Ong King Seng v. Toyo Menka Kaisha Ltd
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CACV000018/1972 IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION CIVIL APPEAL NO. 18 OF 1972 (On appeal from O.J. Action No. 1917 of 1967) -----------------
----------------- Coram: Full Court (Blair-Kerr, S.P.J., Huggins and McMullin, JJ.) Date of Judgment: 25th January 1973 ----------------- JUDGMENT ----------------- Blair-Kerr, S.P.J.: This was an appeal by the defendant company from the decision of Mr. Justice Briggs who, on 15th March 1972, gave judgment in favour of the plaintiff for HK$2,735,758.53 and dismissed the defendant's counterclaim. We dismissed the appeal on 25th January. My Brother, Mr. Justice Huggins, gave an extempore oral judgment with which I and my Brother, Mr. Justice McMullin, agreed; but I indicated then that I would, as soon as possible, record my reasons in greater detail. I now proceed to do so; and I shall refer to the parties as "the defendant company" and "the plaintiff" rather than "the appellant" and "the respondent" respectively. 2. The plaintiff did not call any oral evidence; and it would appear that the trial judge put very little, if any, weight on anything said by the defence witnesses. The parties rested their case, to a large extent, on a bundle of "agreed" documents (marked "A" in the court below). It will, therefore, be necessary to refer to parts of those documents. 3. The plaintiff is a merchant who carries on business in Djakarta (Indonesia), Singapore, and Hong Kong. In Indonesia he trades under the name "Arief Husni", and in Singapore and Hong Kong under the name "Grand Trading Company". The defendant company carries on business in Japan; but it has a branch office in Hong Kong. 4. In May 1961 the plaintiff signed a contract in Djakarta under which it was agreed between him and the Ministry of National Defence (Indonesia) that he would sell 220,000 sets of webbing equipment to the Indonesian Land Forces, the price being HK$19,415,000. He undertook to deliver 100,000 sets by the end of June 1961 and the remaining 120,000 sets by the end of December 1961. The Indonesian authorities undertook to pay for the webbing by opening an irrevocable letter of credit through a bank in Hong Kong for HK$20,793,465, the first drawing to be in 1961 for HK$6,601,100, the second drawing [HK$7,261,210, being HK$6,601,100 plus interest] 12 months after the first payment; and the third and last drawing [HK$6,931,155, being HK$6,601,100 plus interest] 24 months after the first drawing. A copy of the contract was marked A-1 in the court below. 5. Pursuant to that contract, in June 1961 the Bank Indonesia opened a letter of credit [A-12] with the Hongkong and Shanghai Banking Corporation (hereinafter referred to as "L/C 40229") for HK$20,793,465 in favour of the plaintiff. There were to be 3 drawings all as specified in the contract A-1. This L/C was subsequently transferred to the United Commercial Bank Ltd. Hong Kong. It was valid until 31st December 1963. 6. The plaintiff does not manufacture webbing equipment; and it is clear that he intended to procure the goods either from, or through, the defendant company, who describe themselves on their note paper as "Importers, Exporters, Agents and Distributors ... Tokyo, Japan". His negotiations with the defendant company for the supply of the webbing began in April; but, for present purposes, the final contract between the parties is dated 17th July 1961 [A-13 in the court below]. 7. Condition 2 of that contract reads in part:-
8. Pursuant to that contract, on 14th August 1961, the United Commercial Bank Ltd. opened a letter of credit [A-16] (hereinafter referred to as "L/C 29990") for US$2,586,000 in favour of the defendant company with a Trust Company in New York. Again, this L/C provided for payment to the defendant company (or rather its U.S.A. subsidiary) by way of 3 instalments of US$877,500, US$854,250 and US$854,250; but it also provided as follows:-
The credit expired on 23rd December 1963; and, it is obvious that under this arrangement the defendant company could not expect to draw any sums under L/C 29990 unless and until the United Commercial Bank had received monies from Bank Indonesia under L/C 40229. 9. Delivery of the webbing was delayed due to the fact that certain tropical cyclones (typhoons) struck Japan in the summer of 1961. But delay in delivery is not an issue in this case. What is of importance is that in the early 60's, although there was no formal declaration of war between them, Indonesia and Malaysia were, for a number of years, virtually at war with each other. It came to be called "confrontation"; and, not unnaturally, various Exchange Control Regulations were enacted by the Indonesian Authorities which had the effect of preventing the Bank Indonesia from remitting money, directly or indirectly, to, or on behalf of, any person resident or carrying on business in Malaysia; and it has to be remembered that during the relevant period Singapore was part of Malaysia; and, as I have said, the plaintiff carried on business in Singapore. 10. It appears that all 220,000 sets of webbing equipment were delivered to the Indonesian Army; and the first two instalments to the plaintiff under L/C 40229 and to the defendant company by the plaintiff under L/C 29990 were paid. It is the third and last instalment, which was due to be paid on or before December 1963, with which we are concerned in this case. 11. The Bank Indonesia were perfectly willing to meet their obligations. On 10th January 1964, they wrote to The United Commercial Bank, Hong Kong [A-43] saying:-
12. Clearly, this did not suit the plaintiff or the defendant company. Each party wanted to be paid in full as soon as possible; and it would appear that the parties put their heads together and evolved a scheme, the object of which was to get round the Indonesian Exchange Control Regulations. And so, on 26th March 1964, the plaintiff wrote to the Bank Indonesia [A-46] as follows:-
13. The plaintiff sent this letter to the defendant company for transmission to the Bank Indonesia; and, on 31st March 1964, the defendant company wrote to the plaintiff [A-47] as follows:-
14. If, as the parties said, the last instalment of HK$6,931,155 was equivalent to US$1,212,952.12, it would appear that the rate of exchange at that time was US$1=HK$5.71. On that rate of exchange US$2,586,000 was equivalent to HK$14,766,060. The difference between HK$20,793,465 and HK$14,766,060 is HK$6,027,405. HK$6,027,405 is nearly 29% of HK$20,793,465. In other words, if there had been no "confrontation" and the Indonesian authorities had been able to pay the 3rd instalment, the plaintiff's profit on the whole contract would have been nearly 29%. 15. Under A-47 "the cost of merchandise" [US$854,250] was simply the 3rd instalment due under L/C 29990. But the defendant company were improving their position considerably in that, as and when they would receive the 3rd instalment from the Indonesian authorities, they would be entitled to deduct not only the amount of the 3rd instalment [US$854,250] payable under the original contract, but also 6 months interest and "charges" amounting in all to US$38,170 [total US$892,420] leaving a balance of US$320,532.12 which they undertook to pay to the plaintiff. 16. Further negotiations with the Indonesian authorities took place. The judge in the court below had before him a copy of a letter dated 20th June 1964 [A-49] from the defendant company's Tokyo office addressed to "The Minister, Central Bank, Djakarta", and a copy of another letter dated 28th October 1964 [A-51] signed by the President of the defendant company in Tokyo and addressed to President Sukarno, the then Head of State in Indonesia. In the earlier letter, the defendant company repeated the agreed untruth that the whole of the US$1,212,952.12 was due to them; but the object of both communications is clear enough viz. to obtain the assistance of these high officials in Indonesia in the matter of getting the full amount of the 3rd instalment remitted to the defendant company. As I have said, so far as the Bank Indonesia was concerned, the Exchange Control authorities would only permit the third instalment to be credited to an account in Indonesia, which account was to be blocked until the end of the confrontation. That was as far as the Exchange Control Authorities felt they could go. 17. So far, the letters and other documents are all in English and were written by persons who were obviously familiar with that language. We now come to two documents upon which counsel for the defendant company places great reliance. According to a defence witness (Shimize) the original of one of these documents was on a file at Indonesian Army Headquarters; and the other was on a file at the Head Office of Bank Indonesia in Djakarta. The originals are in the Indonesian language. What appears to be a photostat copy of one of them [A-53] was before the judge together with a number of translations. The original of the other was not before the court. The judge had before him what Shimize said was a typed copy [A-52] together with a translation; and the English translations of this document and of A-53 leave a good deal to be desired. The translator does not appear to be very familiar with the English language. 18. The first document [A-52] is dated 26th October 1964, and the translation before the court reads:-
The document is not signed or initialled by the plaintiff; nor is it a photostat. It is simply typewritten. In the agreed bundle there is also what appears to be a copy of a notorial certificate which, according to the witness Shimize, refers to the original of A-52. The certificate reads:
Again this document is not a photostat, and it is not signed or initialled by anyone. It is simply a piece of paper with typewritten words on it. 19. It is common ground that the other document [A-53] is signed by the plaintiff. A translation (certified by a court translator to be a true translation!) reads as follows:-
There were two other translations before the judge. In one of them there appeared the words "reduced by" and in the other "diminished by" in place of the word "deduct". 20. According to the defence witness Shimize, in June 1965, a Miss Rhahani, an employee of the Bank Indonesia in Djakarta showed him "the original" of the document A-52 and he copied it by hand and sent a copy of it to the head office of the defendant company in Tokyo. He also said that in June 1965 he spoke to some officer at Army Headquarters and that he was "shown" the document A-53, that he was given a copy of it, and that he sent the copy to the head office of the defendant company in Tokyo. 21. There is now a gap of some 8 or 9 months; and the next document [A-54] appears to be a confidential memorandum dated 12th August 1965 from Operational Command, Djakarta to The Minister of the Central Bank. A translation reads:
22. In point of date, the next document [A-50] is what, on its face, is called a "Letter of Guarantee/Indemnity" by the defendant company in favour of the Bank Negara Indonesia, Djakarta. ["Negara" means "State". Clearly, the Bank Indonesia had been nationalised during the confrontation.] This document is dated 15th September 1965. It was signed in Tokyo; and it reads:-
23. It appears that the Bank Indonesia did not operate a branch of the bank in Tokyo; but, for some reason or other, they had what was described on their notepaper as a "representative office". The person in charge of that office during this period was a Japanese named Natalegawa. 24. According to another Japanese witness called by the defendant company (a Mr. Azuma) who described himself as the manager of the Finance Department of the defendant company, a few days before 15th September 1965, Natalegawa gave Azuma a "draft" of A-50, and asked Azuma to sign it and return the document together with the draft to him (Natalegawa); and Azuma said that he did so. 25. From a plain reading of this document, there are two points of significance. Firstly, there was no evidence that the so-called "draft", apparently prepared by Natalegawa, differed in any way from the final document typed and signed on behalf of the defendant company in Tokyo. Both Natalegawa and the defendant company apparently considered that the defendant company's declaration of indemnity in favour of Bank Indonesia should be predicated by reciting the existence of the plaintiff's letter of 26th March 1964 addressed to the Bank Indonesia (through the defendant company) in regard to the third instalment under L/C 40229 [A-46]. 26. Secondly, on 15th September 1965, the defendant company apparently anticipated that the full amount of the third instalment would be paid to them by Bank Indonesia, but that the figure would be some US$304.18 less than US$1,212,952.12 viz. US$1,212,647.94. Presumably the change was due to some slight alteration in the rate of exchange. 27. The next group of documents which the judge had before him consists of 3 receipts dated 15th September, 15th November and 19th November 1965 respectively [A-56, A-59, and A-62]. These receipts were issued by the defendant company in Tokyo in favour of Bank Negara Indonesia. They read as follows:-
The total of the three sums mentioned is US$1,212,647.94, the figure mentioned by the defendant company in their declaration A-50. 28. The next group of documents are three cheques [A-55, A-58, and A-61] drawn by the Bank of Tokyo Ltd. in favour of the defendant company. They are cashier orders, that is to say cheques drawn by the Bank of Tokyo upon itself. They are dated 17th September, 15th November, and 19th November 1965; and each is for the sum of US$323,372.78. Each is endorsed thus:
except that in the case of the cheque dated 17th September 1965 [A-55], this endorsement appears to have been deleted and the deletions initialled by some person. 29. Next, we have a group of receipts dated 17th September, 15th November and 19th November 1965 [A-57, A-60, and A-63] written on Bank Negara Indonesia notepaper, and signed by Natalegawa. Each document is in favour of the defendant company, Tokyo, and each document acknowledges receipt by "Bank Negara Indonesia, Representative Office" from the defendant company of the sum of US$80,843.20. 30. Therefore on 15th September 1965, the defendant company acknowledged unequivocally to Bank Indonesia that they had received one-third of the US$1,212,647.94, the figure which they apparently had in mind when signing their declaration A-50. There was no evidence that any money actually changed hands that day. However, two days later, we find the Bank of Tokyo drawing a cheque in favour of the defendant company for US$323,372.78; and, on the same day (17th September), Natalegawa made out a receipt for the difference between US$404,215.98 and US$323,372.78 viz. US$80,843.20 that is to say the receipt purports to show that Bank Indonesia received from the defendant company US$80,843.20. The same sort of thing purports to have occurred on 15th and 19th November 1965. 31. Three times US$323,372.78 is US$970,118.34; three times US$80,843.20 is US$242,529.60; and US$970,118.34 plus US$242,529.60 equals US$1,212,647.94. US$970,118.34 is almost exactly 80% of US$1,212,647.94 and US$242,529.60 is almost exactly 20% of US$1,212,647.94. 32. As can be seen from A-47, the total of the various amounts which the defendant company were entitled to deduct from the monies which they anticipated they would receive from the Bank Indonesia was US$892,420. As I have said, according to them, they received US$970,118.34 [not US$1,212,647.94]. US$970,118.34 exceeds US$892,420 by US$77,698.34; and one would have thought that, if there was any truth in their story, that they would have communicated with the plaintiff, explaining to him whatever happened in Tokyo in September and November 1965, and that they would at least have offered to remit to him the US$77,698.34. 33. In fact, the defendant company did not remit to the plaintiff any portion whatsoever of the US$1,212,647.94 (or, as they allege, the US$970,118.34). They do not suggest that the plaintiff agreed to the alleged retention of US$242,529.60 by the Bank Negara Indonesia. Indeed, they do not allege that they even informed the plaintiff of what went on between them and Natalegawa in Tokyo; and there is no evidence that in 1965 the plaintiff had any knowledge of what the defendant company alleges took place in Tokyo in September and November that year. 34. On 10th December 1965, the defendant company thought fit to write a letter addressed to the Bank of Tokyo. It reads as follows [A-64]:-
In all probability this letter was not sent through the post because there is no separate communication by way of a reply from the Bank of Tokyo, as one would expect in the normal course of business. Instead, there is an endorsement on A-64, also dated 10th December 1965, reading: "We hereby certify the above to be true and correct", which suggests that A-64 was probably taken by hand to some official in the bank by someone in the employment of the defendant company and some official in the Bank of Tokyo made the endorsement the same day. 35. The defendant company also thought fit to obtain something in writing from Natalegawa. On 31st March 1966, this gentleman, wrote [A-65] to the defendant company on Bank Indonesia notepaper as follows:-
36. There was no evidence that at this period the plaintiff was pressing the defendant company for payment, much less threatening legal action. As I have said, there is no evidence that he knew anything about what was going on in Tokyo. Yet, we find the Bank of Tokyo and Natalegawa being requested by the defendant company to "certify" and "confirm" a number of matters said to be evidenced by the various receipts and cashier orders to which I have referred. It would appear that the defendant company wished to safeguard themselves in the event of the plaintiff instituting proceedings against them. 37. We do not know when and how the plaintiff came to know that in 1965 Bank Negara Indonesia had remitted the full amount of the third instalment to the Bank of Tokyo. He appears to have consulted Singapore solicitors in 1967; and their letter of 3rd July 1967 [A-66] to the defendant company demanding payment of the US$320,532.12 and threatening legal proceedings if this was not paid, is before us. 38. It appears that in May 1968, having learned that a Mr. Kagawa was President of the defendant company, the plaintiff himself wrote [A-67] to this gentleman outlining the history of the webbing contract and said:
39. There was no evidence as to when the "confrontation" ended; but, in this letter, the plaintiff appears to suggest that the defendant company was paid the full amount of the third instalment after the resumption of "diplomatic relations" between Malaysia and Indonesia. Two and a half years prior to May 1968is November 1965. His reference to"nearly three years" is difficult to reconcile with the remainder of his letter; and perhaps it is unsafe to put much weight on generalisations of this kind written by a person who (judging by his letter - A-67) was not very familiar with the English language. 40. The writ was issued on 16th December 1967, and the original statement of claim was filed the same day. Of course, both L/C 40229 and L/C 29990 had expired in December 1963' and the claim was founded on the March 1964 agreement evidenced by A-46 ana A-47, the allegation being that the defendant company "guaranteed and undertook" to pay the plaintiff the US$320,532.12; that the defendant company had in fact received this sum; and that "in breach of the said undertaking" they had failed to pay the plaintiff. There is nothing in the pleading to indicate that, in December 1967, the plaintiff knew precisely what was subsequently alleged to have happened in Tokyo in September and November 1945. 41. In the light of what is now admitted by the defendant company, their defence and counterclaim filed on 12th February 1968 is a rather extraordinary document. Despite the condition in L/C 29990 [A-16] to the effect that payments to them under that L/C were entirely dependent upon the plaintiff having been paid by Bank Indonesia under L/C 40229 [A-12], the defendant company claimed that the plaintiff owed them US$854,250, being the third instalment under L/C 29990 [A-16] opened pursuant to the contract dated 17th July 1961 [A-13]. That was the basis of their counterclaim. Not only did they claim that sum; they also claimed interest thereon from 1963. 42. They then referred to the documents A-46 and A-47. They fastened on to the word "guarantee"; and alleged that, if any obligation arose under A-47, it was by virtue of it being, or evidencing, a "contract of guarantee"; but that as the plaintiff had "never assigned to the defendant" his rights under L/C 40229 [vide the last paragraph of A-46] "there was no completed contract of guarantee." 43. They then went on to refer to A-52 and A-53; and the allegation was that if there was "a completed contract of guarantee", it had become "null and void" or had been "revoked". In the alternative they said that "the letter of guarantee" [A-47] was "unsupported by any good consideration." 44. The statement of claim went on to allege that "by" A-53 the plaintiff "undertook to allow a reduction of HK$1,250,000 out of the unpaid balance of the price under the contract" [A-1] "and not to claim the same against the Indonesian Government." 45. They then went on to allege that because A-46 and A-47 had been allegedly "revoked", the plaintiff's rights to draw upon L/C 40229 "were extinguished"; that the defendant company had done all the negotiating with the Indonesian authorities; and that they had obtained payment of US$970,118.34 from the Bank Indonesia; that the Bank Indonesia had "retained and deducted US$242,529.60"; and that if there was a "completed contract of guarantee" (which they denied) they (the defendant company) were only liable to the plaintiff for US$77,698.34 being the difference between US$970,118.34 (what they had allegedly received from the Bank Indonesia) and US$892,420, the cost to them of the webbing plus interest and charges, all as detailed in A-47. 46. So far as the evidence goes, this was the first time that the defendant company had admitted to the plaintiff that they had received any part of the 3rd instalment; and that, even on their story, they owed the plaintiff US$77,698.34. Clearly, at this stage (i.e. in February 1968) the plaintiff's Hong Kong solicitors did not fully understand what was meant by the allegation that the defendant company had "obtained payment of US$970,118.34 by various payments between September and November 1965" because on 31st October 1969 they sought further and better particulars of this allegation, viz. (a) the number of payments alleged and (b) the dates of those payments and (c) the amounts thereof [A-71]; and it was not until 5th March 1970 (5 months later) that the defendant company's solicitors replied [A-72] giving particulars of the three payments of US$323,372.78 on 17th September, 15th November, and 19th November 1965. 47. In the meantime, on 11th April 1969, the plaintiff himself had written to the Governor of the Bank Indonesia in Djakarta; and he received a reply dated 17th April 1969 in Djakarta [A-68] which reads as follows:-
The figure "3" was probably a typographical error for "2". Throughout these proceedings, it has never been suggested that the defendant company received US$1,213,647.94. 48. On 20th September 1969, the plaintiff's Hong Kong solicitors wrote to the Bank Negara Indonesia in Djakarta [A-69] seeking clarification of a number of matters, including the apparent discrepancy in the 2 sums US$1,212,952.12 and US$1,213,647.94; and, as regards the payment of the third instalment by the Bank Indonesia to the Bank of Tokyo, the solicitors asked this question:-
49. On 22nd October 1969, the head office of the Bank Indonesia in Djakarta replied to the plaintiff in Djakarta [A-70]. The letter reads in part:-
This letter is in English; and it was signed by two Deputy Assistant Directors of the Bank Indonesia before the British Vice-Consul in Djakarta. 50. I do not propose to waste much time dealing with the submission that in March 1964 there was "a contract of guarantee". The way it was put to us by Mr. Bernacchi, on behalf of the defendant company, was this:-
51. As it seems to me, this is a contradiction in terms. A conditional guarantee is no guarantee at all. If A-47 had said: "If the Indonesian Government does not pay you, we will," that would have been a guarantee. But A-47 says precisely the opposite. It says: "This letter of guarantee will become null and void in the event that Bank Indonesia ... refuses the direct payment to us and, in consequence, we fail to receive the payment from them." 52. I agree that the statement of claim could have been framed in clearer language. Perhaps it ought to have been amended. Be that as it may, in his opening address in the court below, counsel for the plaintiff made it perfectly clear to the court that A-47 was not a guarantee, and that the basis of his claim was a simple agreement evidenced by A-46 and A-47, the effect of which was that the parties would endeavour to circumvent the Indonesian Exchange Control Regulations by persuading the Indonesian authorities to pay the whole of the last instalment to the defendant company; and that, if that materialised, but only if, the defendant company would pay the plaintiff the sum of US$320,532.12. 53. Mr. Bernacchi's next submission was that if there was a contract between the parties in March 1964 (no matter what kind of contract) it was "revoked" as a result of the alleged "conduct of the plaintiff", and that, as from November 1964, the plaintiff, to use Mr. Bernacchi's words, "was prepared to accept $1 1/4 million less than the full amount of the 3rd instalment." The basis of this submission was that in October and November 1964 the plaintiff signed A-52 and A-53 in Djakarta during certain negotiations with the Indonesian Army and with the Bank Indonesia, to which the defendant company was not a party. 54. As I have said, it is regrettable that the English translations of these two Indonesian documents are of such poor quality. But we must do the best we can with them. 55. Taking A-52 first. According to the defence witness Shimize, he saw "the original" of this document on the files of the Bank Indonesia in Djakarta. According to him, he copied it "by hand". Assuming the accuracy of his copying, the plaintiff appears to say that he was giving all authority to the defendant company. Of course by A-46 in March 1964 he authorised the Bank Indonesia to pay the defendant company the whole of the third instalment; and on the face of it the two documents do not appear to be in conflict. 56. But Mr. Bernacchi submitted that we should not take the translation as it stands, and that for the word "relinquish" we should read "revoke" and for the word "to" in the 3rd line we should read "by". It is sufficient to say that the judge would not have been entitled to juggle with the translation in this way in order to make it fit in with Mr. Bernacchi's submission. If counsel wishes to challenge the translation of a document in these courts, there is a well-established procedure for doing so. No attempt was made to invoke this procedure before the trial judge; and, in the absence of evidence, I am certainly not prepared to juggle with the translation in the manner suggested. 57. Furthermore, the document is not signed on behalf of the defendant company. Indeed there is no evidence that they knew anything about it until Shimize got sight of it in June 1965 in Djakarta, whereupon he promptly sent a copy of it to Tokyo. 58. As regards A-53, in the absence of evidence explaining the circumstances in which this document came to be signed, it is very difficult to say what it means. According to Shimize, the document was on the files of the Indonesian Army. In it, reference is made to a sum which is obviously the 3rd instalment under the original contract. It appears from the document that, at that stage, the plaintiff and the Indonesian Army had in mind some arrangement involving the Indonesian Consul General in Hong Kong. The 3rd instalment was to be "settled" through him. There was to be "a deduction" amounting to HK$1 ¼ million (which is about 18% of HK$6,931,155). But, if, as appears to be the case, the Exchange Control Regulations were still in force in November 1964, why should we interpret this document as evidencing an agreement between the plaintiff and the Indonesian Army that the latter would, contrary to A-46, pay the plaintiff the full amount of the third instalment. The defendant company has an office here; and the Indonesian Consul General could presumably have paid the defendant company in Hong Kong without violating the Indonesian Exchange Control Regulations. 59. As regards the HK$1 ¼ million, the plaintiff trades in Djakarta as well as in Singapore and Hong Kong. I would have thought that it was at least arguable that what was contemplated at that stage was that the plaintiff was going to receive the HK$1 ¼ million (which was a deduction from the full amount of HK$6,931,155) either in Hong Kong or in Djakarta, that is to say somewhere other than in Malaysia. Without any evidence to support it, counsel for the defendant company suggested that this HK$1 ¼ million might well have been some sort of a "kick-back" which, we should assume, would go into the pockets of some Indonesian officials. I find myself quite unable to entertain suggestions of this kind not based on evidence. 60. Clearly, the Indonesian authorities recognised the fact that the agreement of March 1964 between the plaintiff and defendant company was "a fiddle" to get round the Exchange Control Regulations; and they were understandably afraid of having to pay the 3rd instalment twice over. Hence, the plaintiff's promise of indemnity in A-53. 61. The most that one can say about this document (A-53) is that, at a particular stage of certain negotiations between the plaintiff and the Indonesian Army, the suggestion was that this 3rd instalment should be paid through the Consul-General Hong Kong. It is impossible to say to whom the payment was to be made. For all we can glean from the document itself, it might have been to the plaintiff or to the defendant company. As regards the deduction of HK$1 ¼ million, this may well have been a contemplated payment to the plaintiff in Indonesia or in Hong Kong. It may be that such a payment would not have infringed the Exchange Control Regulations. But we simply cannot draw any firm conclusion from a document of this sort, in the absence of evidence. What we do know is that eight months later we find the Army Authorities writing to the Central Bank and saying that the President has agreed that "the balance of the debt" due to the plaintiff can be settled by means of a letter of credit in favour of the defendant company in Tokyo [A-54]. There is no indication in that letter that "the balance of the debt" was other than the full amount of the 3rd instalment. 62. As regards the submissions (1) that the agreement evidenced by A-46 and A-47 had been revoked and (2) that the payment of the 3rd instalment was as a result of "independent negotiations" on the part of the defendant company, if there was anything in either of these submissions, I find it inconceivable that A-50 could have been drafted with the approval of Bank Indonesia or that the defendant company would have signed a document in such terms on 15th September 1945. 63. The crux of this case is: Did the defendant company receive, or at least have power of disposal over, the full amount of the 3rd instalment viz. US$1,212,648. As to this, we have Bank Indonesia's letter [A-72] which states unequivocally that, pursuant to the plaintiff's letter of 26th March 1964 [A-46], they sent the full amount of the 3rd instalment to the Bank of Tokyo in favour of the defendant company. The first question Azuma was asked in cross-examination by Mr. Litton was whether the Bank of Tokyo was the defendant company's bank. He admitted that it was and that it was the defendant company's bank in 1965. If that is so, one wonders why the three sums of US$404,216 were not immediately credited to the defendant company's account with the Bank of Tokyo. The Bank of Tokyo have never denied receiving from Djakarta the full amount of US$1,212,648. But whether any of the three remittances were ever credited to the defendant company's account, there is no doubt but that it was within the defendant company's knowledge that, by the time the Bank of Tokyo drew their cashier orders for US$323,372.78, the money from Indonesia had been credited to a U.S. dollar account, in the name of Bank Indonesia. Presumably that is the meaning of the words "the said Bank's U.S. Dollar account with you" in paragraph I of the defendant company's letter of 10th December 1965 [A-64]. 64. How did the defendant company become aware of this fact? At whose request were the remittances credited to the Bank Indonesia's U.S. Dollar account, bearing in mind that the money was remitted "in favour of Toyo Menka Kaisha Ltd." [Para.5 of A-70]? At the defendant company's request? At the request of Natalegawa? The words "at the request of Bank Negara Indonesia" in para.1 of A-64 must mean "at the request of Natalegawa". There is not a shred of evidence to support the submission that the 3 cheques for US$323,372.78 were issued at the request of the head office of Bank Indonesia in Djakarta. Their letter [A-70] written in October 1969 in answer to a very specific request for information by the plaintiff's solicitors, states categorically that the 3 remittances in favour of Toyo Menka Kaisha Ltd. (the Japanese company - not their U.S. sabsidiary) were each US$404,216. 65. Then we have the 3 receipts issued by the defendant company each for US$404,215.98. As Mr. Litton said, declarations of this sort against the defendant company's interest take a lot of explaining away. The way the witness Azuma tried to do it was this: He said in evidence that the defendant company signed the 3 receipts for the full amount of US$404,215.98 because Natalegawa told them that if they did not do so they would get nothing at all. Clearly, his evidence was rejected by the trial judge; and there is nothing in the appeal papers which suggests that the judge was not perfectly entitled to do so. Counsel for the defendant company submitted that Natalegawa's letter [A-65] should be taken at its face value and that despite Bank Indonesia's letter [A-70], the court should assume that between 7th September 1965 (the date on which the first payment of US$404,216 was remitted to the Bank of Tokyo by telegraphic transfer) and 17th September 1965, Natalegawa "must have" received further instructions from the Bank Indonesia which required him to instruct the Bank of Tokyo to pay the defendant company the lesser sums viz. US$323,372.78. 66. I see no reason why this court should make such an assumption. In my view, the judge correctly placed no weight on Natalegawa's letter [A-65] in which he said that the lesser amounts were paid to the defendant company "in conformity with the instructions" of his Head Office. That statement, the truth of which was vital to the defendant company's case, was utter hearsay. The fact that he did not say what the alleged instructions were (which, of course, would have been double-hearsay) matters not. The defendant company were attempting to achieve the same object by putting in Natalegawa's statement that Bank Indonesia had given "instructions" without saying what the instructions were. 67. Counsel for the defendant submitted to us, over and over again, that it was significant that the plaintiff did not give evidence. From the point of view of the defendant company's case, I should have thought that it was even more significant that Natalegawa was not called as a witness. 68. The learned judge summed up his view of the case in these words:
69. As the learned judge rejected Azuma's allegation about the defendant company succumbing to blackmail on the part of Natalegawa, and also put no weight on Natalegawa's letter [A-65] about his alleged "instructions" from Djakarta to pay the defendant company US$242,529.60 less than the full amount of the 3rd instalment, the defendant company clearly had full power of disposal over the US$1,212,648. The letter from Bank Indonesia [A-69] states that the 3rd instalment was "paid in full to Toyo Menka Kaisha, Tokyo"; and their letter [A-70] states that the full amount of the 3rd instalment was remitted to the Bank of Tokyo "in favour of Toyo Menka Kaisha Ltd.". The Bank of Tokyo had no choice in the matter but to pay the full amount of the 3rd instalment to the defendant company or deal with it in accordance with the defendant company's instructions. The fact that we have no evidence as to what has happened to the US$242,529.60 matters not; and it is not for this court to speculate as to whether it went into Natalegawa's pocket or whether it was disposed of in some other way in accordance with the defendant company's instructions. The onus was on the plaintiff to prove his case on the balance of probabilities; and I see no reason to differ from the learned judge's conclusion that the plaintiff discharged that onus. 70. I agree entirely with counsel for the defendant company that, in a case of this kind in which the bulk of the evidence is documentary, an appellate court is in a much stronger position than in cases in which the evidence depends entirely on oral testimony, the value of which depends to a large extent on the view which the trial judge forms as to the witnesses' credibility and reliability. I need not do more than mention Powell v. Streatham Manor Nursing Home (1) which is only one of many decisions on this point. Nevertheless, for the reasons which I have given, I was in entire agreement with my Brothers that there was no ground whatsoever for interfering with Mr. Justice Briggs' decision. 71. The appeal was therefore dismissed with costs.
Representation: B. Bernacchi, Q.C. and B. Liu (Lau, Chan & Ko) for appellant. H. Litton, Q.C. and D. Chang (Deacons) for respondent. (1) [1935] A.C. 243 at 267. IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 18 OF 1972 (On appeal from O.J. Action No. 1917 of 1967) -----------------
----------------- Coram: Blair-Kerr, S.P.J., Huggins and McMullin, JJ. Date of Judgment: 25th January 1973. ----------------- JUDGMENT ----------------- Huggins, J.: Fortunately I do not think that this case is as complicated as it has been sought to make it. We have been referred to many documents and points have been taken which in my view are not material to the decision of the case. The inevitable result has been to obfuscate the real issues. This is particularly unfortunate because the case is not without difficulty. The main issue was one of fact. It was an issue as to which there was room for error on the part of the learned trial judge and it calls for very careful consideration of all the relevant evidence by this Court with a view to deciding whether in the event the learned judge was in error. Had the case for the Appellant been presented to us concisely it would have been of more assistance to us than a discursive argument extending over three whole days. I shall endeavour to extract the substance of the matter. 2. The claim is for the equivalent of U.S.$320,532.12 under what is described in the Statement of Claim as a "Letter of Guarantee". Originally that was the only claim, but after a Defence had been filed an amendment was made to the Statement of Claim to claim "in the alternative" the said sum or a sum of U.S.$77,698.34 upon alleged admissions in the Defence. I am not certain that these are strictly alternative claims but in the event, before this Court, the Defendant has conceded that it is liable to pay to the Plaintiff the sum of U.S.$77,698.34 and I do not think anything turns upon the form of the pleadings. 3. The facts, in outline, are as follows. The Plaintiff agreed to sell webbing equipment to the Government of Indonesia. Payment for these goods was to be by three instalments, which were to be made by way of letter of credit. The first two instalments were duly paid but the third was not paid, and when the so-called "confrontation" between Indonesia and Malaysia started the third payment was still outstanding. The Plaintiff himself did not have the goods required and he ordered them from the defendant company at a price of approximately U.S.$850,000. The Defendant was also to pay by instalments under a letter of credit and the only term which it is necessary to mention expressly is that the letter of credit was to
(The "counter-credit" was the letter of credit drawn in favour of the Plaintiff.) The letter of credit which was provided pursuant to this contract expressly stated
When the "confrontation" started, the whole of the purchase price agreed to by the Defendant was still outstanding. Payment of the final instalment by the Indonesian Government to the Plaintiff was due but, because the Plaintiff had a business address in Singapore, it could, not be made under the fiscal regulations passed by the Indonesian Government. The Indonesian Authorities indicated that they were willing to open a credit in Indonesia in respect of the moneys due but that the account would then be blocked. 4. The position was obviously unsatisfactory both to the Plaintiff and to the Defendant and they both sought ways of obtaining their money. On 26th March 1964 the Plaintiff wrote a letter to the Bank Indonesia in the following terms
Two points must be noted about this letter. First, the second paragraph manifestly stated an untruth. It was, however, an untruth which was subsequently repeated by the Defendant and adopted by it in its dealings with the Indonesian Bank. In this respect, therefore, the parties are in pari delicto but in my view the delictum has no bearing whatsoever upon the correct determination of the case. Secondly, "the said amount" referred to in the final paragraph is the full amount due to the Plaintiff from the Indonesian Government. This letter was handed by the Plaintiff to the Defendant for transmission to the addressee and it is apparent that at that time both parties contemplated that it was this sum which was to be paid to the Defendant instead of to the Plaintiff. Five days later the Defendant wrote to the Plaintiff a letter in these terms:
This confirms that it was still contemplated by the Defendant that the whole sum due from the Indonesian Government to the Plaintiff should be paid to the Defendant. After deduction of the sums set out in sub-paras. (1), (2) and (3) the balance, which was the sum now in fact claimed in this action, was to be paid by the Defendant to the Plaintiff. The cost of the merchandise was that set out in the contract between the Plaintiff and the Defendant but the other sums which were to be allowed for had not previously been sums chargeable to the Plaintiff. It will be noted that the description "Letter of Guarantee" which was used in the Statement of Claim first appeared in the final paragraph of the document itself. 5. Considerable argument was addressed to us upon the question whether the document was in truth a guarantee but I was not able to understand how this issue was material because the argument of counsel for the Defendant was that whether it was a guarantee or not this document had lapsed or been revoked. If it was a guarantee it must be on the basis that the Indonesian Government was a principal debtor and that the Defendant undertook to pay the Plaintiff if the Indonesian Government did not pay him. If it was sought to argue that in such circumstances the guarantee had been discharged by the waiver or assignment of the principal debt by virtue of the letter of 26th March 1964 it must be observed that that letter was referred to in the Letter of Guarantee itself. However, it seems clear to me that the so-called Letter of Guarantee is not a guarantee at all. No doubt there can be a guarantee which is subject to a condition but in my view the condition which was attached in the present case, namely that the Defendant should be liable to pay the Plaintiff only if the Indonesian Government paid the Defendant, is wholly inconsistent with the status of a surety and destroys the very foundation of the relationship between creditor, surety and principal debtor. The debt owed by the Indonesian Government to the Plaintiff was a prior debt but it was not a "principal" debt as understood in the law of suretyship. The Letter of Guarantee was nothing more than an undertaking to pay to the Plaintiff any moneys received from the Indonesian Government in excess of the amounts set out in para.2 of the Letter of Guarantee. That was an undertaking by the Defendant to do what it would in any event have been bound by law to do, for it would have been liable to the Plaintiff to pay the moneys as moneys had and received to the use of the Plaintiff. It does, however, indicate that there must have been an agreement by the Plaintiff to accept the deduction of the interest and other charges, which would not otherwise have been deductible upon a claim for moneys had and received. 6. The negotiations carried on by the Defendant with the Indonesian Authorities appear to have been remarkably extensive and remarkably successful, for we find that on 12th August 1965 there is a memorandum addressed to His Highness, the Minister of the Central Bank by someone who would appear to be a brigadier in the Indonesian Army. This says in part:
This document does not indicate the amount of the letter of credit to be opened through the Defendant in Tokyo but on 15th September 1965 we find the Defendant executing a "Letter of Guarantee/Indemnity" in the following terms:
It will be seen that there is some difference between the two sums of approximately US$1,212,000 but this will be explained hereafter. In each case it is in substance the same, entire sum which was due to the Plaintiff from the Indonesian Government under their original contract, so that it was still not in the contemplation of the Defendant that it would receive any less than the Plaintiff would have received had there been no political difficulty. The first of the declarations was no doubt included to avoid any argument whether the Bank Negara, Indonesia, Djakarta was the lawful successor of the Indonesia Bank Djakarta. The third declaration is of interest in that, first, it uses the word "guarantee" where quite clearly no possible question of suretyship could arise and, secondly, because it refers to the issuance of receipts which were in fact subsequently issued. Each of those receipts, signed by the Defendant, is in similar terms, which are as follows:
The sum there mentioned is of course exactly one-third of the full amount of the third instalment payable under the contract between the Indonesian Government and the Plaintiff. 7. Those are the documents upon which the Plaintiff principally relies as directly proving payment to the Defendant of the larger sum. However there are two further documents, executed subsequently, which tend to show that this sum was paid. The first is dated 17th April 1969 and is a letter addressed to the Plaintiff by the Bank Indonesia. It is signed by two persons whose representative capacity is not indicated. It is in these terms
The letter is headed with the reference number of the contract between the Indonesian Government and the Plaintiff. We do not have the letter of 11th April 1969 to which this letter refers. The second document is another letter from the Bank of Indonesia which is signed by two persons whose representative capacity is not stated, one of them being a signatory to the letter of 17th April 1969. Indeed, this second document appears to be an amplification of the first. It is addressed, again, to the Plaintiff and certain information is given "after examining our records on our letter of credit No. 40229" (the letter of credit issued in favour of the Plaintiff). After reciting the letter of credit and the first two payments made thereunder the letter continues:
It will be seen that whereas the first document of 17th April 1969 stated that payment had been made to the Defendant this letter merely stated that the money had been remitted to the Bank of Tokyo Limited, Tokyo in favour of the Defendant. This accounts for the differences in dates between the transfers by the Bank Indonesia and the receipts signed by the Defendant, these being dated 15th September 1965, 15th November 1965 and 19th November 1965. The first receipt was, however, dated two days before the first of the three cashier's orders issued by the Bank of Tokyo Limited. The Plaintiff relies upon the second letter as indicating that even if the money was not paid direct to the account of the Defendant it was paid to the Bank of Tokyo Limited with instruction to credit it to the Defendant and as adding weight to the receipts for the full amount which were signed by the Defendant. 8. The case for the Defendant is that the documents as a whole do not establish on a balance of probabilities that the full amount was paid to the Defendant. They relied first upon a document dated 28th November 1964 and signed by the Plaintiff. The document is in the Indonesian language and some difficulty has arisen over the translation of it. There were put before the learned judge two documents which have both been described in the course of the argument as "agreed translations". It is apparent that they were in truth not agreed - and could not both have been agreed, because they are different. The learned judge found both translations unintelligible and, with the agreement of counsel on both sides, obtained a certified translation. We have already given our ruling on this matter. The document being in a foreign language it was the duty of the learned judge to find as a fact what were the corresponding words in the English language. In his judgment he set out in full the certified translation and made no reference to the words of the two translations which he had found unintelligible. We were of opinion that there was an implied finding that the certified translation was the correct representation of the Indonesian words and ruled that we ought not to look at the other translations. It was, however, agreed that the document should be headed "Letter of Agreement". It then reads:
The sum of HK$1,250,000 there mentioned has not been shown to bear any direct relationship to the sum claimed in the action, but the difference is not very great. The Defendant submits that this document shows that as early as November 1964 the Plaintiff had ceased to expect that he would receive the full amount which had been payable under his contract with the Indonesian Government and goes on to say that if the Indonesian Government was not going to pay the full amount to the Plaintiff it is unlikely that they would pay the full amount to the Defendant. As the learned judge pointed out, the document was never signed by the Defendant, although the company was apparently aware of its existence, and it did not constitute a representation by the Plaintiff in favour of the Defendant that he had waived the sum of HK$1,250,000. 9. The case for the Defendant rests principally upon the three orders and the three receipts to which reference has already been made, together with the oral evidence of Mr. Azuma. The three cashier's orders given by the Bank of Tokyo Limited to the Defendant were each in the sum of US$323,372.78. Although the Defendant gave receipts in the sums of US$404.215.98 there were then three receipts signed by Mr. Natalegawa, the representative of the Bank Negara Indonesia in Tokyo, in favour of the Defendant for the difference between the orders and the Defendant's receipts to the Bank Negara Indonesia. Mr. Azuma, who at all material times was the manager of the Finance Department of the defendant company, gave evidence that the Defendant did not receive any money other than that represented by the three orders and he explained that Mr. Natalegawa had told the Defendant that nothing at all would be paid unless receipts for the larger sum were given. It is not suggested that the Plaintiff was aware of this threat or of any discussions which took place in Tokyo at the time of the payments. The three receipts signed by Mr. Natalegawa on behalf of the Bank Negara Indonesia do not give any indication of the purpose of the payments alleged to have been received. Two of the cashier's orders were endorsed:
The third order was at one time similarly endorsed but, in circumstances which have not been explained, this endorsement was deleted. In fact there was evidence, which presumably was accepted by the learned judge, that the orders were negotiated to a subsidiary of the defendant company in the United States of America. This evidence is in the form of a certificate signed by the Bank of Tokyo Limited which includes the statement
10. Finally the Defendant relies upon a letter dated 31st March 1966 signed by Mr. Natalegawa on behalf of the Bank Negara Indonesia and addressed to the Defendant. It is in the following terms:
The contention is, of course, that the sum deducted was never paid to the Defendant and was never in any way credited to the Defendant so that the Defendant is not liable to account for it to the Plaintiff. 11. No oral evidence was given on behalf of the Plaintiff and this has been the subject of criticism, but equally, if not more important, there was no satisfactory evidence from the Defendant to explain why it should, at the expense of the Plaintiff, accept less than the sum which had been remitted to the Bank of Tokyo Limited in favour of the Defendant nor was any attempt made to show what had become of the balance. 12. In the result the case really turned upon the evidence of Mr. Azuma. The learned judge expressly disbelieved this witness and the question is whether we, who have not seen the witness, can properly say that the learned judge ought not to have disbelieved him. We do not have a shorthand note of his evidence but the note which we do have hardly conveys an impression of manifest credibility. In my opinion it is impossible for us to say that the learned judge came to the wrong conclusion. 13. The defendant company placed great reliance upon a contention that the claim was based upon the Letter of Guarantee dated 31st March 1964 and not as a claim for money had and received to the use of the Plaintiff and further contended that that letter had "lapsed or been revoked". As already indicated, I do not find it necessary to deal with the point of pleading. The contention is that the passage of time from 31st March 1964 up to the first payment on 17th September 1965, coupled with the execution of the document dated 28th November 1964 by the Plaintiff in favour of the Indonesian Government (whereby he promised not to make any claim if he was paid the amount owed to him less HK$1,250,000), was evidence that the Plaintiff and Defendant no longer intended to be bound by the Letter of Guarantee. Since the Defendant was not a party to the subsequent document I think the contention is untenable. 14. In Ground (7) of the grounds of appeal complaint is made that the learned judge was prepared to attach weight to the letter of 22nd October 1969 from the Bank Indonesia and yet was not prepared to wive similar weight to the letter of 31st March 1966 signed by the Bank's representative in Tokyo. Since both letters were written on behalf of the Bank there might at first sight appear to be some inconsistency but the learned judge clearly had in mind the possibility of some improper combination between the Tokyo representative and the Defendant and also the fact that he did not know what "instructions" had been given to the Tokyo representative by the head office in Djakarta. The later letter was corroborated by the three receipts signed by the Defendant itself. 15. Only one other matter needs to be mentioned. In Ground (9) it is alleged
It is important to see how this matter arose. The following is an extract from the notes taken during the evidence of Mr. Azuma:
On the face of it Mr. Bernacchi's interjection was made to forestall some anticipated objection to the evidence which had just been given. The witness then continued his evidence and the notes are singularly unhelpful. One possible interpretation of what he said is that Mr. Natalegawa told the witness the amount for which he was to give the receipt. That, of course, would not be hearsay at all and the fact that leading counsel objected on the ground that the evidence was hearsay suggests that the witness was seeking to tell the Court how much Mr. Natalegawa said he had received from Indonesia. The notes of evidence are not certified as correct and it seems certain that the words "there was a remittance of some money from my Company" should read "there was a remittance of some money for my company". The witness never suggested that he was unaware that the Bank of Tokyo Limited held the larger amount in favour of the Defendant and the learned judge obviously assumed that this evidence was sought to be introduced to contradict the Bank Indonesia's letter of 22nd October 1969. On that basis he correctly ruled that the evidence was inadmissible. If Mr. Azuma had been under the impression that the Bank Indonesia had remitted only the lesser sum to the Bank of Tokyo Limited it is inconceivable that he would not have made further inquiries. 16. In my view this appeal should be dismissed. 25th January 1973. Representation: |