B+B Asia Ltd v. Stadard Chartered Bank

HCAL000003/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION LIST

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Coram: The Hon Mr Justice Stone in Chambers

Date of Hearing: 9 January 1998

Date of Delivery of Decision: 9 January 1998

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DECISION

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1. This is an application by the Plaintiff herein against the Defendant, the Standard Chartered Bank, effectively to restrain payment under a performance bond.

2. I have reminded myself of the established law, in particular, the well known case of Edward Owen Engineering Ltd v. Barclays Bank International Ltd [1978] 1 All ER 976, and the cases thereafter. I have also had cause to refer to the Hong Kong Court of Appeal case Bollore Furniture Ltd. and Another v. Banque Nationale de Paris [1983] HKLR 78.

3. This is an application made ex parte on notice. Mr Shaw appears on behalf of the Standard Chartered Bank ("the Bank"). He is conversant with the problems that have arisen and he has told me that the Bank's position is neutral; he feels he is between a rock and a hard place (to use his colloquialism) but that he will "follow the Court's direction". I should also add at this stage that when the matter was first mooted before me on Wednesday of this week, that is two days ago, I declined to hear the matter ex parte and insisted that the Bank be here in some form or other; as it is Mr Starr, who appears on behalf of the Plaintiff in this matter, has chosen to conduct matters on an ex parte on notice basis rather than inter partes on short service. Be that as it may. This obviously has a bearing on the form of the Order.

4. Basically the law on performance bonds and instruments of similar ilk is clear. The established exception is fraud, which is one of the points that Mr Starr takes, although perhaps not with the degree of enthusiasm I might have anticipated. His other line of argument is that ineluctably, on the face of the documents before the Court, the performance bond itself (entitled in this case 'Letter of Guarantee') which has been put in place by the Plaintiff with the Bank for the benefit of the Thai Employer, has expired. Indeed Mr Starr says that it expired on 9^th September 1997 with the issuance of the Certificate of Practical Completion in this Project. This matter is confirmed by a letter from the Project Manager to the Employer in terms. In these circumstances, therefore, whilst recognising the prevailing line of authorities, Mr Starr contends, in summary, as follows:-

5. First, that on the face of the documentation before the Court, this bond has expired and is no longer in force, notwithstanding the absence of a specific expiry date thereon. This seems to me on the documents to be a strong argument, and he prays in aid in this regard dicta from Fuad J.A. and Cons J.A. in Bollore, op.cit. It also seems to me that the fact that (perhaps unfortunately) the document does not bear an expiry date on its face is not necessarily disastrous given the specific provisions in the contract regarding the expiry of the letter of guarantee, and in light of the other collateral material that has been put before me.

6. Second, Mr Starr says (and this is the point he might perhaps have led with) that the very fact of this demand having been made by the Employer upon the Chartered Bank, some two weeks after the Employer itself had paid out the Thai baht equivalent of US$2 million, and against what seems to be pretty strong evidence that the guarantee had expired, points strongly to this being a fraudulent application to draw down; and, of course, that the Bank has notice of this fact, and therefore it comes within the established exception in Edward Owen. I am bound to say, also, in considering this call for US$2 million under the bond by a Thai Employer, and the inferences as to a fraudulent demand, that I think it would be inappropriate in the circumstances for a commercial judge in Hong Kong to bury his head in the sand and not to take notice of the currency upheavals which have taken place recently in Southeast Asia, and in particular, the current manifest shortage of US dollars.

7. After some real degree of reflection, I am going to grant Mr Starr the injunction he seeks. The circumstances in which a court will interfere with an international commercial obligation such as performance bonds, letters of guarantee, letters of credit and so forth, are few and far between. This case I perceive very much as being one of the exceptions which proves the rule. Notwithstanding the undoubtedly strong counter-argument that the Bank is good for the money, and therefore that the balance of convenience is against the grant of the injunction, I think that the circumstances of this case are sufficient, when looking at the picture in the round, to justify the grant, in the unfettered exercise of my discretion, of a limited injunction in the terms presently sought.

8. Mr Starr tells me that he intends to join, or at least apply to join, the Thai Employer to this action as a "necessary or proper party" pursuant to the provisions of Order 11 rule 1(1)(c), Rules of the Supreme Court. I await that application, which seems, on its face, to be appropriate. And he perceives, as a consequence thereof, a trial wherein the Employer will no doubt attempt to make good the validity its demand upon the Bank. But that is for the future.

9. I have attempted to give a summary of my reasons at this stage because this is an exceptional situation, and it is, I think, appropriate and consonant with open justice that the Employer and its legal adviser should have the opportunity to understand the thought process of the judge who in fact, and most unusually, is interfering in this instance with an established instrument of international commerce.

10. But I do so, nevertheless, for the brief reasons I have given. I will now hear Mr Starr upon the form of the Order.

Representation:

Mr Paul Starr of M/s Mallesons Stephen Jaques, for Plaintiff

Mr Shaw of M/s Deacons Graham & James, for Defendant