Industrial & Commercial Bank Ltd v Banco Ambrosiano Veneto S.P.A.

JurisdictionSingapore
CourtHigh Court (Singapore)
JudgeTay Yong Kwang JC
Judgment Date31 May 2001
Neutral Citation[2001] SGHC 120
Citation[2001] SGHC 120
Published date19 September 2003
Plaintiff CounselDavinder Singh SC, Hri Kumar and Sameer Advani (Drew & Napier)
Defendant CounselYang Ing Loong and Ng Wee Chong (Allen & Gledhill)
Date31 May 2001
Docket NumberSuit No 600167 of 2000
Subject MatterFraud by issuer's employee,Circumstances when it binds sender,Banking,Legal effect,Standby letters of credit,SWIFT message,Letters of credit

JUDGMENT:

Grounds of Decision

1 The Plaintiff is a bank carrying on business in Singapore. It is part of the United Overseas Bank group. The Defendant is a bank carrying on business in Italy. The Plaintiff’s claim is for payment on two Standby Letters of Credit ("SBLCs") issued by the Defendant in its favour.

2 The first SBLC for US$12 million ("Global SBLC") was said to have been issued by the Defendant’s Udine Branch, in consideration of the Plaintiff having granted and/or agreeing at the Defendant’s request to grant and/or continuing to grant to one Super Shipmanagement Pte Ltd (now known as Global Trade & Consultancy Pte Ltd) ("Global") banking facilities and/or other banking accommodation, as security for the facilities. The material terms of this SBLC were that the Defendant shall immediately pay to the Plaintiff US$12 million, interest thereon and other banking charges as may be certified by the Plaintiff upon demand made by way of authenticated teletransmission. If the amount payable under the said demand was not paid by the close of business on the date of the demand, the outstanding amount was to bear interest until the date of receipt of payment, such interest to be calculated from time to time at the rate per annum equal to that certified by the Plaintiff. Interest which was not paid when due was to be added to the overdue sum and bear interest itself. The Plaintiff’s certificate on the outstanding sum, interest and other charges due shall be final and conclusive.

3 By an authenticated teletransmission dated 14 February 2000, the Plaintiff certified that US$10,659,605.96 and interest at the rate of 3.5% over three months SIBOR from 12 February 2000 were due and owing under the Global SBLC and demanded immediate payment of the same.

4 The second SBLC for an amount of US$3 million ("Ghosh SBLC") was issued by the Defendant’s Udine Branch as security for facilities granted to one Amarendra Nath Ghosh ("Ghosh"). The material terms of this SBLC were similar to those set out above in respect of the Global SBLC.

5 By an authenticated teletransmission dated 1 February 2000, the Plaintiff certified that US$2,229,875.39 and interest thereon at the rate of 2.5% over three months SIBOR from 1 February 2000 were due and owing under this SBLC and demanded payment of these amounts.

6 The Defendant failed to pay the sums demanded in respect of both SBLCs.

7 The Defendant’s Defence is that it never intended to issue the two SBLCs in question which were issued by its employee, Philip Martino Pigozzo, fraudulently pursuant to a fraudulent scheme involving Pigozzo, Ghosh, the Plaintiff’s employee, Samuel Lee and others.

THE ISSUES

8 On facts, this case turned essentially on the question of Pigozzo’s fraud and any complicity on the part of the Plaintiff’s bank officers. On law, the issue concerned the effect of authenticated SWIFT messages. "SWIFT" is an acronymn for Society for Worldwide Interbank Financial Telecommunication.

THE PLAINTIFF’S CASE

9 Albert Yeo Hock Chang, the Vice-President of the Corporate Banking Division of the Plaintiff, joined the United Overseas Bank ("UOB") in 1964 and was transferred to the Plaintiff about six years ago. At the material time, he was in charge of the operational matters in the Plaintiff which did not encompass its credit operations, which came within the purview of the Credit Administration Department. Albert Yeo then proceeded to provide some facts about the Defendant. The Defendant was a large private Italian bank with its head office in Milan and over 550 branches in Italy. It is presently part of the Intesa Group of banks, one of the largest banking conglomerates in Italy. The Defendant’s main business was in providing corporate banking services such as payment orders, collection, letters of credit and guarantees.

10 The relationship between the Plaintiff and the Defendant first developed in May 1995 when the Defendant proposed the formal establishment of a correspondent bank relationship. The Plaintiff replied in June 1995 stating that it was pleased to set up a direct correspondent relationship with the Defendant. The Plaintiff also enclosed its Schedule of Terms and Conditions as at January 1990.

11 In June 1997, the Plaintiff sent an updated copy of its book of authorised signatories to the Defendant. On 1 December 1998, the Plaintiff notified all its correspondent banks of changes made to its list of authorised signatories.

12 Ghosh, an Indian citizen, became a customer of ICB in July 1996 when he opened a personal account with its main branch. Albert Yeo was introduced to Ghosh in August 1999 by Quinton Chew, ICB’s main branch manager at a short introductory meeting. Ghosh did not open any other account with the Plaintiff until June or July 1999 when he opened accounts in the names of various companies, including Global (then known as Super Shipmanagement Pte Ltd) and Sofia Palace International Pte Ltd ("Sofia Palace"). Around that time, Ghosh applied for credit facilities for himself and for Global. These matters were dealt with by Joseph Wong and Quinton Chew.

13 In 1999, Ghosh applied for a revolving term loan of US$3 million in his own name. Subsequently, he asked for another revolving term loan of US$2.7 million. One of the securities required by the Plaintiff in respect of these facilities was an SBLC from the Defendant for the sum of US$3 million on terms acceptable to the Plaintiff.

14 On 11 June 1999, the Plaintiff received a SBLC (the Ghosh SBLC) via an authenticated SWIFT message from the Defendant. The Ghosh SBLC stated that it was issued to secure the facilities to be furnished by the Plaintiff to Ghosh. The Plaintiff had no reason to doubt its authenticity.

15 The Ghosh SBLC was in a 760 format (meant for guarantees) while the Plaintiff required SBLCs to be in 799 format to conform to SWIFT standards. The Defendant was requested to re-issue the Ghosh SBLC in the proper format and it did so on 14 June 1999.

16 Ghosh also applied for credit facilities for Global, initially for US$17.9 million. The Plaintiff asked for various securities including a SBLC from the Defendant for US$4 million. On 16 September 1999, the Plaintiff received the Global SBLC for US$4 million from the Defendant via authenticated SWIFT message. As with the Ghosh SBLC, the Plaintiff assumed that Ghosh had made the necessary arrangements with the Defendant for this SBLC.

17 When Super Shipmanagement Pte Ltd changed its name to Global, Ghosh requested the Defendant to amend the Global SBLC accordingly. On 12 October 1999, the Plaintiff received the amended Global SBLC via authenticated SWIFT message.

18 Global subsequently applied for further facilities from the Plaintiff. Consequently, the Plaintiff requested that the amount of the Global SBLC be increased to US$12 million and its validity period be extended to 16 September 2002. On 12 November 1999, the Plaintiff received the revised Global SBLC with the amendments requested, again via authenticated SWIFT message. Thereafter, the Plaintiff issued a new letter of offer dated 27 November 1999 to Global offering the increased facilities which was accepted by Ghosh.

19 The Plaintiff’s internal policies regarding the acceptance of securities from foreign banks were as follows. Before it accepts such securities, the credit officer in charge would check on the credit worthiness and standing of the foreign bank with UOB’s Correspondent Banking Division. There was a pre-approved list of foreign banks and limits which the Plaintiff could accept for various dealings. For banks outside this list, the Plaintiff would obtain ad hoc approval from UOB’s Correspondent Banking Division before accepting the securities. The Defendant fell outside this list.

20 Although there was no need for Albert Yeo’s approval to be sought before a security was accepted, the credit officers would sometimes seek his comments because of his experience in such matters. Quinton Chew did show Albert Yeo the Global SBLC when discussions were going on to increase the limit from US$4 million to US$12 million. Upon perusing the Global SBLC, Albert Yeo suggested that the place of expiry be changed form Udine, Italy to Singapore as it would be to the Plaintiff’s advantage and was a standard requirement for all letters of credit accepted by UOB and the Plaintiff. He also recommended that the interest rate co-relate to the prevailing rates so as to account for fluctuations instead of the maximum of 7.25% per annum stipulated in the Global SBLC.

21 In addition, there existed an internal guideline which stipulated that where a SBLC was issued by a bank from a G7 country, there was no need for verification of the authority of the branch to issue that SBLC. As Italy was a G7 country, there was accordingly no need to verify the authority of the Defendant’s Udine Branch. However, Albert Yeo overlooked that guideline and suggested to Quinton Chew to verify the authority of the Udine Branch with the Defendant’s Head Office in view of the proposed new amount of the Global SBLC and the fact that letters of credit of such an amount (US$12 million) would normally be issued by a bank’s Head Office instead of its branch. Albert Yeo wanted to "doubly sure". The Plaintiff then sent a SWIFT message to the Defendant’s Head Office in Milan for this purpose.

22 A reply came from the Udine Branch confirming that it was authorised to issue the SBLCs. Albert Yeo noticed that it emanated from the Udine Branch and asked Quinton Chew about it. Quinton Chew in turn said he would check with Clement Lim of UOB’s International Trade Services and Remittances.

23 One or two days later, Quinton Chew informed Albert Yeo that the Defendant’s Head Office must have routed the Plaintiff’s request to its Udine Branch for it to reply. Clement Lim also reminded Quinton Chew about the internal guideline relating to G7 countries and told him there was no need to verify the branch’s authority anyway.

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