Mizuho Corporate Bank Limited v Woori Bank

• Jurisdiction: Singapore
• Judge: Vincent Leow AR
• Judgment Date: 09 April 2000
• Neutral Citation: [2004] SGHC 219
• Published date: 29 April 2008
• Court: High Court (Singapore)
• Plaintiff Counsel: Toh Kian Sing and Ho Keng Hoong (Rajah and Tann)
• Defendant Counsel: Sandrasegara Manoj Pillay and Tan Mei Yen (Drew and Napier LLC)

23 September 2004

Assistant Registrar, Mr Vincent Leow:

A. Background

1 The supply of gas oil formed the background to this suit for payment under four letters of credit. Petaco Petroleum Inc (“Petaco”) had agreed to purchase gas oil from Nissho Iwai Petroleum (Singapore) Pte Ltd (“Nissho Iwai”). Pursuant to that agreement, Petaco went to the defendants, Woori Bank and persuaded them to open four letters of credit (“the letters of credit”) in favour of Nissho Iwai. The plaintiffs, Mizuho Corporate Bank Limited, advised Nissho Iwai on the letters of credit. In addition, they were also the confirming and negotiating bank.

2 These irrevocable letters of credit were expressly subject to the provisions of the Uniform Customs and Practice for Documentary Credits (1993) ICC Publication No. 500 (“UCP 500”) and their terms were materially the same. Under the terms of the letters of credit, payment was conditional upon the presentation of two documents: (1) seller’s commercial invoice; and (2) full set of clean on board ocean bills of lading made out or endorsed to the order of Woori Bank, marked freight payable as per charter party and notify Petaco Petroleum, Inc. There were some slight differences in the descriptions of these documents among the letters of credit, but in substance, these were the documents to be presented for payment under the letters of credit (“the compliance documents”).

3 More importantly, these letters of credit all contained a particular clause, which played a star role in these proceedings. I shall refer to this clause as the “51 days clause”. The clause read:

“Negotiation is only allowed on and after 51 days from Bill of lading date but within validity of the letter of credit are acceptable.”

4 After the letters of credit were opened, Nissho Iwai presented the compliance documents to the plaintiffs as confirming and negotiating bank. This presentation was done before 51 days from each respective bill of lading date (“ the 51 days” or “the 51^st day”) allowed under the 51 days clause. The plaintiffs purchased and gave value to Nissho Iwai under the letters of credit. The plaintiffs then separately presented the compliance documents to the defendants on or after the 51^st day.

5 The defendants refused to accept the compliance documents under each of the letters of credit on the basis that the compliance documents contained various discrepancies. However, the defendants only sent their notice of rejection to the plaintiffs some 6 to 7 banking days after their receipt of the compliance documents. Further, they only returned the compliance documents some 12 to 26 days after they had rejected the compliance documents. By this time, the letters of credit had expired.

6 At around the time the compliance documents were sent to the defendants, Petaco went into liquidation. As such, the practical consequences were that if the defendants made payment under the letters of credit, they would not be able to recover in full the amount paid out from Petaco.

7 The plaintiffs subsequently started this suit against the defendants and took out an application for summary judgment for the amount due from the defendants under the letters of credit. In the course of proceedings, the defendants discovered that the plaintiffs had given value to Nissho Iwai under the letters of credit before the 51^st day. They amended their defence and pleaded as an additional ground that this constituted a breach of the 51 days clause, which entitled them to refuse payment. The application for summary judgment came before me and I granted summary judgment. My grounds are as follows.

B. Defences

8 In opposing the summary judgment application, the defendants raised three justifications, as stated in their amended defence, for refusing to make payment under the letters of credit: (1) discrepancies in the compliance documents; (2) breach of the 51 days clause; and (3) misrepresentation. I will deal with each in turn.

(1) Discrepancies in the compliance documents

9 An irrevocable letter of credit constitutes a definite undertaking by the issuing bank to make payment upon the presentation of the stipulated documents. Further, if the letter of credit is available for negotiation by any bank, then where a bank has taken up the offer to negotiate, then a binding contract comes into existence between the issuing bank and the negotiating bank. Hence, once the negotiating bank has presented documents that comply with the requirements under the letter of credit, payment by the issuing bank should follow. To hold otherwise would defeat the practical benefits of financing a transaction by way of letters of credit.

10 The issue here was whether the documents comply with the requirements under the letters of credit. It is trite law that documents presented under a letter of credit for payment must strictly conform with the requirements under the credit and where the documents presented do not comply, the issuing bank is entitled to reject the tender: see the grounds of the Court of Appeal as delivered by Yong Pung How J (as His Honour then was) in Bhojwani v Chung Khiaw Bank Ltd [1990] SLR 128. There is a simple reason for this. Business cannot proceed securely on any other line: see Equitable Trust Co of New York v Dawson Partners [1926] 27 Lloyd’s LR 49. However, this requirement of strict compliance does not mean that there must be literal compliance with all terms. Where the discrepancies on the documents tendered are minor and inconsequential in nature or if the discrepancies do not call for an inquiry or investigation, then the discrepancies can be disregarded. This point was made by LP Thean J (as His Honour then was) in delivering the decision of the Court of Appeal in Indian Overseas Bank v United Coconut Oil Mills Inc [1993] 1 SLR 141that:

We do not think that the authorities have established that strict compliance of the documents with the terms of the credit in effect amounts to literal compliance. As Parker J said in Banque de l’Indochine, Lord Sumner’s statement of law cannot be taken to require ‘rigid meticulous fulfilment of precise wording in all cases’.

…

On these authorities, it seems to us that the standard of conformity required of the documents tendered under a letter of credit is one of strict conformity to its terms but not one of literal conformity. Very minor and inconsequential discrepancies between the documents and the terms of the credit may be disregarded, but any discrepancy which calls for an inquiry or investigation or ‘such as to invite litigation’ would render the tender of the documents bad or defective.

11 As such, it is not sufficient to just point out that there are discrepancies. It must be shown that the discrepancy complained of ‘calls for an inquiry or investigation’ or is such a nature ‘as to invite litigation’. Having examined all the discrepancies complained of, I did not think that the discrepancies were of such a nature or in some cases, I did not even think that they could even be considered discrepancies. By way of illustration, I need only turn to the first discrepancy complained of on all the letters of credit. The defendants contended that the letter of credit number was not indicated on the Bill of Lading. I could not see how this was a valid discrepancy as there was no requirement for this to be stated under the letter of credit, nor under UCP 500 or the International Standard Banking Practice. Many of the other discrepancies complained of were of a similar nature and I do not propose to deal with each in turn, save that I would mention that I have examined all of them and found them to be minor, inconsequential or invalid.

12 For the sake of completeness, I should add that arguments were raised in the hearing as to whether the defendants were entitled to rely upon these discrepancies because they had failed to issue notices of rejection and return the documents within reasonable time as required under the UCP 500. Given my above finding on the validity of the discrepancies, I see no need to address those arguments, but I would just opine that there appears to be a breach of the reasonable time requirement for both the rejection and especially the return of the compliance documents: see Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s LR 443.

(2) Breach of the 51 days clause

13 The concept of negotiation is central to the operation of an international transaction financed by letters of credit. In particular, where traders operate in different countries, letters of credit serve to bridge the impasse of credibility between buyers and sellers. In such transactions, after opening the letter of credit for the buyer, the issuing bank will normally appoint another bank to act on its behalf in the seller’s country. This bank may merely advise the seller or it can take a more active role by confirming the letter of credit. The letter of credit may also be addressed to any bank in the seller’s country inviting them to negotiate drafts presented. This serves to provide convenience to all parties. The seller can present the documents to and obtain payment from a bank that he is familiar with in his own country. That bank will then seek reimbursement from the issuing bank and the issuing bank will then obtain repayment from its customer. In return for this convenience, banks charge a commission to their clients. The instant case was no exception, save for the existence of the 51 days clause. This clause was the principal basis on which the defendants sought to resist summary judgment. For ease of reference, I will set out the 51 days clause again:

“Negotiation is only allowed on and after 51 days from Bill of lading date but within validity of the letter of credit are acceptable.”

14 The defendants contended that the 51 days clause was very clear. It only permitted negotiation on or after the 51^st day. Since, the plaintiffs had clearly negotiated the bill (by giving value to Nissho...