Bliss Success Ltd v. Tong Hok Keung and Others

DCCJ 4761/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4761 OF 2005

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BETWEEN

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Coram: Deputy District Judge W.C. Li in Court

Date of Hearing: 11^th and 12^th September 2006

Date of Handing Down Judgment: 19^th September 2006

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JUDGMENT

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1.The Plaintiff witness, Mr. Peter Wong, (“Mr. Wong”) was the manager of the Plaintiff. He testified that the contents of his statement and supplementary statement before the court were true and correct, and he adopted them as his evidence.

2.The background of this case was that Mr. Wong knew the 2^nd Defendant, Mr. Liu Chun Kit (“Mr. Liu”) who was believed to be a former bank manager. Mr. Liu was absent for the trial. Only the Plaintiff who was represented by Counsel and the 1^st Defendant, Mr. Tong Hok Keung (“Mr. Tong”) and the 3^rd Defendant, Mr. Pin Chiu Ping (“Mr. Pin”) were present for the trial. Mr. Tong and Mr. Pin appeared in person. Mr. Wong testified that in 2004, Mr. Liu introduced him to Mr. Tong and Mr. Pin, and the four of them agreed on a joint business venture. Mr. Wong was told by the 3 Defendants that Mr. Pin knew the people in charge of a company in Tianjin in Mainland China called Tianjin Metallurgical Import and Export Company Limited (“TM”). TM wanted to buy fine iron ore and the 3 Defendants could find a supplier called Kyodo International LLC (“Kyodo”) in Dubai to sell 60,000 metric tons of fine iron ore at US$3.6 million and which they could re-sell to TM for US$3,84 million.  Mr. Wong knew that Kyodo was a company located by the 3 Defendants on the internet. The key factor was Mr. Pin’s connection with TM in Tianjin. TM was willing to buy from a company Mr. Pin nominated. They could find a supplier on the internet and all they needed was a company with banking facilities to issue letters of credit to put through the transactions. Mr. Wong was chosen to be the man whose company, the Plaintiff, was to deal with the financing and to issue the letters of credit relating to this venture. Mr. Wong’s statement stated that he would have 30% of the profit and the remaining 70% of the profit would go to the 3 Defendants. To conclude the deals successfully, the Plaintiff entered into contract with TM to sell and contracted with Kyodo to buy 60,000 metric tons of fine iron ore of Indian origin. The Plaintiff would buy from Kyodo at US$3.6 million and sell to TM for US$3.84 million.  A Performance Bond Guarantee (“PBG”) of 2% of the contract price was sent to the Plaintiff by Kyodo. The Plaintiff had to issue a PBG in favour of TM for 2% of the contract price as well, i.e. for US$76,800.00. Mr. Wong testified that Mr. Liu had told him that for this transaction, he only had to take out US$4,800.00 and he could use the PBG from Kyodo as a back-to-back letter of credit to issue the PBG of US$76,800.00 in favour of TM. When the PBG in favour of TM was delivered to TM, TM would send a letter of credit for US$3.84 million in favour of the Plaintiff, and the Plaintiff would likewise send to Kyodo a letter of credit in favour of Kyodo for US$3.6 million. In theory, everything appeared to be fine. All Mr. Wong had to do was to provide banking facilities and use US$4,800.00 and he could earn 30% of the difference in the contract prices for the buying and selling of 60,000 metric tons of fine iron ore. By simple arithmetic calculation, the profit was US$240,000.00 and Mr. Wong ‘s 30% share would be U$$72,000.00.

3.Mr. Wong testified that his profit was in fact US$1 out of the US$4 made from each metric ton. This appeared to differ from the evidence in his statement that his share of profit was 30%. Mr. Wong further testified that 60,000 metric tons did not mean he could earn US60.000.  He said he was quite happy if his share was US$13,000.00. He testified that the rest of the profit had to be shared, not just between the 3 defendants, but also under table monies were to be paid to the people in TM who gave this contract to Mr. Pin. It was pointed out to Mr. Wong that his evidence in court differed from the evidence in his statement. Mr. Wong did not explain the discrepancy in his evidence but said 5% profit difference was not much. Mr. Wong’s revelation of under table monies paid to the people in charge of TM was also shocking to the court. He impressed the court to be playing down the amount of profit he would receive at the end of the day. This was a joint venture with strangers and was one designed to make fast, easy money. The parties had future co-operation in their mind. Indeed from the Defence statements, TM expressed a willingness to co-operate with the Plaintiff in future transactions.

4.The events did not turn out to be a piece of cake. After the contracts were signed, the price of iron ore soared. Kyodo reneged on their promise to supply the iron ore. The PBG issued by Kyodo was conditional and not transferable. The Plaintiff had to take out US$76,800 instead of US$4,800 to issue the PBG to TM. The Plaintiff was left without a supplier. Mr. Wong and the 3 Defendants decided to go to Dubai to meet the people at Kyodo to salvage the contract. Mr. Wong also asked the 3 Defendants to talk to TM asking them not to forfeit the 2% PBG in the event that the Plaintiff could not deliver the iron ore to TM. Mr. Pin rang TM at the Plaintiff’s office and had secured TM’s assurance that the Plaintiff’s PBG could be refunded to the Plaintiff in gradual stages in the course of future transactions if the Plaintiff could not make delivery of the iron ore on this occasion. Mr. Pin also managed to get TM to extend the letter of credit to allow the Plaintiff more time to find a supplier (Par. 19 of Mr. Wong’s statement refers).

5.Mr. Wong prepared a “guarantee” document in Chinese and asked the 3 Defendants to sign it. This document was dated 5^th. October 2004 and was signed by the 3 Defendants. The “guarantee” referred to the TM contract and stated that the 3 Defendants were responsible for all expenses relating to the order and if the transaction were not successful, they would be responsible for the return of the US$76,800 PBG paid by the Plaintiff.

6.Mr. Wong’s statement said that after the signing of this “guarantee”, they then went to India to seek a supplier of the iron ore (Par.23). This was not a correct statement. The “guarantee” was in fact signed before the trip to Dubai. The idea of making a trip to India came when they could not find a supplier in Dubai, and as the iron ore were of Indian origin, they decided to go direct to India to seek a supplier.

7.In the same statement, Mr. Wong stated that he agreed to provide banking charges, air tickets, hotel accommodation and traveling expenses, and the 3 Defendant in return were to sign this “guarantee”. In Mr. Wong’s supplemental statement (Par. 5), he stated that although the parties were to pay for their own expenses, the 3 Defendants wanted the Plaintiff to pay the full cost of the trip to Dubai and in the end, it was the Plaintiff who paid for the all expenses. From the evidence in the trial, it transpired that this was not true. The Plaintiff had not paid for all the expenses for the trip to Dubai. Two of the Defendants had flown there before Mr. Wong and they paid for their own air tickets and hotel expenses. Mr. Wong agreed to this fact under cross-examination. Mr. Wong also agreed that he paid for the expenses in the subsequent trip to India because the 3 Defendants had run out of funds and these payments were advances and it was agreed that he would be reimbursed from the profit money when the transaction was successfully concluded.

8.By the very first line of the “guarantee” (page 92 of Plaintiff Bundle), it stipulated that the 3 Defendants were to be responsible for all expenses of the purchase order. Mr. Wong drafted this “guarantee” himself and asked the 3 Defendants to sign it. It certainly did not state, as he had testified in court, that the guarantee was given in return for all expenses to be paid by the Plaintiff. He had falsely given the court the impression that consideration had been given for the “guarantee”.

9.The “guarantee” here was actually a collateral contract and unless it was under seal, it must be supported by consideration. Mr. Wong had tried to mislead the court in his statement that consideration had been given on his part in return for this collateral contract. His evidence had been shown to be untruthful. The “guarantee” was prepared and signed before the Defendants went on the Dubai trip. Mr. Wong asked Mr. Pin to talk to TM about not forfeiting his 2% PBG in the event that he failed to deliver the goods to TM. It was clear that Mr. Wong’s mind was directed on the return of the PBG to him, and the “guarantee” was therefore worded to the effect that in the event that the order was not concluded, the 3 Defendants would be responsible for the return of the PBG. In the circumstances, no consideration been given for this “guarantee” by the Plaintiff.

10.The wordings of the “guarantee” appeared not to have stipulated for the consequence of failure to secure the return of the PBG. In the statement of Mr. Wong (Par. 22), he said that the guarantee was that the guarantors would reimburse the Plaintiff the amount of the PGB (US$76,800) if the Plaintiff failed to carry out the contract. This was not what was written on the “guarantee” itself. The “guarantee” merely promised to be responsible to secure the return of the PGB.

11.The “guarantee” did not say how the PGB was to be returned. According to the Defence, Mr. Pin had spoken to TM on Mr. Wong’s request, to ask them not to forfeit the PBG, and TM had agreed not to forfeit it but to return the amount of the PBG to the Plaintiff at different stages in the course of their future dealings. This was conveyed to Mr. Wong. This evidence was not disputed. Mr. Wong was not happy with the answer, and the relationship with TM soured when the Plaintiff refused to return the letter of credit back to TM even though when the Plaintiff knew they had no goods to deliver to TM.  The letter of credit was for US$3.84 million. It was understandable why TM was eager to have the letter of credit back when it became clear in November 2004 that the Plaintiff could not deliver the goods. It was only in February 2005 that TM forfeited the Plaintiff’s PBG. TM had held on to the PGB without taking forfeiture action for quite a long while after the expiry of the time to deliver the goods under the contract.

12.On these facts, I take the view that the Defendants had already done what they could under the circumstances to secure the return of the PBG to the Plaintiff. What the Plaintiff wanted was to have the whole sum of US$76,800 back at once. I did not think that this was possible under those circumstances. The Plaintiff was in breach of contract to TM and the whole purpose of the PBG was to guarantee performance. TM would have no reason or excuse to return the PBG money all at once.  However they did offer to make refunds in stages when future transactions were carried out between the Plaintiff and TM.

13.The wordings in the “guarantee” contained the ambiguities as mentioned in pars. 10 and 11 above. The Plaintiff seeks to rely on this document to claim US$76,800 back from the 3 Defendants. Any ambiguities would be construed against the party seeking to rely on this document. I cannot see how the Plaintiff could rely on the ambiguous terms of this document to support their claim that this was a guarantee to reimburse the Plaintiff.

14.Lastly, Mr. Wong’s evidence disclosed that this was in fact an illegal contract. His evidence left nothing to my imagination that under table monies were paid to the people in TM who gave this contract to Mr. Pin. If Mr. Wong was right, the whole thing was an illegal scheme, a criminal conspiracy between the Plaintiff and the 3 Defendants, and the people who gave the contract to Mr. Pin to defraud TM. How could this court help the Plaintiff to enforce a contract that contravenes both HK and Mainland China laws? It is also contrary to public policy to allow any party to enforce such a contract.

15.For these reasons, the Plaintiff’s claims must fail. I therefore dismiss the Plaintiff’s claims and order that the Plaintiff is to pay the costs of this action to all 3 Defendants, to be taxed if not agreed. This cost order is an order nisi to be made absolute in 14 days.

The Plaintiff : represented by Mr. Juan Cheung of Messrs. Tam, Pun & Yipp

The 1^st Defendant : appeared in person

The 2^nd Defendant : not legally represented and being absent from the trial

The 3^rd Defendant : appeared in person