Brody, White & Co Inc v Chemet Handel Trading (S) Pte Ltd

• Jurisdiction: Singapore
• Judge: Chua F A J
• Judgment Date: 13 October 1992
• Neutral Citation: [1992] SGCA 66
• Date: 13 October 1992
• Subject Matter: Letters of credit,Whether application to discharge interim injunction correctly refused,Kind of 'fraud' required to constitute exception to autonomy of irrevocable credits,Interim injunction to restrain receipt of payment,No finding of fraud by judge in grounds of decision,Fraud as exception -'Balance of convenience' test inapplicable in cases involving irrevocable credits,Banking,'Balance of convenience' test inapplicable in cases involving irrevocable credits.,Civil Procedure,Irrevocable letters of credit,Discharge of interim injunction,Interim injunction obtained to restrain receipt of payment under irrevocable letter of credit
• Docket Number: Civil Appeal No 51 of 1991
• Published date: 19 September 2003
• Defendant Counsel: P Suppiah (P Suppiah & Co)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Randhir Ram Chandra (Haridass Ho & Partners)

(delivering the grounds of judgment of the court): The appellants and the respondents in the present appeal are respectively the defendants and the plaintiffs in Suit No 1706 of 1990. The respondents applied ex parte by way of summons-in-chambers entered No 5464 of 1990 for an interim injunction to restrain the appellants (until further order) from collecting or receiving any moneys pursuant to a demand made for payment made or to be made under the Letter of Credit No SB900030/90 dated 10 August 1990 for US$400,000 issued by the Bank of America, Singapore to the appellants. On 22 September 1990 Chan Sek Keong J (as he then was) granted the respondents the injunction sought. The appellants proceeded to apply by way of summons-in-chambers entered No 5771 of 1990 for the discharge of the above injunction. On 15 March 1991 Goh Joon Seng J ordered that the injunction was to be continued. He made no order on the appellants` application. The appellants now appeal against Goh Joon Seng J`s decision. The facts of the case are as follows.

The appellants are a company of commodity traders incorporated in the United States while the respondents are a company incorporated in Singapore. By an agreement dated 21 May 1990 (`the agreement`), the respondents appointed the appellants as their commodity brokers to trade in metals on their behalf in the New York Commodities Exchange and in the London Metal Exchange. Under the agreement the respondents agreed, inter alia, to provide the appellants with margin as the appellants required. They further agreed that upon default on their part, the appellants were entitled to exercise a number of remedies, including closing out or hedging for their account any or all open positions in their account with the appellants and/or any affiliates.

On 18 June 1990 pursuant to the agreement, the respondents provided, in favour of the appellants, a margin requirement of US$200,000 by way of irrevocable letter of credit issued by the Swiss Bank Corporation. In addition, the respondents extended to the appellants a credit line of US$500,000.

On 30 July 1990 the margin requirement was increased to US$500,000. The letter of credit issued by the Swiss Bank Corporation was correspondingly increased to US$500,000.

On 10 August 1990 a further increase in the margin requirement of US$400,000 was provided by the respondents by way of an irrevocable stand-by letter of credit issued by the Bank of America in Singapore. This is the letter of credit numbered SB900030/90 which formed the subject matter of the respondents` application in summons-in-chambers entered No 5464 of 1990.

On 6 September 1990 another increase in the margin requirement by US$78,000 was effected by cable transfer. The respondents contended that as of 6 September 1990, the credit facilities they had made available to the appellants totalled US$1,478,000 (US$500,000 + 500,000 + 400,000 + 78,000).

On 10 September 1990 the appellants made a margin call upon the respondents in the sum of US$425,400. The respondents made various promises to comply but no payments were received by the appellants. On 13 September 1990 the appellants made another margin call upon the respondents in the sum of US$1,181,714 but again, the respondents failed to satisfy this demand. On 14 September 1990 the appellants wrote to the respondents, demanding the full amount of the respondents` account deficit, US$1,613,804.69. The respondents were given until 10am New York time on 17 September 1990 to make payment of the said sum, failing which the appellants intended to commence liquidating all open positions in the respondents` account as well as to take other appropriate action. On 17 September 1990 the appellants faxed a letter to the respondents, informing them that they had entered stop-loss orders on the respondents` position until such time as all credit and margin issues were resolved.

On 19 September 1990 Mr Vinod Kumar, the managing director of the respondents, was visited in the morning by Mr Gary Allen Dewaal and Mr Rodney Skeet. The former was a vice-president of the appellants while the latter was a senior accounts executive. Mr Kumar alleged that he was told that due to favourable market conditions, the respondents were now only required to provide additional margin of US$200,000. According to Mr Kumar, he agreed to do so, provided, firstly, that the appellants undertook not to call on the letters of credit issued by the Swiss Bank Corporation and the Bank of America; secondly, that the appellants had not liquidated the respondents` positions and would not do so without consulting the respondents. In the event of failure by the respondents to provide the additional US$200,000, the appellants would liquidate the respon` positions.

Mr Kumar`s version of the events occurring on the morning of 19 September 1990 was disputed by Mr Dewaal. He claimed that it was never suggested during their meeting (or indeed at any other time) that the obtaining by the respondents of a letter of credit for US$200,000 was conditional upon the appellants not having liquidated and not intending to liquidate the respondents` positions.

In the afternoon of 19 September 1990 Mr Kumar met with Mr Dewaal and Mr Skeet again at Swiss Bank Corporation where Mr Kumar instructed the bank to enhance the existing letter of credit in the appellants` favour by US$200,000. However, it appeared that he returned to his office on the same day to find a copy of a fax from the appellants dated 18...