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

CACV 197/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 2013

(ON APPEAL FROM HCCL NO. 11 OF 2009)

________________________

________________________

________________________

J U D G M E N T

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Hon Lam VP:

1.  I have read the judgment of Kwan JA in draft. I agree there should be an order as per paragraphs 131 to 133 for the reasons set out in the judgment.

Hon Kwan JA:

2.  This is an appeal against the judgment of Bharwaney J on 14 August 2013 (“the Judgment”) after a three-day trial.  The judge found in favour of the plaintiff, Swiss Singapore Overseas Enterprises Pte Ltd, in its claim against China Citic Bank Corporation Limited, Xiamen branch (“the Bank”) for US$2,062,865.43, being the difference between the full amount originally payable under a letter of credit issued by the Bank and the payment subsequently received by the plaintiff from the Bank.  The Bank appealed against the Judgment and a decision handed down by the judge also on 14 August 2013 (“the Costs Decision”) in which he set aside an earlier order of costs made in favour of the Bank in dismissing the plaintiff’s application for specific discovery and substituted it with an order that the Bank should pay the plaintiff 50% of its costs of that application.

3.  The relevant facts, which are taken largely from the Judgment, may first be stated as follows.

The sales contract

4.  On 18 July 2008, the plaintiff entered into a contract with Xiamen C & D Inc (“XCD”) by which the plaintiff agreed to sell to XCD iron ore fines of 45,000 wet metric tons (“WMT”) +/- 10% at the plaintiff’s option.  XCD is a state owned enterprise and a major trading company in Xiamen, China.

5.  The contract provided that the price was US$183 per dry metric ton (“DMT”) Cost and Freight Free Out, on the basis of 63.5% iron content.  Payment was to be made by irrevocable letter of credit, payable at sight, issued from a bank in China or Hong Kong, covering 100% of the cargo value.  The letter of credit was required to conform to the latest revision of the rules of the Uniform Customs and Practice for Documentary Credits (“UCP 600”), and any subsequent amendment as on the date of issue.  Shipment was to be made by 30 July 2008 and the discharge port was Fangcheng, China. Partial shipment was not allowed.

The letter of credit

6.  XCD submitted an application to the Bank for an irrevocable letter of credit dated 18 July 2008.  On 22 July 2008, XCD gave a notice to drawdown to the Bank to use the credit facility obtained from the Bank for the issuance of the letter of credit to the plaintiff.

7.  On 22 July 2008, the Bank issued an irrevocable letter of credit for US$8,235,000 in favour of the plaintiff as beneficiary.  It was expressed to be subject to UCP 600.

8.  The letter of credit contained these material provisions:

“41D: Available With …By …

ANY BANK

BY NEGOTIATION

42C: Drafts at

90 DAYS AFTER SIGHT FOR 100PCT OF

INVOICE VALUE

42A: Drawee

BOFAUS3NXXX[1]

…

43P/Partial Shipments

NOT ALLOWED

45A/Description of Goods and/or Services

…

QUANTITY: 45,000 MTS (+/- 10 PCT, AT BENEFICIARY’S OPTION)

…

SPECIFICATION ON DRY BASIS

…

PRICE: USD 183.00 … PER DMT CFR (FO) FANGCHENG PORT,

CHINA

…

 IF FE CONTENT IS BELOW 63.50 PCT A PENALTY SHOULD BE CALCULATED AT USD2.00 PER DMT FOR EACH 1 PCT OF FE CONTENT BELOW 63.50 PCT, FRACTIONS PRO RATA”

9.  I pause here to note that the terms of the letter of credit would appear to contradict the terms of the sales contract in this respect.  The letter of credit stipulated at Field 45A a minimum delivery of 40,500 DMT (i.e. 90% of 45,000 MTS) at US$183 per DMT totalling US$7,411,500, whereas the sales contract provided for a minimum delivery of 40,500 WMT.

10.  However, the plaintiff had confirmed to XCD on 21 July 2008 that the proposed terms of the letter of credit to be opened were acceptable and no request was ever made to amend the letter of credit in relation to amount and permitted quantity to conform to the terms of the sales contract.

11.  Other material provisions in the letter of credit are found in Field 47A and Field 78 and they read as follows:

“47A/Additional Conditions

…

2. T/T REIMBURSEMENT TO BE ALLOWED.

3. BOTH L/C AMOUNT AND COMMODITY QUANTITY 10PCT MORE OR LESS ALLOWED.

…

12. DRAWING(S)/INVOICE(S)/DRAFT(S) UNDER THIS L/C TO BE BASED ON DRY METRIC TON (DMT).

…

15. USANCE DRAFTS MAY BE NEGOTIATED AT SIGHT BASIS REGARDLESS OF THE TENOR OF THE DRAFT, AND THE RELEVANT INTEREST AND CHARGES ARE FOR ACCOUNT OF THE APPLICANT.

…

20. 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.

21. AT TIME OF REIMBURSEMENT CLAIM THE NEGOTIATING BANK MUST ADVISE THE DRAWEE BANK OF L/C NUMBER, DRAFT AMOUNT, NAME OF COMMODITY, LOADING AND UNLOADING PORT, AND DATE OF SHIPMENT.

 …”

“78/Instructions to the Paying/Accepting/Negotiating Bank

1. ALL DOCS MUST BE SENT IN ONE LOT BY COURIER TO: CHINA CITIC BANK, XIAMEN BRANCH …

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.”

12.  I wish to point out that whereas the letter of credit provided at Field 42C that payment was to be made at 90 days after sight, the sales contract stipulated that payment was to be by letter of credit at sight.  Under Field 47A condition 15, usance drafts may be negotiated at sight basis regardless of the tenor of the draft, with relevant interest and charges for the account of the applicant XCD.  The judge held that the proper construction to be given to the letter of credit is that it was payable at sight notwithstanding that Fields 42C and 42A stipulated for a draft payable after 90 days drawn on the Bank of America, New York[2].  The arrangement was for the Bank of America, New York to effect immediate payment and then charge interest until it received payment some 90 days later from the Bank.  This was to facilitate XCD to use the credit facility provided by the Bank without having to pay the amount drawn under the letter of credit immediately[3].

13.  On 23 July 2008, the plaintiff was notified by its nominated bank, Bangkok Bank Public Co Ltd (“Bangkok Bank”), “without engagement on [its] part”, of the terms of the letter of credit issued by the Bank.

The shipment of the goods

14.  From 19 to 23 July 2008, 44,500 WMT of the goods were loaded and shipped to China, with a total shipment value of US$7,185,105.43.  The total weight of cargo shipped fell within the tolerance permitted under the sales contract, but was outside the tolerated quantity margin of the letter of credit, as 44,500 WMT of the goods was equivalent to about 40,017.50 DMT[4], less than the permitted minimum delivery of 40,500 DMT.  Hence, the payment applied for under the letter of credit of US$7,185,105.43 was 12.75% less than the credit amount of US$8,235,000 and was outside the tolerance range of the letter of credit.

15.  The goods arrived at the port of discharge on 2 August 2008 and discharge was completed on 5 August.

The presentation of documents under the letter of credit

16.  On 30 July 2008, the plaintiff presented to Bangkok Bank the documents under the letter of credit for payment.  At the trial, it was conceded that the documents evidencing the shipment of the goods of the value of US$7,185,105.43 would be outside the tolerance limit stipulated in the letter of credit.

17.  On 4 August 2008, Bangkok Bank posted the documents to the Bank by courier under a covering letter stating as follows:

“We forward the following documentary bill drawn under your L/C

…

Bill Amount: US$7,185,105.43

…

Please follow instructions mentioned below:

+ Please advise by Teletransmission in case of non-payment or non-acceptance giving reasons.

+ Usance Bill payable at sight basis.

+ Acceptance commission and discount interest are for Buyer’s account.

+ Kindly remit the proceeds by T/T to our account with DEUTSCHE BANK TRUST COMPANY AMERICAS, New York …

+ We hereby certify that we have duly endorsed the amount of this drawing on the reverse of original credit instrument and that all terms and conditions of this credit have been fully complied with.”

18.  In addition to sending the documents by courier, Bangkok Bank on 4 August 2008 sent a SWIFT[5] message to the Bank, using Form MT799, which is the form for a free format message and it read as follows:

“WE HAVE TODAY FORWARDED THE DOCUMENTS FOR US$7,185,105.43 DRAWN UNDER YR ABOVE L/C. DHL COURIER NO. 102 4215 732, B/L NO. 1 AND 2. ALL TERMS AND CONDITIONS COMPLIED WITH.”

19.  The judge held at that time, Bangkok Bank did not negotiate the letter of credit, which was available for negotiation by any bank.  Bangkok Bank merely acted as a correspondent bank in presenting the documents to the Bank on behalf of the plaintiff[6].  There is no challenge to this finding on appeal.  The judge made no finding of the reason why Bangkok Bank certified that the documents were complying when it had not negotiated the letter of credit[7].

20.  The Bank received the documents at 14:24 hours on 6 August 2008.  The judge accepted the evidence of the Bank’s manager, Xu Jian Yun, that he believed Bangkok Bank was a negotiating bank and not simply a correspondent bank presenting documents on behalf of the beneficiary, that Mr Xu was acting under such belief and did not first examine the documents to see if they were compliant when he caused a SWIFT message to be sent to Bangkok Bank on 11 August at 19:00 hours authorising it to claim reimbursement at sight basis from the Bank of America.[8]

21.  The message used Form MT752, which is a form for “Authorisation to Pay, Accept or Negotiate”.  According to the manual published by the SWIFT Documentation Department in 2008, the scope of MT752 is as follows:

“This message is sent by the issuing bank, or the nominated bank if so authorised by the issuing bank, to a paying/accepting/negotiating bank in response to a request for authorisation to pay/accept/negotiate/incur a deferred payment undertaking previously requested via an MT 750 Advice of Discrepancy or otherwise.

It is used to advise the Receiver that documents may be taken up, notwithstanding the discrepancies, provided they are otherwise in order.”

22.  The manual provided that Field 23 in Form MT752, being “Further Identification”, must use one of the following codes:

ACCEPT	Conveys an authorisation to accept a draft.
DEBIT	Conveys an authorisation to debit the account of the issuing bank.
NEGOTIATE	Conveys an authorisation to negotiate the documents with discrepancies in those cases where the original credit provides no specific reimbursement instructions or payment provisions.
REIMBURSE	Conveys an authorisation to the presenting bank to claim reimbursement.
REMITTED	Is used to pay the presenting bank.
SEE72	Conveys an authorisation and/or payment which is a mixture of the above, or a special version of one of them and the conditions are explained in Field 72.

23.  The message sent by the Bank to Bangkok Bank using Form MT752 was in these terms:

“23/Further Identification

REIMBURSE

30/Date of Advice of Discrepancy or Mailing

080806

…

72/Sender to Receiver Information

 PLS CLAIM REIMB. AT SIGHT BASIS AS PER CREDIT TERMS. T/T REIM. ALLOWED. PLS ADVISE THE DRAWEE BANK OF LC NO NAME OF COMMODITY, LOADING AND UNLOADING PORT AND DAT OF SHIPMENT.”

24.  Also at 19:00 hours on 11 August 2008, the Bank sent a SWIFT message to the Bank of America using the Form MT799 in these terms:

“79/Narrative

ATTN: TRADE SERVICES/LC REIMBURSEMENT SECTION.

THIS IS REIMBURSEMENT AUTHORIZATION.

WE HAVE ISSUED FOLLOWING IRREVOCABLE DOCUMENTARY CREDIT AVAILABLE WITH ANY BANK BY NEGOTIATION/ACCEPTANCE OF BENEFICIARY’S DRAFT

AT 90 DAYS AFTER SIGHT

FOR 100PCT OF INVOICE VALUE DRAWN ON YOU

…

WE NOMINATE YOU AS THE REIMBURSEMENT AND DRAWEE BANK.

…

10. REIMBURSEMENT AMOUNT: USD7,184,950.43

11. NEGOTIATING BANK NAME AND REFERENCE NUMBER

BANK NAME: BANGKOK BANK PUBLIC CO., LTD, SINGAPORE

…

WE HAVE RECEIVED THE DOCUMENTS UNDER THE L/C AND AUTHORIZED BANGKOK BANK PUBLIC CO., LTD TO CLAIM FROM YOU AT SIGHT THE PROCEEDS UNDER THE L/C.

+A) ACCEPTANCE COMM (A/C) AND DISCOUNT CHG (D/C) ARE FOR ACCT OF APPLICANT AND ARE TO BE PAID AT MATURITY.

+B) UPON RECEIPT OF NEGOTIATING BANK’S REIM CLAIM, PLS ACCEPT AND DISCOUNT IT AND PAY THEM UNDER SWIFT ADVICE TO US.

…

+ THIS REIMBURSEMENT AUTHORITY IS SUBJECT TO URR 525.”

25.  URR 525 is a reference to the Uniform Rules for Reimbursement (1997).  They are rules for bank-to-bank reimbursement published by the International Chamber of Commerce.  URR 525 was replaced by URR 725 in 2008.

26.  The judge accepted Mr Xu’s evidence that when he sent the above SWIFT messages to Bangkok Bank and the Bank of America, he believed he had two more days to examine the documents before being precluded by Article 16 of UCP 600 from rejecting discrepant documents, and because he could cancel the reimbursement authorisation to the Bank of America at any time pursuant to Article 8 of URR 525; further, even if the reimbursement had been made by the Bank of America, the Bank could claim a refund of the reimbursement from the Bangkok Bank with interest pursuant to Article 16g of UCP 600, should the documents turn out to be discrepant[9].  Whether Mr Xu was correct is a material issue in this dispute.

The cancellation of authorization

27.  On 12 August 2008 at 10:48 hours, the Bank sent a SWIFT message to Bangkok Bank using Form MT799 cancelling its message of 11 August in Form MT752.  The message read as follows:

“PLS DISREGARD OUR MT752 DD080811 AND CONSIDER THE MT752 AS NULL. PLS DO NOT CLAIM THE REIMBURSEMENT FROM THE DRAWEE BANK OF BANK OF AMERICA NEW YORK.”

28.  As found by the judge on the evidence of Mr Xu, the above message was sent on the morning of 12 August 2008 upon discovering that the documents were discrepant and he made a decision not to honour the credit[10]. This message was followed at 11:02 hours by a SWIFT message from the Bank to the Bank of America using Form MT799 cancelling its reimbursement authorisation as follows:

“REFER TO OUR REIMBURSEMENT AUTHORIZATION DD 080811 WITH OUR REF. … THIS REIMBURSEMENT AUTHORIZATION NOW IS TO BE CANCELLED. PLS CONFIRM US THE CANCELLATION BY YOUR AUTHENTICATED SWIFT ASAP. …”

29.  At 20:28 hours on 12 August 2008, which was the fourth banking day after the receipt of documents[11], the Bank sent a SWIFT message to Bangkok Bank using Form MT734 to convey an advice of refusal, identifying four discrepancies in the documents presented:

“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”.

30.  The first discrepancy related to the fact that the plaintiff applied to draw an amount which exceeded the 10% tolerance in the letter of credit.  The second and third discrepancies related to the stipulation that partial shipment was not allowed and the quantity of shipment was outside the tolerance range of +/-10% of 45,000 DMT.  The fourth discrepancy concerned adjustments to the value of the cargo based on the iron content.  Even with the adjustments being made, the cargo shipped remained outside the +/-10% tolerance.

31.  The price of iron ores fines was in free fall since the end of July 2008.

32.  Bangkok Bank issued a SWIFT message to the Bank on 14 August 2008 rejecting the discrepancies noted by the Bank and reiterating that the documents presented fully complied with the letter of credit.  The Bank was asked to expedite payment without further delay.  Further messages were exchanged between the Bank and Bangkok Bank during August to mid September 2008 with each standing firm on its position.  Bangkok Bank threatened to “institute further action if the payment is denied and will claim interest and damages as well”.  Bangkok Bank asserted that the advice of refusal identifying discrepancies by MT734 on 12 August 2008 was not valid, invoking Articles 16c and 16f of UCP 600.

The reduction of price

33.  Meanwhile, negotiations took place between the plaintiff and XCD.

34.  On 22 September 2008, the plaintiff and XCD signed an addendum to the sales contract to record the compromise they reached.  The contract price of US$183 per DMT CFR FO on the basis of 63.5% iron content in Article 7 was replaced by “US$128 per DMT CFR FO”.  Article 10 relating to price adjustment was replaced by “No further penalty/bonus for Fe and other elements applicable.  Quantity determined by CIQ should be final.”  It was provided in the addendum that other terms and conditions of the sales contract would remain unchanged.  The plaintiff issued “final” invoices to XCD dated 22 September 2008 reflecting the revised value for the goods shipped, endorsed with the words “this invoice is issued in mitigation and without prejudice to [the plaintiff’s] rights”.

35.  Following its compromise with XCD, on 22 September 2008 the plaintiff issued a letter to Bangkok Bank requesting it to send a message to the Bank in these terms:

“The value of the bill has been reduced to US$5,122,240/- instead of US$7,185,105.43. Kindly release the documents to the Applicant M/s. Xiamen C and D Inc., upon receipt of US$5,122,240.00 only.”

36.  Pursuant to the plaintiff’s instructions, on the same day, Bangkok Bank sent a SWIFT message to the Bank using Form 799 and stating that:

“WE RECEIVED INSTRUCTIONS FROM 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.”

37.  XCD issued a Payment Instruction Letter to the Bank in Chinese dated 23 September 2008, a translation of which read as follows:

“Our company discussed with the overseas business party and finally reached a consensus on 22 September 2008. It was agreed that the total amount payable to the beneficiary under the Letter of Credit … should be US$5,122,240.00. We now instruct [the Bank] to pay the said amount to the overseas party.”

38.  Enclosed to the Payment Instruction Letter was a copy of the addendum to the sales contract.

39.  On 23 September 2008, the Bank sent a SWIFT message to Bangkok Bank using Form MT707 which is for “Amendment to a Documentary Credit”.  The message read as follows:

“79/Narrative

+ PLS DELETE FIELD 42A/DRAWEE.

+ UNDER FIELD 47A PLS DELETE ITEM NO. 20 AND ITEM NO. 21.

72/Sender to Receiver Information

 ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.”

40.  The Bank sent a SWIFT message to Sumitomo Mitsui Banking Corporation on 24 September 2008 using Form MT799 with this instruction:

“YOU ARE HEREBY IRREVOCABLY INSTRUCTED AND AUTHORIZED TO REMIT THE PROCEEDS OF THE ADVANCE TO BANGKOK BANK PUBLIC CO., LTD, SINGAPORE BRANCH FOR THE DISCHARGE OF OUR PAYMENT OBLIGATION UNDER THE ABOVE L/C. … THE ABOVE SUM IS PAID FOR AND ON BEHALF OF CHINA CITIC BANK XIAMEN BRANCH IN RESPECT OF YOUR DRAWING AMOUNT OF USD5122240.00 UNDER LETTER OF CREDIT NO. … DATED 2008-07-22 …”

41.  The Bank then sent a SWIFT message to Bangkok Bank on the same day using Form MT799 with this narrative:

“RE: YR BILL NO. … FOR USD7185105.43 UNDER OUR LC NO. …

REFER TO YR MT799 DD 080922, PLS BE INFORMED THAT THE PAYMENT OF USD5122240.00 WILL BE EFFECTED TO YOUR GOOD BANK AS PER YR INSTRUCTION ON THE COVERING SCHEDULE WITH OUR BANKING CHGS DED.”

42.  Bangkok Bank sent a SWIFT message to the Bank on 25 September 2008 using Form MT799 referring to the letter of credit for US$7,185,105.43 and stating as follows:

“PER YOUR SWIFT DD. 080924.

PLS NOTE THAT WE HAVE NOT RECEIVED FUNDS FOR THE ABOVEMENTIONED REF.

PLSE LOOK INTO THE MATTER AND ENSURE PAYMENT FOR USD5,122,240.00 URGENTLY.

WE RESERVE THE RIGHT TO CLAIM ANY DELAYED INTEREST.”

43.  The Bank replied by a SWIFT message MT799 on 26 September 2008 informing Bangkok Bank that payment of US$5,122,085 (with US$155 being the bank charges of the Bank debited) had been effected “as per your instruction”.  Receipt of US$5,122,067 was acknowledged by Bangkok Bank by a SWIFT message on the same day.

44.  At around the same time, the Bank released the documents to XCD.

This action

45.  Eight months after the receipt of US$5,122,067 from the Bank, the plaintiff brought this action against the Bank claiming US$2.2 million odd being the difference between the original contract price of the goods shipped and the reduced value of US$5,122,240 for which payment was made under the letter of credit.

46.  The plaintiff obtained summary judgment of its claim from Reyes J[12].  On appeal by the Bank[13], the Court of Appeal set aside the judgment and gave leave to defend.  The reasons for doing so were stated by Rogers VP in §17 of his judgment:

“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.”

The plaintiff’s case

47.  Three SWIFT messages issued by the Bank to Bangkok Bank are of critical importance to the plaintiff’s case. They are:

 (1) the message in Form MT752 on 11 August 2008 at 19:00 hours (“the 1^st Message”);

 (2) the message in Form MT799 on 12 August 2008 at 10:48 hours (“the 2^nd Message”); and

 (3) the message in Form MT734 on 12 August 2008 at 20:28 hours (“the 3^rd Message”).

48.  The plaintiff’s primary contention was that the 1^st Message, construed objectively and with regard to UCP 600, was an unequivocal representation that the Bank had accepted the documents as complying, and from which it could not resile.  It must, therefore, honour the credit, as Article 15a of UCP 600 provides as follows:

“Article 15 Complying Presentation

a. When an issuing bank determines that a presentation is complying, it must honour.”

49.  The plaintiff’s further contention was that in any event, the 2^nd and 3^rd Messages were defective as they failed to comply with Article 16c of UCP 600 in that they were two notices of refusal to honour the credit and the Bank did not give a single notice as required.  Hence, the Bank was precluded from claiming that the documents do not constitute a complying presentation, by virtue of Article 16f.  The relevant provisions of Article 16 read as follows:

“Article 16 Discrepant Documents, Waiver and Notice

a. When ... the issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.

b. When an issuing bank determines that a presentation does not comply, it may in its sole judgment approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14(b).

c. When ... the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.

The notice must state:

i. that the bank is refusing to honour or negotiate; and

ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and

iii a) that the bank is holding the documents pending further instructions from the presenter; or

b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c) that the bank is returning the documents; or

d) that the bank is acting in accordance with instructions previously received from the presenter.

d. The notice required in sub-article 16(c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.

e. ... the issuing bank may, after providing notice required by sub-article 16(c) (iii) (a) or (b), return the documents to the presenter at any time.

f. If an issuing bank ... fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.

g. When an issuing bank refuses to honour ... and has given notice to that effect in accordance with this article, it shall then be entitled to claim a refund, with interest, of any reimbursement made.”

The lines of defence

50.  The Bank raised a number of defences at the trial.

51.  Firstly, it contended that the 1^st Message was not an acceptance of the documents presented but only a reimbursement authorisation under the bank-to-bank reimbursement regime given by the issuing bank to the claiming bank prior to the issuing bank checking the documents for compliance, and could be validly withdrawn pursuant to Article 8 of URR 525.  The reimbursement authorisation was validly cancelled by the 2^nd Message, which was not sent pursuant to Article 16 of UCP 600 and was not subject to its requirements.  Hence, the 3^rd Message was the single notice refusing to honour the credit and was a valid notice in compliance with Article 16c of UCP 600.

52.  Article 8 of URR 525 provides as follows:

“Article 8 Amendment or Cancellation of Reimbursement Authorisations

Except where the Issuing Bank has authorised or requested the Reimbursing Bank to issue a Reimbursement Undertaking as provided in Article 9, and the Reimbursing Bank has issued a Reimbursement Undertaking:

a. The Issuing Bank may issue a Reimbursement Amendment or cancel a Reimbursement Authorisation at any time upon sending notice to that effect to the Reimbursing Bank. …”

53.  Secondly, it was contended that the contract between the plaintiff and the Bank under the letter of credit was validly varied by the plaintiff, via Bangkok Bank, by the message in Form 799 to the Bank dated 22 September 2008 (“the September Message”), instructing the Bank that the value of the bill had been reduced to US$5,122,240 instead of US$7,185,105.43, and to release the documents to XCD upon receipt of US$5,122,240 only.

54.  Thirdly, the Bank relied on the defences raised in this compendious paragraph in the Defence:

“26. Further or alternatively, the Plaintiff has waived its right to claim, or is estopped from claiming, any shortfall in the purchase price from the Defendant on the ground that:

(1) The 22 September Message was a clear and unequivocal representation by the Plaintiff that it would not be claiming any shortfall from the Defendant.

(2) In reliance of the Plaintiff’s representation, the Defendant acted to its detriment by effecting payment of US$5,122,240 to the Plaintiff and released its security over the documents as per the Plaintiff’s request.

(3)  It is inequitable for the Plaintiff to revoke its representation and claim any price difference or the sum of US$2,209,500.23 or at all.”

55.  Under this compendious paragraph, the Bank advanced at the trial the defences of waiver, estoppel, and compromise of a disputed claim giving rise to accord and satisfaction[14].

The Judgment

56.  The judge accepted the plaintiff’s construction of Field 47A condition 20 in the letter of credit and held that the clear wording of this provision required the issuing bank to send a reimbursement authorisation to the Bank of America, New York “upon receipt of complying presentation”[15].  Based on this construction, he found that the 1^st Message contained a representation by the Bank that it had received documents which complied with the terms of the letter of credit and it was authorising the Bank of America, New York, the drawee under the bill of exchange, to make reimbursement[16].

57.  However, the judge did not find for the plaintiff on its primary contention that the Bank must honour the credit having made a representation it had accepted the presentation as complying.  This was because he found at the time the 1^st Message was issued, the Bank had not examined the documents and so it had not at that time determined that the presentation was compliant.  He held that a representation without actual determination that the documents presented were compliant was not sufficient to engage Article 15a of UCP 600, which provides that “when an issuing bank determines that a presentation is complying, it must honour”.  He was of the view that notwithstanding its earlier representation that the documents presented were compliant, the Bank was not precluded by Article 16f from giving notice of refusal to honour stating the discrepancy relied upon, provided that the notice is given within five banking days after the documents were received[17].

58.  The judge found for the plaintiff on its further contention, namely that the 3^rd Message was not a valid notice of refusal.  He held that the 2^nd Message contained an implied statement of refusal to honour the letter of credit and the 3^rd Message contained an express statement of refusal setting out the discrepancies relied upon.  Thus, by giving two notices instead of a single notice setting out the discrepancies, the Bank was precluded by Article 16f of UCP 600 from claiming that the documents did not constitute a complying presentation[18].

59.  The judge rejected all the defences raised by the Bank.

60.  On variation of the contract between the plaintiff and the Bank, the judge held it was not supported by consideration.  The agreement to accept discrepant documents could not constitute consideration as the Bank had lost its right to reject the discrepant documents by reason of its failure to comply with Article 16c of UCP 600[19].  The Bank did not have any security interest in the documents to give up that could constitute consideration, as by the 3^rd Message the Bank had stated it was holding the documents to the plaintiff’s order[20].

61.  As regards compromise of a disputed claim giving rise to accord and satisfaction, the judge rejected this contention holding that the Bank did not suffer detriment when it released the documents to XCD without making the necessary security arrangements to cover its exposure to US$2 million, being the difference between the amount initially claimed under the letter of credit and the reduced amount that was paid.  He held that XCD was not liable to provide security to the Bank and the Bank did not require security from XCD in the course of their dealings[21].

62.  On the defence of estoppel, the judge held that the September Message contained a clear and unequivocal representation by the plaintiff that it would not be claiming from the Bank any shortfall between US$7,185,105 and US$5,122,240 and there was reliance by the Bank[22].  However, the Bank did not suffer any detriment in releasing the documents to XCD and absent detriment, it could not succeed on its plea of estoppel[23].

The application to amend the Notice of Appeal

63.  At the hearing of the appeal, we gave leave to the Bank to amend its Notice of Appeal save for the amendments in §15A of the draft to advance an argument that the plaintiff was not entitled to recover the amount claimed under the letter of credit by reason of its unconscionable conduct in all the circumstances of the case.

64.  We refused leave to raise this argument on appeal because this was not pleaded in the defence and was not argued below.  The plaintiff did not call any one from Bangkok Bank to testify.  And we cannot be satisfied there is no reasonable possibility that the state of the evidence relevant to the point sought to be raised for the first time on appeal would have been materially more favourable to the other side if the point had been taken at the trial (The Tasmania (1890) LR 15 App Cas 223 at 225; Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 at §§37 and 38).

This appeal

65.  In this appeal, the Bank raised the arguments it had advanced unsuccessfully at the trial.  The plaintiff filed a Respondent’s Notice raising some of its contentions rejected by the judge.

66.  The issues to be determined in this appeal may be broadly stated as follows:

 (1) what was the meaning and effect of the 1^st Message: whether it was a notice indicating that the Bank had determined that the documents presented were complying, and if so, what was the effect of this; or whether it was a notice authorising Bangkok Bank to obtain reimbursement from the Bank of America, New York, in advance of a determination by the Bank of compliance or to refuse the presentation;

 (2) what was the meaning and effect of the 2^nd Message, which countermanded the 1^st Message;

 (3) if the 3^rd Message was a valid notice of refusal to honour;

 (4) if there was compromise of a disputed claim giving rise to accord and satisfaction;

 (5) if consideration was given to support a variation of the contract between the plaintiff and the Bank;

 (6) if there was promissory estoppel barring the plaintiff’s claim; and

 (7) if this court should disturb the costs order made in the Costs Decision.

67.  I will discuss the issues in the order set out above.

The meaning and effect of the 1^st Message

68.  Mr Kat, who appeared for the Bank in this appeal, submitted that the judge was wrong to construe Field 47A condition 20 literally instead of giving it a practical, business sense meaning, quoting Lord Diplock in The Antaios [1985] 1 AC 191 at 200G to 201E that if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.  Had the judge adopted this approach, he would have construed the requirement for “complying presentation” in that provision to be part of the instructions for bank-to-bank reimbursement, which is separate and different in nature from the transaction in the letter of credit, see Commentary on URR 725, Article 8 published by the ICC.

69.  Mr Kat criticised the judge in construing the 1^st Message to have relied on the heading of the SWIFT message Form 752 (“Authorisation to Pay, Accept or Negotiate”) rather than the operative entries in Field 23 (“Reimburse”) and Field 72 (“Pls claim reimb. at sight basis as per credit terms. T/T reim. allowed.”).  Had the Bank examined the documents and determined compliance, it would have remitted the proceeds and entered “Remitted” in Field 23.  Hence, the 1^st Message did not concern honouring the terms of the letter of credit after examination of the documents and determination of their compliance, butwas an authority to Bangkok Bank to obtain reimbursement from the Bank of America as per Field 47A of the letter of credit, governed by Article 13b of UCP 600.  Article 13 deals with bank-to-bank reimbursement arrangements and Article 13b provides that if a credit does not state that the reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the provisions in Article 13b would apply.

70.  Further in support of his submission, he referred us to Credit Agricole Indosuez v Credit Suisse First Boston (Zurich) [2001] 1 All ER (Comm) 1088, which was not cited to the judge by either side.  In that case, the confirming bank accepted the documents as being in conformity and became liable to pay its customer.  It sent a SWIFT telex to the issuing bank claiming reimbursement on 12 July 1999 and forwarded the documents to the issuing bank.  On 13 July, the issuing bank sent a SWIFT telex to the confirming bank saying that funds would be remitted, and confirmed with its customer, the applicant of the credit, that its account was being debited.  The applicant immediately contacted the issuing bank pointing out that the presentation of documents was outside the 20-day period provided in the letter of credit.  Its account was not debited and on 14 July, the issuing bank informed the confirming bank by SWIFT telex that the SWIFT telex of 13 July had been sent by error and its payment order was revoked and it held the claim of the confirming bank “unaccepted and unpaid pending”.  This was before receipt of the documents sent by the confirming bank.  After the documents were received later that day, by a second SWIFT message on the same day, the issuing bank informed the confirming bank that the documents were discrepant in a number of respects.

71.  In §[16] of the judgment, Morison J accepted “there is an obvious difference between countermanding an order to pay, which was what the first Swift message was about, and the rejection of documents on the grounds of discrepancies after inspection, which was the substance of the second Swift message”.  He went on to say:

“Had the documents arrived at the centre and had been inspected before the first message there would surely have been a reference to receipt and inspection of the documents in the first message, as there was, later, in the second. It seems to me that the defence based upon art 14d(iii)[24] is without substance or merit. Even had the documents been available at the time, the notice of cancellation of the instructions to pay was obviously not an indication that the issuing bank ‘decides to refuse the documents’ within the meaning of art 14d. That article is concerned with rejection of documents on the grounds of discrepancy, as its title makes clear. The first Swift message did not purport to be a refusal or rejection of the documents; it was not treated as such by the claimants at the time …”

72.  Mr Kat submitted that the above case was similar to ours, and that the first Swift message on 14 July was equivalent to the 2^nd Message in the present case, which was to the effect of countermanding an order to pay, or an authorisation to obtain reimbursement in the present case.

73.  What Morison J said in §[16] of Credit Agricole Indosuez was premised on his holding that the SWIFT telex on 13 July was simply an order to pay and no more.  Hence, the first SWIFT message on 14 July stating that the message of 13 July was sent in error and that it was revoked was just a message countermanding an order to pay.  The material question in our case is whether the 1^st Message was an authorisation to obtain reimbursement without more, or whether it was a representation indicating that the Bank had accepted the documents presented as complying.  It does not seem to me that the decision of Credit Agricole Indosuez would really assist this court in resolving the material question regarding the proper construction of the 1^st Message.

74.  For this, one has to focus on the wording of the 1^st Message, construed in the context of the terms of the letter of credit, the provisions of UCP 600 which the credit was subject to, the scope and purpose of and the codes used in Form MT752, and international standard banking practice[25].  I am inclined to agree with the judge that the words “upon receipt of complying presentation” in Field 47A condition 20 of the letter of credit are clear[26].  “Presentation” is defined in Article 2 of UCP 600 to mean “either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered”, and “Complying presentation” is defined in Article 2 to mean “a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice”.

75.  The judge rejected the Bank’s contention that the words “upon receipt of complying presentation” in Field 47A condition 20 should be construed to mean upon receipt of a “certificate of compliance with the terms and conditions of the credit” as referred to in Article 13b(ii) of UCP 600[27].  I agree with the judge the clear wording of “complying presentation” could not be departed from.

76.  Thus, pursuant to Field 47A condition 20, the issuing bank is required to authorise the negotiating bank to claim reimbursement from the Bank of America, which was what the Bank purported to do in the 1^st Message, see Field 72 therein.  The 1^st Message was clearly a representation by the Bank it was in receipt of documents which complied with the letter of credit and was authorising Bangkok Bank to claim reimbursement from the Bank of America, the drawee under the bill of exchange.

77.  That deals with the meaning of the 1^st Message.  I turn to consider its effect.

78.  The judge held the effect of the 1^st Message was not sufficient to engage Article 15a of UCP 600 and oblige the Bank to honour the credit, as he found on the evidence that the Bank had not actually made a determination at the time that the presentation was complying.  He reasoned that where the bank makes a representation that the presentation is complying, Article 16f, which is confined to non-compliance with the provisions of Article 16, does not preclude the bank from withdrawing the representation and giving notice of refusal to honour the credit stating the discrepancy relied upon, so long as the notice is given no later than the fifth banking day following the presentation[28].  He held further that it is only in the situation giving rise to estoppel or waiver that the bank may be precluded, by reason of a representation that the presentation is complying, from subsequently rejecting the documents as discrepant.  In the present case, estoppel or waiver was not established as the Bank had not examined the documents when it made the representation in the 1^st Message and did not know at that time the documents were discrepant and it had the right to reject them[29].

79.  Mr Sussex, SC, who appeared for the plaintiff[30], emphasised the importance of certainty and clarity in the interpretation and application of the terms of the letter of credit and the relevant provisions of UCP 600.  “As one of the main practical reasons for this type of transaction is commercial certainty, anything which erodes that certainty would run counter to the UCP 600, the banking relationships between the banks and the buyers/sellers and the rationale of the transaction.” (Wilken and Ghaly on the Law of Waiver, Variation and Estoppel (3^rd ed) §17.41).  He submitted that a bank should only have one opportunity to state its view of the documents and it cannot approbate and reprobate.  In support of this, he cited this passage in Benjamin’s Sale of Goods (8^th ed) §23-180:

“A single notice. … While the UCP concentrates purely on notices of refusal, it is suggested that the principle that a bank has only one opportunity to state its view of the documents is of general applicability. Thus, a bank that states the documents are accepted cannot then retract that acceptance and issue a notice of refusal, assuming there is time to do so under art. 16(d). If it is impermissible to add a further discrepancy by a second notice of refusal, a fortiori it must be impermissible to communicate the fact of non-compliance by a subsequent notice of refusal countermanding an earlier notice of acceptance.”

80.  The other authorities cited by Mr Sussex were all in the context of a notice of refusal: ICC, Commentary on UCP 600, at p 72[31]; Cooperatieve Centrale Raiffeisen-Boerenleenbank BA v Bank of China [2004] 3 HKC 119 at §66; United Bank Ltd v Banque Nationale de Paris [1992] 2 SLR 64 at 76E to I; and Fortis Bank SA/NV & Anr v Indian Overseas Bank, supra at §§[37] to [42].  The passage in Benjamin’s Sale of Goods, which is based on general principles and logic, would seem to be the only direct authority in support of the proposition advanced by Mr Sussex.

81.  Mr Kat made these counter arguments.

82.  He pointed out in UCP 600, there is merely a procedure in Article 16 for a notice of refusal.  There is no provision in UCP 600 or in the SWIFT forms for a ‘notice of compliance’ or ‘notice of honour’ and there is no room or need for such a notice.  An issuing bank has a maximum of five banking days following the day of presentation to determine if a presentation is compliant (Article 14b).  If within that period it determines that the documents are compliant, it must honour (Articles 7 and 15a).  If it determines that a presentation does not comply, it may refuse to honour (Article 16a).  If it decides to refuse to honour, the notice of refusal must be given no later than the close of the fifth banking day following the day of presentation (Article 16d).  Thus, the issuing bank has one opportunity to give a notice of refusal, failing which it must honour the presentation. It is not one opportunity to give either a notice of honour or a notice of refusal.

83.  I would agree with the judge that under the general law there is no waiver by election in this instance where the Bank had no knowledge of the facts in that it had not examined the documents and hence had no knowledge of the rights it would forgo.  The question is whether on a proper interpretation of the relevant provisions of UCP 600, having made an unequivocal representation that the presentation is complying, the Bank would be precluded from giving a notice of refusal within time and is bound to honour the credit.

84.  Much as I am attracted to Mr Sussex’s argument which has the merit of commercial certainty and logic, I am unable to construe Article 15a as triggering an obligation on an issuing bank to honour the credit where it has represented that the presentation is complying but has not actually determined the same.  I am persuaded by Mr Kat whose argument is founded on a straightforward construction of the procedure provided in UCP 600.

85.  For the above reasons, I reach the same conclusion as the judge on the meaning and effect of the 1^st Message.  For those reasons, I would reject the plaintiff’s primary contention that by virtue of the 1^st Message, the Bank was precluded from giving a notice to reject discrepant documents and must honour the credit pursuant to Article 15a.

The meaning and effect of the 2^nd Message

86.  As I have held, the 1^st Message was a representation by the Bank that it was in receipt of documents which complied with the letter of credit and it was authorising Bangkok Bank to claim reimbursement from the Bank of America. The 2^nd Message asked the Bangkok Bank to “disregard” the 1^st Message, consider the same as “null” and it was not to claim the reimbursement from the drawee bank of the Bank of America. Premised on my construction of the 1^st Message, the 2^nd Message contained an implied statement that the Bank was cancelling the authorisation to claim reimbursement and it was refusing to honour the credit because the documents were not compliant. As it constituted a notice of refusal to honour the credit, it was defective as it failed to comply with the requirements in Article 16c.

87.  I reject Mr Kat’s submission that the meaning and effect of the 2^nd Message was similar to that of the first SWIFT message in the Credit Agricole Indosuez case, which was sent before the documents were received by the issuing bank, in which it was stated that the earlier message was sent by error, the payment order was revoked and that the issuing bank held the claim of the confirming bank “unaccepted and unpaid pending”. The wording and effect of the 2^nd Message in our case was clearly different. Not to mention the different context in which the 2^nd Message was sent, namely, that the Bank had by then discovered the discrepancies and decided not to honour the credit.

If the 3^rd Message was a valid notice of refusal to honour

88.  As the 2^nd Message was a defective notice of refusal, the 3^rd Message, which set out the discrepancies and stated that the Bank was holding the documents at the disposal of the presenter pending instructions, was likewise defective in that the requirement in Article 16c of giving a single notice of refusal to honour was not complied with.  As the Bank failed to act in accordance with the provisions of Article 16, by virtue of Article 16f it is precluded from claiming that the documents do not constitute a complying presentation.  Unless the Bank could rely on one of the defences raised, it would be liable to the plaintiff for the difference between the full amount payable under the credit and the reduced sum paid to the plaintiff.

If there was accord and satisfaction

89.  I would need to deal with a pleading point raised by Mr Sussex first that accord and satisfaction was not pleaded in the Defence and hence the Bank should not be allowed to rely on this as a defence.

90.  As I have mentioned in an earlier section when I set out the defence case, other than alleging variation of the contract, there was just a compendious paragraph in §26 of the Defence pleading waiver and estoppel.  Accord and satisfaction was not pleaded.

91.  Although there is no express provision in the Rules of the High Court requiring this to be specifically pleaded, it is advisable that both the accord and satisfaction should be specifically pleaded (Chitty on Contracts (31^st ed) §22-023).

92.  Despite the lack of specific pleading, I am of the view that the Bank ought to be allowed to rely on this as a defence in the particular circumstances of this case.  Accord and satisfaction was canvassed as a line of defence even at the stage of the application for summary judgment, see §17 of the judgment of the Court of Appeal that I have quoted earlier.  I have given the references in the written and closing submissions at the trial in which the Bank’s leading counsel addressed the judge on this, without objection from the plaintiff.  The judge dealt with accord and satisfaction in the Judgment at §§69 to 72.  In the Amended Notice of Appeal, accord and satisfaction was also raised at §§9A to 11.

93.  Mr Sussex pointed out that at the trial and in the Amended Notice of Appeal, accord and satisfaction was not raised as a standalone defence but merely formed part of the defence on variation of contract in the contention that there was consideration for the variation alleged.  I do not think this would matter.  The important thing is that the substance of the argument on accord and satisfaction was canvassed at the trial.  There is no suggestion from the plaintiff it would have adduced or elicited other evidence if this was specifically pleaded or advanced as a discrete defence.  I do not think the plaintiff would have suffered any prejudice as a matter of procedure.

94.  I turn to consider if accord and satisfaction is available to the Bank as a matter of law and whether it could be established on the evidence.

95.  Danckwerts LJ said in D & C Builders Ltd v Rees [1966] 2 QB 617 at 626:

“Foakes v Beer (1884) 9 App Cas 605 applying the decision in Pinnel’s case (1602) 5 Co Rep 117a settled definitely the rule of law that payment of a lesser sum than the amount of a debt due cannot be a satisfaction of the debt, unless there is some benefit to the creditor added so there is an accord and satisfaction.”

96.  An added benefit to the creditor may be found where a claim asserted by one party is disputed by the other and the parties agree to compromise their dispute on terms mutually agreed between them.  “The assertions, denials and counter-assertions comprising the dispute need have no foundation in fact or in law provided they are made in good faith.” (Foskett, The Law and Practice of Compromise (7^th ed) §2-16) And as Bowen LJ said in Miles v New Zealand Alford Estate Co (1885) 32 Ch D 266 at 291: “[I]f an intending litigant bona fide forbears a right to litigate a question of law or fact which it is not vexatious or frivolous to litigate, he does give up something of value. … I think therefore that the reality of the claim which is given up must be measured, not by the state of the law as it is ultimately discovered to be, but by the state of the knowledge of the person who at the time has to judge and make the concession.”

97.  Before the September Message was sent, there was clearly a dispute as to the Bank’s liability to pay on the letter of credit.  The Bank had sent the 3^rd Message which was an advice of refusal, stating the discrepancies relied on and that it was holding the documents at the presenter’s disposal pending instructions.  On the part of Bangkok Bank, it rejected the discrepancies identified by the Bank and contended that by the 1^st Message the Bank had authorised it to claim reimbursement from the Bank of America.  It threatened to sue the Bank if payment was denied.  See the messages of Bangkok Bank to the Bank dated 14 August 2008, 21 August, 1, 3 and 17 September 2008.  There is no suggestion that the assertions and counter-assertions in the dispute were not made in good faith or that they were vexatious or frivolous.

98.  I do not propose to repeat the material parts of the relevant messages which have been set out earlier.  They are the September Message, XCD’s Payment Instruction Letter to the Bank enclosing a copy of the addendum to the sales contract, the Bank’s message to Bangkok Bank on 23 September 2008 using Form MT707 to amend the letter of credit, the Bank’s message to Sumitomo Mitsui Banking Corporation on 24 September giving an irrevocable authorisation to remit US$5,122,240 to Bangkok Bank, and the Bank’s message to Bangkok Bank on 24 September informing the latter that payment of US$5,122,240 would be effected.

99.  The judge made these material findings at §74 of the Judgment:

“Notwithstanding the contrary submissions of Mr Sussex, I have no difficulty in concluding that [the September Message] contained a clear and unequivocal representation by the plaintiff that it would not be claiming from the Bank any shortfall between US$7,185,105 and US$5,122,240. … I also find that the Bank relied on this representation as well as the instructions contained in [the September Message] before it released the documents to XCD. I find that the Bank would not have proceeded, on the one hand, to release the documents to XCD and, on the other hand, to make the payment of US$5,122,240 to the plaintiff, if [the September Message] had contained an express reservation of right by the plaintiff to claim the difference between these two sums from the Bank.”

100.  Mr Sussex repeated his contention before us that the September Message was equivocal and did not include any indication that the plaintiff would not pursue the Bank for the difference between the two sums, so that an accord could not be established on the evidence.  He argued that the word “only” in that message could be understood to specify a sum for a certain payment, instead of meaning that the plaintiff was willing to receive US$5,122,240 only and no further sum was due.

101.  I do not agree with his interpretation.  I do not think a reasonable observer reading the relevant messages in sequence would have difficulty in coming to the view that the September Message contained a clear representation that the shortfall would not be pursued.  I agree with the judge’s findings quoted above.

102.  On the basis of those findings, I hold that an accord or agreement was established on the evidence.

103.  The judge however held that satisfaction or consideration was not established, for two reasons.  Firstly, he found that the Bank had not given up its right to argue it could reject the documents on the grounds they were discrepant and had acted throughout on the basis that it had rightly rejected the documents and was under no obligation to make any payment[32].

104.  I find this difficult to accept.  There is no evidence that after the Bank had paid US$5.1 million odd to the plaintiff and before the plaintiff brought this action eight months later, the Bank had asserted that it was right to reject the documents and it was under no obligation to pay anything to the plaintiff.  It is true that in this action, the Bank had made those assertions.  But had this action not been brought, there would be no need for the Bank to raise those assertions as it would regard the dispute with the plaintiff as compromised.  It is not correct to say that the Bank had acted throughout on the basis it had rightly rejected the documents and was under no obligation to pay anything.  The fact that it had paid US$5.1 million to the plaintiff, a very substantial part of the amount of the letter of credit, must have suggested otherwise.

105.  The second reason of the judge was that in releasing the documents to XCD, the Bank did not have any security interest in the documents to give up that could constitute consideration, as according to the 3^rd Message it was holding them to the order of the presenter[33].  The judge also rejected the Bank’s contention it had suffered detriment in not making alternative security arrangements with XCD to cover its exposure to the balance of US$2 million, as the Bank did not require security from XCD in the course of their dealings and XCD could not be liable for the balance of US$2 million as the liability flowed from the Bank’s failure to comply with Article 16.  Accordingly, he held that the Bank did not suffer detriment when it released the documents to XCD[34].

106.  I would agree with the judge that the release of documents in this situation could not constitute consideration.  But there is still the payment of US$5.1 million to the plaintiff.  I cannot see how the payment of this sum, which was not the full amount of the letter of credit, when the liability to pay anything at all was disputed on bona fide grounds, could not constitute satisfaction.  In my judgment, the defence of accord and satisfaction, which was held by the Court of Appeal to be an arguable defence in setting aside the summary judgment, was made out in the present situation.

107.  The case of Ferguson v Davies [1997] 1 All ER 315 cited by Mr Sussex is distinguishable from the present case.  There was an unqualified admission of liability by the defendant in that case in making payment of a lesser sum by cheque.  Henry and Aldous LJJ held no consideration in law was given for the accord suggested, and Evans and Aldous LJJ held the plaintiff’s acceptance of the cheque did not give rise to an agreement that he would forgo the balance of the claim.

108.  For the above reasons, I would hold that the Bank succeeds in resisting liability to pay the balance of the amount on the letter of credit.

If consideration was given to support variation of contract

109.  The main argument advanced on appeal in respect of this issue was whether the agreement to vary the letter of credit was supported by consideration.

110.  Mr Kat contended that there was consideration in that continuing performance of existing obligations providing some practical benefit would amount to consideration, citing Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 at 15 to 16; Forde v Birmingham City Council [2009] 1 WLR 2732 at §§85 to 90; and Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2011] 1 HKLRD §§49 to 51.

111.  Mr Sussex argued to the contrary and submitted that part performance of an existing obligation to pay under the credit could not form the necessary consideration to support the variation suggested.  He relied on Foakes v Beer (1884) 9 App Cas 605; Re Selectmove Ltd [1995] 1 WLR 474 at 480A to 481E; South Caribbean Trading Ltd v Trafigura Beheer BV [2005] 1 Lloyd’s Rep 128 at §§107 to 109; Bank of China (Hong Kong) Ltd v Cosan Ltd, HCA 1600/2004 at §§49 to 51 and CACV 331/2006 at §§26 to 27.

112.  In view of the conclusion I have reached that the defence of accord and satisfaction is made out, it is not necessary to consider the opposing arguments of counsel.  In any event, as I have held, we are not concerned with the situation in which liability for the amount claimed was not in dispute.  Nor is it necessary to deal with the arguments raised by Mr Sussex that were rejected by the judge on the plaintiff’s acceptance of repudiation by the Bank and the failure to comply with Articles 10a and c of UCP 600 on the amendment of the letter of credit[35].

If there was promissory estoppel

113.  The main argument advanced on appeal regarding this issue was whether promissory estoppel would have the effect of extinguishing the creditor’s right to the balance of the debt where the debtor offers to pay only part of the debt, the creditor voluntarily accepts the offer and in reliance on the creditor’s acceptance the debtor makes the part payment.  Mr Kat contended in the affirmative, relying on the judgment of Arden LJ in Collier v P & M J Wright Ltd [2008] 1 WLR 643 at §§35 to 42.  Mr Sussex argued to the contrary.  He prayed in aid the express doubts of Longmore LJ in Collier at §§44 to 47 and the criticisms in an article entitled “A Bird in the Hand: Consideration and Contract Modifications” by Mindy Chen-Wishart at p 103 to 105.

114.  Again, I do not find it necessary to resolve this in view of my finding that accord and satisfaction is established in this situation.

If the costs order made in the Costs Decision should be disturbed

115.  The relevant facts may first be stated as follows.

116.  By a summons issued on 15 April 2013, the plaintiff applied for specific discovery of any agreements or guarantees entered between the Bank and XCD and/or documents signed or unsigned evidencing the banking relationship between them.  The summons, which was opposed, was heard by the judge on 8 May 2013.

117.  At that hearing, the plaintiff narrowed the scope of its application by limiting the documents to those in existence in September 2008 that were in connection with letter of credit facilities and trust receipt facilities extended to XCD by the Bank.  The plaintiff’s counsel sought to justify the documents sought on the basis that the September Message was a “D/P instruction”, i.e. that the Bank was instructed to deliver documents against XCD paying cash, and the relevance of any guarantee or indemnity documents was that if the Bank was adequately secured for the reimbursement of US$5.1 million odd, it would have suffered no detriment and this would undermine the Bank’s argument on estoppel.

118.  That argument was rejected by the judge.  He took the view that the documents sought by the plaintiff were not relevant to the estoppel defence then raised by the Bank, which turned on the alleged detriment suffered by its liability to the plaintiff’s claim in this action for the difference between the original amount of the letter of credit and the actual payment received.  So he dismissed the application with costs to the Bank in any event[36].

119.  In the course of the arguments, the judge expressed the view that so far as the alleged detriment was concerned (for the difference between the original amount of the letter of credit and the actual payment received), it might be necessary to look at the Bank’s right of recourse against XCD so he asked the Bank’s leading counsel if the Bank could produce the application of XCD for the letter of credit[37].  The Bank’s leading counsel obliged[38].  The judge made clear this was his own point, not a point taken by the plaintiff’s counsel[39].  He said he was not making an order on this and it was not part of the plaintiff’s application[40].

120.  After the hearing, the Bank filed the supplemental witness statement of Mr Xu, disclosing not only the application of XCD for the letter of credit dated 18 July 2008 which the judge expressed a wish to see but two other documents, being the relevant notice of drawdown dated 22 July 2008 and the comprehensive credit facility contract between the Bank and XCD dated 3 February 2008.

121.  The order made on 8 May 2013 had not been sealed when the parties went before the judge for a case management conference on 7 June 2013.  At that hearing, the plaintiff applied to vary the costs order on 8 May on the ground that by the supplemental witness statement of Mr Xu filed after the hearing on 8 May, the Bank had supplied documents sought by the plaintiff in its specific discovery application.  The judge then directed this application to vary the costs order be dealt with and resolved at the trial of the action.

122.  In the Costs Decision, the judge acknowledged he has power to vary an order made but not yet sealed and that for the matter to be re-argued an exceptional case must be made out.  In the exceptional case where the matter is allowed to be re-argued, the court must exercise great caution in determining whether to alter its original decision.  It is only where the court is firmly satisfied that its original decision was incorrect and alteration is necessary to ensure that justice is done that alteration would be justified (HKSAR v Tin’s Label Factory Ltd (2008) 11 HKCFAR 637).

123.  The judge was of the view that the comprehensive credit facility contract between the Bank and XCD dated 3 February 2008 disclosed subsequent to the 8 May hearing was relevant to the estoppel defence raised by the Bank, and he had an imperfect understanding of the issues thrown up by the case when he dismissed the specific discovery application[41].  He was satisfied his original decision to disallow the specific discovery sought by the plaintiff was incorrect, as the documents subsequently disclosed were “the very documents sought by the plaintiff in its substantially narrowed down specific discovery application”.  So to ensure that justice is done, he decided to set aside the costs order in the Bank’s favour and substitute it with an order that the Bank should pay the plaintiff 50% of its costs of the application for specific discovery, as the plaintiff was only partially successful in that the Bank was right to oppose the wide scope of the discovery originally sought[42].

124.  Mr Sussex made two points in resisting this appeal by the Bank.  Firstly, leave is required for this appeal relating only to costs to be brought and leave has not been obtained from the judge or this court.  Secondly, he submitted that this was a discretionary decision on costs so unless it could be demonstrated it was so egregious an exercise of discretion that no reasonable judge would have taken it, the Costs Decision should stand.

125.  The point regarding the requirement of leave for the appeal to be brought was only taken when the appeal was argued.  It is understandable that the Bank might have overlooked the requirement to seek leave to appeal for the Costs Decision as this decision was handed down at the same time as the Judgment and it had brought an appeal against the Judgment and the Costs Decision in a composite notice of appeal.  It could be cured by this court as leave could be granted by us under section 14(3)(e) of the High Court Ordinance, Cap 4, if we are satisfied that the appeal has sufficient merits.

126.  I am persuaded by Mr Kat that this appeal on costs does have sufficient merits.  The judge was wrong in holding that the documents subsequently disclosed were “the very documents sought by the plaintiff in its substantially narrowed down specific discovery application”.  Plainly, they were not.  The documents sought by the plaintiff in its narrowed down application at the May hearing were documents evidencing the banking relationship between XCD and the Bank as in September 2008 in connection with the credit facilities enjoyed by XCD[43].  As explained by the plaintiff’s counsel, the justification for seeking the documents was that the September Message was a “D/P instruction”.  The three documents disclosed in Mr Xu’s supplemental witness statement were dated earlier, in February and July 2008.  The judge was not in error in dismissing the plaintiff’s narrowed down specific discovery application.

127.  As to the documents subsequently disclosed by the Bank, they were disclosed voluntarily and were not the subject of a court order.  And of the three documents, the only one which the judge said was relevant to the estoppel defence was not even a document that the judge had asked to see.  It is wrong in principle to penalise the Bank in costs in making voluntary disclosure to comply with a request of the court, when this was not the subject of an application or a court order, and the relevance of the document voluntarily disclosed was only understood subsequently when the matter was fully and properly argued.

128.  There was no exceptional circumstance to justify the re-opening of the costs order made but was not sealed.  The original decision of the judge was correct and it should not have been altered.

129.  I would grant leave to appeal against the Costs Decision and allow the appeal.

Conclusion and orders

130.  For the reasons given above, I would make the following orders.

131.  I would allow the appeal of the Bank against the Judgment, set aside the judgment entered against the Bank and dismiss the action with costs to the Bank, with a certificate for two counsel.

132.  I would give leave to appeal against the Costs Decision, set aside the costs order made in that decision, and restore the costs order made by the judge on 8 May 2013.

133.  As for the costs of this appeal, I would make an order nisi that the plaintiff should pay the costs of the Bank.

Hon Barma JA:

134.  I agree.