Ong King (Otherwise Spelt As Keng) Seng v. Toyo Menka Kaisha Ltd
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IN THE SUPREME COURT OF HONG KONG ORIGINAL JURISDICTION ACTION NO. 1917 OF 1967 ----------------- BETWEEN
----------------- Coram : Briggs J. in Court Date: 15 March 1972 ------------------------ J U D G M E N T ------------------------ 1. The Plaintiff carries on business under the name of the GrandTrading Company a trading concern which has a branch office registeredin Hong Kong. 2. In May 1961 the Plaintiff contracted with the Indonesian Government to supply the Indonesian Army with 220,000 sets of webbing equipment. The goods were to be delivered by the end of December 1961. 3. It was agreed that payment would be made by opening a letter of credit with the Bank of Indonesia through a bank in Hong Kong to the amount of more than 20 million Hong Kong dollars. The goods purchasedwere to be paid for in three separate instalments, the money to be drawn from the letter of credit. The first instalment was to be paid in 1961, the second twelve months after the first, and the third and last, twenty four months after the first. In this action we are concerned only with the thirdinstalment. 4. In June 1961 the Indonesian authorities duly opened a letter of credit in accordance with the terms agreed upon between the parties. I will refer to this as No. 40229 in this judgment. 5. In July 1961 after considerable negotiations and preparations the Plaintiff and the Defendant entered into a contract whereby the Defendant was to supply the Plaintiff with the webbing equipment which he required to satisfy the terms of his contract with the Indonesian authorities. 6. Under this contract the Plaintiff agreed to establish a letter of credit in favour of the Defendant through the United Commercial Bank of Hong Kong Ltd. Such a letter of credit was opened. I will refer to it as No. 29990 in this judgment. 7. This letter of credit contains the following clause:- “It is a condition of this letter of credit that payments thereunder will be effected by us as above but only on surrender to us of documents made out in strict compliance with the terms and conditions of the same and only after our having received the respective payments under Irrevocable Letter of Credit No. 40229 dated 10/6/61 opened by the Bank of Indonesia, Djakarta, in favour of Grand Trading Co., and lodged with us. It is understood that our commitments under this credit are entirely dependent on our receiving payments from the Bank of Indonesia under their credit of which a skeleton copy is attached. When the respective payments are received by us under Bank of Indonesia’s credit we will instruct you ..... etc.” We are not here concerned with the necessity for the presentation of the shipping documents before payment, but what we are interested in is that the Defendant could not expect to draw any sums under No. 29990 unless and until the United Commercial Bank had received moneys under 40229. 8. It will be remembered that the contract between the Plaintiff and the Indonesian authorities stipulated that all the webbing equipment should be delivered by the end of December 1961. There were delays, but eventually all the equipment was delivered. The first two instalments were paid. The third instalment was due in November or December 1963, namely two years after the Indonesian Army had received the subject matter of the contract, the sets of webbing equipment. 9. The contract made between the Plaintiff and the Indonesian authorities refers to the vendor, the Plaintiff as:- Arief Husni represented by OngKeng Seng (the Plaintiff) alias Arief Husni, who trades under the name of Grand Trading Company, Singapore. At that time Singapore was part of Malaysia. By 1963 relationships between Indonesia and Malaysia were passing through an awkward stage. It was called at the time by journalists and others a state of ‘confrontation’. 10. One result of this was that the Indonesian Government assumed control of all transactions in foreign currencies, and made it impossible for the Indonesian Bank to transfer money to or on behalf of any Malaysian subject. 11. It seems that in due course the Defendant asked the UnitedCommercial Bank about the money due to them under the third instalment. In December 1963 or January 1964 the United Commercial Bank approached the Bank of Indonesia as to this, and were met with the reply that since Grand Trading Company was in effect a Malaysian Company they, the Bank of Indonesia, could not transfer the third instalment to the United Commercial Bank. They did not deny that it was due however, but said all they could do in the circumstances was to open up an account in favour of the Plaintiff, but to block it until the Indonesian Government changed their policy. 12. This of course did not please either the Plaintiff or the Defendant. Theyboth wanted their money. I do not doubt that various negotiations were attempted. It would seem that the parties put their heads together and evolved a scheme whereby the Plaintiff would agree to allow the Defendant to stand in his shoes for the purposes of receiving the third instalment under 40229, The whole point being of course that there was no confrontation between Japan and Indonesia. It was hoped that the Bank of Indonesia would pay the Defendant under 40229, the Defendant would subtract the amount which was due to them from the Plaintiff, and hand over the balance to the Plaintiff. 13. In order to bring this about two letters were written which amount to a contract between the parties. The Plaintiff wrote a letter to the Bank of Indonesia stating that since they, the Plaintiff owed the whole amount of the third instalment due under 40229 to the Defendant, they requested the Bank to pay that amount direct to the Defendant, and that if that were done, the Plaintiff would waive any rights to receive payment under 40229. This letter was submitted to the Bank through the Defendant. 14. The second letter dated March 31, 1964 was written by the Defendant to the Plaintiff as follows:- 15. I shall refer to this letter as A47 for the purposes of this judgment. “TOYO MENKA KAISHA, LTD. 31st March, 1964. Mr. Ong Keng Seng, Dear Sir, Re: The third instalment With reference to the captioned payment in the amount of US$1,212,952.12, you have submitted a letter to Bank Indonesia, Djakarta through us, to the effect that you waived the right to receive the full amount of this payment subject to being paid by them directly to us. And also you agreed to assign to us all the rights and acts which deemed to be necessary to receive the payment from them. Regarding to the above, we hereby guarantee that we will refund the balance which we are obliged to pay to you after deducting from the aforestated amount of US$1,212,952.12 the cost of merchandise, interest and charges as follows:
We shall also do our best to assist you in your proceeding to claim interest from the Indonesian Bank, and shall be glad to provide you with any necessary support required by you. Furthermore, we pronounce that this Letter of Guarantee will become null and void in the event that Bank Indonesia, Djakarta, refuses the direct payment to us and, in consequence, we fail to receive the payment from them. Yours faithfully, 16. The letter of the Plaintiff and A47 clearly show in my view that the Plaintiff and Defendant had contracted together to secure the payment of the third instalment under 40229. The Plaintiff promised to provide the letter to the Bank of Indonesia and in consideration the Defendant agreed to do certain acts, if but only if, they received moneys from the Bank. 17. Unfortunately the letter uses the word ‘guarantee’ and it was referred to as a letter of guarantee in the statement of claim. One of the arguments of the Defendant was that the letter was a guarantee in law. 18. An excellent definition of the meaning of a guarantee in law is contained in the first words of ‘A Treatise on the Law of Guarantees’ by one, Anselm de Colyar (1897) -“A guarantee” he says “is a collateral engagement to answer for the debt, default or miscarriage of another person”. But a document does not become ‘a guarantee’ because the parties choose to call it a guarantee. A47 cannot in my view be construed as a guarantee. There is no principal debtor. A47 does not make the Defendant liable to pay the amount of the third instalment due under 40229 if the Bank of Indonesia refuses to pay or pays the Defendant nothing. Indeed the last paragraph of the letter clearly states that if the Bank refuses direct payment to the Defendant, A47 becomes null and void. A47 maybe described as a conditional undertaking. If the Defendantis paid by the Bank direct, the Defendant after making the agreed deductions from the sum so paid, will pay the balance to the Plaintiff. 19. While I am dealing with this point it is obvious that the Plaintiff’s letter to the Bank, which was, by agreement, supplied by the Plaintiff, contains an untruth. It states that the Plaintiff owes the Defendant the whole amount of the third instalment, which was not so. I do not think that this is of importance so far as A47 is concerned. The Defendant made use of the letter in their negotiations and cannot now complain of an untruth of which they must have been aware and in effect took advantage of at the time. 20. On June 6th the Plaintiff wrote to the Indonesian Army Authorities requesting them to use their influence to allow direct payment to the Defendant. 21. On June 20, 1964 the Defendant addressed the Minister of the Central Bank Djakarta also asking for direct payment of the third instalment stating that the Plaintiff was in agreement to this course of action. 22. The Defendant evidently used all possible approaches to secure payment. There is evidence in the agreed bundle that eventually the President of Indonesia himself was approached. This was President Sukhano and the date was October 1964. 23. Certain payments were eventually made in September and November 1965 with which I shall deal later. There is a gap between the date of the agreement contained in A47 and the date of the first payment in September 1965 - that is, a gap of eighteen months, There is evidence that down to and including November 1964 various negotiations were in progress. 24. The Defendant sent one Kanji Hoshida to Djakarta to negotiate on their behalf for a few months in early 1964. He told the Court that he interviewed various persons including the Japanese Ambassador in Djakarta, all to no purpose. 25. The Chief Representative of the Defendant in Indonesia between the middle of 1961 and the middle of 1964 was a Mr. Abe who was also called as a witness. He worked even harder than Mr. Hoshida. He seems to have interviewed every body whom he thought would be of use to secure payment directly to his Company. It was apparently he who represented the Defendant in their appeal to President Sukhano. 26. Mr. Abe left Indonesia in mid-1964 returning to Indonesia in January 1965 where he remained until December 1965, He told the Court that he knew of and had received A47 in April 1964, and he made use of it in his negotiations. He of course worked with Mr. Hoshida when that gentleman came to Indonesia. Mr. Abe also said that he conducted his negotiations on the basis of the shipping documents. He apparently produced the invoices and shipping documents to the relevant authorities and added that he “demanded” payment. In an answer to counsel Mr. Abe said that he did not base his negotiations on A47: he based them on the shipping documents. But he was in possession of A47 from an early date and certainly showed it as part of his case to his Ambassador. In the event, neither A47 nor the shipping documents assisted Mr. Abe who came away empty handed. 27. Another witness called by the Defendant was Mr. Shimize. Between August 1964 and July 1966 Mr. Shimize was the Sub Chief Representative of the Defendant in Djakarta. He saidhe also carried out negotiations. On August 1965 he received a copy of a letter (which was exhibited) from the Indonesian Army Authorities to His Highness the Minister of the Central Bank Djakarta. It is one of many equivocal documents produced in this case. It is an application from the Army Authorities to the Central Bank asking them to open a letter of credit in favour of the Defendant “so that the balance of the debt of the Armed Forces to the Grand Trading Company can be settled”. It adds that the representative of the Defendant will contact the Bank of Indonesia direct. 28. I do not know why this letter was sent to Mr. Shimize. The letter states that the application is made “in accordance with His Highness, the President’s order to us” that is to the Army Authorities. What part if any Mr.Shimizeplayed in this I do not know. 29. The reason why I have set out a resume of this part of the evidence called by the Defendant will beapparant later in this judgment. 30. The scene now shifts to Tokyo. Some time in early September 1965 Mr. Jooji Azuma the manager of the Finance Department of the Defendant received a communication from a certain Mr. Natalegawa. At that time the Bank of Indonesia had been nationalised and its successor was known as the Bank Negara Indonesia. That Bank did not have a branch in Tokyobut it did have an office: and Mr. Natalegawa was described as “the Chief Representative of the Bank Negara Indonesia in Tokyo”. 31. Mr. Azuma said that Mr. Natalegawa approached him with a draft letter of guarantee and asked him to type it. He did so after consulting other officials in his company. A copy was exhibited and it reads as follows:- 32. I will refer to this as A50. “Letter of Guarantee / Indemnity
BANK NEGARA INDONESIA DJAKARTA.
33. On September 15, November 15 and November 19 the Defendant acknowledged the receipt of a sum of US$404,215.90 from the Bank Negara Indonesia on each occasion. Each receipt states that the amount is a part payment of “the amount as specified in” A50. 34. It is the Defendant’s case that they did not receive these amounts and that the receipts were a sham. I will return to that point later. 35. On this part of the case the Defendant makes three points. First that any such payment was not made under the letter of March 31, 1964, A47, because that letter was a guarantee and the Plaintiff revoked their guarantee in October - November 1964. Secondly and alternatively that even if A47 is not a guarantee it was anyway revoked by the Plaintiff in the said months. And thirdly that A47 had lapsed because of the time lag of 18 months between the date of A47 and the date of the first payment. The consequence of any one of these three points is that any payment made was made as a result of independent negotiations between theDefendant andthe Indonesian Bank irrespective of A47. 36. The importance of this is that the Plaintiff originally sued under the contract contained in A47.At a later stage he amended his statement of claim toadda claim for money had and received to his use. If the payments were not made under A47 the Plaintiff relies upon the amended claim. It is the contention of Mr. Bernacchi that in the event of that claim of the Plaintiff being successful, the Defendant would be entitled to the whole of their costs because the amendment is in effect an addition of a new cause of action and it was only inserted at the trial. It should be added that the writ in this action was filed on December 16, 1967. 37. The Defendant places great reliance on two documents appearing in the agreed bundle. The first is obviously a corrupt translation of the Indonesian original (also exhibited): I had a certified translation made of the second in view of the unintelligibility of the translation also contained in the agreed bundle. 38. The first document reads (sic)
Djakarta Oct. 26, 1964.” The document is not signed, though it appears to have been witnessed. 39. It purports to state that the Plaintiff relinquishes something which he did not possess. Mr. Bernacchi reads the words to mean that the Plaintiff was revoking his agreement to waive his rights under 40229 in favour of the Defendant. The word “renounce” he says means here ‘revoke’. This is an Humpty Dumpty argument. Whatever the Indonesian words mean that is not the meaning of the English version which appearsof course to say the exact opposite namely that the Plaintiff relinquishes all his authority as owner of Grand Trading Company to the Defendant.Incidentally no document dated August 10, 1964 was produced or referred to other than in this document. This document was referred to by one of the Defendant’s witnesses to whose attention it was brought during his attempt to arrive at a settlement in Indonesia. I know no more about it, than that its original purpose like its meaning remains obscure. I do not see that this takes the case for the Defendant any further. The second document is dated at Djakarta on November 28, 1964. The certified translation reads as follows:‑
Again this document comes from the Defendant’s side and was shown to the Defendant’s representatives some time in Indonesia. It was produced to them by an official of the Bank of Indonesia. 40. I have already stated that A47 is not a guarantee: that it is a contract. Presuming therefore that these two documents are genuine and giving the first document the meaning sought for it byMr. Bernacchi, what is their effect? They cannot be a revocation ofthe contract for they are not signed by nor is there any evidence that they have been accepted by the Defendant. They are unilateral statements made by the Plaintiff: the former I have already dealt with. The latter seems to state that if the third instalment under the Plaintiff’s contract with the Indonesian Authorities is paid less an amount of1¼ million dollars Hong Kong, then and upon that condition the Plaintiffwill make no further claim. It does not state from whom. The Plaintiffis also to be responsible for any claim against the Indonesian army. But there could be no such claim under the original contract, for thearmy authorities had performed their part of that contract. It is unilaterally expressed and it certainly does not revoke the contract in A47. It was not suggested that this apparent attempt at a bargain was ever carried out. A unilateral declaration such as this is cannot act as a revocation of a contract. The Defendant never revoked A47 indeed on the same date as this document we have the President of the Defendant company writing to President Sukhano obviously relying upon the agreement in A47. 41. In any event the wording of A50 dated September 15, 1965 clearly shows that the Defendant still considered that A47 was in force since it specifically refers to the Plaintiff’s undertaking. The Plaintiff’s case is of course that he was always bound by A47. This disposes of the first and second points. 42. The third point is that A47 lapsed by virtue of the timelag. I do not think that this is so. In the period in question history was being made in Indonesia. It is noticeable that no documents have been exhibited between November 28, 1964 and August 12, 1965. I am not suggesting that all contact between the parties and the Indonesian authorities stopped. But they must have been tenuous and I have heard nothing of them. I have reached the conclusion therefore that there is no evidence that A47 was revoked by the Plaintiff nor that it had lapsed. It was in my view still in force when the payments were made. 43. I have also considered, irrespective of A47 whether the payments were made not under A47 but as a result of independent negotiations made by the Defendant himself. There is no evidence of this. I have dealt with the evidence of the witnesses called by the Defendant on this point at some length. Their efforts were unsuccessful. After this there is a long period of silence. And finally we have A50. This clearly as I have already said acknowledges the continued existence of the terms of the agreement contained in A47. 44. It follows that in my view any payments made were made under A47 which was never revoked and did not lapse, and that the payments were not made under some other agreement with the Defendant. 45. We now come to the payments themselves. There is a direct conflict of evidence here. The Plaintiff says that the Defendant received the sum of US$1,212,647.94 cents in three amounts of US$404,215.98 cents. As proof of this they point three receipts for this sum dated September 15, November 15 and November 19, 1965. These are admittedly the receipts of the Defendant, i.e. acknowledgments of payments to them of those sums. In addition there has been exhibited a letter from Bank Indonesia which reads in part as follows:-
46. This letter is dated October 22, 1969 and was in answer to a query sent to the Bank Indonesia by the then Solicitors of the Plaintiff, after the commencement of this action. The Plaintiff gave notice that they intended to put the statement contained in this letter in evidence under the Evidence (Hearsay) Rules 1970. No counter-notice requiringa person to be called under Rule 8 of those Rules was served because,as was stated in the notice itself, the persons recording the statements were overseas. 47. The Plaintiff therefore relies on a totally uncontradicted unequivocal statement made by the State Bank of Indonesia - who may be fairly described as an independent witness. And this is backed by the three receipts of the Defendant which are agreed documents. 48. The Defendant states that though they signed the three receipts for US$404,215.98 cents acknowledging payment of the amount due they did not receive that amount in fact. All they received was three checks for US$323,372.78 cents on three different occasions. On each occasion they received a receipt or what purports to be a receipt for US$80,843.20. These checks and receipts were exhibited.The checks were drawn on the Bank of Tokyo, and are dated September 17, November 15 and 19th 1965 respectively. 49. The three receipts state that Mr. R.S. Natalegawa received the sum of US$80,843.20 cents from the Defendant: such sum in each case is said to be received for the Bank Negara Indonesia. Mr. Natalegawa it will be remembered was the Indonesia Bank representative in Tokyo,and it is in that capacity that he signed these receipts. 50. The Defendant gave notice that they intended to put these checks and receipts in evidence under the Evidence (Hearsay) Rules 1970. In addition they put in under the same Rules two letters. The firstis a letter signed by Mr. Natalegawa in his capacity as the Bank’s representative. The second is a letter from the Defendant to the Bank of Tokyo dated December 1965. The first letter contains the following words: (we confirm that) “we made payment to you of the net sum of US$970,118.34 after having deducted US$242,529.60 for and in conformity with the instructions of Bank Negara Indonesia”. That is to say this letter which was written on March 31, 1966 confirms the amounts mentioned in the checks and receipts above. The second letter is a confirmation from the Bank of Tokyo that they had issued the three checks and had, at the request of the Defendant, remitted the amountsto a New York Company which is a subsidiary of the Defendant. Again no counter-notice was served under the rules and for the same reason. The effect is that Defendant’s case is that all they received was the sum of US$970,118.34 and no more. 51. Mr. Azum gave evidence as to those transactions. He was not a helpful witness partly because perhaps he was hedged about by the rules excluding the production of hearsay evidence. 52. He said that the terms of A50 were discussed with other members of the Defendant Company. It was not a secret arrangement. He received nothing at all on September 15, 1965 which is the date of the first receipt for US$404,215.98 as well as the date of A50. 53. He said that on three occasions he received a check from Mr. Natalegawa for US$323,372.78 together with a receipt signed by Mr. Natalegawa for US$80,843.20. These two sums made up the amount of the receipt he had already given Mr. Natalegawa on behalf of the Company for US$404,215.98. 54. Mr. Azuma agreed that A50 contemplated the repayment of the exact sum of the third instalment of 40229 in full. He admitted that his Company did not receive that full sum. He said that thewhole transaction was done at the instance of Mr. Natalegawa. And hesaid, he had to do as Mr. Natalegawa said. “There was nothing elsewe could do” he said. However it was clearly in his mind that all the rights of the Defendant to receive the third instalment under 40229 would be extinguished after the Defendant Company had received the third amount of US$323,372.78, and the third receipt for US$80,843.20 fromMr. Natalegawa and had given the third receipt of his Company for US$404,215.98. 55. Mr. Azuma said that the three receipts given by his Company for US$404,215.98 were not suppressed. He agreed with Mr. Litton that receipts issued by the Company must be entered in their books, but said that in this instance only the sums actually received were entered.He had not himself looked at the books of his Company to see what was entered. Later in his evidence he said the amounts of the checks would not be entered in the Company’s books in Japan but only in the books of the American Subsidiary. However he added that the three receipts ofUS$404,215.98 would appear (he thought) in the books of the Company kept in Japan. In re-examination he said that neither these receipts nor the receipts of Mr. Natalegawa would appear in the Company’s books in Japan. 56. So there was a direct conflict in his evidence. And no wonder; it is alarming to be told that the receipts of a business house of the stature of the Defendant may not bear a true relation to the payment that they evidence. 57. There is one other point. At first Mr. Azuma said that the payments were not made under the letter of credit 40229. Laterin his evidence he said that the payments were made in satisfaction of the third and last instalment and would have the effect of extinguishing it. He explained this discrepancy by saying there was a difference between payment “under” and payment “in connexion with” a letter of credit. The former expression means that a person draws directly under a letter of credit; the latter means that one does not. This was I thought a specious explanation but irrelevant to the facts of this case. A50 most definitely is concerned with the third and final instalment payment under letter of credit No. 40229. It is concerned with nothing else. 58. No one including Mr. Azuma could be in any doubt for what reason Bank Indonesia was paying the Defendant: it was payment directly under the letter of credit. 59. What has not been explained is for what reason Mr. Natalegawa gave the Defendant the three receipts for US$80,845.20. Mr. Azuma said he did not know. I do not believe him. The evidence on this issue of the Plaintiff is clear and unambiguous. The evidence of the Defendant is not. The receipts given to Mr. Natalegawa have not been explained. And I do not think the documents which he signed can be said to have been signed by an independent witness. The letter signed by him as the Bank’s representative confirming the payment of the lesser amounts does not carry the Defendant’s case any further, without an explanation of the statement that the Indonesian Bank instructed that the deductions should be made. The same applies to the letter from the Bank of Tokyo. We do not know whether the Bank paid any money to Mr. Natalegawa. Finally I was not satisfied with the evidence of Mr. Azuma. Whatever went on between the Defendant and Mr. Natalegawa went on without the knowledge or assent of the Plaintiff. And what went on has an unsavoury smell. 60. I think that the burden of proof lies on the Plaintiff, that is it is for him to prove that the whole of the third instalment was received by the Defendant. I think that on the balance of probabilities they have discharged that burden. There is a conflict of evidence between the parties and of the two versions I have heard. I prefer the version given by the Plaintiff resting as it does on unimpeachable documents. I accept that version and reject the version of the Defendant depending as it does on an inherently suspect transaction half concealed from the Court and unsatisfactory verbal evidence. 61. It follows that there must be judgment for the Plaintiff. This will be for US$320,228 with interest. According to A47 interest is to run after 40 days from the receipt of the Defendant of the full amount. This was November 19, 1965. A correct date from which interest is to run is January 1st 1966. The correct rate of exchange has been agreed at US$1 = HK$5.71. There will be judgment therefore for the Plaintiff for HK$2,735,758.53 which includes interest at 8% per annum until to-day's date. And there will be interest on the judgment debt at the rate of 8% until the sum is paid. 62. The counterclaim is dismissed with costs. And the Plaintiff is to have the costs of the action.
H. Litton, Q.C., & D. Chang(T.S. Tong & Co.) for Plaintiff B. Bernacchi, Q.C., & B. Liu(Lau, Chan & Ko) for Defendant | |||||||||||||||||||||||||||||||||