Grande Cache Coal Lp and Another v. Marubeni Corporation and Another

HCA 2136/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2136 OF 2015

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D E C I S I O N

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INTRODUCTION

1.I have before me an application by the 1^st defendant seeking to discharge an ex parte injunction order (“the Ex Parte Order”) of Deputy High Court Judge Kent Yee obtained by the plaintiffs on 14 September 2015.

2.At the beginning of the hearing this morning, Ms Roxanne Ismail SC, for the 1^st defendant, stated that the 1^st defendant would rely upon five grounds in support of the discharge application, namely:-

(1) the application for injunction should not have been made ex parte in the first place;

(2) no notice, or no proper notice, of the ex parte application was given to the 1^st defendant;

(3) the court was misled into believing that notice of the ex parte application had been given to the 1^st defendant;

(4) material non-disclosure; and

(5) false evidence was presented by the plaintiffs regarding what is referred to as the “Amendment Letter”.

3.In view of certain observations made by the court when giving its ruling on the plaintiffs’ application to adjourn the present discharge application, Ms Ismail informed the court that the 1^st defendant would not rely on the 5^th ground mentioned above for the purpose of the present discharge application, but would reserve the point in future proceedings should it become necessary or appropriate to rely on it.

Background facts

4.The facts underlying the present dispute between the parties are of some considerable complexity.  For the present purpose, the following brief outline should suffice.

5.The 1^st defendant, Marubeni Corporation (“Marubeni”), is a Japanese corporation.  It is the parent company of Marubeni Coal Canada Limited (“Marubeni Canada”), a company incorporated in the Province of British Columbia.

6.Winsway Enterprises Holdings Limited (“Winsway”) is a listed company in Hong Kong, and the parent company of 0925165 B C Ltd (“Winsway Canada”).

7.Up Energy Development Group Limited (“UE Development”) is a listed company in Hong Kong, and the parent company of the 2^nd plaintiff, Up Energy Finance Limited (“UE Finance”), and another company called Up Energy Resources Company Limited (“UE Resources”).

8.The 1^st plaintiff, Grande Cache Coal LP (“GCC LP”) is a limited partnership established under the laws of Alberta, Canada.  It is engaged in the production and sales of premium hard coking coal, and directly holds coal mines in Grande Cache, a town in Alberta, Canada.

9.Grande Cache Coal Corporation (“GCC”) is a company incorporated in Alberta, Canada, and is the general partner of GCC LP.

10.GCC LP was previously held by three parties, as follows:-

(1) 59.994% by Winsway Canada;

(2) 39.996% by Marubeni Canada; and

(3) 0.01% by GCC.

11.As at the second half of 2014, GCC was owned as to 60% by Winsway Canada and as to the remaining 40% by Marubeni Canada.

12.The 2^nd defendant, China Minsheng Banking Corporation Limited (“the Bank”), is a bank with branches in, amongst other places, Shanghai and Hong Kong.

13.The present dispute between the parties arose as a result of the acquisition by UE Resources from (i) Marubeni Canada of all its interests in GCC LP and GCC, and (ii) Winsway Canada of most of its interests in GCC LP and GCC.

14.GCC LP was at all material times, and is, indebted to Marubeni to the total extent of US$23,065,700 (“the Debt”).  The Debt owing by GCC LP to Marubeni was, apparently, unsecured.

15.In connection with the aforesaid acquisition by UE Resources from Marubeni Canada of all its interests in GCC LP and GCC, a number of instruments affecting the Debt were executed by the parties, including:-

(1) an “Advance Payment Guarantee” dated 30 September 2014 (as amended on 13 August 2015) issued by the Bank in favour of Marubeni as beneficiary;

(2) an undated ‘Charge on Deposit” by UE Finance in favour of the Bank;

(3) a “Credit Agreement” between the Bank and GCC LP dated 30 September 2014 (as subsequently amended);

(4) a “Supplemental Deed” dated 1 October 2014 entered into between Marubeni and GCC LP; and

(5) a “Fourth Amendment Deed” dated 1 October 2014 (amending various previous instruments) entered into amongst (inter alia) Marubeni Canada, Winsway Canada, GCC LP, GCC, and the Bank.

16.The effect these various instruments, so far as the Debt is concerned, was summarised in paragraphs 11 of the plaintiffs’ written skeleton arguments dated 14 September 2015 placed before the ex parte judge as follows:-

“ 11.1 Marubeni agreed to withhold demanding the [Debt] … until there is completion within the meaning of Clause 1.1 of the Amendment Deed (‘Completion’). In effect, this means Marubeni made an unsecured loan of the amount of the [Debt] to GCC LP and to which it had no right of repayment until Completion.

11.2 At the same time, UE Finance agreed to deposit a sum no less than the [Debt] to a bank account of [the Bank].

11.3 After Completion, Marubeni would be entitled to be repaid the [Debt] by first notifying/demanding the [Debt] from its debtor, GCC LP, failing which Marubeni could demand repayment from [the Bank] under Clause 6 of the Advance Payment Guarantee.

11.4 If [the Bank] repays any part of the [Debt] to Marubeni pursuant to Clause 6 of the Advance Payment Guarantee, [the Bank] is entitled to seek repayment from GCC LP under Clause 6(a) of the Credit Agreement, failing which it is entitled to seek repayment from UE Finance under Clause 9(1)(a) of the Charge on Deposit.  In effect, UE Finance is guaranteeing repayment of the [Debt] to [the Bank].”

17.Paragraph 12 of the plaintiffs’ written skeleton arguments went on to state as follows:-

“ If UE Finance repays the [Debt] under the Charge on Deposit, then UE Finance will become an unsecured creditor of GCC LP. Thus, the overall effect of these agreements is that prior to Completion, Marubeni would assume financial risk of advancing the [Debt] to GCC LP as an unsecured creditor. After Completion, UE Finance would assume the financial risk of advancing the [Debt] to GCC LP as an unsecured creditor”.

18.On 14 November 2014, UE Development, UE Resources and Marubeni Canada entered into a sale and purchase agreement (“the SPA”) in respect of all of Marubeni Canada’s interests in GCC LP and GCC.

19.The dispute between GCC LP/UE Finance on the one hand and Marubeni on the other centres on whether “Completion” for the purpose of the Fourth Amendment Deed (defined therein to mean completion of the transactions contemplated under the SPA) has occurred.  According to GCC LP/UE Finance, Completion has not occurred because Clauses 3.1.3, 3.1.9 and 3.1.11 of the SPA remain unsatisfied.

20.On the other hand, Marubeni considers that Completion has occurred.  In support of that contention, Marubeni relies on the Amendment Letter mentioned above.  It is, however, UE Finance’s case (disputed by Marubeni) that UE Finance was neither informed of the execution of the Amendment Letter, nor did it consent to the execution of the Amendment Letter.

21.For the purpose of this application and on the basis of the limited evidence before me, I do not consider it possible to reach a firm view on this issue.  I am prepared to proceed on the assumption that there is a “serious question” to be tried on whether UE Finance was informed of and/or consented to the execution of the Amendment Letter.

22.In any event, it appears to be common ground that if Completion has occurred, Marubeni would be entitled to demand GCC LP to pay the Debt under the Fourth Amendment Deed, failing which it would be entitled to call upon the Bank to make payment under the Advance Payment Guarantee.

23.On 3 September 2015, Marubeni issued a notification to GCC LP to demand payment of the Debt within 7 days.

24.UE Finance considered that Marubeni was not entitled to serve the notification on GCC LP in the absence of Completion, and made clear its stance to the Bank that it took issue with the notification.  In particular, by a letter dated 10 September 2015, UE Finance and GCC LP (through their solicitors) wrote to request the Bank not to remit the amount of the Debt to Marubeni before the close of business of 15 September 2015.

25.In view of GCC LP’s failure to comply with Marubeni’s demand for payment, on 11 September 2015, Marubeni issued a “Demand for Payment” to the Bank calling upon it to make payment under Clauses 5 to 7 of the Advance Payment Guarantee.

26.On 14 September 2015, GCC LP and UE Finance applied for and obtained the Ex Parte Order, which provides (inter alia) as follows:-

“ 1. [Marubeni] … be restrained … from instructing, procuring, causing, encouraging or otherwise inciting [the Bank] to release any sum to [Marubeni] pursuant to the Advance Payment Guarantee dated 30 September 2014 as amended on 13 August 2015 (“the Advance Payment Guarantee”).

2. [The Bank] … be restrained … from releasing any sum to [Marubeni] pursuant to the Advance Payment Guarantee.”

Insufficient basis for seeking an injunction to restrain payment under the Advance Payment Guarantee

27.It is not in dispute that the Advance Payment Guarantee is in the nature of a performance bond (or performance guarantee or demand guarantee).  That it is so is put beyond doubt by Clause 13 of the Advance Payment Guarantee, which provides that it is subject to the Uniform Rules for Demand Guarantee, ICC Publication No 758 (“the Uniform Rules”).

28.Article 5.a of the Uniform Rules states that:

“ A guarantee is by its nature independent of the underlying relationship and the [request for the issue of the guarantee], and the guarantor is in no way concerned with or bound by such relationship … The undertaking of a guarantor to pay under the guarantee is not subject to claims or defences arising from any relationship other than a relationship between the guarantor and the beneficiary.”

29.It is well established that, in the context of a performance bond (or performance guarantee or demand guarantee), the court would not normally restrain a bank from making payment thereunder save where what is usually described as the “fraud” exception applies: see Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] 1 QB 159, at 169-171 per Lord Denning MR, and 172-173 per Browne LJ; Ever Eagle Co Ltd v Kincheng Banking Corp [1993] 2 HKC 157, at 160 per Nazareth JA (as he then was, giving the judgment on behalf of the Court of Appeal); Prema Birkdale Horticulture (Macau) Ltd v Venetian Orient Ltd [2009] 5 HKC 485, at paragraphs 8 to 10 per Deputy High Court Judge Bharwaney SC (as he then was).  It is not necessary for me to further consider this exception because, as I understand it, “fraud” is not being alleged by GCC LP and UE Finance.  “Fraud” was also not relied upon before the ex parte judge.

30.The authorities suggest that there is a further exception applicable to a beneficiary seeking to obtain payment under a performance bond (or performance guarantee or demand guarantee), namely, where the terms of the underlying contract preclude the beneficiary from making a call: see Simon Carves Ltd v Ensus UK Ltd [2011] EWHC 657, at paragraphs 33 to 36 per Akenhead J; MW High Tech Projects UK Limited v Biffa Waste Services Limited [2015] EWHC 949, at paragraphs 28-34 per Stuart-Smith J.

31.The is some uncertainty as to the legal or evidential threshold required to be met to justify the court granting an injunction to restrain a beneficiary from seeking payment under a performance bond (or performance guarantee or demand guarantee), and whether, in the context of an application for an interlocutory injunction, such cases should be regarded as special cases within the American Cyanamid guidelines or as falling outside the guidelines altogether.

32.I do not consider the present application to be a suitable occasion for a detailed examination of this issue. What seems to me to be clear is that whatever may be the correct categorisation of the legal or evidential threshold, having regard to the nature of a performance bond (or performance guarantee or demand guarantee), which has been said to be similar to a letter of credit or promissory note, it is not sufficient for a plaintiff seeking to restrain a beneficiary from obtaining payment thereunder to show merely that there is a serious question to be tried (in the sense of the question not being “frivolous” or “vexatious”) on whether the terms of the underlying contract preclude the beneficiary from making a call and whether, on the facts, the beneficiary is so precluded.  A higher threshold is required to be met – that threshold has variously been described as “it is positively established that the party was not entitled to draw down”, or “a strong case” has been shown, or “the ‘serious issued to be tried’ threshold is in practice a more difficult one to overcome”, or “it has been clearly established that the beneficiary is precluded from making a call by the terms of the contract”.  All these different formulations seem to me to convey the same idea, and probably would not lead to any different result in practice.

33.On the materials presently before me, I consider it to be clear that there is no basis for any injunction to be granted to restrain the Bank from making payment under the Advance Payment Guarantee, in the absence of any suggestion that the fraud exception has any application. Further, the existing materials seem to me to be far from sufficient to satisfy the legal or evidential threshold required for granting an injunction to restrain Marubeni from seeking payment under the Advance Payment Guarantee. Further, I agree with Ms Ismail that damages appear to be an adequate remedy and thus there is no sufficient ground for an interlocutory injunction to be granted in the present case.  That being so, I consider the Ex Parte Order ought to be discharged.

Other reasons for discharging the Ex Parte Order

34.I would, in any event, have discharged the Ex Parte Order for the following reasons:-

(1) The plaintiffs ought, in my view, to have drawn the ex parte judge’s attention to the true nature of the Advance Payment Guarantee, and the relevant principles governing the court’s exercise of discretion whether to grant an injunction to restrain (a) the guarantor from making payment, and (b) the beneficiary from seeking payment thereunder.  From what I have read of the plaintiffs’ skeleton arguments placed before the ex parte judge and the transcript of the hearing before the ex parte judge, nothing was said on these matters.  This, I consider, amounts to a material non disclosure.

(2) While I can see some justification for the application to be made ex parte in view of the urgency of the situation, there was no issue of secrecy and the plaintiffs themselves considered that notice of the application ought to be given to Marubeni. That being the position, any notice given to Marubeni must be meaningful and not illusory.  As a matter of fact, notice of the application was given by the plaintiffs’ solicitors at 5:59 pm (Hong Kong time) on 14 September 2015 by email to Marubeni to the effect that the hearing would take place at 6:00 pm on the same day. This cannot be regarded as proper notice.  Mr Russell Coleman SC (for the plaintiffs), who did not appear before the ex parte judge on 14 September 2015, informed me that the plaintiffs (or their solicitors) were only informed at about 5:30 pm that the court would hear the application at 6:00 pm.  Even if that be the position, there was no reason why notice could not have been given to Marubeni immediately (as it was, Marubeni’s solicitors arrived in court at about 6:25 pm, only to be told that the hearing had finished). In any event, the plaintiffs, at the time of lodging the papers for the application, could have requested the court to give some reasonable notice of the hearing, and explained that such notice was needed in order that Marubeni would be given a proper opportunity to attend the hearing.  I do not believe that such request would be turned down by the court.

(3) The ex parte judge was also misled into believing that “notice” of the application had been given to Marubeni.  This was so stated at paragraph 1 of the plaintiffs’ skeleton arguments placed before the ex parte judge.  When the ex parte judge asked at the hearing whether actual notice of the hearing had been given to Marubeni, counsel for the plaintiffs stated that there was an email sent giving notice of the hearing, and the ex parte judge then said “It is OK I trust you … I can put it on the record that notice was given by email.”  I accept that counsel was probably not aware that only 1 minute notice was given, but there was no reason or excuse for the plaintiffs’ solicitors not to immediately draw this matter to counsel’s attention.

35.There is just one other matter that I wish to mention in passing.  I consider there is much to be said for the view that a proper note of any ex parte application should be kept by the solicitors for the applicant present at the hearing, and a copy of the note ought to be provided to the other party, at any rate upon request being made.  This is simply a matter of natural justice.

36.For the above reasons, I would discharge the Ex Parte Order and I shall hear the parties on the question of costs.

Mr Russell Coleman, SC and Mr Norman Nip, instructed by Keith Lam Lau & Chan, for the 1^st and 2^nd plaintiffs

Ms Roxanne Ismail, SC and Ms Elizabeth Cheung, instructed by Herbert Smith Freehills, for the 1^st defendant