Grains and Industrial Products Trading Pte Ltd v Bank of India and another
Jurisdiction | Singapore |
Judge | Sundaresh Menon CJ |
Judgment Date | 23 May 2016 |
Neutral Citation | [2016] SGCA 32 |
Year | 2016 |
Date | 23 May 2016 |
Published date | 26 May 2016 |
Hearing Date | 07 July 2015 |
Plaintiff Counsel | Winston Kwek, Winston Wong and Max Lim (Rajah & Tann Singapore LLP) |
Citation | [2016] SGCA 32 |
Defendant Counsel | Tan Teng Muan and Loh Li Qin (Mallal & Namzie),and Sarjit Singh Gill SC, Probin Dass and Ng Wenling (Shook Lin & Bok LLP) |
Court | Court of Appeal (Singapore) |
Docket Number | Civil Appeal Nos 156 and 158 of 2014 |
If payment and cash-flow form the lifeblood of commerce, then in the context of commercial transactions where the buyer and the seller are in different countries and the goods must be transported across borders, a documentary credit (also known as a “letter of credit”) serves a vital role by providing security of payment against delivery thus benefitting both sellers and buyers (
The framework that is established by
What happens if the beneficiary delivers the documents to the nominated bank not just for the purposes of presentation to it as the paying agent of the issuing bank, but also with a view to the nominated bank effectively agreeing to accept the documents as a transferee in exchange for its own agreement to make immediate or at least advanced payment before this has fallen due under the terms of the credit? In such circumstances, does the nominated bank receive the documents as agent of the issuing bank or is it acting as principal in its own right to the exclusion of any question of agency? If it receives the documents as agent of the issuing bank, what consequences arise from this as between the issuing bank and the nominated bank? And if the nominated bank does not accept the documents, is the beneficiary required to submit the documents once more to the issuing bank within the validity period of the credit? In this judgment, we address a number of these questions by characterising the proper relationship between the issuing bank, the nominated bank and the beneficiary having regard to the factual background that underpins these appeals.
Civil Appeal Nos 156 and 158 of 2014 are appeals against the decision of the Judicial Commissioner (“the Judge”) who heard the matter. His decision is reported as
Civil Appeal No 158 of 2014 (“CA 158/2014”) is Indian Bank’s appeal against the Judge’s finding that it was liable to honour the credit in favour of GRIPT. Indian Bank also appeals against the Judge’s dismissal of its counterclaim against Bank of India.
Civil Appeal No 156 of 2014 (“CA 156/2014”) is GRIPT’s appeal against the Judge’s finding that Bank of India did not negotiate the credit. It pursues this only in the event that Indian Bank succeeds in its appeal that it should not be held liable. In the event that GRIPT’s claim succeeds only against Indian Bank, GRIPT also asks for pre-judgment interest and an order that it is entitled to recover from Indian Bank any costs that it may be obliged to pay Bank of India as a result of its unsuccessful suit against Bank of India. For reasons that will become evident later, we refer to this as a
GRIPT was the beneficiary under a letter of credit issued by Indian Bank on 24 February 2012. The contract underlying the letter of credit was supposedly entered into on 6 February 2012 between GRIPT as sellers and Varun Industries Limited (“Varun”) as buyers. Under the terms of the contract, GRIPT agreed to sell Varun a cargo of US No. 2 or better yellow soya beans to be shipped from the United States of America to Lanshan, People’s Republic of China. We use the word “supposedly” because, as will become apparent, there is a dispute as to whether the shipment actually existed. As payment for the purchase of the cargo, Varun approached a number of banks to open an irrevocable letter of credit in favour of GRIPT. GRIPT and Varun agreed between themselves that payment under the letter of credit, which Varun was to procure, would only be made 180 days after its issuance.
GRIPT wished to receive payment before the maturity of the credit. To that end, it sought to sell the credit to a bank other than Indian Bank, the issuing bank, for advance payment. Having purchased the draft, the third-party bank would then claim reimbursement from Indian Bank at maturity. The act of purchasing a credit in this way is described as “negotiation” under Art 2 of UCP 600, though the representatives of GRIPT and Bank of India referred to it as “discounting” in their correspondence. While there may be a slight difference in the technical definition of these two terms (see Peter Ellinger and Dora Neo,
On 24 February 2012, GRIPT’s sales representative, Mr Shirkant Bhasi (“Bhasi”), called Mr S Rajendra Prabhu (“Prabhu”), the manager of the Trade Finance (Exports) Department of Bank of India, to enquire whether Bank of India was willing to negotiate GRIPT’s draft. GRIPT alleges that during that conversation, Bhasi and Prabhu concluded an oral agreement for the Bank of India to “negotiate by discounting” a letter of credit for the sum of US$10,000,000 (+/- 10%) to be issued by the Bank of Baroda in favour of GRIPT. It should be noted that at the time of the conversation, GRIPT thought the letter of credit would be issued by Bank of Baroda as opposed to Indian Bank. The latter entity was not even mentioned during this conversation.
GRIPT is a subsidiary of Bunge Agribusiness Singapore Pte Ltd (“Bunge”). Ms Yeo Lye Cheng (“Yeo”), the Regional Director of the Trade & Structured Finance Department of the Financial Services Group of Bunge, wrote to Prabhu later on the same day to record the terms of that discussion for Prabhu’s “confirmation” and “acceptance”. Bank of India did not respond to this email.
As it turned out, the letter of credit that was discussed between Prabhu and Bhasi was eventually issued by Indian Bank instead of Bank of Baroda. This letter of credit issued by Indian Bank shall hereinafter be referred to as the “Letter of Credit”. The Letter of Credit was issued in favour of GRIPT for an initial sum of US$6,500,000.91. It incorporated the latest version of the Uniform Customs and Practice of Documentary Credits (
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