UDHARAM RUPCHAND SONS (HK) LTD. t/a FAR EAST CONFIRMERS v. MERCHANTILE BANK LTD

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JUDGMENT

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MeMullin, V.-P.:

1. This is an appeal from the decision of Rhind, J. who on 15th March this year gave judgment in favour of the respondent company Messrs. Udharam Rupchand Sons (HK) Ltd. trading as Far East Confirmers (hereafter "Confirmers") the plaintiff in an action against the Mercantile Bank Limited.

2. Under this judgment the plaintiff company achieved part of the relief claimed by it in the action which was commenced by Writ of Summons dated 10th October 1983 being granted a declaration that the defendant bank had wrongfully debited the plaintiffs current account No. 856-048566-001 with sums totalling $5,107, 821.29.

3. In its defence the Mercantile Bank pleaded that it had been entitled to debit Confirmers' account in this way in order to reimburse itself from moneys paid under two documentary credits issued by it at the request of Confirmers in Favour of two companies in Thailand: Market Holdings Co. Ltd. ("Market Holdings") and Mariyos International Co. Ltd. ("Mariyos"). These credits were respectively for the sums of $250,500 and $400,092 U.S. dollars.

4. By virtue of a General Security Agreement between Confirmers and the Mercantile Bank these credits were subject to the provisions of the Uniform Customs and Practices for Documentary Credits (1974 Revision) International Chamber of Commerce Publication No. 290 ("The U. C. P."}

5. The other terms of that agreement which were relevant to the dispute between the parties are as follows:

6. Confirmers had an agreement with a Mr. Chao to purchase goods from these Thai companies - sundry leather goods from Market Holdings and ladies clothing from Mariyos - and to cause them to be shipped to Confirmers in Hong Kong. Chao was to reimbuse Confirmers out of Letters of Credit obtained by him, plus commission, in recompense for the financing of these transactions on his behalf.

7. The Letters of Credit were issued to the Thai companies through the mediacy of the Bangkok branch of the Hongkong and Shanghai Banking Corporation as advising bank, the Mercantile Bank being at that time a wholly owned subsidiary of the former.

8. These credits were transmitted by telex and the interpretation of the terms contained therein constituted the principal matter in controversy between the parties both at the trial and on the hearing of the appeal, the area of controversy being divided into four distinct issues to which I shall turn presently.

9. It is common ground that the two Thai companies received these documentary credits and that purporting to act under them they presented them to their respective banks: the Siam Commercial Bank (Market Holdings) and the Thai Farmers Bank (Mariyos). It is the case for the Mercantile Bank that these documentary credits were properly presented and were legitimately negotiated by these two banks upon scrutiny of the accompanying commercial documentation which, it is contended, was in accordance with the stipulations of the credits.

10. Throughout the proceedings it has been the case for the Mercantile Bank that the Thai companies did pay the sums of money designated in the documentary credits. It is on the basis of those payments that the Mercantile Bank claims to have legitiamtely reimbursed the Thai banks on behalf of its customer, Confirmers, and to be entitled therefore to reimbursement by them.

11. Confirmers for their part have never admitted that there was an actual negotiation of these credits by the Thai - whether rightly or wrongly - and the Mercantile Bank is put to proof of that matter in para. 7(2) of the Reply and Defence to Counterclaim. That is in effect the only factual issue of the four which are in contention between the parties. The remainder relate principally to the interpretation of the documents. Before turning to these it will be helpful to round out the chronology of events which led to the institution of proceedings. It mayalso be convenient to note at this point that it is common ground that the Thai companies, purporting to act in accordance with the sale agreements between themselves and Confirmers (made on behalf of Mr. Chao by the latter ), did ship goods to Hong Kong which were transported to Hong Kong via Singapore where they were transshipped for onward delivery and that when they arrived in Hong Kong they were inspected and were justifiably rejected as being short-delivered and wholly out of conformity with the specifications of the sale agreements. This appears to have been the fruit of a collusive fraud involving Mr. Chao and the Thai companies and it is in effect the underlying cause of the litigation.

Chronology of Events

12. Both consignments of goods were shipped from Bangkok on 21st June 1983. After transshipment to another vessel at Singapore they arrived in Hong Kong at the end of the month. The arrival notices sent out to Confirmers by the Maersk Shipping Co. are dated 30th June 1983.

13. On 23rd June Mariyos presented documents to the Thai Farmers Bank purporting to be in conformity with the requirements of its Letter of Credit. On 24th June Market Holdings presented its documents to the Siam Commercial Bank. On the same day the Siam Commercial Bank credited Market Holdings current account with a sum in Thai currency equivalent to US$250,000. On 27th June Thai Farmers Bank credited the Current account of Mariyos with Thai currency equivalent in value to US$400,092.

14. On the same day - 27th June - both of these banks despatched documents of advice informing the Mercantile Bank that they had negotiated the Letters of Credit. These were received by the Mercantile Bank on 29th June. In each of these documents the request is made for reimbursement of the Thai banks by the Mercantile Bank in the amounts of the respective credits.

15. Among the documents stipulated as prerequisites for payment on presentation of the Letters of Credit was, in each case, a Certificate of Inspection stating that the goods had been inspected at the time of despatch from Bangkok and found to be in good order. In the case of the Market Holdings credit (No. 831044) the stipulated signatory was the Managing Director of Market Holdings Mr. P. U. Melwani; while the Mariyos credit (No. 831253) required similar certification by Mr. P. P. Melwani, another director of the plaintiff company.

16. When the Mercantile Bank on 29th June received from the Thai banks the negotiation advices together with the documents allegedly presented by the Thai companies with the Letters of Credit, there was among those documents in each case an inspection certificate purporting to have been signed by the relevant director.

17. On 30th June 1983 the Mercantile Bank notified Confirmers, by letter of that date, of the fact that it had received documents = under the credit in favour of Market Holdings. The letter indicated that this particular credit (31044) had been negotiated for payment by the Siam Commercial Bank. Confirmers were invited to send a representative to inspect the documents to see that they were in order. On 1st July Mr. P.P. Melwani went to the Mercantile Bank and upon checking through the documents discovered the inspection certificate which purported to bear the signature of his father. He was already aware that something was wrong because, knowing that such a certificate was amongst the documents required for presentation with the letter of credit, he was aware that neither he nor his father had signed any such certificate. Upon checking the documents at the bank it was at once established that the signature on the certificate was a forgery. The same document bears in a separate "box" another form of certificate purporting to confirm that the signature of Mr. P. U. Melwani appearing on the inspection certificate agrees with the specimen signature held in the files of the bank. Underneath this confirmation appears a signature purporting to be that of J. K. Fang, one of the employees of the Mercantile Bank. It is common ground that this document is a forgery neither of these signatures having been subscribed by the parties concerned. This unhappy discovery was made even before the goods were inspected and rejected.

18. On 2nd July Confirmers wrote to the Mercantile Bank and directed the bank to reject the request for payment from the Siam Commercial Rank on the ground that the inspection certificate relating to the Market Holdings credit was a forgery. On 4th July a letter in similar terms was directed to the Mercantile Bank advising rejection of the payment requested by the Thai Farmers Bank under the credit in favour of Mariyos for the same reason. On 5th of July by telex message each of the Thai banks was informed by the Mercantile Bank that the request for reimbursement was refused because of the "compelling evidence" of forgery.

19. Following this blunt refusal to put the Thai banks back in funds there ensued a series of telexed exchanges between those banks and the Mercantile Bank in Hong Kong. These exchanges continued throughout July and part of August and from the outset the Thai banks made it clear that it was their position that they had negotiated these credits in good faith and in reliance upon prescribed supporting documents, inspected with reasonable care, which appeared to be in conformity with the provisions of the credits.

20. Once the issue of forgery had been raised in the earlier telexed exchanges the Thai banks made it clear that they were relying upon certain provisions in the U. C. P. These are as follows:

21. Mr. P. U. Melwani gave evidence to the effect that some time between 11th and 14th July he was told by a Mr. Reypert the Manager of the Mercentile Bank, that the sight Bills drawn against the credits by one of the Thai companies had been dealt with by the Thai bank on a collection basis and at some stage he was also informed that one of the credits had been negotiated under Letter of Guarantee, something which was forbidden by the terms of the credit itself.

22. Mr. Reypert gave evidence. He agreed that he had said something of this kind to Mr. Melwani. The information would appear to have come from the Hongkong and Shanghai Bank in Bangkok. It is mentioned in one of the telex message from the Mercantile Bank to Siam Commercial Bank dated 5th July which states that the Mercantile Bank has been informed that the Siam Bank had told the advising bank that that credit had been negotiated under guarantee. The source of this information would seem to be a telex message passing between Mr. Chubb the Manager of the Hongkong Bank in Bangkok and Mr. Reypert in Hong Kong dated 8th July in which it is alleged that this information came From the Siam Bank. The same telex contains the information that two other credits were dealt with by the Thai Farmers Bank on a collection basis. One of those is the credit relating to Mariyos for $400,092 and the other is a third credit with which this case is not concerned, also issued by the Mercantile Bank and in respect of which it appears some question of forgery also had arisen.

23. If such a message was sent by the Thai Farmers Bank it was corrected in a lengthy telex dated 11th July to the Mercantile Bank in which it is claimed that the Mariyos credit was negotiated in good faith while the third non-relevant - credit was dealt with on a collection basis only.

24. The end result of all these messages was that the Mercantile Bank was prepared to accept that the Thai banks had properly negotiated these credits subject to an undertaking on the part of each of the Thai banks that the Mercantile Bank would be reimbursed for the amount of those payments if it should transpire, after criminal investigations, that any member of the staff of those banks had been involved in the fraud. As Rhind, J. noted the initiative in this matter appears to have been taken by the Hongkong and Shanghai Banking Corporation and the identical telex messages sent to the Thai banks on 5th August these payments are said to be made: "in view of our long standing relationship and in reliance on the representations you have made as to the good faith of your bank in negotiating the documents under the credit ..."

25. On 17th August 1983 Mercantile Bank paid the Thai Farmers Bank $400,092 to satisfy its claim under the credit in favour of Mariyos; on 25th August 1983 it paid Siam Commercial Bank US$250,500 under the credit of which Market Holdings was the beneficiary.

26. On the 6th September the following letter was sent to Confirmers:

               "Dear Sirs

Subsequently, the Mercantile Bank debited Confirmers' account in the manner complained of in the Statement of Claim. It has been Confirmers' position throughout that the Mercantile Bank in reimbursing the Thai banks was acting purely gratuitously and to preserve good commercial relations with those banks, that it had not been obliged to do so and that in debiting the current account of Confirmers it was justified neither in fact nor in law.

The Issues   

27. Mr. Boyd, Q. C. who appeared for the plaintiff company at the trial put it that the burden lay upon the defendant Bank of proving the following things:

Counsel for the Mercantile Bank Mr. Rattee, Q. C., has developed his argument within these parameters and these are likewise the issues specified and determined by Rhind, J. at the trial. He preferred however to consider and to deal with the issue of good faith as inseparable from the issue of fact: did the Thai banks negotiate the credits? He restricted his consideration of the fourth issue to the question of whether the bank had shown reasonable care.

Were The Credits Negotiable ?

28. This first and most fundamental issue depends upon the interpretation of the documents establishing these credits. The question is whether the terms of the credits as notified by the Mercantile Hark to its advising bank and by the advising bank to the beneficiaries established in each case a "Straight Credit" the terms of which were binding only between the issuing bank and the beneficiary so that any third party purporting to negotiate these credits would have no claim against the issuing bank; or whether they were "Negotiation Credits" giving Rights to third party holders of the beneficiaries drafts on proof of tender of documents in conformity with the terms of the credits.

29. The application for the credit in relation to Market Holdings was on one of Mercantile Bank's own forms and is in the following terms:

An application in similar terms was made in respect of Mariyos. The only difference between them is that the clause in the first application: "Letter of Guarantee is not acceptable" appears in an expanded form in the second application as: "Negotiation under beneficiary's Letter of Guarantee for any irregularities not acceptable".   Both of these forms had a printed condition stipulating that the documentary credit would be subject to the U.C.P. and also to the general security agreement between the Mercantile Bank and its customer, Confirmers. Mr. P.U. Melwani was to be the certifying signatory under the Market Holdings credit (No. 831044) and Mr. P.P. Melwani under the Mariyos credit (No. 831253).

30. The terms of the credits as notified to the beneficiaries via the advising bank are, for all purposes relevant to the issues on this appeal, identically framed. That relating to the Market Holdings credit for despatch on 7th April 1983 is in the following terms:

31. The terms of the "Mariyos" credit were notified on 26th April to the advising bank in Bangkok in the following terms:

32. Relying upon European Asian Bank v. Punjab & Sind Bank (No. 2) ⁽¹⁾ for the primary - and non-controversial - proposition that the question whether these were straight or negotiation credits is to be determined upon a construction of their entire contents, Mr. Rattee, seized upon the following three phrases which appear in each of the credits:

Construed within the context of these credits as a whole he maintained that these provisions clearly contemplated negotiation, there being no express term either forbidding negotiation by third parties or restricting negotiation to named third parties. He contended that the phrase "we undertake to reimburse you in the currency of this documentary credit" which appears in both the Letters of Credit are apt to cover the case of any party who in good faith negotiates the given credit against conforming documents.

33. Mr. Boyd, for the plaintiff company, pointed out that the Mercantile Bank in its pleadings (para. 8 of the Defence and Counterclaim) relies upon an implied term that the credit shall be freely negotiable and he argued that this is inconsistent with the express terms of the credits and in particular with the words, which I have quoted immediately above, which he maintained must refer either to the beneficiary in each case or else to the Hongkong and Shanghai Bank, Bangkok - the advising bank.

34. The trial judge was understandably critical of the imprecise character of the language used by the Mercantile Bank in establishing these credits. It is indeed very difficult to understand why the Mercantile Bank, if it truly wished to establish that these credits were to be freely negotiable, did not do so by the use of plain and simple words to that effect or by the use of the somewhat more elaborate formula quoted by the judge from p. 218 of Professor Ellinger's essay: "Current Problems of International Trade Financing".

35. Mr. Boyd was able to employ a modest petard upon which to hoist his opponents argument by pointing to certain similar credits issued by the Mercantile Bank, copies of which were introduced by the plaintiffs in the course of the trial relating to different transactions on other occasions, in which negotiation of the credit was expressly restricted to the advising bank.

36. General provision(d) of the U.C.P. provides that credit instructions and the credits themselves must be complete and precise. Provision (e) of the same provisions states that a bank is authorized to negotiate under a credit either -

Mr. Boyd argues with some force that, in the light of those provisions, if any question of implying terms arises in relation to the present credits it should rather be in the direction of implying that they are non-negotiable since the Mercantile Bank, whose documents these are, has chosen not be explicit, in its directions. To my mind that is a sound argument. It is not contended for the Mercantile Bank that these credits are expressed to be freely negotiable. Where express terms are not used then at the very least a measure of ambiguity is disclosed.

37. Should the documents therefore be read contra proferentem on that ground alone? One is tempted to say so in the light of the observations to be found at para. 2149 of the 2nd Edn. of Benjamin's Sale of Goods, one of the passages to which Rhind, J. referred. They are of considerable interest because they indicate, if only by negative example, the degree of precision which the courts expect from documentary credits which are presented as being freely negotiable. The passages is as follows:

The words we are concerned with in the present case would seem to be distinctly more ambiguous than the formula referred to in that passage.

38. But in any event, as it seems to me, the words we are concerned with yield a straight-forward meaning which is quite at odds with the interpretation contended for by counsel for the Mercantile Bank. Three possible objects of the phrase relating to reimbursement have been suggested in the course of argument:

Rhind, J. thought this last interpretation attributed to the word yielded a meaning which was too strained to be acceptable. I agree. Each of these telexed credits commences with a note addressed to Confirmers informing them of the text of the message which is addressed to the advising bank. The natural meaning of the relevant words in the message addressed to that bank seems to be that the Mercantile Bank is undertaking to reimburse the advising bank if and when it should negotiate the credits by paying out to the beneficiaries on drafts drawn by the latter in conformity with the terms of the credits. Even though in the event that is not what happened that would seem to be the primary sense of the language used in these documents.

39. Rhind, J. came to the conclusion that these. words referred to the beneficiary and Mr. Boyd has contended that they are apt to refer either to the beneficiary or to the advising bank. For my own part I find it difficult to apply these words to the beneficiary any more than they can be applied to banks in Thailand generally. For one thing it makes little sense to talk of "reimbursing" the beneficiaries. The beneficiary company is being put in funds under the credit not being repaid for any funds disbursed by it already. The concluding clause in that particular part of the message: "Please advise beneficiary without adding your confirmation" is clearly addressed only to the advising bank and can have no reference either to the beneficiary or to other banks in Thailand.

40. As it seems to me, these credits were clearly not in the nature of freely negotiable credits but were restricted to negotiation solely by the Hongkong and Shanghai Banking Corporation in Bangkok. It follows therefore that the Thai banks, were not empowered to negotiate them nor - if they did negotiate them - was the Mercantile Bank obliged to. reimburse them. That bank had therefore no legitimate recourse against the funds of its customer, Consumers. On this ground alone I would dismiss the appeal.

Did the Thai Banks in fact negotiate the drafts under the Letters of Credit?

41. At the trial counsel for the Mercantile Bank appears to have accepted that the burden of proving that the credits were negotiated by the Thai bank rested upon the defendant. Mr. Rattee however says that to place upon the Mercantile Bank the onus of showing that the Thai banks had acted in good faith .would be to impose an unjust burden and to create difficult practical problems. The judge's approach to this matter was to my mind eminently practical. He regarded these issues as being as he put it "virtually inseparable".

42. Mr. Rattee complains that Confirmers in their pleadings have simply put the Mercantile Bank to proof that there was negotiation and have not specifically pleaded that the credits were not negotiated in good faith nor yet specifically pleaded that there was any question of vitiation by one of them having been negotiated under Letter of Guarantee.

43. All of this however overlooks the fact that from the outset, once it was discovered that the commercial transactions to which the credits related were affected by fraud in which the beneficiaries must necessarily have been involved, the need for sound evidence emanating from the banks which had purported to negotiate the credits must have been apparent. The only evidence from that source produced at the trial consisted, firstly, of the telex exchanges during July and August between the Thai banks and the Mercantile Bank and its advising bank coupled with further telexed messages from the Thai banks sent to the Mercantile Bank on 29th May 1984 and produced, under hearsay notices, in evidence at the trial.

44. These latter claim in very general terms that the advances were made to the beneficiaries upon examination with reasonable care of the documents which appeared upon their Pace to be in accordance with the terms and conditions of the credits.

45. Rhind, J. noted the fact that there had been the initial information given to the Hong Kong Bank, and communicated to the Mercantile Bank, that one of the credits had been dealt with on a collection basis and the other had been negotiated under Letter of Guarantee. He said "Mercantile Bank has not yet satisfactorily explained how it came by its original information. Merely putting telexed denials into evidence is simply not good enough." He pointed out also that the Mercantile Bank itself had originally raised the possibility that some of the Thai banks employees might have been implicated in the frauds.

46. When one considers the nature of the credits themselves and the problem raised by their wording; the Mercantile Bank's own initial refusal to reimburse the Thai banks in the face of flagrant fraud affecting the beneficiaries; the information allegedly coming from the Thai banks which initially disposed Mr. Reypert to tell Mr. P. U. Melwani that he could set his mind at rest; and the subsequent reversal of position on the part of the Mercantile Bank without further consultation with Consumers, the judge's strictures on the lack of oral testimony from some responsible person or persons from the Thai banks seems amply justified. In saying that the telexed messages carried no weight with him he was saying no more than that they were not probative to the degree required to discharge the onus which clearly rested upon the Mercantile Bank to prove negotiation. On this issue also I am in respectful agreement with the trial judge.

47. I must add however that while I agree that the burden lay upon the Thai banks to prove that they had in fact negotiated these drafts and that Rhind, J. was right in finding that that burden necessarily involved such questions as the good faith and care with which they examined the documents I am compelled to agree with counsel for the defendant that the judge was wrong to rely upon the provisions of s. 29 and 30 of the Bills of Exchange Ordinance in support of his decision as to onus.

48. The defendant bank was not in the position of a holder in due course of the sight bills drawn by the Thai companies though it was the drawee of those Bills. The claim against the bank stood upon a wholly different footing from any claim taken under the Bills of Exchange Ordinance and the question of onus is I think better disposed of by consideration of the general principle that he who asserts must prove.

3. Were The Letters of Credit Strictly Complied With?

49. The first point here relates to the inspection certificates. These are in identical form. The one relating to Market Holdings is set out by the judge at p. 36 of his judgment and is in the following form:

In this regard the Mercantile Bank, rightly as the judge found, relied upon Articles 7 and 8(B) of the U. C. P. Mr. Boyd concedes that the decision in Gian Singh & Co. Ltd. v. Banque De L'Indochine⁽²⁾ disables the contention put forward on behalf of Confirmers in the court below to the. effect that the mere fact that the certificates were forged would have entitled the Mercantile Bank to reject tender of all the documents from the Thai banks on the ground that the certificates were nullities. The judge held against the plaintiff on that point and nothing more need be said of it.

50. He also held against Confirmers in relation to the contention that this form of verification was inadequate and therefore rendered the inspection certificate a non-conforming document under the Letters of Credit. He said "I do not think those words have any effect on the position between parties standing in the relationship of banker and own customer, as the Mercantile Bank and Far East Confirmers do here, but are included solely to forestall any contentions from third parties that they are entitled to hold the banker responsible for representations made."

51. I think however that Mr. Boyd's argument on this is sound. He puts it that it is precisely third parties who are concerned to be able to rely upon the genuineness of the signature on this essential document. It would be strange if the issuing bank, being obliged under the terms of its own credit to verify an essential signature, could, by such a disclaimer, avoid liability to a negotiating bank for loss occasioned to the latter through the negligence or fraud of the issuing bank's own officer. Yet if ;there is any effect at all to be attributed to this provision that is presumably the effect it is intended to have. That would surely be unjust. The better view would seem to be that such a form of verification is effectively not proper verification at all and that it is therefore not something upon which a negotiating bank could safely rely in accepting and acting upon the inspection certification.

The Bills of Lading

52. These were said not to conform with the terms of the credits. The Bills, in both cases, bear the printed legend: "Combined Transport Bill of Lading".

53. Para. 1 of C1.16 of each Bill contains the following sub-paragraph:

54. The heading of the bills of lading and these provisions of C1.16 thereof are in obvious contradiction to the terms of the credits which expressly forbid transhipment.

55. Article 21 of the U.C.P. is relied upon by the appelant in this regard:

The trial judge held that paragraph (b) did not help the appellant and that Article 23 of the U.C.P., which deals with Combined Transport Documents, is the relevant clause. It contains no absolution for this particular transgression.

56. Counsel for the appellants  points to the endorsement upon the bill which concludes with the following words:

Article 23 defines a combined transport document as "one which provides for a combined transport by at least two different modes of transport from a place at which the goods are taken in charge to a place designed for delivery ..." It is common ground that in fact only one mode of transport - i. e. transport by ship - was employed.

57. Mr. Rattee points to the fact that the "boxes" relating to place of delivery and place of receipt in these bills have not been filled in. Had they been filled in such a manner as to indicate that some mode of transport other than shipping was intended then, he would concede, the Bills must be regarded as Combined Transport Bills of Lading and would stand without the benefit of the relieving clause in Article 21(b).

58. The judge himself pointed out that these Bills had been filled in as though they were ordinary ocean Bills of Lading, the nominated ports of departure and arrival being, respectively, Bangkok and Hong Kong. Counsel's point is that although the Bill in each case, in Clause 16, allows for different modes of transport the Bill itself does not expressly provide that transport is to be by more than a single mode.

59. The point is a fine one but to my mind the judge was right to hold that the Bill was a Combined Transport Bill of Lading, as indeed Mr. Chung Yiu-tong, an experienced checker employed by the Mercantile Bank himself. believed it to be. A bill which announced itself as a Combined Transport Bill should, as the judge found, alert any bank dealing with the documents to the possibility .that the clear provisions of the credit itself might be in conflict with the provisions of the Bill of Lading which therefore would not be a conforming document.

The Mariyos Credit and the Question of the Invoices

60. A further point taken in relation to the Mariyos credit only concerns the question whether the six invoices which were among the required documents to be tendered, when payment was being sought from the negotiating bank, had in fact ever been tendered. It is clear that what is alleged in paragraphs 7 and 9a of the Re-amended Reply and Defence to Counterclaim is that five only and not six of the required invoices were tendered to the Thai Farmers Bank. Mr. Boyd sought to argue that it was the plaintiffs' case upon the pleadings as they stood that in order to establish a right and an obligation to reimburse the Thai banks the Mercantile Bank must show not only that the proper number of invoices had been tendered to the Thai banks but also that the six invoices had eventually been presented to Confirmers in proof of the Mercantile Bank's alleged right to debit Confirmers' account. He professed to have been taken by surprise by his opponent's contention that the question whether five or six invoices had been tendered to Confirmers was irrelevant.

61. At the moment when this dispute upon the pleadings arose - the third day of the hearing of the appeal - counsel sought the leave of the court to add a yet further amendment to the Reply and Defence, the general purport of which was that, on this score also, the Mercantile Bank had not been entitled to debit Confirmers' account.

62. It is true that in his address to the court below Mr. Boyd did make the point that only five of the documents had ever been tendered to the plaintiff. Nevertheless I am satisfied that the only issue raised upon the pleadings in relation to the invoices is whether the full tally was tendered to the allegedly negotiating bank and that no such amendment ought therefore to be permitted. I cannot read paragraphs 7 and 9a of the Defence and Counterclaim as doing more than meeting the matters pleaded in para. 10 and 11 of the Statement of Claim which state that the credits were negotiated by the Thai barks on presentation of what appeared on their face to be the stipulated documents.

63. However the matter was argued below, Mr. Rattee was, in my opinion, fully entitled to take the point that whether the Mercantile Bank, and ultimately the plaintiffs, had received five or six invoices was a purely evidentiary matter bearing upon the ultimate question: did the negotiating bank receive the proper number?

64. The judge disposed of this issue of the tender of the invoices by finding in favour of the plaintiff, principally upon Mr. P. P. Melwani's evidence that five invoices only had reached the plaintiff. He thus made no finding on what was, with respect, the true issue of fact upon this aspect of the case. It is not now contended on behalf of the defendant bank that one invoice did not go astray between the Mercantile Bank and the plaintiff. I do not propose therefore to enter into the details of that evidence. It will suffice to say that there was evidence from the side of the defendant upon which, if the judge had been considering this issue in the manner in which I believe it ought to have been considered, he might well have found that the six invoices did get as far as the Mercantile Bank. It follows that this was on its own not a good reason for finding that the tendered documents were not in conformity with the terms of the credit.

65. A final point which has been made in relation to the Mariyos Letter of Credit concerns the provision therein to the effect that "all documents are to be despatched in two sets by consecutive air-mails to the issuing bank." They were in fact not despatched to the issuing bank but to an intermediary, the Philadelphia International Finance Co. Mr. Rattee sought to argue that this was not in truth a condition of the credit. Rhind, J., while professing little enthusiasm for the point, held that it was a term of the credit which like all the other terms entitled the complaining party, under the doctrine of strict conformity, to claim the benefit of this breach although, in the judge's view, Confirmers were taking advantage of a pure technicality which, as he put it, had presented them "with a 'Windfall' means of escape from liability under the credit." Neither the point itself nor the arguments advanced upon it admit of much elaboration. A comment, oblique and by way of obiter, by Robert Goff, J. (as he then was) on a similar point which appears at p. 650 of the decision in the European Asian Bank case⁽¹⁾ was as far as Mr. Rattee could put his contention. But he did not press the point as a direct or convincing authority. I see no reason to differ from the conclusion to which the trial judge came.

The Final Issue:

66. Did the Thai banks examine the documents with reasonable care to see if they were in conformity with the conditions of the credits? At the conclusion of a long and carefully reasoned judgment Rhind, J. remarks that this issue had in effect been dealt with by him already in considering the arguments as to whether the documents strictly complied with the terms of the credit. Of the several matters urged on behalf of Confirmers he found that three only impelled him to hold that the Thai banks had not acted with reasonable care. These were:

For the reasons given earlier I am unable to uphold him upon the second of those findings. In substitution for that however, I think he could well have relied, in finding a want of care on the part of the Thai banks, on one of the matters to which he was prepared to attach no weight.

67. I have ventured to differ from him in holding that the form of verification appearing upon the Inspection Certificate was not in truth a proper verification at all. Whether that be right or wrong, at the very least it was something which should have given a prudent bank official pause. Here were vital documents presented, in the one case two days, and in the other three days, after the alleged shipment of the goods. Each purported to have been signed by the designated signatory. It was no doubt reasonable enough to conclude that the particular Mr. Melwani in each case had been present on the day when the goods were shipped and had signed the certificate on that date.

68. The prudent official must then however have addressed himself to the question of how these signatures had been verified. Presumably, and reasonably, he would dismiss the idea that Mr. Fang of the Mercantile Bank had gone to Bangkok to facilitate the Melwanis in this way on the very day of shipping.

69. Two other alternatives would have then presented themselves. Having signed these certificates and returned on the same day to Hong Kong the two Melwanis could then have gone to the bank and obtained the chop and signature of Mr. Fang on their respective certificates. These would then have needed, to be despatched to the respective beneficiaries. Apart from the fact that this manoeuvre involved the somewhat unlikely possibility that Confirmers had seen fit to send both its managing director and another director to Bangkok to accomplish a task which ought to have been well within the competence, of either one of them, there is the purely practical difficulty involved in having these essential documents transmitted to the beneficiaries quickly enough to enable the latter to present them to their banks two days (Mariyos) and three days (Market Holdings) after despatch. No doubt that might be possible, though it does suggest a somewhat precipitate zeal on the part of buyers whose goods were already securely on their way to Hong Kong.

70. The alternative possibility would have been for the Melwanis to collect these certificates from the bak and have them chopped and signed by Mr. Fang before they left for Bangkok. Would the Melwanis have signed these certificates before they even saw the goods? A possibility no doubt, but again one which might have caused the prudent official to think twice.

71. In the light of these facts the possibility of some form of trickery involving forgery might surely have suggested itself to the prudent official.

72. Finally, it might be said, returning to an earlier theme, that these several factors taken together with the communications which the Hongkong and Shanghai Bank in Bangkok had allegedly received from the Thai banks concerning payment on basis of collection and Letter of Guarantee ought to have made the need for oral evidence from the Thai banks a very clear necessity to the defendant.

73. Save to the limited extent indicated above I am in agreement with the judge on his major findings on these four issues and I would therefore dismiss this appeal with costs.

Yang, J .A.:

74. I have had the privilege of reading the Vice-President's judgment and I respectfully agree with it.

Li, V.-P. :

75. I have the benefit of reading the judgment of my brother McMullin in draft. With great respect I agree entirely with his conclusions and the reasons therefor. I would add only the following.

76. If it is necessary to emphasize the reason why I find that both letters of credit are straight credit reference can be made to their contents. Both telexes were addressed to the HongKong & Shanghai Bank in Bangkok - the advising bank. The contents can only be instructions addressed to the advising bank and no one else. It cannot be said that it was addressed to either the beneficiary or any other bank in Bangkok, otherwise the last sentence: "Please advise beneficiary without adding your confirmation" is a complete nonsense.

77. All the three sentences in which the word "Negotiation" and "Negotiating" are consistent with the letters of credit being negotiable at he advising bank only. Mr. Rattee, in the course of his argument conceded, if I understood him correctly, that if the letter of credit were addressed to the advising bank then it must be a straight credit. I am of the opinion that this is so. The appeal should be dismissed with costs.

(1)    (1983) 1 W.L.R. 642

(2)    (1974) 1 W.L.R. 1234