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Swiss Singapore Overseas Enterprises Pte Ltd v China Citic Bank Corporation Ltd, Xiamen Branch

Judgment Cited authorities 14 Cited in Precedent Map Related
Vincent
Judgment Date15 May 2014
Year2014
Judgement NumberCACV197/2013
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV197/2013 SWISS SINGAPORE OVERSEAS ENTERPRISES PTE LTD v. CHINA CITIC BANK CORPORATION LTD, XIAMEN BRANCH

CACV 197/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 197 OF 2013

(ON APPEAL FROM HCCL NO. 11 OF 2009)

________________________

BETWEEN

SWISS SINGAPORE OVERSEAS ENTERPRISES PTE LTD Plaintiff
and
CHINA CITIC BANK CORPORATION LIMITED, XIAMEN BRANCH Defendant

________________________

Before: Hon Lam VP, Kwan and Barma JJA in Court
Date of Hearing: 13 March 2014
Dates of Additional Submissions: 14 and 27 March 2014
Date of Judgment: 15 May 2014

________________________

J U D G M E N T

________________________

Hon Lam VP:

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

Hon Kwan JA:

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

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

The sales contract

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

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

The letter of credit

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

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

8. The letter of credit contained these material provisions:

“41D: Available With …By …

ANY BANK

BY NEGOTIATION

42C: Drafts at

90 DAYS AFTER SIGHT FOR 100PCT OF

INVOICE VALUE

42A: Drawee

BOFAUS3NXXX[1]

…

43P/Partial Shipments

NOT ALLOWED

45A/Description of Goods and/or Services

…

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

…

SPECIFICATION ON DRY BASIS

…

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

CHINA

…

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

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

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

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

“47A/Additional Conditions

…

2. T/T REIMBURSEMENT TO BE ALLOWED.

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

…

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

…

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

…

20. UPON RECEIPT OF COMPLYING PRESENTATION THE ISSUING BANK WILL SEND REIMBURSEMENT AUTHORIZATION TO BANK OF AMERICA, NEW YORK AND AUTHORIZE THE NEGOTIATING BANK TO CLAIM REIMBURSEMENT FROM BANK OF AMERICA, NEW YORK.

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

…”

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

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

UPON RECEIPT OF DOCS IN STRICT COMPLIANCE WITH L/C TERMS AND CONDITIONS AND UPON ALL INSTRUCTIONS HEREOF ARE CORRECTLY CARRIED OUT WE SHALL REMIT THE PROCEEDS IN THE CURRENCY OF THIS CREDIT IN ACCORDANCE WITH YR INSTRUCTION.

2. ADVISE US BY TESTED SWIFT/TLX EXACTLY ON THE DATE OF SENDING OUT DOCS GIVING L/C NO., AMT OF DRAFT, COURIER NO., B/L NO.

3. STRICTLY STATE ON YR COVERING LETTER THE EXACT DATE WHEN FULLY CORRECT DOCS REACH YR COUNTER.”

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

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

The shipment of the goods

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

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

The presentation of documents under the letter of credit

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

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

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

…

Bill Amount: US$7,185,105.43

…

Please follow instructions mentioned below:

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

+ Usance Bill payable at sight basis.

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

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

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

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

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

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

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