Chartered Electronics Industries Pte Ltd v Development Bank of Singapore

• Jurisdiction: Singapore
• Judge: Chan Sek Keong J
• Judgment Date: 30 April 1992
• Neutral Citation: [1992] SGHC 109
• Date: 30 April 1992
• Subject Matter: Interim Injunction to restrain payment,Banking,Performance guarantee,Standard of proof,Injunctions,Civil Procedure,Interim order,Whether fraud established,Interlocutory injunction restraining bank's payment under performance guarantee and indemnity,Fraud,Performance bonds,Indemnity
• Docket Number: Suit No 485 of 1990
• Published date: 19 September 2003
• Defendant Counsel: Leslie Chew (Khattar Wong & Partners)
• Court: High Court (Singapore)
• Plaintiff Counsel: David Lim (David Lim & Partners)

: These were applications by the plaintiffs to continue two separate interlocutory injunctions which they had obtained ex parte restraining the defendants (`DBS`) from paying any money under a performance guarantee and an indemnity issued by them. At the conclusion of the hearing, I continued both the injunctions until the trial of the action. I now give my reasons.

The plaintiffs had entered into an agreement dated 8 February 1987 (`the contract`) to supply certain manufactured articles (`the articles`) to buyers outside Singapore (`the buyers` who at all material times were represented by and acted through their agents (`the agents`)) at the price of US$8,140,800 to be delivered in six consignments within specified periods for each consignment from 10 July 1988 until 10 December 1989. Clause VIII provided that the buyers had

the right to deduct from the price a sum equal to 1/2% (one-half per cent) of the value of the quantities not delivered in due time for every week or any part of delay. The total amount deducted shall not exceed 4% (four per cent) of the value of the quantities not delivered in due time. Such penalty shall be enforceable by the sole fact of delay without any previous notification to the Supplier or other formalities or recourse to juridical proceedings. In this case, the delay in delivery shall not exceed four months, otherwise the [buyers] shall have the right to cancel this contract and confiscate the guarantee deposit without any notice or recourse to juridical proceedings or any other formalities. If however, the Supplier proves to the satisfaction of the [buyers] that the whole or part of the delay arose from causes beyond his control (force majoure) or causes which he could not foresee at the time he signed the contract [the buyers] shall waive all or part of the said penalty provided that the delay in that case shall not exceed 6 months otherwise the [buyers] shall have absolute right to cancel this contract.

Payment for the articles was by means of a letter of credit (`the L/C`) issued by a bank in London expiring on 9 April 1990. Payment under the L/C was in three instalments, as follows: 10% on sight against presentation of prescribed documents; 30%, with interest, 12 months from the date of presentation of documents; and the remaining 60%, with interest, 24 months after the said presentation.

One of the prescribed documents was a test certificate signed by the buyers` inspectors or, in lieu thereof, one signed by the plaintiffs accompanied by (a) a copy of a letter from the plaintiffs to the buyers giving them 21 days` notice to inspect each consignment of the articles, and (b) a copy of a telex (`the qualifying telex`) sent to the buyers stating that as the buyers had failed to inspect the articles the plaintiffs had done so on their own. For this purpose, the buyers prescribed a telex number 890X although their official telex number was 123Y. On the evidence before the court, the buyers had never sent, during the duration of the entire delivery period, any inspectors to inspect any of the six consignments, and accordingly, all of them were shipped and delivered by the plaintiffs using their own certificates of inspection.

As security for the plaintiffs` performance under cl IV of the contract, DBS issued a performance guarantee dated 15 September 1987 (`the LG`) in the sum of US$407,040 expiring three months after the last delivery of the articles. The LG was confirmed on 15 October 1987 by an international bank (`IB`) against the counter-indemnity of DBS (`the DBS indemnity`). Subsequently, by mutual agreement, the expiry date of the LG was amended to 30 March 1990, ie nine days shorter than the L/C period.

All six consignments had been shipped and received by the buyers at the date of commencement of this action. The first four consignments were shipped late, and so was the sixth consignment. It was not clear whether the fifth consignment was shipped in time. However, on the evidence before the court, five consignments had been accepted by the buyers without any complaints or reservations, and up to 30 March 1990, the expiry date of the LG, no allegation had been made by them that they intended to claim liquidated damages for the late shipments or for defects in the articles or that they had intended to set-off or had set off any part of the purchase price due and owing for the second consignment against damages for delay or defects. There was evidence of the agents complaining about the second consignment which will be referred to later. It was also the plaintiffs` case that the buyers had waived the delays in shipment.

The shipping documents in respect of the first consignment were accepted by the issuing bank even though the qualifying telex was discrepant in that it did not bear the prescribed number 890X but the official number 123Y. The plaintiffs` explained that they used 123Y as they could not get an answerback from 890X. The plaintiffs followed the same procedure for the second consignment, but this time the issuing bank rejected the shipping documents on the ground of the discrepant qualifying telex. However, the buyers took delivery of the consignment on or about 28 December 1988 and up to date of this action had not paid the invoiced value thereof (US$759,740.16).

The third, fourth and fifth consignments were accepted by the buyers and the plaintiffs were being paid in accordance with the L/C. However, after accepting the fifth consignment, the agents requested the plaintiffs to cancel the sixth consignment (scheduled for shipment by 10 December 1989). The plaintiffs informed the agents that this could not be done as the articles had already been manufactured. A meeting between the parties` representatives was held on 4 January 1990 to resolve their differences. The signed minutes of this meeting disclosed an allegation by the agents that the acceptance tests concerning the articles under the second shipment had not been done to the satisfaction of the buyers. The plaintiffs` representative (`PR`) rejected this allegation as the plaintiffs had never been told of this before. He pointed out that the buyers had refused to release the test reports and requested that they be released to the plaintiffs. The agents promised to furnish them as soon as possible, but had not done so up to the date of this hearing. The other portions of the minutes read:

6 Regarding [contract] [the agents] request for cancellation of the last shipment of that contract and termination of the contract.

7 [PR] advised that CEI [the plaintiffs] has already produced the whole quantity of 23,399 [articles] and would like to continue to ship this last shipment.

8 On the question of termination of the contract, CEI assumes that in that event, the payment for the 7,500 [articles] in the 2nd shipment would be automatically made. At the same time the LG would be returned to CEI. CEI would need a confirmation of the above before it can consider termination of the contract.

9 On the shipment of 23,399 [articles], [PR] stated that the [agents] had previously instructed CEI to stop production and subsequently told CEI to proceed. For this reason the [agents] should allow an extension of the delivery date up to March 1990. No penalties should be imposed by [agents] for this delay.

10 [Agents have] proposed the following:

A: Termination of the contract

Or

B: If the company insists to ship the last shipment

1 [Agents agree] for shipment in March 1990, but CEI has to extend L/G till 30/6/1990.

2 CEI will advise [agents] by telex 30 days ahead of the Inspection date.

3 [Buyers` inspection] delegation will carry out the acceptance plan in conformity of the contract and the attached technical minutes.

C: [Agents] expect[s] to receive CEI acceptance for either of the above mentioned options on 31/1/90, otherwise the contract will be cancelled.

No agreement was reached. But, also as subsequent events proved, the buyers did not repudiate the contract. In February 1990, the plaintiffs were ready to ship the sixth consignment. They could not contact the buyers through telex number 890X. They made inquiries and on 19 February 1990 were informed that 890X had displayed the code `DER` (for out of order), and that the prescribed number 890X did not officially belong to the buyers. On 23 February 1990, the plaintiffs telexed 890X again and got an answerback for 456Z. Notwithstanding this discrepancy, they transmitted the notification to inspect. They then sought expert advice on the discrepant answerback code and were advised that 890X could be a `hunting line`, and if so 456Z would operate as an answerback for 890X.

This advice turned out to be correct. The agents did receive the notification on 26 February 1990, DBS received the following telex from IB on 25 February 1990:

Beneficiaries of A/M L/G request extension of same until 30/6/1990 or effect payment stop teleinstruct urgently stop

DBS immediately transmitted this `extend or pay` telex to the plaintiffs. On 28 February 1990, the plaintiffs informed DBS that both the said requests were in breach of the contract, and also telexed the buyers as follows:

We have just received notice from [DBS] that [IB] has requested for an extension of our letter of guarantee ... Up to 30 June 1990.

We are puzzled by this request in view of your last telex that you consider the contract as terminated. In our view, the contract continues, and we would be prepared to instruct DBS to extend the guarantee up to 30 june 1990 provided

(1) You forthwith effect payment of the amount due under the second consignment for which you have already taken delivery,

(2) That you instruct [issuing bank] to accept documents presented for the sixth shipment without the need for the telex to be addressed to [890x] which we understand is either disconnected or no longer in operation. (Clause 7(b) of the letter of...