Court of Appeal

Wee Chong Jin CJ, TS Sinnathuray J, Yong Pung How J

12 September 1990

KEYWORDS

International Trade – Letter of Credit – Discrepancy – Procedure for dealing with Discrepancy, Bank to ask Buyer for Instruction – Waiver of Discrepancy – Practical Test of Strict Conformation – Conformation a matter of Construction – General Description of Goods, not Inconsistent with Letter of Credit, permissible in documents other than Invoice (Art. 32(c) UCP 1974 Revision) – Insurance Policy geographical coverage description can be  in more specific than that in Letter of Credit

FACTS AND DECISION

Buyer’s bank opened 2 letters of credit for shipments of motor vehicles in identical terms. Each was for four units of new motor cars of specified make and model, shipment from Hamburg to Singapore. Pursuant to the terms of the letter of credit, the seller was to furnish among others insurance policy covering from seller’s warehouse to buyer’s warehouse and a certificate of shipment issued by the shipowner, and full set of bills of lading.

The seller tendered the documents. There was one certificate of shipment only covering both bills of lading and issued by the shipowner’s agent. The certificate described the car as in the letters of credit save that the word ‘new’ was not included. The bank notified the buyer only of the discrepancy that the certificate was issued by the of the shipowner’s agent. The buyer replied accepting the discrepancy. The insurance policy coverage was from ‘warehouse West Germany to warehouse Singapore’. The bill of lading showed that the goods were received in Stuttgard and the loading port was Hamburg, both in West Germany, and the port of discharge was Singapore. The bank made the payment.

The buyer failed to reimburse the bank The bank sued the buyer and obtained a summary judgment. In an attempt to set aside the summary judgment, the buyer argued that the bank should not have paid because there was no strict compliance. This allegation was premised upon four grounds. One, there should have been two separate certificates of shipment, one for each bill of lading, and the certificate should have been issued by the ship owner. Second, bills were not originals. Third, the insurance policy coverage differed from that required in the letters of credit. Fourth, the certificate of shipment missed the word ‘new’.

As to the first ground, the court held whilst there must be strict conformation, that was not all and that could not be rigidly applied to all situations. Conformation was a matter of construction and each case must be decided on its own merits. As it was not expressly said in the letters of credit that there must be a separate certificate, the single certificate tendered satisfied the purchase, hence no non-conformation on this count. On the objection of the buyer that the certificate was issued by the shipowner’s agent, the court held that the discrepancy was waived by the buyer by accepting it, although the buyer did not sign the acceptance on the certificate itself. When the bank considers there is a discrepancy, this is what the bank must do, that is, ask the buyer for its instructions and follow the same, which the bank did.

As to the second ground, the court found that the bills appeared to have been properly signed, and dismissed this ground.

As to the third ground, the court held that the insurance policy was merely more specific and not discrepant.

As to the fourth ground, the court held that it was permissible to describe the goods in general terms not inconsistent with the description in the letter of credit, other than in invoice. This was allowed by Art. 32(c) of the UCP for Documentary Credits (1974 Revision) [This is now provided in the current UPC 600 at Articles 18(c) and 14(e).] In this case, the missing ‘new’ was not inconsistent with the letter of credit, but was merely more general and less specific than the letters of credit description. Accordingly, the court dismissed this ground too.

Accordingly, the court found for the bank, by way of summary judgment.

OBSERVATION

UCP for DC 1975 – Art. 32(c): The description of the goods in the commercial invoice must correspond with the description in the credit. In all other documents the goods may be described in general terms not inconsistent with the description of the goods in the credit.

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

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) provides:

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