SINOM SHANGHAI IMPORT & EXPORT CO LTD v. EXFIN (INDIA) MINERAL ORE CO PVT LTD

cacv 208/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 208 of 2006

(on appeal from HCCT NO. 45 of 2006)

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D E C I S I O N

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Hon Rogers VP:

1.  This is an application for a stay.  The stay is a stay of the discharge of an interlocutory injunction, which has been granted.  It was granted ex-parte, it came before the learned recorder, Mr Recorder K Kwok SC, and he gave a very detailed judgment.  I have to say it is in my view an admirable judgment, it is fully reasoned and it sets out everything fully.

2.  The short point on this case is this, that there was a letter of credit issued at the request of a buyer in Shanghai in favour of a supplier of iron ore in India.  The relevant documents for the purposes of this case were duly presented by the defendant buyer in India to its bank but a difficulty arose whilst the shipment of iron ore was in progress and an injunction over part of that cargo has been granted by a court in Shanghai.  It is no part of this court’s function to deal with the rights or wrongs of that.

3.  What however the plaintiff contends is, first of all, that there was fraud which would entitle it to an injunction to prevent the letter of credit being paid; and secondly that, even if that arguments fails, it is entitled to an injunction to prevent the defendant from dealing with the proceeds of the letter of credit.  It goes on to say, in effect, that that injunction can bind the money in the hands of the bank in Shanghai.  So I have before me today the plaintiff who asks for a stay of the lifting of that injunction, the defendant and the bank.

4.  In my view the argument as to fraud fails.  It failed before the ex-parte judge, it failed before the recorder below, and in my view it fails now.  If the plaintiff wishes to pursue it, it is at best an adventurous argument, which in my view is, as far as I can see, not correct.  There was no fraud in the presentation and negotiation of the letter of credit.  The defendant may not now be able to deliver all the goods but that is a contractual matter between the plaintiff and the defendant and that disability did not exist at the time the documents were presented.

5.  The argument as to restricting the defendant from using the proceeds of sale, has problems, first of all, because it is in effect a specific type of Mareva injunction and I see no grounds for granting it.  Very little has been put in the papers about the defendant and I see very little reason for granting such an injunction and in my view it should go for that reason.  But then it is said that the proceeds are still with the bank in Shanghai and that if such a limited type of injunction is granted against the defendant that will bind the bank.

6.  There I see the rub of the argument, because that would indirectly bring about an injunction, which would be said to bind the bank, and that is the very thing which should not happen on international letters of credit.  It seems to me that the authorities are very clear and are as set out in the recorder’s judgment, there is no need for me on this occasion to repeat them.  But the importance of not interfering with commercial letters of credit is, in my view, undoubted.  It is particularly important in Hong Kong which survives on financial services and international trade and if a court in Hong Kong is to be asked to grant an injunction which is going to bind a bank in Shanghai in respect of a payment in favour of an entity in India, it seems to me to be particularly undesirable, if that is going to be the effect of this injunction.

7.  I have no doubt, therefore, that on this occasion I should not accede to this application to stay the discharge of the injunction.  In paying tribute to the recorder below, the only matter with which I would disagree was that he granted a stay pending the application to this court.  That is something I would not have done.  But I have no doubt he did that in deference to this court and therefore no criticism falls on him in that regard.