September 2000", it was alleged to have been forged.

13. The plaintiff claims against the defendant for the alleged wrongful refusal to honour the payment under the Credit and seeks payment of US$1,485,120.00 due under the Credit.

Service of the writ

14. There is no affidavit of service of the writ but it is common ground that service was effected on the defendant on or about 8 February 2001 by leaving the writ at 4/F, 9 Queen's Road Central, Hong Kong, being the address of the principal place of business of the defendant in Hong Kong registered under Section 333 (1)(c) of the Companies Ordinance. It is also common ground that that mode of service of process is not to be treated as service under Section 338 (1) of the Ordinance because the writ was not "addressed to" the authorized representative of the defendant registered under Section 333 (1)(c) and "left at or sent by post" to the address of the authorized representative. The mode of service as provided in Section 338 (1) is subject to Section 338 (2) which provides, inter alia, that if the authorized representative has ceased to reside at the address registered with the Companies Registry or for any reason cannot be served, a document may be served on an oversea company by leaving it at or sending it by post to any place of business established by the company in Hong Kong.

15. The authorized representative of the defendant registered with the Companies Registry was one Mr Ho Kai Cheng with effect from 1 September 1997 and his address in Sceneway Garden, Lam Tin, was registered with the Companies Registry in March 1998. It would appear from an affirmation of the plaintiff's solicitors filed on 3 September 2001 that the plaintiff's solicitors had visited the address at Sceneway Garden on 31 August 2001 with the view of effecting service by leaving the writ at that address but was informed by an occupant that there was no one by the name of the authorized representative residing in the premises and that the occupant had moved into the premises in March 2001. The plaintiff does not know when the defendant's authorized representative had ceased to live at the address registered with the Companies Registry. If he had ceased to reside at that registered address when the writ was served on 8 February 2001 by leaving it at the place of business of the defendant in Hong Kong, that would be regarded as good and valid service by virtue of Section 338 (2). I should mention that under Section 333A of the Ordinance, there is a continuing obligation regarding the particulars furnished in respect of an authorized representative of an oversea company. Particulars should be delivered to the Companies Registry for registration not later than six weeks from the day of change if a person should cease to be an authorized representative.

16. The defendant took no point regarding improper service of the writ until the defendant's solicitors wrote to the plaintiff's solicitors on 30 August 2001 stating that they were instructed by the defendant that the writ was served by leaving at the defendant's place of business in Hong Kong on or about 8 February 2001 and as service was not effected on the authorized representative, this was invalid service and the defendant proposed to amend its summons returnable before me on 4 September 2001 to seek additional relief that the writ had not been properly served. The defendant's present summons raising objection to the jurisdiction of the court and seeking a stay of proceedings in the alternative was filed on 8 March 2001. The point regarding improper service was not taken until five months later and less than a week before the hearing of the summons. I do not think any good reason has been put forward by the defendant why the point regarding service could not have been raised earlier. The fact that the plaintiff's solicitors did not file any affirmation of service is not a valid excuse as the defendant's solicitors could have found out easily from the defendant and the defendant's authorized representative how service of the writ was effected, if the defendant's solicitors were minded to find out for themselves. As the point was taken late by the defendant on 30 August 2001, the plaintiff's solicitors had acted expeditiously and they had attempted to effect service on the authorized representative at his registered address on 31 August 2001 but was unable to locate the authorized representative for the reason mentioned earlier. If the point had been taken earlier, defective service could have been cured quite easily by serving the writ on the authorized representative (assuming that the plaintiff's solicitors were able to locate his whereabouts with the co-operation of the defendant's solicitors) or by serving the writ again at the defendant's place of business relying on Section 338 (2) of the Ordinance.

17. Mr Russell Coleman, who appeared for the plaintiff, has asked me to exercise my discretion under the Rules of the High Court O. 2 r. 1(2) to cure the irregularity in the interest of justice. It is provided in that rule that the court may, where there is a procedural irregularity, set aside wholly or in part the proceedings, any steps taken in the proceedings, or allow amendments, "and to make such order (if any) dealing with the proceedings generally as it thinks fit". He cited Boocock v Hilton International Co [1993] 1 WLR 1065 as an example in which the English Court of Appeal had exercised its discretion under this provision and made an order that the service of the writ was good service notwithstanding that it was not served on the authorized representative of an oversea company under an equivalent provision in the Companies Act 1985. Although the facts in that case are different, it demonstrated what the court might do if the case is appropriate to exercise its discretion to cure a procedural irregularity in the interest of justice. Assuming that the authorized representative could have been served at his registered address on 8 February 2001, I consider this a proper case to exercise the court's power under O. 2 r. 1(2) to cure an irregularity as to service by making an order that the service of the writ in February 2001 was good service. I have come to this view for the following reasons: the lateness that the point regarding service was taken by the defendant; the failure of the defendant to comply with its obligation under the Companies Ordinance to register the change in the address of its authorized representative; and that the plaintiff might well have cured the defective service quite easily if the issue had been raised earlier.

18. I turn to consider the other reliefs sought by the defendant in this application.

Jurisdiction of the court

19. It was argued by Mr Kenneth Chan on behalf of the defendant that the issuing bank of the Credit was the Panchiao branch and by virtue of Article 2 of UCP 500, that branch is a separate legal entity. The defendant named in the writ of summons is "Bank of Taiwan" with a principal place of business in Hong Kong at the address stated earlier. As I understand Mr Chan's argument, he stated that the defendant in the writ was the Hong Kong branch and this is a separate legal entity. The Hong Kong branch is not a proper party to the proceedings. As the proper party to the proceedings, being the Panchiao branch, is not named in the writ of summons, the court has no jurisdiction over the defendant in respect of the subject matter of the claim or the relief sought. Mr Chan has not been able to find any decided case in support of his argument but he submitted that his argument is a sound one on the clear wording of the last paragraph in Article 2.

20. Article 2 of UCP 500 provides as follows:

"MEANING OF CREDIT

For the purposes of these Articles, the expressions 'Documentary Credit(s)' and 'Standby Letter(s) of Credit' (hereinafter referred to as 'Credit(s)'), mean any arrangement, however named or described, whereby a bank (the 'Issuing Bank') acting at the request and on the instructions of a customer (the 'Applicant') or on its own behalf,

i. is to make a payment or to the order of a third party (the 'Beneficiary'), or is to accept and pay bills of exchange (Draft(s)) drawn by the Beneficiary,

or

ii. authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Draft(s)),

or

iii. authorizes another bank to negotiate,

against stipulated document(s), provided that the terms and conditions of the Credit are complied with.

For the purposes of these Articles, branches of a bank in different countries are considered another bank." (Emphasis supplied)

21. I do not think it is right to say that the Hong Kong branch of the defendant is named as the defendant in the writ. The defendant as stated is simply "Bank of Taiwan". The address in Hong Kong was stated as an address upon which service may be effected by virtue of the registration of the defendant as an oversea company under Part XI of the Companies Ordinance. As submitted by Mr Coleman, the branches of a bank are all parts of the single entity of that bank. What Article 2 does is to provide that notwithstanding different branches are parts of one legal entity, those branches of a bank in different countries can be treated in their dealings with each other and with other banks on documentary credits as though they were different banks. Hence, it is incorrect to suggest that the plaintiff has sued the wrong party. I accept Mr Coleman's submission.

22. I have also drawn support from a decision of Stone J in Nedcor Asia Limited v The Industrial and Commercial Bank of China [2000] 4 HKC 69. Although the defendant bank in that case did not raise the point that the defendant named in the writ was not the proper party in that the issuing bank was the Shantou branch of the defendant, the argument advanced there was that the failure to specify "Shantou branch" in the draft for negotiation constituted a valid discrepancy. In rejecting the submission that the Shantou branch was a separate legal entity from the defendant bank and having noted Article 2 of UCP 500, Stone J has this to say:

"In law, all branches of a bank are only emanations or 'local arms' of that one bank, one legal entity, which bears the obligations incurred by that bank including its branches. As Schmithoff, the Law and Practice of International Trade, 9th ed points out (at page 318), the debts of the branch are those of the head office of the bank, and it follows therefore that the obligation to pay on a draft under a credit remains that of the issuing bank." (at 76)

23. The jurisdiction of the Hong Kong court on the defendant is founded on service of process on the defendant, which, in this instance, was effected by service on the defendant's principal place of business in Hong Kong. It is not necessary to seek leave to serve the writ on the defendant out of jurisdiction by establishing one of the grounds under O.11 r. 1(1) of the Rules of the High Court. This assumption of jurisdiction over a defendant is subject to the powers of the court to stay the proceedings on the ground of forum non conveniens. If the arguments raised by Mr Chan were valid, one would have expected this to have been litigated long ago because the very nature of a dispute concerning documentary credits would frequently involve the buyer, the seller and the banks being located in different countries. Quite apart from there being no decided case on this argument, Mr Chan has not referred me to any work on documentary credits in which the author has expressed the view that a court may lack jurisdiction because of the interpretation he has sought to place on Article 2. Mr Chan's contention is contrary to the accepted and established view as to the basis on which the jurisdiction of the court is founded in a dispute relating to a documentary credit, see for instance, Documentary Credits by R. Jack, 3rd ed, page 383.

24. For the above reasons, I rule against the defendant on the submission that the court has no jurisdiction over the defendant. I turn to the last of the reliefs sought.

Stay of proceedings

25. I remind myself of the principles in Spiliada Maritime Corp v Cansulex Ltd [1987] 1 AC 461 at 476C to 478E. The burden is on the defendant to establish not only that Hong Kong is not the natural forum but there is some other available forum, having competent jurisdiction, which is clearly and distinctly more appropriate for the trial of this action. It has not been stated in the defendant's summons what that other forum should be, although it was mentioned in the supporting affirmation that "since the governing law should be Taiwan law, and all disputes would have to be resolved by the Taiwan law, the action should be stayed on the ground of forum non conveniens".

26. In his submission, Mr Chan has pointed to a number of factors as tending to establish that the Taiwan court is clearly and distinctly more appropriate for the trial of the action. He submitted that the issuing bank was in Taiwan; the documents were to be presented and payment obtained under the Credit in Taiwan; the debt under the Credit was situated in Taiwan being the place in which the debt was payable against the documents presented under the Credit; Taiwan law is applicable; and the person in Royal who had purported to sign the cargo receipt alleged to be a forgery is a Taiwan resident. The only Hong Kong element or connection, as submitted by Mr Chan, is that the plaintiff is a Hong Kong company.

27. In my view, the correct way of approaching this and weighing the factors in the exercise of the discretion to grant or refuse a stay is to ask what are the issues which would require determination in the dispute. Here, the issue between the parties is whether the documents presented by the collecting bank on behalf of the plaintiff had complied with the terms of the Credit. The Credit was governed by UCP 500. Although UCP 500 contains no provision relevant to the question of what national law is to be applied to determine any particular issue which may arise in connection with a letter of credit, the code provides "a large degree of uniformity in the substantive rules applicable to a particular dispute" and "diminishes the differences that may otherwise arise through the application of different national laws" (Documentary Credits by R. Jack, page 388). If it is the defendant's contention that Taiwan law is applicable to determine a particular issue in this case, it is for the defendant to show clearly what is the Taiwan law relied upon and how different is such law from the Hong Kong law. The defendant has totally failed to discharge that burden whether in its supporting evidence or in the submission of counsel. It has not been demonstrated to me that the various discrepancies alleged by the Panchiao branch would be decided in a different or materially different way if Taiwan law were to be applied. As for the allegation of forgery of the commercial invoice, the packing list and the cargo receipt, it has not been shown to me the basis for alleging that the applicable law for determining forgery is Taiwan law or that Taiwan law is different or materially different from Hong Kong law in this respect. The fact that the defendant may wish to call as a witness the Taiwan resident who signed the cargo receipt alleged to have been forged is not sufficient in my view to establish that the Taiwan court is clearly and distinctly the more appropriate forum.

Conclusions and orders

28. For the above reasons, I dismiss the defendant's application for the reliefs sought. I make an order under O. 2 r. 1(2) declaring that the service of the writ on the defendant on 8 February 2001 was good service. I make an order nisi that the defendant is to pay the plaintiff's costs of this application, to be taxed if not agreed.