Shanghai Tongji Science & Technology Industrial Co Ltd v. Casil Clearing Ltd

CACV000365/2002

CACV 365/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 365 OF 2002

(ON APPEAL FROM HCCL NO. 140 OF 1999)

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Coram: Hon Rogers VP, Le Pichon JA and Sakhrani J in Court

Dates of Hearing: 6, 7 & 9 May 2003

Date of Handing Down Judgment: 6 June 2003

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J U D G M E N T

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Hon Rogers VP:

1.This is an appeal from a judgment of Stone J given on 22 August 2002. By that judgment the judge ordered that the defendant should pay the plaintiff US$401,394.84 together with interest. At the conclusion of the hearing this court reserved its judgment which we now give.

2.The plaintiff's claim in this action arises out of the receipt by the defendant of the sum of US$401,394.84, being the proceeds of a letter of credit which had been opened by the plaintiff in favour of the defendant in June 1998. At trial, there were two remaining bases upon which the plaintiff advanced its case. The primary way in which the plaintiff's case was put is that there was a contract which came into existence as a result of an agreement which would be implied because of the plaintiff's and the defendant's actions. The plaintiff also claims the return of the sum as being money had and received by the defendant. Before considering the two claims, it is necessary to consider the factual background. The judge below commented that the case was not "evidence-sensitive". That might be true to the extent that the witnesses called at the trial did not, except perhaps in minor respects, give contradictory evidence. As the judge noted in paragraph 12, the "basic events" were "essentially ... undisputed". Nevertheless, it is important to identify the basic facts before turning to the law.

3.In considering the facts it would appear that the judge did not reject the evidence of any of the witnesses. They included Mr Qin, an Assistant General Manager of the plaintiff, who was in charge of the plaintiff's import and export operations, and Mr Choi Ming Kuen, a Senior Treasury Manager of the defendant's parent company, China Aerospace International Holdings Ltd. Although, the judge did make an adverse comment to the effect that Mr Choi's evidence had been directed towards establishing that the defendant did not contract with the plaintiff, he did not indicate criticism of his evidence in any other respect.

Background

4.It would appear that reference to the relevant events could commence in June 1998 when Madam Sung Lai Na requested the defendant to advance HK$1 million to her company Collina International (Group) Co. Ltd ("Hong Kong Collina"). The defendant was a registered money lender and had had previous dealings with Hong Kong Collina, resulting in a substantial amount remaining due to the defendant. The proposal put to the defendant was that it could collect repayment of the amount to be lent by means of a letter of credit which would be opened in its favour.

5.These arrangements were later recorded in a loan agreement dated 25 June entered into between Hong Kong Collina and the defendant. Madam Sung was named as guarantor. The agreement provided for a short term loan of US$400,000 from the defendant to Hong Kong Collina to be repaid on 8 July by a total amount of US$401,620. That sum would cover capital, interest and handling charges. The security for the loan was to be an immediate outward letter of credit with all supporting documents. The number of the letter of credit was given in the loan agreement. The applicant under the letter of credit was to be the plaintiff. The beneficiary was to be the defendant. The issuing bank was to be "The Agriculture Bank of the People's Republic of China, Shanghai Branch". The documents required under the letter of credit were specified in Article 9(2). No mention is made of the goods to be shipped under the letter of credit. Nor is there any suggestion that the defendant would be purchasing any goods for onward sale to the plaintiff. Article 11 is entitled "Breach of Contract". There are six specified instances of breach of contract, one of which is (6), which reads:

"Payment from the secured-immediate outward Letter of Credit of US$401,620.00 could not be obtained".

6.At about the time that the defendant was first approached in respect of this loan, Madam Sung had a meeting with Mr Qin. Madam Sung requested the plaintiff, through Mr Qin, to open a letter of credit on behalf of another company of hers, Shanghai Collina International Medical Beauty Co. Ltd ("Shanghai Collina"). Shanghai Collina is a domestic mainland company. As such, it was apparently unable to effect the import of goods directly by itself. Any importation had to be done through an authorised company. The evidence was that the plaintiff is an authorised importer and exporter of goods to and from the Mainland.

7.The judge found that on 10 June 1998 Shanghai Collina signed a letter of appointment in favour of the plaintiff. That document, ("the letter of credit agreement"), was headed "Agreement for the Opening of Letters of Credit on Another's Behalf". It commenced by reciting that the plaintiff would be appointed to open letters of credit on behalf of Shanghai Collina for the importation of what was, apparently, cosmetic equipment. Clause 1 of the letter of credit agreement provided that Shanghai Collina would sign a contract to import cosmetic items and equipment. Under the agreement the plaintiff was required to open a letter of credit on Shanghai Collina's behalf. Shanghai Collina was to be responsible for all costs and charges. Shanghai Collina was required to pay a sum equivalent to 10% of the contract price as security for the issue of the letter of credit and to pay the balance of the amount of the letter of credit 10 days prior to the deadline for payment. Shanghai Collina was to be responsible for declaring the goods at customs on arrival, paying all taxes and dealing with all other matters regarding the goods, their delivery and their sale. It was to be responsible for any consequential loss or damages. The plaintiff was to receive an "importation agency fee" of 2%. It would seem, therefore, that the letter of appointment, in effect, provided that the plaintiff would receive that amount for which it would only be required to open the letter of credit and everything else would be conducted by Shanghai Collina.

8.The letter of credit agreement was a document prepared by the plaintiff. Madam Sung had initially prepared a draft letter of attorney bearing Shanghai Collina's chop, also dated 10 June 1998, which appointed the plaintiff to act as the agent to open a letter of credit at sight in favour of the defendant. That document was not acceptable to the plaintiff. Hence, the letter of credit agreement was prepared and signed. Attached to the letter of attorney had been a draft contract no. SI98007-H. That contract specified two types of equipment, a total amount of US$401,620, the seller as the defendant but with the buyer's name left blank.

9.On 12 June 1998, two documents came into existence. The first was another purchase contract also numbered SI98007-H. This contract named the plaintiff as the buyers and the defendant as the sellers of the same equipment and at the same price as in the draft contract which had been attached to the draft letter of attorney. Mr Qin explained that he had prepared this contract on the basis of the sale and purchase terms that Madam Sung had agreed with the defendant, but had redrawn it to suit the plaintiff's wishes, in particular to take out what were considered to be complex terms.

10.Although, as the judge recorded, Mr Qin had asked Madam Sung to arrange for the defendant to sign this purchase contract, in the course of argument in this court, Mr Smith SC, on behalf of the plaintiff, stated that it was not part of the plaintiff's case that either of the two versions of the purchase contract had ever reached the defendant. From all that can be gathered, the conclusion must be that the defendant never saw either version of the purchase contract until Mr Qin's witness statement was served. In this context it may be noted that, although there is more than one reference in the judgment to the contract signed by the plaintiff having been sent to the defendant and never countersigned and returned, the judge made no finding that the defendant had ever been given either version of the contract until after the commencement of these proceedings. There was no evidence that the defendant had seen a draft contract, indeed, the defendant's evidence was that it had not. Moreover, it is significant that the plaintiff's pleaded case did not refer to or rely upon any such draft contract. On the contrary, the contract relied upon by the plaintiff was pleaded to have arisen from other documents. Furthermore, it is, perhaps, not insignificant that the plaintiff never gave discovery of either of the two versions of the purchase contract. The second version of the purchase contract, which had been signed by the plaintiff alone, was introduced into the case as part of Mr Qin's witness statement. The defendant never listed a draft contract in its discovery, neither was it ever requested to do so.

11.On the same day, 12 June, the plaintiff applied to the Agricultural Bank of China to issue an irrecoverable letter of credit. What was required under the letter of credit were four invoices which had to indicate the letter of credit number and the contract no. SI98007-H. There was also required to be a full set of clean on board bills of lading and four copies of the packing list. The goods were to be the same as the goods referred to in the letter of credit agreement and the price was the same. The defendant was notified of the opening of this letter of credit by the Sin Hua Bank on or about 18 June 1998. Shortly prior to that, on 15 June 1998, the plaintiff was paid RMB50,000 by Ganzhou Yajian, which was a company controlled by a Mr Ke, who is Madam Sung's husband. There is no dispute that this amount was paid in pursuance of the letter of credit agreement, as an attempt to make partial satisfaction of Shanghai Collina's obligations.

12.It was the defendant's evidence that on 22 June it was sent a bill of lading dated 17 June, four copies of an invoice and four copies of a packing list. The defendant itself prepared a bill of exchange addressed to the Agricultural Bank of China dated 23 June and an application for negotiation with the Sin Hua Bank. These documents were all required under the letter of credit. There is no doubt that they were carefully checked by the defendant. Indeed, the addresses on the invoices and the packing lists were amended to add the word "Hong Kong" after "Kowloon". It would seem that this rather pedantic addition might have been aimed at avoiding any difficulty about non-compliance with the letter of credit. Although there is no finding on the matter, the defendant's evidence was that the circular chops bearing the defendant's name were put on those documents by Hong Kong Collina, which had such chops with the defendant's concurrence. On 26 June, the plaintiff was paid RMB250,000 by Shenzhen Development Limited. This was, again, apparently referable to monies due from Shanghai Collina to the plaintiff under the letter of credit agreement. On the following day, the defendant was credited by Sin Hua Bank the amount payable under the letter of credit less various costs and charges by the Sin Hua Bank.

13.There is no dispute between the parties that up until then there had been no contact between the plaintiff and the defendant. The first attempt by the plaintiff to contact the defendant came on 3 July 1998. By that stage it had become clear to the plaintiff that Shanghai Collina had defaulted on its obligations to put the plaintiff in funds in respect of the letter of credit. The fax which was sent by the plaintiff to the defendant is important. It was addressed to the Financial Department of the defendant and signed by Mr Qin. The first part read:

"This Company issued a Letter of Credit 090LC984280706 to your company on behalf of Miss Sung Laina of Collina. As there exists the timing problem on the part of Miss Sung Laina of coordinating customs clearance in Shanghai and funds for retirement of bills, there is the possibility of failing to make payment on the expiry date of the draft -- 7 July 1998.

It is requested that your company promptly contact Miss Sung Laina and find out a solution. I have already faxed the following practicable solutions to Miss Sung and wish to let you know for your reference:

CASIL Clearing Limited informs Sin Hua Bank, the negotiating bank to advise Shanghai Agricultural Bank (the issuing bank) by telegram that:

(1) it agrees to defer payment to ___ (day) ___ (month) 1998.

(2) it agrees to return the complete set of accompanying documents to the beneficiary in Hong Kong (CASIL Clearing Limited).

Please choose either of the two and give an early reply as working days for operation merely are the afternoon of 3 July and 6 July. Time presses."

14.The opening words of this fax are important. There is no suggestion that the plaintiff was purchasing goods, still less on its own account. What this fax indicated was that the letter of credit had been opened at Madam Sung's request. There is no reference to any goods and, if anything, the implication to be derived was that Madam Sung's company was importing goods on its own account into Shanghai. The defendant, was, of course, operating on the basis that Madam Sung's company in Hong Kong had shipped the goods. The inference was, therefore, that effectively the goods were being transferred between the two Collina companies. Coupled with that, the defendant was to receive the proceeds of the letter of credit as repayment of the loan. In other words this fax was consistent with the defendant's understanding that this was a loan finance arrangement.

15.In his witness statement, Mr Qin explained that that fax was sent because no progress had been made in pressing Madam Sung for payment and the bank had advised that documents conforming with the requirements of the letter of credit had been presented and that payment would have to be made by the Agricultural Bank of China to the Sin Hua Bank under the letter of credit. Mr Qin went on to explain in his witness statement:

"Chen (Mr Qin's immediate superior) and I thought that after all it was Sung who contacted CASIL and they reached this transaction and we were only playing a role of foreign trade company acting as agent for import operations for them, that they had long-term business relation and that CASIL might agree with us on postponing payment or even return of documents without making payment so as to help Sung settle problems of funds, customs entry and even annexing additional goods."

16.The reference to annexing additional goods was to the fact that Mr Qin said that on 30 June the plaintiff had been informed by Madam Sung that additional cosmetics had been surreptitiously included in the shipment with a view to Shanghai Collina avoiding customs duties. That matter was not referred to in the fax of 3 July. It was, perhaps, referred to obliquely in a fax of 6 July which Mr Qin sent to Mr Choi. In his witness statement, Mr Qin said that the plaintiff had become increasingly concerned about the additional goods included in the shipment. It therefore asked Madam Sung to contact the defendant immediately and inform it that the plaintiff wished to arrange for the return of the goods and effect payment as per the letter of credit after the goods had been redelivered in compliance with the various documents. A fax was sent to Mr Choi on 6 July. It informed Mr Choi that the plaintiff was aware that the required documents under the letter of credit had already been submitted and that the Shanghai Agricultural Bank would have to make payment by the following day. The second paragraph of that fax is perhaps revealing because it read:

"This Company contacted Miss Sung Laina of Hong Kong Collina and found that there were errors in the actual shipment of goods. Such goods will be delivered back and re-shipment will be made. So deferring payment is something that admits no delay."

17.I refer to that paragraph because it would show that, in fact, and importantly as far as the plaintiff was concerned, all arrangements in relation to the shipment of goods from Hong Kong were made by Hong Kong Collina, seemingly, without any involvement of the defendant. The conclusion of that fax was a request to the defendant to instruct the Sin Hua Bank to defer payment under the letter of credit and advise the Shanghai Agricultural Bank accordingly.

18.Mr Qin explained that since nothing had been heard from the defendant or Mr Choi and the Shanghai Agricultural Bank had been pressing the plaintiff to put it in funds in respect of the letter of credit, he telephoned Mr Choi. He was informed by Mr Choi that the draft had already been negotiated by the defendant with the Sin Hua Bank. As Mr Qin explained he "promptly wrote to inform Sung that it was impossible to postpone payment" that letter, which is timed at 4:30 pm, concluded:

"Therefore, you are requested to pay Renminbi to this Company in the quickest possible way. Otherwise the bank will make an outward remittance tomorrow and the goods will be disposed of by the bank."

19.Again, in relation to this letter it might be pointed out at this stage that the reference is made to the bank disposing of the shipment. There is no suggestion in that letter that the goods would belong to the plaintiff and the plaintiff would have to dispose of those goods.

The plaintiff's correspondence with Collina and Madam Sung

20.There then followed a considerable correspondence, which might be termed negotiation, between the plaintiff and Madam Sung and her Collina companies. There was no further contact between the plaintiff, or its legal advisers, and the defendant until 22 October 1998. The events of this period were only touched upon in a minor respect in the judgment. This court was reminded of it by Mr Chain, on behalf of the defendant, who went through it in some detail. Despite its obvious importance, no attempt was made to deal with the significance of it on behalf of the plaintiff. As will appear below, its significance in relation to this case cannot be ignored.

21.As pleaded in the further and better particulars of the defence, the defendant made various entries in its accounts and reduced the indebtedness of Hong Kong Collina to the defendant on 9 July 1998. This reflected the receipt by the defendant of the proceeds of the letter of credit. As will be referred to below, the reduction of the indebtedness was in compliance with Article 10(4) of the defendant's agreement with Hong Kong Collina of 25 June.

22.Mr Qin's evidence explains how Madam Sung had requested the plaintiff to seek a postponement of payment with the plaintiff's bank until the end of July so that she could "mediate for the solution of customs clearance" and obtain funding. The plaintiff was unable to do that and informed Madam Sung by a fax of 7 July that it had to obtain a temporary loan from the bank which would expire on 28 July. The third paragraph of that fax read:

"On 29 July 1998 this Company shall repay the principal plus interests thereon to the bank. In case of failure in repayment, this Company or the bank shall dispose of the goods for the purpose of repayment of loan to the bank. In the meantime this Company, pursuant to Article 7 of 'Agreement for Acting as Agent for the Establishment of a Letter of Credit', shall reserve right of recourse to hold Collina liable for breach of contract and loss caused."

23.It would appear that the plaintiff continued to press Madam Sung for payment of the amount due in respect of the letter of credit. On 20 July, Shanghai Collina executed a letter of authority in favour of Ganzhou Ya Jian Wallpaper Co. Ltd, Shanghai Branch to guarantee and issue a cheque dated 30 August in the sum of RMB3,476,847 in favour of the plaintiff. According to that letter of authority, the arrangement was that the post-dated cheque would be given in exchange for the bill of lading, Hong Kong Collina would remit US$401,620 to the plaintiff before 30 August 1998 and thereafter the plaintiff would return the cheque to Ganzhou Ya Jian Wallpaper Co. Ltd. Mr Qin explained that the plaintiff was anxious to return the goods because the goods were of no use either to itself or the bank because neither of them had any experience in beauty products and, furthermore, the plaintiff did not want to be involved in any way in anything that could involve smuggling. Accordingly, the cheque was obtained from Ganzhou Ya Jian Wallpaper Co. Ltd, the shipping documents were passed to Madam Sung and the goods were shipped back to Hong Kong.

24.The documentation would indicate that when the goods were shipped back they were received by the defendant. In paragraph 8 of the judgment, the judge uses the word "ostensibly" in relation to the documentation showing shipment of the goods to the defendant. The defendant's evidence was that it did not receive any goods back in Hong Kong and, indeed, it was unaware that there had been any shipment of goods back to Hong Kong. In this respect, there would appear to be some confirmation to the extent that Mr Qin confirmed in his oral testimony on more than one occasion that there had been no direct communication by the plaintiff with the defendant and that it had always been the plaintiff requesting Madam Sung to request the defendant to take whatever action was required of it. The defendant's evidence was that Hong Kong Collina was in possession of chops of the type that would account for the markings on the various documents.

25.It transpired that there was no remittance of any money from Hong Kong Collina on or before 30 August as required by the arrangement with Ganzhou Ya Jian Wallpaper Co. Ltd. On 31 August 1998, a letter was sent by the plaintiff's lawyer in Shanghai, Mr Xu Zhi Qiang of Shanghai Tong Jian Law Office to Shanghai Collina in the following terms:

"Tongji and your company on 2nd July 1998 signed an Agreement for the Opening of Letter of Credit on Another's behalf. Up to now, Tongji has strictly performed its duties according to that Agreement. Pursuant to the said Agreement and the Supplemental Agreement made on 7th July 1998, your company should have paid to Tongji on 29th July 1998 USD401,620.00 which [Tongji] paid on your behalf as payment for goods, RMB66,606.27 as agency fee and RMB39,963.72 as interest accrued on overdue loan. But your company has failed to perform the said duties, which has constituted breach of contract. Tongji, in accordance with the relevant laws of the state, has the right to pursue against your company the relevant civil liability on your part. In the spirit of friendly cooperation, we urge your company to effect the said obligations by 5th September 1998. Otherwise, I as a lawyer acting on authorisation by my client shall institute legal proceedings according to the law for settlement of this dispute. Please consider."

26.Whilst, too much cannot be read into such communications, the plaintiff there expressed itself as having paid the US$401,620.00 on behalf of Shanghai Collina. This was consistent not only with the terms of the letter of credit agreement but also with other contemporaneous communications from the plaintiff, for example, the fax to the defendant of 3 July. On the following day, Madam Sung then sent a fax, as Chairman of the Board of Hong Kong Collina. She asked for more time to settle the matter. That was met with a response from Mr Qin on the next day. He demanded that US$200,000 be remitted by 5 September 1998 and that Madam Sung should come to Shanghai by that day so that an acceptable schedule for repayment could be agreed between the parties. On the following day, there was a fax from Hong Kong Collina indicating that Madam Sung had gone to Beijing, apparently to try to attend to some related matters. The fax requested a delay of some one or two months to give Hong Kong Collina time to settle the matter. On 8 September, the plaintiff received notice of dishonour of the Ganzhou Ya Jian Wallpaper Co. Ltd cheque.

27.It would seem that the plaintiff immediately began to take very strong action. There is a fax of 10 September which was signed by Mr Kan Kwok Pang, Chairman of the Board and General Manager of Alex Wallpaper International Co. Ltd. It was addressed to Mr Chen and Mr Qin. It commenced:

"Regarding the fact that yesterday your company took away by force and rudely detained 2 employees of my company, entered and searched my office in Shanghai without my consent, I hereby lodge a strong protest against it and I will reserve the right to claim.

Regarding financial dealings between your company and Miss Sung of Collina Company, I as guarantor, if in the event Miss Sung of Collina is unable to pay, I and my company will do our best to undertake responsibility as guarantor. At that time, your company demanded my company as guarantee issued a cheque which would not be presented and which would be returned to my company after Miss Sung paid the debt. Both of you personally said you would not have the cheque presented. And Miss Sung did not mean she would not pay back the money."

The fax went on to explain that Madam Sung was taking steps to try and raise funds. Mr Chen replied to Mr Kan on the following day saying that he had received a phone call from Madam Sung on the evening of 9 September the material part of that reply read:

" Taking into consideration the fax dated 10th September by Mr. Kan, the general manager, in which he expressed his sincerity to solve this matter as early as possible, [my] company, after consulting lawyers and Shanghai Public Security Bureau, hereby proposes the following solutions :

'Before 30th September, Miss Sung of Hong Kong Collina is to remit US$401,620 to the bank account of Shanghai Tongji Science & Technology Industrial Company Limited or remit to the said account a sum in Renminbi equivalent to the said USD amount at the exchange rate for conversion of US dollars into Renminbi quoted by the People's Bank of China as at the date of remittance.'

In case Miss Sung fails to make remittance as scheduled above, my company will continue to hold Shanghai Collina International Medical Beauty Co. Ltd. and its guarantor responsible by legal proceedings."

The fax indicated that it was copied to Madam Sung.

28.From the documents in the appeal bundles, it would appear that the next written communication between either Hong Kong Collina or Shanghai Collina and the plaintiff was a fax sent at 4:36 pm on 14 October from Madam Sung. It bears a header which indicates it came from a fax machine belonging to "Alex Wallpaper International Co.". In the fax, Madam Sung said that Hong Kong Collina was dealing with the problems and that they promised to pay US$50,000 by the end of October. That appears to have been followed shortly by a further fax from Madam Sung on the same day addressed to Mr Chen, Mr Qin and Mr Xu in which reference is made to Madam Sung being unable to contact the Deputy General Manager of the defendant in order to have him authorise payment of the letter of credit amount until the previous Saturday. It would appear from that latter fax that the amount had not been credited to Hong Kong Collina's account and that had caused some anxiety. It would appear that fax had been sent at 6:49 pm that day. There was another fax dated the following day again from Madam Sung stating that she would be able to remit part of the loan as repayment before 25 October.

29.On 19 October, Mr Qin sent a fax to Madam Sung in the following terms:

"This is to inform you that my company can accept your repayment by limit amount by letter of credit. The exercisable condition is a clean credit.

Notified accordingly"

It is, perhaps, noteworthy that this fax referred to the condition being a clean credit. The plaintiff seems to have contemplated that a remittance of money would be made by a letter of credit, not by other means, perhaps, for example, a telegraphic transfer.

30.Three days later, on 22 October, Mr Xu of the Shanghai Tong Jian Law Office wrote to the defendant. That letter commences:

"For the purposes of performance of Contract SI98007-H between your Company and Shanghai Tongji Science & Technology Industrial Company Limited (hereinafter referred to as 'Tongji Science & Technology') and Letter of Credit 090LC984200706, this Law Office, entrusted by Shanghai Tongji Science & Technology, hereby informs you as follows:

1. On 17 June 1998, Tongji Science & Technology already opened a letter of credit to your Company pursuant to an agreement. On 7 July 1998 Tongji Science & Technology already fully paid the purchase price of USD 401,620.00 to your Company;

2. Upon investigation, it is found that your Company collected back the goods on 18 August 1998 for reason of delivery of wrong goods. To date, your Company has failed to provide goods as scheduled in the Contract which is agreed on by the two Parties. Such an act of your Company has already constituted breach of contract and has caused heavy economic loss to Tongji Science & Technology;

3. In view of the afore-said facts, there is no need to continue the original transaction. It is requested that your Company, upon receipt of this letter, promptly return USD 401,620.00 plus interest thereon to Tongji Science & Technology. The economic loss sustained by Tongji Science & Technology due to your act ought to be settled through further consultations by the two Parties.

It is out of trust in economic strength and reputation of your Company that Tongji Science & Technology engages in business activities with your Company for the first time. It is expected that your Company will, in accordance with Chinese laws and international practice, properly settle this dispute and bring no more loss to both Parties.

Please do initiatively as is stated above."

31.The defendant never replied to that letter but on 26 October a fax was sent from Hong Kong Collina to Mr Chen and Mr Qin, naming Madam Sung as the contact person. It commenced:

"This morning we were advised by CASIL Clearing Limited that it had suspended my company's application for a letter of credit amount of USD1,000,000 and a loan of USD200,000 because it received a lawyer's letter from your company for repayment of USD400,000.

[You] two gentlemen, we had already negotiated for settlement of matters by the end of this month and last week I got a letter from Qin Hong Wei saying your company would accept repayment through purchase of goods by a letter of credit. Besides, I already completed application for a letter of credit in favour of your company (see the appendix). But why did you do such a thing at this crucial moment? It made us completely at a loss of what to do. It should be clear to you that CASIL Clearing Limited would not be responsible for anything because this transaction was entrusted by Hong Kong Collina and CASIL Clearing Limited did not collected goods. The goods were collected by Collina, which should be held responsible.

Now, upon repeated consultations, CASIL Clearing Limited and I come out with a solution to the credit line of my company : only when Shanghai Tongji agrees that the lawyer's letter sent last week is specifically forwarded to Collina will CASIL Clearing Limited consider.

In order to guarantee the two parties not to suffer loss and to ensure your party an early collection of payment for goods, you are expected to contact our party as soon as possible."

32.There was apparently payment of RMB150,000 from Ganzhou Ya Jian Wallpaper Co. Ltd to the plaintiff on 27 October 1998. On 5 November 1998, the plaintiff's solicitors in Hong Kong wrote the letter before action to the defendant. That letter makes complaint that the shipment of goods in June 1998 was not the beauty equipment which was referred to in the invoices and packing lists. A claim has made for the return of the US$401,620. It is however noteworthy that, in contrast to the letter from Mr Xu of Shanghai Tongji Law Office, no reference is made to the contract SI98007-H. The reply from the defendant's solicitors avers that the defendant had supplied the beauty equipment which was referred to in the invoice and also states that:

"Our client has since checked with the supplier of the goods who again confirmed that the goods sent by our client under the shipment were genuine items and if necessary the supplier can testify to that effect."

This action followed very shortly thereafter.

The plaintiff's claim

33.As has been noted already, the plaintiff's claim in contract is not put upon acceptance of the terms of one or other of the versions of document SI98007-H. The basis of the contractual claim is that "pursuant to the (letter of credit agreement)" and at the request of Madam Sung the plaintiff made a unilateral offer to the defendant to buy specified items of beauty equipment by causing to be issued the letter of credit in favour of the defendant on or about 17 June 1998. It is said that the defendant accepted the offer by its conduct in presenting, to the Sin Hua Bank for negotiation, documents, which conformed with the requirements under the letter of credit including amongst other things the invoice.

34.In the alternative, and apparently somehow also in addition, the plaintiff puts its claim as a claim in restitution on the basis of the amount paid under the letter of credit being money had and received.

The claim in contract

35.It is clear that the plaintiff acknowledged that, in opening the letter of credit, it was acting pursuant to its agreement with Shanghai Collina. As such, as indeed the correspondence also bore out, in doing so it was acting as agent for Shanghai Collina. However, its case is that that does not preclude it from also having acted as principal in the purchase of the goods and that the property in those goods would have passed to the plaintiff if the contractual arrangements proceeded as anticipated.

36.On the defendant's part there is no dispute that an agent could also act as a principal in respect of the purchase of goods: see, for example, Sobell Industries Ltd v Cory Brothers & Co. Ltd [1955] Ll. L. Rep. 82 at p. 90. But Mr Chain, on behalf of the defendant, took two main points in relation to the contractual claim. Logically the first point is that there was no intention to form contractual relations between the plaintiff and the defendant. The other point taken was that, even if there had been an intention to form contractual relations, there was no consideration given.

Was there offer and acceptance?

37.In paragraph 28 of the judgment, the judge came to the conclusion that the defendant's conduct had constituted an acceptance of an offer by the plaintiff. He said:

"In reviewing the particular circumstances of this case, I am inclined to accept Mr Smith's submission that, whatever now may be the stance adopted, when viewed objectively the defendant's conduct in presenting the documents under the credit is able to be characterized as an acceptance of the plaintiff's offer to buy the goods from the defendant." (emphasis added)

38.Mr Chain submitted that in this passage the judge applied the wrong test. In considering whether the defendant's conduct could be considered to be an acceptance of the plaintiff's offer the judge framed the test which he applied in terms of whether the conduct was capable of being so construed. It was Mr Chain's submission that the test to be applied is that a contract will only be inferred where the actions of the parties unequivocally indicated an agreement to enter into contractual relations. In this respect attention was drawn to paragraph 2.150 in the Law of Contract, Butterworths Common Law Series, edited by Furmston, and to the judgment of the Court of Appeal, Sir Donald Nicholls V.-C., Stuart-Smith and Staughton LJJ, in Mitsui & Co. Ltd. v. Novorossiysk Shipping Co. [1993] 1 Lloyd's Rep. 311.

39.The question which arose in the Mitsui case was whether a contract would be implied between the plaintiffs, who were purchasers of a cargo of oil, and the defendants, who were the owners of a vessel onto which the cargo of oil had been loaded. The issue arose because heating equipment had been required in order to discharge the cargo at the port of discharge. The vessel did not have any such equipment and the cargo, therefore, had to be loaded onto another ship at extra cost which the plaintiff sought to recover. One of the questions was whether a contract between the plaintiff and the defendant would be implied. At page 320, Staughton LJ giving the judgment of the court said:

"For our part, we uphold the Judge's direction entirely. But there are two points in it that we would emphasize. First, it is not enough to show that the parties have done something more than, or something different from, what they were already bound to do under obligations owed to others. What they do must be consistent only with there being a new contract implied, and inconsistent with there being no such contract. The paradigm cases of the ship-owner giving up his lien, or the receiver paying the freight, illustrate that."

Having considered the facts of that case, the conclusion was reached at page 323. There, the judge said:

"But on further consideration we do not find that there must have been a contract, express or implied, from those facts alone. All that happened was that both parties were prepared to co-operate in finding a solution to the problem that had arisen. The owners, with the agreement of the charterers, sent the vessel to Malta; but they did not necessarily conclude a new contract with Mitsui that the vessel would discharge there, even if the operation should turn out to be unduly difficult or dangerous or expensive." (emphasis added)

Mr Chain submitted that it can be seen from that exposition of the law and the passage in the textbook that it was not a mere forensic point that the judge used the expression "able to be characterised" and not some expression which excluded any other alternative. Indeed, the fact that the judge may have considered that the facts did not necessarily dictate that there had been a contract between the plaintiff and the defendant may also be indicated by what was said in concluding that section of the judgment dealing with the contract claim. The judge had said, at paragraph 31, that that aspect of the case had caused him hesitation.

40.Mr Chain's starting point was that the existence of a letter of credit did not necessarily imply the existence of contractual relations between the applicant and the beneficiary. Although our attention was not specifically drawn to the UCP500, Mr Chain's argument does appear to be consistent with that. Nothing in Article 2, which defines the meaning of credit, would dictate that there has to be a contract between the applicant and the beneficiary. Article 3 is headed "Credits v Contracts" and it commences:

"a Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the Credit. ..."

41.Mr Chain's argument was that a letter of credit may be used for a number of purposes and that, provided a beneficiary did not act fraudulently, it was entitled, as against the applicant, to payment under the letter of credit and was not liable either in contract or in negligence if it presented documents which complied with the letter of credit. In this respect Mr Chain relied upon the decision of the Court of Appeal upholding a relevant part of the judgment of Judge Raymond Jack QC, as he then was, in the case of Montrod Ltd v Grundkotter Fleischvertriebs-GmbH and Others [2001]1 All ER (Comm) 368, at first instance and [2002] 1 All ER (Comm) 257 on appeal. The case involved a multiparty arrangement in relation to the sale of meat from Germany to Russia. The plaintiff, Montrod, was a finance company. There was included in the terms of the letter of credit a stipulation that there should be an inspection certificate signed by Grundkotter. The intention behind the requirement for the certificate was not that the meat should have been inspected, because that was to take place elsewhere. The intention was that the certificate would not be issued until Montrod had been put in funds. Without any fraud on the part of Grundkotter the certificate was issued but Montrod had not been put in funds. At first instance Judge Jack, who is of course the leading editor of the work Documentary Credits, said at page 382 f-g:

"The basic issue is whether Grundkotter or Montrod should bear the consequences of the fraud carried out by Ballaris. The unusual feature of the relationship is that Montrod is not a party to the contract of sale which underlies the credit. It is that underlying contract which will normally be the source of any remedy which the applicant has against the beneficiary. That possibility is not available here."

On the next page (b-e) the judge went on:

"It cannot be argued that the beneficiary to a credit owes a duty to the applicant with regard to the documents which he presents. If the documents accord with the credit, the beneficiary is entitled to be paid. If they do not, they will be rejected unless the applicant agrees to waive the discrepancy. If the documents accord with the credit but there is none the less a breach of the underlying contract, which breach arises in connection with the documents, the buyer has a right of action against the seller/beneficiary arising from their contract. If the buyer is not the applicant, when the documents came through he will have had to reimburse the applicant just as he would have had to reimburse the issuing bank if he had been the applicant. The beneficiary does not owe a duty of care to the issuing bank. In the present case Montrod simply stands in the chain as a finance house. Its position is the same as that of Fibi Bank save that Fibi Bank is one further up the chain. Grundkotter owed no duty of care to Standard Chartered in the presentation of documents. Nor did it owe such a duty to Fibi Bank or to Montrod."

42.Although the decision of Judge Jack QC was reversed in part on other grounds, the Court of Appeal expressed similar sentiments. Potter LJ in giving the judgment with which Thorpe LJ and Sir Martin Nourse agreed, said at paragraph 57:

"That being so, I do not consider that the fact that in this case it was the seller/beneficiary himself who created the document said to be a nullity should of itself disentitle him to payment, assuming (as the judge found) that such creation was devoid of any fraudulent intent and was effected in the belief that GK enjoyed the authority of Montrod, as applicant for the credit, to sign and issue the certificate. Although the circumstances were highly unusual, they may none the less be regarded as no more than an illustration of the wide variety of circumstances in which documents come into existence in a commercial context which do not necessarily reflect the factual situation but which parties may none the less employ as a convenient means of progressing a particular transaction."

43.It has already been noted that on 19 October Mr Qin, on behalf of the plaintiff, had sent a fax to Madam Sung indicating that the plaintiff was prepared to accept payment via a letter of credit in circumstances where it would seem that the purpose of the letter of credit was confined to the transfer of money rather than any underlying contract for the sale of goods. Certainly the judge appears to have accepted that the defendant's relation with Hong Kong Collina was that of a financier. There is no suggestion that the defendant, any more than the plaintiff, had the least interest in beauty equipment. Neither is there any suggestion that the defendant's interest in the events giving rise to this case was any more than in receiving payment under the letter of credit as repayment for money lent to Hong Kong Collina. If the defendant were to be regarded as the seller of the equipment which was the subject of the invoices that would have to be on the basis that either it was the agent for Hong Kong Collina or it was the principal. There was nothing in any of the documentation to show that ownership of any such equipment had been transferred to the defendant, or that it was Hong Kong Collina's agent.

44.On the basis, therefore, that the existence of a letter of credit did not, of itself, dictate that there must have been an underlying contract between the plaintiff and the defendant, it is necessary to look at all the underlying and surrounding circumstances in order to determine whether those dictate that there must have been a contract which came into existence between the two parties as pleaded in the statement of claim.

45.In paragraphs 28 to 30 of the judgment, the judge appears to have formed his conclusion that there was an implied contract for the following reasons:

(1) That the documents submitted under the letter of credit had been carefully examined and vetted and where necessary corrected by the defendant;

(2) the judge appears to have taken it amiss that no one "in authority within the defendant" gave evidence;

(3) that the principle derived from the House of Lords decision in Brogden v Metropolitan Railway (1877) 2 App Cas 666 showed that an inference of the existence of an implied contract could fairly be drawn; and

(4) the letter from the defendant's Hong Kong solicitors of 14 November 1998.

46.None of the above points would appear to me to be conclusive. Indeed, it would seem to me that the fact that a party intending to receive funds as the beneficiary under a letter of credit should carefully vet and correct the documents to be submitted is no more than would be expected. It is trite that even minor discrepancies in the documentation that is submitted in respect of a letter of credit can cause considerable difficulties leading to the bank refusing to pay under the credit. The fact that Mr Choi, who appears to have been the person who was immediately involved with dealing with Madam Sung in the relevant events in June and July of 1998, gave evidence and not any other person in the company does not, it seems to me, dictate that adverse inferences must be drawn.

47.The broad principles of the Brogden case are of course not in doubt. In that case the draft contract had been signed by Brogden with the words "approved" and sent to the Railway Company with whom Brogden had been dealing for many years. Thereafter, Brogden continued to supply the Railway Company and invoice them. The proposition which comes from that case was neatly expressed by Lord Blackburn at page 691 when he said:

"But I always believed the law to be this, that when an offer is made to another party, and in that offer there is a request express or implied that he must signify his acceptance by doing some particular thing, then as soon as he does that thing, he is bound."

That, however, does not conclude the matter in this case because of the point made that submission of documents under a letter of credit, for the purposes of obtaining payment under the letter of credit, need not necessarily reflect the underlying contract.

48.The letter of 14 November from the defendant's solicitors although not disputing the existence of the contract was not made on affidavit nor was it a pleading. Taken broadly, it was a denial as far as the defendant was concerned that there was anything wrong with the shipment and that the defendant itself was not responsible for the goods.

49.Mr Smith attempted to rely upon the Foreign Trade Agency System Tentative Provisions promulgated by the Ministry of Foreign Trade and Economic Cooperation on 29 August 1991 as indicating that, under those provisions, the plaintiff could only operate by contracting for the purchase of the relevant goods from the defendant. This point does not seem to have been taken as being of any significance before. As pointed out by Mr Chain, however, if the plaintiff were bound by these provisions it plainly ignored Article 8 thereof by deliberately never contacting the defendant in relation to any of them transactions, apart from requesting a deferment of payment under the letter of credit, and, indeed, it positively requested Shanghai Collina to make all arrangements and contacts with the defendant.

50.In my view, there was a very important feature of this case which was not considered in the judgment below. The plaintiff's conduct in July, August, September and up until 22 October was consistent with the plaintiff not considering that there was any underlying contract with the defendant at all. The plaintiff's contract was with Shanghai Collina simply to issue the letter of credit. It did that and, thereafter, it consistently looked to Madam Sung and her companies in all its dealings, whether for reimbursement of the cost of the letter of credit or otherwise. In the first communication from the plaintiff to the defendant, the fax of 3 July, there is no suggestion that the letter of credit was issued in respect of goods being purchased by the plaintiff from the defendant. Rather it was said that the letter of credit was issued "on behalf of" Madam Sung. After the defendant had informed the plaintiff on 6 July that it had received the proceeds of the letter of credit the plaintiff only looked to Madam Sung and her companies.

51.The plaintiff's conduct in dealing with the shipping documents by passing them to Madam Sung and Shanghai Collina for shipment back to Hong Kong in exchange for the post-dated cheque, again, in my view, is a powerful factor showing that the plaintiff at that stage did not regard the defendant as a party from whom it had contracted to purchase goods. Albeit Mr Qin stated that communication with the defendant was through Madam Sung, by that stage the plaintiff was well aware of all relevant contact points with the defendant and at the very least could have sent a fax to the defendant. That it never did.

52.Whilst Mr Smith accepted the proposition that there could be no acceptance of an offer by conduct unless the conduct was unequivocally referable to the contract, his argument rested upon the proposition that the test should be objective and should ignore the subjective expectations and any unexpressed mental reservations. His strong reliance was upon the fact that the defendant had adopted the invoices and packing lists and bills of lading, albeit given to it by Hong Kong Collina, and had submitted these documents to the bank in order to claim under the letter of credit. These factors, particularly the presentation of an invoice in the defendant's own name, are no doubt relevant factors to be considered. However, they were not, it would seem to me, conclusive. At the very least it cannot be said that the submission of the invoice and other documents was consistent only with a contract between the plaintiff and the defendant being implied and inconsistent with there being no such contract.

Consideration

53.Mr Chain's argument also extended to the submission that any agreement between the plaintiff and the defendant was unsupported by consideration. Whilst conceding that it was not a point taken at trial, Mr Chain argued that the point was clearly right and, therefore, could be taken on appeal. For my part, I find difficulty in accepting it. If, contrary to the view which I have already expressed it should be taken that there was a contract for the sale of goods, offered by the letter of credit and accepted by the submission of the relevant documents, I see no difficulty in finding that consideration existed, albeit that the letter of credit came into existence because of the contract between the plaintiff and Shanghai Collina and that the defendant was, nevertheless, to use the proceeds of the sale in discharge of Hong Kong Collina's debt to it.

Restitution

54.The judge decided that the claim in contract succeeded. Having done so he said that "strictly speaking" there was no necessity to go further and to consider the claim in restitution. However, he went on to do so. The difficulty with taking such a course is that it is necessary to be very clear as to the factual basis on which any such consideration proceeds. Although the judge said that he proceeded to consider the claim in restitution on the basis that he might "be wrong about the validity of the contractual claim, and as to the existence of a contract", there are, of course, a number of alternative bases which could have been the reason taken for the contractual claim being held invalid.

55.There were a number of grounds in the re-amended statement of claim upon which the plaintiff put its case in restitution. The remaining ground upon which the plaintiff apparently relied was that the consideration under the letter of credit had totally failed: see paragraph 33 of the judgment. Indeed, that would appear to have been the way in which Mr Smith put the case in this court.

56.In commencing his consideration of this part of the case, the judge still proceeded on the premise that the plaintiff:

(a) expected to obtain beauty equipment in return for permitting the defendant to obtain payment under the credit, and

(b) that the plaintiff confidently expected a contract to be concluded between itself and the defendant. (see paras. 33 and 34)

57.Even if it be correct to proceed upon the basis that the plaintiff intended to have the added security of the goods shipped, which could be retained as security if Shanghai Collina were to default on its obligation under the letter of credit agreement, the relevance of the plaintiff's expectation that a contract would be concluded with the defendant is not easy to discern. Whatever the plaintiff's expectation was, the plaintiff did nothing to ensure that a contract was executed by the defendant. Indeed, contrary to Article 8 of the Foreign Trade Agency System Tentative Provisions, upon which the plaintiff seeks to rely in other respects, the plaintiff left all dealings with the defendant to Madam Sung. There is no suggestion that there was any difficulty in the plaintiff contacting the defendant if it had wished to do so. That is demonstrated by the communications of 3 and 6 July. The fact is that the submission of a signed contract SI98007-H was not made one of the requirements of the letter of credit and the plaintiff proceeded to request the opening of the letter of credit without any such document. In those circumstances, once consideration of this case proceeds on the basis that there was no implied contract, the plaintiff's expectations become irrelevant, because there is no question of the defendant having received money in anticipation of a contract which did not come into existence. The present case is not a situation where the acts said to give rise to a binding contract did not take place because one or other of the parties (usually the offeree) did not do some act or take some step which would have been necessary to form a binding contract. The claim in restitution is being considered in circumstances where all relevant acts were performed, but those acts did not, in the circumstances, constitute an offer and acceptance giving rise to contractual relations.

58.The judge's reference, in paragraph 34 of the judgment, to the goods not representing the beauty equipment ordered harks back to the contractual claim and, indeed, seems to be an approach based on breach of contract. The same might be said of the reference in the same paragraph to the commercial value of the goods shipped being far removed from the monies that in fact were paid for the goods as represented by, and specified within, the commercial invoice and packing list issued by the defendant. The fact of the matter is that the communications of 3 and 6 July clearly disclosed to the defendant, if there had been any doubt about it before, that the goods were being transferred to one of Madam Sung's companies in Shanghai. The defendant was already, of course, well aware that the goods came from Hong Kong Collina. Equally importantly, the communications of 3 and 6 July would only have served to lead the defendant to consider that its understanding of the arrangement was shared by the plaintiff.

59.Mr Chain took two basic points in relation to the claim in restitution. The first related to the very existence of a claim in restitution, the second constituted a defence. In addition, the point was taken that the plaintiff should take into account the sum of RMB450,000, which is the total of three sums received by the plaintiff from third parties acting on behalf of, or at least at the request of, Shanghai Collina.

60.In my view Mr Chain was correct in saying that the existence of the letter of credit agreement between the plaintiff and Shanghai Collina precluded any restitutionary remedy. The plaintiff had opened the letter of credit because it was contractually bound to do so under the letter of credit agreement. That was a contractual obligation with Shanghai Collina. Indeed, at all times it looked to Shanghai Collina and Madam Sung to reimburse it the cost of opening the letter of credit. In particular, that was so after it was informed on 6 July that the defendant had received the proceeds of the letter of credit. That situation persisted up until the time in October when it would seem that the plaintiff came to the conclusion that it would be unable to obtain payment from Shanghai Collina or any associated company.

61.I also consider that there has been no failure of consideration. As indicated, the plaintiff requested that the letter of credit be opened because of the contractual obligations under the letter of credit agreement. Under that, it had the right to be indemnified against the opening of the credit plus a fee of 2% commission. It then entered into another agreement with Madam Sung and Shanghai Collina on 20 July 1998. By that new agreement the plaintiff acquired a commitment by Hong Kong Collina "to remit US$401,620.00 to Tongji Company before 30 August 1998" and, furthermore, that Ganzhou Ya Jian Wallpaper Co Ltd, Shanghai branch would guarantee payment and issue a cheque dated 30 August 1998 in the amount of RMB 3,476,847.00 in favour of the plaintiff "for the purpose of redemption of bill of lading 090LC984280706" (the bill of lading pursuant to which the container purportedly containing the beauty equipment had been shipped).

62.The judge rejected these arguments because they relied in part on the observations of Lord Goff in Pan Ocean Shipping Ltd v Creditcorp Ltd [1994] 1 WLR 161, at 164. He distinguished that case on its facts. Whereas the facts are no doubt different from the present case, that does not seem to me to detract from the underlying difficulty in the plaintiff's way that the basis on which the claim for restitution is put is a total failure of consideration and in the present circumstances it must be the contract giving rise to the opening of the letter of credit which must be considered, not some hypothetical contract with the defendant which never existed because there was never any intention to create contractual relations.

63.Be that as it may, there is however a further difficulty in the plaintiff's way. As pleaded in paragraphs 16 and 17 of the re-amended defence, the defendant claimed to have changed its position in good faith by reducing Hong Kong Collina's indebtedness to the defendant by the full amount which the defendant had received pursuant to the letter of credit. There is no doubt on the documentation that the defendant did so reduce Hong Kong Collina's indebtedness to the defendant on 9 July.

64.The judge rejected the defence on two grounds. In the first place he considered that what took place on 9 July was a reversible book entry. He said, in paragraph 39 of the judgment, that the defendant retained a right of action against Hong Kong Collina and/or Madam Sung under Article 11(6) of the loan agreement of 25 June. The judge also held that there was a "general lack of good faith on the defendant's part." He did so on the basis, as he put it in paragraph 41 of the judgment, that "the defendant throughout had conducted itself as if there existed the contract for sale and purchase." The judge thus came to the conclusion that he was prepared to hold that in the circumstances the defendant had failed to demonstrate that element of good faith which remained an integral ingredient for success of the defence.

65.In respect of the first point, as has already been indicated in reviewing the facts of the case, Article 11(6) of the agreement of 25 June constitutes one of the instances in which that contract provided that there would be a breach of contract. I am unable to see how it can be said that Article 11(6) could be construed as giving a right to reverse a credit entry in favour of Hong Kong Collina once it had been made. Article 11 merely provides a list of circumstances in which there would be breach of contract. Article 11(6) relates to payment not being obtained under the letter of credit. It does not relate to circumstances where the payment had been received. One of the defendant's obligations under the agreement of 25 June was contained in Article 10(4) of the agreement. That provided that:

"The amount receivable from the immediate outward Letter of Credit of US$401,620.00 held as security shall be used for repayment of the loan."

Thus the agreement of 25 June does not provide for a reversal of an entry once made. It provides for a mandatory repayment of the loan on receipt of the proceeds of the letter of credit.

66.The judge appears to have held that the defendant acted in bad faith because, as he put it, the defendant could not have cared less whether the correct goods, as invoiced, had been shipped. He said that the defendant was prepared to submit the documents in question simply in order to get paid. He went on to say that when the defendant was put on notice by the plaintiff's letter of 6 July 1998, which referred to the fact that Madam Sung had told the plaintiff that "there were errors in the actual shipment of the goods [which] will be delivered back and re-shipment will be made", and requested deferment of payment under the credit, Mr Choi clearly was made aware that all was not well with the transaction and that the plaintiff was expecting shipment of the "correct" contractual goods.

67.In referring to the letter of 6 July, the judge did not refer to the fact that the request in that letter was that payment under the letter of credit should be deferred. The effect of the telephone conversation between Mr Qin and Mr Choi can be gleaned from the fax sent by Mr Qin to Madam Sung later that afternoon. In that fax Mr Qin said:

"As a result, the solution will not work that CASIL requests Sin Hua Bank to inform Shanghai Agricultural Bank of deferring payment by telegram."

The next paragraph continued:

"Therefore, you are requested to pay Renminbi to this Company in the quickest possible way. Otherwise the bank will make an outward remittance tomorrow and the goods will be disposed of by the bank."

68.The question of shipping goods back to Hong Kong had therefore not formed part of Mr Qin's immediate intention after he had learnt that the letter of credit had been honoured. What he was concerned about then was obtaining the amount of the remittance from Madam Sung or, at any rate, from one of her companies. In the circumstances, I do not see how it can be said that the defendant's action, after having received the money under the letter of credit and being under a contractual obligation itself to use that payment to reduce the indebtedness of Hong Kong Collina, was dishonest. Any alleged dishonesty must be judged by the standards of the defendant and what it knew. In so far as the judge held that the defendant was interested in receiving payment under the letter of credit, that does not appear to me to be dishonest. It had a contract with Hong Kong Collina that it should do so. It had no contract with Hong Kong Collina for the purchase for onward sale of any goods. It was merely to receive the payment under the letter of credit. As already noted, consideration of the claim for restitution or "money had and received" arises in this case because there was no intention to create contractual relations between the defendant and the plaintiff.

69.In my view, even if the circumstances were such that a right of action for money had and received did lie, the defendant would have a good defence on the basis that it had altered its position to its detriment in good faith.

70.In the circumstances there is no cause to consider whether the plaintiff would have to take into account money that it had received, namely RMB450,000. The judge held that the plaintiff did not have to take any sums received into account because the claim was on the basis of unjust enrichment and not compensation for the plaintiff's loss. Whilst it is true that the claim is based upon unjust enrichment, it is unjust enrichment at the plaintiff's expense. Since the claim in restitution is made on the basis that there is no contract between the plaintiff and the defendant, it must be a claim which is made on the basis that the plaintiff opened the letter of credit at the request of Madam Sung and Shanghai Collina and on the basis that it would be paid the letter of credit amount by Madam Sung or her companies. The sums received by the plaintiff were therefore directly referable to the letter of credit and were sums which the plaintiff received because of its contractual obligation to open the letter of credit. They were sums received by the plaintiff for the purpose of remittance and financing the letter of credit. Bar the fact that the plaintiff might be entitled to its 2% fee for opening the letter of credit, I see no basis upon which the plaintiff could resist having to take the amount it received into consideration. It received that money as part of fulfilment of Shanghai Collina's obligation to put the plaintiff in funds to open the letter of credit and remit the proceeds to the defendant.

Conclusion

71.In the circumstances I would therefore allow the appeal and set aside the judgment below. I would also dismiss the plaintiff's claims against the defendant and make an order for costs nisi in favour of the defendant for the costs of the appeal and below.

Hon Le Pichon JA:

72.I agree.

Hon Sakhrani J:

73.I agree with the judgment of the Vice-President. There is nothing that I can usefully add.

Representation:

Mr Clifford Smith SC and Mr C W Ling, instructed by Messrs Siao, Wen & Leung, for the Plaintiff/Respondent

Mr Benjamin Chain, instructed by Messrs Sit, Fung, Kwong & Shum, for the Defendant/Appellant

Remarks:

Appeal by the Plaintiff to the Court of Final Appeal. Appeal dismissed. Please refer to the Ruling of FAMP000002/2003.