HK CourtDB
HomeDirectoryMCP
Hong Kong CourtDB
Back to directory
1998

THE BANK OF CHINA v. XINYUAN TRADING CO. LTD.

Related cases with same parties

  • HCA18159/1998XINYUAN TRADING CO. LTD. v. N P H PETROCHEMICAL LTD.

Files (2)

11617-EN-2000-06-21

THE BANK OF CHINA v. XINYUAN TRADING CO. LTD.

HTML content

CACV000276A/1998

CACV 276/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 276 OF 1998

(ON APPEAL FROM HCA 18159/1998)

 

BETWEEN
THE BANK OF CHINAAppellant
AND
XINYUAN TRADING CO. LIMITEDPlaintiff
and
N P H PETROCHEMICAL LIMITEDDefendant

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

Coram: Hon Godfrey VP, Rogers JA and Ribeiro JA in Court

Date of Hearing: 21 June 2000

Date of Judgment: 21 June 2000

 

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

J U D G M E N T

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

 

Hon Godfrey VP :

Introduction

1. This is an application under Order 20 rule 11 of the Rules of the High Court ("the slip rule") for an amendment of an order of this court made on 5 March 1999. The amendment sought relates to the order as to costs which this court then made, that the costs of the appeal and of the application below should be to the appellant. The appellant now applies for the inclusion in the order of a certificate or direction to the taxing master to the effect that the appeal was fit for the attendance of two counsel for the appellant.

Background

2. The appellant was represented at the hearing of the appeal by two counsel. No application was made to this court for a certificate that the case was fit for the attendance of two counsel. This is not surprising. In my experience, both in England and Wales and in Hong Kong, it is not the practice to ask for such a certificate at the conclusion of the hearing of an appeal. The reason is that the taxing master will normally allow the fees of two counsel on the hearing of an appeal to this court when the bill of costs for the successful party includes that item.

3. However, in the present case, the taxing master refused to allow the appellant the fees of two counsel. This is surprising. Be that as it may, the appellant, aggrieved by this, applied for a review of the taxation. The decision upon that review is still awaited. Meanwhile, the appellant, having had second thoughts about its position, has decided to try and improve it by coming back to this court under the slip rule for inclusion in the original order of a certificate that the case was indeed fit for the employment of two counsel.

The relevant considerations

4. If we were to grant such a certificate, that would take the matter out of the hands of the taxing master altogether. He would be bound to give effect to the directions of this court in relation to the taxation. This application has been described in the course of argument in this court as "jumping the gun". It is worse than that. It is an attempt to go back to the armoury, select a gun, and fire it after the war is over. What is now sought to be done is to use the slip rule to insert, into this court's original order as to costs, a provision which is not there, not because of any slip in expressing the court's intention but because it was not originally asked for. It is asked for now only because it would assist the appellant in the prosecution of its application for a review of the master's decision on the taxation. This seems to me to be a course both misconceived and improper. The purpose of the slip rule is to enable the court to correct an error or omission made in an order "in expressing the manifest intention of the court", as the editors of the Supreme Court Practice 1999, Vol. 1, point out at 20/11/1. There was here no error "in expressing the manifest intention of the court".

5. If the appellant had originally applied for the certificate for which it now applies, the other side's counsel might have objected to the grant of such a certificate, and we might have acceded to that objection, saying that that was a matter which should be left to the taxing master; I simply do not know. What I do know is that there was certainly no error here "in expressing the manifest intention of the court". In those circumstances, this attempt to employ the slip rule to improve the appellant's position is, as I have said, both misconceived and improper.

6. I accept that this court has jurisdiction, if it sees fit and is asked to do so, to direct the taxing master to allow fees for two counsel on the taxation of the costs of the successful party in an appeal to the Court of Appeal. It is however unusual, to say the least, for it to exercise that jurisdiction. If there is to be a change in the practice, so that in every case in the Court of Appeal which is attended by two counsel for the successful party, that party will have to apply for such a direction if the fees of two counsel are to be allowed on taxation, that is a change which should be introduced only after careful consideration and by amendment to the rules. It may be that, on the review of taxation in this case, if the matter gets before a judge (and perhaps an assessor), some guidance might be given on the point. But, certainly, this is not the right time for a consideration of that wider and more general issue.

7. For the reasons I have given, I would dismiss this application.

 

Hon Rogers JA :

8. I agree and I have nothing to add.

 

Hon Ribeiro JA :

9. I also agree.

 

Hon Godfrey VP :

10. The application will accordingly be dismissed. It was misconceived and improper and the respondents will have their costs of the application, taxed on the basis of an indemnity.

 

 

(Gerald Godfrey)(Anthony Rogers)(R.A.V. Ribeiro)
Vice-PresidentJustice of AppealJustice of Appeal

 

Representation:

Mr Rimsky K.K. YUEN, instructed by Messrs Deacons, Graham & James, for the Appellant

Miss Gekko LAN, instructed by Messrs K.M. Lai & Li, for the Plaintiff

Application for review of the taxation by the appellant allowed by the taxing master. Please refer to HCA18159/1998 dated 25 September 2000
11618-EN-1999-08-20

THE BANK OF CHINA v. XINYUAN TRADING CO. LTD. AND ANOTHER

HTML content

CACV000276/1998

CACV 276/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 276 OF 1998

(ON APPEAL FROM HCA 18159 OF 1998)

BETWEEN
THE BANK OF CHINAAppellant
AND
XINYUAN TRADING CO LTDPlaintiff/Respondent
and
NPH PETROCHEMICAL LIMITEDDefendant/Respondent

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

Coram: Hon Mortimer V-P, Godfrey and Rogers JJA in Court

Date of Hearing: 5 March 1999

Date of handing down Reasons: 20 August 1999

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

REASONS FOR JUDGMENT

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

 

Mortimer V-P (giving the reasons for judgment of the Court) :

1. On 5 March 1999 we allowed the appeal and discharged the order of Yam J of 6 November 1998 restraining the Bank of China (BOC) from making a demand for payment under a letter of credit (the L/C) dated 3 July 1998 issued by the Jian Sing Bank (JSB). We now give our reasons.

The underlying transaction

2. By a contract dated 25 June 1998 (the Head Contract) the defendant agreed to sell to the plaintiff a quantity of fuel oil. In its turn the plaintiff sub-sold the oil to Kaiyuan Industrial (Hong Kong) Ltd under a contract dated 25 June 1998. Kaiyuan in turn by a second sub-sale dated 26 June 1998 sold the oil to Bao Chang Investment Holding Ltd.

3. Under the Head Contract, on the plaintiff's instructions JSB issued the L/C in favour of the defendant for US$1.58m.

4. On 14 July 1998 BOC presented to JSB a full set of documents required by the L/C. These included a draft drawn by the defendant on JSB payable to the order of BOC at 90 days after sight.

5. JSB took one objection to the documents. The bill of lading did not name the vessel's master as was required. However, the plaintiff accepted the documents and confirmed that JSB could pay on the draft at the maturity date. JSB informed BOC who in turn informed the defendant.

6. Following JSB's acceptance of the draft and the other documents, BOC discounted the draft and paid the defendant on about 23 July 1998. Thereafter, it appears that the plaintiff discovered that Bao Chang only received a small percentage of oil and not the amount stated in the presented documents - the invoice, the bill of lading and the receipt. The plaintiff contends that the defendant admitted in meetings between the parties the short shipment and that the documents were forged. However, BOC were not informed of the allegations either by the plaintiff or JSB. Instead they requested BOC's consent to extend the draft's maturity date from 15 October 1998 to 15 November 1998. This request was declined and BOC demanded payment on the due day.

7. The plaintiff then commenced this action against the defendant (not BOC) and applied for an injunction to restrain BOC from demanding payment under the letter of credit on the grounds of the alleged fraud. Before the judge, it was additionally argued that BOC could not demand payment because it was a mere collecting bank and was, in these circumstances, simply an agent of a fraudulent defendant. The judge granted the injunction on the basis that there was a serious question to be tried whether BOC was a negotiating bank or a collecting bank.

The L/C and BOC as holder for value

8. There are a number of cogent reasons why it was necessary to allow this appeal and discharge the injunction. The first concerns the nature of the letter of credit. The letter of credit was on its face a negotiable credit. It contained express conditions which contemplated negotiation by banks other than by BOC. Note the condition on page 2 of the L/C:

"If explicitly requested and instructed by the negotiating/presenting bank on their covering Schedule, we shall discount such draft(s) after our acceptance with discount interest at our prevailing interest rate and related charges, if any, for account of beneficiary."

The L/C also provided for drafts drawn by the beneficiary on JSB.

9. Under the L/C, BOC discounted the draft for value and made payment to the defendant. Thereafter BOC was the holder for value and entitled to payment in its own right and not as agent of the defendant beneficiary. Up to the time of this negotiation BOC was unaware of any allegation of fraud. The plaintiff did not discover the facts which led to the allegation until two months later on 17 September 1998. But, in any event the right of payment on documentary credits is usually unaffected by the underlying transaction and any dispute about it. As a holder for value, BOC, not being tainted in any way by any allegation of fraud, was entitled to demand payment. See Hasan v Willson [1977]1 Lloyd's Rep 431.

Were there other circumstances entitling the Court to interfere?

10. The circumstances in which the court will interfere to prevent payment to a bank on documentary credits are extremely limited. In cases where fraud is alleged, it will only do so where the bank is fraudulent or knowingly assists in fraud so that the documentary credit is tainted.

11. As was pointed out by Nazareth JA (as he then was) in Ever Eagle Co. Ltd v Kincheng Banking Corp [1993]2 HKC 157 at 160E-G:

"Moreover ... the letter of credit is autonomous, and the Bank is not concerned in any way with the merits or demerits of the underlying transactions. As [was] pointed out by Lord Diplock at p.183 D of the America Accord [1983] AC 168 ... banks 'deal in documents and not in goods' as article 8 of the Uniform Customs puts it. To address the matter in terms of the buyer's right to reject the goods would, as his Lordship pointed out at p.185E, 'destroy the autonomy of the documentary credit which is its raison d'etre; it is to make the seller's right to payment by the confirming bank dependent upon the buyer's rights against the seller under the terms of the contract for the sale of goods, of which the confirming bank will have no knowledge.'

See also the authorities cited by Nazareth JA in his judgment.

12. The integrity of documentary credits as a completely separate transaction from the underlying contract has long been recognised as essential for international trade. The courts must be vigilant not to diminish this fundamental principle.

BOC not a party

13. Finally, the BOC was not a party to the action. No claim is made by the plaintiff against BOC and it is trite law that the courts can only intervene by way of granting an interlocutory injunction to a party in proceedings who asserts a cause of action against the other party. See United Trading Corp SA v Allied Arab Bank; Murray Clinton v Rafidair Bank [1985] 2 Lloyd's Rep 554 and The Siskina [1979] AC 210.

14. For these reasons, we allowed the appeal and discharged the injunction against BOC.

Costs

15. Both on the appeal and before the judge in addition to the plaintiff, the JSB appeared to support the application and to resist the appeal. An injunction was granted against BOC - a non-party. The JSB - another non-party - appeared below and on appeal. In these unusual circumstances and giving weight to the misconceived nature of the proceedings, we ordered that the costs of the appeal and the costs below should be borne not only by the plaintiff but also the JSB.

(Barry Mortimer)(Gerald Godfrey)(Anthony Rogers)
Vice PresidentJustice of AppealJustice of Appeal

Representation:

Mr Robert Tang SC and Mr Rimsky Yuen (M/s Deacons, Graham & James) for the Appellant

Mr Ronny Wong SC and Mr Louis Chan (M/s K.M. Lai & Li) for the Plaintiff/Respondent- Xinyuan Trading Co Ltd

Miss Liza Cruden (M/s Wilkinson & Grist) for Jian Sing Bank Ltd

Application by the appellant for an amendment of an order as to costs to Court of Appeal. Please refer to CACV276/1998 dated 21 June 2000