Sinopharm Jiangsu Co Pty Limited v Bank of China [2007] NSWSC 484 | Case summary

50204/06 SINOPHARM JIANGSU CO PTY LIMITED v BANK OF CHINA JUDGMENT 1 HIS HONOUR: The plaintiff (Sinopharm) is a company incorporated in the People's Republic of China. Yuang Feng International Pty Limited (Yuang Feng) is or was a company incorporated in this country. Sinopharm as its name suggests carries on business in the city of Jiangsu in the People's Republic of China. For reasons that I must say are somewhat unclear, Sinopharm entered into three contracts in 2004 with Yuang Feng whereby Yuang Feng undertook to supply crude iodine from the Republic of Turkemenistan for delivery to Sinopharm cif Nanjing in the People's Republic of China. 2 The payment mechanism for these three contracts required Sinopharm to establish a letter of credit in favour of Yuang Feng, and for that letter of credit to be delivered to Yuang Feng or its banker before some relevant date (presumably, the shipment of iodine in each case). 3 The defendant (the bank) is incorporated in the People's Republic of China. It carries on business in New South Wales and elsewhere in Australia. It has a registered office in this state. It also has a branch in this state known, apparently, as the Chinatown branch. 4 It is apparent that Sinopharm conducted an account with the bank at the bank's branch in Jiangsu. The requisite letters of credit were issued by the bank, apparently pursuant to dealings between Sinopharm and the bank in Jiangsu. They were delivered to the bank's branch in Sydney. At first, it was unclear in what capacity the branch in Sydney was acting. However, at least for present purposes, the evidence satisfies me that the bank was also the banker for Yuang Feng, that Yuang Feng conducted an account with the bank at the bank's Chinatown branch, and that that branch received the documents in its capacity as Yuang Feng's banker. 5 Sinopharm's evidence shows that none of the iodine required to be shipped pursuant to the three contracts was ever delivered. There is indeed a question as to whether it was ever shipped. Nonetheless, the bank on three occasions debited Sinopharm's account with the amount of the relevant letter of credit and remitted those funds to the Chinatown branch where, in due course, they were credited to Yuang Feng's account. The money has disappeared and so for all practical purposes have Yuang Feng and its principals. 6 Although the evidence is unclear, I am prepared to conclude, for the purposes of this application, that Yuang Feng presented documents to the China branch of the bank and that branch forwarded either the documents themselves or some recommendation or request based on them to the Jiangsu branch; and that in each case it was some process akin to this that set in motion the payment transactions. 7 In the circumstances that I have briefly outlined, Sinopharm considers that it may have a claim against the bank on the basis that each of the three payments was made on insufficient documentation and, therefore, otherwise than in accordance with the bank's mandate: in simple terms, demonstrating breach of contract or breach of a duty of care. 8 In those circumstances, Sinopharm seeks discovery from the bank pursuant to the UCPR rule 5.3. Subrule 1 of that rule provides as follows: "5.3 Discovery of documents from prospective defendant (cf Federal Court Rules , Order 15A, rules 6, 7 and 9) (1) If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person ( the prospective defendant ) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned, the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief." 9 For present purposes only, but otherwise without admission, the bank, through Mr J T Johnson of counsel, conceded that the first relevant requirement - possible entitlement to a claim for relief - had been made good on the facts as I have briefly summarised them. However, the bank submitted that there was no evidence that Sinopharm had made reasonable enquiries. 10 For reasons to which I shall turn, I think that the fate of this application turns, into the context of the particular facts, on the concept of reasonable enquiries. In other words, I am satisfied on the evidence that the bank either has or has had possession of documents that would assist Sinopharm in determining whether or not to make its claim, and that inspection of those documents would assist in that process. 11 Although there is absolutely no evidence that Sinopharm has ever carried on business in this state, the only evidence of enquiries that it has made is evidence of enquiries to the Chinatown branch. Correspondence between Sinopharm's solicitors and the Chinatown branch, and between Sinopharm's solicitors and the bank's solicitors in this state, caused the bank to produce a volume of documents to Sinopharm. That was done informally and without the need for any order. It is however, plain that the bank has not produced all documents that might have been in its possession at the time that the various demands for payment were made by Yuang Feng. That is apparent not only from correspondence between the solicitors, but also from the affidavit of a bank officer, Mr Yong, on which the bank relies. 12 Mr Yong gave evidence of having requested another officer of the bank, Ms Pang, to make careful searches and enquiries for documents of the kind sought. Ms Pang said a number of things to Mr Yong including that "we do not keep originals as they are too bulky and voluminous and we retain minimal copies of transaction documents". 13 When asked what happened to the originals, Ms Pang replied that they "are forwarded to the Jiangsu branch ... ". She reiterated that the Chinatown branch "keeps minimal copies of those originals". 14 The informal discovery made by the bank's Chinatown branch comprised two tranches. After the first tranche of documents was supplied, Ms Pang by some means that the evidence does not disclose "located some further documents that had been hidden away in closed files"; copies of those documents were provided to Sinopharm. 15 Thus, as I have said, it is plain that there are likely to be documents in existence now (and certainly that there have been documents in existence in the past) that bear upon what would be the principal question in any proceedings between Sinopharm and the bank: namely, the sufficiency of the evidence on which the bank made payments to Yuang Feng. 16 Sinopharm's evidence does not demonstrate that any enquiry whatsoever has been made of the bank at its Jiangsu branch. In one sense that may not be surprising, because Sinopharm may not have been aware (at least until it received Mr Yong's evidence) of the practice of which Ms Pang informed Mr Yong. Nonetheless, as I have said, Sinopharm is not only a customer of the bank but keeps its account at the Jiangsu branch. It is plain that the letters of credit were issued out of that branch and that transactions in relation to the request for and authorisation of payment occurred in that branch. 17 In those circumstances, where Sinopharm justifiably feels that there may have been some shortcoming in the documentation, one would have thought that the first port of call for enquiries would be the Jiangsu branch. Nonetheless, as I have said, this hearing has been conducted on the basis that no such enquiry has been made. 18 The question is therefore whether the undoubted power of this Court to make an order under rule 5.3 against the defendant, in relation to documents held by the defendant either in this state or elsewhere, should be exercised. 19 Sinopharm submitted through its counsel, Mr C D Jackson, that the bank was one entity and that making an enquiry of the bank at its Chinatown branch was as good as making enquiry of the bank anywhere else. As I have said, the evidence is that it is the bank, a company incorporated in the People's Republic of China, that carries on business itself in this state and not through some subsidiary. Thus, in principle, Mr Jackson's submission is correct. However, in circumstances where it appears that the local branch was not acting in the capacity of Sinopharm's banker, but only in its capacity as Yuang Feng's banker, one might wonder why Sinopharm sought to prosecute its enquiries here rather than in what seems to be the logical place: as I have said, Jiangsu. 20 I have the uneasy suspicion that Sinopharm has prosecuted its enquiries here because of the procedural advantage given to it by rule 5.3. However, having said that, I am unable to pursue that suspicion to the point of crystallisation, and I do not regard it by itself as an appropriate basis on which to decide the fate of this application. 21 Mr Johnson relied on what he said were analogous principles developed in connection with the service of subpoenas requiring production of documents held outside the jurisdiction. He referred to the decision of Habersberger J in Gao v Zhu [2002] VSC 64. In that case, a subpoenaed party (by coincidence, the bank) was served with a subpoena issued at the request of a party. The subpoena was addressed to and served at the bank's branch in Melbourne. It required production of documents held not only at that branch but also held at an overseas branch, at Shanghai in the People's Republic of China. 22 I interpolate that the evidence before his Honour satisfied him, as he found in para [3], that the bank "is incorporated pursuant to the laws of the People's Republic of China, with its registered office in Australia in Sydney." 23 The actual basis on which his Honour decided the application appears, from para [19], to have been that "there was ... no issue before the Court ... to which [the] subpoena related." However, along the way to expressing that conclusion, his Honour considered principles relating to the service of subpoenas requiring companies incorporated outside the jurisdiction to produce documents held outside the jurisdiction. 24 By reference to the decisions of Hoffman J in MacKinnon v Donaldson Lufkin and Jenrette Securities Corporation [1986] Ch 482 and of Rogers CJ Comm D in Arhill Pty Ltd and Others v General Terminal Company Pty Ltd (1990) 23 NSWLR 545, Habersberger J concluded at paras [11] and [12] that although Courts may have power, pursuant to rules of court, to grant leave for the service of subpoenas outside the country of their jurisdiction, nonetheless, save in exceptional circumstances, courts would not require non parties located outside the jurisdiction to produce documents held outside the jurisdiction concerning business transacted outside the jurisdiction (to adapt the formulation of Hoffman J in MacKinnon at 493). 25 The reason, as explained by Rogers CJ Comm D in Arhill at 553, was that an order in these terms might infringe the sovereignty of another country, so that the power should be exercised consistently with the criteria of international law as to comity. 26 I do not think that the principles in relation to subpoenas of the kind considered by Habersberger J in Gao can be applied, without careful consideration, to applications under rule 5.3. In particular, where rule 5.3 is prima facie applicable because the prospective defendant carries on business in this state or has a registered office in this state, and therefore, can be regularly served within this state without the need of any grant of leave, the considerations of sovereignty and comity to a large extent fade away. 27 Defendants or prospective defendants in the category that I have just described effectively waive any right to rely upon principles of an international comity when, for reasons that no doubt seem sufficient to them, they take a course that, according to laws of this state, enable them to be regularly served within this state and in effect required their submission to the courts of this state. Nonetheless, I think, it is appropriate to bear in mind that the qualification of "exceptional circumstances" to which Hoffman J referred, is something to be considered - even if only to be satisfied that it is irrelevant - whenever a foreign corporation (regardless of its precise legal status in this state) is required to produce documents from overseas for possible proceedings in this state. 28 In the present case, it may be observed that the proceedings contemplated by Sinopharm appear to have little, if any, connection with this state. The general contract between it and the bank would appear to have been made in the People's Republic of China. The particular contract, or mandate, relating to the letters of credit would appear to have been made in the People's Republic of China. Its account was debited in the People's Republic China. If that was done in breach of mandate, or negligently (because the documents considered before the account was debited were insufficient to justify the debit), then that is a breach of contract for negligence that, prima facie, appears to have occurred in the People's Republic of China. 29 It may be, I do not know, that the branch in Chinatown in some way certified the documents to the branch in Jiangsu. If that were found to have happened, there might be a case for arguing that there is a real connection with the laws of this state. 30 None of those considerations of themselves indicate that the application should be refused. They may or may not found a submission in due course as to whether any proceedings commenced in this state could be said to have been commenced in a clearly inappropriate forum. It may be, as I have said, that further production would yield documents that might indicate a closer connection with this state. Again, as with the suspicion to which I have referred earlier, I do not regard these considerations (although Mr Johnson pressed them) as of themselves requiring dismissal of the application. 31 Thus, I return to the question of "reasonable enquiries" which, as I have said, seems to me to be the essential matter for consideration in this case. 32 What is reasonable cannot be determined in some a priori fashion. The determination must take into account the facts of the particular case including, so far as those facts demonstrate it, the relationship (if any) between the applicant and the prospective defendant. If there were no such preexisting relationship, then I would incline to the view that enquiries of the bank in this jurisdiction through its Chinatown branch would amount to "reasonable enquiries". 33 However, in circumstances where, as I have said, the whole of the relevant relationship, both general and particular, appears to have been conducted in the city of Jiangsu, and between representatives of Sinopharm and the bank in that city, I am not so satisfied. 34 To my mind, when a customer in a foreign country complains that its banker in a foreign country has wrongfully debited its account held in that foreign country, the starting point for the enquiries is that foreign country; specifically the place in the foreign country where the relevant transactions occurred. That is not in my view displaced by the consideration that some underlying or collateral action may have occurred in this country. 35 In this case, I think, the starting point for Sinopharm was to make enquiries of the bank in Jiangsu. It may have done so and received no satisfaction; and if that were the case, it might be a material consideration. But there is no evidence whatsoever that it has made any such enquiries. Thus, in my view, Sinopharm has failed to discharge the onus on it of showing that it has made those reasonable enquiries. 36 It follows from this conclusion that the summons for discovery pursuant to UCPR 5.3 must be dismissed and I so order. 37 The bank asked for its costs. Sinopharm submits that there be no order as to costs. This matter was, of necessity, conducted as a final hearing. The particular problem was flagged at the outset of the hearing. In the ordinary way, costs follow the event. I see no reason why this case is anything other than ordinary. I order the plaintiff to pay the defendant's costs of the proceedings. ******

Sinopharm Jiangsu Co Pty Limited v Bank of China

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