THE DAI-ICHI KANGYO BANK, LTD. v. SSANGYONG (HONG KONG) CO. LTD. AND ANOTHER

HCA3458/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3458 OF 1995

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J U D G M E N T

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1. This is an action by the Dai-ichi Kangyo Bank ("the Bank") against a Hong Kong company called Ssangyong (HK) Company Limited ("the 1st defendant") and a Korean corporation ("the 2nd defendant"). It relates to the shipment of some sugar from Thailand to Russia. The 1st defendant was a customer of the Bank and entered into an agreement (it is not necessary for me in the course of this judgment to deal with it in any detail) of what is called 'General terms and Conditions' - a standard form of banking arrangement which I have seen on a number of occasions. There was a commercial letter of credit agreement, which again appeared to be in standard form, and a guarantee of the 2nd defendant, also in standard form.

2. In July 1993, the 1st defendant applied for a irrevocable letter of credit in relation to the shipment of sugar which was going from Bangkok, Thailand to Nakhodka, Russia. The letter of credit is set out in a core bundle.

3. I confess that when I came to this case, I did not have any opportunity of looking at any papers, it seemed to me a highly complex case, with a large amount of bundles, lists of authorities, experienced counsel in front of me and a large number of witnesses. I thought that it raised important matters, of course every case is important to the particular client, and I have no doubt at all that in this action it is unusual in that both the plaintiff and the 1st defendant are really innocent parties.

4. What happened essentially was that somewhere, it is not necessary to decide where, documents were forged and that is accepted by the plaintiff. The forged documents, which apparently were going to be used to support this alleged shipment of sugar, were presented to a negotiating bank in Indonesia, and the beneficiary who presented the documents was paid out the money. As I said it transpired that it was all a fraud and the plaintiff Bank has now turned to its customer and said you have got to reimburse the money which the beneficiary was paid by the Bank through its New York branch. The factual background really is very simple, and generally speaking, there would be no answer to the Bank's claim against its customer. However, the 1st defendant has put up a series of defences which can now be distilled into two. First, it is said that the Bank was put on notice, because on either the 19 or the 20 August 1993, the Bank was told to withhold payment of the money which was apparently credited to the other bank on 24 August. What is said by the defendants is that the plaintiff Bank was notified of this and I have had a number of witnesses coming here to give evidence about this factual matter.

5. Mr Shin Tae Duck, a Korean gentleman, who was apparently the Manager of the 1st defendant company, gave a witness statement and a Korean interpreter was provided, but he has not given evidence in front of me. A lady called Fanny Fung, who worked for the 1st defendant company, and is now apparently working with Mr Shin in a different organisation, came along to give evidence and she said she was told to notify the Bank by Mr Shin - she did not really know why - but she was told to tell the Bank to stop payment under this letter of credit. That of course is a very important matter for any bank to be told. She said that she made this to some lady. Quite frankly, I do not believe a word she said, I think she was telling deliberate untruths to the Court. I watched her very carefully when she gave evidence. I think she is a dishonest witness. She said to me that she made some mark in pencil on an original document which I examined. I am not setting myself out as a handwriting expert, but I looked at the original with a magnifying glass and I could not detect if anything had been rubbed out, but she said something had been rubbed out. I think that was a deliberate lie. She only came up with this account in 1997. There is no record of this being put forward before.

6. On 25 August 1993, Mr Tamesada, the person in charge of the Bank dealing with this particular letter of credit, received a telephone call from Mr Shin, saying that the main Korean company had informed them that there was a possibility of forgery and he wanted to know when they would get the documents. The telephone call was apparently very short and on 26 August, there was a meeting. It is recorded in a report which is virtually a contemporaneous note. I accept Mr Tamesada's evidence, he seemed to be a perfectly honest and thoroughly reliable witness on whom I could act. There was not one mention in the record of interview that Mr Shin ever protested that the Bank had been told to stop payment. In my judgment, the Bank was never told to stop payment. I disbelieve, as I said, the witness called Ms Fung. Two ladies gave evidence for the Bank and said that they never had any such notification. It is highly improbable that if a bank is told not to pay out on a letter of credit, that no proper record would have been kept.

7. As I said, when a letter was sent on 26 August by Mr Shin, he was asking the plaintiff Bank to try to get the Indonesia bank to reimburse the money. He pointed out a number of alleged discrepancies in the documents, and he made no mention of the fact, as the defendants would have me believe, that they had already informed the Bank to stop payment. It is not surprising, quite frankly, he did not come to give evidence, I believe that this idea was something which the two witnesses have thought an appropriate way to deal with this matter. In my judgment, there has never been any notice given to the Bank prior to the telephone call on 25 August, when they were told that there was some potential forgery. I do not refer to all the documents, they are all one-way in this case. These are matters that took place a number of years ago, and of course documents are important, but having seen Ms Fung give evidence, as I said, I do not believe her.

8. I turn then to the second point that is raised. It is said that the documents as presented should have been rejected, because on one of the documents, some words have been omitted. The letter of credit provided for ten documents to be provided. There is no dispute that the documents were provided, they had to evidence shipment of 12,500 metric tonnes of white refined sugar, with various descriptions, one of them has "Origin Thailand". It is important that the documents as provided are examined. I cannot set them out in the judgment because I merely refer to them, but for example, there is a Radioactivity Measurement Certificate which, no doubt, is an important matter being required in Russia to ensure that the sugar that is going to be provided to the general population has not been subjected to unnecessary radioactivity. That is issued by the official office of Atomic Energy in Bangkok and has the marking Nos.1-80,000/80,000. It deals with a submission by a Thai company for white refined sugar which was going to be shipped from Bangkok. It demonstrates indeed that they were examining, because their jurisdiction could only extend to an examination of Thai sugar. I take judicial notice of the normal set up of States that in an office of Atomic Energy for Thailand, it cannot go round examining other people's sugar and certifying it.

9. There was a Phytosanitary Certificate, again it is an important document in the export of goods for human consumption because there are strict quarantine laws in force in countries. This again was from the Department of Agriculture of Bangkok in Thailand dealing with the same shipment which also has the distinguishing marks Nos.1-80,000/80,000 on it. The Phytosanitary Certificate certifies that the goods are free from injurious pests. The Certificate of Origin is a certificate issued by the Thai Chamber of Commerce in Bangkok certifying that the goods come from its origin, Thailand, and the marks again are Nos.1-80,000/80,000.

10. What is said now, apparently, is that the commercial invoice which, according to this universal practice on documentary credits, has to correspond with the description on the letter of credit, has a number of matters on it. It shows that the shipper is Bangkok; it shows that it is coming from the port of Bangkok in Thailand; it shows that it is dealing with Thailand white refined sugar marked 1-80,000/80,000. In other words, corresponding precisely, in fact identical with the Phytosanitary Certificate and the Radioactivity Certificate, being shipped from this Bangkok port. But, it does not have, according to Mr Coleman, the words which are found in the letter of credit "Origin Thailand". It is said that banks nowadays would be entitled to reject this document.

11. For reasons unknown to me, expert evidence was permitted to be called. Whilst I fully accept that international banking practices nowadays may be the subject of expert evidence, normally speaking that might be found in the pleading, for example, it might be said that international banking practice permits something and expert evidence would be permitted to be called before a judge because that would be outside the scope of the judge's expertise. But I have had two gentlemen, both honest and expert in their fields, come along to tell me about these particular matters. What is omitted from the commercial invoice are those words "Origin Thailand" and Mr Coleman says I must look at UCP400 which says that the commercial invoice should correspond with the description. In my judgment, it does. It may not have the words on. The defendant's expert says that a layman might think they are the same, but in my judgment anybody or any banker would think the same. Certainly, as a judge experienced in commercial matters, looking at this, I have no doubt at all that this demonstrates that this is the same shipment, it is Thailand white refined sugar specifically numbered 1-80,000/80,000 being shipped from Bangkok. I would describe the mere omission as trivial. I am surprised that the defendants saw fit to put this forward. However, they are fully entitled to take what points they wish because I do appreciate their position and that they consider they are innocent parties.

12. There is no doubt at all, as Mr Coleman has told me on a number of occasions, that the Bank did try and get the Indonesian bank to pay up. They themselves put forward a variety of reasons why the Indonesian bank should pay up. At the end of the day, however, they did not. The Bank has turned now to its customer. I well understand the customer feeling aggrieved by this as it has in essence done nothing wrong and there is no criticism to be made. Their job is to look for methods of escaping liability.

13. On the first matter, as I said, I think it is a concocted story and I do not believe it. On the second point that is raised, whether this is a discrepant document which would entitle a bank to reject it, I reject that as well. I have not relied on any authorities, the general practice is well known, there should be strict compliance with documents. Banks cannot pick and choose only bits they want or anything like that. The principles in Gian Singh & Co. Lt. v. Banque de L'indochine [1974] WLR1234, although decided in 1974, is still good law. However I must look at this on the basis of the omission that is made, which I would describe as trivial. I therefore conclude that the defence which is put forward, i.e. the discrepant document, fails as well.

14. Accordingly, there will be judgment for the plaintiff for the amount claimed.

(R.A.W. Sears)

Judge of the Court of First Instance,
High Court