SWISS SINGAPORE OVERSEAS ENTERPRISES PTE LTD v. CHINA CITIC BANK CORPORATION LTD, XIAMEN BRANCH

CACV 122/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 122 OF 2010

(ON APPEAL FROM HCCL NO. 11 OF 2009)

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BETWEEN

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Reyes J given on 3 May 2010. The matter before the judge was an application for summary judgment under Order 14 of the Rules of the High Court in respect of the plaintiff’s claim that the defendant had breached the terms of the letter of credit which was the subject of the action.

2.  The judge gave judgment in favour of the plaintiff for the sum of US$2,062,865.43 together with interest.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

History

3.  The plaintiff contracted to sell 45,000 Wet Metric Tons (WMT) (+/-10% at seller’s option) to Xiamen C & D Inc at the price of US$183 per DMT, CFR FO on the basis that it would have a content of 63.50% Fe.  The contract was dated 18 July 2008.  Payment was to be made by irrevocable, documentary letter of credit, payable at sight, issued by a bank in China or Hong Kong covering 100% of the cargo value.  The letter of credit was required to be in conformity with the latest revision of the rules of UCP Code 600 and any subsequent amendment as on the date of issue.  Partial shipment was not to be allowed.

4.  The letter of credit which is the subject of this action, was issued on 22 July and notified on 23 July 2008.  It was expressed to be available “with….by…. any bank by negotiation”.  The draft was expressed to be 90 days after sight for 100% of invoice value.  The draft was to be drawn on the Bank of America in the United States.  Condition 20 under the additional conditions provided that:

“upon receipt of complying presentation the issuing bank will send reimbursement authorization to bank of america, new york and authorize the negotiating bank to claim reimbursement from bank of america, new york”

5.  Clause 78 provided:

“Instruction to the Paying/Accepting/Negotiating Bank

1. all docs must be sent in one lot by courier to:china citic bank, xiamen branch, international banking dept., hui-view city no.81 hubin west road, xiamen, fujian. p.r. china 361004

upon receipt of docs in strict compliance with l/c terms and conditions and upon all instructions hereof are correctly carried out we shall remit the proceeds in the currency of this credit in accordance with yr instruction.

2. advise us by tested swift/tlx exactly on the date of sending out docs giving l/c no., amt of draft, courier no., b/l no.

3. strictly state on yr covering letter the exact date when fully correct docs reach yr counter.”

6.  A cargo of 44,500 WMTs iron ore fines was loaded on board a vessel in India and then shipped to the Mainland.  At the rate stipulated in the sale contract, the shipment value was US$7,185,105.43.  The cargo arrived in Fangcheng on 2 August and was discharged on 3 August 2008.

7.  On 4 August 2008 the Bangkok Bank posted the documents, that had been passed to it, to the defendant.  The defendant received the documents on 6 August 2008.  There then followed a series of 3 telex communications from the defendant to the Bangkok Bank.

8.  On 11 August 2008 the defendant sent the following message via SWIFT message “FIN 752 Auth to Pay, Accept, Negotiate” to the Bangkok Bank.  That stated amongst other things:

“23: Futher Identification

reimburse

………..

72: Sender to Receiver Information

pls claim reimb.  at sight basis for credit terms. t/t reimb. allowed.  pls advise the drawee bank of lc no name of commodity, loading and unloading port and dat of shipment.”

9.  On 12 August 2008 the defendant sent the following FIN 799 Free Format message the material part of which read:

“pls disregard our mt752 dd 080811 and consider the mt752 as null. pls do not claim the reimbursement from the drawee bank bank of america new york. thanks for your kind cooperation.”

10.  On 13 August 2008 the defendant sent the following FIN 734 Advice of Refusal message:

“77J: Discrepancies

1. short drawn

2. partial shipment

3. the total cargo value of the bills is less than the tolerance amount of the l/c

4. the total cargo value of the bills before price adjustment, bonus and penalty is less than the tolerance amount of the l/c.

77B: Disposal of Documents

holding documents at your disposal pending instructions”

11.  On 22 September 2008 the Bangkok Bank sent the following FIN 799 Free Format Message to the defendant via SWIFT:

“we received instructions from the beneficiary follows:

quote

the value of the bill has been reduced to usd5,122,240.00 instead of usd7,185,105.43. kindly release the documents to the applicant m/s xiamen c and d inc. upon receipt of usd5,122,240.00 only.

unquote

upon payment, please remit the proceeds to our account with deutsche bank trust company americas new york as per our covering schedule dated august 4, 2008

regards”

12.  The judge came to the conclusion that, in the light of the MT752, the defendant was obliged to honour the letter of credit either by paying at sight or by authorising the Bank of America to accept bills of exchange drawn on it by the beneficiary.  In doing so the judge held that the MT734 could not be taken out of context and read in isolation.  He held that it contradicted the MT752 and that the defendant was attempting to countermand the MT752 by issuing the MT799.  Under Article 15a of UCP 600, once the bank had represented that it would honour the presentation as being compliant it was bound to do so.  He held that MT752 was a “binding outward manifestation by the bank that it has determined a presentation to be compliant.”

13.  It was also argued that the message sent on 22 September 2008 that the bill had been reduced, had led the defendant to believe that the amount claimed by the plaintiff from the defendant under the letter of credit had likewise been reduced.  The judge rejected that argument on the basis that the defendant had paid a lesser amount to the plaintiff as a result of the plaintiff agreeing, in mitigation of its loss, to accept a lower rate of payment from its purchasing customer.  The judge said that the defendant paying a lower amount could not amount to any variation of the contract between the defendant and the plaintiff evidenced by the letter of credit.  The judge continued that he could not see that the message of 22 September 2008 was some sort of representation that the plaintiff would not later sue the defendant for failure to comply with its obligation under the letter of credit and UCP 600. Furthermore, the judge was unable to read the 22 September message as such a representation whether one read the reference in the message to the “bill” as referring to the bill of exchange presented by the plaintiff or simply as a reference to the “invoice bill for the cargo”.

This appeal

14.  On this appeal, Mr Jat SC who appeared on behalf of the defendant, argued that the message MT752 was not an acceptance of a presentation but it was a message to the Bangkok Bank authorising reimbursement.

15.  The other major point argued by Mr Jat was that the defendant was entitled to rely upon a valid variation of the contract between the plaintiff and the defendant.  The case was put on the basis that, in reliance upon the 22 September message, the defendant had paid the sum of US$5,122,240, in circumstances where, due to the discrepancies in the documents, the defendant claims it was not obliged to pay any sum.  It was thus that the defendant had released the documents to the purchaser as per the plaintiff’s request, thereby giving up its security interest in the documents.  In so arguing the defendant relies upon the fact that there was no evidence that it was privy to the negotiations between the purchaser and the plaintiff nor did it have any knowledge of the basis upon which the plaintiff had agreed to accept the reduced sum.  Furthermore, there is no evidence that the defendant received the reduced invoice sent to the purchaser.

16.  Mr Sussex SC, who appeared on behalf of the plaintiff, maintained that the MT752 message was an unequivocal representation that the defendant accepted the documents.  He maintained that the defendant’s argument was an attempt to approbate and reprobate and it was not entitled to do that.  He relied both on the fact that the defendant had committed itself by reason of the MT752 message alone but, also, on the fact that it could not rely upon the combination of the three messages for two other reasons.  In the first place any rejection had to be by a single notice and in the second place the notice of rejection had to contain all the grounds upon which the documents were rejected.  As to the argument as to variation, waiver and estoppel due to the discrepant documents he argued that the reference to “the bill” must be taken to have meant “the bill payable by the Buyer” or “ the contract price”.  His argument was based upon the premise that the plaintiff had accepted the defendant’s repudiation by acting inconsistently with the subsistence of the contract with the defendant, namely, by entering negotiations with the buyer and concluding a reduction in the price of the goods.

17.  Whereas there are considerable doubts as to whether the defendant could avoid liability under the letter of credit following the issuance of the MT752 message, I consider that, given the dispute which had clearly arisen between the plaintiff and the defendant, the message of 22 September would have conveyed to the defendant that the plaintiff was prepared to accept US$5,122,240 in satisfaction of its claim.  I consider that the defendant does have an argument that by making the payment and, at the plaintiff’s specific request, releasing the documents to the purchaser, it had acted to its detriment and was entitled to rely upon those matters as discharging its liability.

18.  In the circumstances, I consider that the defendant should be given leave to defend in this matter.  I would, therefore, set aside the judgment given in the court below and make an order nisi that the costs of this appeal should be to the defendant and the costs in the court below should be costs in the cause.

Hon Le Pichon JA:

19.  I agree with the judgment of Rogers VP.

Hon Wright J:

20.  I, too, agree.