Kumagai-Zenecon Construction Pte Ltd (in liquidation) and Another v Arab Bank plc and Another

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 08 September 1997
• Neutral Citation: [1997] SGCA 41
• Docket Number: Civil Appeal No 143 of 1996
• Date: 08 September 1997
• Year: 1997
• Published date: 19 September 2003
• Plaintiff Counsel: Anthony Lee and Yee Kwok Hon (Bih Li & Lee)
• Citation: [1997] SGCA 41
• Defendant Counsel: Alvin Yeo and Emiley Yeow (Wong Partnership),Harry Elias SC, Lawrence Quahe and Leo Cheng Suan (Chu Chan Gan & Ooi)
• Court: Court of Appeal (Singapore)
• Subject Matter: Housing developers,Statutory set-off,Project completed,Inconsistency between cl 2 of credit and art 13a of UCP,Insolvency Law,Sale & purchase agreement,Bills of Exchange and Other Negotiable Instruments,Vendor wound up and liquidator appointed,Doctrine of strict compliance,Contract,Whether inconsistent part of art 13a to be overlooked by bank,Express wording in s 88(1) of Bankruptcy Act (Cap 20, 1996 Rev Ed) unlike s 41(1) of the pre-1995 Bankruptcy Act (Cap 20, 1985 Rev Ed),Discrepancy in tendered documents calling for inquiry or investigation or such as to invite litigation,Delivery of vacant possession delayed,Whether bank entitled to refuse payment,Construction of credit,Statutory right of set-off,Land,Letter of credit transaction,rr 12(2), 12(3), 15(1) and 15(2) Housing Developers Rules 1985,Whether purchasers entitled to set off liquidated damages against instalments due,Incorporation of Uniform Customs and Practice for Documentary Credits (UCP),Contractual terms,Development,Nature of bank's obligation under credit,Protection of purchasers over unsecured creditors,Bankruptcy

(delivering the grounds of judgment of the court)

Introduction

This was an appeal against the decision of Judith Prakash J, dismissing the appellants` claim against the first respondent for the sum of $3,793,000 under a standby letter of credit issued by the latter (see [1997] 2 SLR 805). The second respondent was the party for whose account the standby letter of credit was issued, and was joined as a party in the proceedings below. At the conclusion of the hearing of the appeal, we dismissed it. We now give our reasons.

The facts

The first appellant, Kumagai-Zenecon Construction Pte Ltd (KZC) was formed pursuant to a joint venture between Kumagai Gumi Co Ltd, a company incorporated in Japan, and Zenecon Pte Ltd, a company incorporated in Singapore and controlled by the second respondent, Low Hua Kin (Low). The second appellant, Kumagai Investments Pte Ltd (KIP), was a wholly owned subsidiary of KZC.

Following a shareholders` dispute, Kumagai Gumi Co Ltd commenced proceedings in OP 9/92 in the High Court claiming relief under s 216 of the Companies Act (Cap 50, 1990 Ed). In those proceedings, KZC, KIP and Low were named as three of the respondents. On 15 July 1994, the court made, inter alia, the following orders:

(i) that KZC and KIP each be wound up and that M/s Peter Chi Man Kwong and Michael Ng Wei Teck be appointed the liquidators in the winding up of the companies respectively;

(ii) that Low pay KIP the sum of $2,982,517.17;

(iii) that Low purchase or procure the purchase of all the shares which KIP owned in KZ Investments Pte Ltd (another company controlled by Low) at a fair price to be fixed by independent valuers or at cost, whichever is the higher; and

(iv) that Low pay KIP the whole amount of tender deposits, which had been paid out of the funds of KIP, less such amounts that had already been refunded.

On 1 August 1994, Low filed an appeal against the decision of the High Court. Two weeks later, KZC and KIP, both then in liquidation, commenced execution proceedings against Low. Low immediately applied for a stay of execution of the judgment against him pending the hearing of his appeal. Following that, the parties negotiated a settlement, and as a result on 24 August 1994, by consent, it was ordered that, unless Low provided a standby letter of credit or guarantee from the first respondent, Arab Bank plc (the bank) or a first class local bank, in an amount of $4,316,354.17, KZC and KIP would be at liberty to proceed with the execution of the judgment. This sum of $4,316,354.17 was arrived at by adding the sum of $2,982,517.17, which was specifically ordered to be paid by Low to KIP, to the sum of $1,333,837 being the estimated cost to KIP for the acquisition of the shares in KZ Investments Pte Ltd. It was further ordered that upon provision of the specified security the execution would be stayed pending the disposal of the appeal.

The terms of the standby letter of credit were subsequently settled by the parties before the court. On 7 September 1994, the bank issued a standby letter of credit No STBY940035 (the letter of credit) on the agreed terms which, so far as relevant, were as follows:

1 We, by this letter, establish in your favour our irrevocable standby letter of credit no STBY940035 (SBLC) for the account of Low Hua Kin [commat] Loo Wah Kim of 39 Victoria Park Road, Singapore 1026 (the judgment debtor). This SBLC is issued in connection with an order of the High Court of the Republic of Singapore (the High Court) dated the 15 July 1994 in Originating Petition No 9 of 1992 (the High Court judgment), and a consent order dated the 24 August 1994 granting a stay of execution of the High Court judgment upon the provision of a satisfactory standby letter of credit or guarantee. An appeal has been lodged by the judgment debtor in the Court of Appeal of the Republic of Singapore in Civil Appeal No 131 of 1994 (the appeal). An appeal against the High Court judgment has also been lodged by Kumagai Gumi Co Ltd in Civil Appeal No 121 of 1994.

2 Subject to cll 3 and 4 below, we shall make payment to Kumagai Investments Pte Ltd or their liquidators and to no other party under this SBLC of the sum or sums payable pursuant to or under the judgment debtor`s obligations to Kumagai Investments Pte Ltd pursuant to or under the High Court judgment as affirmed in whole or in part and/or varied by the decision (as defined in cl 2.2 below) on your written demand or demands for payment when such demand or demands is/are presented to us at 80 Raffles Place [num ]55-01 UOB Plaza 1 Singapore 0104 accompanied by the following documents:

2.1 A legal sealed (LS) copy of the High Court judgment;

2.2 A legal sealed (LS) copy of the order of the Court of Appeal in which orders are made in respect of the appeal (the decision), whether or not any order or orders in respect of any other appeal or matters are included therein;

3 Our maximum aggregate liability under this SBLC in respect of any and all demands made hereunder shall not exceed the sum of Singapore dollars four million three hundred and sixteen thousand three hundred and fifty four and cents seventeen only (S$4,316,354.17).

As for the remaining clauses of the letter of credit, they were briefly as follows: cl 4 stipulated the period during which the letter of credit would remain valid and an extension of that period; cl 5 provided that the letter of credit was subject to the Uniform Customs and Practice for Documentary Credits (1993) ICC Publication No 500 (the UCP); cl 6 provided that it was irrevocable and not transferable or assignable; cl 7 provided that it was governed by Singapore law and that the parties submitted to the non-exclusive jurisdiction of the Singapore courts; and cl 8 provided for the service of process.

Low`s appeal to the Court of Appeal was heard in January 1995, and in a reserved judgment delivered on 24 May 1995 (reported in [1995] 2 SLR 297) the court allowed his appeal in part. It set aside the orders of the High Court (i) that Low pay KIP the sum of $2,982.517.17, and (ii) that he pay to KIP the amount of tender deposits. However, the court affirmed, inter alia, the order that Low purchase KIP`s shares in KZ Investments Pte Ltd on the terms as determined by the High Court. This decision was entered in the Registry of the Supreme Court on 3 November 1995.

On 23 November 1995, just one day before the letter of credit was due to expire, the liquidators of KIP (the liquidators) demanded from the bank payment of a sum of $3,793,000 under the letter of credit in the following terms:

Standby Letter Of Credit No STBY 940035

Dated 7 September 1994 (The letter of credit)

1 We refer to the above matter.

2 Pursuant to cl 2 of the letter of credit, we hereby demand payment of the sum of S$3,793,000 to Kumagai Investments Pte Ltd (in liquidation). Please let us have a bank draft for the said sum drawn in favor of Kumagai Investments Pte Ltd (in liquidation) on an urgent basis.

3 We enclose herewith the following documents:

(i) a legal sealed copy of the High Court judgment; and

(ii) a legal sealed copy of the order of the Court of Appeal in which orders are made in respect of Civil Appeal No 131 of 1994.

The demand was accompanied by the two documents required by the letter of credit, ie sealed copies of the High Court judgment and the Court of Appeal judgment respectively. Low was told of the demand on the same day, and his solicitors immediately wrote to the bank on the following day, stating that Low was disputing the payment and instructing the bank not to make payment as demanded.

Accordingly, on 24 November 1995, the bank wrote to the liquidators rejecting the demand and giving the following explanation:

Having examined [the letter of 23 November 1995] and the accompanying documents, we hereby reject and return the same to you as your said letter is not in compliance with the SBLC on the ground, inter alia, that the sum of S$3,793,000 demanded in your said letter does not appear to be the sum or sums payable pursuant to or under the judgment debtor`s obligations to Kumagai Investments Pte Ltd pursuant to or under the High Court judgment as affirmed in whole or in part and/or varied by the order of the Court of Appeal in Civil Appeal No 131 of 1994.

On 27 November 1995, the appellants` solicitors again demanded payment. On the following day, the bank`s solicitors replied defending their client`s rejection of the demand in the following terms:

Our clients are required under the terms of the SBLC to make payment only of sum or sums payable pursuant to or under the judgment debtor`s obligations to Kumagai Investments Pte Ltd pursuant to or under the orders of court referred to in the SBLC. Your clients` demand dated 23 November 1995 makes no reference to such obligation or obligations. Further, the sum of S$3,793,000 demanded does not appear to be referred to in any of the copies of the orders of court accompanying the demand. In the circumstances, our clients are entitled to reject the demand and return the documents.

On 9 December 1995, the appellants commenced an action in the High Court against the bank seeking to enforce payment under the letter of credit. The claim was resisted. Low applied successfully to be joined as a third party in those proceedings on the ground that he had an interest in the outcome, and he too opposed the appellants` claim. The action was heard before Judith Prakash J, and...