AA Valibhoy & Sons v Habib Bank Ltd

• Jurisdiction: Singapore
• Judge: A P Rajah J
• Judgment Date: 01 December 1983
• Neutral Citation: [1983] SGHC 20
• Docket Number: Suit No 2988 of 1978
• Date: 01 December 1983
• Published date: 19 September 2003
• Year: 1983
• Plaintiff Counsel: CS Wu (Donaldson & Burkinshaw)
• Citation: [1983] SGHC 20
• Defendant Counsel: G Pannirselvam (Drew & Napier)
• Court: High Court (Singapore)
• Subject Matter: Privity of contract,Agency,Appointment made without consulting seller/payee,Duties and liabilities of principal and sub-agent,Negotiating bank,Negotiating bank appointing issuing bank its collection agent,Third party and principal’s relations,Whether privity of contract between seller and collecting bank,Appointment made without consulting payee,Principles,Duties, rights and liabilities of principal and sub-agent,Whether privity of contract existed between collection agent and payee,Letter of credit,Contract,Appointment of agent,Negotiating bank appointing issuing bank its collection agent for sale of ship,Whether collecting bank agent of payee,Banking,Letters of credit

The MV Yanti (the vessel), built in happier times in England in the year 1951, was registered under the Singapore flag in 1974, but, alas, in the year following whilst trading in Asian waters, was arrested in Colombo, Republic of Sri Lanka, for wages due to its crew and services rendered in Admiralty in Rem Action No 3 of 1975 commenced in the High Court of Colombo and sold by international tender by order of the said High Court, on 3 June 1976 (3AB5). At the time of the said arrest the owners of the vessel were Pyramid Lines (Pte) Ltd of 702/703 Colombo Court, Singapore 6 and she was mortgaged by them for the sum of S$2,182,500 to Janata Bank Ltd of Bangladesh with office in London, England (exh D2). Soon after the said arrest but before the said sale the mortgagees of the vessel also commenced action against her by way of Admiralty Action in Rem No 6 of 1975 in the same court for the recovery of all mortgage moneys due to them under the mortgage. Amongst the tenderers for the purchase of the vessel were the plaintiffs whose normal business was that of a trading company and Silooka Steels Ltd of Karachi, Pakistan (Silooka), carrying on the business of ship repairers and ship breakers. The plaintiffs` tender for the vessel at US$235,500 was accepted by the Marshal of the Colombo High Court. It is of interest to note that there is no evidence before the court, documentary or oral, that Silooka did `first obtain government permission to purchase the said vessel` (see condition (a) of Circular No 10 of 1975 of Government of Pakistan, Ministry of Communications (Posts and Shipping Wing) Mercantile Marine Department (2AB1; MMD Circular No 10 of 1975)).

However the plaintiffs, even before they had successfully tendered for the purchase of the vessel, had entered into a written contract with Silooka dated 6 May 1976 (3AB2) for the sale by them to Silooka of `One unserviceable ship for scrapping named MV Yanti ... now lying at Colombo, as seen and approved by your representative to be delivered to you at Karachi Harbour for the sum of US$383,130.` Under the said contract

(1) payment was to be by a confirmed irrevocable letter of credit to be opened in favour of the plaintiffs before 30 June 1976;

(2) the destination of the vessel was to be Colombo/Karachi, within three months after receipt of letter of credit, and

(3) all the usual documents for scrap ship were to be provided by the plaintiffs including bill of sale duly notarized and legalized by Pakistan Consul.

If a ship for scrapping purpose were to be imported into Pakistan from a foreign country under an approved letter of credit then there would be no difficulty in remitting the purchase price in foreign currency abroad provided all the conditions in the approved letter of credit had been complied with (PW1). If, however, a ship for scrapping were to be imported into Pakistan not under an approved letter of credit but on a collection basis then the remittance could only be effected after (1) submitting all relevant import documents on the arrival of the ship at Karachi, (2) getting clearance from customs (3AB72) and (3) finally obtaining the approval of the State Bank of Pakistan (the State bank). It might, therefore be useful if I were to set out the full text of MMD Circular No 10 of 1975:

Karachi, 22 September 1975 Circular No 10 of 1975 Subject: Purchse of Import of ships for scrap

In supersession of PO MMD Circular No 251 of 1975 issued on 4 June 1975 the procedure to be adopted in future by Importers/Shipbreakers desiring NOC from Mercantile Marine Department for boarding/scrapping of Foreign Flag ships at Gadani Beach, purchased and imported under a valid permit, is simplified as under:

(a) they should first obtain government permission to purchase the said vessel and obtain an import licence for the same (photostat copy of import licence/letter of credit is to be presented to MMD);

(b) to declare the ownership on the prescribed form (obtainable from MMD on payment of Rs 1.25);

(c) to produce the original bill of sale duly notarised by a competent Notary Public and endorsed by the Pakistan Embassy along with the permission of the government of the Port of Registry to sell the said vessel to the importers concerned;

(d) To present the Ships Register to the Principal Officer, Mercantile Marine Department which will be sent by him to the Registrar of Ships of the original Port of Registry for cancellation of Registry and furnishing the transcript of Ship Register;

(e) To produce permission given by the Ministry of Communications, P & S Wing, Government of Pakistan under s 289-A of MS Act 1923;

(f) To ensure re-registration of the vessel at Port of Karachi and pay the usual prescribed registration fee;

(g) To satisfy the PO MMD Karachi that the vessel being imported is really owned by the seller signing the bill of sale.

The NOC for beaching/scrapping will not be issued by PO MMD, if any of the above requirements is not fulfilled. All concerned are, therefore, advised in their own interest to ensure submission of the above requirements in full so as to obtain NOC without any delay.

Sgd

Principal Officer

Mercantile Marine Department

Karachi District

To

All lmporter/Shipbreakers

Karachi

Now the Safe Deposit Vault Branch of Habib Bank Ltd of Karachi Pakistan (Habib Branch) who were the bankers of Silooka had agreed with Silooka to finance the purchase of the vessel by Silooka from the plaintiffs by granting them LIM facility (meaning loan against import) on the basis of a cash margin, in Pak rupees, of 25% of the purchase price (Rs 9,53,000) paid to the Habib Bank by Silooka on 11 June 1976 (3AB9). On 11 June 1976 the Habib Bank at the request of Silooka established their confirmed irrevocable letter of credit No 48552 (bearing expiry date 24 September 1976) in favour of the plaintiffs, for the sum of US$383,130 for delivery of the vessel at Karachi Harbour (vessel to arrive at outer anchorage not later than 9 September 1976) for scrapping, safely afloat, as per the said contract and accompanied by the documents therein stated. A copy of the said letter of credit is annexed hereto as App `A`. At this stage of the transaction the opening bank, the Habib Bank, was communicating with the plaintiffs in Singapore through their branch in Singapore (3AB11 & 12). On 5 July 1976, however, the Habib Bank, at the request of their customer, Silooka, amended their letter of credit to the effect that negotiation through Banque National de Paris Singapore (BNP) was to be allowed. In other words BNP had on 5 July 1977 become the collecting bank of the plaintiffs (3AB30). The Muslim Commercial Bank Ltd of Karachi (MC Bank), who were the correspondents of BNP at Karachi, acted as agents of BNP for collection purposes in Karachi until 5 March 1977 (3AB73) as hereinafter appears.

Coming back to the arrested vessel, the registrar of the Colombo High Court acting in the exercise of its admiralty jurisdiction and in consideration of the sum of US$235,500 paid to the Marshal on its behalf transferred to the plaintiffs by a bill of sale dated 28 June 1976 (the Colombo bill of sale), with effect from 9 June 1976 all the shares in the vessel free from encumbrances (3AB26). On the face of the Colombo bill of sale the vessel carried a Singapore registration and surprisingly there is no categorical statement therein that it was the plaintiffs who paid the US$235,500 to the Marshal.

While the vessel was still at Colombo the plaintiffs executed a bill of sale for its transfer, dated 30 July 1976 (3AB37), naming therein Singapore as its Port of Registry, when in fact she had ceased to be, in favour of Habib Bank Ltd A/C Silooka free from encumbrances, all debts and maritime liens.

The vessel could not leave Colombo for Karachi in time to negotiate the letter of credit as it is said that she had to have repairs effected to her and that these took some four to five months to carry out. The vessel eventually left Colombo for Karachi in January/February 1977 but she broke down en route and had to return to Colombo for yet further repairs. On the second occasion on leaving Colombo for Karachi she broke down yet again and so the plaintiffs decided to have her towed from Colombo to Karachi to arrive there on 8 May 1977 with a consignment of about 5000 tons of scrap metal, the consignees of which were a sister company of Silooka, namely, Karachi Rolling Mills Ltd. On arrival at Karachi the master of the vessel wrote to the Habib Bank certifying the arrival of the vessel at Karachi and confirming that she was ready for delivery to them.

On 1 March 1977 (3AB71) the MC Bank at the request of Silooka sent the Habib Bank a complete set of documents, received by the MC Bank from BNP on or before 21 February 1977 (3AB69) including a Bill of Exchange IFBC No 14-77 dated 24 February 1977 for US$383,130 (the bill) of which the plaintiffs were the drawers, Silooka the drawees and BNP the payees for onward transmission by the Habib Bank to Silooka strictly on payment of the bill in US dollars against delivery of the documents.

On 4 March 1977 (3AB72) the State bank wrote to the Habib Bank on this matter as follows:

We have to advise that the letter of credit in question has expired on 24 September 1976 and the shipping documents have not yet been received by you. Hence the import (of the vessel) will be treated as on a collection basis and the remittance will be effected after obtaining our approval and on submitting all the relevant import documents after the ship has arrived and cleared. (Emphasis mine.)

On 5 March 1977 (3AB74) in acknowledging the receipt of the said complete set of documents Habib Bank wrote to the MC Bank, inter alia, as follows:

(X) We will not be liable for any loss, damage or delay howsoever caused due to our inability to accept payments, or remit

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