RUDOLPH ROBINSON STEEL CO. v. NISSHO IWAI HONG KONG CORPORATION LTD. AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 127
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

1. This is an appeal by the defendant ("Nissho") against the judgment given against it by Cheung J on 20 April 1998. The plaintiff ("Rudolph") is an American company. On 29 May 1995 it entered into a contract with Filon World Trade Company Limited ("Filon") for the sale to the latter of steel coils ("the sale contract"). Payment was to be by letter of credit. Filon then entered into an agreement ("the financing agreement") with Nissho. A sub-purchaser had agreed to open an irrevocable letter of credit in favour of Filon which it requested Nissho to receive and to use to back a letter of credit which Nissho was to procure. By clause 4B of the financing agreement, it was agreed that Nissho "shall handle those letters of credit and financing matters between (the sub-purchaser) and (Rudolph) in due course". For that, it was agreed that Nissho would receive 1.45 per cent of the purchased amount which was US$2,093,649.50.

2. Nissho duly arranged for a letter of credit conforming to the sale contract to be issued by Sanwa Bank, with Nissho as the applicant. Its date of expiry was 12 August 1995. The steel coils for Qingdao port, 3,700 tonnes, were one-half of a total shipment of 7,000 tonnes shipped by Rudolph. On 17 August 1995, Corestates Bank ("Corestates"), on behalf of Rudolph, presented the documents under the letter of credit to Sanwa seeking the payment of the sum of US$2,093,649.50, which was the purchase price. Sanwa found discrepancies in the documents and notified Corestates by an advice of refusal dated 23 August 1995, adding that it was "Holding documents at your disposal pending instruction". Thereafter there were negotiations between Rudolph, Nissho and Filon in regard to the goods and payment under the agreement. On enquiry by Corestates, they were informed by Sanwa on 8 September 1995 that it was still awaiting the applicant's acceptance of the discrepancy and that the documents were held at Corestates' disposal.

3. On the same day, 8 September 1995, by fax Filon suggested to Rudolph that Filon pay 100 per cent of the total invoiced amount and Corestates issue a guarantee which provided that the beneficiary had the right to claim on short weight if any established by the SGS draft survey at Qingdao.

4. By another fax of the same date, Filon suggested to Rudolph that after long discussion with Nissho and the Qingdao buyer's willingness to accept a weight assurance guarantee on 20 per cent "subject to negotiate the SGS report of draft survey at discharging port", Filon would like to have Rudolph's bank's confirmation to allow 90% payment and the balance to be paid upon receipt of the SGS report which would be issued by SGS in America to Rudolph.

5. Rudolph responded with a letter of the same date, 8 September, to Nissho, copied to Filon, stating inter alia that:

"1.) The request for this amendment should be generated by Sanwa Bank to CoreStates Bank, exactly as was done in the case of the Tianjin payment. (presumably for the 3,700 tonnes of steel coils that went to Tianjin)

2.) Sanwa Bank will request that documents will be released upon payment of USD 1,674,919.36 (80% of original invoice)."

And adding that "Sanwa Bank will promise to pay the balance upon presentation of" the several documents listed in the letter; also that "Sanwa Bank (or Nissho Iwai or) will guarantee that no cargo will be moved from the pier until payment of" Rudolph's invoice.

6. By letter dated 15 September 1995 Nissho instructed Sanwa to send the following information to the plaintiff:

"Applicant accepted to pay 80 percent (US$1,674,919.36) and the balance amount to be paid upon negotiation of the Draft Survey Report at Qingdao port which will be prepared by 'SGS-CSTC STANDARDS TECHNICAL LTD.' in the following calculation, ...

Beneficiary's consent will be required."

7. On 18 September 1995 Filon faxed Rudolph informing it that Sanwa Bank had sent a telex to Corestates stating the payment method and asking Rudolph immediately to instruct their bank "to accept the arrangement which had been agreed by both of us".

8. On the same day Sanwa telexed Corestates in the following terms:

"AT THE REQUEST OF APPLICANT, WE WILL ACCEPTED TO PAY 80 PERCENT (USD1674919.36) AND THE BALANCE AMOUNT TO BE PAID UPON NEGOTIATION OF THE DRAFT SURVEY REPORT AT QINGDAO PORT WHICH WILL BE PREPARED BY SGS-CSTC STANDARDS TECHNICAL LTD IN THE FOLLOWING CALCULATION. (WEIGHT OF THE DRAFT SURVEY REPORT - 30.93 MT) x US580/MT - USD1674919.36 - USD5000.00 PLS URGENTLY OBTAIN BENEFICIARY'S CONSENT AND AUTHORISE TO RELEASE DOCTS AGAINST USD1674919.36 BY RETURN TESTED TLX OR SWIFT QUOTING OUR REF NO. DOCTS IS BEING HELD AT YOU DISPOSAL."

9. This was followed by a second message from Sanwa on the same day instructing Corestates to disregard the earlier message and adding the following:

"AT THE REQUEST OF APPLICANT, WE HEREBY QUOTING APPLICANT'S MSC AS FOLLOW, QUOTE APPLICANT ACCEPTED TO PAY 80 PERCENT (USD1674919.36) AND THE BALANCE AMOUNT TO BE PAID UPON NEGOTIATION OF THE DRAFT SURVEY REPORT AT QINGDAO PORT WHICH WILL BE PREPARED BY SGS-CSTC STANDARDS TECHNICAL LTD. IN THE FOLLOWING CALCULATION. ...

BENEFICIARY'S CONSENT WILL BE REQUIRED. UNQUOTE PLS URGENTLY OBTAIN BENEFICIARY'S CONSENT AND AUTHORISE TO RELEASE DOCTS AGAINST USD1674919.36 BY RETURN TESTED TLX OR SWIFT QUOTING OUR REF NO. AND THE BALANCE AMOUNT IN ACCORDANCE WITH THE ABOVE CALCULATION WILL BE PAID ON COLLECTION BASIS UPON RECEIPT OF THE ABOVE MENTIONED DRAFT SURVEY REPORT ISSUED IN ACCORDING TO THE ABOVE REQUIREMENT RGDS IB."

10. On 19 September 1995 Corestates informed Sanwa that:

"... WE HAVE RECEIVED THE BENEFICIARY AGREEMENT TO ACCEPT THE LESSER AMOUNT OF USD1,674,919.36 THEREFORE PLEASE RELEASE THE DOCUMENTS AND EFFECT PAYMENT OF THE ABOVE MENTIONED AMOUNT AS OUTLINED IN OUR LETTER OF AUGUST 17, 1995 ..."

11. The Plaintiff duly received US$1,674,919.36. By a letter dated 2nd October 1995, the plaintiff instructed Corestates to present to Sanwa Bank a commercial invoice in the amount of US$447,999.72 and the SGS-CSTC draft survey report supporting the invoice calculation. The documents were presented on 3 October 1995.

12. A telex dated 13 October 1995 from Sanwa to Corestates stated:

"WE HAVE RECEIVED THE DOCUMENTS UNDER OUR L/C NO.681/212/5552 RE. OUR SWIFT DD 18 SEP 95 N YR SWIFT DD 19 SEP 95 STATED THE BALANCE AMOUNT WILL BE PAID ON COLLECTION BASIS. THUS, DOCTS SENT TO US ON COLLECTION BASIS AND PAYMENT WILL BE MADE UPON RECEIVED OF FUNDS FROM APPLICANT. PLEASE NOTE THAT DOCUMENT NOT UNDER UCP 500. WE ARE STILL AWAITING APPLICANT'S PAYMENT AND DOCTS HOLDING AT YOUR DISPOSAL."

13. On 17 October 1995 Sanwa telexed Corestates:

"APPLICANT ADVISE US THAT QUOTE DUE TO DISCREPANCIES OF YOUR ORIGINAL DOCUMENTS, SPECIAL ARRANGEMENTS WAS MADE, WHICH 80 PERCENT WAS SETTLED AND REMAINING 20 PERCENT IS BEING CLAIMED AS PER OUR CABLE DATED 18 SEP 95 HOWEVER THE SERIOUS QUALITY PROBLEM WAS FOUND DURING THE DISCHARGING AND NORMAL SURVEY PROCEDURE. THE BALANCE SETTLEMENT WILL BE MADE UPON SOLUTION OF SUCH QUALITY CLAIM BETWEEN YOU AND US UNQUOTE PLS ADVISE TO BENEFICIARY ACCORDINGLY DOCUMENTS HOLDING AT YOUR DISPOSAL"

14. In the event Rudolph did not received payment of the balance of the purchase price, i.e. US$447,999.72. It eventually instituted proceedings in the High Court in 1996 against Nissho as the 1st defendant and Sanwa as the 2nd defendant. The action came for trial before Cheung J in the Court of First Instance in March and on 20 April 1998 he gave judgment dismissing the claim against Sanwa but giving judgment for the plaintiff against Nissho for the sum of US$447,999.72 together with interest and costs. Nissho now appeals against that judgment.

15. For Nissho Mr K.M. Chong, who also represented Nissho below, pursues two main points. First, that it was not open to the judge to find that Nissho had undertaken personal liability in respect of the 20 per cent of Rudolph's claim which had not been paid. Second (even on the assumption that Nissho had accepted personal liability) there had not been performance by Rudolph of the agreement contained in the telex of 18 September 1995, specifically of the term that "upon negotiation of the draft survey report", the payment of the 20 per cent of the balance would be made.

Whether Rudolph assumed personal liability for 20 per cent of Rudolph's claim

16. The relevant part of Rudolph's amended Statement of Claim is contained in its paragraph 7:

"On 18th September 1995, at the request of the 1st Defendant [Nissho], the 2nd Defendant [Sanwa] made the following offer to the Plaintiff [Rudolph]. The offer was sent in writing to the Plaintiff by SWIFT message via CoreStates Bank. The 2nd Defendant informed the Plaintiff that, subject to the Plaintiff's agreement to the immediate release of the documents referred to in Paragraph 5 above, the 1st Defendant and 2nd Defendant were prepared to proceed as follows:

(a) 80% of the value of the L/C, being the sum of $1,674,919.36, would be paid by the 2nd Defendant to the Plaintiff immediately.

(b) The remaining 20% of the value of the L/C, being the sum of $447,999.72, would be paid to the Plaintiff on negotiation of a draft survey report ("the Report") to the 2nd Defendant for 1st Defendant.

(c) The remaining 20% of the value of the L/C, being the sum of $447,999.72, would be paid by the 2nd Defendant on a collection basis.

...

10. On 13th October 1995 the 2nd Defendant received the Report.

11. Notwithstanding the receipt of the Report, which was the only precondition for payment of the remaining sum of $447,999.72, the 1st Defendant has wrongfully and in breach of contract refused to pay the sum of $447,999.72 to the Plaintiff. Accordingly the Plaintiff is entitled to payment of the sum of $447,999.72 from the 1st Defendant."

What the judge said

17. The judge dealt with this matter at pp.19 and 20 of his judgment in the following way:

"Nissho Iwai was the applicant of the letter of credit. The Plaintiff's case against Nissho Iwai is that it had made an offer through Sanwa Bank in the telex of 18th September 1995. The offer was accepted by the Plaintiff and Nissho Iwai is accordingly liable. Mr Chong, Counsel for Nissho Iwai, accepted that if I find that the subsequent presentation of the report was outside the letter of credit, Sanwa Bank must be acting as a conduit and therefore the agent for Nissho Iwai in negotiating with Corestates. I have made such a finding and it followed that Nissho Iwai accepts that Sanwa Bank was acting as its agent in making the offer to the Plaintiff. In any event, the authority of Sanwa Bank to act for Nissho Iwai is clearly demonstrated by the telex dated 15th September 1995 from Nissho Iwai to Sanwa Bank which I had referred to earlier.

Mr Chong, however, argued that Nissho Iwai was only acting as the financier and agent for Filon in establishing the letter of credit. The Plaintiff should have known that the offer contained in the telex of 18th September 1995 was made by Nissho Iwai as Filon's financier and agent. This being the case, Nissho Iwai had neither the right nor liability for an agreement made on behalf of Filon with the Plaintiff because, as a matter of law, an agent does not attract the right or liability in respect of a contract entered into for his principal. Mr Chong further argued that after the expiration of the letter of credit, the liability of Nissho Iwai as the applicant under the letter of credit towards Sanwa Bank was discharged and there was no question of Sanwa Bank being able to recover any money from the security given by Nissho Iwai for establishing the letter of credit. When the letter of credit expired, whatever security the Plaintiff might have to the purchase price also vanished since Nissho Iwai's liability had been discharged. In respect of the subsequent arrangement, it was merely acting as Filon's agent outside the letter of credit.

It is irrelevant that Nissho Iwai was not the buyer under the contract of sale with the Plaintiff. According to the agreement between Filon and Nissho Iwai, the latter would finance the transaction and handle the letter of credit in return for Filon paying it 1.45% of the purchase price. It is difficult to follow Mr Chong's argument as to why Nissho Iwai's liability had been discharged after the expiration of the letter of credit and why it was merely acting as an agent for Filon later on. The fact remained that Nissho Iwai was responsible for financing the transaction. There was no indication that at the time when the offer was made, Nissho Iwai had considered that its obligation had already come to an end. There was no basis for saying that the offer in the telex of 18th September 1995 was made by Nissho Iwai as an agent for Filon. There was no reason why Nissho Iwai would have entered into an agreement with the Plaintiff under which 20% of the purchase price would be paid by Filon, as opposed to being paid by Nissho Iwai.

Mr Chong argued that the instruction by Nissho Iwai to Sanwa Bank did not refer to the release of documents : the authorisation to release documents was made by Sanwa Bank only. In my view one must construct a document in order to give it business sense. Would Nissho Iwai be prepared to pay 80% of the purchase price without receiving the documents of title? The release of documents of title must be one of the terms of the offer made by Nissho Iwai."

Appellant's submissions on personal liability

18. Mr Chong submits that the judge was wrong in holding that Sanwa was acting as Nissho's agent in making the offer to Rudolph contained in the second telex from Sanwa to Corestates on 18 September 1995. He pointed to paragraph 4b of the financing agreement between Nissho and Filon which provided that:

"[Nissho] shall handle those letters of credit and financing matters in between [Filon's sub-purchaser] and [Rudolph] in due course."

Mr Chong submitted that this made it plain that Nissho's role was only to procure the letter of credit and that the judge in holding that Nissho actually had to provide the cash to meet the 20% balance of the purchase price, went too far and was wrong. However, it has to be pointed out that Nissho was also to handle "financing matters" and that paragraph 5 of the financing agreement provided for remuneration for Nissho's "financial activities to be extended" to the particular transaction. The latter was clearly the "business transaction described in the 'SALES CONTRACT NOTE' made between [Nissho] and [Filon] dated 10 July 1995", i.e. the sale of approximately 3,500 metric tonnes of steel coil to be shipped to Qingdao. But this is little to the point as the judge found that payment of the 20% balance of the purchase price fell to be made outside the scope of the letter of credit which in fact expired on 12 August 1995 before the relevant negotiations in this latter respect began. In that regard he was not persuaded by the expert evidence, that the stipulation "on collection basis" would have the effect of preserving the application of the expired letter of credit. These conclusions were not shown to be flawed before us; nor were they appealed. Indeed, it is common ground that it was after the expiry of the letter of credit that the negotiations began between Rudolph and Filon, which resulted in the settlement agreement between them that Filon would arrange for 80 per cent of the purchase price to be drawn down and the 20% balance to be paid upon "negotiation of the draft survey report".

19. Mr Chong argues that Nissho sent its telex of 15 September and Sanwa its second telex of 18 September as a direct result of Filon and Rudolph reaching the settlement agreement as to how the goods at the quay should be dealt with. He says negotiations were between Rudolph and Filon and that Nissho was not a participant. However, Mr Clifford Smith, for Rudolph has disputed that and has demonstrated by reference to correspondence exchanged that Nissho did indeed participate to an extent that is sufficiently significant.

20. It was also submitted by Mr Chong that Nissho being neither the purchaser of the goods nor a direct party to the settlement agreement had neither the motive nor the obligation to assume personal liability to pay the 20% balance. That is not right. Nissho's fee of 1.45 per cent of the purchase price minor though it be, did provide Nissho with some incentive to have the transactions successfully completed. Be that as it may, motive can only have had a very indirect bearing upon the issue of liability in the particular circumstances; the communications and actions of the parties are clear enough.

The evidence of the witnesses

21. Mr Chong also sought to rely upon the evidence of Mr Horan, Rudolph's chief financial officer, of Mr Ringo Or, one of the directors of Filon at the material time, and of Mr Sato who at the material time was one of the general managers of Nissho. His object in relation to the former was to show that Rudolph did know the actual purchaser of the goods was Filon, a matter that in my view is of little assistance in addressing the submission. The statements of the latter two witnesses were admitted by consent. Mr Chong relied upon their evidence in the present context as showing that Nissho was acting merely as agent for Filon. It is true that their evidence does point to Nissho being informed as to Filon's requirements, difficulties, and suggestions, and indeed acting upon them, but it plainly does not go as far as indicating that Nissho could not also have been and was not acting on its own behalf. In particular, their evidence does not in any way derogate from the clear documentary position that Sanwa was acting as agent for Nissho. Their evidence also does not go as far as establishing that Nissho was acting only in its capacity as Filon's agent or that Rudolph knew this or, particularly, that Rudolph had any cause to believe that when Sanwa communicated Nissho's assumption of liability to pay the 20% balance of the purchase price, Nissho was doing so only as Filon's agent. I therefore find that there is little of assistance to be derived from the evidence of the three witnesses.

22. Reverting then to pp. 19, 20 and 21 of the judge's judgment, Mr Chong's submission was that the judge having initially misconstrued the nature of the agreement between Filon and Rudolph as to the 80% and 20% payments, not least as somehow flowing from continuing responsibility for financing the transaction under the financing agreement related to the expired letter of credit, carried that error through to his conclusion that there was no basis for saying that the offer in the telex of 18 September 1995 was made by Nissho as an agent for Filon; and that such conclusion must therefore be flawed. A plain reading of that part of the judgment shows that the agreement reached between Rudolph and Filon after expiration of the letter of credit had little to do with the judge's conclusion that Nissho accepted that Sanwa was acting as its agent in making the offer to the plaintiff. In particular, as the judge said, Sanwa's authority to act for Nissho was clearly demonstrated by the Nissho's telex of 15 September 1995 to Sanwa. That said, I have to add that I am not persuaded that the latter half of the third paragraph of his judgment, that I have earlier quoted under the heading "What the judges said", shows an error by the judge in failing to appreciate the expiration of the letter of credit and the solution to that situation by the new agreement between Rudolph and Filon. If there was such an error, it had little to do with the judge's conclusion, which rested upon the documentary evidence, in particular Sanwa's second message of 18 September and Nissho's letter of 15 September.

23. I therefore reject Mr Chong's first submission. If any further reason was necessary for that conclusion, it can be found in Mr Clifford Smith's submission made upon the well established principle that an agent for an undisclosed principle is himself liable. If Nissho was indeed acting as Filon's agent with respect to its instruction to Sanwa on 15 September, which was the basis of Sanwa's second telex to Corestates on 18 September, then it failed to disclose this and must live with the consequences.

The performance point

24. Mr Chong's submission here turned upon the point of Sanwa's second telex of 18 September 1995 to Corestates in effect pleaded in paragraph 7 of Rudolph's Amended Statement of Claim, i.e. that the 20% balance of the purchase price would be paid to Rudolph "upon negotiation of the draft survey report at Qingdao port". Performance in those terms, he submitted, had not been made in two respects, i.e. first negotiation of the draft report and second, such negotiation at Qingdao port. I pause to mention first that the judge in his judgment held that "negotiation" was to be construed as "receipt" of the draft report, and that this has not been appealed.

25. It is convenient to begin with Mr Chong's second limb, as it is so plainly devoid of merit. It was that the survey report had to be received at Qingdao port and was not so received. It can be seen that on their face those words are ambiguous in that "at Qingdao port" could relate to the draft survey report in the sense of being made at Qingdao port, as opposed to the report being received there. In addition, in any realistic terms related to the actual circumstances, receipt in a distant port where the parties do not appear to have a presence is absurd. Any reasonable construction by reference to the circumstances thereby permissible, would require the former construction, i.e. receipt of the survey report made at Qingdao port. To be fair, the second limb was not pressed by Mr Chong.

26. Turning to the main limb of his submission, this was that Nissho has in fact never received the draft survey report. The evidence appears to establish and it does not appear to be disputed that the draft survey report was sent to Rudolph who passed it on to Corestates; the latter then sent it to Sanwa "for collection", the letter of credit by then having expired. Mr Chong contends that Sanwa stated more than once that it held and continued to hold the survey report at Corestates' disposal, i.e. as agent for Rudolph, and therefore not as Nissho's agent which would have fixed Nissho with receipt.

27. The judge dealt with this technical submission, which was also made to him, at p.21 of his judgment in the following way:

"Mr Chong further argued that since the report is still being held by Sanwa Bank as an agent for the Plaintiff, the agreement reached between Nissho Iwai and the Plaintiff has not been performed, and there is no obligation on the part of Nissho Iwai to pay the balance of the purchase price. In my view it is clear that the obligation to pay the balance of the purchase price was upon the receipt of the report. The report had been presented by the Plaintiff and received by Sanwa Bank and the obligation of Nissho Iwai was established. Accordingly, the Plaintiff is entitled to judgment against Nissho Iwai."

Plainly, the judge took a broad commonsense view of the relevant requirement. In the second telex of 18 September 1995 the intention must have been that receipt by Sanwa was sufficient. Notwithstanding that Sanwa informed Corestates that the documents were being held at its disposal, and this presumably meant all the letter of credit documents too, there was exhibited to the judge a letter from Nissho to Sanwa asking Sanwa to continue to hold the documents until the matter was resolved. That is consistent only with Nissho regarding itself as having control of the documents, including the survey report. In all the circumstances including the words "upon negotiation ... at Qingdao port", Nissho must have intended that a receipt of the documents by Sanwa was to be sufficient. The meaning contended for by Mr Chong would strip those words of business efficacy. Moreover, the construction contended for by Mr Chong would mean that Nissho could instruct Sanwa to hold the documents indefinitely thereby precluding Rudolph from ever becoming entitled to payment under the arrangements obviously intended to achieve payment when the draft survey report became available.

28. For the foregoing reasons, I would dismiss the appeal with an order nisi giving Rudolph its costs of the appeal.

Liu, J.A.:

29. The Vice-President has set out all the material facts in his judgment, and it would not be necessary for me to give more than a bare outline. Rudolph Robinson Steel Company (Rudolph) sued Nissho Iwai Hong Kong Corporation Limited (Nissho) and the Sanwa Bank Limited, Hong Kong Branch (Sanwa Bank) for US$447,999.72. The claim against Sanwa Bank was founded on its alleged failure to honour drafts drawn by Rudolph under a Letter of Credit and the alternative claim against Nissho was founded on an offer allegedly made by Nissho through its bankers, Sanwa Bank, to Rudolph on 18 September 1995 to pay the outstanding 20% of the price of goods sold to Filon World Trade Company Limited (Filon) by Rudolph on receipt of a Draft Survey Report and the relevant invoice. It is claimed that the offer made was duly accepted by Rudolph which negotiated the Draft Survey Report and the relevant invoice through its bankers, the CoreStates Bank, NA. Philadelphia National Bank Division (CoreStates Bank) to the bankers of Nissho, Sanwa Bank.

30. It would be sufficient to focus on the two issues ventilated before this court, namely, (1) whether or not Nissho had assumed personal liability to pay Rudolph on 18 September 1995, and (2) if Nissho had contracted personal liability to pay Rudolph, whether or not there was negotiation of the Draft Survey Report for such liability to accrue.

31. Filon agreed to buy and Rudolph agreed to sell galvanized coils to be paid by a Letter of Credit. Filon arranged with Nissho to open a Letter of Credit for the sale on a commission. The galvanized coils were to be sub-sold to a Shandong Corporation. The arrangement was for the Shandong Corporation to open a Letter of Credit in favour of Filon or its nominee (in this case Nissho) and for Nissho to establish a corresponding Letter of Credit in favour of Rudolph. It was expressly agreed in writing that Nissho should "handle those Letters of Credit and financing matters in between (the Shandong Corporation) and (Rudolph) in due course". Nissho duly applied for the opening of a Letter of Credit with Rudolph as the beneficiary. Drafts would be drawn under that Letter of Credit upon deliveries made of the galvanized coils to Filon. Deliveries had been made and documents presented but discrepancies were allegedly discovered. Despite these discrepancies, Nissho tried unsuccessfully for the release of payment under the Letter of Credit issued by Sanwa Bank. The Letter of Credit expired on 12 August 1995. In early September 1995 by a facsimile, Filon proposed to Rudolph a resolution on 8 September 1995. Later on the same day, Filon suggested a payment of 80% with the balance to be paid upon receipt of a Draft Survey Report and the second commercial invoice. This fax sent later on the same day was, apparently, dispatched on behalf of Filon and Nissho. Again, on the same day, 8 September 1995, Rudolph wrote to Nissho on Filon's suggesting that Sanwa Bank was to release shipping documents for the galvanized coils upon payment of 80% of the invoice price with Sanwa Bank promising to pay the balance upon presentation of the Draft Survey Report and the second commercial invoice. Sanwa Bank was also asked to guarantee that no cargo would be removed from the pier until payment of the 20% balance.

32. On 15 September 1995, Nissho wrote to its own bankers, Sanwa Bank, for a cable to be dispatched to the bankers of Rudolph, CoreStates Bank, in these terms:

"Applicant [Nissho] accepted to pay 80 percent (US$1,674,919.36) and the balance amount to be paid upon negotiation of the Draft Survey Report at Qingdao port ......... Beneficiary's [Rudolph's] consent will be required."

It is reasonably clear that the Draft Survey Report was to be issued at Qingdao. Three days later on 18 September 1995, Sanwa Bank telexed the bankers of Rudolph, CoreStates Bank, at the request of Nissho, offering itself to pay 80% and the balance upon the receipt of the Draft Survey Report. Almost two hours later on the same day, the bankers of Nissho, Sanwa Bank, dispatched another telex to the CoreStates Bank, correcting the previous message. The new message was:

"Applicant [Nissho] accepted to pay 80 percent (US$1,674,919.36) and the balance amount to be paid upon negotiation of the Draft Survey Report at Qingdao port ........ Beneficiary's [Rudolph's] consent will be required."

Sanwa Bank continued:

"And the balance amount in accordance with the above calculation will be paid on collection basis upon receipt of the above mentioned draft survey report issued in according to the above requirement." (Emphasis supplied).

On the same day 18 September 1995, Filon faxed Rudolph the following message:

"Today Sanwa Bank has sent the telex to CoreStates Bank stating the payment method. Please immediately instruct your bank to accept the arrangement which has been agreed by both of us." (Emphasis supplied).

33. It is reasonably clear that after the expiration of the Letter of Credit established by Nissho, the buyer and seller of the galvanized coils, Filon and Rudolph, reached a settlement to resolve matters by the agreed "payment method" which was for Nissho's bankers, Sanwa Bank, to release 80% of the invoice price to Rudolph's bankers, CoreStates Bank in Philadelphia. Clearly, Rudolph would not have supposed that Filon was going to be the pay-master. Nissho, as applicant of the expired Letter of Credit, was to be responsible for the payment of the 80% and remaining 20%. Sanwa Bank assumed the position of a collection agent who was to accept, on collection basis, Filon's Draft Survey Report and second commercial invoice from Rudolph's bankers, CoreStates Bank. The same were to be released on collection basis against payment by Nissho.

34. The circumstances and the relevant communications do not support Nissho's allegations that after the expiration of the Letter of Credit, Nissho was not a participant in the resolution of the difficulties by the agreed "payment method" and that Nissho acted in the settlement and the arrangements arrived at as an agent of Filon. Filon was not to pay out of its own pocket. Nissho, as applicant of the expired Letter of Credit, was to assume the responsibility to pay both the 80% and the 20%.

35. On Rudolph's case against Nissho, the judge found that Nissho accepted "that Sanwa Bank was acting as its agent in making the offer to (Rudolph)". Sanwa Bank was found to be the agent of Nissho in making the offer to Rudolph. There was no finding by the judge that Sanwa Bank acted as an agent of Filon in the offer made to Rudolph. The judge further found that "the release of documents of title must be one of the terms of the offer made by (Nissho)".

36. It is argued that Nissho's initial contractual obligation was merely to establish a Letter of Credit for the sale of galvanized coils by Rudolph to Filon and that upon the expiration of that Letter of Credit, Nissho left the scene altogether. In the agreement between Filon and Nissho, Nissho's contractual obligation was merely to "handle those Letters of Credit and financing matters in between (the Shandong Corporation) and (Rudolph) in due course". The judge would seem to fall into error when he found that Nissho was and continued to be responsible for financing the transaction of the galvanized coils sale between Rudolph and Filon. On the found continuing obligation to finance the transaction, the judge held that there was no basis for suggesting that the offer made in the telex of 18 September 1995 re "method of payment" was made by Nissho as an agent for Filon.

37. The judge had made a clear finding in favour of Rudolph that it offered through Sanwa Bank to pay the 80% and 20%. That finding is not flawed by the later erroneous holding against Nissho in his rejection of one of Nissho's counsel's endless contentions. The evidence of Nissho's assumed liability was so overwhelming that the judge could not have intended any subsequent rejection of submissions advanced on behalf of Nissho to affect his said clear finding in favour of Rudolph. In my view, Nissho did assume personal liability to pay the 80% and the remaining 20% in the 18 September agreement to resolve the difficulties after the expiration of the Letter of Credit.

38. Filon's Draft Survey Report and second commercial invoice had been delivered by the bankers of Rudolph, CoreStates Bank, to the bankers of Nissho, Sanwa Bank. As the collection bankers nominated by both Rudolph and Nissho, Sanwa Bank was duly-bound to declare that they were holding these documents for Rudolph pending payment by Nissho of the remaining 20%. To all intents and purposes, Nissho received these documents on collection basis. In fact, on 17 October 1995, Nissho's bankers, Sanwa Bank, instructed Rudolph's bankers, CoreStates Bank, to advise their client as beneficiary (Rudolph) that the Draft Survey Report and the second commercial invoice were being held at (Rudolph's) disposal. Nissho's letter of instructions to Sanwa Bank dated 17 October 1995 was telling. It requested the following cable to be sent to Rudolph:

"Due to discrepancies of your original documents, special arrangements was made, which 80 percent was settled and remaining 20 percent is being claimed as per our cable dated September 18, 1995. However the serious quality problem was found during the discharging and normal survey procedure. The balance settlement will be made upon solution of such quality claim between you and us."

This was virtually Nissho's admission of liability well after the settlement on 18 September 1995. In the context of the cable, it is also inconceivable that Nissho could have regarded itself as not being in receipt of the Draft Survey Report and the second commercial invoice.

39. In his rejection of one of the arguments advanced by Nissho that Nissho could not have been an agent for Filon in the arrangements made after the expiration of the Letter of Credit, the judge made a later finding, and that finding cannot be supported. But because of this finding, albeit erroneous, it became quite unnecessary for the judge to consider whether Rudolph was actually aware of any agency relationship between Nissho and Filon. In order to successfully resist the claim of Rudolph, it would be encumbent upon Nissho to demonstrate such knowledge, otherwise Nissho would be liable personally without having disclosed its principal. This burden Nissho did not seem to have discharged.

40. In the circumstances, this appeal must be dismissed. I would dismiss it and make an order nisi for costs against the appellant.

Leong, J.A.:

41. I agree. I would only add this: The history of the parties' negotiations after the expiry of the letter of credit shows that the parties were anxious that Rudolph Robinson Steel Company (Rudolph) should receive payment so that the shipping documents would be released since Filon World Trade Company (Filon) had a sub purchaser. Rudolph was trying to find arrangement for payment outside the letter of credit. The solution came when Filon suggested to Rudolph on 8.9.1995 that 80% of the price would be paid for releasing the documents and the balance on presentation of the draft survey report. Rudolph while agreeing to 80% of the price to be paid first, wanted from Sanwa Bank a promise to pay the balance on presentation of the draft survey report and also a guarantee that the cargo remained on the pier until payment of the balance. Rudolph's reply was sent to Nissho Iwai Hong Kong Corporation Ltd (Nissho) who was the applicant in the letter of credit and copied to Filon. Nissho on 15.9.1995 instructed Sanwa Bank to inform Rudolph that Nissho accepted to pay 80% of the price first and the balance on receipt of the draft survey report. Accordingly, Sanwa Bank on 18.9.1995 conveyed this offer to CoreStates Bank, Rudolph's banker in the United States. The following day CoreStates Bank replied that the offer was accepted by Rudolph. In the event, 80% of the price was paid but the balance remained unpaid by Nissho although Rudolph had sent the draft survey report to Sanwa Bank.

42. What had transpired in these communications between the relevant parties clearly show that Nissho instructed Sanwa Bank to make the offer to Rudolph. Sanwa Bank acting on Nissho's instructions, made the offer to Rudolph through CoreStates Bank. Clearly the offer of 18.9.1995 was made by Sanwa Bank on behalf of Nissho and could not have been made on behalf of Filon. There was no evidence that Rudolph knew Nissho was acting as agent for Filon and it would appear that Nissho had not be able to discharge that burden. The judge's finding that Nissho had undertaken to pay the balance of 20% cannot be faulted.

43. It is also clear that the draft survey report had been delivered by CoreStates Bank to Sanwa Bank and the bank was holding it pending instructions from CoreStates Bank and Nissho. The letter of 7.11.1995 from Nissho to Sanwa Bank after receipt by Sanwa Bank of the draft survey report instructing the bank "to hold the documents" until further instructions makes it clear beyond doubt that Sanwa Bank acted as collecting agent for Nissho and had received the report for Nissho. The judge must be right to conclude that the report had been presented by Rudolph and received by Nissho giving rise to the obligation of Nissho to pay the balance.

44. I, too, would dismiss the appeal.

Nazareth, V.-P.:

45. The appeal is accordingly dismissed; there will be an order nisi that the plaintiff is to have its costs of the appeal.