Beam Technology (Mfg) Pte Ltd v Standard Chartered Bank

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 10 December 2002
• Neutral Citation: [2002] SGCA 53
• Date: 10 December 2002
• Subject Matter: Uniform Customs and Practice for Documentary Credits, 1993 Revision,Whether question suitable for determination as question of law under O 14 r 12 of the Rules of Court (Cap 322, R 5, 1997 Rev Ed),Banking,Whether non-compliance with credit terms,Letters of credit,Confirming bank,Whether air waybill forged or a nullity,Civil Procedure,Summary judgment,Whether bank obliged to pay under letter of credit when required document issued by fictitious entity
• Docket Number: Civil Appeal No 34 of 2002
• Published date: 19 September 2003
• Defendant Counsel: Toh Kian Sing and Tan Yew Beng David (Rajah & Tann)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Kenneth Tan SC, Niko Arthur Isaac and Tito Shane Isaac (Tito Isaac & Co)

Judgment Cur Adv Vult

GROUNDS OF DECISION

1 This is an appeal against the decision of the High Court, made on an application for the determination of a question of law under O.14 r 12 of the Rules of Court, where it was held that the respondents, as the confirming bank were entitled to refuse payment under an irrevocable letter of credit on the ground that a material document tendered by the appellants was a forgery and was null and void.

The facts

2 The material facts leading to the action are straightforward and not in dispute. The appellants, Beam Technology (Mfg) Pte Ltd (‘the sellers’), a Singapore company, contracted to sell electronic components to an Indonesian buyer, PT Mulia Persada Permai (‘the buyers’). As required under the sale contract, the buyers obtained the issue by PT Bank Universal HO Jakarta of a letter of credit (LC) for a sum of US$277,500 in favour of the sellers. The LC was subject to the terms of the Uniform Customs and Practice for Documentary Credit, 1993 Revision (‘UCP 500’). The respondents were the confirming bank of the credit.

3 Under the terms of the LC, one of the documents required to be tendered to draw on the credit was a "full set of clean air waybill …" The buyers notified the sellers that the air waybill would be issued by their freight forwarders, "Link Express (S) Pte Ltd".

4 On 14 July 2000, the sellers presented to the confirming bank the documents required in order to draw under the LC. On 17 July 2000, the confirming bank issued a notice of rejection informing the sellers that there were certain discrepancies in the documents. The particulars of those discrepancies are immaterial for the purposes of this appeal. Two days later, the confirming bank further notified the sellers that the air waybill was issued by a non-existing entity in that there was no company known as "Link Express(S) Pte Ltd". Hereinafter we shall refer to this company as "Link Express". On the evening of the same day, the confirming bank returned all the documents to the sellers on the ground that the air waybill was a forgery. Subsequently, the sellers sought to re-present the documents but the confirming bank refused to accept any further presentation.

5 Following the sellers’ commencement of the action to claim for the payment due under the LC, the confirming bank applied to court for a determination of the following question of law:-

"Whether the defendants as a confirming bank of the letter of credit No. 073001005900 was entitled not to make payment under the said letter of credit because an air waybill No. 618-63187228 purportedly issued by a freight forwarding company called Link Express (S) Pte Ltd, which was one of the documents required to be presented and was in fact presented by the plaintiffs under the letter of credit, was a forgery known to the defendants. Solely for the purpose of this application, it shall be assumed that the forgery was not carried out by the plaintiffs.

6 The High Court allowed the application and ruled that the confirming bank was not obliged to pay and dismissed the action. Being dissatisfied with that determination, the sellers have appealed to this court. Besides the substantive issue, the sellers have also raised before us a procedural point, i.e., whether the question posed is an appropriate one to be dealt with under O 14 r 12(1).

Order 14 r 12(1)

7 The argument of the sellers on this issue is that the question posed to the court is not suitable for a determination under O 14 r 12, as it will not fully determine any issue of the action. The sellers’ contention is that the confirming bank is not entitled, in the absence of fraud on the part of the beneficiary, to look beyond the face of the documents tendered. What is crucial is compliance on the face of the documents and not compliance in fact. And even if this argument were to be unsustainable, the bank should comply with Article 14 of UCP 500 and it had not so complied because it had not set out in their notice of 17 July 2000, as required under Article 14(d)(ii), all the discrepancies in respect of which the bank refused the documents. So even if there was a third party fraud exception, the confirming bank was precluded from claiming that the documents were not in compliance, having regard to Article 14(e) (quoted below at 11).

8 It is clear that O 14 r 12(1) can be invoked to determine "any issue" in the cause, without it also disposing of the entire cause: see Payna Chettiar v Maimoon bte Ismail [1997] 3 SLR 387. The question which the court was asked to determine in the present case would not require the calling of any witnesses, as it was assumed that the air waybill was a forgery and the sellers had obtained and tendered the documents to the confirming bank in all good faith.

9 The sellers seem to be saying that it was not enough merely to assert that the air waybill was forged, the bank must also comply with the notice requirements prescribed under Article 14(d)(ii). The question posed is also flawed as it only focused on the fact of forgery but failed to take into consideration the notice requirements prescribed in Article 14.

10 As we see it, the question posed raises the issue as to whether a confirming bank can, independently of the grounds set out in Article 14 relating to discrepancies, refuse payment on the separate and distinct ground that a material document tendered to draw on an LC is forged and of no effect. Putting it another way, can a confirming bank, in a case where there is no discrepancy in the documents tendered, nevertheless refuse payment because they have reliably established that a material document is forged? Ordinarily such a question, which would be decisive of the action, would be suitable for determination under r 12(1). But for reasons which will become apparent when we proceed to deal with the substantive question, we think that in the circumstances of the present case, there ought to be a trial.

Relevant provisions

11 Turning now to the substantive issue, it is necessary that we should first set out the relevant provisions of UCP 500 which governed the LC in question:-

Article 3a

Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the Credit

. Consequently, the undertaking of a bank to pay, accept and pay Draft(s) or negotiate and/or to fulfil any other obligation under the Credit, is not subject to claims or defences by the Applicant resulting from his relationships with the Issuing Bank or the Beneficiary

Article 4

In credit operations all parties concerned deal with documents

, and not with goods, …

Article 9(b)

A confirmation of an irrevocable Credit by another bank

(the ‘Confirming Bank’) upon the authorisation or request of the Issuing Bank, constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank, provided that the stipulated documents are presented to the Confirming Bank …

Article 13(a) & (b)

a. Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. ….

b. The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.

Article 14 (a), (b), (c), (d) and (e)

a. When the Issuing Bank authorises another bank to pay … or negotiate against documents which appear on their face to be in compliance with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are bound:

i to reimburse the Nominated Bank which has paid, … or negotiated,

ii to take up the documents.

b. Upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, … must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. …

c. If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13(b).

d. i. If the Issuing Bank and/or Confirming Bank, … decides to refuse the documents, it must give notice …. without delay but no later than the close of the seventh banking day following the day of receipt of the documents. …

ii. Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.

iii. The Issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.

e. If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article … the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.

Article 15

Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s),

or for the general and/or particular conditions stipulated in the document(s) or superimposed thereon; …." (Emphasis added).

12 It is clear from these provisions of the UCP 500 that the...