Court of Appeal, Malaysia

Abdul Kadir Sulaiman JCA, Arifin Zakaria JCA, Richard Malanjum

14 July 2005

KEYWORDS

International Trade – Breach of Sale and Purchase Contract – Meaning of ‘transshipment’ – false bill of lading

FACTS

Seller and buyer entered into a contract, whereby the seller was to manufacture certain equipment and ship them from Port Klang (in Malaysia) or Singapore to Benghazi (in Libya). The contract was on c&f terms. No transshipment was allowed. Contract price RM1,523,000. Advance payment RM1 million was to be paid by the buyer million against performance bond. Payment of balance price, RM523,000, was to be by letter of credit.

The performance bond was furnished and the letter of credit was issued. 

The letter of credit prohibited  transshipment and allowed shipment from Port Klang or Singapore.

However, the seller arranged shipment by a feeder vessel Seng Leong from Port Klang to Singapore, and then, after warehousing in Singapore, from Singapore to Benghazi by vessel Lady Jane.

The seller accordingly shipped the cargo from Port Klang to Singapore. However, after arrival in Singapore, the cargo was never shipped on baord Lady Jane to Benghazi.

In the meantime, the seller procured a bill of lading that stated the cargo was shipped on board Lady Jane from Port Klang – a false statement. The seller presented the bill to the buyer’s bank for payment under the letter of credit. However, the payment was not made. The buyer sought to draw on the performance bond.

The seller sued the buyer for balance payment and to prevent the buyer from drawing on the performance bond.

The buyer counterclaimed for drawing on the performance bond.

The High Court found for the buyer, dismissing the seller’s claim and allowing the buyer’s claim to draw on the performance bond. Hence, the appeal by the seller against both these decisions.

The High Court dismissed the seller’s claim and allowed the buyer’s counterclaim. Hence, the appeal by the seller against both decisions.

HELD (BY COURT OF APPEAL – UNANIMOUSLY)

1. It was a transshipment to transfer the cargo by feeder vessel first to Singapore and then to ship from there to Benghazi.

2. The seller had breached the contract.

3. In any event the cargo was not shipped as stated in the bill and in fact was never shipped to Benghazi.

4. Accordingly, the seller was not entitled to the contract price and the buyer was entitled to refund of the advance payment by drawing on the performance bond.

5. Appeal dismissed with cost to be taxed.

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