Indian Overseas Bank v United Coconut Oil Mills Inc

• Judge: Lai Kew Chai J
• Judgment Date: 24 September 1992
• Neutral Citation: [1992] SGCA 62
• Citation: [1992] SGCA 62
• Defendant Counsel: John Thomas QC and Michael Kuah (Lee & Lee)
• Published date: 19 September 2003
• Plaintiff Counsel: Colin Ross-Munro QC and Lim Teng Leong (Donaldson & Burkinshaw)
• Date: 24 September 1992
• Docket Number: Civil Appeal No 122 of 1988
• Court: Court of Appeal (Singapore)
• Subject Matter: Confirming bank,Doctrine of strict compliance,Banking,Whether issuing bank estopped from saying that documents did not conform to terms of Credit,Letters of credit,Whether amounts to literal compliance,Whether documents conformed when properly read and understood

Cur Adv Vult

The appellants are a bank incorporated under the laws of India and carrying on business in Singapore. The respondents are a Philippine corporation and are presently in voluntary liquidation, but at the material time were engaged in the production, processing, sale and export of coconut oil and related products. The other party, who was very much involved in this dispute - indeed the party who in fact caused the dispute to arise - is Patel Holdings Pte Ltd (`Patel`), a Singapore company, which is now in compulsory liquidation.

During the first half of 1981, after a series of negotiations, the respondents agreed to sell to Patel four equal parcels of crude and cochin type coconut oil totalling 20,000 metric tons. Crude coconut oil is unrefined coconut oil and cochin type coconut oil is refined and bleached coconut oil. The terms of the agreement were contained in or evidenced by a letter dated 25 April 1981 and a telex dated 27 April 1981, both from Patel to the respondents. Payment for the coconut oil was to be effected by confirmed irrevocable letters of credit to be established by Patel.

The first two parcels were shipped in June 1981 on board the two vessels, Oriental Swallow and Shoun Maru No 6 respectively. For these shipments the appellants, on instruction from Patel, opened a letter of credit, PM88181, in favour of the respondents. No dispute arose in respect of these shipments and the drafts drawn under the letter of credit were duly honoured and paid.

The dispute between the parties arose over the last two parcels of coconut oil. These were:

(1) 5,000 metric tons of cochin coconut oil, fob Philippines, at US$552.50 per metric ton for shipment in the first half of July 1981;

(2) 5,000 metric tons of crude coconut oil, fob Philippines, at US$497.50 per metric ton with option to convert the type of oil to cochin type coconut oil at a premium of US$55 per metric ton for shipment at the end of July/first half of August 1981.

On 27 August 1981 or thereabout, Patel and the respondents agreed to vary the agreement by extending the shipment dates for both these parcels to 30 September 1981.

On instruction from Patel, the appellants opened two confirmed irrevocable letters of credit as follows:

(a) PM110681, on 6 May 1981 in the sum of US$2,762,500 in favour of the respondents to cover the shipment of 5,000 metric tons of cochin type coconut oil from the Philippines; and

(b) PM120281, on 19 May 1981 in the sum of US$2,762,500 in favour of the respondents to cover the shipment of 5,000 metric tons of cochin type or crude coconut oil from the Philippines.

The letters of credit were expressed to be subject to the Uniform Customs and Practice for Documentary Credits (1974 Revision) Rules (`the UCP Rules`). The letter of credit PM120281 required, among other things, the production of the following document:

A certificate of analysis in triplicate issued by independent laboratory certifying the oil to be free from contamination and sea water showing the following specifications:

(i) Cochin type coconut oil:

FFA (as lauric acid) : 0.1% max

M and I : 0.1% max

Colour in 51/4 inch Lovibond Cell : 1 red max

10 yellow max

Iodine value : 7-12

(ii) Crude coconut oil:

FFA (as lauric acid) : 3% max

M and I : 1% max

Colour in 51/4 inch Lovibond Cell : 15 red max

70 yellow max

Iodine value : 7-12

The letter of credit PM110681 (which was for the shipment of only cochin type coconut oil) also required, among other things, a similar certificate of analysis setting out the same specifications for cochin type coconut oil as described in PM120281. By an amendment to the letters of credit made on or about 25 August 1981, the date for negotiation of the letters of credit was extended to 15 October 1981.

Between 7 and 11 September 1981, the respondents shipped on board the vessel, Rich Star, a total of approximately 6,001 metric tons of coconut oil under the following bills of lading:

DAV 1 4,500 metric tons of cochin type;

DAV 2

300 metric tons of crude; and

DAV 3

1,200.8462 metric tons of crude.

On 12 September the Rich Star sailed from Davao for Singapore. On 22 September 1981 or thereabout, documents in respect of this shipment were tendered to the appellants through the respondents` banks, United Coconut Planters Bank in the case of the letter of credit PM110681 and Philippine National Bank in the case of letter of credit PM120281. Among the documents forwarded to the appellants were certificates issued by RJ Del Pan & Co Inc dated 11 September 1981 (`the Del Pan certificates`). The appellants informed Patel of their receipt and forwarded the documents to the latter. Patel replied to the appellants by letter dated 24 September 1981, stating that the documents did not conform to the terms of the credit on two grounds: first, that they did not contain certificates of analysis from an independent laboratory, and, secondly, that the quality of the oil was very defective and substantially different from the one contracted for. On the same day the appellants cabled to the United Coconut Planters Bank the following message:

Reur bill EB390/81 for US$149,250 and bill EB391/81 for US$2,486,348-29 drawn under our LC PM110681 remains unaccepted due to discrepancy observed as under `certificate of analysis in triplicate issued by independent laboratory as called for under cl 4 "special instructions" not submitted`. Stop Holding documents at your risk and responsibility Stop Please telex us disposal instructions.

By a telex of the same day, they also conveyed to Philippine National Bank substantially the same message. In response, United Coconut Planters Bank telexed to the appellants stating that the Del Pan certificates were independent certificates of analysis as required by the letters of credit; however, the appellants insisted that they were not. On 26 September 1981, the appellants sent the following cable to the United Coconut Planters Bank, rejecting the documents:

Reur tlx 25 Sept reg your bills EB390 and 391/81 Stop Certificate of analysis in triplicate issued by independent laboratory not submitted Stop Certificate of analysis issued by RJ Del Pan & Co only quotes results of lab reports by Camino Chemicals Stop This cannot be construed as certificate of analysis issued by independent laboratory Stop Hence documents are not in conformity with LC terms and discrepancy not acceptable to drawees Stop Plese advise disposal of documents at the earliest.

Soon thereafter, the respondent`s banks sent to the appellants fresh certificates issued by Camino Chemicals Inc (`the Camino reports`); these reports were received by the appellants on 1 October 1981. The Camino reports were each entitled `Laboratory reports`, below which was a sub-heading `Results of analysis`. They described the commodity analysed as `Philippine cochin type of coconut oil in bulk` or `Philippine crude coconut oil in bulk` (as the case may be), and the free fatty acid (`FFA`) was quantified in terms of both oleic and lauric acid. FFA is an acid that is found in natural fat such as coconut oil. The FFA content of the oil was expressed in the reports as follows:

FFA (as oleic) ...

(as lauric) ...

The appellants forwarded the Camino reports to Patel on 1 October and Patel replied on 7 October, rejecting them on the ground that since the documents originally forwarded were defective due to discrepancies, the respondents were not entitled to demand payment under the letters of credit by subsequently forwarding documents to set right the discrepancies. The appellants then telexed the respondents` banks on 10 October 1981 rejecting the documents presented for the following reason: `Drawees advise that documents are not now acceptable to them owing to late presentation ... .` The respondents` banks immediately replied, pointing out that the negotiation date was 15 October 1981 and that they were accordingly in time. The appellants then wrote to Patel on 14 October 1981, advising that the Camino reports were in conformity with the terms of the letters of credits and that they had been presented in time. The letter further stated that the appellants had no alternative but to effect payment to the correspondent banks. However, the appellants did not make any payment to the respondents under the letters of credit, and the time for negotiation of the letters of credit expired on 15 October 1981.

In the meantime, approximately during this period, while the appellants and the respondents` banks were engaged in exchange of cables or telexes on the question of conformity of the documents with the terms of the credit, Patel was making arrangements to carry into effect a sub-sale or sub-sales (which they had made) of the same shipment of coconut oil they had purchased from the respon. They made arrangements with Aru Shipping Agencies Pte Ltd of Keppel Road, Singapore, the agents for the owners of the Rich Star, for the release of seven sets of bills of lading of that shipment of coconut oil. Accordingly, on 18 September 1981, Patel provided to Aru Shipping Agencies Pte Ltd a letter of indemnity under which they agreed not to hold the shipowners liable for the consequences of releasing to them the seven sets of bills of lading and undertook to surrender the original bills of lading when they had been received from the appellants. On 24 September 1981, Patel presented to the appellants the seven sets of bills of lading and other shipping documents for collection under letters of credit issued in their favour by Punjab National Bank and Punjab & Sind Bank. On or about 5 October 1981, the appellants themselves negotiated the documents and subsequently received payments under those letters of credit for the account of Patel. Hence, by the date of 10 October 1981, when the appellants rejected the documents tendered, not only had Patel resold the shipment of coconut oil...