Amixco Asia (Pte) Ltd v Bank Bumiputra Malaysia Bhd

• Judge: G P Selvam JC
• Judgment Date: 06 May 1992
• Neutral Citation: [1992] SGHC 121
• Citation: [1992] SGHC 121
• Defendant Counsel: KS Chung (Harry Elias & Partners)
• Published date: 19 September 2003
• Plaintiff Counsel: Anthony Lee and Lim Chong Boon (Allen & Gledhill)
• Date: 06 May 1992
• Docket Number: Suit No 1030 of 1986
• Court: High Court (Singapore)
• Subject Matter: Whether additional grounds can be raised after the time for approving the documents have expired,Letters of credit,Banking,Presentation of documents,Grounds for rejecting documents,Effect of presentation of documents by a beneficiary to a non-negotiating bank,Applicable principle

Cur Adv Vult

The case

This case concerns a documentary letter of credit issued by the defendants, the issuing bank. The plaintiffs were the beneficiaries of the credit and the sellers of tin slag, the merchandise in the underlying contract of sale. The applicants for the credit were Sunko (S) Co Pte Ltd, the buyers of the tin slag.

The credit was governed by the Uniform Customs and Practice for Documentary Credits issued by the International Chamber of Commerce (`the UCP`) 1983 Revision. The UCP was first issued in 1933 with revisions in 1951, 1962, 1974 and 1983. The applicable year of revision will accompany the abbreviation.

The applicants, by a contract dated 12 November 1984, agreed to purchase from the plaintiffs tin slag up to the value of US$500,000. Tin slag is the residue after tin has been extracted from ore by smelting. Commercial value of tin slag is in its content of tantalum (referred to in the underlying contract as Ta205). It was a condition of the contract that the tin slag must contain a minimum of 2.5% tantalum. Tin slag with very low tantalum content has little commercial value. Accordingly, the contract provided that slag with less than 2.5% tantalum content would be rejected.

The payment for the slag was to be made by irrevocable letter of credit at sight. Accordingly, on 20 December 1984, on the application of the applicants, the defendants established a letter of credit with a limit of US$500,000 in favour of the plaintiffs. The advising bank was Banque National de Paris (`BNP`). The expiry date of the credit was 30 April 1985. Partial delivery was permitted and hence, partial utilization of the credit was available. The credit further provided, inter alia, that the plaintiffs` drafts drawn on the applicants were to be accompanied by the following documents:

(a) signed commercial invoices in quadruplicate;

(b) combined certificate of weighing/sampling/determination of moisture by Alfred H Knight, Singapore or Penang stating total Ta205 contained in quadruplicate;

(c) assay certificate by Alfred H Knight, United Kingdom in quadruplicate;

(d) if original warehouse receipt is presented, the signature(s) of Alfred H Knight appearing thereon must be verified by the negotiating bank before any negotiation is to be done;

(e) documents to evidence that merchandise are [sic] packed in second-hand steel drums or PP Bags;

(f) if goods are delivered to warehouse in Penang or Singapore original warehouse receipt made out to order of the defendants countersigned by Alfred H Knight, Penang or Singapore as the case may be with confirmation that the merchandise was correct according to their survey and had been escorted by them, in duplicate.

The documents to evidence delivery of the following merchandise:

Tin slag containing tantalum with TA205 minimum 2.5% on the following price basis: US$11 per lb TA205 contained, basis 3% TA205. For each 0.1% TA205 above 3% to 4% TA205, the price shall be increased by US$0.20 per lb TA205, fractions pro-rata. For each 0.1% TA205 below 3% TA205 down to 2.5% TA205, the price shall be decreased by US$0.40 per lb TA205, fractions pro-rata.

The plaintiffs were not the direct suppliers of the slag. They depended on an American corporation called Bomar Resources Inc for the supplies of slag. The payment arrangement between the plaintiffs and Bomar was by an undertaking by BNP to Bomar to transfer to Bomar the full value of goods not exceeding US$370,000 out of the proceeds from the credit provided the `documents conformed to the letter of credit conditions`. BNP further undertook not to part with the warehouse receipt received from Bomar should it not be in a position to make payment to Bomar. This arrangement, however, was outside the ambit of the credit and the contract of sale between the commercial parties. It did somewhat complicate the role of BNP as an intermediary bank.

In due course, the defendants received three drafts drawn by the plaintiffs for the total amount of $441,275.66. The defendants refused to honour all of them. Hence this action. I shall first consider the legal context in which the case arose.

Credit available by negotiation: art 10(a)

The UCP 1983 recognizes three types of credit, viz those:

(a) available by payment (which may be at sight or deferred);

(b) available by acceptance ;

(c) available by negotiation ; in this case the issuing bank undertakes to pay without recourse to drawers and/or bona fide holders, drafts drawn by the beneficiary on the applicant or to provide for negotiation by another bank and to pay as above if such negotiation is not effected : art 10(a)(iv) UCP 1983.

The credit in question was available by negotiation by an intermediary bank. It stated `that the credit was available by negotiation of your drafts at sight drawn on the applicant`. It further stated: `We hereby engage with drawers and/or bona fide holders that drafts drawn and negotiated in conformity with the terms of this credit will be duly honoured on presentation`. It also contained the following instruction to the negotiating bank: `Upon receipt of documents in compliance with the terms of and conditions of the letter of credit, we will remit to the negotiating bank, in accordance to their instructions.`

BNP, the advising bank, made it clear to the plaintiffs that the credit was not confirmed by it. In consequence, it only constituted the issuing bank`s engagement.

It was evident that any bank could effect a negotiation and seek payment from the issuing bank provided the documents conformed with the terms of the credit. Negotiation here meant that the intermediary negotiating bank named as the payee in the draft would become the holder of it. In short, the intermediary negotiating bank would purchase the draft. Article 3(a)(iii) of the UCP 1974 made it clear that negotiation and purchase were two sides of the same thing. The UCP 1983 omitted the tautology by retaining `negotiation` only. An assertion by an intermediary bank that it negotiated the credit without making an advance would be against the spirit and letter of the UCP 1983. If such a contention is upheld, it would lead to uncertainty and confusion. As between the non-confirming intermediary bank which negotiates and its own customer the negotiation may be done with recourse. If the beneficiary is unable to find a bank which is willing to negotiate, the beneficiary may present the documents and demand payment: see art 10(a)(iv) of the UCP 1983. The credit as required by art 46 of the UCP 1983 provided an expiry date for presentation of documents for negotiation: 30 April 1985. If no negotiation is effected because the beneficiaries are unable to find a bank willing to purchase the documents, then the documents must be presented to the issuing bank for payment within the lifetime of the credit.

Reasons for refusal of payments: art 16

A documentary letter of credit subject to the UCP is a free-standing instrument of payment. As such, it concerns itself with documents and not with the goods or services which are the subject matter of the underlying contract. The documents need only appear on their face to be in accordance with the terms and conditions of the credit.

The opening bank may avoid liability under two distinct circumstances: on the ground of breach of non-documentary conditions or on the ground of non-conformity with documentary conditions. Both such circumstances are alleged to exist in the present case. Failure to present the documents within the lifetime of the credit would come under the first ground. In such a case, whether or not the documents are in conformity with the credit is irrelevant and the issuing bank need not examine the documents for conformity. Where the second ground is concerned, before liability to make payment can be avoided, the issuing bank is under a duty to examine the documents.

I shall deal with the latter ground first. The duties of the issuing bank in respect of the documentary conditions are defined in the UCP. The relevant provision is set out below. I shall refer to them as discrepancy provisions.

Article 8 of the UCP 1962 provided, inter alia, as follows:

If, upon receipt of the documents, the issuing bank considers that they appear on their face not to be in accordance with the terms and conditions of the credit, that bank must determine, on the basis of the documents alone, whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.

If such claim is to be made, notice to that effect, stating the reasons therefor, must be given by cable or other expeditious means to the bank from which the documents have been received and such notice must state that the documents are being held at the disposal of such bank or are being returned thereto. The issuing bank shall have a reasonable time to examine the documents.

Article 8 of the UCP 1974 made certain important amendments to the above discrepancy provisions. In the amended text, the relevant parts read as follows:

(c) If upon receipt of the documents, the issuing bank considers that they appear on their face not to be in accordance with the terms and conditions of the credit, that bank must determine, on the basis of the documents alone, whether to claim that payment, acceptance or negotiation was not effected in accordance with the terms and conditions of the credit.

(d) The issuing bank shall have a reasonable time to examine the documents and to determine as above whether to make such a claim.

(e) If such claim is to be made, notice to that effect, stating the reasons therefor, must without delay, be given by cable or other expeditious means to the bank from which the documents have been received (the remitting bank) and such notice must state that the documents are being held at the disposal of such bank or are being returned thereto.

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