Court of Appeal, Singapore

Yong Pung How CJ, Lai Kew Chai J, LP Thean J

24 September 1992

KEYWORDS

International Trade – Letter of Credit – Tender of Documents – Discrepancy – Test for Strict Compliance with terms of Letter of Credit – Scope of Duty of Banker in checking Documents – Reasons for Rejection of Documents – Rectification of non-compliance within expiry period of Letter of Credit – – Waiver of Discrepancy – Estoppel by Conduct

FACTS AND DECISION

A seller and buyer agreed on sale and purchase of two shipments of cochin type or crude coconut oil, payment by letter of credit. The buyer arranged its bank to open a letter of credit, subject to Uniform Customs and Practice for Documentary Credits (1974 Revision) Rules. The validity period of the letter of credit was until 15th October 1981. The documents required by the letter of credit included a certificate of analysis issued by an independent laboratory, certifying free fatty acid (FFA) content in terms of ‘lauric acid’.

The seller, through its bank, tendered the documents including a certificate issued by one company to the buyer’s bank. The buyer’s bank forwarded the same to buyer on 1st October 1981. The buyer rejected it on grounds that the certificate was not from an independent laboratory. The buyers’ bank accordingly informed the seller’s bank that the documents were rejected for the said reason. The seller then submitted another certificate, issued by Camino Chemicals Inc on, which again the buyer’s bank forwarded to the buyer. The buyer once again rejected, on 7th October 1981, claiming that a defective tender cannot be subsequently made good. The buyer’s bank conveyed it to the seller’s bank on 10th October 1981. The seller’s bank protested, saying the re-tender was good as it was made within the validity period of the letter of credit. Then, on 16th October 1981, the buyer came out with new and switched reasons for rejecting, namely the that the Camino report was not a certificate of analysis and that the FFA was described in terms of ‘lauric and oleic acid’. This was again conveyed to the seller’s bank on 20th October 1981.

The seller sued the buyer’s bank. On the question of the Camino report, the court held that the Camino report was a certificate of analysis. The court said that requirement of strict compliance with the terms of the letter of credit did not mean literal compliance and inconsequential discrepancies can be disregarded. The test was whether the documents, properly read and understood, do not contain any discrepancy that called for an inquiry or investigation or invited litigation. On the question of the description of the FFA content, the court agreed that it was not conforming. There was evidence before the court to say that by trade usage ‘lauric’ and ‘oleic’ measurements were interchangeable. But the court pointed out that a bank’s acceptance or rejection of the documents are based on what was on the face of the documents, by a standard of ordinary and competent banker, and a banker would not expected to undertake an examination of the trade usage. However, the court held that the buyer’s bank was estopped by conduct from raising this as it did not raise this objection until the expiry period of the letter of credit although it had the option of doing so. Accordingly, the seller was entitled to assume that there was no objection on this count. Hence, judgement for the seller.

OBSERVATION

The procedure for the bank to check with the buyer on any discrepancy is in Art. 16(b) of the current UCP 600, which provides as follows:

When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

The said Art. 14(b) reads as follows:

A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

Overview by ARUN KASI