Lee Feng Steel Pte Ltd v First Commercial Bank

• Jurisdiction: Singapore
• Judge: Kan Ting Chiu J
• Judgment Date: 14 September 1996
• Neutral Citation: [1996] SGHC 202
• Docket Number: Suit No 1565 of 1994
• Date: 14 September 1996
• Published date: 19 September 2003
• Year: 1996
• Plaintiff Counsel: Francis Ow (Cheong Hoh & Associates)
• Citation: [1996] SGHC 202
• Defendant Counsel: Hee Theng Fong and Lee Cheow Ming Doris Damaris (Hee Theng Fong & Co)
• Court: High Court (Singapore)
• Subject Matter: Third party and principal’s relations,Liability of principal,Banks,Duty of care to exercise reasonable skill and care in negotiating and paying on letters of credit,Question of fact,Agency,Whether bank knew or had reason to know signature was forged,Fraud of agent,Duty of care in approving applications for letter of credit,Whether principal liable,Negligence,Tort,Fraudulent acts within scope of authority committed not for principal's benefit,Letters of credit,Banking

Cur Adv Vult

The plaintiff company is a trading company which had a fixed deposit account with the defendant bank in respect of which it executed a fixed deposit agreement and a memorandum of lien on fixed deposits.

It was not a very active company. Its director Mr Shy Shinn-Shiu, a Taiwanese, would come to Singapore from time to time, and it had one full-time employee, Doreen Ong Swee Lim (hereinafter referred as `Doreen Ong`). Between 6 March 1992 and 2 July 1992 the defendant issued four letters of credit in favour of a Singapore company Kaoru Kuroki Agencies (hereinafter referred to as `Kaoru`) for an aggregate sum of $490,000. By the letters, the defendant undertook to negotiate Kaoru`s drafts upon presentation with Kaoru`s signed commercial invoices and delivery orders. The four letters of credit were the last four of a series of 13 such credits for the benefit of Kaoru for goods to be supplied by Kaoru. The goods were to be supplied from Kaoru`s warehouse to the plaintiff`s warehouse and did not involve shipment or shipping documents.

The applications for the letters of credit submitted to the defendant by Doreen Ong bore the forged signatures of Mr Shy. Each of the letters stipulated that it must be presented for negotiation together with the

(1) signed commercial invoice in five copies indicating this credit number and countersigned by Lee Feng Steel Pte Ltd;

(2) delivery order in duplicate indicating this letter of credit number, made out to First Commercial Bank Singapore for account of applicant chopped and authentically countersigned by buyer acknowledging receipt of goods in good order and conditions (sic).

After the letters of credit were issued, they were presented for negotiation with the corresponding invoices and delivery orders through the International Bank of Singapore. Subsequently Doreen Ong executed four trust receipts on behalf of the plaintiff in favour of the defendant in connection with those four transactions.

Doreen Ong and her husband were charged with cheating the defendant with the 13 letters of credit. She pleaded guilty to five charges and admitted other charges of cheating the defendant`s manager by deceiving him in believing that Mr Shy`s signatures in the applications (including the applications for the letters of credit in these proceedings) were genuine when she knew them to be false.

The basis of the plaintiff`s claim is set out in the following paragraphs of the statement of claim:

4 It was an implied term of the contract between the defendant as bankers and the plaintiff company as customers that the defendant would observe and/or exercise reasonable skill and care in and about negotiating and/or paying on the LCs.

(6) Purporting to act on behalf of the plaintiffs and in breach of her authority, Doreen forged the signature of the authorised signatory, one Mr Shy Shinn-Shiu, on the application forms for the LCs and eight others, which were chronologically prior to the LCs, all in favour of Kaoru. In breach of the plaintiffs` mandate, the defendant issued the LCs.

(10) The plaintiffs further aver that the defendant knew or ought to reasonably know that the signatures on the application forms for the LCs were forged. Notwithstanding the fact that the defendant had prior knowledge and/or notice of the said forgeries, the defendant issued the LCs pursuant thereto.

(11) In the premises, the defendant had no authority to pay the corresponding bills of exchange drawn in respect of the LCs.

(14) At a date or dates unknown to the plaintiffs until discovery and/or interrogatories the defendant negotiated and honoured the LCs in favour of Kaoru notwithstanding apparent irregularities and/or discrepancies in the accompanying documents, and in continuing to negotiate and honour the LCs without any proper enquiry, the defendants were negligent and in breach of their duty of care and terms of the contract between the plaintiffs and the defendants.

Particulars

Failing to discover the irregularities and/or discrepancies on the invoices submitted by Kaoru which indicated the term as `Cash Payment` instead of the relevant `LC number` as required under the terms of the credit.

At the trial the plaintiff summarised its case as follows:

(i) The discrepancy between the signature on the application forms and the specimen signature is so pronounced that ordinary visual inspection would be sufficient to see that they did not correspond.

(ii) The terms of the letter of authority clearly and expressly excludes Doreen`s authority to sign any papers in connection with the application of LCs.

(iii) At no time thereafter did the plaintiffs expressly or impliedly appoint Doreen as their agent for the purpose of applying for LCs.

(iv) The plaintiffs had never ratified the acts of Doreen in respect of any application for LCs.

(v) The plaintiffs had never acted in such a manner as to lead the defendants to believe that they had authorised Doreen to act on their behalf, and that the defendants were not led into such belief so to accept the application for the LCs as within the scope of such ostensible authority.

Essentially, there were two elements in the plaintiff`s claim, firstly, the forged applications for the letters of credit, and secondly, the alleged discrepant invoices accepted for negotiation.

The defendant admitted para 4 but denied paras 6, 10, 11 and 14 of the statement of claim. The defendant also pleaded that the plaintiff was estopped from saying that the signatures in the application forms were forged or that the invoices were irregular or discrepant.

Beyond denying liability towards the plaintiff`s claim, the defendant made a counterclaim for $5,816.22 and interest, being the amount still outstanding from the sums that the defendant had paid under the letters of credit after setting off the fixed deposit account. The plaintiff`s defence to the counterclaim was a reiteration that no payment was due under the letters of credit.

The only witness for the plaintiff was Mr Shy. In his affidavit of evidence-in-chief Mr Shy said that his signatures on the applications were forged. Mr Shy did not allege that Doreen Ong had forged his signatures, and there was no evidence that she did that. She admitted in the criminal proceedings to cheating the bank with the forged applications, and not that she forged the applications. To this extent the plaintiff`s claim in para 6 of its statement of claim that she forged the application was not proved.

He also alleged that three of the four invoices tendered under the letters did not conform with the terms of the letters of credit in that they did not bear the credit numbers.

Mr Shy also referred to the trust receipts Doreen Ong executed. He said that she was not authorized to sign them. The plaintiff had issued a letter of authority to the defendant of 5 January 1991 that:

We hereby authorised (sic) Miss Ong Swee Lim of NRIC No 1782901/G to sign all IMPORT & EXPORT DOCUMENTS on

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