INDIAN OVERSEAS BANK v. SEABULK SYSTEMS INC. AND OTHERS

CACV 48/2018, [2024] HKCA 522

On Appeal From [2018] HKCFI 112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 48 OF 2018

(ON APPEAL FROM HCA NO 846 OF 2012)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  This is the 1^st and 3^rd Defendants’ appeal against the judgment of Madam Justice B Chu dated 29 January 2018 upholding the Plaintiff’s claims against the Defendants for repayment of sums due in respect of banking facilities granted by the Plaintiff to the 1^st Defendant, whose obligations to the Plaintiff were guaranteed by the 2^nd and 3^rd Defendants.

2.  The 2^nd Defendant’s appeal against the judgment was disposed of by consent at the commencement of the hearing of the appeal on 2 May 2024, and does not require further consideration.

BASIC FACTS

3.  The relevant facts of this case are fully set out in the written judgment of the Judge dated 29 January 2018 (“the Judgment”) and will not be repeated here. For the purpose of disposing of the present appeal, the following brief summary should suffice.

4.  The Plaintiff is a banking corporation incorporated under the laws of the Republic of India, and has a branch in Hong Kong (referred to in the Judgment as “IOB”).

5.  The 1^st Defendant is a company incorporated in Vancouver, British Columbia, Canada, and is engaged in the business of design, commissioning and installation of port machinery and equipment. It was registered under Part XI of the former Companies Ordinance (Cap 32) as a non-Hong Kong company with a registered place of business in Hong Kong until December 2014 when it filed a Notice of Cessation of Place of Business in Hong Kong. It is part of the Katra Group.

6.  The 2^nd Defendant is the chairman, founder and owner of the Katra Group, and is a director and shareholder, holding about 32.5% of the issued share capital, of the 1^st Defendant.

7.  The 3^rd Defendant is the president and founder, and a director, of the 1^st Defendant. He is also a shareholder, holding about 62.5% of the issued share capital, of the 1^st Defendant.

8.  On 24 May 2007, the 1^st Defendant was awarded a contract (“the Quebec Contract”) by St Lawrence Stevedoring, a division of Quebec Stevedoring Co Ltd (“QSL”), for the design, supply, installation and commissioning of a bulk material handling system (“the System”) at a port in Quebec, Canada, for a total consideration of CAD 18,700,000. Under the Quebec Contract, the time of delivery of the System to the port in Quebec was to be between 20 November 2008 and 20 December 2008.

9.  On 25 May 2007, the 1^st Defendant entered into a contract (“the ZPMC Contract”) with a Shanghai company called Zhenhua Port Machinery Co Ltd (“ZPMC”) for the purchase of one lot of newly manufactured bulk material handling equipment (“the Equipment”), to be integrated into and form part of the System, at the price of CAD 11,500,000.

10.  The ZPMC Contract provided, inter alia, that:

(1)  The delivery date of the Equipment at the Port of Quebec was to be no earlier than 20 November 2008 and no later than 20 December 2008;

(2)  The 1^st Defendant was to pay the contract price of CAD 11,500,000 by 5 instalments on various dates as stipulated in Clause 3 thereof:

(a)  Payment 1 in the amount of CAD 2,300,000 was to be made against, inter alia, an advance payment guarantee and a performance guarantee to be provided by ZPMC in the amounts of CAD 2,300,000 and CAD 1,150,000 respectively;

(b)  Payment 2 in the amount of CAD 3,450,000 was to be made against, inter alia, an advance payment guarantee to be provided by ZPMC in the same amount;

(c)  Payment 3 in the amount of CAD 2,300,000 was to be made against, inter alia, an advance payment guarantee to be provided by ZPMC in the same amount;

(d)  Payment 4 in the amount of CAD 2,300,000; and

(e)  Final Payment for the reminder of the contract price (ie CAD 1,150,000).

(3)  The 1^st Defendant was to make Payment 1 by electronic transfer, while Payments 2, 3 and 4 and the Final Payment were to be made by means of a single irrevocable letter of credit available for partial drawings.

(4)  The 3 advance payment guarantees and the performance guarantee (collectively “APGs”) to be provided by ZPMC as security for the performance of its obligations under the ZPMC Contract were to be issued by Bank of China, Shanghai Branch (“BOC”).

11.  In August 2007, the 1^st Defendant approached the Plaintiff in Chennai for financing of the above project.

12.  By a facility letter dated 29 August 2007 (“the Sanction Letter”), the Plaintiff, acting through IOB, agreed to provide the 1^st Defendant with banking/credit facilities up to the limit of CAD 15,000,000 (“the Facility”). The Facility included the issuance of a letter of credit in favour of ZPMC (“the L/C Facility”) which the 1^st Defendant required to fulfil its obligation to ZPMC under the ZPMC Contract. The 1^st Defendant’s repayment obligations to the Plaintiff were to be secured by, inter alia, assignments of the APGs by the 1^st Defendant and personal guarantees by the 2^nd and 3^rd Defendants. The Sanction Letter was subsequently modified by 4 modification letters dated 27 September 2007, 14 November 2007, 7 January 2009, and 6 February 2009 respectively.

13.  Pursuant to the ZPMC Contract, ZPMC caused or procured BOC to issue the APGs in favour of the 1^st Defendant:

(1)  a Performance Guarantee No LGC3000702286 dated 18 September 2007 (“the Performance Guarantee”) for the amount of CAD 1,150,000;

(2)  an Advance Payment Guarantee No LGC3000702287 dated 18 September 2007 (“the 1^st Advance Payment Guarantee”) for the amount of CAD 2,300,000;

(3)  an Advance Payment Guarantee No LGC3000703780 dated 19 October 2007 (“the 2^nd Advance Payment Guarantee”) for the amount of CAD 3,450,000; and

(4)  an Advance Payment Guarantee No LGC3000805562 dated 3 December 2008 (“the 3^rd Advance Payment Guarantee”) for the amount of CAD 2,300,000.

14.  Each of the APGs provided that it would expire on 31 March 2009. On 25 December 2009, BOC extended the expiry date of each of the APGs to 7 May 2010.

15.  Pursuant to the Sanction Letter as modified:

(1)  the 2^nd and 3^rd Defendants executed personal guarantees in favour of IOB on 26 September 2007 and 21 September 2007 respectively (“the Personal Guarantee(s)”);

(2)  the 1^st Defendant executed deeds of assignment in respect of the APGs in favour of IOB on 5 November 2007, 15 November 2007 and 10 January 2009 (“the Assignment Agreements”); and

(3)  the Plaintiff extended the Facility to the 1^st Defendant.

16.  As earlier mentioned, under the ZPMC Contract, the delivery date of the Equipment at the Port of Quebec should be no later than 20 December 2008. However, ZPMC delayed in the delivery of the Equipment, which only arrived at the Port of Quebec on around 16 April 2009.

17.  By an email dated 14 December 2009, the 1^st Defendant informed IOB that the Equipment had been installed at the Port of Quebec and relevant testing of the Equipment had been carried out. However, the 1^st Defendant subsequently informed IOB that due to technical problems with the Equipment, the relevant testing of the Equipment was not completed/successful, and it was not able to claim payment from QSL under the Quebec Contract.

18.  On 30 April 2010, the Defendants notified IOB that ZPMC was in breach of its obligations under the ZPMC Contract “by virtue of their failure to design, manufacture, supply, deliver and/or sell the Equipment to the Buyers as per the Contract”, and requested IOB to “initiate action invoking the [APGs] in respect of this default” .

19.  On 3 May 2010, IOB issued demand letters to BOC invoking the APGs and demanding payments from BOC for the total amount of CAD 9,200,000 under the APGs (“Demand Letters”). Each of the Demand Letters stated that ZPMC were “in breach of their obligations under the [ZPMC Contract] by virtue of their failure to design, manufacture, supply, deliver and/or sell the Equipment to the Buyers as per the Contract”, and was signed by IOB as “beneficiary” and counter-signed by the 1^st Defendant as “original beneficiary” under the APGs.

20.  On 4 May 2010, IOB sent further demands by way of SWIFT messages to BOC in relation to the invocation of the APGs.

21.  There was no immediate response to IOB’s demands from BOC. It was only on 10 May 2010, after the expiry of the APGs on 7 May 2010, that BOC responded to IOB rejecting the demands:

“We confirm the receipt of the documents sent to us by courier, however after checking the documents, we do not find the written demands for payment made by the beneficiary Seabulk Systems Inc. to us which shall be constituted and considered as the valid claiming documents required under our guarantees.

Pls note we will only make payment upon our receipt of the valid claiming documents required under our guarantees on or before the expiry date.” [sic]

22.  On 11 May 2010, IOB asked BOC to enlighten them “as to the ‘valid claiming documents’ required in order to invoke the guarantees”. This was met by a reply from BOC on 28 May 2010 stating that 4 orders had been made by the Second Intermediate People’s Court in Shanghai on 25 May 2010 restraining BOC from making payments under the APGs (“the Restraint Orders”). The Restraint Orders were obtained by ZPMC on the basis that (i) the demands made by the 1^st Defendant through IOB were fraudulent, and (ii) the written demands were not given in accordance with the requirements as stated in the APGs.

23.  The Restraint Orders subsequently led to a series of further proceedings in the PRC (collectively “the SH Proceedings”). Eventually, on 29 September 2014, the Supreme People’s Court held that under the Assignment Agreements, IOB, as the assignee of the APGs, was required to make the demands on BOC in the name of the 1^st Defendant, and it had no right to make the demands for payment in its own name as the new beneficiary of the APGs. In short, the Plaintiff was the unsuccessful party in the SH Proceedings.

24.  In the meantime, on 23 April 2010, the Plaintiff issued formal demands on the Defendants for repayment of all sums due under the Sanction Letter and the Personal Guarantees. Further demands were issued by the Plaintiff through its solicitors on 23 December 2011. The Plaintiff’s demands on the Defendants were not met.

25.  On 21 May 2012, the Plaintiff commenced proceedings in the High Court (HCA 846/2012) against the Defendants seeking repayment of the sums due under the Sanction Letter and the Personal Guarantees as at 15 May 2012, namely, CAD 9,665,484.94 and USD 137,899.18, plus further interest thereon.

THE JUDGMENT

26.  On 29 January 2018, after a 6-day trial, the Judge handed down the Judgment in favour of the Plaintiff against the Defendants.

27.  At the trial, there was no dispute as to the amount of the Facility advanced by the Plaintiff to the 1^st Defendant. As at 20 August 2012, the outstanding principal plus interest accumulating at the default rate totalled CAD 12,345,073.69.[1] There was also no dispute that no value was derived under the APGs, and CAD 9,200,000 was unrealized under the APGs.[2]

28.  The Defendants raised a number of defences, summarised in the Defendants’ Opening Submissions at the trial and recited by the Judge at §86 of the Judgment, to resist the Plaintiff’s claims:

“(1) P misrepresented its ability to competently handle the security (‘Misrepresentation Issue’); (2) P advised Ds in relation to the security and its advice was negligent (‘Negligent Advice Issue’); (3) P owed each of Ds a duty to deal with the security in such a way as to maximize the value, and in breach of duty squandered the available security entirely; further or alternatively, P was negligent in dealing with the security (‘Breach of Lender’s Duty Issue’).”

29.  The Judge rejected the above defences raised by the Defendants:

(1)  In respect of the Misrepresentation Issue, the Judge found that -

“… there was no sufficient evidence that the Representation as pleaded had been made by IOB to any of Ds and even if there was the Representation, I find there was no sufficient evidence that such had been an inducement to Ds’ respective decisions in accepting the terms of the Sanction Letter, or in executing and/or entering into any of the Financial Instruments[3]. There was no sufficient evidence that any of the Ds was acting upon or in reliance of the Representation or any representation in accepting the terms of the Sanction Letter and/or the GSA[4], and/or in executing and/or entering into the Financial Instruments as pleaded”.[5]

(2)  In respect of the Negligent Advice Issue, the Judge found as follows -

“… I do not find that there was sufficient evidence that the scope of P’s services to Seabulk had included advising and/or rendering assistance to Ds as regards the structuring and establishing of a financial arrangement for the Project and/or handling the securities. I do not find P owed any duty of care to advise Ds, as pleaded, on the financial arrangements or financial structure in respect of the Project and/or in relation to the handling of the APGs. In any event, even if such duty of care as pleaded by Ds existed, having considered the evidence, I am not satisfied that there was any breach of that duty in that I do not find that there was sufficient evidence of any advice given by P/IOB in relation to the financial arrangements or financial structure of the Project as alleged or pleaded in AD&C under the heading ‘The Plaintiff’s Advice’ and/or the handling of the APGs as alleged upon which Ds had acted or relied in executing or entering into any of the Financial Instruments”.[6]

(3)  In respect of the Breach of Lender’s Duty Issue, the Judge found that -

“… P was not in breach of any of the alleged duties to Ds as pleaded, and I see no reason why equity should intervene to protect any of Ds”.[7]

As will be seen below, the 1^st and 3^rd Defendants no longer pursue the Misrepresentation Issue and Negligent Advice Issue in the present appeal.

30.  The Judge gave the following judgment in favour of the Plaintiff:

(1)  the 1^st, 2^nd and 3^rd Defendants shall jointly and severally pay the Plaintiff the sums of CAD 9,665,484.94 and USD 137,899.18, being moneys due and owing under the Sanction Letter (in the case of the 1^st Defendant) and Personal Guarantees (in the case of the 2^nd and 3^rd Defendants), together with further interest thereon from 21 May 2012; and

(2)  the Plaintiff be indemnified by the 1^st, 2^nd and 3^rd Defendants jointly and severally in respect of all legal costs incurred in the SH Proceedings.

THE APPEAL

31.  The 1^st and 3^rd Defendants’ Supplementary Notice of Appeal dated 19 August 2021 raises a total of 7 grounds of appeal:

(1)  The Judge erred in holding at §347 of the Judgment that “the APGs were neither surrendered nor lost nor imperfected nor altered in condition by reason of [the Plaintiff’s] acts”. The Judge ought to have held that the Plaintiff breached its duties to the Defendants by (i) failing to prepare or secure effective APGs which permitted the 1^st Defendant to assign its rights to make a demand against BOC under the APGs, (ii) incompetently proceeding on the incorrect “understanding” that the “right to claim under the [APGs] … had been assigned by [the 1^st Defendant] to [the Plaintiff]”, (iii) failing to obtain at the outset valid claiming documents required under the APGs, namely, duly signed demands for payment by the 1^st Defendant, and/or (iv) failing, despite being aware of ZPMC’s late shipment by the end of December 2008, to engage the beneficiary demand procedure and realise the value of the APGs until some 15 months later in April 2010. The value of the APGs was lost through the Plaintiff’s act(s) and/or omission(s) in breach of its duties (Ground 1).

(2)  The Judge erred in failing to hold that the operative cause of the loss of the APGs was the Plaintiff’s aforementioned conduct, including its failure to address and/or understand the correct claiming procedure, and its incompetent drafting of the claim documentation. Her aforesaid conclusion at §347 of the Judgment was perverse and irrational (Ground 2).

(3)  It was unfair and wrong in principle for the Judge to rule against the 1^st and 3^rd Defendants on the basis of “acquiescence” in the way that the Assignment Agreements were handled when, amongst other things, the Judge had disallowed the Plaintiff’s application to amend the pleadings to raise the allegation of acquiescence (Ground 3).

(4)  The Judge erred in law in upholding the Plaintiff’s “suggestion” that the 1^st Defendant could itself have espoused a claim under the APGs (Ground 4).

(5)  The Judge was wrong to find that “the lateness in [the Plaintiff] in making a demand under the APGs was caused entirely by [the Defendants]” (Ground 5).

(6)  Insofar as the Judge’s comment at §332 of the Judgment can be read as implying that the Defendants’ limited and belated participation in the SH Proceedings caused or contributed to the loss of the value of the APGs, such conclusion is unsustainable (Ground 6).

(7)  The Judge erred in law and principle in holding that the Plaintiff is entitled to be indemnified by the 1^st and 3^rd Defendants jointly and severally in respect of all legal costs incurred as a result of the SH Proceedings (Ground 7).

32.  On 15 March 2018, the Plaintiff filed a Respondent’s Notice containing one single ground in further support of the Judgment. However, as confirmed by Mr Sussex, SC (on behalf of the Plaintiff) at §6 of his Skeleton Submissions dated 18 April 2024, the Plaintiff will not pursue the ground stipulated in the Respondent’s Notice.

GROUNDS 1 AND 2 – FAILURE TO PERFECT THE APGS

33.  Grounds 1 and 2 can be considered together and, as confirmed by Mr Lee on behalf of the 1^st and 3^rd Defendants at the hearing, constitute the main thrust of the appeal.

34.  Mr Lee argues that the Plaintiff, being a lender in possession of security, was under a duty to “perfect” the security (ie the APGs), because a mortgagee is generally under a duty to hand over the security, on redemption, to the mortgagor (or the surety if it is he who redeems), and if the mortgagee had not used reasonable care to realise the security to the best advantage, the mortgagor is entitled in equity to an allowance and his indebtedness is reduced accordingly. In support of this proposition, Mr Lee refers this Court to numerous authorities, including Yorkshire Bank plc v Hall [1999] 1 WLR 1713; Downsview Nominees Ltd v First City Corpn Ltd [1993] AC 295; Silver Properties Ltd v Royal Bank of Scotland Plc [2004] 1 WLR 997; Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410; American Express International Banking Corp v Hurley [1985] 3 All ER 564; General Mediterranean Holding SA SPF v Qucomhaps Holdings Ltd William James Harkin [2018] EWCA Civ 2416; and Re Nanik Dayaram, CACV 146/2013 (unreported, 31 July 2014).[8]

35.  Mr Lee goes on to argue that in the present case, the Plaintiff failed, in breach of the aforesaid duty, to “perfect” the security in two aspects:

(1)  The Plaintiff failed to properly understand the claiming procedure, including what rights in the APGs had been assigned to it, and prepare the claim documents competently, eg procuring the correct person to espouse the claim.[9]

(2)  The Plaintiff failed to make a claim in good time – the Plaintiff was aware of ZPMC’s late shipment by end of December 2008, and “should not have waited until the eleventh hour to make the demand”.[10]

36.  For the purpose of disposing of Grounds 1 and 2, it is not necessary to determine the precise limits of the duty of a mortgagee or a lender in possession of security to “perfect” the security, or consider the numerous cases cited by Mr Lee mentioned in §34 above. This is because there is simply no proper basis to contend that the security in the present case, ie the APGs and the Assignment Agreements, was “imperfect” or required to be “perfected” in any way. The Judge found that the Assignment Agreements were valid, but the right to make a demand was not assigned to the Plaintiff and remained with the 1^st Defendant.[11] There is also no doubt that BOC was duly notified of the assignments. BOC confirmed in writing to the Plaintiff that they had “duly registered and recorded the assignment on our … guarantees in your bank’s favor” and would “remit all [moneys] demanded by [ZPMC] through your good bank”.[12] Mr Lee has failed to explain or identify what was the “imperfection” in the security in the present case, or what step(s) was/were required to be taken by the Plaintiff to “perfect” the security. In fact, it is Mr Lee’s submission that “it cannot be said that the security was defective in the first place … the security documents i.e. the APGs and the Assignment Agreements were in proper form and have in fact validly assigned the right to receive the proceeds under the APGs to IOB albeit not the right to make a demand”.[13] In our view, Mr Lee’s argument that the Plaintiff failed in its duty to “perfect” the security cannot even get off the ground.

37.  In substance, the 1^st and 3^rd Defendants’ complaint is that the Plaintiff failed to properly utilize the security to reduce their indebtedness. However, as correctly stated by the Judge at §217 of the Judgment, a mortgagee-creditor owes no duty to the surety (or the principal debtor) to exercise its power of sale over the mortgaged securities and could decide in its own interest whether to sell and when to do so. The legal position was clearly stated by Lord Templeman in China and South Sea Bank v Tan [1990] 1 AC 536 (a decision of the Privy Council on appeal from Hong Kong), at 545C-F:

“The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all. If the creditor chose to sue the surety and not pursue any other remedy, the creditor on being paid in full was bound to assign the mortgaged securities to the surety. If the creditor chose to exercise his power of sale over the mortgaged security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell…

The creditor is not obliged to do anything. If the creditor does nothing and the debtor declines into bankruptcy the mortgaged securities become valueless and the surety decamps abroad, the creditor loses his money. If disaster strikes the debtor and the mortgaged securities but the surety remains capable of repaying the debt then the creditor loses nothing. The surety contracts to pay if the debtor does not pay and the surety is bound by his contract. If the surety, perhaps less indolent or less well protected than the creditor, is worried that the mortgaged securities may decline in value then the surety may request the creditor to sell and if the creditor remains idle then the surety may bustle about, pay off the debt, take over the benefit of the securities and sell them. No creditor could carry on the business of lending if he could become liable to a mortgagor and to a surety or to either of them for a decline in value of mortgaged property, unless the creditor was personally responsible for the decline.” [emphasis added]

38.  Mr Lee’s proposition that a mortgagee-creditor is under a duty to utilize a security in good time is unsound in principle.

39.  In any event, the complaint that the Plaintiff failed to properly understand the claiming procedure or failed to make a claim in good time has no validity on the facts as found by the Judge:

(1)  As mentioned by the Judge, it was only on 30 April 2010 that the 1^st Defendant notified the Plaintiff that ZPMC was in breach of its obligations under the ZPMC Contract. The Judge found that there was a “lack of transparency of Ds with IOB, and that for reasons of their own, Ds did not notify IOB alleging ZPMC’s breach of its obligations under the ZPMC Contract and the particulars of the breach, until almost the eleventh hour, namely 7 days prior to the expiry of the APGs”.[14] Taking into account the fact that 30 April 2010 was a Friday and 1 May 2010 was Labour Day, and there was a time difference between Vancouver and Hong Kong[15], the Judge did not consider that IOB was guilty of any delay in sending out the Demand Letters on 3 May 2010.

(2)  Furthermore, on 4 May 2010, IOB prepared another set of draft demand letters to be signed by the 1^st Defendant as original beneficiary and asked the 1^st Defendant to send them on the 1^st Defendant’s letterhead to BOC.[16] In each of the draft demand letters prepared by the Plaintiff, it was stated that ZPMC “[had] not complied with their obligations and were in breach their obligations by virtue of their failure to design, manufacture, supply, deliver and/or sell the Equipment to the Buyers as per the Contract dated 25^th May 2007”, and BOC was requested to pay the relevant amount to the 1^st Defendant’s account with IOB, being the “assigns” of the relevant guarantee.

(3)  In the Plaintiff’s covering email to the 1^st Defendant dated 4 May 2010, the Plaintiff stated the following:

“Please find attached draft letters addressed to Bank of China, Shanghai branch towards invocation of the 4 guarantees. We need this letter, in case Bank of China demands such a letter should be submitted by the original beneficiary also. Please submit the letter in your letter head duly signed by the authorized signatory with your company chop and send it by express courier immediately without any delay.”

(4)  It is thus clear that the Plaintiff was alive to the possibility that BOC might refuse to make payment under the APGs on the ground that the claims should be made/signed by the 1^st Defendant as beneficiary. The Plaintiff also recognised the urgency of the matter by asking the 1^st Defendant to send the fresh demand letters by express courier immediately without delay.

(5)  On 5 May 2010, the 1^st Defendant informed the Plaintiff that fresh demand letters (“the 1^st Set of Letters”) had been sent out by courier. However, the 1^st Defendant changed the date of the demand letters to 4 May 2010 (from 30 April 2010), and inserted incorrect figures in the amounts of the claim (in 3 of the letters). Those errors were caused solely by the 1^st Defendant.[17]

(6)  When IOB found out about the errors, it sent another email to the 1^st Defendant on 5 May 2010 enclosing new draft letters and asked the 1^st Defendant not to “change anything in the letter” and to “affix the authorized signatory’s signature along with the company chop and send it by return courier immediately without any delay”. The revised demand letters (“the 2^nd Set of Letters”) were sent by the 1^st Defendant on 6 May 2010. However, they only arrived in Hong Kong on 8 May 2010, after the expiry of the APGs on 7 May 2010.[18]

(7)  Although there was no sufficient evidence that had the 2^nd Set of Letters been sent to BOC prior to the expiry date of the APGs, they would have any effect in the SH Proceedings, the Judge observed that IOB was only able to send the Demand Letters almost at the eleventh hour (due to the Defendants’ lateness in informing the Plaintiff of ZPMC’s breach of obligations), and there was no reply from BOC until 10 May 2010 when BOC claimed that there were no valid claiming documents required under the APGs. By then, it was already after the expiry of the APGs, and it was too late to send the 2^nd Set of Letters.

(8)  The Judge concluded that “the lateness in IOB in making a demand under the APGs was caused entirely by Ds”.[19]

(9)  The Judge further concluded that –

“… the APGs were neither surrendered nor lost nor imperfected nor altered in condition by reason of IOB’s acts. IOB had acted expeditiously as soon as it was notified by Seabulk of ZPMC’s breach almost at the eleventh hour. IOB had taken the precaution by asking Seabulk to sign demand letters prepared by IOB. The errors in the 1^st Set of Letters were caused solely by Seabulk. Seabulk could itself have made a demand but did not. Seabulk did not participate in the SH Proceedings and failed to render assistance expeditiously. In my view, IOB had done no act injurious to any of Ds or inconsistent with their respective rights nor failed to perform any act which it was under a duty to do.”[20]

In our view, these conclusions are fairly open to the Judge on the facts as found by her, and there is no proper basis on which this Court could interfere with her conclusions.

40.  Mr Lee argues that the Plaintiff ought to have made a claim shortly after it became aware of ZPMC’s late shipment by the end of December 2008, and should not have waited until it was notified by the Defendants of ZPMC’s breach of obligations in late April 2010. This argument has no merit:

(1)  Even if the late shipment of the Equipment by ZPMC might originally be viewed as a breach of the ZPMC Contract, the 1^st Defendant had agreed to the late delivery by ZPMC[21]. The Equipment was in fact shipped from Shanghai on 15 January 2009, and arrived in Quebec on 16 April 2009 berthing on 18 April 2009[22]. The 1^st Defendant had also requested QSL to extend completion of the commissioning of the System until 31 May 2009, which request was acceded to by QSL.[23]

(2)  As early as 7 January 2009, the 1^st Defendant had been in discussion with IOB to extend the Sanction Letter for a further period of one year.[24] On 22 January 2009, the 1^st Defendant requested IOB to extend the L/C Facility. The request was acceded to by IOB on 6 March 2009, and the expiry date of the letter of credit was first extended to 30 June 2009 (from 15 March 2009), and subsequently further extended to 31 December 2009. As noted by the Judge, the 1^st Defendant was continuously seeking indulgences from IOB, and such indulgences were granted by IOB.[25]

(3)  In these circumstances, we do not see how the 1^st Defendant could maintain that ZPMC’s failure to ship the Equipment by the end of December 2008 was a breach of the ZPMC Contract such as would permit it (or the Plaintiff) to make a claim under the APGs.

(4)  Further, as noted by the Judge, there was apparently some delay in Payment 1 (on 9 November 2007) and also in the opening of the letter of credit (on 25 January 2008), and it was unclear as to when it was that the ZPMC Contract came into full force under Clause 7.1 thereof.[26] In this regard, it may be noted that by Clause 7.2 of the ZPMC Contract, the parties agreed that the conditions in Clause 7.1 relating to, inter alia, the receipt of Payment 1 and the letter of credit were integral, and all subsequent dates and times described in the contract, including delivery time, would commence on and be counted from the latest date upon performance of one or more of those conditions.

(5)  In our view, the Judge’s conclusion at §286 of the Judgment, namely, “although IOB was aware of the late shipment by ZPMC, this would not necessarily mean that ZPMC was the one in breach of its obligations since the payment to ZPMC were late, or IOB should make a demand under that APGs in December 2008 or in June 2009”, is justified.

41.  Lastly, as pointed out by Mr Sussex, there was another reason which BOC could, in any event, have relied upon to refuse to make payment under the APGs even if a claim properly signed by the 1^st Defendant had been sent and received by BOC prior to the expiry date of the APGs:

(1)  There were originally two grounds given by the Shanghai Intermediate People’s Court in the decisions dated 25 May 2010 (“25.05.10 Decisions”) for making the Restraint Orders, namely, (i) the demands made by the 1^st Defendant through IOB were fraudulent (索款存在欺詐) and (ii) the written demands were not given in accordance with the requirements stated on the APGs.[27]

(2)  In subsequent proceedings commenced by ZPMC seeking an order to cease payments under the APGs, the Intermediate People’s Court gave further judgments on 22 May 2012 (“22.05.12 Decisions”).[28] In the 22.05.12 Decisions, the Intermediate People’s Court identified 2 major issues for determination: (1) whether IOB was entitled to make the demand under the APGs, and (2) whether IOB’s demand for payment under the APGs constituted an “unfair demand”.[29] The Intermediate People’s Court found against ZPMC on issue (1), holding that BOC had expressly confirmed that IOB had become the new beneficiary upon the assignment and was entitled to make a demand for payment under the APGs[30], but found in favour of ZPMC on issue (2), holding that although ZPMC was unable to establish “fraud”, should IOB continue its demand, IOB would be in breach of the principle of good faith which would constitute “manifest abuse or unfair calling” of the APGs.[31] Accordingly, the Intermediate People’s Court made an order that BOC could cease payments to IOB under the APGs.[32]

(3)  The Intermediate People’s Court’s finding on issue (1) was subsequently reversed by the Higher People’s Court, and that reversal was confirmed by the Supreme People’s Court.[33] For this reason, neither the Higher People’s Court nor the Supreme People’s Court considered it necessary to deal with issue (2).

(4)  As correctly pointed out by the Judge, the finding by the Intermediate People’s Court that IOB’s demand for payment constituted an “unfair calling” was never overturned. On the contrary, the Higher People’s Court had in fact confirmed the factual findings of the Intermediate People’s Court, upon which the Intermediate People’s Court’s conclusion of “unfair calling” was based.[34] Thus, even if the Plaintiff was held to be entitled to make the claim/demand under the APGs, whether the Plaintiff could succeed in obtaining payment would still have to depend on issue (2).[35]

(5)  For these reasons, the Judge took the view, correctly, that even “if IOB did have the right to make a demand or had Seabulk been the one who made a demand in time”, it does not mean that BOC would have paid under the APGs.[36]

42.  For all of the above reasons, Grounds 1 and 2 are rejected.

GROUNDS 3 AND 4 – ACQUISCENCE AND ESPOUSAL OF CLAIM BY THE 1^ST DEFENDANT

43.  Having disposed of the main grounds of appeal raised by the 1^st and 3^rd Defendants, the remaining grounds can be dealt with briefly.

44.  Under Ground 3, the 1^st and 3^rd Defendants complain that the Judge should not have allowed the Plaintiff to rely on the argument of acquiescence, or made the findings that “the 30.10.07 – 05.11.07 Emails showed Ds were informed of and acquiesced in the way the Assignment Agreements were handled”, and “[t]here was no protestation by Ds throughout the SH Proceedings that P had mishandled the APGs”[37], because she “had already disallowed P’s amendment application to include a new allegation that Seabulk had ‘consented/acquiesced to the way P prepared, handled and deal with the relevant Assignment Agreements and/or APGs’”[38].

45.  Under Ground 4, the 1^st and 3^rd Defendants complain that the Judge should not have accepted the Plaintiff’s “suggestion” that the 1^st Defendant could itself have espoused a claim under the APGs.

46.  The short answer to these grounds is that, as correctly submitted by Mr Sussex[39] and noted by the Judge[40], these findings are not sufficiently material to undermine the conclusions of the Judge that the Plaintiff did not breach any of the alleged dut(ies) owed to the Defendants.

47.  Moreover, insofar as Ground 3 is concerned, although the Judge did refuse to allow the Plaintiff to make a relevant amendment of the Reply and Defence to Counterclaim mentioned at §42(iii) of the Judgment, the issue of “acquiescence” had already been raised at §6 of the Plaintiff’s Amended Reply to Defence and Counterclaim dated 19 February 2016.[41] Further, at §11 of the Plaintiff’s Amended Reply to Defence and Counterclaim, it was pleaded that the 1^st and 3^rd Defendants had consented to the Plaintiff’s action in relation to the Plaintiff’s enforcement of the APGs, and the 3^rd Defendant on behalf of the 1^st Defendant was the signatory of the Demand Letters in relation to the invocation of each of the APGs. The pleading point raised by the 1^st and 3^rd Defendants under Ground 3 has no foundation.

GROUND 5 – LATENESS CAUSED BY THE DEFENDANTS

48.  Under this ground, the 1^st and 3^rd Defendants argue that the Judge was wrong to find that “the lateness in [the Plaintiff] in making a demand under the APGs was caused entirely by [the Defendants]”. This ground of appeal adds nothing of substance to Grounds 1 and 2, which we have already dealt with above. In any event, even if the delay was not caused “entirely”[42] by the Defendants (or at all), the question remains whether the Plaintiff was in breach of dut(ies) owed to the Defendants. For reasons mentioned in our discussion above under Grounds 1 and 2, we do not consider that the 1^st and 3^rd Defendants have been able to establish any such breach on the part of the Plaintiff.

GROUND 6 – DEFENDANTS’ NON-PARTICIPATION IN THE SH PROCEEDINGS

49.  Under this ground, the 1^st and 3^rd Defendants argue that, insofar as the Judge’s comment at §332 of the Judgment can be read as implying that the Defendants’ limited and belated participation in the SH Proceedings caused or contributed to the loss of the value of the APGs, such conclusion is unsustainable.

50.  Between §§316 and 332 of the Judgment, the Judge dealt with the evidence of Mr Choudhary (Senior Manager of IOB) that no real assistance was ever provided by the Defendants to enable IOB to secure payment under the APGs and the 1^st Defendant never agreed to be involved in the SH Proceedings, as well as the Defendants’ cross-examination of Mr Choudhary that “what he said was incorrect and that Ds had provided enormous assistance to IOB in the SH Proceedings”[43]. Having examined the relevant evidence with care, the Judge came to the view that “Ds were unwilling and/or failed to assist IOB in the SH Proceedings until after the Final Award in the Quebec Arbitration Proceedings and even after that, there was much delay on D’s part in both sending back the notarised affirmation and in commencing the London Arbitration Proceedings against ZPMC”[44]. There is no challenge by the 1^st and 3^rd Defendants to this view of the Judge on the evidence.

51.  As regards the relevance of this view, the Judge said at §347 of the Judgment that “… Seabulk did not participate in the SH Proceedings and failed to render assistance expeditiously. In my view, IOB had done no act injurious to any of Ds or inconsistent with their respective rights nor failed to perform any act which it was under a duty to do”. We agree with Mr Sussex’s submission that the Judge’s discussion on whether the Defendants had provided any assistance in the SH Proceedings and her view that the Defendants were unwilling and/or failed to do so was part of the factual matrix[45] which the Judge was entitled to survey before reaching her ultimate conclusion at §347 of the Judgment that the Plaintiff had not done any act which was in breach of its dut(ies) or caused the Defendants loss. We do not see that the Judge’s said view at §332 of the Judgment could, or should properly, be read as a conclusion that the Defendants’ limited and belated participation in the SH Proceedings caused or contributed to the loss of the value of the APGs.

GROUND 7 – INDEMNITY IN RESPECT OF COSTS INCURRED IN THE SH PROCEEDINGS

52.  Under this ground, the 1^st and 3^rd Defendants argue that the Judge erred in law and principle in holding that the Plaintiff is entitled to be indemnified by the 1^st and 3^rd Defendants jointly and severally in respect of all legal costs incurred as a result of the SH Proceedings, because –

(1)  the 1^st and 3^rd Defendants’ respective liabilities were discharged by the Plaintiff’s failure to realise and obtain the proper value of the APGs; and

(2)  had the Plaintiff complied with its lender’s duties and realized and obtained the proper value of the APGs, the legal costs of the SH Proceedings would not have been incurred.[46]

53.  It is not in dispute that, subject to the above contentions, the 1^st and 3^rd Defendants’ respective liabilities would fall within the scope of the indemnification clauses referred to at §§352 and 354 of the Judgment. Having rejected the earlier grounds of appeal raised by the 1^st and 3^rd Defendants in support of the above contentions, Ground 7 falls away.

54.  For the above reasons, all Grounds 1 to 7 are rejected.

DISPOSITION

55.  The 1^st and 3^rd Defendants’ appeal is dismissed with costs to the Plaintiff (save and except costs incurred by the Plaintiff in relation to the Respondent’s Notice), to be taxed if not agreed. The Plaintiff’s costs vis-à-vis the 1^st Defendant shall be assessed on a party-and-party basis, and the Plaintiff’s costs vis-à-vis the 3^rd Defendant shall be assessed on an indemnity basis pursuant to Clause 1 of the Personal Guarantee. The above order as to costs is an order nisi, which shall become absolute unless an application is made to vary the same within 14 days from the date of this judgment.