Swiss Singapore Overseas Enterprises Pte Ltd v. China Citic Bank Corporation Ltd, Xiamen Branch

FAMV No. 50 of 2014

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 50 OF 2014 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACV NO. 197 OF 2013)

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REASONS FOR DETERMINATION

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Mr Justice Fok PJ :

1.At the hearing, we dismissed this application for leave to appeal and indicated that we would provide our reasons for doing so in due course, which we now do.

Background

2.The applicant (the Beneficiary) had contracted to sell a quantity of iron ore fines to a buyer in China (the Buyer), that quantity being subject to a margin of tolerance.  The sale price was to be paid by irrevocable letter of credit subject to the UCP 600[1] and, on the Buyer’s application, this was issued by the respondent bank (the Bank) in favour of the Beneficiary.  However, for reasons not gone into, the tolerated quantity margin of iron ore fines called for under the letter of credit differed from that stipulated in the sale contract.  The cargo of iron ore fines was shipped and the quantity actually shipped and evidenced by the shipping documents was within the tolerated quantity margin in the sale contract but was less than the tolerated quantity margin in the letter of credit.

3.Documents were presented by the Beneficiary under the letter of credit. However, after initially informing the correspondent bank[2] that it had accepted the documents presented under the letter of credit as complying, the Bank subsequently sought to issue a notice of rejection of the presentation of the documents.[3]  At the time of the 1^st Message, the Bank had not in fact examined the documents presented and it was the evidence of the Bank’s manager, accepted by the Judge at trial, that he believed he had two more days after the 1^st Message in which to examine the documents and to decide whether to reject them or not.  In the face of a dramatically falling commodity price for iron ore fines, there then ensued a dispute between the correspondent bank and the Bank as to whether the Bank had served a valid notice of refusal under the letter of credit.

4.In the meantime, the Beneficiary and Buyer entered into negotiations over the price to be paid for the iron ore fines.  This resulted in an addendum to the sale contract signed on 22 September 2008 which reflected a lower sale price.  Significantly, the Beneficiary also issued a letter to the correspondent bank on 22 September 2008 requesting it to send a message to the Bank in these terms:

“The value of the bill has been reduced to US$5,122,240/- instead of US$7,185,105.43. Kindly release the documents to the Applicant M/s. Xiamen C and D Inc., upon receipt of US$5,122,240.00 only.”

5.These instructions from the Beneficiary were duly forwarded on the same day by the correspondent bank to the Bank by SWIFT message by what was referred to below as “the September Message”.[4] Payment of the net sum after charges of US$5,122,067 was made by the Bank to the correspondent bank on 26 September 2008.

6.In May 2009, the Beneficiary brought this action against the Bank claiming the difference between the original contract price of the iron ore fines and the US$5,122,067 it had received, being approximately US$2.2 million.

7.At first instance[5], the Judge[6] found for the Beneficiary and entered judgment in its favour.  He found that the 1^st Message contained a representation by the Bank that it had received documents which complied with the terms of the letter of credit and was authorising reimbursement.  He did not find that, having made that representation, the Bank was obliged to honour the credit by reason of Article 15a of the UCP 600, since he found that at the time of the 1^st Message the Bank had not in fact determined that the presentation of documents was compliant.  However, the Judge found that the 3^rd Message was not a valid notice of refusal because it had been preceded by the 2^nd Message which already contained a statement of refusal to honour the letter of credit (but without properly setting out the discrepancies relied upon) and that the Bank was therefore precluded by reason of Article 16f of the UCP 600 from claiming the documents were not compliant.  The Judge rejected the Bank’s defences of variation, waiver, estoppel and compromise giving rise to accord and satisfaction.

8.On appeal[7], the Court of Appeal[8] allowed the Bank’s appeal on the basis that the defence of accord and satisfaction was available as a matter of law and was made out on the evidence.[9]

The application for leave to appeal

9.The Court of Appeal dismissed the Beneficiary’s application for leave to appeal to this Court.[10] The Beneficiary renewed that application to the Appeal Committee by Notice of Motion dated 26 September 2014.  The Beneficiary sought leave to appeal pursuant to section 24 of the Hong Kong Court of Final Appeal Ordinance[11] contending that the intended appeal raises questions of great general or public importance and also relying on the “or otherwise” limb of the section.  Substantially the same six questions said to be of great general or public importance that were raised in the application to the Court of Appeal were again relied upon by the Beneficiary in this application.

No question of great general or public importance

10.The result of the appeal below turned on the effect of the September Message from the correspondent bank to the Bank.  Thus, Question 4 which is in these terms:

“In circumstances where there is a claim for payment due on a contract, and in the absence of an express representation that no further sum is due, whether mere silence or a message relayed to a third party (which only indicates that the defendant should pay part of the sum due) can amount to a representation to the defendant that there has been acceptance of a lesser sum sufficient for accord and satisfaction?”

is necessarily fact-specific and, in the circumstances of this case, is framed in terms contrary to the finding of the Judge affirmed by the Court of Appeal, namely that the representation in the September Message was a clear and unequivocal representation by the Beneficiary that it would not be claiming from the Bank any shortfall between the original amount of the letter of credit and the reduced amount to be paid.  On the basis of that concurrent finding, the conclusion that the Beneficiary’s claim against the Bank for payment under the autonomous letter of credit contract was the subject of a valid compromise in law was one which flows from the application of well-established principles of the law of compromise.[12]

11.Although the Beneficiary sought to raise a ground of appeal on the basis of an argument that the defence of accord and satisfaction had not been properly pleaded (Question 3)[13], this did not raise a question of great general or public importance.  Instead, Question 3 simply raises an entirely fact-sensitive pleading point which the Court of Appeal dealt with on established principles[14].

12.The question raised by the Beneficiary as to the separate availability to the Bank of the defence of accord and satisfaction to the Beneficiary’s claim under the autonomous letter of credit contract, as opposed to its availability to the Buyer in compromise of the price payable under the sale contract (Question 6),[15] is posed in the context of concurrent findings of fact made by the Judge[16] (notwithstanding that he did not ultimately hold that the Bank could avail itself of this defence) and the Court of Appeal.[17]

13.Nevertheless, whilst accepting that this finding meant that there was an accord, Mr Charles Sussex SC contended, on behalf of the Beneficiary, that a question of importance was raised as to whether it was legitimate to apply the domestic law of compromise to a transaction governed by the UCP 600, the international nature of which has been emphasised[18], and submitted that there was no consideration for that compromise.  However, there was a genuine dispute as between the Beneficiary and the Bank as to the liability of the latter under the letter of credit and, in the context of that dispute, we were satisfied that the contention that the UCP 600 precludes the application of domestic, Hong Kong, law to the question of compromise of that dispute is not reasonably arguable.

14.Whilst the remaining questions relied upon by the Beneficiary (Questions 1, 2 and 5) raise potentially interesting points of law, we were satisfied that the arguments arising from them are academic as between the parties.

15.As to Questions 1 and 2[19], the Court of Appeal’s conclusion that the Bank had not served a proper notice of refusal under the UCP 600 meant that it was liable to the Beneficiary under the letter of credit, and therefore for the difference between the full amount under that credit and the lesser sum actually received, unless it could make out one of its defences.  Therefore, in view of the conclusion reached as to the availability of the defence of accord and satisfaction, those questions do not arise.

16.Finally, as to Question 5[20], the issue of accord and satisfaction, which the Court of Appeal determined in favour of the Bank, was dispositive of the appeal and the Court of Appeal did not need to consider whether that satisfaction also amounted to consideration for a variation of the letter of credit contract or constituted change of position for the purposes of promissory estoppel.  Those questions were not in fact argued before the Court of Appeal and we were satisfied it would not be appropriate for them to be raised for the first time in this Court.

Or otherwise

17.Although the “or otherwise” limb of section 24 was relied upon by the Beneficiary, the only basis for reliance on this limb was said to be that there had been “a serious miscarriage of justice” arising from the Court of Appeal’s reversal of the Judge’s judgment in its favour “on the basis of a case which was never pleaded or expressly articulated in argument”.  As we have noted above, the Court of Appeal considered and rejected the Beneficiary’s pleading point on well-established principles.  We were satisfied that its decision on that issue, to say the least, did not involve any miscarriage of justice.

Conclusion

18.For these reasons, we dismissed the application for leave to appeal with costs.

Mr Charles Sussex SC, instructed by Smyth & Co., for the Plaintiff (Applicant)

Mr Nigel Kat, instructed by Eversheds, for the Defendant (Respondent)