Southern Ocean Shipbuilding Company Pte Ltd v Deutsche Bank AG and Another

• Jurisdiction: Singapore
• Judgment Date: 22 September 1993
• Date: 22 September 1993
• Docket Number: Suit No 938 of 1987
• Court: High Court (Singapore)

Southern Ocean Shipbuilding Co Pte Ltd

Plaintiff

and

Deutsche Bank AG and another

Defendant

[1993] SGHC 221

P Coomaraswamy J

Suit No 938 of 1987

High Court

Banking–Letters of credit–Amendments made to irrevocable letter of credit–Whether there was consent to amendments from beneficiary–Whether consent might be implied from silence–Banking–Letters of credit–Relationship of parties–Role of correspondent bank–Whether EAB (S) was negotiating bank and acting as principal vis-à-vis the plaintiff–Whether EAB (S) was agent of first defendants

By a purchase agreement dated 22 September 1986, the plaintiff, Southern Ocean Shipbuilding Co Pte Ltd, agreed to sell certain goods to the second defendant for the price of DM87,742.40. As the agreement provided that payment was to be made to the plaintiff by letter of credit (“L/C”), the second defendant requested the first defendant, Deutsche Bank AG, to open an irrevocable L/C in favour of the plaintiff. By a telex dated 25 September 1986, the first defendant requested that its correspondent bank, European Asian Bank in Singapore (“EAB (S)”), advise the plaintiff as to the terms and conditions of the L/C through Bank of America in Singapore (“BOA (S)”). The terms and conditions contained in the telex from the first defendants to EAB (S) stated, inter alia, that payment would be made after presentation of certain documents within 51 days after despatch of the goods, such despatch to be no later than 10 October 1986. The L/C stated that it was subject to the Uniform Customs and Practice for Documentary Credits 1983 Revision (“UCP”).

On 27 September 1986, EAB (S) notified the plaintiff through BOA (S) that the credit had been opened in its favour, and stated that the notification and the enclosed advice was sent to it “without engagement” on its part. The plaintiff despatched the goods on 6 October 1986, which goods were accepted by the second defendant by a letter dated 18 October 1986.

On 9 October 1986, the first defendant instructed EAB (S) to advise the plaintiff that the terms of the L/C were to be amended by reducing the amount payable under the L/C from DM87,742.40 to DM64,837.58; by postponing the latest date of despatch of goods from 10 October 1986 to 25 October 1986; and by reducing the number of days within which the documents had to be presented after the despatch of goods from 51 to 36 days. EAB (S) did so by a notification dated 10 October 1986 and advised through BOA (S) that the plaintiffs' consent to the proposed amendments was to be obtained. On the same day, BOA (S) duly sent the advice to the plaintiff and asked for the plaintiff's reply and consent within five days. There was no such reply or consent. On 17 October 1986, the first defendant sent another telex to EAB (S) amending the conditions by, inter alia, increasing the credit amount back to the original amount but stating that presentation of documents was to occur within 36 days after despatch of the goods.

By a letter dated 20 October 1986, the plaintiff refused to consent to the reduction of the credit amount. A notification dated 20 October 1986 was sent by EAB (S) through BOA (S) to the plaintiff drawing its attention to the second set of proposed amendments contained in the second telex dated 17 October 1986.

The plaintiff proceeded to forward the five types of documents required under the L/C to Citibank Singapore by a letter dated 5 November 1986. On 14 November 1986, Citibank Singapore presented the documents together with the two amending telexes of 9 October 1986 and 17 October 1986 to EAB (S). The documents were rejected by EAB (S). A worksheet prepared by EAB (S)'s staff with regard to the rejected documents cited eight discrepancies in it. The documents were returned to Citibank Singapore for amendment. Citibank Singapore rectified all but one of the errors and re-presented the documents to EAB (S) on 25 November 1986. The one outstanding error which could not be rectified was that the documents had been presented more than 36 days after despatch of goods, the 36th being 9 November 1986 (counting 36 days from 6 October 1986).

By a telex dated 15 December 1986, the first defendant cabled EAB (S) citing the second defendant's refusal to accept the documents as the documents had been presented more than 36 days after date of despatch and that the credit had expired (the expiry date being 30 November 1986). As a result, the plaintiff issued a writ against both defendants on 1 April 1987 claiming the amount of DM87,742.40 due under the credit together with interest on the said amount.

Held, allowing the plaintiff's claim against the first defendant:

(1) Where a correspondent bank was nominated in the L/C to negotiate the documents, or where its instructions covered only the advice of a negotiation credit and it had agreed to do so on being approached by the beneficiary to negotiate it, the correspondent bank would negotiate documents as principal, purchasing the documents from the beneficiary and presenting them to the issuing bank in its own right. However, there was no evidence to say that EAB (S) was nominated under the L/C to negotiate documents. Nor were there any words indicating negotiation by EAB (S) or any other party: it was a straight credit. Since EAB (S) fell within neither of the two situations, EAB (S) was not acting as principal vis-à-vis the plaintiff: at [29], [30], [31] and [33].

(2) The first defendant nominated EAB (S) as its agents in order to permit the plaintiff to more conveniently present the documents in Singapore rather than sending them to Germany. The first defendant's contention that the documents had to be sent to the issuing bank in Germany was thus rejected as that would defeat the purpose of advising a local bank in the first place. In any event, the words “presentation of documents to us” in the L/C meant presentation to the first defendant or any agent of the first defendant: at [39].

(3) The L/C and the correspondence between the first defendant and EAB (S) also pointed to a principal-agent relationship as all instructions to the plaintiff emanated from the second defendant through the first defendant and not EAB (S): at [34].

(4) Art 10 (d) of the UCP requires the beneficiary to an irrevocable L/C to consent to its amendment. In the law of documentary credits, the words “agreement… of the beneficiary” expressed in Art 10 (d) of the UCP should be interpreted to mean their unequivocal consent. It could not be the case that by protesting to the decrease in the L/C amount, the plaintiff's silence as to the shortening of the time period amounted to acceptance of the 36-day amendment. The position was equivocal as there was, in effect, no reply to the plaintiff's letter of 20 October 1986 protesting the first set of proposed amendments, nor was there a reply from the plaintiff to the second set of proposed amendments. As the amendments were to the plaintiff's detriment and were proposed only after the plaintiff had shipped the goods and was no longer in control of the date of despatch, one would have expected nothing less than a clear unequivocal consent to the amendments from the plaintiff to the 36-day period. There was nothing to indicate such consent: at [41], [45] and [48].

(5) The terms which governed the L/C were the original terms contained in the 25 September 1986 telex from the first defendant to EAB (S). Therefore, the plaintiffs had 51 days from 6 October 1986 (date of despatch) to present the documents to EAB (S). The last date of presentation of documents would be 26 November 1986. Since the documents were presented without discrepancy on 25 November 1986, the first defendant had wrongly rejected the documents through their agent EAB (S): at [49] and [50].

(6) Under the provisions of the UCP 1983, the bank had to state, without delay, all the discrepancies it sought to rely upon in the notice of rejection. The purport of Article 16 (d) of the UCP was that a bank could not add to the discrepancies listed in the first notice. When the L/C was presented on 25 November 1986, the only discrepancy raised was on the invalid ground that the presentation was out of time. The first defendant was therefore not entitled to raise any new grounds subsequently: at [51] and [52].

Amixco Asia (Pte) Ltd v Bank Bumiputra Malaysia Bhd [1992] 2 SLR (R) 65; [1992] 2 SLR 943 (folld)

Courteen Seed Co v The Hong Kong & Shanghai Banking Corporation 215 NYS 525 (1926) (refd)

Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 (distd)

European Asian Bank AG v Punjab and Sind Bank (No 2) [1983] 1 WLR 642; [1983] 1 Lloyd's Rep 611; [1983] 2 All ER 508 (folld)

Felthouse v Bindley (1862) 11 CB (NS) 869; 142 ER 1037 (refd)

Gian Singh & Co Ltd v Banque de l'Indochine [1974-1976] SLR (R) 83; [1972-1974] SLR 16; [1974] 1 WLR 1234; [1974] 2 All ER 754 (folld)

M A Sassoon and Sons Limited v International Banking Corporation [1927] AC 711 (folld)

Michael Doyle & Associates Ltd v Bank of Montreal (1984) 11 DLR (4th) 496 (refd)

Ng Chee Chong (trading as Maran Road Saw Mill) v Austin Taylor & Co [1975] 1 Lloyd's Rep 156 (refd)

Rust v Abbey Life Assurance Co Ltd [1979] 2 Lloyd's Rep 334 (distd)

Skandenaviska AG v Barclays Bank (1925) 22 Ll L Rep 523 (not folld)

A Manimaran (Gabriel Peter & Partners) for the plaintiff

Dedar Singh Gill (Drew & Napier) for the first defendant

Edmund Chan (Arthur Loke & Partners) for the second defendant.

Judgment reserved.

P Coomaraswamy J

1 This action arose as a result of the first defendants (as the issuing bank) refusing to pay the plaintiffs under a letter of credit (“L/C”) issued in the latter's favour. The plaintiffs also sued the second defendant as the buyer of the goods in the alternative, for non-payment upon acceptance of goods.

2 By virtue of a purchase agreement dated 22 September 1986, the plaintiffs agreed to sell two drums gun...