Luen Hop Hong (A Firm) v. The Bank of East Asia Ltd
Read the full judgment text of CACV 34/1972 on BabelCite. This Court of Appeal judgment.
1. Luen Hop Hong, the appellant firm, on the 16th of February 1970 and on the 24th of February 1970 requested the respondent bank to open documentary irrevocable credits in favour of Mirch (U.K.) Ltd. in respect of the purchase by the appellant firm from Mirch of four second-hand diesel engines. The terms of the mandate directed to the respondent bank in the application for the credits empowered them to honour drafts drawn upon the bank by Mirch, through their bank in England, at sight for the f
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CACV000034/1972 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 34 OF 1972 (On appeal from O.J. Action No. 151 of 1971) -----------------
----------------- Coram: Full Court (Briggs, C.J., Huggins & McMullin, JJ.) Date of Judgment: 13th November, 1973. ----------------- JUDGMENT ----------------- McMullin, J.: 1. Luen Hop Hong, the appellant firm, on the 16th of February 1970 and on the 24th of February 1970 requested the respondent bank to open documentary irrevocable credits in favour of Mirch (U.K.) Ltd. in respect of the purchase by the appellant firm from Mirch of four second-hand diesel engines. The terms of the mandate directed to the respondent bank in the application for the credits empowered them to honour drafts drawn upon the bank by Mirch, through their bank in England, at sight for the full invoice value of the goods provided that the drafts and invoices were accompanied by:
and there followed a description of the goods. On the 13th of April 1970 the seller's agent in England, the Midland Bank, received various documents which purported to be those required by the two credits and they paid out sums totalling £9,800, the purchase price of the goods, to Mirch (U.K.) Ltd. These documents were then forwarded to Hong Kong and they reached the respondent bank on or about the 27th of April 1970. A partner of the appellant firm was called to the bank and he accepted, on behalf of the firm, both of the drafts by signing each upon the back and affixing the firm's chop thereto. He did so having scrutinized the commercial invoices signed by the beneficiary, Mirch (U.K.) Ltd. 2. A month later the goods arrived and were found to consist of diesel engines of a wholly unsuitable kind and of very much smaller value and it is common ground between the parties to this action that the appellant firm is the victim of a gross fraud perpetrated upon it by its seller in England. Subsequently the respondent bank sought to recover from its customer, the appellant firm, the amount of the drafts which it had purportedly honoured on behalf of that firm. The firm refused to pay and the bank was forced to sue. The learned trial judge found in favour of the bank and the same points which were urged before him have been advanced once more in this Court. 3. Basically the appellant firm's case is that the respondent bank should not have paid upon the drafts presented to it and that the appellant firm is consequently not obliged to reimburse the bank. The reason advanced for this contention is that the bank, in paying pursuant to the credits, acted at its own risk and in breach of the strict terms of the mandate given to it by the appellant firm by accepting documents which did not strictly comply with the requirements of the credits. Several points were urged upon us by Mr. Mills-Owens for the appellant but effectively the substance of his argument may be reduced to the following two points. Firstly, he says that the description of the goods contained in the invoices did not correspond with the requirements of the credits in that the word "model" was omitted from the description of the goods in the invoices. Secondly, he maintains that bills of lading presented to the respondent bank were not clean and regular on their face in that they bore certain obliterations which had not been endorsed or authenticated by or on behalf of the ship owners. The gravamen of this latter complaint lies in the fact that the application for the credit had stipulated that the bankers were empowered to pay out upon any draft presented under the credit only upon receipt, amongst other documents, of clean on board bills of lading. 4. As to the first point we are quite satisfied that the learned trial judge was right to apply the principle "de minimis non curat lex" in considering the omission of the word "model" from the description of the engines in the invoices. The point contended for was that the obligation of strict compliance with the mandate evidenced by the credit made it improper for the bankers to pay out upon the documents presented to them without first ascertaining from their principals, the appellant firm, whether any objection was to be taken on the ground that the word "model" which appeared in the terms of the mandate was omitted from the description of the machinery given in the invoices. It had been stated in the application for the credits that they would be subject to the "Uniform Customs and Practice for Documentary Credits (1962 Revision)". Article 30 of this code of practice stipulates that "the description of the goods in the commercial invoice must correspond with the description in the credit. In the remaining documents the goods may be described in general terms." It is Mr. Mills-Owens' contention that the words "correspond with" in that article are to be understood as meaning "identical with". The learned trial judge took the view that these words could not be construed as implying that the contents of the commercial invoice must be a photocopy of the description in the credit. With that view we are in emphatic agreement. Mr. Mills-Owens himself was prepared to do no more than suspend judgment on the suggestion put to him that his view must necessarily cover all divergences between the two documents even such matters as obvious misspellings or words wrongly capitalised or the like. We think that Mr. Zimmern is clearly right to interpret this provision as meaning that the description of the goods in the commercial invoice must correspond in all material particulars with the description in the credit. The onus must be upon the party seeking to impeach a document accepted by the bank to show that any such difference is material in the sense that, had the banker's customer known of it or had it been brought to his attention, he might have instructed the bank not to accept the document in that form. It needs hardly be said that nothing was attempted or even suggested in the present case. We can therefore merely endorse the learned trial judge's view that:
5. As to the Bills of Lading, somewhat similar considerations apply. A clean shipping document is defined by Article 16 of the Uniform Customs as one
In each of the Bills of Lading, in the column allocated to the weight of the goods, there appears a mark which could be an ink erasure super-imposed upon some legend which may have been inscribed thereon. Originally this objection had proceeded upon the ground that the weight of the goods had actually been noted and erased. The point was however abandoned in the court of trial for the very good reason that it had never been a part of the contract between the bankers and their customer that any of the documents should show the weight of the goods. But Mr. Mills-Owens contended below, as he has contended here, that there may have been some such note in that column as for instance: "on deck" or: "damaged" or some thing of that nature. It may be said that counsel manoeuvred this argument to its very limit and left it overlooking a prospect of extended legal obligation which, at the moment, is adumbrated only in the textbooks. He did not seek to suggest that the bills of lading were not clean in the strict sense of the wording of Article 16, but he adopted the suggestion advanced in the 4th Edition of The Law of Banker's Commercial Credits by Gutteridge and Megrah where at p.100 the following appears:
He buttressed this tentative opinion with the observation of Salmon, J. in British Imex Industries Ltd. v. Midland Bank Ltd.(1) where, at p.552 the learned judge said:
What is noteworthy in the first of these two passages is that the textbook commentators illustrate their point by reference to a decided case in which a bill of lading had been restrictively "claused" by making inspection of the goods for damage a condition of any valid claim; while in the second the judge specifically restricts his observation to such "endorsement" or "clausing". 6. What it comes to therefore is that there might have been under this blot or erasure a notation or comment which might have made a vital difference to the customer's willingness to have the bank honour the drafts. The learned trial judge expressly considered the suggestion in Gutteridge and Megrah (supra) and firmly turned his face against construing it as counsel suggested with the rhetorical question
How indeed, in view of the fact that the appellant firm's misfortune derive solely from the fact that the wrong goods were fraudulently despatched to them and it in no way derived from any defective condition of those goods or their packaging. If there were any validity in the contention that the bills were not "clean" in the extended sense suggested in the textbook because the obliteration may have concealed a stated weight which would have alerted the appellant firm and put them on notice that the goods despatched were not the goods ordered one would think that, in any event, the onus must be upon them to show that such would or could have been the case. Mr. Zimmern points out that the appellant firm made no endeavour to have expert assistance in diluting the erasure in order to see if anything was written underneath it and if so what that writing was. There is some force in that but the principal point to be made is that the appellant firm during the trial, had expressly abandoned all contentions based purely upon considerations as to the weight of the goods and were left in the end in the unhappy position that the only negligence which they could assert of the bank was that it had paid out upon documents bearing marks which might have concealed something to the prejudice of the appellant arising from the damaged condition of the goods or their packaging when it is common ground that, whatever other complaints they might have, those defects would not be defects which they now allege to have existed. 7. For these reasons the appeal must be dismissed with costs. Representation: (1) (1958) 1 Q.B.D. 542 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO.34 OF 1972 (On appeal from O.J. Action No. 151 of 1971) -----------------
----------------- Coram: Briggs, C.J., Huggins & McMullin, JJ. Date of Judgment: 13th November 1973. ----------------- JUDGMENT ----------------- Huggins, J.: I agree. As to the first point I think the de minimis rule must apply. There might be a case where the omission of the word "model" would be fatal, but in the case at Bar there can be no doubt at all that the notation "3UC" was a model number, just as was the preceding notation "8L3", before which the word "model" was inserted in none of the documents. The omission from the invoice of the word "model" before the model number of the reduction gear indicated no difference of any kind between the goods invoiced and those to which the mandate related. As to the second point, in my view the learned judge was fully justified in deciding that the bank had made out their case that they had received clean bills of lading and had acted in accordance with the terms of their mandate. Prima facie the erasures had no bearing on any material detail and the Appellants were unable to adduce evidence to the contrary. Thus they were able to cast no real doubt upon the cleaness of the bills of lading and the Respondents were entitled to recover. 13th November 1973. Representation: Mills-Owens (J.S.M.) for appellant Zimmern, Q.C. (Lo & Lo) for respondent |