XCHRX EQUITABLE BANKING CORPORATION v. STATE BANK OF INDIA

1997, No.A549

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. J. Mulchand & Sons Limited (the "third party") is a trading company operating out of Hong Kong. In early November 1996, the third party entered into a contract or contracts with another Hong Kong company called Halewinner for the supply of video cassettes wanted by a customer of the third party in the United Kingdom.

2. It was represented by Halewinner that the tapes were to be made by its factory in Thailand. Those tapes thus ordered were then to be shipped by Halewinner to England and payment was to be made by the third party by letter of credit. The letter of credit was issued by the State Bank of India, the defendant, and is dated 8th November 1996 drawn on the third party's account with the defendant bank and is for a sum not exceeding US$174,800. It was expressed to be valid until 24^th December 1996. The third party made arrangements for the goods to be inspected in Thailand.

3. On or about 18^th November 1996, the letter of credit and accompanying documents were presented to the plaintiff bank by Halewinner. The plaintiff bank accepted the documents and credited Halewinner's account with the sum of US$174,800 less certain charges. On the following day, the plaintiff bank submitted the letter of credit and the documents to the defendant, but the defendant has refused to reimburse the plaintiff. The defendant and the third party say that the documents are discrepant, and that the defendant is precluded from making payment under the letter of credit.

4. It has also been said, though not relevant for the purposes of this application, that the documents were not only discrepant but suspect, and that suspicion was augmented or cemented by the suggested fact that at the date the documents were presented, the third party's agent had not yet inspected the goods in Thailand.

5. On 25^th November 1996, an injunction was obtained, issued by Waung J., by which Halewinner was ordered to withdraw the demand under the letter of credit, but I am today told that that the injunction has been discharged.

6. I have before me two applications under Order 14A of the Rules of the Supreme Court.

7. The plaintiff's application is that I should determine whether the documents presented by the plaintiff to the defendant strictly complied with the terms of the letter of credit and whether any of the alleged discrepancies asserted by the defendant are true discrepancies, and they ask that in the event that there has been strict compliance by the plaintiff, there should be final judgment for the plaintiff for the amount claimed in the Statement of Claim with interest and costs.

8. The defendant goes one stage further in its application. In addition to seeking determination of the same questions posed by the plaintiff's application, it asks this Court to decide whether the third party is bound to indemnify the defendant against the plaintiff's claim and the costs of the action on the ground that it is liable to do so by virtue of two agreements it has made with the defendant bank, and that if it is so liable, that final judgment be entered against the third party for all the sums incurred by the defendant in relation to this action, to include the third party proceedings.

9. The letter of credit authorizes Halewinner to draw on the third party for a sum not exceeding US$174,800 :

"Available by your drafts on them at sight drawn for 100% of the invoice value and accompanied by :-

1. SIGNED COMMERCIAL INVOICE IN TRIPLICATE.

2. PACKING LIST AND WEIGHT LIST IN TRIPLICATE.

3. INSPECTION CERTIFICATE ISSUED BY TQM INSPECTION SERVICES LTD.

4. FULL SET ORIGINAL CLEAN "ON BOARD" MARINE BILLS OF LADING MADE OUT OF ORDER ENDORSED IN BLANK, MARKED "FREIGHT COLLECT" AND NOTIFY TO EURO TRADE (WHOLESALE) LTD., 54-56 STOCKS STREET, MANCHESTER M8 8QJ, U.K.

evidencing shipment of AS PER ATTACHED SHEET from THAILAND to MANCHESTER......."

10. The attachment to the letter of credit provides a list of other documents required for presentation including a beneficiary's certificate certifying that they have shipped the shipment according to the contracts.

11. The bill of lading ultimately presented was dated 18^th November 1996 and that date appears immediately under the Notice "Laden on board the vessel". The shipper name was Halewinner Industrial Company Hong Kong, the ocean vessel was said to be the "Trade Cosmos", the port of loading "Bangkok, Thailand" and the place of receipt is specified as "Bangkok".

12. There was then presented an inspection certificate dated 16^th November 1996 purportedly signed by and on behalf of TQM Inspection Services Limited whose address is in Hong Kong. The inspection dates given were 12^th to 15^th November 1996, and there then appears the following :

"Shipment Vessel : 'Trade Cosmos'

ETD/HKG : On or about 18^th November 1996."

13. The discrepancies alleged by the defendant are these :

"(1) In the bill of lading, the freight forwarder has not been named as the agent of the carrier.

(2) In the bill of lading, the noting "laden on board" has not been signed.

(3) The inspection certificate and bill of lading are inconsistent so far as indicating the departure of the vessel, from Hong Kong and Bangkok respectively.

(4) The letter of credit calls for documents evidencing shipment from Bangkok. Neither the inspection certificate nor Beneficiary Certificate evidence shipment from Bangkok.

(5) The Commercial Invoice, Packing and Weight List which stipulate sailing from Bangkok on or about 18^th November 1996 and Thailand GSP Form A are inconsistent with the inspection certificate.

(6) The inspection certificate states inspection of goods was said to have been completed on 15^th November 1996. The bill of lading states the goods were loaded in Bangkok some 3 days later.

(7) The Thailand GSP Form A stipulates export from Thailand to Manchester via Felixstowe not Hong Kong.

(8) The bill of lading is a house bill and not an ocean or marine bill."

14. In the event, I need not trouble with any of the alleged discrepancies save that which arises from the assertion in the inspection certificate about the estimated time of departure from Hong Kong of the vessel the "Trade Cosmos" when compared with the other documents, particularly with the bill of lading. None of the other discrepancies or alleged discrepancies is really pressed by the defendant or by the third party, although Ms Cruden, on behalf of the defendant, does not abandon any of them.

15. In support of the defendant's case and the third party's case, there is filed an affidavit of a Mr Wickremeratne who is a retired banker. His evidence is put forward as expert evidence, and he says that there is one and only one discrepancy which is a real discrepancy, namely, the inconsistency alleged between the bill of lading and the inspection certificate as to the departure of the vessel from Hong Kong and Bangkok.

16. Mr Chain, for the plaintiff, asks me to ignore his evidence as being irrelevant and of no probative value. Since Mr Wickremeratne provides no reasoning for his conclusion, by reference, for example, to any understanding in the banking world of phrases used in the documents under review, Mr Chain says that I am as able as Mr Wickremeratne to decide whether there is a discrepancy in this case. I note from Article 13 of the Uniform Customs and Practice for Documentary Credits (UCP) that :

".....Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these articles......."

There will certainly be cases where such expert evidence will be helpful, perhaps indispensable, as an aid to a court's task. In this particular case, however, Mr Wickremeratne's bald assertions are not particularly helpful but the point is that I am able, I believe, to determine the matter without relying on his evidence; which is not, of course, to question for one moment his expertise or standing.

17. The letter of credit stipulates that the UCP has to apply and the parties have agreed that the revision of that practice which is applicable to this case is the 1993 Revision. The following articles are relevant and I shall set them out :

"Article 13a

Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit.

Documents not stipulated in the Credit will not be examined by banks. If they receive such documents, they shall return them to the presenter or pass them on without responsibility."

"Article 21

When documents other than transport documents, insurance documents and commercial invoices are called for, the Credit should stipulate by whom such documents are to be issued and their wording or data content. If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented."

"Article 23(a)(ii)

indicates that the goods have been loaded on board, or shipped on a named vessel.

Loading on board or shipment on a named vessel may be indicated by pre-printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment.

In all other cases loading on board a named vessel must be evidenced by a notation on the bill of lading which gives the date on which the goods have been loaded on board, in which case the date of the on board notation will be deemed to be the date of shipment."

"Article 46(b)

Expressions such as 'prompt', 'immediately', 'as soon as possible', and the like should not be used. If they are used banks will disregard them."

18. Insofar as Ms Cruden suggests that each of the itemized documents must separately evidence shipment from Thailand to Manchester, I do not agree. It seems to me that what the letter of credit requires is that the documents as a whole should so evidence. That arises from a natural reading of the letter of credit, and support for the proposition, if support be required, is to be found in the judgment to Devlin, J. (as he then was) in Midland Bank v. Seymour [1955]2 Q.B.147.

19. But that does not dispose of the issue, for the question of consistency is a separate one. It is not just that a set of documents taken together must contain all the required particulars, it is also that :"They must be consistent between themselves" : see the judgment of Devlin J. in the Midland Bank case at page 153.

20. Mr Chain says that there is no necessary inconsistency between the two documents -- the bill of lading and the inspection certificate. He says that one should ask whether there is a necessary inconsistency and so long as there is no necessary inconsistency, the issuing bank should pay.

21. Insofar as he appears to reply on the Midland Bank case for that proposition, I fail, with respect, to see emerging from that decision the suggestion that the only inconsistency which would negate the requirement for payment would have to be a necessary one.

22. He invited me to say this about the inspection certificate : that the information about the vessel and its date of departure from Hong Kong was unnecessary and irrelevant to the certificate. It need not have been there at all. It is, he said, of no concern to anybody where the goods were prior to loading in Bangkok. I think, though, with respect, that that is to miss the point. The inspection certificate in this case represents not only where the goods were at a given time, but also where the ship was, and it contains a clear implication, in my judgment, that the goods would be on board that ship in Hong Kong on or about 18^th November 1996. The fact that it may have been unnecessary to give that information is neither here nor there, for the information was in fact provided and that is the representation which the documents make.

23. A bank is not concerned with underlying contracts, facts or disputes. It is concerned with the documents itself and :

"......It formed no part of the bank's function when considering whether to pay against the documents presented to it to speculate about the underlying facts "

(See the Opinion of Lord Goff of Chieveley in the Privy Council decision in Westpac Banking Corporation and Commercial Steel Co. Ltd. v. South Carolina National Bank [1986]1 Ll. L.R. 311 at page 315.)

24. It is, I think, that sort of speculation which Mr Chain says the defendant bank should have engaged upon, namely, that it was quite possible for the inspection of the goods to have taken place in Hong Kong before being laden in Bangkok. The point, it seems to me, is this : that a bank is to operate upon the basis of what is on the face of the documents, whether prima facie the documents are not consistent, and not whether there may be some answer to a prima facie inconsistency. The question, therefore, is whether in this case there was some prima facie inconsistency. What the bank was faced with was a bill of lading which represented that the goods were on board the ship in Bangkok on 18th November, that is the date of loading on board. The inspection certificate clearly suggests an inspection took place in Hong Kong in respect of a shipment of goods due to depart Hong Kong on or about 18th November. That to my mind, margins of sailing referred to by the rules apart, is a prima facie inconsistency and the bank was entitled to reject payment.

25. The answer to the questions posed by the summons issued by the plaintiff is that the documents presented by the plaintiff to the defendant did not strictly comply with the letter of credit and that the discrepancy between the bill of lading and the inspection certificate was a true discrepancy. It follows that the plaintiff's application is dismissed. It also follows that the third party issue does not at present arise.

26. The question which now falls for consideration is whether any further order apart from costs should be made. Relying on the terms of Order 14A, Ms Cruden asks for an order that the plaintiff's action be dismissed with costs of the action and third party proceedings to the defendant.

27. It is said that Order 14A contemplates that the issue only be heard by a court not as a preliminary issue, but where the issue is determinative of the whole case. Mr Chain informs me that there are other issues to be determined, namely whether the defendant is entitled to rely upon a discrepancy not put forward in the letter which they wrote to the plaintiff shortly after the event, and further, whether there has been unreasonable delay on the part of the defendant in rejecting the documents. None has thus far been pleaded, but it is intended, I am told, to plead this in the Reply.

28. I do not think that it inevitably follows from Order 14A that if an application framed, as is this application, is not successful, a judgment must be entered against the applicant. Order 14A presupposes that the determination will either finally determine the entire cause or matter or "any issue therein".

29. This is an issue in the action -- clearly a central one, and on the face of the pleadings presently before me the only one, but I am not prepared to shut the plaintiff out finally in the light of the fact that I am told that there are issues to be raised in the Reply. Accordingly, I shall not enter judgment for the defendant and third party. I shall hear the parties as to consequential orders to be made.

[Argument on Costs]

30. I have had the benefit of argument from counsel on the question of costs. It seems to me that joinder of the third party in the circumstances in this case by the defendant was inevitable. Furthermore, the only issue in this case thus far hinted at by the plaintiff until today were the discrepancies in the documents. I think, accordingly, the plaintiff should bear the costs of the action to date including the application thus far. But I shall exclude the costs of the expert evidence which, in my judgment, in the form in which it was presented, has been of little avail.

31. The order I make, therefore, is that the costs of the applications in the third party proceedings and the costs of the third party proceedings to date be paid by the defendant to the third party, those costs to be paid forthwith by the plaintiff to the defendant; and the plaintiff to pay to the defendant, also forthwith, the costs of the applications and the costs of the action to date to the plaintiff. Plaintiff has leave to file a Reply within 14 days.