Indian Bank v Union Bank of Switzerland

JudgeChao Hick Tin J
Judgment Date25 March 1994
Neutral Citation[1994] SGCA 50
Citation[1994] SGCA 50
Defendant CounselAlan Thambiayah and Hilda Lee (Cooma Lau & Loh),Scott Thillagaretnam and Kenny Chooi (Khattar Wong & Pnrs)
Published date19 September 2003
Plaintiff CounselTan Teng Muan (Mallal & Namazie)
Date25 March 1994
Docket NumberCivil Appeal No 66 of 1993
CourtCourt of Appeal (Singapore)
Subject MatterNegotiable credit,Words and Phrases,Whether documents had been presented to advising bank for negotiation or collection,'Negotiation',Letters of credit,Presentation for negotiation,Notification of discrepancies,Banking,Meaning of 'negotiation',Reasonable period,Whether including time for issuing bank to consult with customer to discover discrepancies

Cur Adv Vult

This is an appeal against the decision of the High Court which held that the appellant bank (hereinafter called `IB`) is liable to the respondent bank (hereinafter called `UBS`) in respect of a letter of credit issued by IB. There is a separate appeal (No 67 of 1993) by South Asian Exports Pte Ltd (`SAE`), the third party in the action below, against that part of the High Court decision which held that IB was entitled to an indemnity from SAE, who was the applicant of the letter of credit. While this judgment is only concerned with the first mentioned appeal, it was counsel for SAE who made the most substantial submission before us as, on most of the issues, IB and SAE have taken a common stand.

The facts of the case are extensively set out in the judgment of the High Court reported at [1993] 3 SLR 371 and we propose only to briefly set out those essentials which are necessary for a proper appreciation of the issues raised in this appeal.


In August 1985, SAE agreed to purchase 1500 metric tons of Turkish chick peas from a seller in Holland, Kagex BV, at US$511 per metric ton.
Payment was to be by `confirmed, irrevocable, unrestricted, transferable L/C` for 100% of the contract value. In SAE`s application to IB dated 27 August 1985 for the issue of the letter of credit, SAE requested Indian Bank to:

Please open by full telex through your correspondents an irrevocable letter of credit in favour of M/s Kagex BV for ... available by draft on (openers) South Asian Exports Pte Ltd ... at 120 days without recourse for 100% invoice value ...



On the application, it was also stated that the letter of credit was to be advised through Swiss Credit Bank, Luzern, Switzerland (`CS`) and that the credit was to be `confirmed by the advising bank at openers account`.
The designation of CS as the advising bank was later altered to UBS as IB did not have any banking relationship with CS.

A letter of credit, unrestricted for negotiations, was accordingly issued by IB to UBS on 28 August 1985 for a sum of US$766,500 in these terms:

For US$766,500 on 28 August 1985. Please advise the LC through Swiss Credit Bank, Luzern, Switzerland ... and add your confirmation on opener`s account.



IB also gave an undertaking that:

We hereby engage with drawers and or bona fide holders that the drafts drawn and negotiated in conformity with the terms of the credit will be duly honoured by us on presentation.



The shipment and negotiation deadlines were stated to be 17 September 1985 and 8 October 1985 respectively.


Among the documents required to draw on the credit were a `draft at 120 days DA from bill of lading date drawn on openers.
` Two of the relevant terms of the credit were:

The negotiating bank must send the original draft and documents direct to us by airmail and the remaining documents by subsequent airmail certifying that documents negotiated are in conformity with the terms and conditions of the credit.



The credit is subject to Uniform Customs and Practice of Documentary Credits (1983) ... (hereafter referred to as `UCP 400`)

UBS forwarded the letter of credit to CS, who in turn forwarded it to the beneficiary, Kagex.
On 3 September 1985, at the request of SAE, IB made a number of amendments to the letter of credit, the material one for the present appeal is this: `draft to be drawn on Union Bank of Switzerland Zurich instead of openers.`

The shipment and negotiation deadlines were subsequently extended twice.
The eventual deadlines were 10 October 1985 and 31 October 1985 respectively.

The bills of lading for the shipment were issued on 30 September 1985.
The evidence shows that the beneficiary, Kagex, tendered some of the required documents to CS, including a draft made out to the order of CS and drawn on UBS, on or before 18 October 1985. On 23 October 1985, the complete documents, in six sets, were in turn forwarded by CS to UBS who received them on the same day. However, the transmittal note of CS was dated 21 October 1985. UBS initially took the stand that the presentation by CS was late as the documents were received by UBS after 21 days from the date of the bills of lading, 30 September 1985. However, a superior officer overruled the remarks of two officers and two checkers. UBS accepted the draft on 28 October 1985 and returned it to CS and forwarded the other documents to IB. The draft was to mature on 28 January 1986. IB received the documents on 2 November 1985 and rejected them on 12 November 1985 on grounds of (i) late presentation; (ii) non-compliance with the terms of the letter of credit and (iii) various documentary discrepancies.

CS received the accepted draft on or about 29 October 1985 and the next day discounted the draft and credited Kagex account with the appropriate amount, less the usual charges.
UBS paid on the maturity of the draft and sought reimbursement from Bankers Trust Co who initially honoured the commitment but subsequently reversed the credit given. UBS thus commenced the present action against IB to recover the sum they paid out to Kagex. IB, in turn, sought an indemnity from SAE and brought the latter into the proceedings as a third party.

Three main issues were raised in the court below:

(i) whether the presentation of the documents to CS was for the purpose of negotiation and, if not, whether the presentation to UBS on 23 October 1985 was out of time;

(ii) if the presentation to CS was for the purpose of negotiation, whether CS should, as the negotiating bank, forward the draft and the documents direct to IB; and

(iii) whether the documents presented complied with the requirements of the letter of credit.



The learned trial judge found that all the documents were presented by Kagex to CS by 21 October 1985 for the purpose of negotiation by CS and not for transmission to UBS for collection.
He held that there were no material discrepancies in the documents tendered from what were required under the credit. He also held that there was undue delay on the part of IB in sending out the notice of rejection, thus disentitling them to reject the documents.

We would add that considerable arguments before the court below also touched on the nature of the present credit.
Was it to be categorized as an acceptance credit (article 10(a)(iii) and (b)(iii)) or a negotiation credit (art 10(a)(iv) and (b)(iv))? This point is not being pursued before us. The appellants concede that the credit could be negotiated by any bank.

Counsel for IB submitted that there are altogether nine issues that arise for consideration:

(i) Were the documents presented by Kagex to CS on or before 21 October 1985?

(ii) Did Kagex present the documents to CS for negotiation or for collection?

(iii) Were CS in fact in the process of negotiation on 23 October 1985 and, on the pleadings, was it open to the trial judge to hold that CS were in the process of negotiation?

(iv) If CS were a negotiating bank when they forwarded the documents to UBS, did UBS exceed its mandate in accepting the draft despite CS` non-compliance with a term of the LC requiring a negotiating bank to send the draft and documents directly to IB certifying that documents negotiated were in conformity with the letter of credit?

(v) Following from (iv), was the presentation to CS on or before 21 October 1985 or the presentation to UBS on 23 October 1985 the relevant presentation under art 47(a) of UCP 400?

(vi) Did IB proceed to examine the documents with due despatch?

(vii) Did IB send its rejection notice to UBS without delay?

(viii) If the rejection notice was sent out in time, could IB rely on grounds other than those specified in the notice?

(ix) Were the documents tendered discrepant?



There is an overlap between some of these issues.
We would also observe that some aspects of issues (vi) to (ix) are also pertinent to the question of the rights and liabilities between SAE and IB, which is not being considered in this judgment.

When were the documents tendered?

As mentioned above, the bills of lading in question were dated 30 September 1985. Pursuant to art 47(a) of UCP 400 the documents had to be presented for payment, acceptance or negotiation within 21 days of the bills of lading, ie by 21 October 1985.

IB submitted that there was no sufficient or credible evidence before the trial judge for him to find that the documents were presented to CS on or before 21 October 1985.
This is because no documentary evidence was produced to show when the documents were presented to CS; counsel was on the verge of suggesting that UBS had something to hide. Furthermore, no witness who had actual knowledge of this matter was called upon to testify in court as to what he knew. Instead, only one Mr Locher, a senior management staff of CS in Zurich, testified. He had no firsthand knowledge of the facts of the case. He only came into the picture much later, on 18 December 1985. The person who had actual knowledge, one Mr Dolder, had retired from CS and he had refused to come to testify. There is, however, the evidence of one Mr Helbling from UBS who told the court that the practice of his bank when it received documents for negotiation from a beneficiary would be to stamp acknowledgement of receipt and then send them to the documentary credit department for examination. He believed that this procedure was common to major Swiss banks though there might be slight differences between banks.

The only pertinent document tendered to court by UBS was a letter dated 10 October 1985 (RA 781) which had a receipt date stamp of CS of 14 October 1985.
It was a letter from Kagex to CS forwarding certain documents (invoices and bills of lading). But the letter also indicated that certain other documents would be forwarded later by other people. There was no record when the other documents were received by CS.

On 23 October 1985, the documents were forwarded by CS Luzern to UBS Zurich with a
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3 cases
  • Kredietbank NV v Sinotani Pacific Pte Ltd (Agricultural Bank of China, Third Party)
    • Singapore
    • High Court (Singapore)
    • 26 January 1999
    ...and the correspondent bank is approached by the beneficiary to negotiate and agrees to do so. 50.Indian Bank v Union Bank of Switzerland [1994] 2 SLR 121 was most instructive on the meaning of `negotiation`. In that case, the Court of Appeal in Singapore had to deal with the issue whether t......
  • Mizuho Corporate Bank Limited v Woori Bank
    • Singapore
    • High Court (Singapore)
    • 9 April 2000
    ...compliance documents in reliance on the credit. I was fortified in my conclusion by the case of Indian Bank v Union Bank of Switzerland [1994] 2 SLR 121 where Chao Hick Tin J (as His Honour then was) in delivering the decision of the Court of Appeal stated that the word ‘negotiation’ must m......
  • Kredietbank NV v Sinotani Pacific Pte Ltd (Agricultural Bank of China, Third Party)
    • Singapore
    • High Court (Singapore)
    • 26 January 1999
    ...and the correspondent bank is approached by the beneficiary to negotiate and agrees to do so. 50.Indian Bank v Union Bank of Switzerland [1994] 2 SLR 121 was most instructive on the meaning of `negotiation`. In that case, the Court of Appeal in Singapore had to deal with the issue whether t......

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