Federal Court, Malaysia

Arifin Zakaria CJ (Malaya), Richard Malanjum CJ (Sabah and Sarawak), James Foong FCJ

27 July 2010

KEYWORDS

International Trade – FOB terms sale and purchase – Buyer to nominate ship, etc – Letter of Credit subject to UCP 500 – Buyer charters ship for the carriage – Buyer notifies Seller of Nominated Ship and agent – Seller accordingly ships – Shipowner issues BIMCO Congenbill form Bill of Lading subject to charterparty – Letter of Credit silent about charterparty – Buyer’s bank reject documents under UCP 500 Artciles 23(a)(i) and 25(a)(ii) (Signature or Authentication on Bill of Lading), Articles 23(a)(vi) and 25 (Charterpary Bill of Lading)

FACTS AND DECISION

Seller and Buyer agreed on FOB terms sale and purchase of sugar, shipment from Tutricorin (in India) to Doha (in Qatar), payment by letter of credit. The Buyer was to nominate the ship. The buyer got the letter of credit issued by the buyer’s bank. The buyer charterted a ship for the carriage and notified the seller of the nomination and the buyer’s agent. The seller accordingly shipped the cargo. The ship issued a bill of lading subject to charterparty (in BIMCO Congenbill form). The bill was signed with the words “For UNICORN MARITIMES (INDIA) PVT LTD’ and “AS AGENTS”.

The letter was credit was silent about charterparty. Upon tender of documents by the seller to the buyer’s bank for payment under the letter of credit, the latter refused payment for two reasons. First, the bill was signed by Unicorn as agents, without stating agents for whom, such as agents for ABC Ltd the owner of the ship. Second, the letter of credit did not permit charterparty bill of lading. The seller sued the buyer’s bank for the payment.

UCP 500 Articles 23(a)(i) and 25(a)(ii) provide for signature or authentication on bills of lading. Art. 23(a)(vi) provide for no indication of charterparty bill except where permitted by the letter of credit. They read as follows:

Article 23. Marine/Ocean Bill of Lading

a. If a Credit calls for a bill of lading covering a port-to-port shipment, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:

i) appears on its face to indicate the name of the carrier and to have been signed or otherwise authenticated by:

– the carrier or a named agent for or on behalf of the carrier, or

– the master or a named agent for or on behalf of the master.

Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting, …

…

vi) contains no indication that it is subject to a charter party …

Article 25. Charter Party Bill of Lading

a. If a Credit calls for or permits a charter party bill of lading, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:

i) …

ii) appears on its face to have been signed or otherwise authenticated by:

– the master or a named agent for or on behalf of the master, or

– the owner or a named agent for or on behalf of the owner.

Any signature or authentication of the master or owner must be identified as master or owner as the case may be. An agent signing or authenticating for the master or owner must also indicate the name and the capacity of the party, i.e. master or owner, on whose behalf that agent is acting, …

The court agreed with both grounds of rejection of the bank and summarily struck out the action.

OBSERVATION

On the ‘subject to charter party’ count, it was the fault of the buyer that he did not get its bank to permit that in the letter of credit, whilst it was the buyer who arranged the charter party, nominated the ship and had control of the form of the bill. However, the letter of credit constitutes an independent transaction between the issuing bank and the seller. The terms and matters of conduct or fault between the seller and buyer cannot be brought into the letter of credit transaction between the seller and the bank. The bank acts on the face of the documents. If the documents tendered do not comply with the terms of the letter of credit, then the bank is obliged to reject, unless the discrepancy is waived by the buyer (Art. 16(b) of the current UCP 600: “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”).

The corresponding provisions to UCP 500 Art. 25(a) in the current UCP 600 is Art. 22(a), which reads as follows:

22. Charter Party Bill of Lading

a.     A bill of lading, however named, containing an indication that it is subject to a charter party (charter party bill of lading), must appear to:

i.     be signed by:

• the master or a named agent for or on behalf of the master, or

• the owner or a named agent for or on behalf of the owner, or

• the charterer or a named agent for or on behalf of the charterer.

Any signature by the master, owner, charterer or agent must be identified as that of the master, owner, charterer or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the master, owner or charterer.

An agent signing for or on behalf of the owner or charterer must indicate the name of the owner or charterer.

The notable addition here is that the charterer or its agent is authorised to sign the the bill.

The corresponding provision to UCP 500 Art. 23 is Art. 20 in the current UCP 600, which reads essentially in the same terms as follows.

20. Bill of Lading

a.     A bill of lading, however named, must appear to:

        i.     indicate the name of the carrier and be signed by:

                • the carrier or a named agent for or on behalf of the carrier, or

                • the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

…

vi.     contain no indication that it is subject to a charter party.

Overview by ARUN KASI