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Indian Overseas Bank v Seabulk Systems Inc. And Others

Judgment Cited authorities 22 Cited in Precedent Map Related
Vincent
Judgment Date29 January 2018
Neutral Citation[2018] HKCFI 112
Year2018
Judgement NumberHCA846/2012
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA846/2012 INDIAN OVERSEAS BANK v. SEABULK SYSTEMS INC. AND OTHERS

HCA 846/2012

[2018] HKCFI 112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 846 OF 2012

________________________

BETWEEN
INDIAN OVERSEAS BANK Plaintiff
and
SEABULK SYSTEMS INC. 1st Defendant
RAMESH VANGAL 2nd Defendant
SIDNEY SRIDHAR 3rd Defendant

_______________________

Before: Hon B Chu J in Court
Date of Hearing: 19 – 21, 24 – 25 April and 5 June 2017
Date of Judgment: 29 January 2018

_________________

J U D G M E N T

_________________

Introduction

1. The present action was brought by the plaintiff bank (“P”) for repayment of sums advanced under credit facilities extended to a Canadian company, and to enforce personal guarantees executed by the two shareholders and directors of the company.

2. The defendants (“Ds”) denied liability and counterclaimed against the bank for, amongst other things, loss and damage sustained by them as a result of the bank’s misrepresentation, negligent advice and breaches of various duties in particular failure and/or negligence to secure payment under demand guarantees which were provided to the bank.

3. Counsel Ms Bianca Yu appeared for P and Mr Timothy Parker appeared for Ds at the trial.

Brief Background

4. P is a banking corporation incorporated under the laws of Republic of India and it has a branch in Hong Kong (“IOB”).

5. The 1st defendant (“Seabulk”) is a company incorporated in Vancouver, British Columbia and engaged in the design, commissioning, building and installation of port machinery and equipment and changed its name to the present one in August 2014. It is part of the Katra Group. It was registered under the then Part XI of the Companies Ordinance as a non- Hong Kong company with a registered place of business in Hong Kong, but filed a Notice of Cessation of Place of Business in Hong Kong in December 2014.

6. The 2nd defendant (“ D2”) is the Chairman, Founder and owner of the Katra Group, and is a director and shareholder holding about 32.5% of the shareholding of Seabulk, and it would appear that D2/Katra Group only increased their shareholding in Seabulk from 12.5% to about 32.5% from January 2007 to March 2007 by infusing an additional USD1m into Seabulk[1].

7. The 3rd defendant (“D3”) is the other shareholder of Seabulk, holding 62.5% and he is also the President of and Founder of Seabulk. Both D2 and D3 were directors of Seabulk at the material times.

8. In May 2007, Seabulk was awarded a contract by St Lawrence Stevedoring, a division of Quebec Stevedoring Co Ltd (“QSL”) to design, supply, install and commission a bulk material handling system including a shiploader, stacker reclaimer and conveyors (“System”) at the Port of Quebec, Canada where QSL was a terminal operator. The supply of the System to the port of Quebec was for a total consideration of CAD 18,700,000. The payment of the purchase price was to be under a letter of credit issued by the Royal Bank of Canada (“RBC”) in favour of Seabulk for the full amount of CAD 18.70m (“RBC L/C”).

9. Upon execution by Seabulk of the contract with QSL on 24 May 2007 (“Quebec Contract”), the following day, ie 25 May 2007, Seabulk entered into a contract with Shanghai Zhenhua Port Machinery Co Ltd (“ZPMC”) for the acquisition of one lot of newly manufactured bulk material handling equipment (“Equipment”) for a total consideration of CAD 11,500,000 (“ZPMC Contract”). The Equipment would then be integrated by Seabulk into and formed part of the System.

10. The contract price under the ZPMC Contract was to be paid by way of by 5 payments, 4 of which were to be drawn against a single irrevocable letter of credit issued by a bank and provided by Seabulk for CAD 9,200,000. Under the ZPMC Contract, ZPMC had to provide 4 demand guarantees, namely 3 Advance Payment Guarantees and a Performance Guarantee to Seabulk (collectively “APGs”)[2].

11. The project thus consisted of the acquisition by Seabulk of the Equipment from ZPMC for the purpose of Seabulk carrying out the installation of the System at the Port of Quebec for QSL (“Project”).

12. P was first approached in August 2007 by Seabulk in Chennai and Seabulk was referred to IOB in Hong Kong, to provide financing for Seabulk for the Project, and that IOB was further informed by Seabulk that the Project was secured by the RBC L/C and the APGs issued by Bank of China, Shanghai Branch (“BOC”).

13. By a sanction letter dated 29 August 2007 (“Sanction Letter”)[3] and subsequently modified by 4 modification letters (“Modification Letters”) dated respectively 27 September 2007, 14 November 2007, 7 January 2009, and 6 February 2009[4], and a General Security Agreement Relating to Goods dated 21 September 2007 (“GSA”)[5], IOB agreed to advance general banking/credit facilities to Seabulk (“Facility”), subject to a total limit of CAD 15m.

14. The Facility stated in the Sanction Letter consisted of:

(i) a letter of credit in favour of ZPMC of CAD 9.2m – margin 25%;

(ii) “packing loan” for advance payments under the ZPMC Contract of CAD 11.5m – margin 25%;

(iii) a letter of credit in favour of other suppliers of CAD 3.5m margin – 25%;

(iv) a performance guarantee in favour of QSL for CAD 1.87m – margin 25% (to be increased to 100% out of the final payment under the RBC L/C);

15. The collateral securities for the Facility included:

(i) “Goods” as defined under the GSA, and all bills, promissory notes, documents of title, transportation documents, insurance policies and other documents relating to the Goods;

(ii) Personal guarantees from D2 and D3 (“Personal Guarantees”);

(iii) Cash deposit under lien to IOB;

(iv) Assignment of the APGs (“Assignment Agreements”);

(v) Assignment of the RBC L/C.

16. As will be seen later in this judgment, the terms of the Sanction Letter were accepted by D2 signing on a duplicate copy thereof on about 31 August 2007, and later D3 formally signed on behalf of Seabulk on a duplicate copy of the Sanction Letter on about 21 September 2007. The Assignment Agreements of two of the four APGs were executed on 5 November 2007 and the two remaining ones were executed respectively on 15 November 2007 and 10 January 2009.

17. The Assignment Agreements were respectively sent by IOB to BOC for registration and record. BOC had replied to IOB and confirmed that BOC had duly registered and recorded the assignment on the APGs.

18. It was not disputed that the Facility was extended to Seabulk.

19. It would appear that Seabulk made the first 3 payments to ZPMC totaling CAD 8.05m under Clause 3.1 of the ZPMC Contract as follows[6]:

i “Payment 1” of CAD 2.3m on 9 November 2007;

ii “Payment 2” of CAD 3.45m on 26 November 2007;

iii “Payment 3” of CAD 2.3m on 20 January 2009.

20. Without going into details at this stage, very briefly, it was the pleaded case of the defendants (collectively “Ds”) that, amongst other things, there were representations and advice made to Ds by IOB upon which Ds had acted on and in reliance thereof in executing and/or entered into the Facility, namely the Sanction Letter, the GSA, the Personal Guarantees and the APGs (“Financial Instruments”)[7].

21. The time of delivery of the System by Seabulk as stated in the Quebec Contract was between 20 November 2008 and 20 December 2008 and in accordance with the terms of that contract, the certificate by the “Bureau Veritas” must be issued not later than 30 April 2009. The DDU delivery date stated in the ZPMC Contract of the Equipment at the Port of Quebec was stated to be not earlier than 20 November 2008 and not later 20 December 2008.

22. On the letter of credit issued on 25 January 2008 by IOB to ZPMC for CAD 5.75m, the delivery date was stated to be 20 December 2008. There was however delay in the delivery of the Equipment, which only arrived in Port of Quebee around 18 April 2009.

23. By an email dated 14 December 2009, Seabulk informed IOB that the Equipment had been installed at the Port of Quebec and relevant testing of the Equipment had been carried out. IOB was further informed that it was after the final testing process of the Equipment was completed that Seabulk would be furnished with a “Bureau Veritas” certification which would enable QSL to release payments to Seabulk under the Quebec Contract. IOB was only subsequently informed that due to technical problems with the Equipment and the relevant testing of the Equipment was not completed/successful, Seabulk was not able to claim payment from QSL under the Quebec Contract[8].

24. On 30 April 2010, Ds notified IOB that ZPMC was in breach of its obligations under the ZPMC Contract.

25. On 3 May 2010, IOB issued demand letters to BOC in relation to the invocation of each of the APGs and demanded payment from BOC under the APGs (“Demand Letters”)[9]. The Demand Letters were counter-signed by Seabulk as “original beneficiary” of the APGs confirming ZPMC was in breach as set out in the Demand Letters.

26. On 4 May 2010, IOB further sent out the demands by way of SWIFT messages to BOC in relation to the invocation of the APGs[10].

27. There was no response from BOC. The expiry date of the APGs was 7 May 2010.

28. It was only on 10 May 2010 that BOC replied that the Demand Letters payment were not considered to be “valid claiming documents”. IOB tried to seek clarification from BOC which went quiet for another next two weeks.

29. Eventually, on 28 May 2010 BOC replied advising IOB that 4 orders had been made on 25 May 2010 by the No 2 Intermediate People’s Court in Shanghai restraining BOC from making payments under respectively each of the APGs (“Restraint Orders”).

30. As seen in the...

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