HONSAICO TRADING LTD v. HONG YIAH SENG CO LTD

1989, No. CL-116

HEADNOTE

   Mareva Injunction - circumstances when it may be appropriate to order that it is extended to world-wide assets of a defendant. Also a consideration of the extent to which it is suitable to make orders for discovery in aid of Mareva Injunctions.

1989, No. CL-116

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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1. Three summonses lie before me for consideration. There is the defendant's summons filed on the 3rd January 1992 to set aside the ex-parte order made by Bewley J. on the 16th December 1991 extending the original Mareva injunction from an order relating to Hong Kong assets to include world-wide assets and there is a summons taken out by the plaintiff dated the 20th January 1992 seeking an order to require the defendants to provide requisite information concerning their world-wide assets.

2. The 3rd summons was issued by the Liu Chong Hing Bank who had been served with Bewley J.'s order. I make observation upon the issues raised in this summons at the conclusion of my judgment.

3. Mr. Mok who was representing the defendants made an able submission in which he outlined the situations when it may be appropriate for a court to issue a ilareva injunction freezing assets on a world wide basis.

4. One of his main contentions was that is was incumbent upon a plaintiff to establish that there was a real risk that assets would be dissipated if the relief were not to be granted.

5. In the present case, Nazareth J. (as he then was) granted an ex-parte Mareva injunction on the 19th October 1989. This was continued by Godfrey J. on the 31st October 1989 and by further orders made by Godfrey J. and myself, the terms of the injunction were varied.

6. The trial of the action took place before me between the 4th and the 14th November 1991 and I delivered judgment in favour of the plaintiffs in the sum of US$1,931,920.00 on the 27th November, 1991.

7. The said order of Godfrey J. continuing the ex-parte injunction was the subject of an appeal and the Court of Appeal made various observations concerning Mr. Prachai, the alter ego of the defendant and the assets of the company.

  So far as these summonses are concerned reference was made to the fact that Mr. Prachai should not be regarded as a person of probity. Also reference was made to the fact that the defendant had very substantial assets in Thailand and that there were no provisions relating to the reciprocal enforcement of judgments between Hong Kong and Thailand. Indeed it appeared to be accepted that the only way in which the plaintiffs could seek recourse in respect of these assets would be to commence proceedings de novo in Thailand for the recovery of the moneys they claimed were due and owing to them. It was accepted that such proceedings would take between 6 and 9 years.

8. Mr. Mok contended that in such circumstances world-wide Mareva relief was misconceived. Mareva relief was designed for the preservation of assets not as a means of executing a judgment. There was no prospect of the judgment being executed upon in the foreseeable future and it was wrong that an injunction should remain outstanding indefinitely.

9. A further and greater objection was that on the facts as known there was no real risk that any assets would be dissipated. As had been accepted by the Court of Appeal formidable difficulties would be encountered by the plaintiffs in attaching any of the assets which were known to exist in Thailand. In such circumstances it was unlikely that the defendants would attempt to remove assets from Thailand as they would be safe from any attack by the plaintiffs.

10. Mr. Clifford Smith for the plaintiffs accepted the validity of this contention. Indeed he conceded that even if I were minded to make a world-wide Mareva order assets in Thailand should be excluded from its operation for the reasons outlined by Mr. Mok. At this juncture, I would mention that after I rose from the hearing Mr. Mok requested me to make an ex-parte order to the effeect that pending the delivery of this judgment I should order that such an exclusion should be made based upon Mr. Clifford Smith's concession. Mr. Mok had invited Mr. Clifford Smith to remain behind while he made this application to me but Mr. Clifford Smith had declined the invitation. I take this to mean that the ex-parte application was made on notice and I made the order sought varying Bewley J.'s order in this way pending the delivery of my judgment.

11. Returning to the issues raised in the summonses Mr. Clifford Smith still maintained that the world-wide Mareva should be continued subject as aforesaid. His basis for this was to place reliance upon the affidavit evidence of Mr. Prachai when he was resisting the Mareva injunction granted by Nazareth J.

12. At paragraphs 4 and 5 of his affidavit of the 31st October 1989 he said:

"4. Further to the Affidavit of Miss Mimmie Chan, I would like to add that the Defendants are frequent shippers of rice and other commodities throughout the world including South East Asia. In the unlikely event that the Plaintiffs succeed in this action, in addition to seeking to enforce such judgment in Thailand, the Plaintiffs can arrest the Defendants' cargo in Singapore or other parts of the world.

5. I would also add that because of the nature of the Defendants' business as traders and dealers of rice and commodities, with business dealings throughout the world, it is extremely important for the Defendants to maintain their reputation in the business and in particular, as against the Defendants' bankers. The existence of the Mareva injunction made by this Honourable court on the Plaintiffs' application has serious and adverse effects on the Defendants, and is causing irreparable damage to the Defendants' reputation.

13. He submitted that it was clear from this that the defendants had assets other than those referred to in Thailand and Hong Kong which would almost certainly include bank accounts and that these assets should be made the subject of Mareva relief.

14. This argument was reinforced by the fact that judgment had now been obtained against the Defendants. This could be seen from a passage in "Mareva Injunction and Anton Filler Relief", 2nd Edition by S. Gee, Longman at P.18:

"However, once the plaintiff has obtained judgment the position is different. He may then be in a position to make an individual defendant bankrupt or have a corporate defendant wound up. Furthermore, he will he in a position to enforce the judgment by executing it on assets of the defendant. In these circumstances the injunction is granted or continued in aid of execution or, as may be the case, bankruptcy or winding-up proceedings. It will not be a good answer to execution for a defendant to say that he wishes to use the asset in question to pay another creditor. Nor in principle should it be a good reason for a judgment debtor to seek variation to a Mareva injunction which has been granted in aid of execution Thus, in Deutsche Schachtbau-und Tiefbohrgesellschaft GmbH v. Ras Al Khaimah National Oil Company (No. 1) [1987] 3 WLR 1023 (CA); [1988] 3 WLR 230 (HL), the court of Appeal upheld Mareva relief granted in aid of enforcement of an arbitration award against a foreign company. Judgment had been obtained but was not yet enforceable under the rules of court, and it was contemplated that garnishee proceedings would be taken in relation to the relevant asset which was a debt due or accruing due from a third party. In these circumstances Sir John Donaldson MR, with whom the other members of the court agreed, observed that the injunction was not strictly speaking an injunction which fell into the Mareva category, but was an injunction granted as protection for a judgment creditor, under a jurisdiction recognised before the emergence of theMareva jurisdiction. 'The purpose of the injunction was...to maintain the status quo during the period covered by the stay of execution and not to preserve assets against the probability that DST might at some later date be able to establish its claim - the ordinary Mareva situation'. In the House of Lords the appeal against the injunction was dealt with at the same time as the appeal against the garnishee order, which was set aside on the grounds that if upheld it would place the garnishee at the risk of having to pay the same debttwice, and thus would be inequitable. In those circumstances the injunction could not be justified on precisely the same ground, namely that it would be inequitable to the 'third party debtor."

15. I consider that it is necessary to go back to the basic principles upon which Mareva injunctions are granted on a world-wide basis.

16. The first point to be made is that such orders should not be regarded as the norm. Nicholls L.J. had this to say on p.62 of Derby & Co. Ltd. v. Weldon (No. 1) 1990 1 Ch. 48:

"In my view each case must depend on its own facts. An order restraining a defendant from dealing with any of his assets overseas, and requiring him to disclose details of all his assets wherever located, is a draconian order. The risk of prejudice to which, in the absence of such an order, the plaintiff will be subject is that of the dissipation or secretion of assets abroad. This risk must, on the facts, be appropriately grave before it will be just and convenient for such a draconian order to be made. It goes without saying that before such an order is made the court will scrutinise the facts with particular care. In the instant case there are present the special factors to which May and Parker L.JJ. have referred. I do not think that it is correct that, if an order is made in the present case regarding overseas assets, such an order will become, or should become, the norm in cases where a restraint order is made regarding assets within the jurisdiction.''

17. The position which has been taken by the Court of Appeal here seems to be similar to the English position.

18. This can be seen from the judgment of Kempster J.A. in Bank of India v. Murjani 1989 2 HKLR 318 at 319:

"That the relief operates in personam as regards a defendant but, in effect, ad rem as against third parties and does not amount to a pre-trial attachment of assets was common ground. In our opinion a Mareva injunction affectg: assets outside the jurisdiction may be granted when there is a good arguable case that the plaintiff recover judgment, reason to think both that the defendant, properly before the court, has such assets available to satisfy it but insufficient assets within the jurisdiction for the purpose and the Court is satisfied that there is a real risk that the defendant may take steps designed to dispose of or conceal such foreign assets as to render the judgment nugatory by the time that it is given. Further, the defendant may be ordered to make discovery as to his assets in a proper case and the jurisdiction in that regard is not limited to tracing actions. Thus, subject to provisos and undertakings apt to allow the defendant to carry on his business and private life in the ordinary way and to limit the effect of the order on third parties outside the jurisdiction, the principles. applicable to the grant of an injunction inhibitingthe disposition of assets within the jurisdiction are, as Barnett, J. held, equally applicable to the grant of such an injunction directed to assets outside it. We so conclude in the light of the several persuasive authorities decidedbetween June and December 1988 during which the practice in the English Court of Appeal was developed and clarified and, in particular; of Derby & Co. Ltd. v. Weldon (Nos. 3 & 4) [1989] 2 WLR 412."

19. It is however evident that this is a developing area of the law and that in appropriate cases the courts will be prepared to make orders to protect overseas assets. One of the latest statements on the current position in England is contained in the judgments of the members of the Court of Appeal in Derby v. Weldon (Nos. 3 & 4) 1989 2 WLR 812. Perhaps the best summary of the position is Butler Sloss L.J. s analysis at p. 437:

"Butler-Sloss L.J. I agree with the judgments of Lord Donaldson of Lymington M. R. and Neil L.J.

I would venture to summarise the present position. The jurisdiction to grant Mareva injunctions is now to be found in section 37(1) of the Supreme Court Act 1981. The practice has considerably developed since Roskill L.J. said in Mareva Compania Naviera S.A. v. International Bulkcarriers S.A.[1975] 2 Lloyd's Rep. 509, 511:

'Indeed it is right to say that, as far as my own experience in the Commercial Court is concerned, an injunction in this form has in the past from time to time been applied for but has been consistently refused.'

It is adapting to meet changing circumstances and the increased mobility of assets and interchangeability of international companies. The developing practice was referred to by Kerr L.J. in Babanaft International Co. S.A. v. Bassatne [1989] 2 W.L.R. 232, 242 and by Nicholls L.J. in Derby v. Weldon (No. 1) [1989] 2 W.L.R. 276 Neill L.J. in the Babanaft Case [1989] 2 W.L.R. 232, 251 said:

"We are concerned in this appeal with a branch of the law which is in a stage of development and where the court will be asked to exercise its discretion to grant injunctive relief in many differing sets of circumstances. It seems to me therefore that any guidelines which are laid down by this court should be expressed in general terms.'

The Nareva injunction is an equitable remedy which operates in personam, in circumstances in which the plaintiffs show a good arguable case and that it I likely that the defendants will dissipate their assets so as not to be available to satisfy a judgment against them. It may be granted either pre-judgment or post-judgment. If there are insufficient or no assets within the jurisdiction the relief may be granted against assets held outside the jurisdiction, either within the convention countries or worldwide. It has been granted to support an action brought in another Convention country: Republic of Haiti v. Duvalier [1989] 2 W.L.R. 261. In analogous proceedings for an injunction under the provisions of section 37(2)(a) of the Matrimonial Causes Act 1973 relief has been granted to restrain a husband from disposing of real property owned by him in Spain: Hamlin v. Hamlin [1986] Fam. 11.

It is a matter of discretion for the judge as to whether in the circumstances it appears to be just and convenient to grant the relief sought. The court may be more willing to restrain a defendant from dealing with his assets after than before judgment has been given against him. It is only in an unusual case that the court will make a worldwide, pre-judgment Mareva order. Factors such as the impossibility of compliance with or enforcement of the equitable remedy are relevant considerations in the exercise of discretion.

To assist the effectiveness of the pre-judgment Mareva an order for disclosure of assets may within the ambit of the injunction be grunted. An order for a receiver may either be made independently under section 37(1) or in support of the Mareva.

The grant of such remedies against defendants must not be oppressive in its outcome. Specific terms or undertakings should therefore generally be part of any worldwide, pre-judgment Mareva. The conditions imposed in the wording of the order must balance on the one side the need to freeze the assets in question and gain the information required against restrictions to protect the defendants, inter alia, from unjustified results in other jurisdictions, a misuse of the information gained or an unwarranted invasion of privacy and to hermit them to have funds to continue business and to meet reasonable living expenses. They should also contain qualifications to safeguard the position of third parties under the English order, leaving it open for orders to be sought in the courts of the country asked to enforce the English order. I would therefore respectfully enforce the form of order set out in the judgment of Lord Donaldson M.R.''

20. There are a number of factors which need to be borne in mind in the present case. The first is the fact that the plaintiffs already have a judgment against the defendants. The existence of this judgment substantially reduces the risk of a grave injustice being occasioned to the defendants

21. It is also important to bear in mind the conduct of Mr. Prachai. In the judgment I delivered in the action I made reference to the fact that he had fabricated evidence and I came to the conclusion that he was not a man of probity. The plaintiff has in my opinion good grounds for fearing that the defendant would dissipate assets in an endeavour to aviod satisfying the judgment which has been obtained by the plaintiffs. Their fears are reinforced by the fact that if ovverseas assets other than those in Thailand are not made the subject of a Mareva injunction there is every reason to suppose that Mr. Prachai will transfer them to Thailand where they will not be available to satisfy the judgment.

22. I am also satisfied that there are likely to be such assets having regard to what Mr. Prachai himself has said in this repsect. I have accordingly come to the conclusion that if I follow the principles which have been adopted by the courts in England and followed by the Court of Appeal here I should order that Bewley J. order should be continued. The order will however exclude the Thai assets which have been referred to. It will, however, be necessary to give further thought to adequate safeguards being built into any order that is made including provision for an appropriate form of undertaking by the plaintiff to protect the defendnats in the usual manner. On this subject I will hear submissions from the parties.

23. That then leads to the next question of the extent of disclosure or discovery which should be ordered.

24. The application which has been made by the plaintiffs in this connection is couched in wide terms. They seek an order that the defendants be required, within 7 days to make and file with the court, and serve a copy upon the plaintiff's solicitors, Holman, Fenwick & Willan of 702 Tower One, Admiralty Centre, 18 Harcourt Road, Hong Kong, an affidavit stating precisely what assets it has within or without the jurisdiction and their whereabouts, and whether the same are in its name alone and if not how and in whose names that the same are held. In the case of any bank, building society, or similar account the defendant is to include in the affidavit in respect of each account:

(a) The names in which it is held;

(b) The name of the bank, building society or other entity;

(c) The address of the branch at which the account is held;

(d) The number of the account;

(e) The balance in the account at the date of the swearing of the affidavit. If there is any change in the balance prior to service of the affidavit, this is to be notified to the plaintiff on service of the affidavit.

25. Mr. Mok accepted in principle that an order for discovery can be made in aid of a Mareva injunction. However he argued that it should only require that particulars should be given of assets presently in the possession of the party. It should not be framed in such a manner as to enable the plaintiff to embark upon a tracing exercise. To permit this would distort the valid purposes of a Mareva injunction. It was incumbent upon. a plaintiff to establish the existence of assets before an application is made to the court for the relief.

26. In this connection he submitted that there was no merit in the plaintiff's contention that they were placed at a disadvantage by virtue of the fact that no officer of the defendant company was situate in Hong Kong and that this being the case they here unable to seek an order from the court that an officer of the defendant be required to attend and be examined in pursuance of the provisions contained in order 48 of the rules.

27. He argued that this difficulty was brought about as a consequence of the plaintiffs' decision to proceed with the litigation in Hong Kong rather than commencing the action in Thailand.

28. I do not think that this has much bearing on the issues which lie before me for determination.

29. I am satisfied that what I must do is to decide the limits of any order for discovery which may be appropriate.

30. In this connection, I am assisted by a passage on p. 142 of ''The Mareva injunction and related orders'' by Mark Hoyle, 2nd Edition, Lloyd's of London Press Ltd. 1989:

The pursuit of further information -

In the type of case where a Mareva is appropriate the defendant and his colleagues or advisers will usually have information vital to the plaintiff, whether to aid his case generally or to enable the Mareva order to be effective.

In the ordinary way a party can seek an order for discovery relating to any matter-in question in the cause,between the parties. However, this can only apply to cases where writs have been issued, and where the discovery is to do with the issues in dispute. If the discovery is to establish what assets the defendant holds, an application under the Rules is not the correct course, but the court.nevertheless has power under its inherent jurisdiction to make an order in support of a Mareva, for example that a defendant discloses on affidavit his assets. The reason is that without such an order the Mareva itself might be ineffective because it does not bite on sufficient assets as these have been skilfully hidden from the plaintiff. Also, the plaintiff may be deterred from seeking or continuing a Mareva if he does not know how much the defendant has in case his undertaking as to damages is called upon if the order has the effect of freezing all assets in the absence of disclosure, over and above the sum necessary. This could occur, for example, if the defendant has ¢l million equally in five banks, but the individual sums are not known to the plaintiff. If the Mareva sum is ¢300,000 and each bank is served withthe order, the defendant's total sum of ¢1 million will be frozen because each bank will fear being in breach as to its ¢200,000. An order to disclose this information ill enable release of the balance of ¢700,000 for the defendant's use. Similar problems can occur with other assets, and this order for discovery is frequently granted.

It should be noted that such an order is not to be used to police the Mareva to see if there has been a breach. Its purpose is to make effective the order by establishing the defendant's assets. Ackner LJ in AJ Bekbor & Co Ltd v. Bilton said:

...the power to order discovery to ensure that the Mareva jurisdiction is properly exercised and thereby to secure its objective of preventing the defendant removing his assets from the jurisdiction and so stultifying any judgment given by the court in the action, cannot be found in the Rules...

It It may be arguable therefore whether this power is one ancillary to the Eareva or based on a "separate" inherent jurisdiction. In any event, it is accepted as exercisable, albeit with caution because it extends the court's interference with a party who has not yet been judged to be in breach of any legal duty.''

31. I accept that this is an.accurate commentary on the law. It is though clear to me that the discovery must be limited to present assets and should not extend to an examination of what may have transpired in the past relating to assets which have been held by a party.

32. Huggins J.A. referred tothis on p. 540 of Advance Finance Ltd. v. Pang Sze Mui 1986 HKLR 523:

''If a mareva injunction had been. justified, I would have upheld the order for discovery in aid of it - save for limiting it to property within the jurisdiction. The latter part of the order for discovery which was in fact made was not in aid of the Mareva injunction but a tracing exercise toascertain whether any moneys which had been misapplied had gone to the defendants and, if so, what had become of them tnereafter. It was argued that no specific fund was in question, that this was a fishing expedition to ascertain whether the defendants had benefited generally from the misconduct alleged and that it was not necessary to have such discovery at the present stage. I think there is merit in those contentions.

In the event I would allow the appeal and set aside the relief granted."

33. I do not think that the summons which was issued by the plaintiff is framed too widely to bring it within these criteria.

34. I must, however, refer again to the summons which has been issued by the Liu Chong Hing Bank and the affidavit evidence which was subsequently filed. I accept that all that the bank as required to do was to provide particulars of any accounts they may hold in the defendants' name and the amounts of money which there may be in the accounts. The plaintiff has no right to inspect the bank's records or take copies thereof.

35. It is common ground that the action was not a tracing action and this being the case the plaintiff is not entitled to inspect the banks records with a view to ascertain where any moneys which may have been held by them may have been remitted in the past.

36. I think that this covers all of the issues which were raised on these summonses. The order of Bewley J. is extended in the manner I have described and discovery is ordered as I have indicated.

37. I will hear the parties on costs.

Representation:

Mr. Clifford Smith inst'd by Holman Fenwick & Willan for plaintiff.

Mr. Johnny Mok inst'd by Stevenson wong & Co. for Defendant.

Mr. K.B. Ng inst'd by Simon Cheung & Co. for Liu Chong Hing Bank Ltd./Garnishee.

1989 C.L. No. 116

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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Introduction

1. The plaintiff, a Hong Kong company is suingthe defendants for breach of a contract dated the 11th July 1989. Under the contract the plaintiff agreed to sell to the defendant 100,000 M.T. of Vietnamese rice, 35% broken at US$230 per M.T. FOB Ho Chi Minh City.

2. 30,000 M.T. was to be shipped in July 1989, 45,000 M.T. in August and the balance of 25,000 M.T. by the 15th September.

3. The defendant had agreed to supply a similar quantity of rice to the Food Corporation of India and basically the contract between the parties and the contract between the defendant and Food Corporation of India were back to back contracts.

4. It is common ground that the plaintiff delivered to the defendant 47,880 M.T. of rice.

5. As the contract was an FOB contract, it was the responsibility of the defendant to nominate vessels to take delivery of the rice and open letters of credit in accordance with the terms of the contract.

6. On the 17th October 1989 the plaintiff required the defendant to make nominations of further vessels and open letters of credit so as to enable the contract to be fully performed. The defendant declined to do this. According to the issues which are pleaded the defendant claims that the parties mutually agreed to reduce the quantity of rice to be supplied from 100,000 M.T. to 50,000 M.T.

7. The defendant also is counterclaiming against the plaintiff for the losses they have suffered as a consequence of the plaintiff arresting the Meghna shortly after it had been loaded with the plaintiff’s rice. They also seek a Declaration that they should be indemnified against all losses arising from the arrest.

8. In practical terms I think that Mr. Tang who represented the defendant accepted that the counterclaim can only succeed if the plaintiff’s claim is dismissed.

9. I will deal firstly with the issue of liability on the plaintiff’s claim.

Liability

10. The plaintiff’s main witness was Mr. Sach. He is a Vietnamese subject although he grew up in France. He was a Consultative executive for the plaintiffs in July 1989 at the time the contract was signed between the parties. He also undertook ongoing discussions and negotiations with the defendants during the period when the contract was supposed to be performed.

11. It was apparent from his evidence that he has also on occasion given advice and assistance to the Vietnamese Government relating to the rice trade.

12. Prior to the contract being entered into he had had discussions with various Government officials on the subject of reducing problems encountered in exporting rice from Vietnam. One of these was the delay which arose out of congestion at Ho Chi Minh City when vessels were loaded.

13. He had managed to get the authorities to accord a priority to the contract in question and had secured agreement to any 2 ships being allowed to load at the same time as soon as they were ready to load. This was a matter of some importance as only ships capable of being loaded with up to 15,000 M.T. of rice were able to be berthed at Ho Chi Minh City.

14. Also before the contract had been entered into be had satisfied himself that the loading rate referred to in the contract could be adhered to and deliveries of rice effected by the due dates in the contract. This involved shipping 100,000 M.T. of rice in a 60-day period up to the 15th September.

15. He had also been concerned to ensure that sufficient quantities of rice were readily available so that the contractual commitment could be adhered to. With this in mind he had entered into contracts with various suppliers for a total of 165,000 M.T. of rice. This had also taken into account the further contract for the supply of an additional 50,000 M.T. of rice which the defendant had said that they hoped they would be able to secure from the Indian Government.

16. Initially the defendant had indicted that they wished to purchase 120,000 M.T of rice. However, when the contract was completed on the 11th July 1989 the amount had been reduced to 100,000 M.T.

17. Almost immediately after the contract was agreedMr. Sach had started to press the defendant for nominations of ships and for letters of credit to be opened as he realised that the delivery schedule was a tight one if all of the rice was to be delivered on time by the 15th September.

18. It was clear that the question of time was verymuch in the minds of all parties. Mr. Prachai, the gentleman in the defendant company who was dealing with the matter had been required to put up a substantial performance bond by the Indian Government in respect of his back to back sale of the rice and he had attempted to obtain a similar bond from the plaintiff. Mr. Sach had refused to supply this. He did, however, assure Mr.  Prachai that if nominations of ships were made timeously and letters of credit were opened as required, the deliveries would be made on time.

19. Mr. Tang spent a considerable amount of time on this aspect of the matter in his cross-examination of Mr. Sach. He put it to Mr. Sach that shortly after the contract had been entered into he had had a discussion with Mr. Prachai and that it had been agreed that because of the requirement that only one ship could be loaded at a time and the necessity of having 14-day loading periods for each such vessel the total amount of rice to be delivered under the contract had been reduced from 100,000 M.T. to 50,000  M.T. and that Mr. Prachai would obtain the balance from  someone else.

20. Mr. Sach was emphatic in his denial of this suggestion. He claimed that he had made it abundantly clear to Mr. Prachai that 2 ships could be loaded at the same time and it had never been suggested to him that the total amount to be delivered might be reduced.

21. He agreed that during his discussions with Mr.Prachai the possibility of selling a further 50,000 M.T. had been broached but this had been dependent upon the Indian Government agreeing to purchase this further quantity.

22. He claimed his version of events was clearly borne out by the contemporaneous telexes exchanged between the parties.

23. He agreed that there was nothing in the contract to reflect the fact that only 2 ships could load at the  same time but the delivery requirements spelt out for each of the 3 months would sufficiently accommodate the situation.

24. In addition to this when at the end of August it was apparent that the situation was becoming critical, he had succeeded in getting the agreement of the Port Authority to extend the priority to 3 or 4 ships.

25. The delivery requirements had never really been put to the test as a result of the defendant either not making nominations of ships within the required time frame or not opening letters of credit in sufficient time.

26. A considerable amount of time was spent going through the telexes. I must say immediately that the evidence given by Mr. Sach was in all respects consistent with the correspondence and on no occasion did he give evidence which was in conflict with the correspondence.

27. One of the first problems referred to in the telexes was the question as to whether Mr. Prachai hadplaced orders for large quantities of rice with other Vietnamese suppliers. Mr. Sach said that he had heard rumours to this effect and had invited Mr. Prachai to comment on this in a telex sent at the end of July. Following this there had been a telephone conversation when Mr. Prachai had denied the rumours.

28. Shortly after this it had become clear to Mr. Sach that the rumours were well founded as when ships started to arrive at Ho Chi Minh City it was evident that some of them had been nominated for Mr. Paul Ho of Pilkon. This hadbeen a cause of great anxiety to Mr. Sach as he had committed the plaintiff to the supply of 100,000 M.T. of rice and he was fearful that if Mr. Prachai was obtaining rice from another source he might fail to fulfil his contractual requirements with the plaintiff.

29. These fears were accentuated by the fact that the defendant was not nominating ships or opening letters of credit as soon as was necessary to enable deliveries to be made in accordance with the contract.

30. The pattern which emerges from the correspondence is that the plaintiff was repeatedly asking the defendant to make nominations and open letters of credit and these telexes were being ignored or complied with only on a tardybasis.

31. 4 ships had been nominated by the defendant. They were the Bravo George, The Vyatka, The Eastern Breeze and The Meghna. The Bravo George had started loading rice onthe 17th August 1989 and the Meghna completed loading on the 18th October. The total of rice loaded on the 4 ships was 47,880 M.T.

32. During this period the various suppliers of rice had become restive and were making claims on the plaintiff based on the costs and expenses they were incurring as a result of storing large quantities of rice in warehouses and keeping it ready for delivery.

33. Mr. Sach gave evidence concerning the difficulties which were being encountered by the suppliers. There were 2 rice crops in Vietnam. The main one was from November to February and there was a secondary harvest from April to September. Once the rice had been milled it had to be stored in a warehouse. The moisture content had to be kept at 14% and this was a problem in the rainy season. If the rice was stored for too long a period it lost its fresh appearance and its value would be detrimentally affected.

34. Mr. Sach also gave evidence concerning the price of rice. He had given advice to the Vietnamese Government on this subject and in particular had advised on the amount of the minimum export price. From July to September 1989 this price had been $230. Thereafter it had been necessary to reduce it as it was apparent that sales could not be made at that price.

35. The situation had been so bad that by the end of November 1989 the price had been reduced to US$170 per M.T. FOB, Ho Chi Minh City.

36. He had himself been a party to negotiations with the Sri Lanka Government in November and they had refused to accept an offer of 100,000 M.T. of 35% broken rice at US$190. Even when it was reduced to $175 it was not accepted.

37. In cross-examination he was asked by Mr. Tang why in the supporting documents to the application for the Mareva Injunction in October 1989 the plaintiff was basing the loss they anticipated facing on the market price of the rice being US$205 per M.T. Mr. Sach said that at that time he had not realized the extent to which the market had become depressed and he had considered at that time that US$205 represented the market value. It was only as a result of information which became available to him later on that he came to realize how weak the market had been.

38. Generally speaking, I was satisfied that Mr. Sach was an excellent witness. I had no doubt that in allimportant respects he was telling the truth. What was particularly significant about his evidence was the extent to which it was consistent with the contemporaneous documents. Although he was subjected to a searching cross-examination he was never in any sort of difficulty. I accept him to be a truthful and reliable witness.

39. The only witness on liability for the defendant was Mr. Prachai. He is the Managing Director of the defendant and clearly is a man of considerable substance in Thailand. He provided background information concerning how the contract between the parties had been entered into.

40. He had known Mr. Sach for a number of years and­had had business relations with him previously. He had first been given the idea of trading in Vietnamese rice by Mr. Paul Ho who was Chairman of Pilkon Co. He was also the Managing Director of the plaintiff. Initially he had been reluctant to enter into this market due to the difficulty in finding interested purchasers of Vietnamese rice.

41. In July 1989 he had had discussions with the Indian Authorities concerning the sale to them of very large quantities of rice. These discussions had extended to the supply of Vietnamese 35% broken rice.

42. At all times his main concern had been the ability of Vietnames suppliers to fulfil delivery obligations within the tight delivery schedules which had been demanded by the Indian Government. The problem had been accentuated by the said Government’s insistence upon his entering into a personal performance Bond up to the amount of 10% of the value of the contract. This commitment made him potentially liable for up to US$2.5 million. Mr. Sach had declined his invitation to enter into a similar Bond in hisfavour.

43. Shortly after the signing of the contract on the 11th July he had had a discussion with Mr. Sach.

44. Mr. Sach had told him that only 1 ship could be loaded at a time in Ho Chi Minh City and that a 14-day period would have to elapse for the loading of a shipbefore another one could take its place. On the basis that the capacity of each vessel was limited to between 12 and 15,000 tons of rice, it was immediately apparent that it would be impossible to deliver 100,000 M.T. of rice to the Indian Government by the 15th September, the final delivery date contained in the contract between the parties and his contract with the Indians.

45. There had been a discussion on this. He had suggested that a solution to the problem could be found if he obtained 50,000 M.T. from some other source so as to enable him to meet his September deadline and he would attempt to obtain an order for a further 50,000 M.T. from the Indians with less stringent delivery requirements. This proposal had been agreed by Mr. Sach.

46. This being the case, he had reverted to Mr. Paul Ho and had agreed with him for Pilkon to supply him with 50,000 M.T. in time for him to meat his commitments with the Indians.

47. It is difficult to accept this evidence at its face value. I say this on account of the contemporaneous telexes which were being exchanged shortly before the 11th July 1989. In particular it is instructive to have regard to Mr. Sach’s telex of the 8th July which deals with the deliveries which were contemplated. This reads:

“13:45 JUL.08.89
081344 PTS
ACC P
08682994+

82994 HONYISN TH
82994 HONYISN TH

HK 08.7.89

FM MR SACH
TO HONG YIAH SENG CO, ltd.
- ATT MR PRACHAI

RE 35PC 5RKN VN RICE

CFM WE AGREE TO REDUCE QNTY TO 100,000
MTS FOR SHPT PERIOD FRM JUL TO 15/SEP.

AS OUR SALES ARE BASIS FOB, IT IS BUYERS
RESPONSIBILITY TO ARRANGE VSL(S) FOR
LDG: 2 x 15,000 MT IN JULY, 3 x 15,000
MT IN AUG. AND 2 x 15,000 MT FIRST HALF
SEP. WE ARE ALREADY JUL/08 TODAY, TFORE
THE 2 VSLS FOR SHPT JULY MUST BE
ARRANGED IMMY TO AVOID ANY DELAY IN
PERFORMANCE.  PLS ADV

BST RGDS/SACH

82994 HONYISN TH

82994 HONYISN TH
AAD 002.0”

48. It seems to me to be clear that Mr. Prachai’s evidence to the effect that Mr. Sach insisted that only 1 ship could be loaded at a time at Ho Chi Minh City is inconsistent with the contents of this telex and undermines the whole basis of Mr. Prachai’s justification for entering into contractual commitments with Mr. Paul Ho.

49. He was then taken through the correspondence which had been exchanged by the parties. Mr. Prachai maintained his position that throughout all of discussions with Mr. Sach both of them were fully aware of the fact that the contract between them had been varied and that theplaintiff was contractually required to supply only 50,000 M.T. of rice with only a hope that a further 50,000 M.T.would be supplied if Mr. Prachai was able to secure anadditional order from the Indians of this. amount.

50. Mr. Prachai was cross-examined by Mr. Clifford Smith for the plaintiff at some length. In particular the cross-examination was directed towards the contemporaneous correspondence which very clearly indicated that Mr. Sach was labouring under the impression that the contract still related to 100,000 M.T. of rice and not just 50,000 M.T. which is what Mr. Prachai claimed had been agreed by the parties in July.

51. I regret that I was most unimpressed by Mr. Prachai’s attempts to reconcile the contents of the telexes with his version of events. The only explanation he was able to give for not replying to the telexes and stating his position in the matter was that he was fearful of antagonising Mr. Sach. The consequences of so doing could be serious for him having regard to the fact that rice was still being loaded in Ho Chi Minh City and, if the plaintiff stopped such loading he may be in great difficulty with the performance Bond he had given to theIndian Authorities.

52. I do not consider that this explanation can withstand serious scrutiny. If there had indeed been an agreement in July for the amount to be reduced to 50,000 M.T. it is difficult to see how this would antagonise Mr.Sach. When this possibility is weighed against the damaging effect of leaving unanswered telexes which assert claims based upon there being a contractual requirement for the defendant to take delivery of the balance of 50,000 M.T. of rice, it seems highly improbable that Mr. Prachal was telling the truth.

53. Perhaps even more damaging than this was Mr. Prachai’s evidence relating to the telex he sent to the plaintiff on the 6th October 1989. This telex was as follows:

“BKK GA
080285527+
82994 HONYISN TH
OCT 06 89 1248 021074
85527 SHPMA HX

OCT 6’89   OUR REF: VNC-89/128

TO: SHIPMAR INC.
FM: HONG YIAH SENG CO, LTD.

ATTN: MR. SACH

RE YR HONSAICO TLX REF HX 350/89 DD OCT
5’89

WE FEEL SHOCKED BY YR HOSTILE RESPONSE
BY FLLW REASONS:

1)     AS FOR THE ADDITIONAL PERFORMANCE BOND REQUIRED BY FCI, WE NEVER MADE SUCH COMMITMENT WITH FCI. IT IS YOU YOURSELF WHO MADE SUCH COMMITMENTS TO THEM. WE JUST PASSED ON THEIR TLX TO YOU AND HOPE YOU WILL KEEP YOUR PROMISE.

2)     AS YOU MENTIONED IN YR TLX DD 23.8.89, THE PRICE OF VIETNAMESE RICE WAS RISING BY USD3 PER M/T TO USD5 PER MIT. WE DO NOT UNDERSTAND WHY YOU WANT A PERFORMANCE BOND FROM US WITH A VALUE OE 20 PERCENT WHICH IS HIGHLYUNREASONABLE AS WE NEVER COMMITTED TO YOU TO OPEN ANY P. BOND TO YOU. SO YOU SHOULD NOT USE THIS AS AN EXCUSE FOR NOT OPENING YR OWN P. BOND YOU PROMISED TO THEM.

3)     YR PAST PERFORMANCE OF LOADING RICE IN PREVIOUS VESSELS SHOWED THE AVERAGE RATE OF 600 M/T PER DAY WAS VERY DIFFICULT TO ACHIEVE AND NO WAY YOU COULD LOAD SUCH QUANTITY OF 100,000 M/T OF RICE WITHIN SEPTEMBER 15, 1989. BUT FOR SAKE OF OUR PAST LONG TERM RELATIONSHIP, WE TRY TO PRESUADE OUR BUYER TO EXTEND THE SHIPMENT PERIOD TO LOAD THE MAXIMUM QUANTITY WITH YOUR MUTUAL CONSENT. IT TAKES TIME AND EFFORTS, BUT YOU NEVER APPRECIATED OUR EFFORTS ON THE REMAINING QUANTITY OF 50,000 MTS. SO WE AGREE TO CANCEL THE REMAINING 50,000 MTS SO THAT WE DO NOT HAVE TO WASTE OUR TIME TO PERSUADE THEM TO EXTEND SHIPMENTS FOR REMAINING 50,000 MTS.

4)     PLS BEAR IN MIND THAT WE DID THE BUSINESS WITH YOU BECAUSE OF OUR LONG TERM RELATIONSHIP AND OUR AIMS TO HELD YOU, BUT INSTEAD YOU USE YOUR LAWYER TO THREATEN US.  IS THAT THE WAY YOU VIETNAMESE SHOW YOUR GRATITUDE FOR PRIENDSHIP AND MUTUAL COOPERATION?  WE HOPE YOU USE YOUR LAWYER WITH SOMEONE ELSE AND NOT WITH US.

RGDS

82994 HONYISN TH
85527 SHPMA HX
MMMMMM
1254 005.2”

54. Mr. Prachai agreed in his evidence that the purpose of the telex was to give notice of the defendant’s cancellation of the contract. This evidence is incontradiction to the evidence he gave earlier that it had already been mutually agreed between himself and Mr. Sach that the amount should be reduced to 50,000 M.T.

55. It is also significant to note that there is no reference in the telex to the alleged agreement to reduce the amount.

56. If this is not entirely clear the position is put beyond any doubt by the defendant’s telex of the 18th October:

 “…
85527 SHPMA HX
181415 PTS
61356+
61356 DALAT HX
85527 SHPMA HX

ATT MR LAM

RC VD FLWG

CCT 18’89                             OUR REF: VNC-89/129

TO: HONSAICO
CC:  SHIPMAP INC.

FM: HONG YIAH SENG CO., LTD.

PYTLX HX372/89 DD 17-10-89 DUE TO YR
UNABILITY TO LOAD FAST FOR THE INDIAN
BUYER WITHIN SEPT 15. THEY DECIDED
AGAINST THE ADDITIONAL QUANTITY OF
50,000 M/T. SO PLS NOTE ACCORDINGLY.

RGDS
20605 HONYISN TH
85527 SHPMA HX
61356 DALAT HX
AAD 001.3”

57. I find myself forced to a conclusion that there was never any agreement between the parties that thecontract amount should be reduced from 100,000 M.T. to 50,000 M.T. and that Mr. Prachai has fabricated this evidence.

58. Mr. Prachai kept complaining about the slowness of the loading and the difficulties which he encountered on this score, 1 do not think that any of this has much relevance to the issues lying before me for determination. I accept the validity of the submission made by Mr. Clifford Smith that it is obvious from what occurred, namely the tact that deliveries were made and accepted after the 15th September 1989 that there was a mutual agreement between the parties for the 15th September 1989 deadline to be extended so far as the rice loaded on the Meghna was concerned.

59. I have no doubt whatever from all of the evidence before me that the plaintiff has proved that the defendant was in breach of the contract dated the 11th July 1989 by failing to make further nominations of ships and open letters of credit after formally being required to do so by the plaintiff. The date of this failure was the 18th October 1989.

Quantum

60. I think that it is accepted by both parties once liability is established damages would be payable on the basis of s.52(3) of The Sale of Goods Ordinance,Ch. 26. For the purposes of this action this would meanthat damages should be calculated on the difference between the contract price and the market price at the date of the breach. As I have already indicated the date of the breach of the said contract was the 18th October 1989.

61. I do not think that there can be any doubt whatever that on the available evidence there was an abundance of rice available in Ho Chi Minh City for the plaintiff to supply the needs of the defendant. This was never seriously in issue.

62. What is very much in issue is the market price of Vietnamese rice on the 18th October 1989.

63. The plaintiff called Mr. Thomas Slayton as an expert witness. He has many years’ experience in the rice trade and now provides an advisory service to clients. The main basis of his evidence was the Expert Report which was filed as evidence.

64. This outlined in general terms the factors which had a bearing on the price of rice at any given point in time. Mr. Slayton said that as Thailand was the largest exporter of rice in the world it was convenient to assess prices on transactions involving Thai rice.

65. Although historically Vietnam had been a substantial and important exporter of rice they had not been significant exporters in the recent past prior to 1989. In that year they had started exporting large quantities of rice.

66. For a number of reasons purchasers of rice had initially only been prepared to pay lower prices for rice than those obtainable for Thai rice.

67. One important element had been the uncertainty surrounding the ability of Vietnam to meet large orders. In particular port facilities at Ho Chi Minh City were limited and cargoes had to be restricted to about 12,000 M.T. to 15,000 M.T. per cargo as a result of the amount of the draught of vessels being limited. When this was taken in conjunction with an excessive amount of congestion in the port, purchasers were uncertain that large shipments could be undertaken within reasonable time constraints.

68. A further important factor in July 1989 had been the policy of the Vietnam authorities to gain a significant position in the international market. They had been prepared to countenance lower prices so as to gain much needed foreign exchange. At the beginning of July prices for Vietnamese 35% had been traded at a discount of US$78 against Thai rice of a similar quality. This was an unusually large spread and it was a subject of considerable controversy as to the extent to which this spread had reduced over the ensuing months.

69. The situation had also been complicated by twoother considerations. One was the existence of what was described as the minimum export price. The Government stipulated a minimum price which could be fixed for any sale of rice. The purpose of this was to prevent exporters competing among themselves and bringing about a situation where all prices would be lowered. The other complication was brought about by the fact that many sales of rice were partly or in whole barter transactions. In 1989 it was to quite a large extent possible to surmount difficulties which may arise in connection with prices below the minimum export price by inflating the invoices of goods being bartered for the rice. All of this made it rather difficult to ascertain exactly what the market price may be at any particular point of time.

70. Mr. Slayton produced a graph and tables which indicated price trends over the relevant period. On the basis of his opinion it appeared that from sometime towards the end of July 1989 prices started to decline quite sharply and this decline continued until the beginning of November.

71. Mr. Slayton used a number of different sources for determining the price of rice. These included market reports from a London Broker, Jackson Son & Co., and from the London Rice Brokers Association.

72. The main line of attack in Mr. Tang’s cross-examination related to the spread which Mr. Slayton said existed between Thai and Vietnam rice prices. Mr. Tang was able to demonstrate from the material available that the spread became much narrower as time passed. Mr. Slayton accepted that if one considered the position in 1990 and 1991 this was undoubtedly the case and the reason for it was that the market now accepted that Vietnamese exporters were able to meet large Shipments of rice within times stipulated in contracts thus eliminating to a considerable extent the risk factor.

73. Clearly one of the most important determinants of market price was the extent of supply and demand at any particular time. It seemed to be fairly clear from the evidence that in September and October 1989 large quantities of rice were available at Ho Chi Minh City and it seems likely that this fact would have had the effect of deflating the price of Vietnamese rice. This view of the market appears to have been accepted by the London Rice Brokers Association.

74. The London Rice Brokers Association issued a monthly newsletter which contained comments on rice market conditions. Their circulars for the months of August and October 1989 both make reference to sharp falls in the price of rice.  Indeed the price given for Thai 35% broken rice at the end of October was US$215 per M.T. There was also nothing in the October circu1ar to suggest that there had been any narrowing of the differential which existed between Thai and Vietnamese rice.

75. What is clear from the circulars and from JacksonBrokers Reports is that prices are, as one would expect, sensitive to the laws of supply and demand, and that by October there would appear to have been abundant supplies of both Thai and Vietnamese rice. In the light of the contents of the reports it would appear that prices in the rice market were generally weak at the relevant time.

76. Doing the best he could with all the information which was available Mr.Slayton expressed the opinion that Vietnamese 35% broken rice would have been worth US$189 per M.T. on the 20th October 1989.

78. This figure was based on a Thai price of US$220 and a spread between Thai and Vietnamese prices of US$31.

79. One of the main difficulties in determining the market price of Vietnamese rice is the small number of transactions effected at the relevant time.

80. I can accept the logic of using the Thai price as a general indicator of price levels. The problem though is knowing the exact extent of the differential between Thai and Vietnamese prices.

81. Mr. Slayton considered the differentials existing at the end of July and the end of September and attempted to work out the amount of the differential in December 1989 by reference to a contract entered into by a Vietnamese entity and a French organisation on the 15th December 1989.

82. There was a barter element in that contract but the price fixed for the Vietnamese rice of a similar quantity FOB was US$165. This indicated a price differential of US$40-45 on the London Rice Brokers Association’s price at that time.

83. I have no doubt that Mr. Slayton is an experienced expert in this field and that he has done his best to assess the price of Vietnamese rice at the time in question.

84. The expert to give evidence for the defendant was Mr. Rakesh Sodhia who is the Marketing Vice President of G. Premjee, a Bangkok merchant company dealing in the rice trade.

85. Mr. Sodhia has experience in the trade since 1982. His company has had business transactions with the defendant since 1983 and he spoke highly of Mr. Prachai as a trader.

86. Mr. Sodhia did know Mr. Slayton quite well and was a subscriber to the newsletter which he issued. He was also aware of the circulars issued by the London Rice Brokers Association. He accepted that the views of that body merited serious consideration particularly as the opinions which were expressed were detached and apparently impartial.

87. Vietnam had entered into the rice export market in a substantial way in the early part of 1989.

88. Initially there had been a price discount of about US$60-70 per M.T. on account of the uncertainty attaching to this source of supply. It was his evidence that as soon as importers came to know that Vietnam rice was of a satisfactory quality, the price discount had diminished and indeed it was possible that the price may have been at a premium by the latter part of 1989.

89. Mr. Clifford Smith put to him the 3 factors which had been put forward by Mr. Slayton as being the reasonsfor the price spread. These were:

          1. The market’s unfamiliarity with Vietnamese rice;

2. Slow loading of rice at Ho Chi. Minh City coupled with the congestion in the port; and

3. The greater distance for transporting ice to the main floating market for rice, West African countries. Mr. Sodhia agreed with all these factors. It would appear that only the first factor referred to would be likely to change significantly in the time scale of the contract.

90. Mr. Sodhia’s answer to this was that the most important factor in explaining the price differential was the willingness of the Vietnamese Government to sell at a discounted price so as to establish a presence in the world rice market. Once this had been achieved there would be less incentive to discount prices. There may be some validity in this contention.

91. Mr. Sodhia experienced other problems in maintaining his evidence that the spread in the price of Thai and Vietnamese rice had disappeared by October. He accepted that at the beginning of July 1989 the price of Thai rice was US$310 per M.T. and the price of Vietnamese rice was $230 thus giving a spread of US$65-70 per M.T. Mr. Sodhia also accepted that in the middle of December 1989 the price of Thai rice was US$210 per M.T. Afterbeing shown a contract dated the 15th December 1989 where a similar quality of Vietnamese rice had been sold for US$165 per M.T. he accepted that that figure may have reflected the true value of Vietnamese rice at that time. These prices would indicate a spread of US$45 per M.T. in December.

92. Mr. Sodhia was quite unable to give any plausible explanation as to why the spread should have disappeared temporarily in October 1989.

93. It is necessary to consider this evidence in conjunction with the reasons which are said to justify there being a spread in the first place. Logic would seem to indicate that only the Vietnamese Government willingness to obtain a position in the market and the 1st factor referred to by Mr. Slayton was likely to change very much during 1989.

94. I have no doubt that there was a difference in the prices of Thai and Vietnamese rice in October 1989.

95. Mr. Sodhia was taken through the London Rice Brokers Association’s Circulars and the Jackson Reports over the relevant period. He was unable to make any constructive observations on this material. Most of thetime he said that he agreed with the opinions being expressed. Occasionally he said the price seemed on thehigh side.

96. What was significant was that he agreed that with the exception of one transaction he had been involved in of a sale of Vietnamese rice to the Sri Lankan Government in August 1989, he had not himself been a party to any contracts of Vietnamese rice during the relevant period. His only knowledge of prices applicable was what he learnt, from discussions with other parties in the trade.

97. A good illustration of the unsatisfactory nature of this witness’s evidence can be seen from the inconsistencies relating to the different prices referred to in the circulars issued by Jackson Brothers and the evidence he gave in this connection. For example, when he was commenting on Jackson’s 27th July price of US$295 for Thai rice, he said that probably the price was nearer to $290. However, when earlier he had been giving evidence of the price of rice at this time he had expressed the view that the price of Thai rice was between $255 to $260 at that time. There were other examples of serious discrepancies in Mr. Sodhia’s evidence.

98. I regret that I have come to the conclusion that I can attach little credence to Mr. Sodhia’s expert evidence and where his view of prices is at variance with the opinions given by Mr Slayton, I have no hesitation in preferring the latter’s testimony.

99. The only other evidence available was a report from another Broker, Philipp Bros Ltd. dated the 17th October 1989. This made reference to floating cargoes of Vietnamese 35% broken rice where sale offers were being made at US$230 to US$240 per M.T. C & F. Both experts agreed that the freight element would constitute about US$40 of the price which would bring it close to Mr. Slaytons estimated figure of US$189 per M.T.

100. I consider, however, that it is necessary to exercise great caution when reference is made to offers rather than to prevailing contract prices. For this reason, I would not attach a great deal of weight to the information contained in the Philipp Bros Ltd. report.

101. I would make a similar observation concerning various offers which Mr. Prachai obtained in October 1989 which were produced as evidence. It is significant to note that no counter offer was made by Mr. Prachai and there is no means of knowing the extent to which the parties making offers would have been prepared to reduce their prices.

102. I tend to think that the price would have been on the low side at this time on account of the undisputed evidence of there being large quantities of rice available in both Thailand and Vietnam.

103. Having given much thought to all of the evidence available I have come to the conclusion that Mr. Slayton’s expert evidence can not be seriously flawed and I propose accepting that the market price of the rice on the 18th October was US$189 per M.T. It is common ground that the contract price of the rice was US$230 per M.T. The difference therefore between the market price and the contract price was US$41 per M.T.

104. As to the amount of the balance of the rice, I accept the validity of Mr. Tang’s submission that as the contract gave the buyer the option of taking 100,000 M.T. of rice plus or minus 5%, it is only fair to assess damages on the minimum amount the defendant was required to take namely 95,000 M.T. This leaves a balance of 47,120 M.T.

105. The amount of damages payable will be US$41 x 47,120 = US$1,931,920.00. I make an order nisi that costs will be to the plaintiff and I will hear the parties on the amount of interest which should be payable on this sum. In accordance with the observations made earlier in this judgment the defendant’s counterclaim is dismissed.

Mr. Clifford Smith instructed by Holman Fenwick & Willan for Plaintiff.

Mr. Robert Tang, Q.C. & Miss Audrey Eu instructed by Stevenson Wong & Co. for Defendant.

[The exhibition by the defendant of an unacceptably low standard of commercial morality in its dealings with the plaintiff is a relevant and important factor for the Court to take into account in deciding whether or no there is a real risk that a judgment in favour of the plaintiff might remain unsatisfied]

1989 C.L. No. 116

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

-------------

-----------------------

J U D G M E N T

-----------------------

1. This is an application inter partes to continue a Mareva injunction granted to the plaintiff ex parte by Nazareth J. on 19th October 1989 and varied by Bokhary J. on 26th October 1989. The plaintiff is a Hong Kong company behind which stand various state agencies of the Republic of Vietnam. The defendant is a Thai company. The dispute between the parties arises as follows.

2. On 8th July 1989, the defendant agreed to sell and the President of India, representing the Food Corporation of India, agreed to buy Vietnam rice to be shipped to India on the terms and conditions set out in a written contract of that date for the purchase and sale of the rice.

3. The quantity was 100,000 metric tonnes. The price was US$258 PMT, free on board Ho Chi Minh, Vietnam. The contract contained a delivery schedule. This provided that the delivery should be made guaranteed not later than 15th September 1989 as per the following schedule :

The contract provided that any shortfall in the monthly schedule should be carried forward to the following month up to 15th September 1989. It provided that in case of default by the seller, the contract, to the extent of the quantity not shipped by the 15th September 1989, should stand automatically cancelled; and that that would also attract a penalty for non-performance by the seller.

4. The contract contained provisions concerning shipment. The buyers were to furnish ocean going vessels for the transportation of the rice. The buyer's shipping agents were to give the sellers at least 7 days notice of the vessel's name, expected time of arrival and the approximate quantity of the cargo for which the vessel had been chartered. Loading was to be at the rate of 600 MT per weather working day, Sundays and other public holidays excepted even if used. The sellers were to load the vessels on Sundays and other public holidays if required by the buyers.

5. In order to perform its obligations under this contract, the defendant entered into a contract with the plaintiff on 11th July 1989. This latter contract was again a contract for the sale and purchase of 100,000 MT of rice. The shipment schedule contained in this contract was identical with that contained in the contract of 8th July 1989, and the loading rate was again 600 MT per weather working day, Sundays and holidays excepted even if used. The price under this contract, free on board Ho Chi Minh, was US$230 PMT. This contract provided for payment in these terms : "By confirmed irrevocable letter of credit at sight to be opened 2 weeks before shipment in favour of [the plaintiff] through [N.M.B. Hong Kong and another bank] as per our nomination later."

6. That this contract had been entered into with reference to the earlier contract of 8th July 1989 appears from the provision contained in the contract of 11th July 1989 by which it is provided, in relation to the bills of lading, that the Food Corporation of India is to be shown as the consignee. There is an addendum to the contract of 11th July 1989 buttressing that point, because it confers upon the Food Corporation of India, through the defendant, the right to associate their representatives with the weighing, sampling and analysis of the samples and loading operations of the cargo.

7. However, it is said by the defendant that, soon after it had entered into the contract of 11th July 1989, it formed the belief that the plaintiff would be unable timeously to perform its obligations under that contract.

8. In paragraph 7 of an affirmation made by one Prachai Leophairatana, the defendant's managing director, he says this :

"Shortly after the contract between the plaintiffs and the defendants was signed on 11th July 1989, I was verbally informed by Mr Sach when we spoke on the telephone that the plaintiffs were only able to supply 50,000 metric tons of the goods by 15th September 1989. He explained that this was because there were so many ships coming into Vietnam in July and August for loading cargo that shipping arrangements must be made to provide that vessels be berthed in Vietnam for loading at 2 weeks' intervals between the loading of each shipment. It is clear from such a schedule of loading, i.e. 2 vessels for every 4 weeks, that it would be impossible for the plaintiffs to arrange for the entire quanitty of 100,000 metric tons of the goods to be delivered within the contractual period, on or before 15th September 1989. I complained to Mr Sach on the telephone by saying that the plaintiffs would not then be able to perform their obligations under our contract, and that this would put the defendants in a great deal of difficulties under their own contract with the Indian Government."

(Mr. Sach represented the plaintiff on the transaction.)

9. The plaintiff does not at all accept what is said on behalf of the defendant and I am, of course, in no position to decide on this application which of the two of them is right. However, the defendant does appear to have been under a genuine belief that there was going to be a problem with the contract. (Whether those problems were the fault of the plaintiff, or the defendant, or of some third party, I neither know nor, for present purposes, care.) What the defendant did about the problem was to enter into another contract with another supplier, Pilkon Company Limited ("Pilkon") on 19th July 1989. It contracted with Pilkon under two contracts, in identical terms, for the supply by Pilkon of a total of 50,000 MT of rice, 30,000 MT under the one contract and 20,000 MT under the other. Shipment was to be in August and September 1989. Again, the loading rate was to be 600 MT per weather working day, Sundays and holidays excepted even if used. Again, it was provided that the Food Corporation of India should be shown in the bills of lading as the consignee.

10. The price under these contracts was the same, US$230 PMT. It is plain, from the evidence originally filed on behalf of the plaintiff, that the plaintiff's reaction, when it realised that something was afoot between the defendant and Pilkon, was that the defendant was able to buy the rice from Pilkon at a better price than it had obtained from the plaintiff, and was therefore proposing to increase its profit by applying this cheaper rice from Pilkon to the fulfillment of its contract with the Food Corporation of India.

11. Once it appeared, however, as it did, that the price in both contracts was the same, this could not be sustained. One is left wondering why it was that the defendant entered into the contracts, into which it did enter, with Pilkon, if it was not that it had formed the genuine belief that the plaintiff would be unable to perform its contract. I do not know whether there was any substance in that belief. I am not in a position to decide whether it was well founded or not, but for present purposes, there being no other reasonable explanation, I am satisfied I should treat the belief which the defendant says it formed as a genuine belief. On their respective analyses of the state of affairs at the port of Ho Chi Minh, in particular on the possibilities of loading the cargo so as to procure a shipment in due time, the parties differ. I see no justification whatever for this court at this stage getting into any consideration of that matter. The defendant protests that it is obvious that the plaintiff could not have performed its contract. The plaintiff protests that it is equally obvious that it could have performed its contract and would have done so had the defendant done what it was required to do, which was to nominate the ships in time and to put in place the necessary letters of credit. No doubt, the parties will be able to treat the trial judge to a more comprehensive rehearsal of their respective arguments. The point, as I see it, is not one for me.

12. I start then from the proposition that shortly after 11th July 1989, the defendant formed the genuine belief that the plaintiff would be unable to honour its contract and that, accordingly, it was sensible for the defendant to cover itself by entering into the contracts with Pilkon to provide it with 50,000 MT of rice to meet its obligations under its contract of 8th July 1989 with the President of India.

13. However, at no time in the 8 days between 11th July 1989, the date of the contract between the plaintiff and the defendant, and 19th July 1989, the date of the contract between the defendant and Pilkon, did the defendant express to the plaintiff in writing, whether by letter, or telex, or facsimile or anything else, a hint of its concern about the matter. I do not ignore the telephone conversation mentioned in the defendant's evidence. But not a word, as I say, do I find in written form.

14. The plaintiff was, apparently, wholly unaware of this real or supposed difficulty when it began, as soon as it had need to do so, to press the defendant to get on with its obligations of nominating the vessels and, of putting in place the necessary letters of credit. The plaintiff could not have done more. It laid it on the line for the defendant in telex after telex. For days there was no response whatever from the defendant. But on 27th July 1989, there was a response, or at any rate, a response of sorts.

15. On 27th July 1989, the defendant sent a telex to Mr. Sach saying this :-

"Thank you for your telex dated 27th July 1989. Sending you letters of credit details. We are pushing Indians to nominate more vessels."

That response does not in any way deal with the detailed and increasingly anguished attempts of the plaintiff to try and find out from the defendant what it was playing at. Nor does it protest that the problem had been caused in any way by the plaintiff.

16. The plaintiff believed that the delay had been caused by the Indian buyer's side, as it said in its own telex to the defendant of 27th July 1989. The reply to which I have referred, the so-called response, continued to give the plaintiff the impression that upon that point they were right. Not from the defendant a word to suggest that the plaintiff had itself entered into a contract which was doomed from the start because it was impossible for the plaintiff to perform it.

17. From then on, the plaintiff continued to press the defendant to perform its obligations under the contract. But the defendant never gave the plaintiff any sort of written explanation of what its real or supposed concerns were. There was evidence that some of these matters had been dealt with on the telephone, but for present purposes I have to look at the evidence as it stands. I cannot get into the question - who said what to whom - in conversations over the telephone. I can only read the material which has been placed before me and I observe that there is no such material at a time when one would be entitled to expect it.

18. On and on the plaintiff went, trying to sort the matter out. It went so far as to get in touch itself with the Food Corporation of India by telex, sending copies of that telex to the defendant, but even this evoked no response from the defendant. The nearest thing, apart from the respondent's telex of 27th July 1989 to which I have referred, which could be dignified with the name of a response was that the defendant actually accepted an extension of time for one or more of the letters of credit. It did nothing consistent with a belief that the plaintiff was acting in breach of its contract or was inevitably bound so to do.

19. Then, at last, the defendant came clean. On 6th October 1989, it telexed the plaintiff and said this : "Your past performance of loading rice in previous vessels showed the average rate of 600 metric tons per day as very difficult to achieve and no way could you load such quantity of 100,000 metric tons of rice within September 15th 1989, but for sake of our past long term relationship, we try to persuade our buyer to extend the shipment period to load the maximum quantity with your mutual consent. It takes time and efforts but you have never appreciated our efforts on the remaining quantity of 50,000 metric tons so we agreed to cancel the remaining 50,000 metric tons so that we do not have to waste our time to persuade to extend shipments for the remaining 50,000 metric tons."

20. Finally, on 18th October 1989, the defendant telexed the plaintiff and said this : "Due to your inability to load fast for the Indian buyer within 15th September, they decided against the additional quantity of 50,000 metric tons, so please note accordingly". This is another disingenuous attempt to obscure what, on the face of the documents, appears to be the true position. The 50,000 MT that the defendant was not taking from the plaintiff was, in fact, being supplied through Pilkon.

21. On the facts to which I have referred, the plaintiff has asked for a continuation of the Mareva injunction granted ex parte on 19th October 1989. A number of matters have to be satisfied before this drastic and extraordinary remedy is granted. For example, there must be proof of assets within the jurisdiction before a Mareva injunction is granted; see Third Chandris Shipping Corporaton v. Unimarine S.A. [1979]1 Q.B. 645, per Lawton L.J. at p.673. And there are other matters into which, however, I need not go; because, in the present case, the parties are content to argue the matter on one ground alone; i.e., whether or not there is a "real risk" of the defendant dissipating its assets to avoid a judgment. On other matters, I have heard no argument and I say nothing about them in relation to the present case.

22. The question of "real risk" was vigorously debated before me. However, here too, thanks to the good sense of counsel, I have the advantage of an agreement between them as to what the question is that I have to decide. The question is : On the whole of the evidence, would the refusal of a Mareva injunction involve a real risk that the judgment in favour of the plaintiff would remain unsatisfied? (The framing of the question in that way is supported by a judgment of the Court of Appeal in England in Ninemia Maritime Corporation v. Trave Schiffahrtsgesellschaft m.b.h. und Co. K.G. [1983]1 W.L.R. 1412.)

23. The defendant is a foreign company which is, on the evidence, in a big way of business, though not in Hong Kong. There is no evidence before me of its having a bad reputation in the market. There is, I think, no doubt that the grant of a Mareva injunction would tend to damage its interests and its reputation in Hong Kong and possibly elsewhere. That is often the effect of a Mareva injunction granted on the ground that the judge is satisfied that there is a real risk that the defendant might allow a judgment against it to remain unsatisfied. In the present case, the defendant claims (without giving anything that could remotely be considered as particulars) that it has a substantial banking relationship in Hong Kong with its bankers. For these reasons, which I quite understand, I am most hesitant to grant this relief against this defendant. But I do have to weigh against these considerations the fact that, as the evidence establishes, there is no reciprolity of enforcement of judgments between Hong Kong and Thailand, and also the most important consideration which, as it seems to me this case discloses, that is, the devious conduct of the defendant in its dealings with the plaintiff.

24. I am not here to punish the defendant because I disapprove of its conduct; that is not the purpose of a Mareva injunction. But, if I come to the view that its conduct, in relation to this transaction, leaves me so uneasy that I am driven to the conclusion that there is a real risk that a judgment in favour of the plaintiff might remain unsatisfied, then I conceive it to be my duty to grant the injunction. It may be that some cash will come to the hands of the defendant which would be easily removable out of the jurisdiction, but I attach no very considerable weight to that. It is the case as I have already pointed out that the defendant is a foreign corporation, but it is a substantial one, and I place no great weight on that either.

25. I have, however, come to the conclusion that the defendant has exhibited an unacceptably low standard commercial morality in its dealings with the plaintiff; and this drives me to conclude that there is a danger that if the defendant thought it was in its best interests to do it, it would not shrink from attempting to defeat the interests of the plaintiff under any judgment the plaintiff might obtain here.

26. I can understand that the defendant would wish to protest at such a conclusion; but as it seems to me, it has, by its own conduct, brought this upon itself. That there is such a danger is a view which I have formed with reluctance; and I would be anxious to do what I can to avoid damaging the interests of the defendant more than is necessary in line with that conclusion. If, for example, the court were to be offered, even at this late stage, an undertaking from the defendant not to dispose of its assets within the jurisdiction of this court, above the amount of the plaintiff's claim for damages (which amounts to some US$1.4 million) without first giving notice of its intention so to do to the plaintiff, or if some other machinery can be worked out which would preclude the Mareva injunction from going, I should be prepared to consider it. But, absent any such thing, I think that on balance the plaintiff has made out its case for the protection of a Mareva injunction; and I propose, for those reasons, to grant one.