AA Valibhoy & Sons (1907) Pte Ltd v Banque Nationale de Paris

• Jurisdiction: Singapore
• Judge: Goh Joon Seng J
• Judgment Date: 12 April 1994
• Neutral Citation: [1994] SGHC 98
• Citation: [1994] SGHC 98
• Defendant Counsel: HE Cashin and Myint Soe (Murphy & Dunbar)
• Published date: 19 September 2003
• Plaintiff Counsel: Loh Boon Huat and Michael Goh (Godwin & Co)
• Date: 12 April 1994
• Docket Number: Suit No 6357 of 1983,Suit No 1266 of 1990
• Court: High Court (Singapore)
• Subject Matter: Exclusion clauses,Contractual terms,Conditions for application of doctrine,Construction,Bank's sub-agents breaching duty to act with reasonable care in releasing documents,Whether bank liable,Banking,Bank's liability for sub-agent's breach of duty,Failure of sub-agent to act with reasonable care in releasing documents,Banking agents,Res Judicata,Contract,Whether liability excluded by virtue of provisions in the Uniform Rules for the Collection of Commercial Paper if provisions not incorporated in contract between remitting bank and customer,Employment of sub-agent for collection of bills,Whether plaintiffs estopped from suing defendant by virtue of another action between them and defendants' sub-agents

Cur Adv Vult

The plaintiffs carry on business as merchants and were at the material time the customers of the defendants who are bankers.

Some time on or about 7 November 1975, a ship, the `mv Yanti` (`Yanti`), then under arrest in Colombo, was ordered to be sold by tender by the High Court of Colombo acting in the exercise of its admiralty jurisdiction.

The plaintiffs submitted a tender on 5 March 1976 for the Yanti at US$235,500. The tender was accepted by the Tender Board, Ministry of Finance, Sri Lanka, on 20 April 1976. Payment was to be made to the Principal Collector of Customs, Colombo.

To effect payment for the Yanti, the plaintiffs applied on 10 May 1976 to the defendants for the opening of a letter of credit. A letter of credit was established by the defendants in favour of the Principal Collector of Customs, Colombo, on 11 May 1976, for US$235,000. This was increased to US$235,500 on 26 May 1976. Under the defendants` letter of credit, the Yanti was to be delivered latest by 31 May 1976 to the authorized representative appointed by the plaintiffs.

Pending completion of their purchase of the Yanti, the plaintiffs and Silooka Steels Ltd (`Silooka`) signed a memorandum of agreement (`MOA`) dated 6 May 1976 for the sale by the plaintiffs of the Yanti to Silooka at the price of US$383,130. Silooka`s purchase of the Yanti was for the purpose of scrapping.

Following the MOA, Silooka established through Habib Bank Ltd, Karachi, (`Habib Bank`) a letter of credit dated 11 June 1976 in favour of the plaintiffs for US$383,130. Under this letter of credit, one of the documents required for negotiation was a cable from the master confirming that the Yanti had safely arrived at the Karachi outer anchorage not later than 9 September 1976. The letter of credit`s expiry date was 24 September 1976.

To finance their purchase of the Yanti, Silooka also applied to and were granted facilities known as `Loan against imports` (`LIM`) by Habib Bank. Under the LIM facilities, Silooka had to pay in a margin of 40% of the amount of the letter of credit and the balance would be disbursed by Habib Bank.

On or about 28 June 1976, the plaintiffs` purchase of the Yanti was completed. To take delivery of the Yanti from the marshal of the court of admiralty, Colombo, the plaintiffs authorized one Mohamed Yousuf Ghanchi, a director of Silooka, to do so on their behalf.

Enroute from Colombo to Karachi, the Yanti sustained mechanical breakdown and she returned to Colombo. Repairs carried out to the ship in Colombo were futile. She eventually had to be towed from Colombo to Karachi. Meanwhile, the letter of credit issued by Habib Bank had expired. The plaintiffs` bill thus became an `irregular bill` under Pakistan`s exchange and import control regulations and remittance was subject to approval of the State Bank of Pakistan.

As the letter of credit had expired, the plaintiffs on 14 February 1977 instructed the defendants to send the documents to Karachi on collection basis. The memorandum instructing the defendants to forward the documents for collection contained this exclusion clause:

It is understood and agreed that, having exercised due care in the selection of any correspondent to whom the above mentioned items may be sent for collection, you shall not be responsible for any act, omission, default, suspension, insolvency or bankruptcy of each correspondent or sub-agent thereof, or for any delay in remittance, loss in exchange or loss of items or their proceeds during transmission or in the course of collection, but your responsibility shall be only for your own acts.

Pursuant to the plaintiffs` instructions, the defendants on the same day forwarded the documents to Muslim Commercial Bank Ltd at Karachi (`MCB`) with instructions to present the documents for payment.

On receipt of the documents, MCB notified Silooka. Silooka requested MCB to present the documents to them through Habib Bank.

MCB, accordingly, on 1 March 1977, forwarded the documents to Habib Bank ` for onward submission to M/s Silooka Steels Ltd, Karachi, strictly against payment of US dollars 383,130 .`

On 5 March 1977, Habib Bank notified Silooka of the receipt of the documents on collection basis. On the same day, Habib Bank reverted to MCB, advising the conditions on which they undertook the collection. One of the conditions read:

We will not be liable for any loss, damage or delay howsoever caused due to our inability to accept payments, or remit proceeds of payment offered in contravention of the Exchange/Import Control Regulations or for any other reason. We may inform you that, in some contravention cases, our application to exchange control authorities for approval of remittance can be considered only when customs authorities release the goods and issue a bill of entry/certified invoice. To enable the importers to do so, the documents, after obtaining your confirmation, will have to be delivered to them against Pakistani Rupee deposit at your entire risk and account including risk of fluctuation in exchange rate. Our bank will not be held responsible if the approval for remittance is finally refused.

A copy of Habib Bank`s letter was forwarded to the defendants who in turn forwarded a copy to the plaintiffs on 15 March 1977 for confirmation that Habib Bank might release the documents against payment of provisional Pakistani Rupee deposit pending remittance approval.

Receiving no confirmation from the defendants through MCB, Habib Bank, on 17 May 1977, wrote to the defendants reiterating the conditions and advice set out in their letter to MCB. This was followed by telexes of 17 and 23 May 1977 requesting for confirmation. The defendants then sought instructions again from the plaintiffs who replied on 25 May 1977 as follows:

We request you to instruct Habib Bank, Karachi, by cable or telex, authorizing them to deliver the documents against receiving provisional Pakistani Rupees deposit pending remittance.

The defendants accordingly instructed MCB to authorize Habib Bank to ` deliver documents to drawees against provisional Pakistani Rupees deposit pending remittance .` In the meantime the Yanti had arrived at Karachi on 8 May 1977.

On 25 May 1977 the requisite documents for activating the LIM facilities were signed by Silooka and the margin of 40% paid in full.

Unknown to the defendants, but known to the plaintiffs, the Yanti was transferred and handed over to Silooka on 25 June 1977.

Silooka were thus able to apply for beaching permission. The applicant for beaching must be the owner of the ship. This is what M Aley Abid (`DW2`), the vice-president of Habib Bank, admitted somewhat reluctantly:

Q: You agree that the process for clearing a vessel brought into Pakistan for scrapping, the importer must have the vessel transferred to its name?

A: The importer can apply for beaching permission before actual transfer takes place and the transfer registered with Registry of Ships.

Q: Even if that were done, the Mercantile Marine Department [`MMD`] would not process the application for beaching until after the ship is registered in the name of SSL?

A: I am not sure. But the MMD wants to be sure that this application is made by the importer.

Q: Would that not mean that the MMD wants to be sure the importer is also the owner?

A: It wants to be, but the application is by the person for whom the ship was imported.

Q: So it is the owner?

A: Yes.

To assist Silooka obtain beaching permission, DW2 called on the principal officer, Mercantile Marine Department (`MMD`), Karachi, on or about 24 June 1977 and produced for inspection the bill of sale evidencing the sale of the Yanti by the plaintiffs to Silooka. Beaching permission was then obtained by Silooka on or about 25 June 1977, that is, around the time the Yanti was transferred to Silooka. To further assist Silooka obtain other clearances, Habib Bank, by a memorandum dated 19 July 1977 addressed `To whom it may concern` confirmed as follows:

The opener of credit ... [Silooka] have accepted the documents and we have allowed them to avail LIM Facility for clearance of ship. The remittance against the imported vessel will be effected on receipt of necessary approval from State Bank of Pakistan.

On 3 September 1977, following an investigation by the Federal Investigation Agency of Pakistan on Silooka, Habib Bank withdrew the LIM facilities without giving any reason. But, after an appeal by Silooka, the facilities were reinstated on 24 September 1977. In the meantime, the Yanti had been beached by Silooka at Gaddani Beach near Karachi on 10 September 1977.

Following beaching permission, Silooka applied for scrapping permission and must have done so as the owner of the Yanti because under circular 10 for application for scrapping permission issued by the principal officer, MMD, Karachi, the applicant must be the owner importing the ship for scrapping. The relevant paragraphs of the circular read:

(a) they [the applicants] should first obtain government permission to purchase the said vessel and obtain an import licence for the same ...;

(b) to declare the ownership on the prescribed form ...;

(c) to produce the original bill of sale duly notarized by a competent Notary Public and endorsed by the Pakistan Embassy along with the permission of the government of the port of registry to sell the vessel to the importers concerned;

It must have been for the purpose of obtaining, inter alia, scrapping permission that Habib Bank`s agents MSH Agencies wrote to Habib Bank on 8 November 1977 stating ` ... and shall thank you to send us the following documents to enable us to proceed for the clearance .` The documents requested for were the bill of sale, the memorandum of agreement and the invoice relating to the Yanti.

These documents were forwarded by Habib Bank to MSH Agencies on 16 November 1977, who in turn released them to Silooka`s agents, Purbani...