PT Adaro Indonesia v Rabobank

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang JC
• Judgment Date: 28 May 2002
• Neutral Citation: [2002] SGHC 114
• Docket Number: Suit No 1016 of 2001
• Date: 28 May 2002
• Year: 2002
• Published date: 19 September 2003
• Plaintiff Counsel: Molly Lim SC with Wang Shao-Ing (Wong Tan & Molly Lim)
• Citation: [2002] SGHC 114
• Defendant Counsel: Oon Thian Seng and Aileen Boey (Joseph Tan Jude Benny)
• Court: High Court (Singapore)
• Subject Matter: Letters of credit,Refusal of payment by issuing bank on account of discrepancies in documents,Back-to-back credits,Whether issuing bank can set-off third party's debts against payment due to beneficiary under letter of credit,Conformity of documents with terms in letter of credit,Whether issuing bank can refuse payment under the letter of credit,Banking,Whether documents discrepant,Whether letters of credit act as back-to-back credits

Judgment

GROUNDS OF DECISION

1. The Plaintiffs are a company incorporated in Indonesia and are engaged in the business of mining coal in South Kalimantan and in the sale and export of coal. The Defendants are bankers carrying on business at their branch in Singapore. In this action, the Plaintiffs claimed US$1,297,255.06 on an irrevocable documentary credit issued on 13 September 2000 by the Defendants in their favour. There was an alternative claim in conversion and/or conspiracy

2. The facts were largely not in dispute. On 7 September 2000, Bank of Ayudhya Public Company Limited ("BAP") issued an export letter of credit ("BAP L/C") in favour of G Premjee Trading Pte Ltd ["Premjee (Singapore)"] at the request of TPI Polene, a Thai buyer, to finance TPI Polene’s purchase of a cargo of 71,000 (+/- 5%) MT of Indonesian thermal coal from Premjee (Singapore). On 12 September 2000, Premjee (Singapore) applied to the Defendants for an import letter of credit to finance their purchase of the same cargo from the Plaintiffs in order to sell it to TPI Polene. Premjee (Singapore) informed the Defendants that the cargo was pre-sold to TPI Polene which had obtained the BAP L/C and that the original of the BAP L/C would be lodged with the Defendants. The next day, the Defendants issued the import letter of credit ("Rabo L/C") in the Plaintiffs’ favour and informed HSBC Jakarta, the Plaintiffs’ advising bank.

3. Between 16 and 22 September 2000, the cargo of coal was loaded at the Indonesian port of Banjarmasin on board the vessel MV Cielo Lucia which then sailed to Koh Sichang Anchorage in Thailand to deliver the cargo to TPI Polene.

4. On 25 September 2000, the Plaintiffs faxed copies of the documents required to be tendered under the Rabo L/C to the Defendants. They also sent the originals of the draft survey report and the certificates issued by third party independent surveyors as required under the Rabo L/C.

5. On 27 September 2000, Premjee (Singapore) sent the Defendants a negotiation schedule enclosing the documents to be tendered for negotiation under the BAP L/C. These included the 3/3 original bills of lading and the originals of the certificates. In the negotiation schedule, Premjee (Singapore)’s special instructions were that the negotiation was to be against the Rabo L/C and that, upon receipt of funds, the Defendants were to contact Premjee (Singapore) for disposal instructions.

6. On 4 October 2000, the Defendants received Premjee (Singapore)’s negotiation schedule and the said documents. The next day, the Defendants checked the documents and noted some discrepancies. On 6 October 2000, Premjee (Singapore) instructed the Defendants to send the full set of documents to BAP for payment. The Defendants did so. That same day, the Defendants received documents tendered by HSBC Jakarta in respect of the Rabo L/C. These included the original Mate’s Receipt and copies of the certificates.

7. On 9 October 2000, the Defendants sent a SWIFT message entitled "Advice of Refusal of Documents" to HSBC Jakarta pointing out the following discrepancies in the documents submitted :

"1. L/C amt overdrawn by USD18,722.56

2. Cert of sampling and analysis show shipper’s address which differ fm LC

3. Inv and cert of qly, under gross calorific value omitted ‘kcal/kg’

4. Cert of qly on initial deformation temp omitted ‘min’

5. Mate’s Receipt –

A) Not faxed to G. Premjee Ltd, Bangkok and G. Premjee Tdg Spore.

B) Signing capacity not clear, that is, as master or as agent.

6. Cert of sampling n analysis under chlorine show ‘kcal/kg’ i/o ‘min’ and under gross calorific value omitted ‘kcal/kg min’."

The message went on to state that it "constitutes our refusal of documents and is sent in accordance with article 14 of the UCP for documentary credits (ICC pub no. 500)". However the Advice of Refusal also stated that :

"Nevertheless, we have referred the above matter to the applicant and await their response of acceptance of discrepancy/ies or otherwise. Meanwhile documents are held at your risks".

8. On 10 October 2000, the Defendants faxed to Premjee (Singapore) eight pages of documents which included the Arrival Notice dated 9 October 2000 signed by the Defendants’ Doris Tan Choon Ee (Assistant Manager in the International Trade Services Department) and Edwin Tan (Deputy Manager). The Arrival Notice stated in bold lettering :

"Kindly let us have your acceptance and settlement instructions on the attached ‘Customer Advice’ by 12/10/00.
All terms and conditions of the L/C have been complied with".

The Customer’s Advice which was to be signed by Premjee (Singapore) stated :

"We hereby confirm acceptance of discrepancy/ies noted if any stated as per your ‘T/T Reimbursement Advice’ or ‘Arrival Notice’ dated 09/10/00."

Two sets of bills of exchange for the amount of US$1,297,255.06, the value of the Plaintiffs’ invoice and the subject of the claim here, were also included.

9. On the same day, the Defendants sent a SWIFT message to BAP to enquire about the status of the bills of exchange drawn on the BAP L/C for the amount of US$1,720,546.50 which had been sent to BAP. Also on that day, HSBC Jakarta advised the Plaintiffs of the Defendants’ Advice of Refusal in the following manner :

"We have received rejection telex/advice from the issuing bank for the above bill(s) which is/are a valid discrepancy(ies).
In order to obtain payment from the issuing bank :
- Kindly contact buyer to accept the discrepancy(ies) and to immediately pay the bill(s)
- Kindly advise us your further instruction."

The Plaintiffs immediately wrote to Premjee (Bangkok), which was one of the companies in the Premjee Group, to accept the discrepancies. The Plaintiffs’ Marketing Administration Manager, Akhmad Sugiarto, was then advised by A. S. Krishnan of Premjee (Bangkok) that the documents had been accepted.

10. On 11 October 2000, the Defendants received the aforesaid Customer’s Advice signed by Premjee (Singapore) confirming acceptance of any discrepancies noted. A date and time print of the Defendants appearing on this document showed that it was received by the Defendants’ Bills Department at 11.44 am on 11 October 2000. That same day, Premjee (Singapore) was placed under interim Judicial Management.

11. At sometime past noon on 12 October 2000, the Defendants received a SWIFT message from BAP confirming that they had instructed their New York bankers to pay US$1,720,496.50 under the BAP L/C to the Defendants. At 5.17 pm that day, the Defendants sent an amended Arrival Notice to Premjee (Singapore). In this amended Arrival Notice, the original words "All terms and conditions of the L/C have been complied with" were crossed out and replaced with the typewritten words "We have noted the following discrepancies (Plse refer swift attached)". The Defendants’ evidence on the correction of the Arrival Notice was that some temporary staff prepared it and made a mistake by clicking the wrong check button thereby generating the standard clause document stating that all terms and conditions of the L/C had been complied with. Both the officers who signed this document had somehow failed to notice the fundamental error.

12. On Friday, 13 October 2000, the Defendants received payment under the BAP L/C. On Monday, 16 October 2000, they proceeded to use the funds received to settle the amount of the freight loan and interest thereon amounting to US$352,370.96 advanced by them to pay for the freight charges for the cargo of coal. The balance was retained and used to set off part of the debts owing by Premjee (Singapore) to the Defendants. It was not sufficient to discharge the huge debts owing to the Defendants.

13. An email dated 18 October 2000 from A. S. Krishnan of...