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

HCCL000140/1999

HCCL 140/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 140 OF 1999

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Coram: Hon Stone J. in Court

Dates of Hearing: 24-26, 28 June, 9 and 22 July 2002

Date of Judgment: 22 August 2002

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J U D G M E N T

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Introduction

1.On 12 June 1998 the plaintiff in this case, which I shall refer to as Shanghai Tongji, applied to the Agricultural Bank of China in Shanghai for the issue of a letter of credit in the sum of US$401,620, naming the defendant, Casil Clearing Ltd ("Casil"), as beneficiary. This credit was issued on 17 June, and on 23 June Casil, a Hong Kong company, presented to its bank, Sin Hua Bank, a set of conforming documents which enabled the letter of credit to be negotiated. On 27 June 1998, the proceeds were credited to the defendant's Sin Hua Bank account.

2.From this seemingly routine commercial transaction has emerged this hotly-disputed litigation. Because Shanghai Tongji seeks to recover its money, asserting against Casil remedies in contract and restitution. Whether or not it is so entitled provides the subject-matter of this case.

The Factual Background

3.Shorn of extraneous detail, and there is much of that, the bare facts are these. Shanghai Tongji is a listed company on the Shanghai Stock Exchange, and functioned, inter alia, as an authorized importer and exporter to and from mainland China. On 10 June 1998 it was requested by a domestic mainland company named Shanghai Collina International Medical Beauty Co Ltd, to open a letter of credit on its behalf for the import and purchase of beauty equipment products, namely 18 sets of Cromogei and 4 sets of Visocomplex, for US$401,620.00. Shanghai Collina was part of a group which had been set up by one Ms Sung Lai Na, and which had as its counterpart in Hong Kong a company known as Collina International (Group) Co Ltd; to use the shorthand adopted in this case, I shall simply call this entity Hong Kong Collina.

4.On the same date Shanghai Collina signed a letter of appointment in favour of the plaintiff for the opening of a letter of credit for the import of these goods, which were described in a Purchase Contract No. S198007-H annexed to that letter. This draft contract particularised no buyer of these goods, but specified Casil as the seller thereof. The letter of appointment was entitled 'Agreement for the Opening of Letters of Credit on Another's Behalf' and provided, inter alia, that Shanghai Collina was to sign the purchase contract for the importation of cosmetic equipment (which in fact did not occur), that Shanghai Tongji was immediately to issue outward letters of credit on Shanghai Collina'a behalf (which did), and that in addition to an initial 10% deposit against the opening of the credit, Shanghai Tongji was to be put in funds for the balance of the funds ten days prior to payment of the credit (which also did not happen). For this service Shanghai Tongji was to receive a 2% 'importation agency fee' based on the FOB price of the goods.

5.Thereafter Shanghai Tongji applied to its bank, Agricultural Bank of China, for the issuance of the credit. This was duly negotiated and payment was made thereunder to the defendant, Casil, on 27 June 1998 after presentation by Casil, through Sin Hua Bank, of a full set of bills of lading dated 17 June 1998 in respect of container no. INBU3057288, four copies of commercial invoice no. CS9806061 dated 16 June 1998 signed by Casil detailing the goods in question, four copies of a packing list no. PK980601 of like date similarly signed by Casil, together with a draft.

6.Notwithstanding the negotiation of the credit, however, from the plaintiff's standpoint all was not well. Not only had Shanghai Tongji not been put in funds by Shanghai Collina to cover the credit which had been issued on its behalf, but in addition Shanghai Tongji had been told by Madam Sung that the container in which the beauty equipment purportedly had been shipped from Hong Kong also contained additional cosmetic articles secretly added to the shipment with a view to evading mainland customs duty. This led to an unsuccessful attempt by the plaintiff to defer payment under the credit, and led further to the decision to permit reshipment of the containerized goods to Hong Kong with a view to their being redelivered to Shanghai after removal of what were alleged to be the illicit cosmetic items.

7.Although these arrangements purportedly involved Casil, they were made through Madam Sung, who in addition arranged for the deposit of a post-dated cheque drawn by a third party company as security in favour of the plaintiff since it had not proved possible to defer payment to Casil under the established letter of credit. In fact, although not discovered by the plaintiff until September 1998 when access was made available to mainland customs records, it transpired that on 13 August 1998 Shanghai Customs had inspected the contents of the container as part of the procedure for the intended 'back-delivery' to Hong Kong, and had found that there was no beauty equipment therein, the contents being variously revealed as wallpaper paste, cooking hoods and plastic boxes of little if any significant commercial value.

8.On 17 August 1998 the container was reshipped to Hong Kong under bill of lading no. CRNHK41000732, the defendant's name and address appearing under 'Notify Address', and on 25 August 1998, upon arrival in Hong Kong, the same container was released by the shipping company to the defendant, ostensibly as indicated by a Release Order of that date bearing the defendant's chop.

9.Subsequent to these events, there was no redelivery of any goods to Shanghai.

10.The problem facing the plaintiff, therefore, was as follows. It had paid US$401,620 pursuant to the letter of credit opened on its behalf, a credit which was drawn down by the defendant upon presentation of conforming documents. The defendant, Casil, declined to repay this sum. The plaintiff had no goods, cosmetic or otherwise, for which these monies purportedly were paid. And save for the initial deposit, it has not been placed in funds by Shanghai Collina, as should have been the case pursuant to the Agreement entered into between them which had resulted in Shanghai Tongji applying for the issuance of the credit in the first place.

11.Against this background the plaintiff seeks redress against the defendant. Neither Shanghai Collina (nor, for that matter, Madam Sung) has been pursued for repayment. The present question, therefore, is whether Shanghai Tongji can recover successfully against a defendant which it alleges is the contractual seller of the beauty equipment in question, but wherein this defendant, Casil, says that it is no more than an intermediary finance house, having taken its beneficial interest under the letter of credit as part-repayment of a loan which earlier it had granted to Hong Kong Collina.

The Evidence

12.This is not a case which is evidence-sensitive in the sense of turning upon specific findings of fact. Save for the odd relatively minor matter, the basic events essentially are undisputed, so that this is a case which primarily turns upon the legal conclusions derived from those facts.

13.Two witnesses were called for the plaintiff, namely Mr Qin Hong Wei and Mr Xu Chi Qiang, whilst two were called on behalf of the defendant, Mr Choi Ming Kuen and Miss Lo Bik Yee. Mr Qin and Mr Choi respectively were the main witnesses for each party.

14.Mr Qin, an assistant general manager of Shanghai Tongji and the man in charge of the plaintiff's import and export operations, gave extensive evidence of the background to the present dispute and the step by step sequence of events, commencing with his meeting with Madam Sung and his dealings with her, with particular reference to that which occurred after the signing of the agreement with Shanghai Collina. These included his efforts to persuade her to pay the balance of the letter of credit amount and his requests to her to urge Casil to return, duly counter-signed, the contract for the sale and purchase of the beauty equipment which had been sent to Casil for signature, the background to the return of the container to Hong Kong upon Madam Sung having informed him that she was using the container to smuggle additional cosmetics items in order to avoid additional customs duty, and his attempt to persuade the issuing bank to delay making payment under the credit. He also recounted the obtaining of a post-dated cheque (subsequently dishonoured) in the sum of RMB 3.47 million from a company known as Ganzhou Ya Jian Wall-Paper Co Ltd in exchange for which Madam Sung was handed the bill of lading for the original shipment upon the understanding that the procedures of back-delivery and re-shipment of the container would be arranged by herself and Casil. I accept Mr Qin's evidence in all material particulars as a truthful account of that which transpired.

15.I was less impressed with Mr Choi Ming Kuen, a Senior Treasury Manager of the plaintiff's parent company, China Aerospace International Holdings Ltd. My firm impression in this case has been that the defendant has chosen to play its cards close to its chest, and Mr Choi's evidence was in this mode. He appeared to regard it as his primary function to deny that the defendant ever was contractually bound to the plaintiff, and sought to couch his evidence accordingly. Where his evidence was of assistance, however, was in his account of the background business dealings between Casil and Hong Kong Collina and Madam Sung, which had resulted in revolving credit facilities being granted to Hong Kong Collina. In particular, he recounted how Madam Sung had approached Casil in June 1998 requesting an advance of HK$1 million to Hong Kong Collina, Madam Sung then suggesting that the defendant could collect payment under a letter of credit to be opened in the Casil's favour, and that by this method the defendant would be in a position to set off the sum thus acquired against Hong Kong Collina's indebtedness to Casil.

16.These latter arrangements form the factual backdrop to this case. In due course the defendant was provided with the relevant documents for presentation to the bank in order to draw down under the letter of credit, as occurred, the sum thus collected reducing Hong Kong Collina's debt to Casil by HK$3,132,036. Mr Choi further stated that on 23 October 1998 he had been surprised to receive a letter of demand from the plaintiff's PRC lawyer requesting repayment of the monies paid under the credit, and that when he made inquiries of Madam Sung he had been assured by her that there was some misunderstanding and that she and Collina would take care of the problem. As to the alleged redelivery of the purported goods the subject of the letter of credit transaction, Mr Choi denied that the defendant had any knowledge of nor had it arranged for such redelivery, and in this regard he denied that the defendant had endorsed the back of the bill of lading, notwithstanding the presence thereon of the defendant's chop.

17.Regrettably Madam Sung Lai Na was not called by either side, although I am told by counsel that she had been the subject of a subpoena issued by the defendant, although in the event it was decided not to put her in the witness box. The court declined the unusual suggestion put forward by Mr Chain, counsel for the defendant, that the court should call Madam Sung of its own motion. So that at the end of the day the court did not have the benefit of hearing from the one person who clearly was the moving force (I suspect not obviously for the good) behind what had occurred, who had a detailed knowledge of what had taken place both from the Shanghai and the Hong Kong ends of the transaction, and who no doubt would have been in a position, had she been so inclined, to respond to a number of significant (and presently unanswered) questions arising in this unusual case.

The Plaintiff's Case

18.Against this background, Mr Smith SC appearing for the plaintiff, put its claim on an alternative basis: first, as a contractual claim in damages, and second, as a restitutionary claim for money had and received. In so far as the contractual claim is concerned, Mr Chain for the defendant conceded that if a contract could be established between the plaintiff and the defendant then the defendant had no defence to the claim in damages, albeit defences remained to the cause of action in restitution.

(i) The contractual claim

19.There is in this case no contract for the sale and purchase of this beauty equipment which has been signed both by the plaintiff and the defendant; as earlier noted, the contract as sent duly signed by the plaintiff was never countersigned and returned by the defendant. Nevertheless, the plaintiff submits that a contract came into existence with the defendant consequent upon an offer from the plaintiff to purchase the goods from the defendant by causing the letter of credit to be opened, and in turn an acceptance by the defendant of that offer by means of the presentation of conforming documents under the letter of credit.

20.In this connection, Mr Smith argued, and I agree, that the existence of the pre-existing agreement between the plaintiff and Shanghai Collina did not preclude the plaintiff acting as a principal in its own right vis-à-vis the defendant seller, citing the judgment of McNair J in Sobell Industries v Cory Brothers Co Ltd [1955] 2 Lloyd's Rep 82, at 90-91. He submitted also that this position was consistent with Articles 15 and 20 of the Foreign Trade Agency System Provisions in force on the Mainland, albeit for present purposes I do not think that this is of particular significance.

21.One of the factual oddities of this case, which is highlighted in terms of the plaintiff's contractual claim, is that Shanghai Tongji failed to adhere to the terms of the Agreement with Shanghai Collina which had provided, at Clause 1 thereof, that it should be Shanghai Collina which was to sign Contract No S198007-H. The draft contract had been appended to that Agreement and had specified Casil Clearing Ltd as Sellers, but had left blank the space reserved for the name of the Buyers. What had happened, as Mr Qin explained, is that this form of Purchase Contract received from Shanghai Collina had been redrawn to suit his company's wishes, in particular to delete the perceived complexity of the conditions within the original draft, and that the contract as thus redrawn, dated 12 June 1998 and bearing the same contract number, had been completed specifying Casil as Sellers of the Cromogei and Viscomplex beauty equipment, together with the insertion of the name and address of Shanghai Tongji as Buyers. It was this document, Mr Qin said, that had been prepared on the basis of the sale and purchase terms that Madam Sung already had agreed with Casil, and which then had been presented to her with the request that she arrange for Casil to sign it. Mr Qin added that out of trust for Casil and Sung, the duplicate of this contract, as signed by Shanghai Tongji, had been submitted to its bank, the Agricultural Bank, which was to open the letter of credit, notwithstanding the absence thereon of the counterparty signature of Casil, but that the contract as signed still had not been returned by Casil even by 17 June when the credit was established, nor by the time the relevant documents were negotiated. He said that the other problems which were being encountered at that time - in particular the failure of Shanghai Collina fully to pay the sum due against establishment of the credit and the subsequent problems of customs clearance and the apparent necessity to return the goods - meant that the absence of Casil's signature on the contract then had not assumed particular importance.

22.Mr Smith was undaunted by the fact that the contract was unsigned by Casil as Seller. He noted that for the purpose of his argument there was not much difference between this situation involving an unsigned contract, and the situation prevailing in similar proceedings pending in this court (to which reference is made in interlocutory affidavit evidence in this case) between another Shanghai plaintiff and Casil where the contract in question in fact was so signed, but where the defence therein pleaded that such contract was of no effect. He argued that there was no conceptual difficulty in treating the opening of the letter of credit as an offer by the plaintiff to buy the goods, in that the opening of the credit was made with a clear expression of willingness by the plaintiff to contract made with the intention that it was to become binding on the plaintiff as soon as it was accepted. He submitted that the terms of the offer were clearly spelled out in the credit, in particular the names of buyer and seller, the specific contract number, the description, quantity and price of the goods, terms of delivery, load and delivery ports, latest date of shipment and so on. Nor could there be any payment under the credit without tender by the defendant (as had occurred) of a commercial invoice the creation of which would be meaningless without a contract. Accordingly, this was a valid offer which was communicated to the defendant and had not been withdrawn at any time prior to acceptance.

23.As to acceptance, said Mr Smith, this had been constituted on 23 June 1998 when Casil had presented to Sin Hua Bank documents conforming with the requirements of the credit with the view to obtaining payment thereunder, as indeed had occurred. In this regard he drew particular attention to the 4 sets of commercial invoice issued on the defendant's letterhead, signed by the defendant's director, one Deng Dongdong, together with another authorized signatory, which bore the specific contract number and the letter of credit number, together with a description of the contract goods and the price and quantity thereof. In addition, 4 sets of packing list/weight memo were included on the defendant's letterhead, together with a full set of bills of lading containing a description of the goods which named the defendant as shipper.

24.On behalf of the defendant Mr Chain strongly disputed the existence of any contract between his client and the plaintiff. In a spirited address he submitted that the offer/acceptance analysis put forward by the plaintiff was bad in law, and that a letter of credit evidenced a contract but in itself generally did not constitute a contract between plaintiff and defendant. In order for a bilateral contract to exist, he submitted, there was required to be consensus ad idem, which required each contracting party to know of the other and to intend to contract with that other. But in this case, he said, the undisputed fact was that whilst the plaintiff knew the defendant by name, the plaintiff had had no contact the defendant until after the alleged acceptance, nor in this case had the plaintiff alleged that the defendant had acted through of Madam Sung. The short point, therefore, was that the defendant knew of the plaintiff as applicant for the credit, but not as a contracting party, that the defendant never had intended to contract with the plaintiff, and that there was no consensus in the sense explained by the High Court of Australia in this case of The Crown v Evan Clarke [1927] 40 CLR 227, a case upon which he placed strong reliance. He argued, moreover, that the opening of a letter of credit was not just an offer - which, unlike the opening of an irrevocable credit could always be withdrawn - and that by presenting documents under the credit the defendant simply was intending to obtain payment; accordingly its conduct was referable to that aim, and thus could not be regarded as unequivocal.

25.The argument is diverting, and I have reflected upon the various points that have been taken. With respect, I do not think that there is anything in what may be characterized as the 'irrevocable offer' argument, that is, that since the 'offer' was made through the opening of the irrevocable credit that it could not, as a matter of law, amount to a contractual offer. This does not follow. Some offers are irrevocable, some are not. The fact that this offer is not (if indeed 'offer' it be) cannot suffice to invalidate its nature. Nor do I consider there is anything of insuperable import in the 'autonomy of the credit' point. Whilst naturally I accept that the autonomy principle, enshrined by UCP Article 4, operates so as to insulate banks dealing with documentary credits from the underlying transaction (and disputes arising therefrom), as Mr Smith pointed out there is nothing in the autonomy principle precluding the terms of the underlying contract being modified, supplemented or supplied by the terms of the credit itself: see here, for example, Alan & Co v El Nasr Export and Import Co [1972] 2 QB 189, at 217, Ficom S.A. v Sociedad Cadex Limitada [1980] 2 Lloyd's Rep 118, at 131, and Shamsher Jute Mills Ltd v Sethia (London) Ltd [1987] 1 Lloyd's Rep 388, at 392. Indeed, in Ficom, op cit, Goff J (as he then was) referred to the ability of the letter of credit to "fill the contractual gap and so supplement the terms of the sale contract", while in Shamsher Jute, op cit, Bingham J (as he then was) observed that "by accepting the credit terms the sellers must be taken to have varied the contract in accordance with the terms of the credit they have accepted..." It followed, said Mr Smith, that the argument presently being put forward was merely a logical extension of these principles although, as he recognized, these cases in themselves did not suffice to get him home because in each of those instances there was in place a pre-existing contract to be so supplemented or varied. What, then, of this central thesis?

26.There is nothing intrinsically inimical in seeking to construct a binding contract in the manner outlined on behalf of the plaintiff, unusual though these particular circumstances may be. There is no dispute that the documents presented by the defendant for the purpose of drawing down the letter of credit were not only issued by the defendant but in fact, as Mr Choi accepted, were meticulously checked by the defendant's staff, including verification by the defendant's chop of the necessary amendments to these documents to ensure that they were compliant.

27.The commercial invoice, for example, No CS980601 dated 16 June 1998, issued on Casil's letterhead, not only invoiced for the correct contractual equipment at the correct price, but on its face bore the legend "Ref.: Contract No: S198007-H", which was the precise contract, as signed by the plaintiff, which had been sent by the plaintiff to the defendant via Madam Sung. Against this background, submitted Mr Smith, it mattered not that the Purchase Contract itself had not been signed and returned by Casil to Shanghai Tongji, nor, as was now maintained, that the authorized signatories on that invoice "did not intend to accept any alleged offer", as Mr Choi was anxious to stress in evidence. Indeed, so keen was Mr Choi to make this point that during cross-examination he was markedly reluctant, until taken to it detail by detail, even to acknowledge the exact correlation between the content of the documents which had been presented to the bank for the negotiation of the credit and the unsigned Purchase Contract. In fact, whether or not the Contract had been signed by Casil appeared to be a matter of indifference to him. When questioned about a similar contract signed by Casil as Sellers and by one Shanghai International Aero-Technology Trading Co as Buyers, and which involved the sale and purchase of similar beauty equipment to the value of US$921,640 - which transaction, I apprehend, is the subject of the pending proceedings to which I have earlier alluded wherein the contract in issue is said by the defendant to be a 'sham' - Mr Choi went so far as to admit that the defendant was prepared to sign or chop a contract in order to get paid without intending to be bound by it.

28.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. Mr Chain's submission that the defendant simply wanted to be paid is self-evident, but begs the question, paid for what? I fail to see that it is open to the defendant to say, as now appears to be the case, that in acting as it did it merely was securing repayment of Madam Sung's debt when the documents in the case, which had been carefully vetted and corrected by the defendant when received from Madam Sung/ Hong Kong Collina, on their face reveal a different story. In such circumstances conduct tends to speak louder than words, whatever is said by the defendant to have been intended - in which context I bear in mind that I have heard nothing from anyone in authority within the defendant who was involved with submission of documents pursuant to the letter of credit drawdown (such as Mr Deng Dongdong, or the other authorized signatory), the principal evidence on behalf of Casil being confined to that of Mr Choi Ming Kuen, Senior Treasury Manager of the defendant's parent company.

29.After reflecting on the circumstances of the present case, I have concluded that Mr Smith is correct in asserting the applicability of the principle in Brogden v Metropolitan Railway (1877) 2 App Cas 666 in which the House of Lords held that the actual conduct of the parties established the existence of the contract in question, which in that instance was the supply and purchase of coal, the court there holding that a clear course of action had been established between the parties from which such an inference fairly could be drawn. I would further add that I do not consider the Australian case of The Crown v Evan Clake, op cit to merit the significance accorded to it by Mr Chain. That case was concerned with acceptance of a reward and primarily focused upon what was required to constitute acceptance of an offer made to the world at large, a very different fact situation from that presently before this court.

30.It is also worth noting that it does not appear that the conclusion as to the existence of a contract between plaintiff and defendant was regarded by the defendant, at least initially, as incorrect or unfair. By a letter of 5 November 1998 to those acting for the defendant, the plaintiff's solicitors complained that the goods shipped against the defendant's Invoice No CS980601 never had been delivered, and that the goods purportedly shipped against the letter of credit turned out to be wallpaper paste, plastic boxes, cooking hoods, testing equipment and furniture and not beauty equipment; copies of the Packing List and relevant PRC Customs Record were enclosed and immediate repayment demanded of the sum of US$401,620 drawn down under the Letter of Credit dated 17 June 1998. In response, the defendant's solicitors, by letter of 14 November, maintained that their client had "in compliance with their Invoice No CS980601 dated 16th June 1998" supplied the beauty equipment in question which had been shipped and discharged at the Shanghai port, and that after shipment Casil duly had been paid the invoice amount under the relevant documentary credit. This letter continued 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", and concluded with an emphatic denial that there had been any attempt on the part of Casil to defraud. There was thus manifestly no suggestion in the early correspondence between the legal representatives of the parties that the transaction had constituted other than a contract of sale.

31.This has not been a straightforward matter, and I confess that this aspect of the case has caused a degree of hesitation. In my judgment, however, the plaintiff has succeeded in establishing its case in contract, and accordingly is entitled to recover against the defendant under this head.

(ii) The restitutionary claim

32.In light of the finding of a contract of sale, strictly speaking there is no necessity to go further and to consider the second barrel of the plaintiff's argument, that is, the claim in restitution. However, if and in so far as I be wrong about the validity of the contractual claim, and as to the existence of a contract, I turn now to consider the alternative basis upon which the plaintiff's case is put in this case.

33.Mr Smith submits that if, contrary to the plaintiff's submission, there was no contract between Shanghai Tongji and Casil, nevertheless the plaintiff is entitled to recover the sum of US$401,394.84 (the net proceeds of the credit as negotiated) as money had and received. This is on the basis that the consideration for the payment as was made under the credit has totally failed given that the Shanghai Tongji expected to obtain beauty equipment in return for permitting the defendant to obtain payment under the credit, that the plaintiff confidently expected a contract to be concluded between itself and the defendant, and that it was, as he put it, "disappointed in both expectations."

34.As to the goods which were shipped to Shanghai, and thereafter reshipped back to Hong Kong, from the evidence of Mr Qin and the contemporary documentation obtained from the Shanghai customs authorities there is in my view no difficulty in finding, as I now do, that these goods did not represent the beauty equipment as ordered, but instead comprised wallpaper paste, plastic boxes, furniture, testing equipment and cooking hoods of relatively slight, if any, commercial value far removed from the monies that in fact were paid for goods as represented by, and specified within, the commercial invoice and packing list issued by Casil.

35.At the outset, Mr Chain took two points. First, that the existence of the Agreement between the plaintiff and Shanghai Collina precluded any restitutionary remedy since such contractual regime rendered such a remedy inapposite and otiose, and second, that in any event there had been no failure of consideration, the plaintiff allegedly having got what it bargained for since not only did it have the right under this Agreement to be indemnified against the opening of the credit plus a fee of 2% commission, but also that such rights had been replaced by the agreement entered into with Shanghai Collina at the instance of Madam Sung on 20 July 1998. Under this agreement, urgently put in place and clearly designed to protect the then perceptibly deteriorating interests of Shanghai Tongji, it was agreed that Collina International (Group) Co Ltd was "to remit US$401,620.00 to Tongji Company before 30 August 1998" and that on behalf of Shanghai Collina a third party named Ganzhou Ya Jian Wall-Paper Co Ltd, Shanghai branch would guarantee and issue a cheque dated 30 August 1998 in the amount of RMB 3,476,847.00 in favour of Shanghai Tongji "for the purpose of redemption of bill of lading 090LC984280706" (the bill of lading pursuant to which the container purportedly containing the ordered beauty equipment initially had been shipped). Although not, I think, necessarily germane to this argument, as a matter of historical fact the plaintiff never was put in funds by Shanghai Collina, and the cheque from Ganzou Ya Jian, when presented, was dishonoured.

36.Although initially appealing, I do not consider that either of these two arguments succeed; they rely in significant part on the observations of Lord Goff in Pan Ocean Shipping Ltd v Creditcorp Ltd [1994] 1 WLR 161, at 164, wherein he observed that, on the facts of that case, as between shipowner and charterer there was a specific contractual regime legislating for the recovery of unpaid hire and thus "It follows that, as a general rule, the law of restitution has no part to play in the matter; the existence of the agreed regime renders the imposition by the law of a remedy in restitution both unnecessary and inappropriate."

37.In this regard the submission made on behalf of the plaintiff is that the facts of the Pan Ocean case are not analogous, given that in that case the consequences of the shipowner's failure to provide a ship were governed by an operative contractual provision between the plaintiff and the shipowners (the suit in fact was against shipowners' assignees), whereas in the present case it was Casil, and not Shanghai Collina, which was the party whom the plaintiff expected would furnish the consideration in the form of the beauty equipment in return for the money paid under the letter of credit. It followed, said Mr Smith, that the plaintiff's present claim against the defendant was in no way dependent upon any claim, restitutionary or otherwise, against Shanghai Collina or any other third party. I accept this submission. I also accept the further submission that, in these circumstances, not only has there been a total failure of consideration in the sense in which this term is used in the restitutionary context, but also that any other agreement is irrelevant in an instance, as here, of unjust enrichment. And in any event, as Mr Smith observed, the argument that there had been no failure of consideration ignored the commercial reality that Shanghai Tongji was acting as principal vis-à-vis Casil, so that its interest lay in ensuring delivery of the correct goods, with the result that, as matters transpired, its role was akin to that of a buyer who then resold to a designated sub-buyer, in this instance Shanghai Collina.

38.I turn now to consider the main defences under the restitutionary head, namely that of bona fide purchaser for value of the proceeds of payment pursuant to the letter of credit, alternatively the defendant's good faith change of position "by reducing H.K. Collina's indebtedness to the defendant by the full amount of what the defendant received pursuant to the Letter of Credit..." (paragraphs 16 and 17 of the Re-Amended Defence).

39.Mr Smith submitted that these defences were intrinsically artificial, and failed for two main reasons. First, and perhaps most important, he argued that in reality there had been no material 'change of position' at all. That which apparently had taken place was simply a reversible book entry, the defendant retaining a right of action against Hong Kong Collina and/or Madam Sung (as guarantor) under Article 11(6) of the Loan Agreement between Casil and Hong Kong Collina. In the circumstances, therefore, this situation did not fall within the principle outlined by Goff J (as he then was) in Barclays Bank v Simms [1980] QB 677, at 695 wherein it was held that a claim to recover money paid under a mistake of fact will fail if the money paid discharges a debt owed to the payee by the payer or by a third party by whom he is authorised to discharge the debt. It followed, said Mr Smith, that if, as here, Hong Kong Collina's debt had not finally been discharged there had been no material change of position, citing in this instance Waller LJ in Lloyds Bank v Independent Insurance Co Ltd [2000] 1QB 110, at 126, who observed that "if a payment has discharged the debt, then unless an order to return the money reinstates the debt, the payee will have changed his position in no longer having a remedy against the debtor."(emphasis added). I agree with this contention, and reject Mr Chain's submission that the point is bad in law on the basis of Lloyds Bank, op cit.

40.Mr Smith's second main point, and one which in my view is similarly well taken, is that the requirement of good faith, a necessary element within both of these defences, is not satisfied in this case. Knowledge of facts entitling a plaintiff to restitution normally defeats the defence of change of position, as Lord Goff expressly recognized in Lipkin Gorman v Karpnale Ltd [1991] 2AC 548, at 580 when he observed that "It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution..." In the present circumstances, submitted Mr Smith, it was clear that the defendant had not acted in good faith, indeed Casil "could not have cared less" whether the correct goods, as invoiced, had been shipped, that it was prepared to submit the documents in question simply in order to get paid, and that it had no real interest in what was going on as long as its own financial position was protected; accordingly when, for example, the defendant expressly was put on notice by the plaintiff's letter of concern of 6 July 1998 which referred to the fact that Madam Sung had told them 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 by that date the plaintiff patently was expecting shipment of the correct contractual goods, yet he chose in effect to turn a blind eye and do nothing apart from revert to Madam Sung and leave matters to her.

41.I agree with this submission. On the basis of the evidence in this case in my view Mr Smith is not putting it too high in asserting a general lack of good faith on the defendant's part in its involvement in a transaction wherein, unbeknownst to the plaintiff, the defendant's sole object was the repayment of a debt, notwithstanding that the defendant throughout had conducted itself as if there existed a contract for sale and purchase. Accordingly I am prepared to hold, as I now do, that in the circumstances the defendant has failed to demonstrate that element of good faith which remains an integral ingredient for success in these particular defences. Having reflected upon and reached this conclusion, there is therefore no necessity to essay a firm finding as to which of three possible dates - namely 25 June, 9 July and 27 June 1998 - it is variously asserted that the defendant's 'change of position' took place, although notwithstanding the absence of any advice in this regard from the defendant to Hong Kong Collina, certain accounts annexed to the statement of one Leung Wai Lin (who was not in fact called by the defendant) record a 'credit entry' made on 9 July 1998 regarding the letter of credit proceeds of HK$3,132,066.60 which in all probability reflects the true position.

42.The only remaining matter arising is the defendant's contention that by releasing the bills of lading to Shanghai Collina in order to facilitate the shipment of the container back to Hong Kong, the plaintiff no longer is in the position to make counter-restitution to the defendant. In the circumstances this is a curious point, if indeed the defendant ultimately continued to take it. On the defendant's own case, it never has been concerned with the goods, whether purportedly or as in fact shipped, so it is not easy to appreciate why the bills of lading, which in fact had become 'spent' on delivery, should be regarded as in any way significant - as Mr Smith remarked, there is no suggestion of any unsatisfied claim against the carrier, and in any event, on the defendant's case the bills of lading were procured by Madam Sung and were duly returned to her. And if and in so far as the complaint is that the plaintiff failed to return the goods to the defendant - which it maintains it never had supplied in the first place - there is prima facie evidence that the goods were so returned on the basis of the defendant's chop appended to the Release Order; alternatively, if the goods were supplied by the defendant through Hong Kong Collina, then those goods were thus returned to Hong Kong Collina.

43.It follows that I do not think that there is anything in this point either, although it serves to highlight a forensic curiousity, which is the striking omission by the defendant in this action to pursue Hong Kong Collina and/or Madam Sung by way of Third Party proceedings, given that on the defendant's own case these parties were responsible for the supply of what turned out to be demonstrably incorrect goods, notwithstanding continued assertions to the contrary. When coupled with the possibility of the reinstatement of the debt purportedly repaid in part by the proceeds of the letter of credit, the objective observer might well consider that the defendant would have had every motivation contingently to pursue Madam Sung, whom, as I have earlier observed, has made no appearance in this case despite being subject to a subpoena issued, but not enforced by, the defendant. Nor do I agree, as Mr Chain forcefully submitted, that evidence from Madam Sung would have been of "peripheral' or "minimal" relevance. To the contrary, in my view she was a central figure within this matrix of facts, and the decision not to involve her in this litigation no doubt was consistent with the narrow basis upon which the defendant chose to run its case.

44.In light of the foregoing, therefore, I reject Mr Chain's submission that the claim under this head fails to get off the ground, and hold in the alternative that the defendant has been unjustly enriched and that the plaintiff is entitled to succeed upon the restitutionary basis also.

The Sum Claimed

45.The plaintiff claims the sum of US$401,394.84 being the amount drawn down under the letter of credit, net of charges.

46.Mr Chain submitted that if, contrary to his submissions, the plaintiff was to succeed in its claim, the amount recoverable should be reduced by the sum of RMB450,000, which is the total of three individual sums received by the plaintiff from third parties acting on behalf of Shanghai Collina, two of which (RMB50,000 on 15 June 1998 and RMB150,000 on 27 October 1998) appear to have come from Ganzhou Ya Jian Wall-Paper Co Ltd, which is said to be a company affiliated with or connected to Madam Sung's husband.

47.Mr Smith argued to the contrary, maintaining as a matter of law that if the plaintiff succeeded on the restitutionary claim no credit need be accorded for such third party receipts, given that the basis of the claim is unjust enrichment and not compensation for the plaintiff's loss; it followed, he said, that the rules of mitigation and remoteness of damage do not apply, here citing Morritt LJ (as he then was) in Kleinwort Benson Ltd v Birmingham City Council [1997] QB 380, at 399, who stated that the principle requiring a plaintiff to bring into account in assessment of damages benefits derived from connected transactions could have no application to a claim for restitution of money paid by the bank to the authority as money had and received to the use of the bank: "In such circumstances there is no duty to mitigate anything."

I agree.

48.Alternatively, in terms of the contractual claim, Mr Smith made two submissions. First, that whilst ultimately there may need to be an accounting between the plaintiff and Shanghai Collina consequent upon recovery of the monies the subject of the letter of credit, such an accounting exercise did not concern the defendant, and that the plaintiff should not be required to give credit to the defendant for any sum absent a deed of release executed by Shanghai Collina in the plaintiff's favour. And second, that in an instance such as the present wherein restitution had been claimed in the alternative, if and in so far as a contract was found to exist it remained open to his client to elect, as it chose to do, to claim the restitutionary remedy as opposed to damages; in this connection he relied upon the Privy Council case of Personal Representatives of Tang Man Sit v Capacious Investments [1996] 1AC 514, wherein (at 521) Lord Nicholls stated: "Faced with alternative and inconsistent remedies a plaintiff must choose, or elect, between them. He cannot have both. The basic principle governing when the plaintiff must make his choice is simple and clear. He is required to choose when, but not before, judgment is given in his favour and the judge is asked to make orders against the defendant..."

49.In the event, in this case the plaintiff has been found to be successful in both contract and, in the alternative, under the restitutionary head. Accordingly, in so far as the point continues to be of importance, in my view Mr Smith is correct, and that in this situation it is open to the plaintiff to recover in the full amount of the claim undiminished by the necessity to give credit for sums otherwise received. I so find.

Order

50.There is to be judgment for the plaintiff against the defendant in the sum of US$401,394.84.

51.I make an order nisi that interest on such sum is to be paid at 1% over US dollar prime rate from time to time prevailing from the date of the issue of the writ herein to the date of judgment, and thereafter on such sum at the judgment rate from time to time prevailing. I further make an order nisi that the costs of this action are to be to the plaintiff, such costs to be taxed if not agreed.

Representation:

Mr Clifford Smith leading Mr CW Ling instructed by Messrs Siao, Wen & Leung, for the plaintiff

Mr Benjamin Chain instructed by Messrs Sit, Fung, Kwong & Shum, for the defendant

Remarks:

Appeal by the Defendant to Court of Appeal. Appeal allowed. Please refer to the appeal judgment of CACV000365/2002.