Thai Long Investments Ltd v. The Hongkong and Shanghai Banking Corporation Ltd

HCCL 4/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 4 OF 2006

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BETWEEN

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Before: Hon Chung J in Chambers

Date of Hearing: 26 May 2006

Date of Decision: 26 May 2006

Date of Handing Down Reasons for Decision : 2 June 2006

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REASONS FOR DECISION

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Introduction

1.At the end of the summons day on 26 May 2006, I discharged the ex parte injunction order granted on 15 February 2006 (and continued on 24 March and 31 March 2006) indicating that reasons for doing so would be handed down later.  They are as follows.

2.The ex parte order enjoined the defendant, the paying bank under a documentary credit, from paying the amount of the documentary credit (amounting to about US$264,000).  In essence, the basis of the ex parte application was, as disclosed in the plaintiff’s skeleton submission, that forged documents have been used by the beneficiary of the documentary credit, a Korean company called Kei Two Co. Ltd. (“Kei Two”), in an attempt to obtain payment under the documentary credit.  The plaintiff also alleged fraud on the part of Kei Two.

3.There are at least two unusual features.  One, the plaintiff has not, in accordance with the usual practice (see Practice Direction 5.3, para. 2.2) fixed the return day of the inter partes summons on the summons day immediately following the grant (in the context of this action, that would have been 24 February 2006).  Practice Direction 5.3, para. 2.2 provides that in usual circumstances:-

“… the return date for ex parte injunctions granted less than two clear days before a summons day will be the second summons day following the grant”.

Instead, although the ex parte order was granted on 15 February 2006, the inter partes summons was only returnable on 24 March 2006 (nearly one and half months later).

4.Two, more importantly, as I observed in the reasons for decision handed down on 29 March 2006, this action only named the paying bank as the defendant.  The beneficiary was (and still is) not joined as a party; nor was it sued elsewhere in relation to the documentary credit.  The net result is that, if the ex parte order is continued:-

“… effectively it will mean the plaintiff has obtained an injunction without the need to go through trial” (para. 9, reasons for decision).

This is because:-

“[it] is unlikely either the plaintiff or the paying bank will be interested in spending time or money to take the matter further” (para. 9, reasons for decision).

I expressed grave concern for the above state of affairs in the reasons for decision, echoing the same dissatisfaction as Kerr J in R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [1978] 1 QB 146, 154-5.

5.Having been made aware of the court’s concern, one would expect the plaintiff to take appropriate steps to ensure the complaint raised in this action will involve the party truly interested in its resolution, namely, Kei Two (or whoever else may be interested in the funds payable under the documentary credit).  This, however, did not happen when the plaintiff appeared in the court again on 31 March 2006 (it should be noted, though, the plaintiff sought an adjournment then to enable it to join Kei Two as the 2^nd defendant).  Worse still, by the summons day on 26 May 2006 (nearly 2 months after the handing down of the reasons for decision (and despite the earlier indication to court on 31 March 2006)), the only steps taken were the passing of correspondence between Hong Kong and Korea (elaborated below).

6.All that was presented to the court on 26 May 2006 was a line of correspondence passing between the plaintiff and various banking institutions in Korea.  The outcome of the correspondence, to put it shortly, is that it became clear to the plaintiff various banking institutions in Korea have become interested in the funds payable under the documentary credit (one by way of negotiation and the other by way of indemnity).  It is fair to infer that payments have probably been made by them to Kei Two earlier in connection with the documentary credit.  The plaintiff has fairly not asserted that they were not acting bona fide in doing so.

7.When pressed again for a reason why no legal action has been commenced against the parties interested in the funds payable under the documentary credit, the plaintiff indicated that it was concerned with the legal costs of any such action.  The concern is understandable because, as against parties who have in good faith become entitled to claim under the documentary credit, there is little chance the plaintiff (or the paying bank) can successfully resist the claim relying on the alleged forgery and/or fraud.

8.Hence, by 26 May 2006, the court’s concern that the way in which the ex parte order was obtained may be abusive (in that there was no real intention to join the proper parties to the dispute) was very probably proven correct.  Not only has the abuse not been rectified, there is also indication that neither the plaintiff nor the paying bank is likely to be able to resist payment under the documentary credit on the grounds relied upon to obtain the ex parte order.

9.For these reasons, it would be quite wrong to continue the ex parte order, bearing in mind especially the need to maintain the integrity of the documentary credit system in Hong Kong.

Ms A Li, of Messrs Cheung, Chan & Chung, for the Plaintiff

Defendant acts in person and absent