The Bank of Taiwan and Others v. Union Syndicate Corporation (A Firm) and Others
Read the full judgment text of HCA 426/1978 on BabelCite. This High Court CFI judgment.
1. The trial before me was confined to the Plaintiffs' claims for damages against the 5th Defendant, arising from the 5th Defendant's allegedly negligent conduct in negotiating drafts to a total value of US$358,963.20 under Letter of Credit No. 062590-111 LDEU opened by the 1st Plaintiff on behalf of its customer, the 2nd Plaintiff, in respect of scrap metal purchased by the 3rd Plaintiff on behalf of the 2nd Plaintiff.
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HCA000426/1978 Letter of credit - negligence - whether negotiation banker owes duty of care not to pay out on false documents.
----------------- Coram: Rhind, J. Date of Judgment: 29th January, 1981 ----------------- JUDGMENT -----------------
The Claim 1. The trial before me was confined to the Plaintiffs' claims for damages against the 5th Defendant, arising from the 5th Defendant's allegedly negligent conduct in negotiating drafts to a total value of US$358,963.20 under Letter of Credit No. 062590-111 LDEU opened by the 1st Plaintiff on behalf of its customer, the 2nd Plaintiff, in respect of scrap metal purchased by the 3rd Plaintiff on behalf of the 2nd Plaintiff. 2. As against the 2nd and 3rd Defendants the Plaintiffs have already obtained judgment by default on their allegations of a fraudulent conspiracy relating to the sale of the cargo of scrap, whereas their claims against the 1st and 4th Defendants in respect of the same allegations have not been able to proceed for want of service. Factual Background to the Claim 3. The 3rd Plaintiff ("Tang Eng Iron Works") which is a company registered and carrying on business in Taiwan used to process scrap metal for its customer, the 2nd Plaintiff ("Taiwan Freeway Construction Bureau"). 4. On July 6th 1974, the Tang Eng Iron Works, acting as agent for the Taiwan Freeway Construction Bureau entered into a contract (Exh. A1) in Taiwan with Hamilton International Enterprises Ltd., ("Hamilton") to purchase 10,000 metric tons of scrap metal located in Vietnam on C.I.F. terms for shipment to Taiwan at a price of US$128 per metric ton, payment being by irrevocable, transferable Letter of Credit. 5. Hamilton, so it turned out, had been acting for the 1st Defendant (Union Syndicate Corporation), a Hong Kong based company in making that contract, and on 10th July, 1974 (Exh. A3 refers) Union Syndicate Corporation took over Hamilton's role as the seller. 6. As the contract permitted partial shipment, the Letter of Credit No. 062590-111 LDEU (Exh. A5) which the Taiwan Freeway Construction Bureau in due course opened in Taiwan on 13th September, 1974 with its bankers, the 1st Plaintiff ("the Bank of Taiwan") in favour of the beneficiary, Union Syndicate Corporation, related to only 7,000 of the 10,000 metric tons to be shipped under the contract. The actual amount of the credit was for US$896,000. Under this Letter of Credit, payment was to be by sight drafts drawn on the First National City Bank, New York for the account of the Taiwan Freeway Construction Bureau. The Taiwan Freeway Construction Bureau supplied the necessary funds to the Bank of Taiwan so that the credit could be met, and the Bank of Taiwan saw to it that the First National City Bank in New York was put in funds. 7. Because Union Syndicate Corporation was located in Hong Kong, the Bank of Taiwan used the services of a Hong Kong bank as advising banker here, the Kwong On Bank performing this role. 8. After various amendments to the Letter of Credit as originally issued, it finally reached a form where the latest date drafts could be presented for negotiation under it was February 13th, 1975. Several features of this Letter of Credit call for mention because of the significance they might assume for the outcome of this case. 9. Firstly the Letter of Credit bore an endorsement that it was subject to the Uniform Customs and Practice for Documentary Credits (1962 revision), International Chamber of Commerce Brochure No. 222 ("the UCP"). 10. Secondly the documents against which the sight drafts called for under the credit were to be negotiated were the following:
11. Thirdly, it embodied a term that the Bank of Taiwan agreed with the drawers, endorsers and bona fide holders of drafts drawn under and in compliance with the terms of the credit that such drafts would be duly honoured upon presentation. 12. Fourthly, there was a term that negotiating banks must forward the drafts to the First National City Bank, New York for reimbursement, and airmail the documents under the credit to the Bank of Taiwan. 13. Fifthly, there was a term which incorporated a reference to payment being against shipping documents "after sailing and certified by surveyor". 14. Sixthly, a term explicitly stated the credit to be transferable and divisible in Hong Kong. 15. Mention has already been made of how the expiry date of the Letter of Credit had been extended till 13th February, 1975. 16. On 10th February, 1975, in Hong Kong, Union Syndicate Corporation, the named beneficiary under the Letter of Credit, with the consent of the Kwong On Bank in its capacity as advising bank, transferred US$384,000 of the credit to Capricorn Seafoods (H.K.) Ltd. ("Capricorn"), the 2nd Defendant, in respect od 3,000 metric tons of the scrap metal to which the credit related. (Exh. A21 refers). It is now common ground that such a transfer was unimpeachable under the terms of the credit. 17. That same day, at about 4.30 p.m., Capricorn presented the Letter of Credit together with what purported to be the documents required under it to Ka Wah Bank, with which it had an account, for negotiation. 18. Ka Wah Bank that same day negotiated two bills (Exh. A37 and A40) to a total value of US$358,963.20 presented to it by Capricorn under the credit. 19. Immediately afterwards, by telex, Ka Wah Bank sought reimbursement for the value of the bills from First National City Bank, New York, the drawee under the Letter of Credit, such reimbursement occurring within a matter of days. It is the amount which Ka Wah Bank received by way of reimbursement on that occasion that the Plaintiffs are in effect claiming by the present action. 20. As directed by the Letter of Credit, Ka Wah Bank mailed the Bank of Taiwan the documents Capricorn had tendered under the credit. (Exh. A42 and A47 refer). Precisely when those documents reached the Bank of Taiwan was not ascertainable on the evidence, but it was certainly no later than about the 27th February, 1975 for, by then, they had passed the documents on to their customer, the Taiwan Freeway Construction Bureau. This could be gathered from the evidence of P.W.2 who was the Deputy Divisional Manager of the Taiwan Freeway Construction Bureau. I do not think anything really turns on a difference of a few days, but for the sake of completeness it might be as well to mention the Bank of Taiwan would in all probability have received the documents several days before 27th February, 1975, judging from the dates on A42 and A47, and bearing in mind the normal course of the post between two such close neighbours as Taiwan and Hong Kong. 21. At this point, it will be convenient to turn attention to the documents which Capricorn tendered under the credit. When considering these documents, it is useful to know that the cargoes of steel to which they are supposed to relate have in fact never turned up in Taiwan. The Plaintiffs allege in effect that Capricorn never had any scrap to sell, and that the whole transaction which Capricorn's documents purport to describe was nothing more than a sham. For reasons which I will give at a later stage, I accept the Plaintiffs' contention that Capricorn engaged in a fraudulent transaction, purporting to sell them non-existent cargoes of scrap. 22. The Bills of Lading (Exh. A26 and A27) tendered under the credit purport to have been made at Cam Ranh Bay, South Vietnam on 10th February, 1975. They purport to show that a total of 3,000 metric tons of scrap was loaded aboard two vessels at Cam Ranh Bay, South Vietnam for a voyage to Taiwan where the port of discharge was shown as Kaohsiung. The consignee was shown as the Bank of Taiwan, and the Taiwan Freeway Construction Bureau is shown as the party to be notified. For reasons I will state in due course, I am satisfied these bills of lading are foregeries relating to non-existent shipments, and rather than being made at Cam Ranh Bay on 10th February, 1975, they were probably concocted at some stage by Capricorn in Hong Kong. 23. I have also concluded that the Quality and Quantity Certificates (Exh. P30 and P31) tendered by Capricorn under the credit were false. I will touch upon my reasons for this in due course. 24. A point about those Quantity and Quality Certificates which the Plaintiffs maintain has some significance in their favour is that both these documents indicate that the vessels to which they relate had not sailed at the time the documents were made. The certificate (Exh. P30) relating to one vessel states "We also hereby certify that the above vessel is sailing at 9.00 a.m. on 10th February, 1975", where as the certificate in respect of the other vessel (Exh. A31) has an identical sentence except for the time being shown as 7.00 a.m. The relevance of those sentences is only in the context of the provision in the Letter of Credit that payment was to be made against shipping documents "after sailing." 25. Apart from the bills of lading and the Surveyor's Quantity and Quality Certificates just referred to, the genuiness as such of the other documents tendered under the credit is not called in question other than in the sense they all relate to non-existent goods. 26. Apparently nothing at first struck the Bank of Taiwan as odd about the documents it received from the Ka Wah Bank. There is no suggestion that the Bank of Taiwan pointed out any oddity to its customer, the Taiwan Freeway Construction Bureau, when it handed on the documents on or about the 27th February, 1975. No doubt, if the Bank of Taiwan had noticed anything suspicious about the documents it would immediately have protested to the Ka Wah Bank about accepting non-conforming documents. 27. It was not till almost the end of March, 1975, that any of the Plaintiffs began to find fault with the way the Ka Wah Bank had performed its duties under the Letter of Credit. By then the buyers had ample cause for anxiety about whether they were ever going to get the shipments they thought they had purchased. The efforts made by the buyers to ascertain what was happening to the ships which were supposed to be making the short voyage from Vietnam to Taiwan can be observed from the various copy telegrams and telexes put in evidence by consent. 28. As opening salvo, the Taiwan Freeway Construction Bureau through the Bank of Taiwan complained to the Ka Wah Bank by a telex dated 31st March, 1975 (Exh. A60) that the Taiwan Freeway Construction Bureau wanted all its money back because the Ka Wah Bank was in breach of the Letter of Credit by paying Capricorn which was not a beneficiary under the credit. 29. That complaint got the Plaintiffs nowhere because the Ka Wah Bank were quickly able to point out that the Kwong On Bank, which was the Bank of Taiwan's advising bank in Hong Kong, had authorised the transfer to Capricorn under the Letter of Credit which was both transferable and divisible. Nothing more has ever been heard of that particular line of complaint. 30. Next the Bank of Taiwan sent the Ka Wah Bank a telex (Exh. A65) on 19th May, 1975 passing on a complaint by the Taiwan Freeway Construction Bureau that the goods had still not arrived and expressing the view that the documents presented by Capricorn were false. This telex requested the Ka Wah Bank to ask Capricorn to refund the money. 31. After that comes a telex (Exh. A68) dated 4th June, 1975 from the Bank of Taiwan to the Ka Wah Bank which substantially embodies the Plaintiffs' main complaint against the Ka Wah Bank. I will set out the relevant part of the text:
32. Basically the Plaintiffs' complaint against the Ka Wah Bank is that it was negligent in failing to detect that some of the documents tendered by Capricorn were false. 33. As a second string to their bow, the Plaintiffs have sought to derive such assistance as they can from an allegation that the Ka Wah Bank did not observe the requirement of the credit that payment was to be "after sailing." The Plaintiffs now say that there should have been no payment under the Letter of Credit unless there was evidence of sailing. Causes of Action 34. Each of the Plaintiffs claims it is in its own right entitled to sue the Ka Wah Bank. Whether in fact each of the Plaintiffs could have a cause of action against the Ka Wah Bank, and what the nature of any such action might be, is a problem which can now be conveniently considered in the light of the facts as already outlined. 35. The only actions it has been suggested any of the Plaintiffs might have are in contract or in tort for negligence. 36. Contract as a possible ground of action is clearly excluded for both the Taiwan Freeway Construction Bureau and for the Tang Eng Iron Works because of absence of privity. Thus if either of that pair is to succeed it can only be on the basis of the tort of negligence, 37. Aside from the question of whether it was ever owed any duty of care by the Ka Wah Bank, Tang Eng Iron Works must surely fail in any action for negligence as it has failed to establish the vital ingredient of damage. There is nothing to show Tang Eng Iron Works is any the worse off as the result of the non-arrival of the cargoes of scrap. 38. On the other two elements of negligence, namely the existence of a duty of care and the breach of that duty, Tang Eng Iron Works would also fail. 39. Nothing in the evidence suggested that the Ka Wah Bank should have contemplated that its actions might affect Tang Eng Iron Works, so this absence of foreseeability would necessarily mean there was no duty of care. What I will say in a moment about why the Ka Wah Bank did not even owe a duty of care to the Taiwan Freeway Construction Bureau will apply with even more force to the position of the Tang Eng Iron Works which is in an even more remote relationship to the Ka Wah Bank: at least the Ka Wah Bank knew from the Letter of Credit who was the buyer of the steel i.e. Taiwan Freeway Construction Bureau. 40. Frankly, I find it difficult to understand why Tang Eng Iron Works was ever joined in this action as there was never any possible hope it could succeed. 41. Turning now to whether Taiwan Freeway Construction Bureau might have an action in negligence, the first question to consider is whether Ka Wah Bank owed it a duty of care, the particular duty of care in the circumstances of this case being not to pay out on false documents or on documents which did not conform with the requirement of payment "after sailing." 42. Determining who is owed a duty of care is ultimately a policy decision for the courts. Lord Atkins famous "neighbour" dictum in Donoghue v. Stevenson(1) does not by itself provide a universal answer to the question of when in practice the courts will recognize a duty of care situation to exist. Unfortunately for the Plaintiffs, one sphere where the courts have been slow to find a duty of care to exist is that relating to the avoidance of inflicting pecuniary loss. (See, e.g. Street on Torts, 6th Ed., 112). True, as Mr. Bernacchi points out the categories of negligence are never closed, but against this one has to balance Mr. Ching's equally valid assertion that the flood-gates are not open either. 43. Mr. Bernacchi sought to draw some comfort from Hedley Byrne & Co., v. Heller & Partners, Ltd.,(2) as an example of how the courts can find a duty of care not to cause pecuniary loss. That was a case where the House of Lords declared that where a "special relationship" exists a person can be liable for uttering negligent misstatements which cause pecuniary loss to another. 44. Another more recent instance has been where the court found a solicitor liable to someone who would have been a beneficiary under a will if the solicitor had not been negligent concerning the manner in which the will was executed: Ross v. Caunters(3). 45. However, the situations where the courts have been prepared to find a duty not to inflict pecuniary loss have in practice been few and far between, and I cannot say that I regard the position in which the Taiwan Freeway Construction Bureau now finds itself as an appropriate one for holding that a duty of care exists. (See Ellinger's Documentary Letters of Credit pages 234, 235, hypothetical case No. 3; also page 264). 46. There is no reason for a negotiation banker to suppose its skill and judgment in accepting documents tendered under a Letter of Credit will be relied on by the buyer: the buyer will be looking to its own banker, the issuing banker, to ensure that the documents are in order. Further, there already exist practical ways in which a buyer can protect himself from fraudulent sellers without the courts needing to lay down that the negotiation banker owes the buyer a duty of care. The buyer can, for example, insist upon his seller giving a performance bond. 47. If the Taiwan Freeway Construction Bureau wished the court to hold that it was entitled to the benefit of a duty of care, it needed to come up with good reasons why this should be so, and to my mind it has failed in this regard. Without compelling reasons, I would be loathe to discover some novel form of liability on the part of negotiation banks, for the courts will not lightly take steps which could prove disruptive of the well established machinery of international trade which operates through the Letter of Credit system. 48. For want of a duty of care, Taiwan Freeway Construction Bureau's claim must fail. 49. As between the Bank of Taiwan and the Ka Wah Bank there is a contract. That contract is embodied in the Letter of Credit which incorporates the UCP. A Letter of Credit is in effect an offer which a negotiation bank accepts by negotiating the drafts tendered under it. That is a form of accepting an offer by conduct. (See e.g. Elder Dempater Lines Ltd., v. Ionic Shipping Agency Inc.(4) 50. A contract with more comprehensive terms than one incorporating the UCP is difficult to imagine. Virtually every conceivable contingency is provided for in great detail by the UCP. The duties of the parties are expressly stated. Article 7 of the UCP in the section headed "Liabilities and Responsibilities" sets out in unmistakable terms the duty imposed on a negotiation banker. "Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit." 51. What conceivable scope exists for some separate duty of care to be owed to the Bank of Taiwan in the tort of negligence I just cannot see. Such duty of care as exists is in contract, defined by the contract. This might be highly inconvenient to the Bank of Taiwan because there is another provision in the contract - Article 8 - which is to the effect that, if after a reasonable time for examining the documents, the issuing bank fails promptly to give notice, with reasons, why the documents on their face do not conform with the credit, the issuing bank is taken to have ratified the transaction. There is also Article 9 which states:-
52. Presumably to avoid the inconvenient incidents of the contract, the Bank of Taiwan hopes to be able to pitch its claim in tort, but this it just cannot do for its relationship with the Ka Wah Bank is regulated by the contract. (On the relationship between an issuing banker and a negotiation banker see Ellinger, op. cit. at 259-261). 53. Of all the Plaintiffs, the only one which could conceivably have a cause of action against the Ka Wah Bank is the Bank of Taiwan, and the only possible action it could have would be for breach of contract. 54. This leads into a consideration of whether the Ka Wah Bank is in fact in breach of any duties it owes the Bank of Taiwan under the contract. Whether the Ka Wah Bank is in Breach of its Duties to the Taiwan Bank under the Letter of Credit. 55. Merely because some of the documents tendered under the credit were false cannot avail the Bank of Taiwan anything unless it can be shown that the Ka Wah Bank failed to exercise reasonable care to ascertain those documents appeared on their face to conform with the credit. That is the combined effect of Article 7 and Article 9 of the UCP. 56. It has already been mentioned that the Plaintiffs complain in effect that the Ka Wah Bank has failed in its duties in two ways, the first being in accepting false documents, and the other in making payment in disregard of the requirement of "after sailing". 57. Whether payment should have been made without specific evidence the vessels had sailed is unmistakably a problem of whether the documents appear on their face to conform with the credit, and whether the Ka Wah Bank could be said to have exercised reasonable care if it overlooked this. Equally, but perhaps not quite so obviously, the false documents pose exactly the same problem, namely whether they appear on their face to conform with the credit, and whether the Ka Wah Bank could be said to have exercised reasonable care if it overlooked this. How this is in fact the problem posed by false documents tendered under a documentary credit is made clear by Gian Singh Ltd., v. Banque de 1'Indochine(5) 58. Looking at all of the documents tendered under the credit, I consider that the only respect in which there is scope for a plausible argument that they do not on their face conform with the terms of the credit is the requirement that payment is to be made against shipping documents "after sailing." Even there, one can see scope for a counter-argument that in the context of the carriage of goods by sea "after sailing" meant the same as "after shipment" for sometimes "sailing" will by synonymous with "shipment": See Article 40 of the UCP. In their turn Articles 14 and 18 in effect make the date of the Bill of Lading the date of "shipment". Following the argument through, one could say that on the face of the documents, payment was made after "shipment", and hence after "sailing". Such an interpretation would in fact serve to give the Letter of Credit business efficacy in the absence of any provision in the Letter of Credit as to how the paying bank is supposed to ascertain a vessel has sailed. 59. However, I find it unnecessary to reach a firm conclusion as to the precise meaning of "after sailing", because, in any event, the Bank of Taiwan's failure to protest in accordance with Article 8 of the UCP means it has ratified the Ka Wah Bank's action. On this I will say more in a moment. 60. Although this was not an easy argument to follow, it seemed to be suggested on behalf of the Plaintiffs that it was so intrinsically unlikely that documents which purported to have been made at a port in Vietnam on 10th February, 1975 could be available in Hong Kong's Central District by 4.30 p.m. the same day, that this somehow by itself meant that even on the face of the documents they did not conform with the terms of the credit. In this era of the aeroplane, the helicopter and the car, I see nothing at all unusual in documents getting here from Vietnam within a few hours of being made. The position might be otherwise if Vietnam were on the other side of the world. 61. In any event, if it should have been so obvious to the paying banker that there was something odd about the dates of the documents, it should, presumably, have been equally obvious to the issuing banker, so that if the issuing banker failed to reject them in accordance with Article 8 of the UCP after a reasonable time for examination, then the issuing banker will be taken to have ratified them. 62. Perhaps a word should be said at this point about the significance of the tendered documents showing Cam Ranh Bay as the port of shipment. I am prepared to accept the truthfulness of everything the witness Chu Yu-liang (P.W.3) said about it being a military port with no commercial airport, and about how it took at least five hours to drive from there to Saigon which was the only place from which one could get a commercial flight to Hong Kong, but my view was that this evidence was irrelevant to the only real issue in the case which was whether the documents tendered under the credit appeared on their face to conform with the credit. References in the documents to shipments from Cam Ranh Bay, South Vietnam on their face fully conform with the requirement of the Letter of Credit: "Shipment from South Vietnam port to Kaohsiung." If bankers had to start concerning themselves with such details as the travel arrangements within the countries from which goods are shipped, Letters of Credit could no longer operate as a simple banking tool for the finance of international trade. Any reasonable banker in my opinion would treat documents purporting to show shipment from Cam Ranh Bay, South Vietnam as conforming with "Shipment from South Vietnam Port". If I am wrong, and the Ka Wah Bank accepted non-conforming documents, then it was not alone on doing this, the Bank of Taiwan having done the same without availing itself of the rejection provisions of Article A. 63. A few words can now be said about the operation of Article 8 in the present case. The Bank of Taiwan was entitled to "a reasonable time to examine the documents" to enable it to decide whether they conformed. A reasonable time for this purpose seems to vary from banking centre to banking centre. According to Paget's Law of Banking 8th Edition at page 658 forty-eight hours is sufficient in London, whereas according to McNair, J. in Bank Molli Iran v. Barclays Bank (Dominion, Colonial and Overseas)(6) six weeks might not have been long enough in Iran. 64. I would not have thought there was too much which the bankers of London could teach their Chinese colleagues in Asia when it came to matters of efficiency. It is unnecessary in the circumstances of the present case to come up with a precise figure on what is a reasonable time for a banker in Taiwan to examine documents for the purpose of Article 8. Suffice it to say that, as a matter of common sense, in the light of the efficiency with which business is generally known to be conducted in the South-East Asian region, it would not be far different from the period treated as reasonable in London. 65. For at least a month after the Bank of Taiwan received the documents in February 1975, it did not communicate with the Ka Wah Bank at all. Clearly by then a reasonable time for examining the documents had long since expired. Even when the Bank of Taiwan did send its telex of 31st March, 1975 (Exh. A60), seeking to reject the documents, it did not give the reasons which it now seeks to rely on, whereas Article 8 requires the reasons to be stated. Moreover, to make an effective rejection in accordance with Article 8, the Bank of Taiwan needed to inform the Ka Wah Bank that the off ending documents were being held at the letter's disposal or being returned to it, but that was never done. 66. The conclusion is inescapable that insofar as the documents tendered under the credit failed to conform with the terms of the credit the Taiwan Bank has missed its opportunity to complain about this because of failure to follow the requirements of Article 8. The Evidence of Miss Ho Chieh-yu. 67. The background of this witness was that for several years she had worked in a section of the Dah Sing Bank in Hong Kong, dealing with letters of credit. She then went on to become a Manager with that bank. All her experience was with the same bank. By Hong Kong standards her bank was comparatively small being in Category 4, and the amount of turnover in the section dealing with Letters of Credit sounds to have been relatively small, too. Apart from her practical experience in working for the one small bank, it was not suggested she had any formal qualifications in banking. 68. She was put forward as an expert by the Plaintiffs. 69. My view of her evidence can be summed up very briefly: it was irrelevant to the issues which I regarded as material for disposing of the case, and, in any event, it was unreliable. 70. Her opinion, based on such expertise as she had, was of no assistance to the court on the issues which by themselves were determinative of the present case, namely whether the documents tendered under the credit conformed on their face with the requirements of the credit, and if not, whether there had been ratification. Just because she thought a document did not on its face conform with the requirements of the credit was neither here nor there. Were her views to be taken into account on that, she would be usurping the function of the court. 71. Presumably the Plaintiffs' main object in calling the witness was to establish that the Ka Wah Bank had acted negligently by failing to fulfill a duty to safeguard the Plaintiffs from fake documents. However, I have already indicated that I do not think any duty of this nature exists towards any of the Plaintiffs so that I did not regard her evidence as having any relevance for this purpose. 72. Now I will touch upon why I did not regard her as a reliable witness. 73. Her evidence took the form of a prepared statement (Exh. P5) which she adopted as her evidence-in-chief. From that statement (Exh.P5), it can be seen that she made some observations numbered from 1 to 7 after being shown the shipping documents and Letter of Credit of the present case. Some of her observations seem to be plainly wrong to me and served to cast doubt on her general reliability. Moreover, after observing her under cross-examination and after considering the content of her answers, I finished up with the impression that this was not a detached expert trying to assist the court, but rather someone with a partisan approach who was doing her best for the side which called her. 74. An egregious example of an observation of hers which does not seem correct is No. 5, which starts off "The date of issue of the Bill of Lading was suspicious. Usually, a Bill of Lading is not issued on the same day as the sailing date." 75. I frankly see nothing suspicious or unusual about issuing a Bill of Lading on the sailing date. It happens all the time where ships have a quick turn-around. She goes on to claim that in such a situation the bank is under a duty to verify the Master's signature. Why a bank, acting under the UCP, and therefore not concerned with whether documents are false, would want to do that eludes me. I was not persuaded she was describing a standard banking procedure to me. 76. Her observation No. 1 is equally wrong. There she states: "The Letter of Transfer in favour of Capricorn was made on 10th February, 1975 and dated 10th February, 1975. When a banker has the documents presented to him by the transferee the same day that itself should have caused grave suspicion. A banker should have grave suspicion because, if there was a proper transfer, there would not be sufficient time to make the transfer since the Bills were presented at 4.30 p.m. on 10th February, 1975. being the last working day before the holiday." The fact of the matter is that by itself there was nothing suspicious in Union Syndicate Corporation transferring part of its credit to Capricorn on 10th February, 1975. As between Union Syndicate Corporation and Capricorn, there was no need to wait till the shipping documents reached Hong Kong before they effected such a transfer. Without there being anything suspicious, the transfer could have been made at any time on 10th February, 1975, and it would not even have been suspicious if it had been made before 10th February, 1975. The time Union Syndicate Corporation chose to make the transfer would depend on its previous course of dealing with Cparicorn, and the transfer would by no means necessarily have to depend on the arrival of the shipping documents in Hong Kong. There was nothing to show it was meant to be a transfer against documents: the arrangement might have been the documents were to be handed over as soon as they became available. 77. Miss Ho chooses to find cause for "grave suspicion" in that circumstance, but I tend to doubt whether that would be the reaction of a more detached observer. 78. Observations No. 3 and 4 cover basically the same ground. They are to effect that a banker in Hong Kong should have suspected the transaction was a sham because there was no evidence the seller in Vietnam - a country with foreign exchange control - had been paid. Back-to-back Letters of Credit were cited as an example of the type of evidence a banker in Hong Kong might look for to ensure the seller in Vietnam had been paid. (On back-to-back letters of credit, see The Law of Bankers' Commercial Credits by Gutteridge and Megrah, 6th Edition at 13 and Ellinger op. cit. at 19). 79. Mr. Ching for the Ka Wah Bank heaped ridicule on the suggestion that a paying banker under a letter of credit would concern himself with whether a seller had been paid, and I must say I found what P.W.6 had said about this extremely difficult to believe. What she said does make a nonsense of the whole UCP system which was obviously designed to protect a banker who pays out on documents conforming on their face with the terms of the credit. The type of elaborate detective work which P.W.6 seems to expect of bankers strikes me as completely at variance with the UCP. I find it very difficult to imagine that she could have been describing the practice of bankers generally in Hong Kong. Perhaps it was her own personal practices she was describing. and if that is so, it is difficult to resist the comment that those practices just cannot be reconciled with the UCP. 80. As her observations No. 2 and No. 7 cover basically the same ground, namely whether it is suspicious for documents to arrive in Hong Kong on the very day on which they were supposed to have been made in Vietnam, I will deal with them together. She says in effect that being presented in Hong Kong with documents purporting to have been made overseas on the same day would put a banker on enquiry. I just do not accept that as a general proposition. Where the banker is operating under the UCP, His sole concern is whether the documents on their face conform with the terms of the credit. 81. In any event, as I have already stated, there is nothing by itself strange in documents reaching Hong Kong the same day from a nearby country like Vietnam. 82. With the benefit of hindsight P.W.6 is able to say she would not have paid out till she had taken steps like checking the signature on the Bill of Lading and checking flights from Vietnam that day. I tend to doubt whether the average banker would have deemed it necessary to take any of those steps she described. Even if there were a duty on a banker to safeguard against false documents, I do not think the failure to take the steps she described would amount to absence of reasonable care. As it is, the position was covered by the UCP in the way I have already described. 83. No comment is called for on her observation No. 6, which calls attention to the requirement that payment is to be made "after sailing". I have already dealt with the significance of that requirement. 84. Mention can conveniently be made at this point of whether there is any significance in the fact that 10th February, 1975 was Chinese New Year's Eve. After receiving the documents no earlier than 4.30 p.m. that evening, the Ka Wan Bank negotiated the Bills of Exchange for its client that very day. Apart from suggesting the motive that the bank's staff might have been tempted to cut a few corners in order to get home more quickly for the holiday, I see no reason to draw any inference adverse to the Ka Wah Bank from this happening on Chinese New Year's Eve. Likewise the fact that Capricorn was the Ka Wah Bank's client and that he was overdrawn is only relevant to the bank's motive: the bank might have been tempted to scrutinise documents coming from such a source with less care than if they were presented by a stranger2 85. Such possible motives on the part of the Ka Wah Bank could be borne in mind if it had to be determined whether it was in fact negligent. Falsity of Documents 86. A combination of circumstances led me to conclude that the documents tendered under the credit were false in the sense of being forged or relating to a sham transaction of non-existent goods. 87. Of some significance is the mere fact that the Plaintiffs have not received the goods. That could of course be consistent with innocent explanations such as loss of the ships at sea or blockade, but it is also consistent with the Plaintiffs being the victims of fraud. 88. Strongly indicative of fraud is the circumstance that Capricorn's invoices Exhibits 32 and 33 which purport to have emanated from Hong Kong were obviously typed on the same machine which was used for the Bills of Lading, Exhibits 26 and 27, supposedly coming from Vietnam. There are such distinctive peculiarities common to the typewriting on these documents that the only reasonable explanation is the same machine was used for all of them. No expertise is required for this exercise: only common sense. A recital of the peculiar features of the typing will be found in the evidence of Miss Ma Fung-ming (P.W.1), who was not claiming to be an expert on the characteristics of typewriters, but who helped the court by drawing particular matters to the court's attention, after which the court could arrive at its own conclusions. The same result could have been reached if the peculiarities of the typewriting had been pointed out to the court from the Bar table. 89. With sufficient imagination it is possible, I suppose, to suggest a hypothesis under which the Bills of Lading purporting to come from Vietnam could have been prepared on the same typewrite as the Hong Kong invoices without there being any forgery or falsity, but far and away the most likely explanation is that the Bills of Lading are forgeries, made in Hong Kong. 90. Any documents which came via Capricorn fall under suspicion, because it looks as if Capricorn was deeply involved in a plot to draw fraudulently under the Letter of Credit. Capricorn's involvement can be gauged by its efforts to cover its tracks after the Bank of Taiwan started asking some fundamental questions about the whole transaction. To explain how it was in fact able to get documents in Hong Kong by the afternoon of the very day on which they were supposed to have been made at Cam Ranh Bay, Capricorn was even prepared to invent a non-existent Air Vietnam Flight No. 787 which it claimed arrived in Hong Kong at 3.45 p.m. on 10th February, 1975. (See Exhibits A75, 76 and 77). The combined effect of the evidence of P.W. 4, P.W. 5, and Exhibits P2A and 8, and Exhibits P3 and 4 was to satisfy me there never was any such flight. 91. Further documents which I am satisfied are false are the Quality and Quantity Certificates Exhibits P30 and P31. Whether those documents are actually forgeries I do not know, but I am satisfied they are at least false in the sense of relating to non-existent shipments. Coming from a contaminated source like Capricorn is, by itself, in the circumstances of the present case, sufficient to give rise to the inference that those documents are false. Conclusion 92. In view of the foregoing my conclusion is that the claims of all of the plaintiffs against the Ka Wah Bank must be dismissed.
Representation: Mr. B. Bernacchi, Q.C. & Mr. W. Yeung (C.P. Lin & Co.,) for plaintiffs Mr. C. Ching, Q.C. & Mr. R. Mayne (Y.T. Chan & Co.,) for the 5th Defendant. (1) 1932 A.C. 562 at 580 (2) 1964 A.C. 465 (3) 1979 3 All E. 580 (4) [1968] 1 Lloyds' Report 529 (5) [1974] 1 W.L.R. 1234 (6) [1951] 2 Lloyds' Report 367 |