Beam Technology (Mfg) Pte Ltd v Standard Chartered Bank

• Judgment Date: 25 March 2002
• Date: 25 March 2002
• Docket Number: Suit No 433 of 2001 (Registrar's
• Court: High Court (Singapore)

Beam Technology (Mfg) Pte Ltd

Plaintiff

and

Standard Chartered Bank

Defendant

[2002] SGHC 54

Choo Han Teck JC

Suit No 433 of 2001 (Registrar's Appeal No 169 of 2001)

High Court

Banking–Letters of credit–Confirming bank–Rights and duties–No duty to verify authenticity of documents presented to bank when effecting payment–Right to reject documents accompanied by duty to bear liability for wrongful rejection–Time for deciding whether to accept or reject–Whether parties' ability to contract out of fraud exception affects bank's right to reject documents–Distinction between rejecting documents on basis of non-correspondence and rejecting documents on basis of fraud–Banking–Letters of credit–Fraud exception–Ability of parties to contract for disapplication of fraud exception as between themselves–Whether such ability obliging confirming bank to accept fraudulent documents

The plaintiff was a beneficiary under a letter of credit. The defendant was the confirming bank. On 14 July 2000 the plaintiff presented the documents required under the terms of the letter of credit. On 17 July 2000 the defendant notified the plaintiff that there were discrepancies in the documents. In the meantime, the defendant discovered that one of the documents presented - an air waybill - was a false document. The defendant notified the plaintiff by telephone on 19 July of this discovery and in the evening the documents were returned to the plaintiff without payment on account of the false document. Subsequently, the defendant refused to accept any further presentation of the documents.

The point of law submitted for the court's determination under O 14 r 12 of the Rules of Court (Cap 322, R 5, 1997 Rev Ed) was whether the defendant was entitled not to make payment under the letter of credit because one of the documents required to be, and was in fact presented by the plaintiff was a forgery known to the defendant. It was assumed that the forgery was not carried out by the plaintiff. The contentious point was whether the discovery of such fraud ought to be ignored if it was not a fraud by the beneficiary under letters of credit governed by UCP 500.

Held, dismissing the appeal:

(1) Generally, a confirming bank was under a legal obligation to effect payment when the requisite documents were presented. The law did not require the bank to verify the authenticity of the documents themselves, for it need only look at the face value of the documents: at [4].

(2) Where a confirming bank said, “this is not one of the documents” it was refusing payment because the requisite documents had not been presented. While it was the bank's prerogative to accept or reject any document presented to it it would have to bear the consequences of its judgment. If it turned out that the document was a requisite and proper document the bank would have no defence to a suit for wrongful rejection: at [13].

(3) The bank had a seven-day period under Art 13b of the UCP 500 to decide whether to accept or reject documents presented. If the bank knew or believed during the seven-day period that a document in its hands was not a requisite document - for whatever reason, be it forgery or something else - it would not be right to expect the bank to act on it as if it were a true document: at [13].

(4) As a matter of law and policy fraud had to be given no room to express itself. Therefore, the moment fraud was discovered nothing more had to be done to give it any effect. In certain circumstances, however, parties might, by contract, agree that the obligations as between themselves should not be affected by a fraud (which neither was a party to). In such cases of which the UCP 500 was an example, the courts would respect their intention. The articles of the UCP 500, however, applied only in so far as the fraud was discovered after the bank had accepted all the documents. The UCP 500 did not provide that a bank was obliged to accept a fraudulent document notwithstanding that the time (seven days) for it to reject them had not expired: at [13].

(5) The time of presentation was not a fixed hour. In order that it might rely on the forgery as a ground for rejecting the waybill, the confirming bank had to have knowledge of the forgery before the documents had been accepted and within the seven days under Art 13b of UCP 500. In this case, the forgery came to the confirming bank's knowledge before it had accepted the documents. Although the documents were returned for the rectification of other discrepancies, until that had been done and the documents returned to the confirming bank the documents could not be regarded as having been accepted: at [14].

[Observation: The court did not recognise a general nullity exception after the period of seven days from which the bank was entitled to reject a document: at [9].]

Group Josi Re (formerly known as Group Josi Reassurance SA) v Walbrook Insurance Co Ltd [1996] 1 WLR 1152; [1996] 1 All ER 791 (refd)

Mees Pierson NV v Bay Pacific (S) Pte Ltd [2000] 2 SLR (R) 864; [2000] 4 SLR 393 (refd)

Montrod Ltd v Grundkotter Fleischvertriebs GmbH [2002] 1 WLR 1975; [2002] 3 All ER 697 (folld)

Turkiye IS Bankasi AS v Bank of China [1996] 2 Lloyd's Rep 611 (refd)

United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1 AC 168; [1982] 2 All ER 720 (refd)

David Morais and Tito Shane Isaac (Tito Isaac & Co) for the appellant

Toh Kian Sing and Steven Lau (Rajah & Tann) for the respondent.

Choo Han Teck JC

1 The factual background is not in dispute and is reasonably straightforward. The plaintiffs are a company incorporated in Singapore and were the beneficiaries under a letter of credit (No 073001005900) for US$277,500 issued by PT Bank Universal HO Jakarta on behalf of the plaintiffs' buyers in Jakarta. The defendants are a bank incorporated in the United Kingdom with a registered branch in Singapore situated at 6 Battery Road and various offices, one of which was at Tampines. They were the confirming bank. Their buyers notified the plaintiffs that the freight forwarders were to be a company called “Link Express (S) Pte Ltd”. On 14 July 2000 the plaintiffs presented the documents required under the terms of the letter of credit. One of the documents required under the letter of credit was described as “Full set of cleared air waybill marked freight collect made out to order of PT Bank Universal H.O. Jarkarta”.[sic]. This was amended on 12 July 2000 to read “Full set clean air waybill …”. On 17 July 2000 the defendants notified the plaintiffs that there were discrepancies in the documents. In the meantime, the defendants discovered that the air waybill was a “fabricated document”. It is common ground that this “air waybill” was “issued” by a phantom company in that there was no company known as “Link Express (S) Pte Ltd”. The defendants' manager Lim Poh Ann notified the...