Korea Exchange Bank v Standard Chartered Bank

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 29 November 2005
• Neutral Citation: [2005] SGHC 220
• Docket Number: Suit No 162 of 2004 (Registrar's
• Date: 29 November 2005
• Year: 2005
• Published date: 30 November 2005
• Plaintiff Counsel: Chew Kei-Jin (Tan Rajah and Cheah)
• Citation: [2005] SGHC 220
• Defendant Counsel: Toh Kian Sing and Ian Teo (Rajah and Tann)
• Court: High Court (Singapore)
• Subject Matter: Issuing bank sending notice of refusal,Applicable principle,Rules of construction,Banking,Contractual terms,Issuing bank failing to send another notice of refusal,Whether apparently conflicting provisions may be read harmoniously,Whether effect to be given to non-documentary condition in spite of incorporation of Art 13(c) Uniform Customs and Practice for Documentary Credits 1993 (International Chamber of Commerce Publication No 500),Apparent conflict between provisions of letter of credit,Negotiating bank re-presenting amended documents for reimbursement,Whether issuing bank can rely on discrepancies stated in notice of refusal to resist payment to negotiating bank,Letters of credit,Letter of credit containing non-documentary condition,Contract

29 November 2005 Judgment reserved.

Andrew Ang J:

1 This was an appeal by Korea Exchange Bank (the appellant/defendant), the issuing bank of two letters of credit (“the LCs”) against summary judgment granted by the learned assistant registrar (“AR”), Mr Vincent Leow, for the sum of US$1,961,430.67 together with interest and costs. The appellant was found liable for wrongfully rejecting documents presented by Standard Chartered Bank (the respondent/plaintiff) as negotiating and confirming bank of the LCs. In refusing to make payment under each of the LCs, the appellant had relied on three discrepancies (between the documents presented and the terms stipulated by such LC), none of which the learned AR found to be valid.

Factual background

2 The facts of this case are straightforward and undisputed. The applicant for the LCs was Petaco Petroleum Inc (“Petaco”), a South Korean company which purchased gas oil from Trafigura Beheer BV Amsterdam (“Trafigura”). The LCs were intended to finance the purchase of the gas oil and, accordingly, Trafigura was named the beneficiary in the LCs.

The letters of credit

3 The LCs which the appellant issued were made expressly subject to the provisions of the Uniform Customs and Practice for Documentary Credits 1993 (International Chamber of Commerce Publication No 500) (“UCP 500”). The terms of the LCs are materially similar and are set out below.

(a)	M06M8310NS00032	[as amended]
50:	Applicant	Petaco Petroleum Inc.
59:	Beneficiary	Trafigura Beheer BV Amsterdam.
32B:	Currency code, amount	USD800000
39A:	Percentage credit amount tolerance	10/10
41D:	Available with	By any bank by negotiation
42C:	Drafts at	Sight
42D:	Drawee	Korea Exchange Bank World Trade Center Branch
45A:	Description of goods and/or services	Origin: Japan Gas oil 26,000 BBL +/− 10 pct. Price term: CFR any port(s) in South Korea
47A:	Additional conditions	Late presentation B/L acceptable. Price: The price in US dollars per barrel based on the quantity as determined under clause 12 of the contract shall be on a ex tank price at Pyongtaek, Korea Basis shall be equal to the average of the mean quotations published in the Platt’s Asia Pacific/Arabian Gulf Marketscan for gasoil reg 0.5 pct quotations under the heading Singapore plus a premium of US dollars 3.38 per US BBL. A. Availability by negotiation at sight against following documents. Seller’s commercial invoice (telex/telefax acceptable) Independant [sic] inspector’s quantity report at loadport (telex/fax acceptable) Copy of seller’s authorization for release of product to Petaco (telex/fax copy acceptable) Photo copy B/L (telex/telefax acceptable) …3 E. The amount of this letter of credit shall automatically fluctuate to cover any increase/decrease according to the price clause without further amendment to this credit. … J. Documents showing alterations without approval stamp or initials are acceptable.
49.	Confirmation instructions	May add
(b)	M06M8310NS00064

The material terms and conditions of Letter of Credit M06M8310NS00064 are similar to those enumerated above save that under “Description of Goods”, the quantity of gas oil is reflected as “27000 BBL +/− 10 pct”.

4 Each of the LCs called for the presentation of the following documents:

(a) seller’s commercial invoice (telex/telefax acceptable);

(b) independent inspector’s quantity report at loadport (telex/telefax acceptable);

(c) copy of seller’s authorisation for release of product (ie, gas oil) to Petaco; and

(d) photocopy of bill of lading.

Because the LCs were available by negotiation, the LCs also called for sight drafts drawn on the appellant to be presented.

5 It is not disputed that the LCs were available with any bank by negotiation and that confirmation could be added to them. The respondent added its confirmation to the LCs. Petaco became insolvent in late 2003. Therefore, the appellant would have been unable to obtain reimbursement from Petaco if they had paid under the LCs.

Presentation of documents under the letters of credit

6 In respect of each of the LCs, Trafigura, as beneficiary, presented to the respondent the documents called for in each of the LCs (“the Tendered Documents”). LC No M06M8310NS00064 also called for a “signed commercial invoice” which was also duly presented. Being of the view that the Tendered Documents conformed with the terms of each of the LCs, the respondent negotiated and gave value against the Tendered Documents and credited the amount under each LC to the beneficiary.

7 On 16 December 2003, the respondent delivered the Tendered Documents to the appellant with a view to obtaining reimbursement under the LCs. On 27 December 2003, the appellant sent a notice of refusal in respect of each LC, rejecting the Tendered Documents presented thereunder on the basis that the documents contained three alleged discrepancies. In response to the above notices of refusal, the respondent replied on 29 December 2003, refuting all the discrepancies alleged.

8 The respondent stated that it would re-present the Tendered Documents without prejudice to its position that the initial presentation was in conformance with the LCs and that the refusal was therefore wrongful.

9 On 29 December 2003, in order to answer one alleged discrepancy raised in regard to the seller’s authorisation, the respondent re-presented the Tendered Documents to the appellant. The re-presented copy of the seller’s authorisation was amended to remove the alleged discrepancy. It was made clear to the appellant that the re-presentation by the respondent was without prejudice to the respondent’s position that the Tendered Documents as presented on 16 December 2003 complied with the terms and conditions of the LCs. The appellant did not send a notice of refusal in response. Neither did it return the Tendered Documents.

The issues

10 Of the three discrepancies raised by the appellant in respect of each of the LCs, the only one remaining in contention is that raised by the comment “Amount Overdrawn”, the others having been abandoned by the appellant for the purposes of this appeal. As regards this alleged discrepancy, the respondent raised a preliminary objection at the hearing before me that such a description of the discrepancy was inaccurate and lacked particularity. Although, in an affidavit filed on behalf of the appellant in the O 14 proceedings, it was subsequently clarified that the seller’s invoice was overdrawn in the sense that it exceeded the LC limit of US$800,000 +/−10%, the respondent argued that it was not open to the appellant to embellish belatedly its initial statement of the discrepancy.

11 Examination of the sources cited in support of the respondent’s proposition do not appear to bear out the respondent’s contention. Raymond Jack, Ali Malek & David Quest, Documentary Credits (Butterworths, 3rd Ed, 2001) at pp 120–121 appear to be concerned more with the need for a notice of refusal to identify all discrepancies on pain of the issuing bank being precluded from adding on other discrepancies at a later date if it failed to do so. (This, of course, is understandable as a beneficiary will need to rectify all discrepancies within the time limit of the credit and ought not to be confronted with discrepancies raised in piecemeal fashion. Indeed, the Singapore courts in United Bank Ltd v Banque Nationale de Paris [1992] 2 SLR 64 and Amixco Asia (Pte) Ltd v Bank Bumiputra Malaysia Bhd [1992] 2 SLR 943 accepted this principle when they dealt with earlier versions of the UCP 500.) In contrast it seems permissible for a later communication to clarify what was already identified as a discrepancy in the original notice of refusal: Kumagai-Zenecon Construction Pte Ltd v Arab Bank plc [1997] 2 SLR 805 at [31].

12 Be that as it may, I accept that there is a need for sufficient clarity in a notice of refusal so that the beneficiary may know for certain what needs to be rectified. That said, I am of the view that in the present case, the use of the words “Amount Overdrawn” sufficiently conveyed the issuing bank’s objection. Certainly the respondent was left in no doubt as to its purport.

13 So then, the first issue in this appeal is whether the claim for reimbursement of US$939,789.01 and US$1,021,641.66 exceeded the respective credit amounts in the LCs. The second issue is whether or not the appellant was obliged to issue a further notice of refusal in respect of the second presentation of the Tendered Documents on 29 December 2003, given that the Tendered Documents still had the discrepancy as to overdrawing already specified in the notice of refusal issued to the respondent on 26 December 2003.

Whether claim exceeded credit limits

Construction of terms of the LCs material to the alleged discrepancy

14 Field 32B of each of the LCs provided as follows:

Currency code, amount USD800000.

Field 39A provided as follows:

Percentage credit amount tolerance 10/10.

Field 47A of the LCs (as amended) listed “Additional Conditions” amongst which were the following:

Price: The price in US dollars per barrel based on the quantity as determined under clause 12 of the contract shall be on a ex tank price at Pyongtaek, Korea Basis shall be equal to the average of the mean quotations published in the Platt’s Asia Pacific/Arabian Gulf Marketscan for gasoil reg 0.5 pct quotations under the heading Singapore plus a premium of US dollars 3.38 per US BBL.

…

E. The amount of this letter of credit shall automatically fluctuate to cover any increase/decrease according to the price clause without further amendment to this credit.

15 The appellant’s case is that as provided in Fields 32B read with 39A, the LCs were each for an amount of US$800,000 plus or minus 10%, ie, ranging from US$720,000 to US$880,000; the amounts claimed by the respondent being in each case in excess of the upper limit of $880,000, the appellant was not obliged to make...