TOTAL ENERGY ASIA LTD v. STANDARD CHARTERED BANK (HONG KONG) LTD

HCCL 68/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 68 OF 2002

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J U D G M E N T

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Introduction

1. This is a dispute upon a letter of credit.

2. It is between the plaintiff beneficiary under that credit (‘Total’) and the defendant confirming bank (‘SCB’), wherein the plaintiff contends that the defendant bank wrongfully refused to make payment pursuant to an irrevocable letter of credit issued by Union Bank of India in the amount of US$1,269,750.00.

3. The central question in the case is whether SCB complied with its obligations under Article 14(d) of The Uniform Customs and Practice for Documentary Credits (1993 Revision), invariably referred to as the ‘UCP 500’, which was incorporated into the letter of credit in question by express reference : Article 14(d) variously requires a Confirming Bank which has decided to refuse documents presented under the Credit to give notice of such decision without delay to the bank from which it received the documents, and that such notice of rejection must state all discrepancies relied upon and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.

The factual background

4. It may be useful at the outset to give some indication of the factual background which has spawned this litigation.

5. There is no necessity for great detail, given that letter of credit litigation essentially is self-contained, and in any event the broad parameters of this action are tolerably clear.

6. The plaintiff, Total, is a middleman in two back-to-back contracts whereby Total agreed to buy a quantity of Chinese coal from one Usha Fortune Company Ltd, and to onsell this coal to one Esteco VK Export Ltd.

7. As might be anticipated in an arrangement of this type, the purchase price of the coal thus purchased by Total from Usha Fortune was to be made by letter of credit issued by Credit Agricole Indosuez (‘the CAI-LC’) in the amount of US$1,254,000.00, and payment by the on-sale purchaser, Esteco, to Total was to be made by letter of credit issued in favour of Total by Union Bank of India (‘the UBI-LC’) in the amount of US$1,296,750.00, the price differential representing, no doubt, Total’s profit on this purchase and resale.

8. The first transaction between Total as buyer, and Usha Fortune as seller, went through in normal course: on or about 28 January 1999, Usha Fortune presented the relevant documents for payment under the CAI credit, and notwithstanding minor discrepancies, Total accepted the documents and payment was made to Usha Fortune under that credit on 29 March 1999.

9. In terms of Total’s onsale of this cargo to Esteco, on 29 January 1999 Credit Agricole, on behalf of Total, presented the relevant documents under the UBI-LC to the defendant, SCB.  This has been referred to in this case as ‘the 1^st presentation’.

10. Although there is a factual dispute as to precisely what happened, no complaint is raised by Total in terms of this presentation, which was rejected on the ground of discrepant documents.

11. This case has its genesis in terms of that which occurred in and pursuant to ‘the 2^nd presentation’ : on 4 February 1999, at the request of Total, Credit Agricole represented to SCB a revised set of documents, and it is that which is said to have occurred thereafter that enables Total to argue that there was no, or no sufficient rejection of this revised set of documents by SCB as Confirming Bank, and thus that, absent such rejection, that SCB is bound to make payment under the UBI-LC pursuant to the provisions of Article 14(e) of the UCP 500, which essentially provides that if the Confirming Bank fails to act in accordance with the provisions of Article 14, it “shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit”.

12. Accordingly, the substance of this case requires an examination of that which SCB did, or did not, do in terms of this 2^nd presentation under the UBI-LC, and whether, consequent upon such findings, SCB as Confirming Bank is required to pay under the Credit, or whether it is correct in the view that it takes that it has properly discharged its responsibility under the terms of Article 14 of the UCP 500, and thus bears no liability to Total for the sum now claimed.

13. Whilst it does not much matter in terms of a letter of credit dispute, wherein the underlying transaction is of little analytical consequence, what appears to have happened ‘on the ground’, as it were, is that for reasons which remain unclear, Esteco, as purchaser of the coal from Total, was able to obtain delivery of this cargo of coal absent production of an original bill of lading – which in normal course it would have obtained only upon payment – and having thus obtained the document of title, and thus the cargo, declined to pay for the goods, leaving Total, as unpaid seller, to its various remedies, of which this action against the defendant bank is but one; this court has not been told, for example, whether proceedings also have been commenced against Esteco and/or the carrier, albeit in the present context of this action under the Credit this is of no more than passing interest.

The central issue

14. Although the case was opened somewhat more widely, the central issue for decision remains whether in all the circumstances there was a valid notice of rejection given by SCB to Credit Agricole of the documents presented to SCB under the 2^nd presentation.

15. Broken down into its constituent parts, Total’s case is that :

first, although SCB notified Credit Agricole of discrepancies in the documents, it failed to communicate any rejection of the documents, orally or in writing, within the 7 day time-limit specified in Article 14(d)(i);

second, the notices of rejection allegedly emanating from SCB, which were partly in writing and partly oral, did not comply with the requirements of Article 14(d)(ii), and thus were invalid; and

third, that as a result SCB is precluded by Article 14(e) from claiming that the documents presented by Credit Agricole were discrepant, and thus that SCB is liable to make payment under the UBI-LC, pursuant to Article 9 (b) of the UCP 500.

16. This analysis necessarily involves consideration of the events surrounding the 1^st and 2^nd presentations, which have been the subject of the viva voce evidence led in this case.

17. It is also important to bear in mind what this case is not about.  This is not a case in which a decision is required as to whether documents presented by Credit Agricole in fact were discrepant; the plaintiff does not dispute this. 

18. Accordingly, the sole focus of this case is whether there was a valid rejection of discrepant documents by SCB, the defendant bank, pursuant to the provisions of Article 14(d).  If so, the plaintiff loses; if not, the plaintiff wins.

The evidence

19. It is against this backdrop that I refer to the oral evidence which was led in this case.

20. As to witnesses of fact, the plaintiff called one witness only.  This was Mr Pierre Law, who at the material time was a bills checker in the Bills Department of the presenting bank, Credit Agricole.

21. Mr Law was called to relate to the court his recollection of events, in particular his exchanges at the relevant time with the SCB officer in the SCB Bills Department, whom he knew to be ‘Mr Wong’.

22. On behalf of the defendant, SCB, two witnesses of fact were called.

23. The first was the aforesaid ‘Mr Wong’, whose name is David Wong Kei Wong, who was in the employ of SCB at the relevant time.  As was the situation with Mr Law, Mr Wong was called to recount the sequence of events in terms of the presentation which had been made by Credit Agricole to SCB, and in particular that which passed between Mr Wong and himself on the subject.

24. A key issue in this case, which will require a finding of fact, is that which transpired in telephone conversations with Mr Law of Credit Agricole with regard to the 1^st and 2^nd presentations.

25. It is worth recording that both Mr Law and Mr Wong attended court to give evidence under subpoena.

26. The second witness of fact called on behalf of the defendant bank was Ms Josephine Wong Wai Sze, who at the material time was employed by SCB as a Senior Manager and was head of a team handling letter of credit transactions in the Trade Processing Centre of SCB.

27. Ms Wong did not have direct personal knowledge of the matters leading to this dispute, and she was not involved in the dealings which took place with the letter of credit in question; her evidence was confined to the systems/procedures in place at SCB at the relevant time, in particular SCB’s procedure for processing letter of credit transactions, and SCB’s standard procedure for giving notice of refusal of documents.

28. In addition to viva voce witnesses of fact, expert evidence also was led in this case, although that which ultimately was placed before the court bore limited relation to the experts’ report which had been prepared for this case.

29. Once again this court was faced with the situation in which the parties had involved experts in an apparent bid to answer the ultimate question in this case, notwithstanding that the issue of liability remains solely a matter for the court to decide.

30. Sooner or later commercial law litigation practitioners in Hong Kong will come to understand – and, with respect, this seems to be an unduly lengthy process – that the sole task of an expert witness is to educate and not to persuade. 

31. It also strikes me that in so far as a specialist court in this (or any other) jurisdiction has at the least a reasonable grasp of the mechanics of commonly-used commercial transactions, together with the legal principles which have been developed to govern the same, that the occasions on which expert evidence is appropriate are likely to be relatively few and far between.

32. That said, once more this court was faced with expert reports which undoubtedly infringed upon what is properly admissible, and detailed argument duly was entertained as to what parts of which report formally should be admitted into evidence.

33. The result of such debate was that the expert report, and supplemental report, of Professor James Byrne, of George Mason University School of Law, which was filed on behalf of the defendant, was subject to considerable editing consequent upon a ruling by the court delivered on the fourth day of this trial, and Professor Byrne’s report then was admitted in its elided form; significant among the excisions was Professor Byrne’s view of the propriety of SCB’s refusal of the two documentary presentations which took place in this case, and which, in terms of the 2^nd presentation, represented precisely the issue before the court. 

34. In effect, therefore, Professor Byrne was restricted to providing expert evidence on, for example, international banking practice, and even in this area Mr Sussex SC, appearing on behalf of the plaintiff, asked the court not to append a great deal of weight to Professor Byrne’s learned observations, in light of the fact that the learned professor had never been other than an academic and never had practiced as a banker.

35. One of the consequences of this ruling was that Mr Sussex ultimately elected not to call not to put into evidence the expert reports of Mr T.O. Lee, whose expertise originally had been enlisted on behalf of the plaintiff.

36. Hence, the sole expert evidence before the court in this case became that of Professor Byrne, albeit in much restricted ambit.  I would further add that, whilst there is no doubt but that Professor Byrne is eminent in his field, in the event I have not been greatly assisted by his evidence in the circumstances of this case; indeed, I entertain a real doubt as to whether this was a case which merited the calling of expert evidence at all, and in so far as the court apparently gave leave for such to be adduced, (via, I am told, the mechanism of a Consent Order), with the benefit of hindsight I can only conclude that this was in error.

Article 14(d) of the UCP 500

37. Before examining precisely what did, or did not, happen in the interchanges between Credit Agricole, as presenting bank, and SCB, as confirming bank, with regard to the two documentary presentations under this credit, it may assist specifically to refer to the relevant parts of Article 14 of the UCP 500, the heading of which is “Discrepant Documents and Notice”.

38. Article 14(a) lays down the basic principle that where the Issuing Bank authorizes another bank to pay/accept drafts/negotiate against documents which appear on their face to be compliant with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are bound to make reimbursement to the bank which has paid/accepted drafts/negotiated, and to take up the documents which have been presented.

39. Article 14(b)provides that upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, must determine “on the face of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit”, and that if the documents appear not to be thus, such banks “may refuse” to take up the documents.

40. Article 14(c)specifies the situation in which if the Issuing Bank determines that the documents on their face are not compliant with the terms and conditions of the Credit, “it may in its sole judgment” approach the Applicant for the Credit for a waiver of such discrepancies, although such does not have the effect of extending the time period of “a reasonable time, not to exceed seven banking days following the day of receipt of the documents”, for which provision is made in Article 13(b).

41. Article 14(d) deals with that which the refusing bank must do upon refusal of documents tendered, whilst Article 14(e)stipulates that if the Issuing Bank and/or Confirming Bank fails to act in accordance with the provisions of Article 14 and/or fails to hold the documents at the disposal of or to return them to the presenter, that bank will be “precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.”

42. Given the relevance to the present argument of the detailed provisions of Article 14(d), it is worth setting out this Article verbatim; it reads :

“(d)	(i)	If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents.  Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.
	(ii)	Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.
	(iii)	The Issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.”

43. It is clear on the face of Article 14(d) that there is a requirement that the notice should state that the documents are being refused, that such notice must state all discrepancies in respect of which the bank refuses the documents, and also whether the bank is holding the documents at the disposal of, or is returning them to, the presenter – see Jack, Documentary Credits, 3^rd Ed., atpara 5.50, p 120.

44. It is also clear from the established authorities that these requirements must be complied with strictly, and that certain things must be expressly stated; absent such compliance, the right to reject is lost : see, for example, Seaconsar Far East Ltd v. Bank Markazi [1999] 1 Lloyd’s Rep 36, at 39; Bankers Trust Co. v. State Bank of India [1991] 1 Lloyd’s Rep 587, at 601; Cooperatieve Centrale Raiffeisen-Boerenleenbank BA v. Bank of China [2004] 3 HKC 119, at 131-134.

45. At bottom, the fundamental issue for decision in this case is whether, in acting as it did, SCB as Confirming Bank complied with the requirements as to rejection; in other words, did what they in fact did ‘cross the line’, to adopt the phrase used in this regard by counsel for the plaintiff, Mr Sussex SC, or was it the case (as Mr Sussex strongly submits) that by its actions SCB was insufficiently precise, and failed to achieve the degree of certainty and clarity required by the law in terms of the rejection of documents presented under a documentary credit?

The factual dispute(s)

46. It is at this stage that the court must revert to the factual evidence, in particular the conflict between the two main evidential protagonists, the respective bill checkers whose interchanges lie at the heart of this case, namely, Mr Pierre Law of Credit Agricole, and Mr David Wong for the defendant, SCB.

47. Each gives differing accounts of that which occurred, and when, during the documentary presentation process.  Mr Law’s thesis is that at no time was it made clear that the defendant bank was rejecting the documents, and Mr Wong’s response is firmly to the contrary; indeed, in light of the ‘shape’ of this case it would have been surprising if the debate had been otherwise.

48. Before attending to their respective versions of events, however, it is worth making the preliminary point that there is an air of unreality surrounding the evidence, which is perpetrated by the quaint notion that these two worthy gentlemen, neither of whom presently is attached to the institutions in which they were employed at the time of these events, are able to recall with any certainty (or, I suspect, with any clarity whatever) the detail of that which transpired, in undocumented telephone calls occurring well over 7 years ago, in February 1999.

49. The potential for confusion further is compounded when one considers that these types of calls, between bill checkers at their respective banks, no doubt occurred extremely frequently in the normal course of their daily professional routines, so that it may well be difficult to isolate/recall one call from another even on a contemporary basis, let alone years hence, and further when it is borne in mind that these witnesses did not attend this trial voluntarily, but that each did so under compulsion of subpoena.

50. Viewed thus, the inherent artificiality of such so-called ‘recollection’ assumes some profile within the parameters of this case, and I view with scepticism the apparent certainty evinced within the witness statements which, with the best will in the world (and I do not here infer mala fides) strike me as stretching the envelope in terms of evidential drafting, the better, no doubt, further to convey the message required by the parties’ respective cases.

51. Against this backdrop, it seems to me that the appropriate approach for this court to adopt in an attempt to discern that which occurred is to place reliance upon such contemporary documentation as exists, and further to evaluate such evidence on the basis of the intrinsic commercial probabilities in light of the objectively-known, and undisputed, facts.

52. This said, however, in so far as demeanour/witness presentation is of any relevance in the present equation, there is no doubt that Mr David Wong, formerly of SCB, made a far more favourable impression upon the court than Mr Pierre Law, the former Credit Agricole employee and the sole witness called on behalf of Total.

53. During final submission Mr Huggins SC, for SCB, ventured the characterization of Mr Law as “sullen and reluctant”, and whilst I have no wish to be unfair, there is something in that description which catches the flavour of his demeanour; there is no doubt that Mr Law gave evidence in what I can neutrally describe as a curiously disengaged manner, and so pronounced was this that Mr Sussex was moved to inform the court from the Bar (à propos of not very much), that Mr Law had been working nights and obviously was feeling tired; Mr Law repeated this in evidence in answer to a specific query from the Bench.

54. However, whatever the reason for the curious mien displayed by Mr Law, who struck me essentially as having a script and sticking to it, the fact remains that of the two principal witnesses the court is far more inclined to believe the account proffered by Mr Wong as against that of Mr Law – albeit as Mr Huggins SC fairly observed, in the circumstances this is not so much a case about credibility as reliability, and falls to be decided primarily on the basis of the inherent commercial probabilities arising in this context, as opposed to any view that in their oral evidence either of these witnesses was seeking to perpetrate deliberate untruths.

55. The starting point for the factual disagreement between these two gentlemen was the presentation by Credit Agricole, on behalf of Total, of the relevant documents under the UBI-LC to SCB.  This has been referred to as ‘the 1^st presentation’, and it is accepted that SCB received these documents on 30 January 1999.

56. There is some dispute as to what happened next, and although this is a matter which requires determination, in the broad scheme of things I do not think that this particular difference is of any real moment.

57. On Total’s case Pierre Law of Credit Agricole telephoned David Wong of SCB on 3 February 1999 to inquire as to the status of the presentation, and was told that the documents were undergoing the 3^rd check.  Mr Law then received from Mr Wong an internal SCB document entitled ‘Check Sheet’, which identified a number of discrepancies with the documents presented – this variously has been referred to during this trial as the ‘1^st Check Sheet’ or the ‘1^st Advice’.

58. On SCB’s case Mr Wong faxed this document to Credit Agricole on 2 February 1999, and then orally rejected the documents during a telephone conversation with Mr Law of the same day.

59. At this stage it is worth emphasising that the battleground in this case is not in terms of the 1^st presentation, the plaintiff at this trial having concentrated on the events surrounding the 2^nd presentation as justifying the submissions underpinning its current claim; as Mr Sussex SC observed, the plaintiff does not need to prove that there was no rejection by SCB of the 1^st presentation, as, whatever did or did not happen, it is clear in this instance that the defendant indeed was entitled to reject.

60. I would, however, make the point that although no claim is made in terms of the initial presentation, it does not follow that the 1^st presentation is irrelevant to the present dispute; to the contrary, it seems to me that the events of the 1^st presentation form part of the factual matrix and, at the least, tend to inform that which subsequently is said to have transpired between these two banks during, and as a consequence of, the 2^nd presentation.

61. It further is not in dispute that subsequent to the 1^st presentation, at the request of Total, on 4 February 1999 Credit Agricole re-presented a revised set of documents required under the UBI-LC to SCB.

62. This is the ‘2^nd presentation’ which lies at the crux of this case, and which in turn generated, on 5 February 1999, a further fax from Mr David Wong of SCB to Mr Pierre Law of Credit Agricole which was another check list – referred to as the ‘2^nd Check Sheet’ or ‘the 2^nd Advice’ – which identified discrepancies within the documents comprising the 2^nd presentation.

63. There is here a fundamental factual dispute as to what happened next, the determination of which represents a significant factor within the present liability issue.

64. As to this, the case advanced by Total, in the form of the evidence of Mr Law, is that on the same day, 5 February 1999, Mr Wong of SCB telephoned Mr Law for instructions, to which Mr Law replied that Mr Wong should comply with the instructions on the covering Memo of the 2^nd presentation, namely that SCB should telex UBI “for the discrepancy found and request them to confirm the acceptance of the same by return.”

65. To the contrary, SCB, in the person of Mr Wong, says that he called Mr Law and in the course of that telephone conversation informed him, amongst other things, that the documents in the 2^nd presentation also would be rejected on the basis of the discrepancies which had been found.

66. The events which occurred thereafter are a matter of historical record and are not seriously in contention.

67. On 9 February 1999 Esteco, the purchaser of the coal under the sale with Total, confirmed to Total that it would accept the discrepancies in the documents and would instruct UBI, the issuing bank, to send a telex to SCB to confirm acceptance of the discrepancies.  However, notwithstanding attempts to resolve the matter between UBI, SCB and Credit Agricole, UBI ultimately declined to authorize SCB to negotiate the documents.

68. On 21 February 1999, the UBI-LC expired, and SCB continued to request Credit Agricole for further instructions, whilst the latter requested SCB to continue to hold onto the documents.

69. Eventually, on 1 June 1999, Total wrote to SCB recording that SCB had failed to notify Credit Agricole of any refusal of the documents within a reasonable time, or in any event at the close of the seventh banking day after receiving the documents.

70. In turn, SCB denied Total’s assertion by letter dated 4 June 1999, and after some further correspondence, SCB finally returned the rejected documents to Credit Agricole on 26 November 1999. 

71. Thereafter the matter remained at an impasse – hence these proceedings.

Necessary findings of fact

72. As the foregoing summary indicates, a key factual finding against which the legal arguments are to be evaluated is that which did, or did not, transpire in the telephone conversation which took place between Pierre Law and David Wong subsequent to the 2^nd presentation on 5 February 1999.

73. It is clear on their face that neither the 1^st or 2^nd Advices state unequivocally that the documents presented were being rejected; indeed, the 2^nd Advice is simply entitled “2^nd Adv. of discrepancies”, hence SCB’s case that this should be read in the context of the relevant telephone conversation between Wong and Law.

74. Mr Wong says that in his second conversation with Mr Law on 5 February 1999 – the crucial exchange from the viewpoint of this case – that after the 2^nd Advice had been faxed over to Credit Agricole, he had said words to Mr Law to the effect that he had rejected the documents he had presented and that “there still were problems”.  He also said that he was sure that he used, or would have used the words “could not be bought”, as this was his manner of reflecting the situation in colloquial terms.  He further said that he had suggested that the documents could be processed by “cable nego” or sent to the issuing bank on a collection basis, and also that the documents would be held by his bank for the time being.

75. For his part Mr Law in his witness statement maintained that on Friday, 5 February he had received a fax around 4 p.m. from SCB advising there were 9 discrepancies in the revised documents, and that SCB had asked for instructions in respect of these discrepancies.  He said that as far as he could recall Mr Wong of SCB had called to ask for instructions, and that he, Mr Law, had confirmed to him that he should follow the instruction in his earlier memo dated 4 February, namely “kindly telex the L/C issuing bank for the discrepancy found and request them to confirm acceptance of same by return.”  Mr Law said that to the best of his knowledge nothing more was said on that occasion.

76. Although this was the evidence Mr Law adopted in chief, this became qualified in cross-examination, whereby it appeared clear to him that SCB were holding the documents at the disposal of the presenter, as the following extracts from his evidence indicate :

“Q.   Where did you think the documents were?

 A.   With SCB.

 Q.   Yes.  Did you understand that SCB was telling you that it would be returning those documents to you or holding onto those documents?

 A.   Holding onto the documents.

 Q.   That was clearly your understanding, wasn’t it, from the conversations and from the documents?

 A.   Yes.”

and thereafter :

“A.    According to my experience I thought that Standard Chartered was still handling the set of documents.

 Q.   They were holding it to your disposal, they were not returning it, they were holding it to the disposal of the presenter?

 A.   That’s right.”

77. It cannot reasonably be gainsaid that this represents a clear and unequivocal acceptance by Mr Law that the documents were being held at the disposal of the presenter, and for my own part I fail to see why it should be thought that in the conversation on 5 February 1999 that Mr Wong would not have used, or did not use the words “could not be bought”, a phrase which in the present context seems to me to be self-evident in its meaning.  In light of the evidence it seems clear, as Mr Huggins in fact submitted, that Mr Law is in no position to refute the words of rejection which Mr Wong firmly maintains that he would have used.

78. Viewed thus, I am minded to find, and so do, that the conversation between these two respective bill checkers took place in the terms of Mr Wong’s testimony. 

79. It seems to me that the overwhelming probability – not least against the background of the non-disputed rejection of the 1^st presentation – is that Mr Wong made it clear, with the words, or words to the effect that he says he used, that these documents once again were rejected upon the occasion of this second presentation, and that these words not only were uttered, but were understood at the time by Mr Law as evincing a clear and unequivocal rejection of the presentation, and that the documents were being retained by SCB at the disposal of the presenter.

80. The only additional finding of fact, the necessity for which is thrown up by this case, is the debate – which in the circumstances does not seem to me to amount to very much – as to whether the fax of the 1^st Check Sheet/Advice to Credit Agricole, and the correlative conversation between Messrs Wong and Law, took place on 2 or 3 February 1999.

81. As I have indicated, I do not consider this as other than purely background evidential material, and certainly not of great significance, but if pressed I take the view that on the probabilities this is more likely to have occurred on 2 February, notwithstanding the queries raised in cross-examination by Mr Sussex with Mr Wong as to the markings on the relevant fax sequence.

82. In this connection that the court has been assisted in piecing together the sequence of events from the contemporary notations, as to date and event, as made by Mr Wong on the 1^st Check Sheet.  With regard, it was Mr Wong’s evidence, which I accept, that it was his practice to jot notes on the ‘Check Sheet’ containing the list of discrepancies as and when an event occurred relating to that letter of credit, and thus contemporaneously to record the progress made in that particular case. 

83. This document is in evidence in this case, and it strikes me that this is precisely the type of contemporary document that materially assists the tribunal in instances in which (as here) the case otherwise is dependent upon recollection of events some years earlier.  Nor is it suggested that this was other than a genuine contemporary record.

84. Mr Wong’s evidence, which I accept, was that he had no doubt but that it clearly was understood by Credit Agricole, as the consequence of that which had passed between himself and Mr Law, that both the 1^st and 2^nd presentations were rejected, and that the discrepant documents as thus presented were being held pending further instructions.

Mode of rejection

85.  At first blush the foregoing findings of fact would appear to be dispositive of this case.  That this is not necessarily so is due to additional arguments raised by Mr Sussex SC.

86. One of these arguments stems from his contention that although Article 14(1) of the UCP 500 seems to permit notice of rejection to be given orally, a notice consisting of separate communications (whether oral or in writing) is invalid under that Article.

87. Mr Sussex maintains – and in my view he is correct in so doing – that on a plain and natural reading of Article 14(1) there can be but one notice of rejection, and that that one notice must state (a) all the discrepancies relied upon by the bank to refuse the documents; and (b) whether the bank is holding the documents at the disposal of, or is returning them to the presenter. 

88. He says, further, that it is clear from the authorities that the bank will have but one opportunity to communicate its notice of rejection and to frame its discrepancies as the basis of rejection : see, for example, Bankers Trust Co. v. State Bank of India [1991] 1 Lloyd’s Rep 587, at 600; Cooperatieve Centrale Raiffeisen-Boereenleenbank BA v. Bank of China [2004] HKC 119, at 133.

89. At the outset of this case, in his written opening Mr Sussex argued in terms that the oral communications between Mr Wong and Mr Law could not supplement the 1^st and 2^nd Check Sheets so as to constitute notices of rejection for the 1^st and 2^nd presentations, and that, conversely, the oral communications could not by themselves constitute proper notices of rejection since they did not specify the discrepancies; thus it followed, he argued, that SCB is precluded by Article 14(e) from claiming that the documents in either the 1^st or 2^nd presentations were discrepant.

90. This sweeping approach became modified, however.  Notwithstanding various refinements within this approach, the ultimate argument put forward became (I think) that whilst conceptually it was possible for a notice of rejection to comprise, as was here asserted, the 2^nd Advice taken together with the telephone conversation between David Wong and Pierre Law on 5 February 1999, then, by analogy to the situation of documents which cross-reference the one to the other, this was acceptable only if the one, the conversation, unequivocally referred to and incorporated the other, that is, the faxed 2^nd Advice.

91. However, said Mr Sussex, given that the conversation in question took place on 5 February 1999, and that there had been a number of versions contended for by SCB as to that which David Wong purportedly said, or did not say, in that conversation, it was not in the circumstances possible for the court to conclude that the faxed 2^nd Advice plus the telephone conversation together were sufficient to constitute the single notice of rejection required.

92. This submission possessed some forensic attraction, and has given me pause for reflection.  However, in the circumstances I do not consider that it succeeds.

93. It seems to me to be overwhelmingly probable, given the existing factual matrix, that the tenor and terms of the conversation indeed were as David Wong has testified.

94. If this be correct, as I believe it to be, and so find, then I have no difficulty in concluding, as I now do, that the combination of faxed advice plus telephone call is sufficient, as a matter of law, to constitute a valid notice of rejection pursuant to the requirements of Article 14 of the UCP, and thus that in the present instance there was such a valid notice of rejection.

95. In this connection I also accept the evidence of Josephine Wong, the then head of this particular SCB bill handling team, who said that the signatures on the 2^nd Check List indicated that the checking upon the 1^st presentation was complete on 2 February 1999, and on 5 February 1999 in relation to the 2^nd presentation; she said that as soon as the relevant approval in each case of the discrepancy list was given by Ricky Fan, one member of the this SCB bill checking team, there was an automatic decision by SCB to refuse the documents, absent any need for further discussion or formal recording of that determination, and that it was the established and invariable practice of SCB at the time that in relation to local banks the notice of refusal was given by a combination of the sending of the list of discrepancies and a telephone call, as her evidence in cross-examination indicates :

“Q.   What I suggest to you the purpose of the telephone call is this.  The list of discrepancies is treated within your bank or was treated within your bank as a sufficient notice of rejection.  The telephone call was a follow up to find out what the presenter wanted to do in light of the rejection.

 A.   That’s not the case.

 Q.   But it is your view, is it not, that the fax by itself constitutes a notice of refusal?

 A.   The practice of us, the SCB practice was always to send a fax, plus a telephone call.  So nobody will just send out a fax without a telephone call…”

96. I accept, of course, the proposition put forward by Mr Sussex that a notice of rejection is a significant step in the context of a letter of credit transaction; as is noted in Jack, op cit, at paragraph 5.56, at page 123 :

“Once a refusal has been notified to a presenter of documents, it can only be withdrawn with the agreement of the presenter.  For the documents are then at his disposal and he has the right to them.  If the applicant gives authority that discrepancies may be waived after notice of refusal has been given, this may be too late.  The presenter’s authority is then required for them to be passed to the applicant.  That authority will usually be readily forthcoming; but if, for instance, the market has risen, it may not.”

Nor must there be room for doubt as to what is going on; as Hirst J observed in Rafsanjan Pistachio Producers Co-Operative v. Bank Leumi (UK) Plc [1992] 1 Lloyd’s Rep 513, at 531 :

“I think a bank might justifiably consider that a rejection message, which is an extremely important step, and which under the terms of [the then] art. 16(d) [of UCP 400] specify the discrepancies in respect of which the bank refuses the documents, should normally be sent in writing by telex; this will also ensure that the message is timed and that the answer-back records receipt, and will thus avoid any subsequent dispute as to whether the message was ever sent or received, when it was sent, and what its terms were…”

97. Within the present context it may be thought that these comments of Hirst J are particularly prescient.  For it is precisely because of the mode of rejection then adopted by SCB (I am told that its practice now has changed, not least, I surmise, because of this dispute) that this case is being fought, and clearly Mr Sussex is right when he comments that if a bank chooses (as here) to convey its notice of rejection in this way, it runs an obvious commercial (and evidential) risk.

98. This clearly is true, and the fact of this litigation is testament to the existence of such risk.  Equally clearly, however, this does not mean that the mode of notice of rejection which I have found to have been adopted by SCB in this case necessarily is invalid and of no effect.

99. To the contrary, as indicated I hold that the combination of fax and telephone call did not fail to comply with the requirements of Article 14 of the UCP 500, and that, without more, the rejection by SCB of these documents was valid.

The ‘waiver issue’

100. This, however, is not the only string to Mr Sussex’s bow, and he has an additional argument which he maintains will be sufficient to get his client home.  This broadly has been characterized as ‘the waiver issue’.

101. In this regard Mr Sussex takes as his starting point the terms of Articles 14(b) and (c) of the UCP 500.  These Articles have been earlier referred to (at paragraphs 39 and 40 herein), but since this argument involves in part at least an element of construction, I take this opportunity to set them out in full.

102. Article 14(b) reads thus :

“Upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit.  If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents.”

whilst Article 14(c) is in the following terms :

“If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgment approach the Applicant for a waiver of the discrepancy(ies).  This does not, however, extend the period [‘a reasonable time, not to exceed seven banking days following the day of receipt of the documents’] mentioned in sub-Article 13(b).”

103. It is thus clear that an issuing bank if faced with two options when presented with discrepant documents.  First, it may refuse to take up the documents, which is expressly permitted under Article 14(b); and second, and alternatively, it may seek a waiver of the discrepancies from the applicant, provided it reverts to the presenter or beneficiary within the time-frame stipulated in Article 13(b).

104. It is this question of applicant waiver which lies at the heart of this element of Mr Sussex’s argument, and which, if I understand his submission correctly (albeit he did not frame it exactly in these terms) he maintained constituted a ‘virus’ which infected the purported rejection of the 2^nd presentation so as to render any such rejection (which is in itself denied) conditional only, and accordingly insufficient to meet the requirement of unequivocal rejection as laid down within the framework of the UCP 500.

105. In order to get home on this line of argument, it strikes me that Mr Sussex must succeed on three sub-points : first, that as a matter of construction the UCP 500, and in particular Article 14(c), applies – or, at the least, does not preclude – a Confirming Bank from seeking a waiver of any discrepancies; second, that as a matter of fact that in the telephone conversation of 5 February 1999 that David Wong of SCB agreed with, or represented to Pierre Law that SCB would or wished to seek an applicant waiver, and that by reason thereof any purported documentary rejection must be considered as conditional only; and (possibly) third, whether that which SCB in fact did subsequent to the rejection can render conditional the alleged documentary rejection.

106. As to the construction point, it is clear that on its face Article 14(c) makes no mention of whether a Confirming Bank can seek a waiver of any discrepancies. 

107. That this is the position has been noted in the established texts : see, for example, Jack, op cit,, at paragraph 5.39, at page 114, wherein the learned authors observe :

“Article 14 (c) spells out that, where an issuing bank finds discrepancies, it may approach its client, the applicant, for instructions whether they may be waived and the documents accepted.  The purpose of the approach must be limited to waiver and may not be to enable a joint decision to be made as to possible discrepancies.  This practice is very common and has the result that a large number of credit transactions go through which would otherwise fail.  Where documents are not initially presented to the issuing bank but to a confirming or other correspondent bank which is to examine the documents, it will be that bank which would have to decide whether to refuse the documents if discrepancies are found.  It would be that bank which would have to seek the instructions of the applicant whether the documents may nonetheless be accepted.  This would be a time-consuming process and is therefore not one to be adopted save possibly at the request of the presenter of the documents.  It is more important for the presenter to be speedily informed of the discrepancies in a notice rejecting the documents, so he may have an opportunity to put them right within the period of the credit.  Article 14 (c) therefore makes no references to a confirming bank seeking waivers of discrepancies.”

108. Mr Sussex is undaunted by this expression of view, and with reference to the question of waiver in its historical context, says that, as a matter of law, whether an applicant waiver as sought by a confirming, as opposed to an issuing bank, is something which does or does not fall within the purview of Article 14(c) is essentially irrelevant.

109. There is no doubt but that Article 14(c) specifies, and specifies only, the Issuing Bank in the context of applicant waiver, and as a matter of construction this sub-article cannot sensibly be read in any other way; it certainly cannot be read as if the phrase ‘the Issuing Bank’ can be interpolated to mean ‘the Issuing or Confirming Bank’.

110. That said, however, there appears to be no reason in principle why in practice a confirming bank is unable to, or is otherwise precluded from, seeking/suggesting the procuring of a waiver from the applicant, however inappropriate or practically risky this course may be, and if indeed it does seek so to do, the concomitant question arises as to whether in so doing it is rendering equivocal its refusal of the discrepant documents.

111. The answer to this, it seems to me, is that it all depends.

112. If and in so far as in any particular fact situation the confirming bank seeks a waiver from the applicant through the issuing bank without first voiding its confirmation by expressly refusing the presentation, I can see potential force in Mr Sussex’s argument, whether this situation is canvassed within the UCP 500 (which it most definitely is not), and notwithstanding the commentary in Jack, op cit, which carries within it the clear implication that plainly it is inappropriate for confirming banks to seek that which has been characterized as a ‘pre-refusal waiver’.

113. The salient question, however, is whether, on the present facts, this has occurred?

114. This in turn raises the second issue under this head, namely, that which transpired in the telephone conversation of 5 February 1999 between David Wong of SCB and Pierre Law of Credit Agricole.

115. If and in so far as in this telephone conversation – which took place subsequent to the fax of the same date – David Wong could be considered to have equivocated over the issue of such documentary refusal, and, prior to any such definite refusal, instead had sought to approach the applicant, either directly or through the issuing bank, in order to obtain a waiver of those discrepancies as had been identified, then I can appreciate how it could be argued that in the circumstances there could not have been an unequivocal rejection of the documentary presentation as made to SCB. 

116. In this context Mr Sussex understandably places strong reliance on, for example, the decisions in the American case of Voest-Alpine Trading v. Bank of China (2000), 167 F. Supp 2d 940 (US District Court for the Southern District of Texas); 288 F. 3d (United States Court of Appeals) – wherein it was held, the courts therein acting on the basis of Professor Byrne’s expert advice, that on the facts of that particular case the Bank of China’s notice of refusal was “ambiguous and inadequate” – and in Credit Industriel v. China Merchants [2002] 2 All ER 427, wherein Steel J held that on the facts then before the court that the rejection notice in that case was not in accordance with Article 14(d) of the UCP, and that the conditional nature of such rejection was not saved by the potential for acceptance of contrary instructions prior to payment, and that the message as had been received “constituted a continuing threat of conversion” of the claimant’s documents.

117. I am unprepared, however, to find the presence of such conditionality on the specific facts of this case. 

118. To the contrary, it seems to me to be tolerably clear, and I so find, that SCB through David Wong, and via the medium of the fax and telephone conversation of 5 February 1999, indicated unequivocally that the documents were rejected and that the bank was holding the documents at the disposal of the presenter.

119. The possibility that the issue of applicant waiver was mentioned/referred to in the telephone conversation between David Wong and Pierre Law which took place on 5 February 1999, and subsequent to the receipt of the 2^nd Check List from SCB, strikes me as nothing to the immediate point. 

120. In my judgment this fact in itself does not have the effect of infusing an otherwise clear documentary rejection with conditionality and equivocation, and does not serve to invalidate such documentary rejection on the part of SCB; indeed, in this context Mr Sussex accepted that if the issue of applicant waiver had been mooted in a separate and subsequent telephone call between these two bill checkers then this would not have had the effect of rendering the SCB rejection conditional/equivocal, and for my part I fail to see why the mention/discussion of such matter in the first call, as opposed to a subsequent separate telephone conversation, should have had the signally destructive effect for which Mr Sussex so strongly contends.

121. In the circumstances, therefore, and notwithstanding the extensive criticisms launched by Mr Sussex as to Mr Wong’s evidence, I am prepared to find as a fact, and so do, that there had been the documentary rejection of the unconditional nature contended for by SCB, and further that Pierre Law was, and must have been, left in no doubt by David Wong that the documents indeed had been rejected on this second occasion and that they were being held at the disposal of the presenter, with the possibility, in the event of applicant waiver of the discrepancies as thus identified, that the situation thus could be rectified, and the documents ultimately purchased by SCB.

122. In this context I take the view that as a matter of commercial probability – which, as earlier observed, assumes greater profile in this case given the age/nature of the available evidence – that it is unlikely that in these circumstances any rational confirming bank would seek pre-refusal waiver, and thus that there is no real possibility of Credit Agricole either having expected or seriously believed that any such pre-refusal waiver (in its accepted sense) indeed was being sought. 

123. It follows from the foregoing that that which I do not find has occurred is a situation in which SCB in effect was occupying an amorphous middle ground lying uneasily between rejection and acceptance, which for want of a better description might be characterized as ‘non-acceptance absent clear rejection’.

124. The juridical existence of such a middle ground is not recognized within the established authorities, no doubt for the good reason that the courts consistently have approached this issue on the basis of whether on the facts of any particular case there has, or there has not, been a clear and unconditional rejection as is required for a notice of rejection under the UCP 500. 

125. One of the few specific references to this ‘middle ground’ situation is in the judgment of Lloyd LJ in the English Court of Appeal in Seaconsar v. Bank Markazi [1993] 1 Lloyd’s Rep 236, at 241, under the heading ‘Was there a valid rejection?’, the learned judge observes thus :

“I suppose it would theoretically be possible to draw a distinction between not taking up documents, and rejecting them.  But there is no hint that such a distinction has ever been drawn before, whether in any reported case or in any of the textbooks; and in practice it would defeat or prejudice an important objective of commercial credits, which is that documents should be taken up or rejected promptly.  They should not be left in limbo.  I would therefore have been astonished if there had been evidence in the present case that Bank Melli had authority to take up the documents if they conformed but not to reject them if they did not.  In fact the evidence is the other way…”

126. I respectfully agree with this view.  On the particular facts of any given case the requisite unequivocal documentary rejection either is found to have occurred, or it has not, and viewed through this prism this point is not capable of further elaboration.

127. I turn, finally, to the third and last sub-issue under the ‘waiver’ head, which in this case has been accorded the title of ‘post-refusal waiver’.

128. In a practical sense this is a non-issue in this case, in that any decision on this point inevitably is subsumed within the factual conclusion I have reached in terms of the unequivocal nature of the rejection by SCB of the documents presented under the 1^st and 2^nd presentations, and the fact that SCB made it clear that it was holding the documents at the disposal of the presenter. 

129. Professor Byrne implicitly made this point in his Supplemental Report, wherein in the context of ‘post refusal waiver’ he observed that “since the documents have already been refused, it does not operate under the shadow of the preclusion rule of UCP 500 Article 14(e)”, whilst for his part Mr Huggins commented that any post-refusal waiver is outwith the ambit of the express provisions of the UCP 500, and that this is irrelevant in the present case since by definition it can only occur after refusal under Article 14, and that the only issue in this litigation is whether SCB decided to refuse and communicated that refusal to Credit Agricole compliant with the provisions of Article 14.

130. I accept these submissions.  Nor do I consider that the fact that on 6 February 1999 SCB sent a SWIFT message to UBI seeking authority to negotiate the bill despite the discrepancies, and that subsequent requests occurred in like vein, establishes any agreement not to reject, but instead to seek an applicant waiver; in this regard I see no reason why this, and other similar requests, should have the effect of vitiating or casting doubt upon David Wong’s evidence as to his prior unambiguous rejection on the part of SCB.

131. A related point, and one that elides into the plaintiff’s argument that in the circumstances there was no valid refusal of the 2^nd presentation as the result of the seeking of a waiver from SCB, is the correlative submission that the words which headed the 2^nd Advice, namely, “Pls let us have your instructions” were themselves ambiguous, and that even if the court were to find (as it now has) that Mr David Wong made it clear that SCB was not negotiating or buying the documents the subject of the 2^nd presentation, there still would have been no valid refusal by reason of the fact that it was unclear that SCB were holding the documents at the disposal of the presenter.

132. Given that earlier I have concluded (at paragraph 79 herein) that in this regard Mr Wong made the position of SCB clear to Mr Law, it follows that I decline to accept this submission also. 

133. Looking at the matter in the round, and taking the 2^nd Advice together with the subsequent telephone call on 5 February 1999, I have no doubt that Credit Agricole, in the person of Pierre Law, fully appreciated the situation and well knew that SCB, whilst not actively returning them, were holding the documents at their disposal.  In my judgment, to use the words of Steel J in Credit Industriel, op cit, there thus was no “continuing threat of conversion” of the plaintiff’s documents.

134. It follows that, in so far as this is a discrete and separate argument, I reject it also.

Decision/Order

135. In this case it is the plaintiff, Total, which bears the burden of establishing, on the balance of probabilities, that the SCB rejection of the 2^nd presentation was non-compliant with the requirements of Article 14 of the UCP 500, and thus was invalid.

136. In my judgment, the plaintiff has failed to discharge this burden, although it must be said that in the face of an unpromising case Mr Sussex has said all that could be said on behalf of his client.

137. Accordingly, for the reasons given in this judgment, I hold that the plaintiff’s claim against the defendant bank in this action must fail.

138. I order that the plaintiff’s claim herein be dismissed, with the costs of this action to be to the defendant, such costs to be taxed if not agreed.