SO SAU LAI CONNIE t/a WING FUNG TRADING CO v. DBS BANK (HONG KONG) LTD

HCA 2807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2807 OF 2004

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HCMP 1361/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1361 OF 2005

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JUDGMENT

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I.  INTRODUCTION

1.  DBS Bank (Hong Kong) Limited (“DBS”) carried on banking and related businesses including commercial finance and letter of credit (“LC”) issuance services. DBS was the defendant in HCA2807/2004 and the plaintiff in HCMP1361/2005. So Sau Lai Connie (“So”) trading as Wing Fung Trading Company (“WF”) was the plaintiff in HCA2807/2004 and the 2^nd defendant in HCMP1361/2005, and was legally represented. New Harvest International Development Limited (“NH”) and So’s daughter Hui Wing Sze (“Hui”) were respectively the 1^st and 3^rd defendants in HCMP1361/2005. New Harvest (represented by its director So) and Hui were self-represented.

2.  The central facts concerned a LC under which the advising bank (also confirming/negotiating bank), reimbursing bank and issuing bank made payment, but it transpired no goods were shipped. Should the loss (ie the trust receipt (“TR”) loan that was booked to reimburse payment under such LC and interest thereon) be borne by the LC applicant or the issuing bank?

3.  The following facts were agreed:

(a)   So/WF and NH were customers of DBS. WF was in trading business since April 1992, and NH was incorporated in Hong Kong in March 1995.NH was the registered owner of Apartment B on the Ground Floor and Car Parking Space No 63 on Upper Level Car Park Floor, Botanic Terrace, Block B, No 5 Conduit Road, Hong Kong (“Property”).

(b)   Pursuant to a facility letter dated 14 April 2004 (“NH Letter”), DBS advanced to NH an instalment loan of HK$500,000 (“Instalment Loan”). Pursuant to a facility letter dated 14 April 2004 (“WF Letter”), DBS advanced to WF inter alia TR facilities up to HK$5,500,000 and overdraft (“OD”) facilities up to HK$1,000,000 with a combined credit limit of HK$5,500,000 and interest at the rates provided therein.

(c)   Each of NH and WF duly executed a General Commercial Agreement dated 19 April 2004 (“NH and WF Agreements”). So and Hui jointly and severally executed a Guarantee and Indemnity dated 19 April 2004 (“Guarantee”) to unconditionally guarantee liabilities due by NH to DBS up to the principal sum of HK$500,000. In consideration of DBS’ agreement to grant general banking facilities to WF/NH, NH (“Mortgagor” and a “Borrower”), So/WF (a “Borrower”) and DBS (“Mortagee”) executed a Mortgage dated 18 June 2004 (“Mortgage”) whereby the Property was mortgaged to DBS to secure payment of general banking facilities and interest.

(d)   So/WF opened inter alia bills and current accounts with DBS.

The NH/WF Letters, NH/WF Agreements, Guarantee and Mortgage are collectively referred as “Facility Documents”.

4.  On 2 July 2004, So/WF submitted an Application for Irrevocable Documentary Credit (“LC Application”) to request DBS to establish a LC in inter alia the following terms (“Subject LC Application”):

(a)	the LC was to be subject to International Chamber of Commerce (“ICC”) Uniform Customs and Practice for Documentary Credits (“UCP”) then in force;
(b)	the beneficiary was to be Rosmet Ltd (“RL”) in Bad Homburg, Germany;
(c)	the advising bank was to be Commerzbank, Germany (“Advising Bank”);
(d)	the amount of the LC was to be EU€432,000 (+/- 10%);
(e)	shipment was to be from “any port  of Russia” to “Sanshan Port, China”;
(f)	documents/conditions required for presentation under the LC were to be “AS PER INDENT NO.IM-9200”[1] including “[full] set of clean shipped on board ocean Bill(s) of Lading [“BL(s)”] made out to order of [DBS] notifying [WF] ...... and marked “Freight PREPAID””;[2]
(g)	the goods were to be described as “PRIME TINPLATE RETANGULAR SHEETS. ELECTROLYTIC TIN PLATE OF CANNING QUALITY (EZHK)” with further particulars;
(h)	DBS was to add confirmation with charges for RL’s account.

5.  In consideration of DBS opening the credit, So/WF by signing the Subject LC Application agreed inter alia as follows:

“Clause	Contents
(3)	“To hold [DBS] and [DBS’] AGENT free from any responsibility ...... for the correctness or genuineness of the documents submitted if apparently in order ......”
......
(9)	“That [the LC Application] and the opening by [DBS] of the [LC] hereof shall also be subject in all respects to the terms and conditions contained in the [WF Agreement] and all other documents relating to the establishment of this Credit signed by [So/WF] and to the [TR] where applicable.”

6.  Pursuant to the Subject LC Application, DBS (issuing bank) issued an irrevocable LC no 028010299793 (“Subject LC”) on inter alia the following terms:

Advising Bank	Commerzbank AG, Frankfurt
Amount	EU€432,000
Applicant	WF
Form of Documentary Credit	Irrevocable
Date of issue	2 July 2004
Beneficiary	RL with address in Bad Homburg, Germany
Available with	Advising bank by payment
Drafts	At sight
Drawee	Advising bank
Shipment from	Any port in Russia
For transportation to	Sanshan Port, China
Shipment of (Goods)	Price term: CFR Sanshan Port, China [as set out in paragraph 4(f) above]
Documents required	+ signed commercial invoices in 1 original and 3 copies certifying origin, which states grade of commodity is “PRIME” + signed packing list in triplicate + full set of clean shipped ‘on board’ ocean BLs made out to order of DBS, notifying WF with address marked “freight prepaid” + certificate of quality + fumigation certificate + non-radioactivity statement of certificate
Additional conditions	+ 10/10 percent more or less both in quantity shipped and credit amount drawn is acceptable + all documents except invoice remain not showing “PRIME”
Confirmation instructions	Confirm
Reimbursing bank	Bayerische Landesbank with address at Munichen, Germany [“Reimbursing Bank”]
Instructions to bank	+ “Please reimburse yourselves as instructed two working days after date of your S.W.I.F.T. / telex advise to [DBS] showing the amount  negotiated and value claimed”

7.  On 2 July 2004, DBS sent copy Subject LC to So/WF for her record (“2/7/04 Letter”) as follows:

“Please check the credit carefully. Please ascertain that the details therein comply with [So’s/WF’s] requirements. Unless [DBS] hear from [So/WF] to the contrary within 3 days, [DBS] shall assume that all the contents and modifications have [So’s/WF’s] approval.”

8.  The Advising Bank (confirming bank) negotiated and paid RL under the Subject LC (“Presented Documents”), and sent SWIFT advice to DBS on 19 July 2004 to claim reimbursement on the Reimbursing Bank for EU€463,840.56 value 21 July 2004. By letter dated 19 July 2004, the Advising Bank sent the Presented Documents[3] to DBS for payment on the basis it had endorsed the Subject LC for the amount utilised and all terms/ conditions of the Subject LC (“Subject LC Terms”) had been fully complied with.

9.  The presented BL (set of 3 original copies) (“Subject BL”) stated “OCEAN BILL OF LADING” at top left and “ORIGINAL” at top right, and contained inter alia the following terms:

(a)   shipper was RL, consignee was “to the order of [DBS]”, and notify party was “Applicant: [WF] ......”;

(b)   shipment details were as follows:

Bill/Lading Number  1/3 [2/3 and 3/3]
Shipper Reference       CNTNCL09071
Number of Original Bills of Lading: 3
Place of Receipt ST. PETERSBURG	Port of Loading UST LUGA SHIPPED ON BOARD: SORMOVSKI DATE OF SHIPMENT: 09.07.2004	Freight payable at: “FREIGHT PREPAID”
Transportation SEA SHIPMENT	Port of discharge SANSHAN PORT, CHINA	Place of delivery SANSHAN PORT, CHINA

(c)   details of goods were as follows:

Marks and Numbers	Description of Goods	Weight	Measurements
55 CONTAINERS	TIN PLATE GOST 133 45	933.614 GROSS	MT
SPECIAL MARKINGS AND NOTATIONS IF ANY:

(d)   at the bottom of the Subject BL, “BALTIC MARITIME” was printed on the left, and the following was printed on the right:

“RECEIVED by the Carrier the Goods as specified above in apparent good order and condition unless otherwise stated, to be transported to such place as agreed, authorized or permitted herein ......

In WITNESS whereof three (3) original [BL] have been signed ......

Place and date of issue Signed By [signature] ST. PETERSBURG, 9 OF JULY, 2004

BALTIC MARITIME AS CARRIER”[4]

10.  DBS received the Presented Documents on 26 July 2004. Under Article 13.b of UCP500,[5] DBS was given a reasonable time not to exceed 7 banking days to examine them and to decide whether to take them up or refuse them. DBS examined the Presented Documents and considered them compliant with the Subject LC Terms. So said on/about 29 July 2004[6] DBS told WF it received the complete set of Presented Documents, and DBS also faxed WF the relevant set of documents.On 2 August 2004 (settlement date), DBS booked a TR loan for HK$4,400,455.39[7] to mature 90 days thereafter on 1 November 2004 (“Subject TR Loan”) to settle payment already made to Advising Bank via the Reimbursing Bank

11.  It subsequently transpired the Subject BL was forged and no goods were shipped by RL. At the end of August 2004, So/WF made reports to the Hong Kong and German police, and discovered via the German Embassy there was no registration for RL in Bad Homburg, Germany.

12.  On 30 October 2004, WF’s former solicitors wrote to DBS to allege (a) WF relied on DBS’ expertise in specifying required documents under the Subject LC to avoid fraud but DBS’ advice was wrongful/ negligent in failing (i) to include a certificate of inspection (“COI”) and (ii) to accept only certificates of quality/fumigation by independent and recognisable institutions, (b) the Presented Documents were discrepant/ irregular so DBS should at least have suspected it was a case of fraud but DBS failed to give proper advice to WF and/or to examine the documents with reasonable care as required by clause 2(a) of the WF Agreement that incorporated Article 13, and (c) WF failed to reject the Presented Documents according to international standard banking practice and to refuse payment to RL which resulted in wrongful release of payment under the Subject LC, so DBS was not entitled to debit WF’s account for the Subject TR Loan.

13.  On 1 December 2004, DBS wrote to WF to demand settlement of the Subject TR Loan due on 1 November 2004. On 10 December 2004, So/WF commenced HCA2807/2004 against DBS for a declaration that DBS was “not entitled to demand, to have repayment, reimbursement, indemnity, right or whatsoever from [So/WF] for all sums of money or any part thereof it had released to [RL] under the [Subject LC] and the related expenses, charges or fees thereunder or at all”. So/WF abandoned her claim for damages.

14.  On 18 May 2005, DBS’ solicitors wrote (a) to NH and So/WF to demand settlement of all outstanding banking facilities in the total sum of HK$6,201,953.84 (as at 11 May 2005), and (b) to Hui to demand payment of HK$500,000 due under the Guarantee. On 29 June 2005, DBS commenced HCMP1361/2005 to enforce the Mortgage and Guarantee. In April 2006, NH arranged for the Property to be sold with DBS’ agreement. The following facts were agreed:

(a)   The Property was sold on 13 June 2006 for HK$7,450,000, and the net sale proceeds were HK$7,425,700.

(b)   Subject to dispute over liability for the Subject TR Loan, as at the settlement date on 14 June 2006 (“Settlement Date”) the total outstanding indebtedness/interest due under the Mortgage and Guarantee were HK$6,825,301.65.

(c)   An amount equivalent to such indebtedness/interest was paid to DBS pending the outcome of HCA2807/2004 and HCMP1361/2005. By the order of Master de Souza made by consent on 19 June 2006, the surplus proceeds as at the Settlement Date of HK$600,398.35 (“Surplus Proceeds”) were paid into court.

15.  The remaining matter in HCMP1361/2005 was the disposal of the Surplus Proceeds, which depended on the outcome of HCA2807/2004. So the trial (and this Judgment) focused on HCA2807/2004. I note NH/Hui adopted So’s/WF’s position and also the opening/closing submissions of Mr Leung, counsel for So/WF, so discussions below concerning issues between So/WF and DBS were also applicable to NH/Hui.

16.  I pause to note that apart from the Subject LC DBS issued 2 other LCs upon applications by So/WF (collectively, “Three LCs”):

DBS’ LC reference	028010216132 (“1st LC”)	Subject LC	028010304536 (“3rd LC”)
LC Application date	17 April 2004	2 July 2004	6 July 2004
Issue date	21 April 2004	2 July 2004	7 July 2004
LC amount	US$260,000 +/- 10%	EU€432,000 +/- 10%	US$128,000 +/- 10%
Beneficiary	Shree Precoated Steels Ltd Mumbai, India	RL   Bad Homburg Germany	Deepali International F.Z.E Sharjah UAE
Advising bank	Federal Bank Ltd Mumbai, India	Commerzbank AG Frankfurt	Habib Bank AG Dubai, UAE
Merchandise	Over-rolled cold rolled steel coils	Prime tinplate rectangular sheets. Electrolytic tin plate of canning quality (EZHK)	Prime electrolytic tinplates scrolled sheets. Soft temper
Certificate of quality	Not required	Required (without specify issuing party)	Not required
Fumigation certificate	Not required	Required (without specify issuing party)	Required (without specify issuing party)
Inspection certificate	Required (without specify issue party)	Not required	Not required
Wooden packing certificate	Required (without specify which party)	Not required	Not required
Certificate of origin	Not required	Not required	Required
Others	+ third party documents acceptable + certified copy of beneficiary’s (fax/telex) to [So/WF] within 10 days after shipment advising shipment details		+ all documents except invoice remain mentioning goods as ‘secondaries’

17.  Apart from the above terms/conditions, the Three LCs all required (a) signed commercial invoices, (b) signed packing list and (c) “[full] set of clean shipped on board ocean [BL(s)] made out to the order of [DBS] notifying [WF] ...... and marked “Freight Prepaid””. But eventually amendments to some of the LC terms were issued for the 1^st and 3^rd LCs  on 5 May and 26 July 2004.

II.  HCA2807/2004

18.  So/WF claimed she engaged in local/international trading businesses by sourcing overseas materials/products for local/PRC buyers. For international trade, So/WF acted as “middle man agent” and the local/ PRC buyers would settle payment to overseas suppliers by their own LCs. For local trade, So/WF would pay local sellers and then sub-sell the goods to local/overseas buyers for profit. Mr Leung acknowledged there was no evidence DBS knew about these matters.

19.  So/WF claimed her bills/current accounts were opened upon invitation/advice by DBS’ officer, and further claimed (but DBS denied) (a) DBS gave advice on LCs as part of its banking services, (b) when she opened her bills account “[DBS was] deemed to be in a general banker and/or fiduciary position to give such advice to [her]” on such account, (c) DBS gave her some preliminary advice on “application, issuing, procedural aspects and operation of the bills trade account involving the [LC] facilities”, and (d) she sought, followed and relied on DBS’ advice on banking and related commercial matters, particularly advice on use of LC to pay for delivery of goods by overseas supplier. But there was no plea/ evidence as to the contents of such alleged advice by DBS to So/WF.

20.  So/WF claimed (but DBS denied) DBS as a fully licensed bank that offered retail/commercial banking services and had vast experience in banking operations (a) knew, (b) was deemed to know, (c) was reasonably expected to know and/or (d) had staff who were trained to know she purchased goods from overseas suppliers to sub-sell for profit, and she paid for supply of goods by LCs. But even though the Three LCs showed WF purchased goods from overseas suppliers, there was no plea/evidence So/ WF expressly informed DBS those goods were for sub-sale for profit.

21.  So/WF claimed (but DBS denied) it was therefore an implied term of the Facility Documents that (a) the credit facilities granted by DBS were for her purchase of goods from overseas, (b) DBS should exercise all due prudence/diligence in rendering support and professional advice to her, (c) DBS should give proper advice to her and supervise payment to overseas sellers with due diligence, and (d) DBS should check/verify documents presented by overseas suppliers for release of payments from such credit facilities (“Implied Term”). So/WF claimed the Implied Term was clearly implied in the context of the Subject LC transaction and from the relationship between DBS as experienced banker and So/WF as customer who fully relied upon DBS. But DBS claimed such Implied Term was contrary to the express terms of the Facility Documents, and was in any event not obvious, reasonable or necessary.

22.  Further or alternatively, So/WF claimed that by reason of their close proximate relationship DBS as her banker owed her a duty of care to exercise reasonable skill/care in advising her and in the following matters:

(a)   to take all reasonable steps to assist, support and render proper advice to her to ensure the LC transactions were carried out properly and with due diligence, and to ensure its bank officers handling the LCs or dealing with her discharged their duty with reasonable diligence; and

(b)   to exercise prudent care/judgment to advise her to secure a COI for ascertaining that the concerned goods were actually loaded on board a vessel as recorded on the BL.

So/WF averred she placed full reliance on DBS on these matters. But apart from (b) above, there was no plea/evidence as to what other advice DBS actually rendered and/or should have rendered to So/WF prior to the issuance of the Subject LC.

23.  DBS denied it provided or assumed any duty to provide any advice on the aforesaid matters. DBS averred (a) it issued the Subject LC in accordance with So’s/WF’s instructions and the terms stipulated in the Subject LC Application, and (b) upon issuance of the Subject LC DBS sent a copy to So/WF by the 2/7/04 Letter and in the absence of any request to amend/modify the Subject LC So/WF must have duly approved the same.

24.  So/WF claimed (but DBS denied) that before DBS issued the Three LCs she “requested and [DBS] did provide advice in relation to the terms to be included in each of the [LCs], and each of the advice so provided were respectively relied upon by her”, but again there was no plea/evidence as to what advice DBS actually gave to So/WF. DBS claimed that for the 1^st LC So/WF herself (without consulting DBS) required a COI to be presented by the beneficiary. DBS also relied on Articles 4 and 15 and paragraph 1 of the International Standard Banking Practice (“ISBP”) for the examination of documents under documentary credits ICC Publication No 645 (“ISBP645”),[8] and averred it was not in a position to comment on the sufficiency of the terms/conditions proposed for a LC unless they were in conflict with UCP500 or there was internal inconsistency in the terms/ conditions proposed to be included.

25.  Thus, DBS denied it was in breach of the alleged Implied Term and/or in breach of the alleged duty to exercise reasonable skill and care in advising So/WF on the matters set out in paragraph 22 above.

26.  So/WF claimed (but DBS denied) DBS wrongfully, negligently and/or recklessly (a) failed to properly check/verify the Presented Documents including the Subject BL with due diligence/prudence, (b) failed to give proper advice to So/WF on the Presented Documents, (c) negligently or recklessly told/advised So/WF the Subject B/L had no apparent fault, (d) verified the Subject B/L as genuine, real and valid, (e) failed to reject the Subject BL, and (f) released full payment under the Subject LC even though (i) the Subject B/L did not appear on its face to be compliant with the Subject LC Terms, (ii) So/WF pointed out a number of apparent irregularities on the face of the Subject B/L, (iii) the Subject BL contained false information and material/apparent irregularities that demonstrated it was a forged document, and (iv) no goods were actually shipped by RL. I will discuss these matters below, but suffice to state here that Mr Leung conceded DBS had no duty to verify the authenticity of the Presented Documents (see also paragraph 57 below).

27.  In particular, So/WF claimed (but DBS denied) in breach the Subject LC Terms DBS failed to take reasonable care to examine the Subject BL to ascertain whether or not it appeared on its face to be compliant with the Subject LC in accordance with international standard banking practice as reflected in the Articles:

(a)	the Subject BL did not have a designated area to set out the name of the vessel
(b)	the Subject BL did not properly evidence or at all that goods had been shipped on board a named vessel
(c)	the box designated only for filling information on “Port of Loading” in the Subject BL (“Loading Box”) inappropriately contained “shipped on board notation” (“Notation”) (ie “UST LUGA SHIPPED ON BOARD: SORMOVSKI DATE OF SHIPMENT: 09.07.2004”) which could not be evidence of goods shipped on board
(d)	the Subject BL did not contain sufficient information such as the carrier’s contact details, and did not have the carrier’s letterhead that showed its name and other particulars, which failed to comply with international shipping practice and Baltic and International Maritime Council (“BIMCO”) requirements
(e)	the Subject BL did not have a valid number in that “1 of 3”, “2 of 3” and “3 of 3” was too simple/unrealistic and not consistent with international shipping practice
(f)	the Subject BL did not have any container number “thus making containerization operations a mission impossible”
(g)	the Subject BL did not bear any shipping marks thus making it difficult, if not impossible, for the parties to identify the goods
(h)	the Subject BL did not state measurements of the goods contrary to the requirement that a BL must show the cargoes’ gross weights and cubic measurements and thus “making computation and determination of sea [freight] impossible”
(i)	the Subject BL did not have any voyage number contrary to international shipping practice
(j)	the Notation in the Subject BL in (c) above was odd and not consistent with international shipping practice

So/WF claimed (but DBS disagreed) that given the totality of the above “red flags”, no sensible/prudent banker would have released funds under the Subject LC without making further enquiry.

28.  So’s/WF’s pleadings relied on Mr Lee To On’s (“Lee’s”) opinion on the 1^st Issue in his expert report dated 8 December 2010 (“Lee Report”). But this part of the Lee Report was redacted and not admissible at trial (see footnote 13(a)(i) below). Anyway, there was no factual evidence to support those allegations. Mr Leung also confirmed So/WF would not rely on (a) DBS’ failure to protect its own interests as mortgagee and (b) DBS’ alleged breach of the Code of Banking Practice and regulations for anti-money laundering and counter-terrorist funding to bolster her case.

29.  Further, DBS averred that:

(a)	UCP500 did not specify a BL must have a designated area to state name of the vessel, and the vessel name “Sormovski” was clearly stated by the Notation in the Loading Box in the Subject BL;
(b)	the Notation with name of vessel and date of shipment was clearly shown in the Loading Box in the Subject BL, and UCP500 did not restrict/prohibit the Notation from being shown in the Loading Box;
(c)	it was acceptable under Paragraph 25 for a document to be without letterhead if it appeared to have been completed/signed by or on behalf of the named person/entity, and the Subject BL appeared to have been duly signed by the carrier;
(d)	neither UCP500 nor Subject LC required the Subject BL to state its number, container numbers, shipping marks, measurements of goods or voyage number;
(e)	it was not required to examine whether the Presented Documents conformed to any requirement not provided for in the Subject LC, and none of matters in paragraph 27 above amounted to a discrepancy.

30.  In summary, So/WF claimed (but DBS denied) she relied and acted upon DBS’ advice, but in breach of (a) the Implied Term, (b) its duty to exercise reasonable skill and care in advising So/WF and (c) its obligations under UCP500 and Subject LC Terms, DBS wrongfully released full payment under the Subject LC. DBS counterclaimed for payment of the Subject TR Loan in the sum of HK$4,400,455.39 with interest/costs.

III.  ISSUES IN DISPUTE

31.  By the time of trial, the issues in dispute boiled down to whether DBS was in breach of contract and/or breach of duty of care in (a) not having advised So/WF prior to issuance of the Subject LC to require a COI for the Subject LC (“Pre-Issuance Issue”), and (b) in releasing payment to the Advising Bank (“Post-Issuance Issue”).

32.  For the Pre-Issuance Issue, So’s/WF’s pleaded causes of action were (a) breach of the Implied Term and (b) breach of duty of care, but DBS averred there was (i) no implied term or duty of care, (ii) no breach of such term or duty, and (iii) no reliance on any advice or omission to advise.

33.  Mr Man, counsel for DBS, submitted the exact implied term So/WF relied on was unclear because the pleaded term in paragraph 21(a)-(d) above merely stated a general duty to advise with no specific allegation of any particular obligation by DBS to advise WF what documents should be required under a LC to be issued. Mr Man noted So/WF did not plead any material fact extraneous to the ordinary banker-customer relationship that could give rise to an implied term regarding such specific obligation to advise.

34.  Mr Leung’s oral opening submissions suggested DBS assumed a duty to advise So/WF to include a COI for the Subject LC as a result of (a) So’s/WF’s submission of the Subject LC Application to DBS and (b) Ngai’s Representations in paragraph 42 below (but So/WF eventually abandoned (b) above). Mr Leung accepted that whether DBS assumed such duty to advise turned on circumstances beyond the usual contractual banker‑customer relationship that might give rise to such duty (see paragraphs 49 and 51 below), but it appeared (a) above was within the parameters of the contractual relationship.

35.  Mr Leung’s written opening submissions alluded to breach of fiduciary duty, but this was not pleaded in the Amended Statement of Claim in HCA2807/2004 (“ASoC”) even though paragraphs 2 and 8 of the Amended Reply (“AR”) averred DBS owed fiduciary duties. Mr Man submitted (a) So/WF could not rely on any fiduciary duty after Ngai’s Representations were abandoned and (b) any contention of fiduciary duty was misconceived in law. Anyway, the allegation of breach of fiduciary duty no longer featured in Mr Leung’s closing submissions.

36.  Further, although So/WF raised general allegations that DBS advised her upon opening her bills/current accounts and in dealing with LCs generally (or in respect of the Three LCs) as part of its banking services and that she relied on such advice, there was no plea/evidence as to what advice DBS actually gave to So/WF and the only plea was DBS omitted to advise So/WF to secure a COI as a required document for the Subject LC.

37.  For the Post-Issuance Issue, subject to a pleading point discussed in paragraphs 38-39 below, the relevant questions were whether the features in paragraph 27(a)-(j) above (a) amounted to discrepancies and/or (b) indicated fraud to such an extent that obliged DBS to refuse payment under the Subject LC.

38.  On (a) above, Mr Man complained (i) the word “discrepancy” did not appear in So’s/WF’s pleadings,[9] (ii) there was no plea any of the identified features amounted to discrepancy that obliged DBS to refuse payment, and (iii) Lee did not even attempt to deal with discrepancies in the Lee Report. The need for proper pleadings to define issues was underlined in Sinoearn International Ltd v Hyundai-CCECC Joint Venture[10] and Kwok Chin Wing v 21 Holdings Ltd,[11] so Mr Man argued that the true question was simply whether the fraud exception was applicable as the matter of discrepancies was not pleaded.

39.  But whilst the drafting of So’s/WF’s pleadings left much to be desired, the disputed issues did not turn on search in the pleadings for the words “discrepancy” and “discrepant”. So/WF pleaded the Subject BL did not appear on its face to be compliant with the Subject LC Terms, which was just a different way of saying the Subject BL was discrepant. I am prepared to treat the issue of whether the Presented Documents were discrepant as a live issue, which was a separate question from whether Lee addressed the question of discrepancies in the Lee Report (see Part XIII below).

40.  On (b) above, Mr Leung accepted there was no evidence DBS had actual knowledge of any fraud, but argued the features in paragraph 27(a)-(j) above should have put DBS on inquiry in the circumstances of the Subject LC transaction. Mr Leung initially submitted a further question was whether DBS was in breach of the Implied Term, duty of care and/or fiduciary duty in failing “to take reasonable steps to render proper advice to [So/WF] before releasing funds under the [Subject LC]”, but Mr Man submitted the complaint of breach of fiduciary duty (i) was not pleaded in the ASoC (even though paragraphs 16-17 of the AR averred DBS owed fiduciary duties) and (ii) was misconceived in law. Indeed, the allegation of breach of fiduciary duty did not feature in Mr Leung’s closing submissions.

41.  So/WP/NH/Hui also abandoned pleas in paragraphs 16-17 of their Defence in HCMP1361/2005 that (a) DBS commenced HCMP1361/2005 to impose undue pressure upon them so as to deter So/WP from pursuing her claim in HCA2807/2004 and (b) DBS’ claim in HCMP1361/2005 was vexatious and/or was made with ulterior motive.

IV.  WITNESSES

42.  So/WF/NH/Hui called So and Ms Ng Chun Ping Zita (“Ng”) to give evidence. At trial, So/WF (and also NH/Hui) abandoned reliance on certain parts of their witness statements that travelled beyond the pleadings, eg So’s claim that DBS’ bank officer Ms Sylvia Ngai made representations to persuade her/WF to transfer her custom from another bank to DBS (“Ngai’s Representations”) and Ng’s claim that she (for WF) checked the Presented Documents and was later forced by DBS to consent to release of funds under the Subject LC, so certain statement evidence was redacted and not admissible at trial.[12] Given such developments, DBS decided not to call any factual witness to give evidence.

43.  So/WF called Lee as her expert to produce the Lee Report. DBS called Dr Soh Chee Seng (“Soh”) as its expert to produce his report dated 5 March 2013 (“Soh Report”). The agreed expert issues were whether any/all of the matters in paragraph 27(a)-(j) above (i) amounted to discrepancies or (ii) indicated fraud to such an extent that obliged DBS to refuse payment under the Subject LC. On the 2^nd day of trial, I ordered certain expert-related evidence be redacted and not admissible at trial[13] as being irrelevant to the pleaded issues in dispute.

44.  In assessing factual witnesses’ credibility, I bear in mind not only their demeanour in court but also the intrinsic value of their evidence upon considering the totality of their evidence against the chronology of events, the available documentary evidence and the inferences based on inherent probabilities and/or undisputed facts.[14] But the present dispute turned largely on undisputed facts, and I will turn to factual issues (if necessary) in the analysis below. As regards experts, none of the parties disputed Lee and Soh (collectively, “Experts”) were experts, but Mr Man addressed the court on Lee’s experience/expertise that went to the weight of his evidence. I now turn to the relevant legal principles.

V.  LEGAL PRINCIPLES

(a)  Autonomy of the credit

45.  A LC is a promise by a bank of payment to the seller against specified documents on terms that the bank will be reimbursed by the buyer. Article 3.a makes clear the underlying sale and purchase contract does not form part of the LC which operates on its own terms, so certainty of payment is achieved provided the seller is able to meet the LC terms. This reflects autonomy of the credit (see Malek and Quest, Jack: Documentary Credits 4^th ed (2009) (“Jack”) paras 1.2 and 1.10 at pp 2 and 5).

(b)  Transaction in documents only

46.  The above complements another principle enshrined in Article 4 that a LC is a transaction in documents alone, so if the presented documents conform to the LC requirements the bank must honour its payment obligations, and performance of the underlying contract between applicant/buyer and beneficiary/seller is irrelevant to performance of the credit (except for fraud which topic will be examined more fully below) (see Jack paras 1.34-1.36 at pp 17-18).

(c)  Parties to the credit

47.  The LC applicant contracts with the issuing bank by agreeing to pay the amount of the credit and bank charges. The LC as advised to the beneficiary forms a contract between the issuing bank and beneficiary, and between the beneficiary and advising bank if the latter adds its confirmation. If (as usual) the credit provides for documents to be presented to a nominated bank and such bank checks and finds the presentation/documents compliant with the LC terms and accepts the documents, the nominated bank will pay the beneficiary and remit the documents to the issuing bank. If the issuing bank checks and finds they conform to the credit, it will reimburse the nominated bank and remit the documents to the applicant/ buyer against payment, and the buyer may then use the documents to obtain possession of the goods. But if the buyer finds the documents do not comply with the LC, he may reject them (see Jack paras 1.6-1.14 at pp 3-6).

(d)  Contractual duty of the issuing bank

48.  The issuing bank owes the applicant the following duties: (a) to open LC that complies with its instructions, (b) to receive/examine the documents under the LC, and (c) to honour the credit in the manner required (see Jack para 4.10 at p 77), and it must follow instructions precisely for opening the LC and for accepting/rejecting documents (see Jack para 4.11 at pp 77-78).

(e)  Issuing bank’s duty of care

49.  Banks owe a duty of care to use reasonable care and skill when performing services for customers, but it is no part of a bank’s ordinary business to give a customer advice [15] as it is reasonable to expect business customers to understand the effect of ordinary business transactions or to ask for advice if they are in any doubt. Generally speaking, there is no need to advise a business customer on the nature, effect or wisdom of such transaction, and the fact a transaction is inherently risky will not by itself be sufficient to impose on the bank a duty to advise.[16] In Redmond v Allied Irish Banks plc,[17] Saville J said as follows:

“...... a bank owes its customers a duty to take reasonable care and skill in interpreting, ascertaining and acting in accordance with the instructions of the customer. ...... [which] is something wholly different from the duty ...... to warn against, or advise on, the risks inherent in carrying through that which the customer wants to do. In my view the banker/customer relationship creates no such duty, ...... Of course, if a customer seeks advice or is voluntarily given advice, then other considerations might well apply, as would also be the case where any special fiduciary relationship arose. In a case such as the present, however, I can see no basis for a duty to advise or warn a customer that there are inherent risks attendant upon something which the customer wishes to do. Such a duty ...... is not required in order to give efficacy to the contractual relationship between the parties, and I can find nothing in the circumstances were such that ...... some duty in tort was owed by the defendants to the plaintiffs.”

50.  But where a bank assumes a duty to advise or where a bank has taken it upon itself to give advice,[18] there is (a) a duty to advise with reasonable care/skill unless perhaps the advice is so general or the circumstances are such it cannot have been reasonably expected the customer will act on it, and (b) a duty to exercise care in relation to the accuracy of statements made where it is reasonably foreseeable the customer may rely on them to his detriment.[19]

(f)  Issuing bank’s fiduciary duty

51.  The fact a customer “trusted” his banker (with whom he has a commercial relationship) to conduct itself in a commercially appropriate manner does not predicate a fiduciary relationship. “Trust” in a broad sense is an important element in many commercial dealings,[20] and as Steyn J in Barclays Bank plc v Quincecare Ltd & anor said “ ...... trust, not distrust, is also the basis of a bank’s dealings with its customers ......”[21] Lord Woolf CJ in Governor and Company of the Bank of Scotland v A Ltd & ors said on the face of it the relationship between a bank and its customer is not a fiduciary relationship, but a commercial relationship founded in contract into which intrusion of equitable doctrines may result in “doing infinite mischief and paralyzing the trade of the country”.[22] Further, the banker-customer relationship is generally governed by express/implied terms of contract, and where the bank has no duty to give advice under such terms fiduciary duty cannot be invoked to support a claim for breach of duty to give the same advice[23] or to enlarge the scope of the contractual duty.[24]

(g)  Opening the credit

52.  Articles 5.a and 5.b provide inter alia that instructions for the issuance of a credit must be complete and precise, and that all instructions for the issuance of a credit and the credit itself must state precisely the document(s) against which payment, acceptance or negotiation is to be made. On whether to advise the applicant/buyer on documents required for a LC, Jack at pp 85-86 says as follows:

“4.28 ...... a bank may well have a greater understanding and knowledge of [LCs] than its customer. If in such situation the customer specifically seeks advice and the bank gives it and does so without exclusion of liability, the bank is likely to be liable if it fails to act with the reasonable skill and care to be expected of such a bank. On the other hand if a customer does not seek the bank’s advice but simply puts forward its application for a credit, it is unlikely to succeed in an allegation that the bank should have issued a warning or given advice. ......

......

4.31  The position may thus be stated in general terms that a bank owes no duty of care to the applicant unless the particular facts show that the bank has undertaken such a duty, usually by means of an assumption of responsibility. The scope and import of any such duty will be determined and limited by the particular circumstances of the assumption of responsibility, and the reasonableness of reliance upon the bank’s advice or expertise.”

(h)  Acceptance/rejection of documents

53.  The duty  Article 9.a.i provides an irrevocable credit constitutes the issuing bank’s definite undertaking, so provided the stipulated documents presented are compliant the issuing bank has to pay according to the terms of the credit. Article 13.a provides the bank’s duty is to examine all documents stipulated in the credit with reasonable care to ascertain whether or not they appear “on their face” to constitute a complying presentation.[25] Articles 4-5 provide that the issuing bank is not required/entitled to take account of information apart from the documents themselves, eg information as to the quality of goods not shown on the documents.

54.  International standard banking practice  Article 13.a provides whether the presented documents are on their face compliant with the terms/conditions of the credit shall be determined by international standard banking practice reflected in the Articles. In such context, the courts will sometimes listen to evidence of standard banking practice and opinions of the ICC Banking Commission.[26] From time to time ICC Banking Commission publishes decisions/opinions on questions concerning the UCP, and “...... they should given substantial weight by a court in accordance with the merits of the particular decisions” as they are often explanatory of the thinking behind the UCP and illustrate banking practice (see Jack para 1.29 at pp 14-15). In January 2003, ICC published ISBP645 which is an important but non-binding source of good banking practice (see Jack para 8.11 at pp 172-173). It was said in the Forward and Introduction that:

“The ISBP ...... is a practical complement to UCP 500 ...... [but] does not amend the UCP. It explains ...... how the rules are to be applied on a day-to-day basis. As such, it fills a needed gap between the general principles announced in the rules and the daily work of the documentary credit practitioner.” (Forward)

“The international standard banking practices documented in this publication are concerned with the UCP and the Opinions and Decisions of the ICC Banking Commission. This document does not amend the UCP. It explains how the practices articulated in the UCP are to be applied by documentary practitioners. It is, of course, recognized that the law in some countries may compel a different practice than that stated here.

......

This publication reflects international standard banking practice for all parties to a documentary credit. ...... The incorporation of this publication into the terms of a documentary credit should be discouraged, as the requirement to follow agreed practices is implicit in the UCP.” (Introduction)

55.  Extraneous matters  The commercial purpose of most documents is usually clear, but the issuing bank’s duty is to construe its instructions that have become the LC terms and to consider the documents presented to it without speculating on what may have been in the customer’s mind. It is not for the bank to reason why, and it cannot say “I do not see the point of this, so I will not bother about it” (see Jack para 8.29 at p 183). Also, even though the issuing bank should use its judgment, banking experience and general knowledge to test compliance, it should not take account of matters other than the terms of the LC and the documents presented to it (but subject to the fraud exception discussed below), and should not speculate on the facts that may lie behind the documents.[27] Anyway, “[it] would be a rare case where a checker will have knowledge as to how a document is prepared or any source for extracting information in that record.”[28]

56.  Strict compliance  Mr Leung’s written closing submissions suggested “there is some small margin of interpreting the documents presented to a bank as to whether it contains any discrepancy ......”, but he eventually accepted the principle of strict compliance (ie the presented documents must comply strictly with the LC requirements) was applicable and the “small margin” referred to, say, obvious typographical errors. Such principle is not to be applied literally by dotting ‘i’s and crossing ‘t’s, but an issuing bank is entitled to reject a document where it raises on its face some uncertainty that cannot be readily resolved. A discrepancy may appear technical (eg it may not affect the value or merchantability of the goods), but a bank is nonetheless obliged to take the point unless it is waived by its customer/buyer. Only insignificant/trivial differences (eg obvious typographical errors) are not regarded as discrepancies (see paragraph 28 and Jack paras 8.31-8.39 at pp 184-189).

57.  Genuineness of documents  Mr Leung accepted under UCP500 and common law banks are only required to conduct visual examination of documents with reasonable care/skill without having to verify their genuineness.[29] In Montrod Ltd v Grundkötter Fleischvertriebs GmbH,[30] Potter LJ said as follows:

“38. Neither as a matter of general principle, nor under UCP 500, is an issuing bank obliged to question or investigate the genuineness of documents which appear on their face to be documents the nature and content of which comply with the requirements of the credit. So far as the common law is concerned, the position has been clearly stated in [Gian Singh & Co Ltd] ......

39. ...... Not only is the necessity to examine the documents presented by the beneficiary limited to an examination of the documents alone (article 14(b)) but, under article 15, the bank assumes no liability or responsibility for the genuineness or legal effect of any such document. ......”

58.  Further inquiry of trade practice  There is a distinction between a merchant and a bank because whilst it is reasonable to assume a merchant is familiar with his particular trade a bank will not be imputed with knowledge of market terminology/practice and will only be obliged to make payment under the credit if the documents are strictly in order (see Jack para 8.56 at pp 197-198). In J H Rayner and Company, Limited v Hambro’s Bank, Limited,[31] the evidence showed “Coromandel groundnuts” (required under the LC and specified in the invoice) were universally understood in the trade to be identical to “machine-shelled groundnut kernels” (stated in the BL presented by the beneficiary), but the documents were held to be discrepant. MacKinnon LJ said at p 41 (with whom Lord Goddard LJ agreed at pp 42-43):

“...... it is quite impossible to suggest that a banker is to be effected with knowledge of the customs and customary terms of every one of the thousands of trades for whose dealings he may issue [LCs]. ...... It would be quite impossible for business to be carried on, and for bankers to be in any way protected in such matters, if it were said that they must be affected by a knowledge of all the details of the way in which particular traders, carry on their business. ......”

Likewise in Glencore International AG & anor v Bank of China, Lord Bingham MR said as follows:[32]

“...... The banks are not required to familiarize themselves with any of the infinitely various terms, conventions or esoteric understandings of the sales transactions themselves: their role is limited to the demanding, but essentially clerical, task of scrutinizing the documents tendered under the credit to establish that they conform to the terms of the credit. Banks, rightly jealous of their reputation in the international market-place, are generally careful not to refuse payment on grounds of nonconformity unless the nonconformity is clear. ......”

59.  Bank’s approach to applicant/customer  Further, under Article 13.b, the issuing bank was given a reasonable time not to exceed 7 banking days to examine the documents and decide whether to take them up or refuse them. Thus, Jack at paras 5.49-5.52 on pp 109-111 says that under UCP500 it is very unwise for the bank to permit the applicant himself to examine the documents for discrepancies. The Court of Appeal in Bankers Trust Co v State Bank of India stated that “[in] particular we are agreed that on no view should a bank be allowed time to enable the buyers to examine the documents for the purpose of discovering further discrepancies”.[33]

(i)  Duties of confirming bank

60.  The obligation of a confirming bank to pay is an obligation which it gives as a principal, but it could still act in other respects as agent of the issuing bank. So, in accepting and paying against documents it acts as a principal in relation to its obligations as confirming bank, but it acts as agent for the issuing bank with regard to the obligations of the issuing bank (see Jack paras 6.22-6.24 at p 145).

(j) Fraud exception

61.  Article 15 provides that “[banks] assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s), or for the general and/or particular conditions stipulated in the document(s) or superimposed thereon ......” But as part of the common law the fraud exception applies even though UCP500 does not mention it. For establishing fraud, the court may take into account extrinsic evidence. Benjamin’s Sale of Goods states “[it] is conceivable, albeit unlikely, that fraud will be apparent from the presented documents” (my emphasis) as fraud is likely alleged by the LC applicant who has to provide the bank with appropriate compelling evidence.[34] But here So/WF only relied on the terms of the Subject LC and contents of the Subject BL in support of the fraud exception.

62.  Due to autonomy of the credit, operation of the fraud exception is strictly policed so it applies only in cases of unquestionable fraud and is not extended to disputes on the underlying contract.[35] The locus classicus is United City Merchants (Investments) Ltd v Glass Fibres and Equipments Ltd in which Lord Diplock stated as follows:[36]

“To this general statement of principle as to the contractual obligations of the confirming bank to the seller, there is one established exception: that is, where the seller for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain, expressly or by implication, material representations of fact that to his knowledge are untrue. ...... The courts will not allow their process to be used by a dishonest person to carry out a fraud.”

At its heart, the fraud exception is a misrepresentation “material” to the bank’s duty to pay and untrue to the knowledge of the party presenting the document (see Jack paras 9.15-9.19 at pp 254-255). But if the bank pays in accordance with the LC terms, it is entitled to be reimbursed unless there is clear evidence of fraud at the time of payment.[37]

63.  Evidential threshold  The evidential threshold is very high.  The test put by Ackner LJ in United Trading Corp SA v Allied Arab Bank Ltd[38] is that “[if] the Court considers that on the material before it the only realistic inference to draw is that of fraud, then the seller would have made out a sufficient case of fraud.” Likewise, in Edward Owen Engineering Ltd v Barclays Bank International Ltd & anor, Geoffrey Lane LJ said a bank would be justified in not complying with a demand for payment under a LC “if it had been clear and obvious to the bank that the buyers had been guilty of fraud” (my emphasis).[39] Thus, compelling, clear and cogent evidence is required of both the fact of fraud and the bank’s knowledge of it.[40] As Kerr J observed in R D Harbottle (Mercantile) Ltd v National Westminster Bank Ltd & ors, “[except] possibly in clear case of fraud of which the banks have notice, the courts will leave the merchants to settle their disputes under the contract by litigation or arbitration as available to them or stipulated in the contracts ......” (my emphasis).[41]

64.  Mere assertion will not be enough, and there must be strong or compelling corroborative evidence usually in the form of contemporaneous documents.[42] Where feasible, the court will expect the alleged fraudulent party (the LC beneficiary) to have been given an opportunity to answer allegations relating to the fraud, and failure to give any or any proper explanation in answer to queries raised when an answer can be expected will support the applicant’s case.[43] But the issuing bank need/should not carry out investigation into the merits of the allegation if it is not obvious. A bank is not a detective agency and cannot be expected to investigate whether there is substance behind an inconclusive case presented by the LC applicant.[44] In Turkiye Is Bankasi AS v Bank of China, Waller J said as follows:[45]

“It is simply not for a bank to make enquiries about the allegations that are being made one side against the other. If one side wishes to establish that a demand is fraudulent it must put the irrefutable evidence in front of the bank. It must not simply make allegations and expect the bank to check whether those allegations are founded or not. ...... it is not the role of a bank to examine the merits of the allegations and counter allegations of breach of contract. ......” (my emphasis)

Likewise, Potter LJ in Montrod Ltd at p 1992 stated as follows:

“58. ...... In the context of the fraud exception, the courts have made clear how difficult it is to invoke the exception and have been at pains to point out that banks deal in documents and questions of apparent conformity. In that context they have made clear that it is not for a bank to make its own enquiries about allegations of fraud brought to its notice; if a party wishes to establish that a demand is fraudulent it must place before the bank evidence of clear and obvious fraud ......”

65.  Bank’s right to reimbursement  If the bank has clear evidence that the beneficiary has made a fraudulent demand which it is aware at the time of payment, then the bank should not pay and it will not be entitled to reimbursement from the LC applicant if it does (see Jack paras 9.40-9.42 at pp 268-270).Mr Leung’s written closing submissions accepted vice versa that if a bank has properly discharged its obligations in examining the presented documents and effected payment upon presentation of apparently conforming documents without knowledge of fraud, the court will uphold the bank’s right to be reimbursed by the applicant/buyer.

VI.  IMPLIED TERM

66.  The WF Agreement made clear DBS did not owe So/WF any duty to advise what documents were required for the Subject LC. First, clause 2(g) stated DBS shall not be responsible for (and DBS’ rights and So’s/WF’s obligations shall not be affected by) the sufficiency of documents relating to a credit even if they should in fact prove to be insufficient. Article 15 (incorporated by clause 2(a)) provided banks assumed no liability/responsibility for the sufficiency of any documents. In short, under the Facility Documents DBS did not have to advise So/WF on what documents would be required for the Subject LC.

67.  There can be no implied term that contradicts the express terms of contract, so I cannot see any basis for an implied term that DBS should advise So/WF on documents required for the Subject LC which under the Facility Documents was So’s/WF’s own responsibility. Paragraph 1 stated it was for the applicant and beneficiary to carefully consider which documents should be required and by whom they should be produced (see also Article 5), so even under recognised international standard banking practice it was the responsibility of the buyer/seller (not issuing bank) to ensure documents required for a LC suited requirements for the underlying sale and purchase.

68.  Mr Man took 2 further points which I agree. First, the pleaded Implied Term generally asserted DBS was under a duty to give advice without specific plea of particular obligation to advise what documents should be required under LCs to be issued by DBS for So/WF (see paragraph 21(b) above). Hence, such specific obligation to advise could not be implied as being obvious, reasonable or necessary. Secondly, given the express contractual terms and So’s/WF’s failure to plead reliance on extraneous fact(s) beyond ordinary contractual banker-customer relationship, it was difficult to envisage how a different/more extensive duty on the part of DBS to advise So/WF on what documents should be required for the Subject LC could be said to exist on an implied basis.

69.  I therefore disagree DBS had any express or implied contractual duty to advise So/WF on documents for the Subject LC or to require a COI for the Subject LC.

VII.  DUTY OF CARE

(a)  So’s previous experience

70.  So had extensive experience in international trade business gained from serving buyers/sellers and negotiating/making trading agreements. So confirmed under cross-examination (“XXN”) she had a little experience in applying for LCs, but had never seen any LC in 25 years as merchandiser (as shipping documents and LCs were handled by her employer(s)’ other department(s)) and in 12 years as WF’s proprietor (as her “middleman” job was done when the ultimate buyers/sellers agreed to direct LC payment).[46] But as seen below, I find on balance (as Paragraph 1 suggested) it was for WF to specify the terms/conditions for the Three LCs in the relevant LC Applications. I cannot accept the suggestion that “one should also take into account that [So/WF] did not have much experience in this area”, and Mr Leung eventually conceded there was no evidence DBS was aware of So’s/WF’s alleged inexperience in dealing with LCs. DBS as a bank would not know the underlying sale and purchase, but it was reasonable to expect So/WF as buyer to understand her own business/ counterparty and the needs of such underlying transaction.

(b)  Ng’s previous experience

71.  Since 1980 Ng worked as a shipping clerk, and was experienced in handling shipping documents (including BLs) “with bank finance payment by [LC]”. So/Ng claimed Ng’s previous work concerned exports, and Ng said she worked for exporter(s) for “at least more than 50 cases” to collate documents for presentation under the LCs for payment before joining joined WF (“50 Cases”). But such allegation was at odds with Ng’s statement evidence that for the 50 Cases “the Bank would not trigger the release of funds to the supplier under the relevant [LC] unless and until [Ng signified] her consent for and on her employer’s behalf to do so”, and that her employer(s) (via Ng) had to approve payment to be made by its banker (issuing bank) to the supplier(s) (beneficiary(ies)), which could only mean Ng’s employer(s) were importers. This was corroborated by Ng’s statement evidence that she gained vast experience in dealing with bank officers in the following context:

“...... the bank officers would confirm the bank’s receipt of a set of Shipping Documents with the [BLs] and verify with [Ng] as to whether [those documents] were in order. [Ng] would then confirm to the bank that those documents were in order, and [she] would normally request the bank officers to verify also whether [those documents] were in order. It was only after the bank officers verified [those documents] were in order, then [Ng] would give [her] consent on behalf of [her] employer to the bank release of funds under the relevant [LC].”

If Ng’s employer(s) were exporter(s) (LC beneficiary(ies)) who had to present shipping documents (including BL) to collect payment, they would not have to wait for receipt of documents from the bank and/or to give consent for “release ...... funds under the relevant [LCs]”.

72.  On balance, I find So’s/Ng’s allegation that Ng previously handled exports and not imports to be a poor attempt to downplay Ng’s experience in specifying documents for LC Applications. But even if Ng mainly handled exports before joining WF (which I disagree), Ng confessed she had considered the contents of quite a number of LCs in order to collate and present documents to banks for payment.

73.  Between October 2002 (when So/WF employed Ng) and July/August 2004, So/WF assigned Ng to handle and follow up on LC issuance and shipping documents. After joining WF Ng mainly handled imports, but claimed at first payment was mainly by DA (documents against acceptance) with only 1-3 LC transactions. I find on balance Ng was experienced in handling shipping documents and LCs for imports, and she was familiar with specifying documents for LC Applications. In my view, Ng’s relevant experience militated against any assumption of responsibility by DBS to advise on documents required for the Subject LC, and also against any reliance upon DBS’ experience/expertise.

(c)  LC issuance by DBS for WF - overview

74.  In April 2004, So/WF applied to DBS for the 1^st time to issue the 1^st LC. So claimed DBS was asked via telephone about requirements for issuing LCs for shipment of tinplate sheets, but there was no evidence at trial whether or not DBS gave any advice to So/WF, and if so what that advice was. Later, So/WF applied to DBS for the Subject and 3^rd LCs. The transactions involving the 1^st and 3^rd LCs were successfully completed.

(d)  Subject LC

75.  For the Subject LC, So claimed to know a middleman who introduced her to a steel materials supplier, and she completed 2 successful transactions through such middleman. But there was no evidence DBS was aware of these matters although it must have known So/WF purchased tinplates from overseas suppliers.

76.  So claimed that due to her inexperience in LC matters she “sought advice” from the bills department of DBS (which held itself out as providing LC issuance and related services) “on terms of a [LC] to be required by [WF] to an overseas seller which could protect [WF] from being defrauded ...... in case of non-shipment”, and asked if anything was required to be included and “what [she] had to do to protect [WF] in the subject transaction”. So said in re-examination (“RXN”) she “需要銀行睇文件, [she]要[DBS]俾[DBS’]專業認知俾[her]”. But although So claimed DBS gave her/WF “wrongful and insufficient advice which directly or indirectly led to the loss suffered by [WF]” and she relied on such advice, the ASoC/AR did not plead and So’s evidence did not say what advice DBS actually gave her for each or all of the Three LCs. Indeed, So confirmed under XXN that DBS did not give any advice to her for the Subject LC. In my view, there was no pleaded or factual basis for suggesting that DBS gave wrongful/insufficient advice to her on the terms for the Subject LC, and strongly militated against the suggestion that So/WF requested for advice and/or DBS assumed responsibility to advise.

77.  Ng claimed that in/about April 2004 she took charge of the “subject case” and was told by So/WF that finance for “subject case” would be from DBS, so she contacted DBS to ascertain the bank’s requirements “[since] this was the first time [So/WF] as well as [Ng] dealt with DBS”. I assume this concerned the 1^st LC, but there was no evidence as to the contents of Ng’s communications with DBS in April 2004. For the Subject LC, Ng claimed that in/about July 2004 So/WF requested her to handle the shipping documents for purchase of goods from RL and she went through some documents concerning the transaction. She went on to say (a) she telephoned DBS’ officer Mr Au-Yeung Sau Hong (“Au-Yeung”) “to check out his requirement”, (b) he replied there was nothing special pending DBS’ receipt of the shipping documents from the seller whereupon he would examine them, (c) she asked whether there was anything she could do to assist, and (d) Au-Yeung replied she was to furnish him with additional documents if he so required.

78.  Ng’s conversation with Au-Yeung over the Subject LC did not further So’s/WF’s case as there was no evidence of any specific request for advice on documents for the Subject LC (in contra-distinction to DBS’ “requirement” and what Ng could do to assist) and/or any actual advice rendered on the subject. What Au-Yeung said in paragraph 77(b) and (d) above was correct because (i) there was nothing special about So’s/WF’s instructions in the Subject LC Application (see also paragraph 4 above), and (ii) DBS’ duty was to issue the Subject LC according to WF’s instructions and in due course to examine the Presented Documents to see whether they were compliant with the Subject LC Terms (see paragraph 48 above). In my view, So/WF could not rely on such conversation to assert any duty by DBS to advise what documents should be required for the Subject LC.

79.  Mr Leung suggested that between submission of the Subject LC Application and issuance of the Subject LC So/Ng (who “relied on [DBS] to look at and what to be observed”) got the message there was “no problem”, so DBS assumed a duty to give proper advice but failed to advise So/WF to require a COI for the Subject LC. This was a misreading of the evidence for So’s statement evidence placed this episode in a different context:

“18. On 2^nd August 2004, [Au-Yeung] of [DBS] phoned to press us to confirm the relevant documents. Though there seemed to be some problems appeared on the relevant documents, he assured us that there was no problem and the [Subject BL(s)] was/were regular, besides, there was insurance coverage anyway and he told us to release money, but only adding there was insufficient fund available at that time.” (my emphasis)

80.  Anyway, So/WF did not plead the above allegation as a material fact that would give rise to a duty on the part of DBS to advise either what documents should be required for the Subject LC (Pre-Issuance Issue) or whether the Presented Documents were in order (Post-Issuance Issue). There was also no plea as to any advice actually given to So/WF save that DBS omitted to advise So/WF to require a COI for the Subject LC.

81.  Ng completed DBS’ standard-form Subject LC Application with a pre-printed menu of “DOCUMENTS AND CONDITIONS REQUIRED” by typing “x” against selected documents and giving required particulars (eg a full set of clean shipped “on board” ocean BL made to the order of DBS notifying WF). So claimed WF did so by applying common sense and “根據上兩張[WF]處理LC的模式”. But there was no evidence DBS knew how So/WF and/or Ng completed the Subject LC Application, and apart from the 1^st LC So/WF did not produce the other LC in respect of “上兩張[WF]處理LC”. Anyway, the 1^st LC specified COI as a required document, and So/WF did not satisfactorily explain why it was omitted in the Subject LC Application when WF made such application “根據上兩張[WF]處理LC的模式”.

82.  Ng admitted she was given some documents concerning the underlying transaction that involved the Subject LC and went through them (see paragraph 77 above), but So/WF did not produce such documents at trial. But the “Assumed Facts” at pages 8-9 of the Lee Report in footnote 1 above were revealing as there were (a) a sales contract No IM-11839 dated 24 June 2004 between WF and the PRC importer (ultimate buyer) (“Sales Contract”) for supply of tinplates “listing the shipping documents required for the transaction”, and (b) an Indent No IM-9200 dated 25 June 2004 WF issued to RL (exporter) (“Indent”) “listing the shipping documents required for the transaction based on the [Sales Contract] ......” Although So/WF did not produce the Sales Contract and Indent (but she provided them for Lee’s review), the Lee Report made clear the required shipping documents were listed in the sub-sale/re-sale contract between WF (seller) and PRC importer (buyer), and as a result WF imposed similar requirement for such shipping documents in the transaction between itself (buyer) and RL (overseas supplier) as evident from the typed words “AS PER INDENT NO.IM-9200” at the top of “DOCUMENTS AND CONDITIONS REQUIRED” in the Subject LC Application. Indeed, the “Assumed Facts” at page 8 of the Lee Report confirmed (i) on 2 July 2004 DBS issued the Subject LC “based on Indent No.IM-9200” and (ii) the Subject LC called for the documents “which are based on the Indent No IM-9200 mentioned above”. This plainly showed WF specified the required documents in the Subject LC Application on the basis of the Indent as agreed between So/WF and the PRC importer under the Sales Contract.

83.  I find on balance WF on its own listed the required documents in the Subject LC Application pursuant to the underlying Sales Contract and Indent without advice by DBS, and WF did not do so by “trusting DBS’ professionalism”. This finding militated against any assumption of responsibility by DBS to advise or fiduciary duty on its part to give advice.

(e)  COI

84.  There was no evidence a COI was always required for a LC, and thus a LC could not be said to be unworkable without a COI. In my view, whether a COI was required depended on whether there was reason for the particular underlying transaction to have the goods inspected, which must be a matter for the buyer/seller and not for the issuing bank unfamiliar with the sale and purchase. Indeed, the 3^rd LC (also for purchase of tinplates from overseas supplier) was successfully completed without any COI.

85.  But the 1^st LC issued in April 2004 (ie about 3 months before the Subject LC) called for a COI, so obviously So/WF knew (and DBS knew that she knew) it was possible to ask for a COI for a LC. So did not explain how she came to know to require a COI in the LC Application for the 1^st LC, but be that as it may, her awareness of such possibility exploded her allegation that WF did not ask for a COI for the Subject LC because she was unfamiliar as to what documents should be required and thought DBS would review the documents specified. Further, there was no evidence that DBS knew So/WF was unfamiliar with specifying documents for LC issuance, and I cannot see how a duty to advise could arise in circumstances when So/WF knew (and DBS knew So/WF knew) she could include a COI as a required document for a LC if she wanted one. There was, quite simply, no convincing basis to say DBS was negligent in not advising So/WF to require a COI for the Subject LC.

86.  Anyway, a COI could not be material here when no goods were shipped and the Subject BL was forged. A COI certifies “inspection” of goods, and the BL certifies shipment, so the plea in the ASoC that a COI was required to evidence that goods were actually loaded/shipped on board a named vessel was not understood. Even if DBS assumed a duty to advise So/WF on documents required for the Subject LC to avoid “being defrauded by the said overseas seller in case of non-shipment” (which I disagree), there was no reason for DBS to suggest calling for a COI when So/WF already required “[full] set of clean shipped on board ocean [BL(s)] made out to order of [DBS] notifying [WF] ...... and marked “freight PREPAID”” for the Subject LC.

(f)  Forged BL

87.  Pursuant to Article 15 and as explained in paragraph 57 above, DBS was not concerned with the genuineness of the Presented Documents if they appeared on their face to be compliant with the Subject LC Terms. Even the alleged duty to advise cannot guard against forgery/fraud, and if the culprit could forge the Subject BL, he could also forge a COI, and a LC applicant could still be cheated as the LC operation deal with documents only. As the Soh Report said, it was the duty of the LC applicant to know the seller before he applied for a LC in favour of the seller.

(g)  Alleged omission to advise

88.  The only remaining plea was DBS’ failure to warn So/WF on the documents required under the Subject LC (then to be issued) to protect her from fraudulent non-shipment. For all of the above reasons, I find on balance DBS had not undertaken/assumed responsibility to render such advice. Even if there was such duty of care (which I disagree), I am not satisfied there was any breach/negligence in not advising So/WF to include a COI as a required document under the Subject LC. Even if there was any negligent omission to advise (which I disagree), So/WF did not rely on such for WF specified the required documents for the Subject LC “as per” the Indent, and relied on So’s experience in merchandising/trading and Ng’s experience in shipping documents and LCs (for imports and exports). In any event, for reasons explained in paragraphs 86-87 above, the alleged breach of duty was not causative of any alleged loss.

VIII. FIDUCIARY DUTY

89.  DBS’ alleged breach of fiduciary duty did not feature in Mr Leung’s closing submissions. In any event, in the factual context as found and as explained in Part VII above, DBS did not owe any fiduciary duty to So/WF to advise what documents should be required for the Subject LC. In the circumstances, this court is driven to find against So/WF, NH and Hui on the Pre-Issuance Issue.

IX.  PRESENTED DOCUMENTS

(a)  Background facts

90.  So claimed that between October 2002 and July/August 2004 she assigned Ng to be in charge of shipping documents and LCs, and Ng was to process/check the shipping documents to ensure they were in order for the issuing bank to release funds under the LCs. Ng said it was normal/usual for the issuing bank to forward the presented documents to the buyer for the buyer “to check the details”, but DBS did not require such assistance from WF probably due to its small size. Ng claimed that after speaking with Au-Yeung (see paragraph 77 above) she thought she was to wait for him to verify/check that the Presented Documents were in good order and to ask for her consent (on behalf of So/WF) to release funds under the Subject LC (“Consent”). So agreed to this when Ng reported to her, but she asked Ng to confirm with Au-Yeung which Ng did a few days later. Ng recalled So said she would leave for Japan on business soon but the transaction would close shortly so she wished to check whether DBS had received the Presented Documents and whether they were in order, so Ng gave So the name and telephone number of DBS’ handling officer. So later told Ng Au-Yeung said DBS would receive the Presented Documents in a day or so and would check whether they were in order for Ng’s Consent, and So asked Ng to liaise closely with and assist Au-Yeung.

91.  In my view, there was nothing wrong with the above arrangements. Even though DBS informed So/WF the Presented Documents were received and sent copy set thereof to WF, it was for DBS (and not So/WF) to examine the Presented Documents and decide whether they appear on their face to comply with the Subject LC Terms, and it only had a reasonable time not to exceed 7 banking days following the day of receipt of the documents to accept/refuse the Presented Documents (see paragraph 59 above and Articles 13.a-b). This accorded with Soh’s opinion that whilst an issuing bank might inform the LC applicant it had received the presented documents, it would not communicate with the LC applicant in the course of examining the documents (unless the latter alerted the former of fraud in the transaction) since the LC was the issuing bank’s independent undertaking to pay against compliant documents.

92.  On 26 July 2004, DBS received the Presented Documents. So claimed that on/about 29 July 2004[47] DBS informed her/WF of such receipt, and DBS “also faxed the relevant set of documents to [WF]”. So claimed “[Ng] found out that no ship name appeared in the wrong on the [Subject BL] and besides, there was simply insufficient detail about the goods shipped”, and WF later discovered the Subject BL was defective in the way set out in paragraph 27(a)-(d) above, so on 29-30 July 2004 Ng (a) made enquiries by fax/email with the shipping company about the vessel/agent but there was no reply and (b) tried to contact So (who was in Japan) to no avail.

93.  So said that on 2 August 2004 Au-Yeung telephoned to press WF to confirm the Presented Documents, and “[though] there seemed to be some problems appeared on [the Presented Documents]” Au-Yeung (a) assured WF there was “no problem”, the Subject BL(s) was/were regular and “there was insurance coverage anyway”, and (b) told WF to release the funds. Ng could not get in touch with So, so “the transaction was proceeded regardless of the questionable features on [the Subject BL(s)]” (which I believe meant Ng gave the Consent) and Ng requested DBS to send the Presented Documents to WF “by express”. The Subject TR Loan was booked on the same day.

94.  Mr Leung submitted Au-Yeung’s assurance of “no problem” meant DBS assumed responsibility to properly examine the Presented Documents and to properly advise So/WF whether they were in good order, but this did not add anything further to DBS’ contractual obligations. If the Subject BL was discrepant and/or indicated fraud to such an extent that obliged DBS to refuse payment, DBS as a matter of contract should not have made payment under the Subject LC and/or sought reimbursement from So/WF. But if the Subject BL was compliant with the Subject LC Terms and the fraud exception was inapplicable, DBS as issuing bank would be obliged to pay under Subject LC, which would not amount to any breach of contract or breach of duty of care (if any). Thus, So’s/WF’s case stood or fell on the primary issues.

95.  So claimed that on/about 5 August 2004 Ng chased DBS for the complete set of Presented Documents, but the complete set was not received yet when So returned to Hong Kong on the following day. On 7 August 2004, upon Ng’s query Au-Yeung asked So/WF to contact DBS’ credit department to sort out some issue over the Subject TR Loan. But there was no plea of delay in forwarding the Presented Documents to So/WF, which in any event was immaterial as (a) the obligation to examine documents fell on DBS, and (b) DBS faxed “the relevant set of documents” to WF on 29 July 2004 and the features in paragraph 27(a)-(j) above were discoverable from copy Subject BL, and (c) Ng herself claimed she was able to discover some of these features from the copy Subject BL (see paragraph 92 above).

96.  Further, since the Presented Documents (especially the Subject BL made to the order of DBS) were to be remitted to So/WF under TR against payment to DBS (see paragraph 47 above), DBS’ request for WF’s Consent for booking the Subject TR Loan by utilising credit facilities under the WF Letter/Agreement was nothing unusual, which in any event did not alter the true question of whether the features in paragraph 27(a)-(j) above were discrepancies and/or indicated fraud to such an extent that obliged DBS to refuse payment.

97.  On 9 August 2004, Au-Yeung informed So/Ng payment had been effected and the vessel name was “SORMOVSKI”. So claimed she suspected non-shipment by RL, so she told Ng to make enquiries with Au-Yeung who asked another bank officer to offer a vague explanation and asked So/WF to contact RL directly for complaint of non-shipment. So further claimed that on/about 19 August 2004 she/WF received all the Presented Documents and found out the Subject BL(s) in triplicate were in the same colour and bore different BL numbers. It transpired the Subject BL was forged, and no goods were delivered.

98.  In my view, the above matters were immaterial as DBS had effected payment under the Subject LC before 9 August 2004. Post-payment matters could not trigger the fraud exception, and DBS was bound to honour its undertaking to pay if the Presented Documents were compliant with the Subject LC Terms. Here, this turned on the contents of the Subject BL for the ASoC/AR did not aver the alleged concerns/enquiries in paragraph 92 above were expressly notified to DBS as indicia of fraud.

99.  So claimed DBS (a) failed to exercise due care to examine the Presented Documents to see if they were regular/compliant with the Subject LC Terms in accordance with international standard banking practice as reflected in the Articles, and (b) failed to take all reasonable steps to safeguard WF’s interests by wrongfully releasing payment to the fictitious RL (who failed to supply the goods to WF) when it should have rejected the bogus Subject BL (as no goods were ever shipped), so So/WF, NH and Hui were not liable for the Subject TR Loan and interests thereon. But in respect of (b) above, Mr Leung conceded DBS had no duty to verify the authenticity of the Presented Documents.[48] Thus, the true Post-Issuance Issue was whether the Presented Documents were discrepant and/or whether fraud was indicated to such an extent that obliged DBS to refuse payment.

X.  EXPERTS

100.  I agree with Mr Man that Soh’s experience/expertise were superior and more germane than Lee’s since the Post-Issuance Issue concerned the duty of DBS (issuing bank) under contract (including its obligation under UCP500) to properly examine the Presented Documents and to make payment under the Subject LC. Bearing in mind the core principles of autonomy of the credit, transaction in documents only and strict compliance (“Core Principles”), pertinent expert evidence would be from the viewpoint of a reasonable issuing bank rather than that of the reasonable buyer (LC applicant), seller (LC beneficiary) or other party.

101.  Training and experience  Lee claimed to be a self-employed consultant (T O Lee Consultants Ltd) in Canada that provided consultancy, expert, arbitration, mediation and training services on LCs, commodity trade, marine transport documents and trade fraud. His curriculum vitae (“Lee CV”) claimed he was named as 1 of the 9 best LC experts in a global survey by “L/C News” USA in November 2005, but he had never worked in a commercial bank.

102.  Lee said he had been retained by an American toy exporter (LC beneficiary) for 8 years to conduct due diligence review of its underlying sale contracts, LCs issued in its favour and stipulated documents before they were presented to banks. Lee also said he had retainers from importers (LC applicants) without elaboration on the services he performed. Lee claimed (a) he was the main trainer on LC operations for the Jardine Matheson group before starting his own consultancy business, (b) he provided in-house training and consultancy services to Fortune 500 corporations, and (c) he chaired public seminars globally. But such services were from the perspective of buyer/sellers concerned with underlying sale and purchase and not that of issuing banks who were to examine documents pursuant to the Core Principles.

103.  Lee named various banks (eg Dah Sing Bank, Bangkok Bank and American Express Bank in Hong Kong) as his clients but did not elaborate what particular services he rendered (except he drafted DOCDEX papers for Bangkok Bank but Dah Sing Bank consulted him for other matters). Lee claimed he provided in-house training and consultancy services to banks globally, but he had never worked at a commercial bank, and all he could say about how banks checked BL and other presented documents was:

“I know this from time to time from the coffee break, meeting the participants who come to my LC seminar and they complain to me because I’m outside there. And they complain that they only got 15 minutes to check a set of documents, in the average -- 15 minutes. Fifteen, one five. So they are already under pressure.”

But I am afraid this did not provide sound basis for international standard banking practice for bank examination of documents presented under LCs.

104.  This was in stark contrast to Soh’s curriculum vitae in the Soh Report (“Soh CV”) that carefully documented his education in commerce/ banking[49] and his training/career as a commercial banker with particular emphasis in documentary credits.[50] Soh had about 25 years’ experience in banking of which at least 20 years were primarily centred on trade finance and documentary credits. He was also a technical consultant on trade finance issues to the Association of Banks in Singapore and an external trade finance adviser to Deutsche Bank AG, Singapore since 2010.

105.  International documentary credit community  The Lee CV stated that since 1982 Lee provided comments on drafts of ICC banking/ trade rules,[51] he was actively involved in ICC Commercial Crime Services[52] (“CCS”)[53] and he was a representative of Canada in ICC trade matters.[54] It therefore appeared that a significant part of Lee’s experience related to trade and transport.[55] Turning back to LCs vis-à-vis banks, Soh was (but Lee was not) a member of the ICC Task Force on UCP Review in 2002-2004. Lee agreed the function of such task force was to carry out preparatory work for drafting the UCP, ie to work out UCP’s objectives and key principles, which in my view was plainly germane experience.

106.  According to the Lee CV, Lee was appointed as member of the UCP600 Consulting Group by ICC Paris in 2003 to give advice/opinion on revised articles prepared by the UCP600 Drafting Group, but since 2004 Soh was a member of the UCP600 Drafting Group itself. Lee conceded the UCP600 Drafting Group was more centrally involved in drafting the articles of UCP600. Lee claimed he did not have the time/resources to join the UCP600 Drafting Group which members had to attend global meetings 6 times a year for 3 years. But regardless of Lee’s reasons, the simple reality was he did not have the benefit of such experience. Likewise, Soh was a drafting member for the 2003 and 2007 versions of ISBP, but Lee gave the same reason as above for not being such member. But again regardless of his reasons, the simple reality was Lee did not have the benefit of such experience.

107.  Soh was Singapore’s representative to ICC’s Commission on Banking Technique and Practice since 1997, but Lee was only a member of the Canadian Working Party on such commission administered by the Canadian Bankers’ Association. Soh was an associate director of the Institute of International Banking Law and Practice since 2002, a member of the Documentary Credit World Advisory Board since 1999, and council member of the International Standbys Practice, USA since 2010.

108.  Both Lee and Soh were appointed to the panel of experts (about 70 members) for ICC DOCDEX[56] since 1997. Lee as DOCDEX expert only adjudicated 1 case about 15-20 years ago, and he blamed the small fee which made such work not profitable/worthwhile. Lee said he preferred drafting DOCDEX papers for banks which was financially more lucrative, but he drafted less than 10 such DOCDEX papers in the past 15-20 years although 90% of them concerned trade fraud and discrepancies. But regardless of his personal reasons, the simple reality was Lee only had limited experience as an adjudicating DOCDEX expert. This is contrasted to Soh’s participation in actual determination of 6 DOCDEX cases from 2011 to 2014, and he was chairman of the panel in 3 of those cases.

109.  Publications  According to the Lee CV, Lee had written generally about LC practice[57] and risks of trade fraud in Mainland China,[58] and since 1993 he contributed to a Sunday column in the local newspaper. Lee claimed 90% of such column contributions concerned LCs, and a lot of bankers circulated clippings thereof within their bills departments. It appeared curious that LCs would command persistent paper media interest for 20 years, but be that as it may, such contributions were unlikely to be

from a banker’s perspective as Lee had never worked at a commercial bank.

110.  On the other hand, Soh was the contributing author of a number of publications on documentary credits and UCP from a banker’s perspective as listed in the Soh CV including articles in “Documentary Credit World”. Indeed, Lee had read UCP600: An Analytical Commentary, a book co-written by Soh and Professor James E Byrne and published by the Institute of International Banking Law and Practice. Lee was constrained to accept Soh’s expertise in UCP was more germane to the present dispute.

111.  Seminars  The Lee CV stated he chaired public seminars in Mainland China, Hong Kong, Macau, Taipei, Malaysia, Bangkok, Singapore, Middle East, Europe, United States and Canada (but it was unclear who were the organisers and target audience), and went on to claim his professional workshops (for Fortune 500 corporations and banks globally) were known to be interesting, insightful, inspiring and interactive. On the other hand, the Soh CV stated Soh had been invited on numerous occasions by professional bodies[59] to lecture in various countries on inter alia documentary collections, rules of LC practice, ISBP and trade fraud, and by the PRC judiciary  to lecture judges of the Supreme People’s Court and other Chinese courts on documentary credits and ISBP. Soh also served as panelist and co-chair of the Annual Survey of Letter of Credit Law and Practice at sessions held in Mainland China, Europe, Dubai and Singapore. In my view, Soh’s experience was more germane to the present dispute which concerned a bank’s rights/obligations on documentary payments in the context of LC banking practice, UCP and ISBP.

112.  Expert witness  According to the Lee CV, Lee was a fellow and accredited expert (LC) of the academy of experts, Gray’s Inn, London, and he provided expert witness services to international lawfirms in LC litigation involving commodity goods, trade frauds, China trade, Incoterms 2000, BLs and maritime charter parties. Lee said in the past 15-20 years he worked on 30 or so expert opinion drafting assignments for non-DOCDEX disputes relating to, say, LC or fraud matters, but most of these cases were resolved outside court/arbitration. It appeared from the above that Lee’s experience concerned more with shipment, trade and fraud issues rather than banker’s duties under LCs. But Soh was instructed as expert witness in disputes relating to LCs and international standard banking practice in Singapore, Malaysia, Hong Kong, Mainland China and Korea, and the Soh CV listed 14 specific pieces of litigation (with 12 being instructed by banks) in which he gave opinion, filed affidavit and (in 5 cases) testified in court. In my view, this aspect of Soh’s experience was more germane to the present dispute than Lee’s.

113.  Approach towards expert opinion  Soh approached the present dispute from a commercial bank’s perspective and rested his opinion on his knowledge, experience and expertise as a banker. Lee was constrained to agree his experience/expertise were different from those of a commercial bank document checker, so what might have been obvious and clear to him with his knowledge of “trade practice” (which Lee said in a broad sense covered LC, shipping, transport, cargo insurance and other practices, and he accepted LC and shipping practices were quite different despite some overlap) might not be obvious and clear to the usual commercial bank document checker.

114.  In my view, Lee’s opinion evidence must be considered against the limitations of his expertise and his perspective that was driven by “trade practice”. My instinctive reaction was that the Post-Issuance Issue was more a matter for Soh than Lee, which view was reinforced as the expert evidence unfolded. With respect, Lee’s evidence was not always easy to follow. He danced in his replies to XXN questions, but if/when he was eventually tied down to give direct answers he often had to change his views or make concessions. Mr Man’s XXN questions were understandably focused on banker’s duties in view of the Post-Issuance Issue, but Lee had an unhappy tendency to digress into his own views on “trade practice” until with some effort he was called back to concentrate on the XXN questions (which at times Mr Man had to repeat for him). There were times when Lee tended to go on his own tangent,[60] and had to be reminded to focus on questions asked of him. None of these matters reflected well on the reliability of Lee’s opinion evidence. On the other hand, Soh’s answers under XXN were focused and his explanations stayed within the parameters of “banking practice”. Indeed, he carefully declined to comment on whether Baltic Maritime was “big carrier” or “small carrier” as a bank document checker was not concerned about such matter. There was no need for Mr Leung, So (for NH) or the court to “lasso” Soh back to the corrals of banking practice under the Post-Issuance Issue.

115.  So in her written closing submissions for NH complained this court was more lenient with Soh but prevented Lee from giving explanations under XXN. The trial transcript would speak on this, but I have explained in the above paragraph the significant difference in Lee’s and Soh’s approach in evidence, and I also refer to Part XIV below that highlighted the difficulties in Lee’s evidence on specific “red flags”. I say nothing further except to note Mr Leung (on behalf of So/WF herself) particularly confirmed he would not rely on So’s above submissions made for NH.

116.  Summary  Given Lee’s confession in paragraph 113 above, it was difficult to see the relevance of his experience that was steeped in “trade practice” in contra-distinction to international standard “banking practice” under UCP500 that a reasonable issuing bank should adopt for examining documents presented under LCs, especially when the issuing bank had no duty to know trade terms/customs of its customers. There was force in Mr Man’s submissions that Lee’s expert opinion was not on point, ie what the Subject BL would have suggested to a reasonable banker. Soh’s experience in commercial banking with emphasis on documentary credits and his approach from the viewpoint of a commercial bank were more germane to the Post-Issuance Issue. Nonetheless, in Parts XII to XIV below, I shall go on to consider the evidence of each Expert on the merits. Suffice to state here I have anxiously sought to consider Lee’s evidence taken as a whole, but on balance I prefer Soh’s evidence which formed a consistent whole that was more germane to the present dispute.

XI.  EXPERT’s DUTIES

117.  In my judgment, it is necessary to bear in mind the respective functions of expert and judge. Since the expert expresses his opinion within the particular area of his expertise and the judge weighs all the facets of the case which includes evaluation of the expert opinion in making findings of fact, the court is dependent on the skill, knowledge, objectivity and professional/intellectual integrity of the expert, and opinion evidence from expert witnesses who fail to display such qualities may inhibit proper assessment of the case before the court. Expert witnesses are expected to carefully consider the available material, and express unbiased opinion which takes such material into account and which can be objectively justified and uninfluenced as to form or content by the exigencies of litigation. These useful principles have been enshrined in Fu Kor Kuen Patrick v HKSAR in which Gleeson NPJ again reminded of the need to draw careful distinction between matters that are legitimately the subject of opinion (and hence within the expertise of expert witnesses) and matters of fact which are for the trial judge.[61] Quite simply, expert witnesses do not possess expertise of a kind that qualifies them to express for the information of the court opinion about matters of fact. But as seen below, Lee’s evidence reflected misunderstanding of the limits of expert opinion evidence, and this served to undermine the overall reliability of his views.

118.  The Lee Report referred to an interview with P K Mukundan (director of ICC’s CCS) (“Mukandan”) by Ron Katz titled “P K Mukandan warns about cybercrime, phony bills of lading and other scams” published by ICC DCInsight Vol 5 No 4, Autumn 1999 issue (“Mukandan Interview”). Mukandan opined there was a lot of pressure on bank staff to produce results, to meet financial targets and to get new business, and when these pressures became great “people tend to forget the basic precautions they would otherwise take”.

119.  The Lee Report asserted (a) bankers worldwide faced succession planning problems as “young men are not willing to work or stay in the [LC] department” because the chance for promotion and total income package were not as attractive as those for investment portfolio or trustee management, sales/marketing and mortgage departments, (b) bills departments lacked funds to provide adequate training to document checkers,[62] and (c) as a result most bank managers had to stay behind after 5:00pm “to rectify mistakes and improper procedure done by members [their respective] team” which phenomenon had spread from Hong Kong, India, Dubai to Canada and United States.

120.  But apart from Mukandan’s views the Lee Report did not explain how Lee learned of such matters when he had never worked for a commercial bank. Even more perplexing was Lee’s opinion in the Lee Report that the phenomenon he described “may explain why in the [Subject BL], so many red flags could pass unnoticed”, but it could be due to the fact the document checkers facing high pressure had forgotten the basic precautions they would otherwise have undertaken or “[this] could be also due to other reasons, such as the DBS manager had taken a leave or being too busy during that week, he was unable to spare some time in checking the work done by his team”.

121.  The reason why DBS’ document checker did not “notice” the “red flags” Lee identified was plainly a question of fact, and it was not for Lee to tread on such matter. More worrying was Lee’s eventual confession that the allegations he put forward in paragraphs 119-120 above “...... may be, or may apply to DBS [he doesn’t] know, because [he doesn’t] know that DBS people ...... Although, in [his] seminar, DBS manager also came to [his] seminar held in Hong Kong, but [he doesn’t] talk to them to such detail”. This cavalier speculation gave pause for concern. As regards the general situation he alleged to in paragraph 119 above (eg insufficient funding for bills department etc), all Lee could say was that his banker friends in Toronto, Hong Kong and Dubai complained to him of such general phenomenon during coffee breaks at seminars. There was simply no basis that they were relevant to DBS in relation to the Subject LC.

122.  In any event, I prefer Soh’s evidence that bank officers in specialised bills, trade services or trade settlement department would receive general training on (a) UCP (including Article 13) and ISBP, (b) the particular bank’s internal documentation requirement, and (c) how to examine documents with reference to fraud examples that such bank had encountered previously (but the scenarios of suspicion or “red flags” in such training materials would not necessarily include  BL with no BL number, no container numbers, no carrier’s contact details and no letterhead).

XII.  FRAUD?

123.  The central issue was whether the Subject BL showed sufficient indication of fraud to oblige DBS to refuse payment. Banking practice is necessarily built around legal requirements, and in my view Lee’s non-appreciation of the correct test raised concern. This was reflected in the 2^nd issue in the Lee Report that Lee himself framed:

“Whether the Issuing Bank [ie DBS] has been negligent in its failure to take note of the red flags in the data content of the [Subject BL] that should lead to suspicions for fraudulent documents and/or trade fraud?”

As Soh said, this issue was ill-defined, and the proper expert issue was whether there were any clear and obvious features in the Subject BL which, according to international banking practice, should cause DBS to refuse payment of the credit for fraud.

124.  As seen in Part V(j) above, the relevant criterion was whether there was clear and obvious evidence or irrefutable evidence of fraud to the knowledge of the bank before payment. Instead, Lee opined the Subject BL bore many unusual data content that should have drawn the attention of a competent document checker at DBS, and such “red flags” meant DBS should have been suspicious about fraud. But he agreed even though “red flag” was a term used by the LC community, it was “not legitimate term ....., it is not the official LC term, it’s not the slang, I may say”.

125.  When pressed on what criterion he applied, Lee said he asked whether the “red flag(s)” were extraordinary, very odd and/or very strange in contrast to mere typographical or absent-minded mistake (eg he had never seen a BL number of “1 of 3”, “2 of 3”and “3 of 3” which was very odd and hence an indication of fraud) on the basis of “trade practice” rather than UCP which could not cover all details (eg UCP500 did not deal with BL number). I reject such opinion which filed against the Core Principles, reflected misunderstanding of the true test for the fraud exception and ignored the irrelevance of extraneous matters such as “trade practice” as explained in paragraph 58 above. Such misunderstanding permeated Lee’s opinion on the “red flags” and undermined his overall reliability.

126.  When pressed, Lee initially said he also considered whether there was clear and obvious evidence or irrefutable evidence of fraud (not mentioned in the Lee Report) but it transpired he assumed they were all the same question:

“I mean that is the way I judge the red flag also. Clear, obvious and irrefutable and also odd and strange and, you know, not -- rarely happen in the trade practice, altogether ...... plus also one commonsense ...... It’s one way of expressing how the red flag will be judged, the basis. You can have other description as well leading to the same ......”

When further pressed, Lee had to agree irrefutable evidence of fraud (a higher requirement that was more difficult to satisfy) and what was extraordinary, very odd and/or very strange as against “trade practice” were different and he actually applied the latter test when he wrote the Lee Report. But whether the “red flags” Lee identified were extraordinary, very odd and/or very strange was nothing to the point, and his failure to appreciate the true criterion undermined his evidence. The above evidence also showed Lee was quite prepared to say whatever came to mind in face of difficult questions.

127.  Further, Lee also misunderstood who carried the burden of establishing fraud. As explained in Part V(j) above, the evidential challenge was rarely met,[63] and it was unlikely fraud would be apparent from the presented documents themselves. It was for So/WF to provide DBS with compelling and cogent evidence of fraud, and not for DBS to make inquiries into the merits of “red flags” or to make investigations to verify the data content of the Subject BL (see paragraph 64 above). Despite this, the Lee Report claimed that according to Lee’s experience in dealing with LC fraud cases, when DBS’ document checker found more than 1 “red flag” in the Subject LC, it was international (including Hong Kong) standard banking practice for such document checker to immediately make enquiries with ICC’s CCS to verify the truth or otherwise of the data content of the Subject BL.[64] This raised doubt over Lee’s understanding of the proper duty of a bank document checker who is bound by the Core Principles to examine documents “on their face” and not to delve into extraneous matters (see paragraphs 45-46 and 55-56 above), trade practices/customs (see paragraph 58 above), or genuineness of documents (see paragraph 57 above), and seriously undermined Lee’s analysis of the “red flags” discussed below.

128.  The Lee Report went on to say that under Article 14.c and as a matter of prudence a bank document checker should also approach the LC applicant to find out the background of the underlying trade and full particulars of the beneficiary (particularly when the beneficiary was a first time supplier) to help him determine whether he would accept a BL that bore a lot of “red flags”, and that “[it] is quite strange that DBS in this case did not approach the applicant [ie So/WF] and paid the presentation outright without the agreement of the applicant. Such imprudent action would place DBS in a very disadvantageous position in case the [Subject BL] proved forged in later days”.

129.  This was a surprising criticism since Ng (for WF) gave the Consent before DBS booked the Subject TR Loan for payment under the Subject LC. Under XXN Lee withdrew his criticism in the above paragraph. But of more concern was Lee’s misunderstanding of the meaning/effect of Article 14.c which provides as follows:

“If the Issuing Bank determine that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13 (b).” (my emphasis)

Nothing in Article 14.c required DBS to approach So/WF as the Subject LC applicant: (a) Article 14.c was inapplicable as DBS determined the Presented Documents were compliant with the Subject LC Terms, (b) even if it were applicable (but I disagree), DBS had a discretion but no obligation to approach So/WF for a waiver. I have explained in paragraph 59 above why DBS need not approach So/WF on the Presented Documents.

130.  In the end, Lee agreed under XXN there was nothing in the Subject BL that amounted to irrefutable evidence of fraud (which in RXN he said meant absolutely unarguable, indisputable or indefensible), and he accepted there could be challenge that the “red flags” he identified were not sufficient indications of fraud, ie they were not “bullet-proof”. Such concession must militate against the applicability of the fraud exception.

XIII.  DISCREPANCIES?

131.  Lee confessed the “red flags” identified in the Lee Report were focused on whether they were indicia of fraud and he did not deal with discrepancies in the Lee Report, which must be correct because none of the 4 issues he himself framed mentioned the issue of discrepancies. Lee claimed under XXN some “red flags” might well be discrepancies, but there was no proper analysis in the Lee Report of whether/how they amounted to discrepancies. I find such belated assertion unreliable as borne out by Lee’s evidence on the “red flags” which metamorphosed under XXN.

132.  Lee’s initial stance under XXN was all “red flags” were discrepancies. He later said certain “red flags” such as (a) Notation in wrong box, (b) absence of measurements of goods, (c) absence of voyage number, (d) absence of shipping marks, and (e) absence of letterhead / details of carrier were not discrepancies. Then he said (a), (b) and (e) above were discrepancies. When asked how to square such volte-face, Lee said the many “red flags” he identified were “different in nature” and not equal, and he thought Mr Man’s initial XXN was confined to consideration of UCP500 and not ISP645, but such features were discrepancies as they did not satisfy the function of a BL as required under Paragraph 43:

“Title of documents and combined documents

43. Documents may be titled as called for in the credit, bear a similar title, or be untitled. For example, a credit requirement for a “Packing List” may also be satisfied by a document containing packing details whether titled “Packing Note”, “Packing and Weight List”, etc., or an untitled document. The contents of a document must appear to fulfil the function of the required document.” (my emphasis)

133.  Lee said UCP500 was too simple and “subject to different, opposite interpretation”, but ISBP645 was an “extension”/“companion” that explained the Articles and their requirements/implications. “Whatever’s not said in UCP will be covered by ISBP to end all the arguments and different, opposing interpretations.” So if ISP645 and UCP500 were considered as whole, a “red flag” that did not affect the document’s function might not be a serious discrepancy but would be an “odd thing” outside normal banking practice (eg a BL not titled as such would suffice if it appeared to fulfil the function of a BL), but if a “red flag” affected a document’s function then it would be a serious discrepancy (eg even though UCP500 did not deal with the BL number, as a matter of common sense and “trade practice” a real BL must have a BL number and a very odd BL number would be a serious discrepancy). Hence, Lee opined that even if the Subject BL satisfied the requirements in Article 23.a.i-vii (and Article 23.a provides that in such circumstances “banks will, unless otherwise stipulated in the Credit, accept [the BL]”), DBS should not make payment if the Subject BL did not serve the function of a BL.

134.  I disagree. First, it is difficult to understand degrees of seriousness for discrepancies. If the Subject BL was discrepant for whatever valid reason, then DBS had to reject the Presented Documents under the principle of strict compliance (see paragraph 56 above) and it mattered not whether the discrepant feature was more or less serious. Secondly, the fact a feature appeared “odd” did not mean the document was discrepant so long it is compliant with the LC terms (including UCP500) as understood in international standard banking practice because it was not for the document checker to reason why (see paragraph 55 above). Thirdly, “trade practice” in the broad sense explained by Lee in paragraph 113 above (other than international standard banking practice) had no relevance (see paragraph 58 above). Fourthly, ISBP645 does not amend UCP500, but is merely a non-binding source of good banking practice. It articulates the Articles but does not add further obligations beyond UCP500 (see paragraph 54 above). As Soh said, the DBS document checker should apply UCP500 (incorporated in the Subject LC) in examining the Presented Documents whilst ISBP645 would only help him as reflecting international standard banking practice.

135.  Fifthly, I do not agree with Lee’s reading of Paragraph 43, which was plainly concerned with the title of presented documents, so however the document was titled or untitled as compared with that called for in the credit it would suffice if its contents fulfilled the function of the required document. As Soh explained, Paragraph 43 clarified that the banker should look on the face of the document to see that it appeared to fulfill the function of that particular document. But it would not open the door for a bank document checker to go beyond the documents to make inquiry or conduct investigation to verify the data content of such document or to pray in aid “trade practice” or other extraneous matters to query the genuineness of such document and/or its data content. After all, ISBP645 cannot (and does not) fly in face of the Core Principles as well as other requirements as discussed in Part V(a), (b) and (h) above. Paragraph 43 also would not impose any requirement on DBS as issuing bank that was additional or extraneous to the Subject LC Terms and UCP500 (see Part XIV below).

XIV.  “RED FLAGS”?

136.  Soh’s stance was straightforward. Article 23.a made clear DBS should accept a BL if it met the requirements in Article 23.a.i-vii. Article 23 did not require such BL to indicate the BL number, container numbers, shipping marks, measurements of goods, voyage number or carrier’s contact details. The Subject BL made out to the order of DBS notifying WF with its full address and marked “freight prepaid” complied with the Subject LC Terms. It was signed by the carrier Baltic Maritime, and showed (a) shipment from a Russian port UST Luga to Sanshan Port, China as required in the Subject LC and (b) shipped on board “Sormovski” dated 9 July 2004. Hence, Soh regarded the Subject BL to be compliant with the Subject LC Terms and Article 23. I turn to discuss Lee’s views.

(a)  No designated area to set out name of vessel

137.  This pleaded feature was not mentioned in the Lee Report. Soh confirmed UCP500 and the Subject LC terms had no such requirement as it was for shipping companies to design their own BLs. This feature was neither a discrepancy nor an indication of fraud.

(b)  No evidence or proper evidence that goods had been shipped on board named vessel

138.  This pleaded feature was not mentioned in the Lee Report, and Lee conceded a Notation appeared in the Subject BL. This feature was neither a discrepancy nor an indication of fraud.

(c)  Notation in wrong Loading Box

(d) Notation in Subject BL was odd and not consistent with international shipping practice

139.  Article 23.a.ii states that the bank will accept a BL which inter alia indicates the goods have been loaded on board or shipped in a named vessel. There was no dispute the Subject BL contained a Notation, but the Lee Report suggested it should not be in the Loading Box which should be used exclusively for stating the port of loading. Both Experts accepted a Notation by stamp (although it could be printed or written) could be stamped anywhere on the face of the BL, but Lee claimed that here the Notation should be placed in the box for “Special Markings and Notations if any” in the Subject BL so the Notation in the Loading Box should have raised a “red flag” that the Subject BL might not have been issued by a genuine sea carrier who should have known how to properly fill out a BL.

140.  Lee initially said this was neither a discrepancy nor indication of fraud that obliged DBS not to make payment. He later claimed it was a discrepancy as such feature contravened Paragraph 43 by making the Subject BL non-functional. But Paragraph 43 would not assist in this context (see paragraph 135 above), and I cannot see how a Notation that actually appeared on the face of the Subject BL (even in the wrong box) would render the Subject BL non-functional. Still later, Lee said this feature was a technical flaw that might have allowed a “silly”/“strict” examiner to refuse payment, but it was “...... not serious enough to establish a discrepancy ......, but it’s a red flag definitely [for fraud]” because “first you have a box for this information, don’t use, and secondly, it is done very unprofessional way”. I cannot accept such confused views which spoke of unreliability, especially when Lee conceded he sometimes (but rarely) saw genuine BLs with information not filled in the correct box.

141.  On balance, I prefer Soh’s views that this feature was not a discrepancy as Article 23.a did not require the Notation to be in the Loading Box, and it was sufficient and acceptable for a bank document checker so long as the Notation was on the face of the BL. So explained that wherever the Notation might be in the Subject BL, it would evidence that goods had been loaded on board a named vessel “Sormovski” which complied with the Subject LC Terms. On balance I find this feature was neither a discrepancy nor an indication of fraud. It was nowhere to the point to suggest the Notation was “odd”, and international shipping practice was irrelevant for a bank document checker (see paragraph 58 above).

142.  Lee tried to query whether “Sormovski” was the name of vessel in the absence of the prefix “MV”, and whether the date of loading was the same as the date of shipment being 9 July 2004. The short answer was that these features were not mentioned in the Lee Report nor pleaded in So’s/WF’s pleadings. Further, whilst Soh agreed it was unusual for the name of vessel to be without the prefix “MV”, he said it was not a discrepancy or necessarily a “red flag” to put a bank on notice to make inquiries beyond the documents, and here it was plain from the Notation in the Loading Box that “UST LUGA” was the port of loading and “SORMOVSKI” was the named vessel. Indeed, Lee eventually conceded “[no] MV, no problem, but better have it ......”

(e)  No letterhead and insufficient information of carrier

143.  Article 23.a.i states the bank will accept a BL which inter alia:

“i. appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:

- the carrier or a named agent for and on behalf of the carrier, or

......

Any signature or authentication of the carrier ...... must be identified as carrier .......”

Lee criticised the Subject BL for not having (a) sufficient information, say, the carrier’s contact details and (b) a letterhead that showed the name and other particulars of the carrier contrary to international shipping practice and BIMCO requirements.  I am unable to see the relevance of international shipping practice in document examination by an issuing bank (see paragraph 58 above).

144.  As regards BIMCO requirements, the Lee Report asserted BIMCO designed/approved all forms of BLs for carriers worldwide and the BIMCO approved format required BLs to bear letterhead showing the carrier’s name and other particulars, and appended a specimen BIMCO BL (with BIMCO stamp near letterhead in the left margin) as illustration (“Specimen BL”). I disagree. Lee confessed BIMCO did not require use of (and not all carriers used) its standard forms that were merely recommended forms. Anyway, the Specimen BL did not contain contact details of the carrier, so Lee had to say even if all boxes were properly filled up the Specimen BL would not have fulfilled the requirements of a BL. His explanation, which was quite beside the point, was that a carrier could add further requirements “a la carte”. But when pressed to focus on why a duly completed Specimen BL would not fulfil the function of a BL, Lee then suggested that a commercial BL for ordinary sea voyage was different from the Specimen BL which was a charter party BL (since the broker would handle communications between charterer/shipper and carrier), but Lee did not produce any BIMCO specimen for the former to make good such allegation. I find Lee’s wandering observations unconvincing, especially when on his own evidence there were other means for a consignee or notify party to contact the carrier.

145.  Lee next claimed he had never seen a genuine BL without letterhead, but on balance I prefer Soh’s evidence that such feature was quite common and not being an unusual feature was not an indication of fraud. Although Lee at first said it was not his complaint that the carrier’s name was at the bottom of the Subject BL (ie “Baltic Maritime” appeared twice at the bottom) and not at the top, he contrarily said “[what] I mean is, at the top left-hand ...... must appear there”. When pressed, Lee agreed “you can put it anywhere you like” and it did not necessarily have to be at the top, but it was a clear red flag “...... because 99% of the [BL], usually you have the name on top rather than at the bottom. ...... It’s queer, unconventional. ...... Or to be fair, this is a half a red flag ......” or a “pink flag” that was extraordinary, odd and strange in trade (ie shipping) practice. I agree with Mr Man this showed Lee was quite prepared to say what came to mind at the time without regard to whether it was his considered opinion, applied the wrong test of “extraordinary, odd and strange” for the fraud exception, and took into account trade/shipping practice that was irrelevant for a bank document checker. In all, I find Lee’s evidence unreliable. Upon scrutiny of the Subject BL on its face, I cannot see the carrier’s name being at the bottom (which was permissible) would amount to any red/pink flag.

146.  Lee initially said this identified feature was not a discrepancy but was clear and obvious evidence or irrefutable evidence of fraud that obliged DBS not to pay under the Subject LC. He gave the reason that “Baltic Maritime” was just a logo or trade name and not the full legal name of a common carrier as (a) it was too simple and (b) there were no words like “Limited”, “Incorporated” or “GmbH” to indicate it was a corporation, so it was a “red flag” that should have alerted the DBS document checker that the Subject BL might not have been issued by a genuine carrier. Still later Lee said this was a discrepancy, so the lack of the carrier’s full name in the Subject BL was both a discrepancy and a sufficient indication of fraud.

147.  In my view, the unreliability of such fluctuating opinion was compounded by Lee’s acknowledgment that he did not know whether every legal jurisdiction would require word like “Limited” to appear in the name of a corporation. Nonetheless, he clinged to the view this was extraordinary, odd and strange (which was a wrong criterion for the fraud exception), and when asked to apply correct test he said it was “perhaps” clear and obvious evidence of fraud but strangely claimed it was irrefutable evidence of fraud. When pressed, Lee changed his evidence to say “[it] is only a red flag rather than irrefutable ..... I would say it’s a point to raise a caution”. I reject such meandering evidence as unreliable.

148.  Still later, Lee said this feature impaired the function of the Subject BL, so it was a discrepancy or even a major discrepancy. It was said that since a BL was a contract of carriage, negotiable title document and receipt for goods, any missing/misleading data might affect its whole operation, so a BL must show the carrier’s contact/email addresses and telephone number to enable the consignee and/or notify party to contact the carrier, its representative or port agent to claim the goods, and a BL without such contact details would not fulfil its function as a BL under Paragraph 43.

149.  On balance, I accept Soh’s evidence he had seen quite a number of BL without the carrier’s contact details. Indeed, Lee accepted no law prescribed that a consignee and/or notify party could only communicate with the carrier by telephone number printed on the BL. But Lee claimed if the BL did not have the carrier’s telephone number, it would “usually” or “almost invariably” have the name and telephone number of the port agent of a “big carrier”, but a “small carrier” might not have a port agent, which meant it was not absolutely necessary for the carrier’s contact details to be found on the BL itself. All Lee could say was “trade practice” for “transport operations” would not have made it inconvenient for the consignee and/or notify party to approach the carrier or its port agent. But as explained in paragraph 58 above, a bank document checker examining documents on their face was not concerned with “trade practice”, and even Lee had to concede banks would not be imputed with knowledge as to whether any carrier was big or small. Soh as banking expert properly declined to comment whether Baltic Maritime was a big or small carrier. Moreover, Lee agreed neither UCP500 nor ISBP645 says the carrier’s contact details are absolutely necessary for the function of the BL.

150.  The Lee Report prayed in aid the Mukandan Interview in which Mukandan said when a freight forwarder issued the BL, it would be useful for the bank to check whether the letterhead gave the full contact details of the party that issued the BL as “[most] false [BLs] may not contain this information, because the fraudster does not want any check made into the authenticity of documents”. Here, Mukandan was speaking as director of CCS on tips to prevent trade frauds, and he did so in the context of a BL issued by a freight forwarder. Whilst there might have been heightened concerns about authenticity when the BL was issued by a remote party, here the Subject BL was on its face issued by the carrier. I am unable to draw assistance from the Mukandan Interview.

151.  In all, I accept Soh’s view that it was for So/WF to specify in the Subject LC Application the requirement for the carrier’s details to be shown in the Subject BL, but this was not a requirement in the Subject LC Application/Terms, so absence of the carrier’s details and/or a letterhead with the carrier’s name and particulars did not render the Subject LC discrepant. I also agree with Soh that Paragraph 25 was irrelevant as the Subject BL appeared to have been duly completed and signed by Baltic Maritime as carrier.

(f) No valid BL number

152.  The Lee Report stated (a) shipping operations were all computerised to reduce idle time and costs, (b) according to “international shipping practice” a typical 4-6 digit BL number required by customised or off-the-shelf shipping operations computer software would be alpha-numeric,[65] (c) such computer software would reject “1 of 3”, “2 of 3” and “3 of 3” as BL number, (d) the Subject BL’s number being “1 of 3”, “2 of 3” and “3 of 3” merely meant 1 set of 3 originals had been issued so it should not appear in the “Bill/Lading Number” box (“Number Box”) that should have the same number for all 3 originals but in the “Number of Original Bills of Lading” box, and (e) it could be said the Subject BL had no BL number since “1 of 3”, “2 of 3” and “3 of 3” did not amount to any proper BL number, so even as a matter of common sense these matters “should have raised a red flag to the document checker in DBS because this is a strong indication of a forged document”.

153.  Lee’s point was the BL number was a necessary correlation between the BL and a particular batch of goods, so an invalid BL number must be a “red flag”. But he conceded information about all goods would be in a cargo manifest and there was no rule/law that referencing a BL to particular batch of goods must be by a BL number. He accepted it would not be difficult to search the name of a shipper from a computerised cargo manifest, but insisted that in 2004 the BL number was the only link between BL and cargo as computerisation was then not prevalent and cargo manifest was still paper-based. But when pressed, Lee conceded (a) some “big carriers” were already computerised by 2004 and (b) banks would not be imputed with knowledge as to whether any carrier was big or small and/or whether or not the carrier’s system was computerised.

154.  Further, contrary to Lee’s above assertions, the Lee Report in paragraph 152(a)-(c) above suggested all shipping operations were computerised and in paragraph 157 below Lee relied on computerised container transport to criticise the lack of container numbers in the Subject BL. Lee tried to sidestep such contradiction by saying he used present tense in the Lee Report (December 2010), but such excuse was not understood for it would be quite pointless for Lee to give opinion on the situation in 2010 when the Presented Documents were examined and payment made in 2004. Lee then said he was referring to “2004, not too far away” but the transition was gradual. Such chameleon changes reflected unreliability, and I am not persuaded they offered sound basis for criticism of this identified feature.

155.  Although the Lee Report suggested this identified feature was a “red flag”, Lee claimed lack of a valid BL number was clear and obvious evidence or irrefutable evidence of fraud that obliged DBS not to pay under the Subject LC. Lee boldly claimed no express requirement under UCP500 and/or ISBP645 was needed because as a matter of common sense and “trade practice” a genuine BL must have a valid BL number, and a very odd BL number was a serious discrepancy. But as Soh reminded, the primary consideration was the absence of any requirement in either UCP500 or Subject LC that the Subject BL must be assigned a BL number. Further, I prefer Soh’s opinion that the identified feature would not have rendered the Subject BL non-functional. Since a BL number was for reference by the carrier or shipping company, other correlation (eg shipper’s reference) might also be used. A shipper’s reference was on the face of the Subject BL, and the absence of an assigned number for the Subject BL would not have made it discrepant. Whilst Soh agreed it was usual to have the same BL number for a set of 3 original BL(s) and unusual for the BL number to be “1 of 3”, “2 of 3” and “3 of 3”, he said it depended how one interpreted the BL number. Soh explained that as the lack of an assigned BL number was not a discrepancy and the Subject BL had 3 originals, “...... so the first original could be one of three, the second original could be second of three, and the third original should be third of three”. In the circumstances (and on balance I accept), such feature was not a discrepancy.

156.  Soh further reminded (and on balance I agree) that if the presented documents were not discrepant on their face, the issuing bank could not raise a “red flag” as a reason to refuse payment, especially when the LC nominated another bank to honour/negotiate the draft, and the nominated bank did honour/negotiate the draft. Here, the Advising Bank (as confirming/nominated bank) had paid under the Subject LC (on 19 July 2004) and received reimbursement from the Reimbursing Bank (value 21 July 2004), so DBS as issuing bank could not raise a “red flag” to refuse reimbursement to the Reimbursing Bank as its agent under the Subject LC. Mr Leung also referred to Paragraphs 31-32 that talked about originals, but these provisions were not on point and did not particularly refer to BLs.

(g)  No container numbers

157.  UCP500 did not have any provision that required container numbers to be stated on a BL. But the Lee Report complained that by merely specifying 55 containers without container numbers in the Subject BL the carrier would be unable to input information about the goods[66] into computer system of the container depot/terminal, which would make it “mission impossible” to load/discharge goods onto/from the relevant vessel. Lee’s point was a BL must have container numbers to correlate the BL to the particular batch of goods (and he disagreed container numbers could be kept in the carrier’s internal records) otherwise the BL could not function under computerised operations. Lee claimed this “red flag” was independently clear and obvious evidence or irrefutable evidence of fraud that would have obliged DBS not to pay under the Subject LC and was a discrepancy that was even more serious than having no valid BL number, hence the DBS document checker was either incompetent or in breach of duty of care/ diligence in failing to identify this feature.

158.  The Lee Report relied on the terms/conditions printed on the reverse of the Subject BL (“Overleaf Conditions”) to show the carriage was subject to the Hague Rules 1924 that were introduced before days of container transport. Lee suggested the Subject BL was in breach of Article III(a) thereof as applied to container transport (which implicitly meant the BL should show container numbers on the containers), and as a result the BL might not function as contract of carriage, negotiable title document and/or receipt of goods (see also Article III4). But this was irrelevant as Lee himself recognised international standard banking practice did not require a bank document checker to examine the Overleaf Conditions (see also Article 23.a.v), so DBS could not have been put on inquiry by virtue of (and its liability could not be affected by) the Overleaf Conditions.

159.  Lee did not rely on ISBP in the Lee Report, but under XXN he sought to rely on Paragraph 38 which provides that “[transport] documents covering containerised goods will sometimes only show a container number under the heading ‘Shipping Marks’. Other documents that show a detailed marking will not be considered to be inconsistent for that reason” (my emphasis) to support his contention that container numbers must appear somewhere on the BL otherwise it might be a discrepancy or “red flag”. This must be wrong since, as Soh explained, Paragraph 38 says container numbers only “sometimes” (and not invariably) appear on transport documents.

160.  The Lee Report cited 2 articles in support of Lee’s propositions. First, Lee cited the Mukandan Interview for the proposition that lack of container numbers on BLs “should put banks on notice, because without a container number, in today’s system of containerised transport one will not be able to locate the cargo”, and for the reminder that banks could help themselves if their staff were more aware of what to look for in certain shipping documents, and if as a matter of prudence they put in place internal due diligence measures to avoid getting caught up in fraud.

161.  But it was clear that Mukandan as a director of CCS spoke in a different context, ie how banks should protect themselves from being victims of fraud when holding BL as security, and he made clear “...... the kinds of frauds that we are talking about and the preventive measures, we think banks should adopt, have nothing to do with the banks liabilities under UCP”, and “what we’re looking at are cases where buyers and sellers act in collusion” to defraud banks. Lee was constrained to agree Mukandan was not saying if the BL did not have container numbers the bank should regard itself as not being liable to pay under the LCs. Further, the Mukandan Interview was published in 1999 when UCP500 was applicable (since UCP600 came into effect in 2007). He was discussing how UCP500 could be reformed, and it was such context he considered whether the future UCP should require container numbers to be stated in the BL, which must mean UCP500 as it stood did not yet have such requirement.

162.  Secondly, Lee referred to an article titled “Andy Holder on the shocking Solo Industries fraud” published by ICC’s International Maritime Bureau in DCInsight Vol 6 No 3 Summer 2000 issue (“Holder Article”), which discussed investigations about such fraud and stated that “[whilst] there is no requirement under UCP500 for containerized [BLs] to state container numbers, it is clear that in the container trade it is impossible to locate cargo without a container number. Such [BLs] should have aroused suspicion” (my emphasis), and whilst some countries (including the UAE) implemented changes following such fraud there was “no real substitute for the application of due diligence, intelligently and selectively applied”.

163.  The Lee Report suggested the Solo Industries fraud was oft-discussed in training courses / public seminars and DCInsight was a popular magazine amongst bankers, so DBS’ document checker (a) should regard absence of container numbers in a BL (which made it impossible to locate the relevant goods) as indication of fraud, and (b) should have followed UAE in changing banking practice to check for container numbers as a matter of due diligence. But actually (and Lee eventually accepted) the Holder Article was about how banks should protect themselves from BL fraud if they relied on BLs as security, so like the Mukundan Interview it was not about bank’s liability under the LC. In the circumstances, such article with discussion on container trade was irrelevant for the present purpose.

164.  Thus, Lee’s complaint boiled down to this: there must be container numbers to identify the goods for loading/discharge, and it must be in the BL because once the container numbers were input into the shipping operations computer software the system would automatically generate such numbers in all shipping documents (eg the cargo manifest, BL and accounting record) without need for further individual input. But, as Mr Man noted, the irony was that under XXN on his complaint of no valid BL number Lee was at pains to say computerisation was not yet prevalent and the cargo manifest was paper-based in 2004, and it was only later that he accepted some carriers had computerised systems in 2004 (see paragraph 153 above). In the end, Lee admitted there was no requirement that every carrier had to use same computer software, and he could not say that every computer software used by every carrier everywhere required the container numbers to be stated on the BL albeit it was “common” for such computer software to have such function. Plainly, even on Lee’s own evidence, the container numbers were not a “must” for BLs, and I do not see any need for a bank document checker to be versed about the “container trade”. On balance, I reject such complaint.

165.  As there was no requirement in UCP500 or Subject LC that container numbers must be shown in the BL, Soh explained container numbers could be recorded in some other documents in the carrier’s records. On balance I prefer Soh’s view that it was for the LC applicant (if he required such numbers to be shown in the BL) to specify such requirement in his LC Application (so the bank could stipulate such requirement in the LC to be issued), and since it was not a requirement in the Subject LC Terms the absence of container numbers in the Subject BL (or in the Presented Documents) would not render the Subject BL discrepant or require DBS to raise query with So/WF. I also disagree it was an indication of fraud that would have obliged DBS to refuse payment under the Subject LC.

(h)  No shipping marks

166.  Lee claimed (a) goods packed in paper cartons should have shipping marks for easy correlation amongst goods, BL and other shipping documents (eg packing list and commercial invoice) for import customs clearance and warehouse/depot storage, and (b) goods from different shippers or for different consignees stowed in consolidation within the same Less Than Container Load (“LCL”) had to be differentiated by shipping marks. In short, shipping marks were to help the carrier know where the goods were.

167.  There was no requirement in UCP500 for shipping marks to appear in the BL, and the Lee Report did not rely on ISBP645 in criticising such feature. Lee accepted this was neither an indication of fraud nor a discrepancy that obliged DBS not to pay under the Subject LC, but a “red flag” that was less serious than absence of container numbers. At one stage Lee said missing shipping marks was “okay” if there were container numbers, but then he also said container numbers were not enough in a LCL situation. But in the end Lee accepted shipping marks could appear in other documents within the carrier’s records and not necessarily in the BL, so it must follow that absence of shipping marks could not amount to be clear and obvious evidence or irrefutable evidence of fraud. And since there was no requirement in UCP500 or Subject LC for shipping marks to be shown in the BL, their absence would not render the Subject BL discrepant. If the LC applicant required shipping marks to be shown in the BL, it was for him to specify such requirement in the LC Application.

(i)  No measurements of the goods

168.  The Lee Report stated (a) sea freight was computed by “weight ton” or “measurement ton” so gross weights and cubic measurements of the goods must be shown in the BL otherwise the carrier would not know which basis to adopt for determining sea freight and/or for completing the “load plan”, and (b) absence of such information on the BL might disqualify it from being receipt of goods, contract of carriage and/or negotiable title document, so it would be “a red flag to indicate possibility of trade fraud” that should raise suspicion on the part of DBS’ document checker.

169.  Lee at first said this feature was neither a discrepancy nor an indication of fraud that obliged DBS not to pay under the LC. He later said it was a discrepancy as it contravened Paragraph 43 by making it “mission impossible” to determine how to charge sea freight by weight ton (for heavy goods) or measurement ton (for light/bulky goods). Lee claimed in “shipping practice” the CBM (cubic metre) measurements and gross weights were put down side by side in the BL to justify the sea freight charged. But since Lee eventually conceded that regardless of “shipping practice” it was not absolutely necessary for measurements of goods to appear in the BL itself, this was plainly not a discrepancy. I also cannot accept Lee’s suggestion this was a “red flag” indicator of fraud, and it was in any event not clear and obvious evidence or irrefutable evidence. I agree with Soh that since there was no requirement in UCP500 for measurements of goods to be shown in the BL, it was for the LC applicant to specify such requirement in the LC Application, and as there was no such requirement in the Subject LC, the Subject BL was not discrepant.

(j)  No voyage number

170.  Lee claimed as a matter of common sense each voyage must be identified in the BL by a voyage number, but he conceded a voyage number was unlikely to be shipper’s concern and it was “...... in general for administration of the shipping company ......” (eg to avoid confusion when consortium carriers combined their cargoes for transport by one vessel).  Lee further conceded absence of voyage number on the BL was not of itself a discrepancy or an indication of fraud that obliged DBS not to pay under the LC. Instead, he said “[it’s] a red flag but not an absolute discrepancy”.

171.  There was no requirement in UCP500 or Subject LC for the voyage number to be shown in the BL. On balance, I prefer Soh’s evidence that it was for the LC applicant to specify such requirement in the LC Application, but there was no such requirement in the Subject LC and hence the Subject BL was not discrepant. Indeed, Soh’s view was bolstered by 2 Official Opinions on R389 (2000/2001) and on R474 (2000/2001) by ICC Banking Commission that concluded that whilst the BL might indicate the voyage number (and such inclusion of the voyage number was “peculiar to some shipping company [BL]”) it was not necessarily required. Lee was constrained to agree with such Opinions.  So, in my view, absence of voyage number in the Subject BL could hardly be a discrepancy.

172.  But Lee suggested such feature was a “red flag” because “now everything is done by computer” so when the voyage number was input into the carrier’s computer software it would automatically appear on every document/record including the BL. I am not persuaded a bank document checker need to take note of shipping operations computer practice, but in any event Lee accepted this was merely “general practice” and it depended on the particular carrier’s computer software and the particular instructions given to the software programmer as to what information should go into the BL.  Thus, I find on balance the absence of voyage number on the Subject BL could not have amounted to clear and obvious evidence or irrefutable evidence of fraud, and it would have been most strange for it to be so when the ICC Banking Commission made clear it was not a discrepancy.

(k)  Totality of the identified features

173.  Lee suggested that whilst DBS’ document checker might have missed a “red flag” due to understandable human error (which, strictly speaking, he should not have missed), it would be very unusual to miss/ ignore 7 (or 9) “red flags”, so it was said DBS failed to exercise due care/ diligence and was seriously negligent. Under XXN, Lee at first said all “red flags” were discrepancies, but later accepted not all “red flags” were equal so only some were discrepancies or indications of fraud. Lee considered the most serious “red flag” was no valid BL number followed by no container numbers and then followed by lack of name of the carrier (ie “Baltic Maritime” was just a logo and not the full name of the carrier), but no shipping marks, no measurements of goods, no voyage number, Notation in wrong box, no letterhead and contact details of carrier were less serious.

174.  I reject Lee’s contentions. I am unable to accept that such “red flags” of varying degrees of seriousness viewed cumulatively would have obliged DBS not to pay under the Subject LC. After all, on the doctrine of strict compliance, one true discrepancy would have justified rejection of the Presented Documents. And for the fraud exception, it is difficult to envisage varying degrees of irrefutable evidence of fraud. This reflects fundamental misunderstanding of discrepancy and fraud from the issuing bank’s perspective in contra-distinction to a trader’s or carrier’s perspective.

175.  I also note there was no evidence that So/WF made any attempt to give RL an opportunity to answer the allegation of fraud, which militated against her claim premised on the fraud exception. Further, although So/WF pleaded that she “pointed out a number of apparent irregularities on the face of the [Subject BL]”, there was no averment in the pleadings in either HCA2807/2004 and HCMP1361/2005 she did so before release of payment. Thus, So’s/WF’s case merely turned on features on the Subject BL. But for reasons explained above, I find the identified “red flags” or features in paragraph 27(a)-(j) above, whether individually or cumulatively, did not amount to discrepancies or indications of fraud that obliged DBS not to pay under the Subject LC.

176.  I find on balance that (a) the Subject BL met the provisions of UCP500 and international standard banking practice which would not have required DBS to make inquiries into or to investigate about the alleged “red flags”, (b) the Presented Documents were on their face compliant with the Subject LC Terms and UCP500, (c) the Subject BL was not so unusual as to be any clear indication of fraud, (d) DBS could not withhold/refuse payment (which obligation was independent of performance of the underlying contract of sale and purchase) to the Reimbursing Bank that had reimbursed the Advising Bank for payment made to RL without notice of any alleged fraud, and (e) So/WF was liable to reimburse DBS for the amount paid under the Subject LC plus interest.

XV.  NH’s SUBMISSIONS

177.  So’s written closing submissions for NH stated “我在網上閱續過閣下的履歷, 你曾經是位資深大律師, 替中資銀行打過很多官司, 你係一位對銀行運作非常熟識的大律師, 可以堪稱為專家”. I am quite unable to see the relevance of such submissions to the merits of the present action, especially when there was no application for recusal. In any event, Mr Leung on behalf of So herself trading as WF made clear he would not rely on such submissions.

XVI.  CONCLUSION

178.  In conclusion, I find DBS was not in breach of contract or in breach of duty of care in not advising So/WF to require a COI for the Subject LC and/or in releasing payment under the Subject LC. In the circumstances, So’s/WF’s claim in HCA2807/2004 is dismissed. I also grant a costs order nisi that So/WF shall pay DBS’ costs of HCA2807/2004 (including costs of the counterclaim and all costs reserved if any) to be taxed if not agreed on indemnity basis,[67] and that So’s/WF’s own costs in HCA2807/2004 be taxed in accordance with Legal Aid Regulations.

179.  In respect of HCMP1361/2005, I find So/WF was liable to repay the Subject TR Loan with interest to DBS pursuant to the WF Letter, WF Agreement and Mortgage, and consequently NH was also liable to pay the Subject TR Loan with interest to DBS pursuant to Mortgage, and Hui was liable to pay the sum of HK$500,000 with interest to DBS pursuant to the Guarantee. In light of developments in paragraph 14 above, DBS had recovered the relevant outstanding indebtedness so for HCMP1361/2005 the remaining issues were the disposal of the Surplus Proceeds paid into court and interest accrued thereon and also costs. As agreed by all parties at trial, there shall be a hearing to deal with these matters and the terms of the final order to be made for HCMP1361/2005. I therefore direct that DBS shall within 21 days from today fix a date for hearing before this court to deal with the above matters with half hour reserved.