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Note: To pay for the purchase of steel for further shipment to mainland China, Applicant, Balli Klockner Asia Ltd., obtained a commercial letter of credit in favor of Beneficiary, Sahaviriya Steel Industries Public Co. Ltd, a Thai company. It appears that three shipments were contemplated.

The LC required that the second shipment be made in February or March. Loading, however, was not completed until 4 April. Concerned that it would not be able to perform and might lose significant sums in part because the price of steel had dropped between 30 and 40%, the Beneficiary procured bills of lading backdated to 31 March, drew on the LC, and was paid.

When the shipment was late in arriving, Applicant discovered that the BLs had been backdated. Claiming that it suffered a loss of US$2,012,182.10, it then sought and obtained a Mareva injunction ex parte against the LC proceeds. In response to an application by Beneficiary to discharge the injunction on grounds that there was not full and frank disclose of relevant facts and that there was no risk of dissipation shown, the Hong Kong High Court, Muttrie, J., refused to grant the relief and dismissed the application for injunction.

The court noted that Beneficiary did not "deny that the [Applicant had] a good, arguable case" that fraud had been committed. Benficiary's position was that in its petition Applicant had not disclosed the fact that Beneficiary was a publicly traded Thai company and that Beneficiary had offered to re-take the goods, although the parties had not been able to reach agreement with respect to the cost of freight for return of the goods.

Concerned that "the previous conduct of [Beneficiary] shows an unacceptably low standard of commercial morality and that there [was] a danger that [Beneficiary] would not shrink from attempting to defeat the interests of [Applicant] under any judgment that might be obtained", Applicant resisted Beneficiary's offer to re-take the goods. The court noted that Beneficiary's refusal to pay the freightage of the goods where the return was caused by its fraud "makes no commercial sense" and stated that "in effect, the [Beneficiary] was asking the [Applicant] to bear the costs of its own fraud. However, the court ruled that the negotiations, whether they should have been disclosed or not (which was in doubt) were immaterial to the award of the injunction. "[Beneficiary] has committed a fraud; it could be regarded as likely to try to defeat [Applicant's] interests in [the] future. The fact that it had tried in a manner commercially quite unacceptable to make some amends, but not the amends it should have made, would not in my view have had any significant effect."

The court also rejected Beneficiary's argument that there was no risk of dissipation of the funds. "So far as the risk of dissipation goes, that is obvious. A fraud had been committed. [Beneficiary] was trying to get [Applicant] to pay for some of the cost of it, before it would give the money back. [Beneficiary's] conduct shows that there is an obvious danger that it would not shrink from attempting to defeat the interests of [Applicant] under any judgment that might be obtained."

[JEB/llh]

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