FEDERAL COURT OF AUSTRALIA
Westpac Banking Corp v “Stone Gemini”  FCA 434
BANKING – letter of credit – incorporation of Uniform Customs and Practice for Documentary Credits 500 (UCP) – effect of incorporation of UCP into letter of credit – discrepant documents – time for acceptance or rejection
CONVERSION – bill of lading as a title document – bearer bill of lading – right to delivery – discharge of cargo against letter of indemnity – bills of lading not presented – whether bills in possession of bearer where sent to issuing bank for acceptance
CONTRACT – letter of credit – international sale of goods – whether negotiating bank entitled to security in title by possession of bearer bills of lading – negotiating bank not mere agent for collection – letter of indemnity provided to vessel – whether Master of vessel relied on letter of indemnity for discharge – whether liability where plaintiff later reaches agreement with third party for payment
TRADE PRACTICES – misleading and deceptive conduct – Trade Practices Act 1974 (Cth) s 52 – inducement
WORDS & PHRASES – “bearer bill of lading”, “letter of credit”, “negotiating bank”, “letter of indemnity”
Trade Practices Act 1974 (Cth) ss 51A, 52, 75B
Uniform Customs and Practice for Documentary Credits, 1993 Revision ICC, Publication No 500, Articles 13 and 14
Power Curber International Ltd v National Bank of Kuwait  1 WLR 1233, cited
Sze Hia Tong Bank Ltd v Rambler Cycle Co Ltd  AC 576, applied
European Asia Bank AG v Punjab & Sind Bank (No 2)  1 WLR 642, cited
Guaranty Trust Co of New York v Hannay & Co  KB 536, cited
Ross T Smyth & Co Ltd v T D Bailey Son & Co  3 All ER 60, cited
“The Stettin” (1889) 14 PD 142, cited
Barclays Bank Ltd v Commissioners of Customs & Excise  1 Lloyd’s Rep 81, cited
SA Sucre Export v Northern River Shipping Ltd, “The Sormovskiy 3068”  2 Lloyd’s Rep 266, applied
United Australia Ltd v Barclays Bank Ltd  AC 1, followed
Fleming, The Law of Torts, 9th ed, 1998
Gutteridge & Megrah, The Law of Bankers’ Commercial Credits, 1984
Pagets Law of Banking, 11th ed, 1996
Cooke et al, Voyage Charters, 1994
WESTPAC BANKING CORPORATION v
THE SHIP MV “STONE GEMINI”
NG 557 OF 1996
14 APRIL 1999
IN THE FEDERAL COURT OF AUSTRALIA
BY FIRST CROSS-CLAIM
NAVALGALAXY SHIPPING LTD,
THE OWNERS OF THE SHIP MV “STONE GEMINI”
JINDALEE TRADING CO PTY LTD
ROSIE ROSALIND WANG
BY SECOND CROSS-CLAIM:
JINDALEE TRADING CO PTY LTD
NAVALGALAXY SHIPPING LTD
BY THIRD CROSS-CLAIM:
JINDALEE TRADING CO PTY LTD
WESTPAC BANKING CORPORATION
BY FOURTH CROSS-CLAIM:
WESTPAC BANKING CORPORATION
JINDALEE TRADING CO PTY LTD
REASONS FOR JUDGMENT
1 In the principal action the plaintiff Westpac Banking Corporation (“Westpac”) by amended writ dated 5 July 1996, applied to arrest the “Stone Gemini” (“the vessel”) on the ground that Westpac had a claim against the owners of the vessel arising from wrongful discharge of cargo. The vessel was arrested and an application was made for release. Security was provided and the vessel was released from arrest on 18 October 1996.
2 Shortly summarised, the claim of Westpac is that at the time of discharge it had a special property in the nature of rights in respect of the cargo as either a pledgee, equitable mortgagee, or bearer of bills of lading issued in respect of the cargo whereby it was entitled to delivery of the cargo. Westpac contends that the cargo was wrongfully delivered without the production of the bills of lading. Westpac’s case is that the cargo was released against letters of indemnity provided by other parties and that it was unaware of the existence of these indemnities until after discharge had been effected. It further says that it would not have consented to discharge of the cargo against the letters of indemnity if it had been aware of them. Accordingly, it claims damages in conversion against the vessel.
3 The substance of the Amended Defence filed on behalf of the owners of the vessel is that Westpac was on notice as from 4 July 1995 that the cargo was going to be discharged on the basis of the letters of indemnity, in lieu of the bills of lading, and that Westpac had consented to discharge on this basis. A second defence raised on behalf of the vessel is based on a subsequent arrangement made by Westpac with China Metallurgical I\E Shandong Company (“CMIE”) which was the company specified in the bills of lading. The consequence of the arrangement as to payment for the loss reached with CMIE is said to be that there was an accord and satisfaction which extinguished Westpac’s claim against the vessel. As a further alternative defence it is claimed that the agreement with CMIE and the payments under it gave rise to an authorisation, variation, estoppel or waiver which precludes Westpac from now pursuing any claim for loss as a consequence of the discharge.
4 The owners of the vessel, Navalgalaxy Shipping Ltd (“Navalgalaxy”), has cross-claimed against the first and second cross defendants Jindalee Trading Co Pty Limited (“Jindalee”) and its principal, Dr Rosie Wang (“Wang”), seeking an indemnity. The cross- claim alleges that on or about 4 July 1995 Jindalee signed a letter of indemnity for the purpose of authorising the Master of the vessel to deliver the cargo without production of the bills of lading. In substance the letter of indemnity signed by Jindalee contained a promise to indemnify the Master and the owner against any loss which might arise as a consequence of discharging the cargo without presentation of the bills of lading. The cross-claim also alleges that the letter of indemnity gave rise to a misrepresentation and that it was a misrepresentation made without reasonable grounds as to a future matter so as to provide a basis for an action under ss 51A and 52 of the Trade Practices Act 1974 (Cth) (“the TPA”). The claim brought by Navalgalaxy against Wang is on the basis that she was knowingly involved in the contravention of the TPA within the meaning of s 75B. It is further claimed that Jindalee and Wang are joint tortfeasors and contribution or indemnity is sought from each of them.
5 In defence to this cross-claim, Jindalee denies the allegations. In addition it has filed cross-claims against Navalgalaxy alleging misrepresentations as to the effect of the letter of indemnity given by Jindalee and it also claims in negligence under the TPA on the basis of these alleged misrepresentations. There are a number of further inter-linking cross-claims and defences raised in the proceeding but for the purpose of this overview it is not necessary to discuss the pleadings in any further detail.
The parties and witnesses
6 Westpac called two witnesses. The first was Michelle Hollowood (“Hollowood”) who in June-July 1995 (“the relevant period”) was a Customs Relationship Officer at the Brisbane office of Westpac. Her evidence related to the dealings of Westpac with Wang, who was a director of Jindalee, with respect to the documentation of the transaction and the negotiation of a letter of credit by Westpac. Mr Christopher Scott of Westpac’s Sydney office also gave evidence which was concerned with the negotiations and history of discussions with CMIE in late 1995. He was then the Senior Manager for Asian Banking Relationships. His evidence concerned the negotiations with CMIE which led to the arrangement on 13 December 1995 resulting in the payment of part of the Westpac debt, which is relied on in submissions as an extinguishment of Westpac’s claim.
7 Navalgalaxy is the owner of the vessel. It is a Greek corporation based in Cyprus. Two witnesses were called on behalf of the vessel. One was Captain Klouvas, who was the Master of the vessel at the relevant times. His evidence went to the circumstances in which the discharge was made at Qingdao in the Peoples Republic of China on 11 to 14 July 1995, and to the relevant documentation relating to the discharge of which he was aware. Evidence was also led on behalf of Navalgalaxy by Captain Zolotas, who was the responsible officer of Navalgalaxy based in Athens at the time of discharge and whose evidence went to the documentation sighted by him during the discharge. The letter of indemnity from Jindalee was in his possession at the time when he had discussions with Capatin Klouvas (who was then on board the vessel in China) as to the discharge of the cargo. He says that he relied on the letter of indemnity from Jindalee as well as on an additional letter of indemnity from CMIE.
8 Two other witnesses were called on behalf of the vessel, namely Mr Alastair Grierson (“Grierson”) and Mr Alan Pyeburn (“Pyeburn”). In 1955 they were the principals of Pacific International Shipping Pty Limited (“Pacific”) which acted as shipping brokers for Jindalee. Their evidence related to the circumstances leading up to the request for and provision of the letter of indemnity by Jindalee, and the issue as to whether a copy had been sent to Hollowood at Westpac on or about 4 July 1995 thereby putting Westpac on notice of the proposal to discharge the cargo on the basis of the letter of indemnity from Jindalee.
9 Wang gave evidence on her own behalf and on behalf of Jindalee, of which she is a director, with respect to the circumstances in which the BOC letter of credit was established and as to its negotiation with Westpac. Her evidence also concerned the circumstances in which Jindalee provided a letter of indemnity and her discussions with Hollowood concerning the letter of credit documentation.
10 With the exception of several narrow but important areas of disagreement, which I will refer to, the relevant background is not in dispute.
11 In early June 1995 Jindalee agreed with a joint venture group known as the Mount Newman Joint Venture to arrange purchase of iron ore fines by CMIE for an amount in the order of $US 900,000. On 27 May 1995 Jindalee arranged to charter the vessel under a Gencon charter to load the cargo at Port Hedland and deliver it at Qingdao on the coast of mainland China. The details and documentation with respect to the underlying sale arrangement are not in evidence. On 28 June 1995 bills of lading were issued at Port Hedland by the Master of the vessel showing the shipper as Mount Newman Joint Venturers and the “notify address” as CMIE in Qingdao. The bills were made out to order. However, they were subsequently endorsed in blank and operated at relevant times as bearer bills.
12 Jindalee procured the issue of a letter of credit from the Bank of Communications (“BOC”) dated 26 June 1995. The applicant for the credit was CMIE. The relevant parts of that letter of credit read as follows:
“FROM: BANK OF COMMUNICATIONS QINGDAO CHINA
=== POSSIBLE DUPLICATE MESSAGE ===
TO: COMMONWEALTH BANK OF AUSTRALIA, BRISBANE QLD, AUSTRALIA
DD: JUNE 26, 1995
WE HEREBY ESTABLISH OUR IRREVOCABPNLLETTER OF CREDIT NO. LCGO9566275 FAVOURING:
FIRST: JINDALEE TRADING CO..PTY LTD. 68MT OMMANEY DRIVE. JINDALEE, QLD 4074
SECOND: MT NEWMAN JOINT VENTURES
APPLICANT: CHINA METALLURGICAL I/E SHANDONG COMPANY., NO. 2 QIDONG RD I II II IIPW UUFNVLCGINA T GTR A SUM OF USD1.644,904.80
THIS CREDIT IS AVAILABLE WITH ANY BANK BY NEGOTIATION OF BENEFICIARY’S DRAFT(S) DRAWN ON BANK OF COMMUNICATIONS QINGDAO BRANCH AT 120 DAYS OF B/L DATE FOR 95PCT OF INVOICE VALUE ACCOMPANIED BY THE FOLLOWING DVXAENTS:
-FULL SET CLEAN SHIPPED ON BOARD OCEAN BILLS OF LADING MADE OUT TO ORDER AND BLANK ENDORSED MARKED “FREIGHT PAYABLE AS PER CHARTER PARTY” NOTIFYING THE APPLICANT AT DESTINATION.
-SIGNED INVOICE IN 3 COPIES INDICATING NUMBERS OF CREDIT AND 1 CONTRACT AND NAME OF VESSEL SHIPPING DATE GOODS NAME QUANTITY, LOADING PORT ETC
-CERTIFICATE OF WEIGHT N DRAFT SURVEY REPORT IN 3 COPIES ISSUED BY THE MANUFACTURER OR PUBLIC SURVEYOR.
-BENEFICIARY’S ‘CERTIFIED’ COPY OF TELEX/CABLE DISPATCHED TO APPLICANT WITHIN 72 HOURS AFTER SHIPMENT ADVISING NAME OF VESSEL DATE OF XGIPMENT, DESTINATION, TOTAL QUANTITY WEIGHT AND VALUE OF GOODS SHIPPED AS WELL AS NUMBER OF THIS CREDIT AND DETAILS OF SHIPMENT.
-CERTIFICATE OF ANALYSIS IN 3 COPIES ISSUED BY MANUFACTURER
-BENEFICIARY’S CERTIFICATE CERTYING THAT ONE SET COPY OF THE DOCUMOPTS HAVE BEEN DISPATCHED ACCORDING TO THE CONTRACT TERMS
EVIDENCING SHI=3.5 9-
55.000WMT MT. NEWMAN IRON OREFINES
SHIPMENT FROM PORT HEDLAND WESTERN AUSTRALIA TO QINGDAO CHINA NOT LATER THAN JULY 5 1995M
PARTIAL SHIPMENT NOT ALLOWED TRANSHIPMENT NOT ALLOWED.
UPON RECEIPT OF THE REGULAR DOCUMENTS WE SHALL REIMBURSE THE NEGOTIATING BANK IN ACCORDANCE WITH THEIR INSTRUCTIONS.
THIS CREDIT IS VALID IN AUSTRALIA UNTIL AUG 5, 1995.
-ALL SHIPPING DMCUMENTS TO BE SENT IN ONE LOT TO OUR BANK (19 DISTRICT E, 3RD MARKET ROAD, QINGDAO, P.R. CHINA 266011)
-ALL BANKING CHARGES INCURRED OUTSIDE CHINA ARE FOR BENEFICIARY’S ACCOUNT
-DOCUMENTS MUST BE PRESENTED WITHIN 21 DAYS AFTER THE DATE OF ISSUANCE OF THE TRANSPORT DOCUMENTS BUT WITHIN THE VALIDITY OF THIS L/C.
-THIS L/C IS TRANSFERABLE BY WESTPAC BANKING CORP. FOR THE FOB AMOUNT ONLY.
-PAYMENT IS AVILABLE TO THE SECOND BENEFICIARY MT. NEWMAN JOINT VENTURERS UPON PRESENTATION OF THE DOCUMENTS VP CONFORMITY WITH THE CONDITION OF THIS L/C ON A SIGHT BASIS.
-THE TRANSFERRING BANK IS TO FINANCE THE DRAFTS AMT UNTIL 120 DAYS AFTER B/L DATE.
WE HEREBY ENGAGE WITH DRAWERS, ENDORSERS AND BONA FIDE HOLDERS OF THE DRAFT(S) DRAWN UNDER AND IN CONFORMITY WITH TERMS OF THIS CREDIT THAT THE SAME WILL BE DULY HONOURED UPON PRESENTATION.
THIS IS AN OPERATIVE CREDIT INSTRUMENT AND NO MAIL CONFIRMATION FOLLOWS.
THIS CREDIT IS SUBJECT TO UCP (1993 REVISION) ICC PUBLICATION NO. 500.
…” (Emphasis added)
13 An amendment was later made to the letter of credit whereby Mount Newman Joint Venture became the beneficiary.
14 On 3 July 1995, Westpac received documents from the BankWest which acted as banker for the Mount Newman Joint Venture. The documents were then checked by Westpac. Steps were then taken by Jindalee to prepare and execute a Letter of Indemnity for presentation to the Master of the vessel in China to enable discharge of the cargo against an indemnity for so doing, by Jindalee. On 4 July 1995 Wang signed on behalf of Jindalee a letter of indemnity which relevantly reads:
“To The Master, the Owners and the Disponent Owners of:-
M.V. “STONE GEMINI”
At the port of Qingdao, ETA 13th July, 1995.
And with reference to the cargo/goods as follows:-
Bills Ldg Nbrs 1, Dated 28 June 1995.
Description: Mt. Newman Iron Ore Fines.
Quantity: 60,500 WMT.
Loading Port: Port Hedland.
The above goods were shipped on board the vessel by Messrs B.H.P. and consigned to Order, but the relevant Bills of Lading have not yet arrived.
We hereby request you to deliver such goods to China Metallurgical I/E Shandong Company without production of the Bills of Lading.
In consideration of your complying with our above request we hereby agree as follows:-
1) To indemnify you, your servants and agents and to hold all of you harmless in respect of any liability loss or damages of whatsoever nature which you may sustain by reason of delivering the goods to China Metallurgical I/E Shandong Company in accordance with our request.
2) In the event of any proceeding being commenced against you or any of your servants or agents in connection with the delivery of the goods as aforesaid to provide you or them from time to time with sufficient funds to defend the same.
3) If the vessel or any other vessel or property belonging to you should be arrested or detained or if the arrest or detention thereof would be threatened, to provide such bail or other security as may be required to prevent such arrest or detention or to secure the release of such vessel or property and to indemnify you in respect of any loss, damage or expense caused by such arrest or detention whether or not the same may be justified.
4) As soon as all original accomplished Bills of Lading for the above goods shall have arrived and/or come into our possession, to produce and deliver the same to you whereupon our liability hereunder shall cease.
5) The liability of each and every person under this indemnity shall be joint and several and shall not be conditional upon your proceeding first against any person, whether or not such person is party to or liable under this indemnity.
6) This indemnity shall be construed in accordance with English Law and each and every person liable under this indemnity shall at your request submit to the jurisdiction of the High Court of Justice of England.
For and on behalf of:-
Jindalee Trading Co. Pty. Ltd.
[signature and Company seal]
Dr. R. Wang
Marketing Manager International.” (Emphasis added)
15 This letter was provided by Jindalee in response to a letter to Wang from Grierson of Pacific dated 4 July which relevantly reads:
“Regarding L.O.I. [letter of indemnity] for discharge, owners require such document on Jindalee letter head and with company stamp over signature.
To save you time we have typed up document using your letter head and enclosed for your signature.
Appreciate if you would kindly fax back signed document as soon as possible. Regards
Alistair.” (Emphasis added)
16 A number of other matters occurred on 4 July. The first was that Jindalee requested Westpac to negotiate the BOC letter of credit and Westpac agreed to do so. Also on that day, Jindalee issued a provisional invoice to CMIE in the sum of $US 1,754,662 comprised of the iron ore sale price of $US 917,276, freight of $US 786,500 and provisional interest for 112 days $US 50,886. Wang presented Westpac with bank drafts and invoices. These were handed to Hollowood at the Brisbane office. The Bank then checked the documents and noted two insignificant discrepancies which were amended.
17 On 6 July Westpac paid the Mount Newman Joint Venture and also paid the freight as requested by Jindalee. In return Hollowood received the documents called for by the BOC letter of credit. These documents, including the bills of lading, were then remitted to BOC on 6 July for acceptance. This litigation arises because BOC eventually refused to accept the documents and therefore to reimburse Westpac.
18 When the vessel arrived at Qingdao on the night of 10 July 1995, as had been anticipated by Jindalee and the shipping brokers the documents had not been received in China. Although there was a dispute in relation to the matter it appears reasonably clear that at the time the discharge commenced in the early morning of 11 July, Captain Klouvas, the Master of the vessel, had received a letter of indemnity given by CMIE. Discharge of the iron ore fines took place over several days and was completed by 11 am, Qingdao time on 14 July. The Jindalee letter of indemnity was not received by Captain Klouvas until some time after discharge had been completed. However, I am satisfied on the evidence, that the Jindalee letter of indemnity was received by Captain Zolotas, in the Athens office of Navalgalaxy, prior to 5 pm Qingdao time on 12 July 1995. At about that time I also accept that Captain Zolotas informed Captain Klouvas of the receipt of the Jindalee letter of indemnity. I am satisfied for reasons set out below that the discharge continued on the basis that the letters of indemnity sought by Navalgalaxy had been provided namely, the CMIE letter and the Jindalee letter.
19 It is convenient to note that the case advanced by Jindalee is that the act of conversion occurred early on 11 July when Captain Klouvas decided to allow discharge to commence against the CMIE letter of indemnity. The submission is then made that there was no reliance on the Jindalee letter of indemnity. By the time that Captain Klouvas was notified of the Jindalee letter of indemnity there had been a commitment to discharge, the commitment to discharge had been made on 11 July, and therefore there had been no reliance on the Jindalee letter of indemnity. For reasons given later I do not accept this submission.
20 It should also be noted, at this point, that Westpac’s case is that it was never aware at any material time of any proposal to discharge the cargo without production of the bills of lading. For reasons given later I accept this submission by Westpac.
21 By 14 July Westpac was anxious to know whether the documents sent to BOC on 6 July had been accepted by BOC and it wrote to BOC requesting confirmation of acceptance. On 17 July a follow up letter was sent and BOC then notified Westpac by fax dated 18 July that the documents were rejected due to three specific discrepancies. By that time, of course, the cargo had been discharged and disposed of and Westpac was unable to rely on its bills of lading as security.
22 Detailed inquiries were initiated by Westpac during the ensuing months. In the course of these inquiries Westpac said that it became aware for the first time that the cargo had been discharged against letters of indemnity. Westpac says that it was unaware until late 1995 of the proposal to release the cargo against letters of indemnity and that its security as holder of the bills had been destroyed as a consequence. Previously, it had been misinformed that there were other reasons for the unauthorised discharge.
23 The case for Navalgalaxy which is adopted by Jindalee, is that a copy of the Jindalee letter of indemnity of 4 July 1995 requesting discharge had been sent to Hollowood on that day. Hollowood denies this and there is no record of Jindalee’s letter of indemnity or reference to it in Westpac records relating to such a letter in the July period. On the basis of this letter it is said by Pacific that Westpac was aware prior to negotiating the letter of credit and making payment that letters of indemnity were to be used, and therefore Westpac must be taken to have agreed to this course or waived any rights it might otherwise have had in respect of the use of the letter of indemnity to obtain discharge. It is common ground that on or about 1 November 1995 a copy of the Jindalee letter of indemnity was sent by Pacific to Westpac as the result of a request by Westpac.
24 During October 1995, Westpac commenced negotiations with CMIE with a view to obtaining payment from CMIE in respect of the cargo. Mr Scott of Westpac’s Banking Relations Section gave evidence of these negotiations which ran from October through December of that year. On 13 December 1995 Mr Scott wrote to Ms Song of CMIE in the following terms:
“Dear Ms Song,
I refer to our recent discussions, and would like to summarise the agreement we have reached.
1. China Metallurgical Import and Export Shandong Company (CMIEC) acknowledge delivery of 60,500 tonnes of iron ore to the value of USD1,754,611.95. Payment for those goods was due to Westpac on 26 October, 1995.
2. CMIEC agree that Westpac has a claim upon the proceeds of sales of iron ore produced from the goods, and will remit these funds upon receipt.
3. CMIEC will give Westpac a progress report on sales of the export goods every two weeks, beginning 18 December 1995, and at other times when requested.
4. CMIEC expect to clear the debt by 31 March 1996.
5. The principal amount of USD1,754,611.95 will be debited to an account in the name of CMIEC. Any debit balance on the account is repayable on demand.
6. This account will bear interest on the outstanding debit balance as from 26 October 1995. The interest rate will be 7.5% pa until 31 March 1996 and is subject to variation after that date.
Westpac will send a statement of account as of the last business day of every month by fax to CMIEC.
Please sign a copy of this letter in confirmation of your agreement to the above understanding.
Christopher D Scott
Head of Banking Relationships” (Emphasis added)
25 In response to the last paragraph of that letter, Mr Scott received a copy of the letter, on 17 January 1996, initialled by Ms Song agreeing to the arrangements.
26 Two payments were received by Westpac from CMIE under this arrangement during February and March 1996 which totalled $US 699,970. Counsel for the owners of the vessel submit that this arrangement and the payments made by CMIE under it gave rise to either (i) an agreement which constituted an accord and satisfaction, (ii) an estoppel or (iii) a waiver, which operated to remove any claim Westpac might otherwise have against the vessel in conversion. No further payments were received by Westpac and the present action was commenced in October 1996.
Claim in conversion
27 Conversion has been described as an intentional exercise of control over goods which so seriously interferes with the right of another to control those goods that the person so acting may be required to pay its full value: see Fleming, The Law of Torts, 9th ed, 1998 at 60 ff. The test requires an intention to deal with the goods and to exercise dominion over them on behalf of someone other than the owner. It is not necessary that the person who converts the goods should be aware that there is interference with the rights of another. The emphasis is rather on an intentional act which has the effect of interfering with the rights of others. In order to succeed in conversion the plaintiff must be able to show an entitlement to possession or delivery of the goods as at the time of conversion.
Right to delivery
28 The first matter for consideration in the present circumstances is the nature and extent of Westpac’s right to require delivery of the cargo to it when it was unloaded in the period between 11 and 14 July 1995.
29 Westpac submits that, as the negotiating bank, it was the pledgee or equitable mortgagee of the cargo because it was the bearer of the bills of lading which had been delivered to it and endorsed in blank at the time when the discharge took place. It is well settled law that endorsement in blank of a negotiable bill of lading causes it to operate as a bearer bill. Westpac says that at the time of discharge in July, the bills of lading entitled it to call for delivery of the cargo and that this entitlement was wrongfully extinguished because the cargo was discharged by the Master without authority on the basis that letters of indemnity, of which it was unaware, had been provided by CMIE and Jindalee.
30 Westpac says that as a consequence of being furnished with the shipping documents upon negotiating the letter of credit and making payment on the drafts, it acquired a “special property” as pledgee in the cargo sufficient to entitle it to sue in conversion.
31 In response, the defendants submit that Westpac never acquired any right with respect to the goods. It was not a pledgee of the bills because there was no specific undertaking by anyone that the goods were to be pledged. The submission is that the relevant “contract” is the transfer of the letter of credit issued by BOC which calls for delivery of the bills of lading to BOC and not to Westpac. Further, so it is submitted, Westpac was not a confirming bank which undertook to become directly liable for the payment. The true position is said to be that Westpac is the bank which negotiated the letter of credit and that such negotiation did not give rise to any implied pledge over the goods represented by the bills of lading . Its right to recover was said to be against BOC provided it presented documents as required by the BOC letter of credit or against CMIE.
32 Letters of credit, which are provided for in relation to contracts for the sale of goods in international trade, are autonomous agreements in the sense that they are distinct from the contractual rights conferred by the underlying agreement for sale of the goods in question. Generally speaking the letter of credit must be honoured regardless of the rights which exist inter-se between buyer and seller in relation to the cargo itself: see Power Curber International Ltd v National Bank of Kuwait  1 WLR 1233 at 1241. Letter of credit transactions are primarily concerned with payment against documents and not with the quality or contractual terms which govern the quality or supply of the goods in question.
33 It is well settled law that a bearer bill of lading entitles the holder to call for possession of the goods. Where goods are delivered to a person other than the holder of the bill of lading then the person or corporation so delivering is exposed to risk of liability to the holder: see Sze Hia Tong Bank Ltd v Rambler Cycle Co Ltd  AC 576 at 586 where Lord Denning said:
“It is perfectly clear law that a shipowner who delivers without production of the bills of lading does so at his peril. The contract is to deliver, on production of the bill of lading, to the person entitled under the bill of lading. In this case it was ‘unto order ‘or his or their assigns,’ that is to say, to the order of the Rambler Cycle Company, if they had not assigned the bill of lading, or to their assigns, if they had. The shipping company did not deliver the goods to any such person. They are therefore liable for breach of contract unless there is some term in the bill of lading protecting them. And they delivered the goods, without production of the bill of lading, to a person who was not entitled to receive them. They are therefore liable in conversion unless likewise so protected.” (Emphasis added)
34 Navalgalaxy submits that it is only the issuing bank under a letter of credit which is entitled to security by way of pledge of a bill of lading. This is said to be because it is the issuing bank that is exposed to the risk of making payment in respect of the goods delivered to its customers. This is, so it is said, because if the goods are released without presentation of the bills of lading the customer may dispose of them and may not reimburse the issuing bank, thus exposing the issuing bank to liability. Accordingly, the security provided by the right to call for delivery is required. Westpac’s response is that the negotiation and payment by it in good faith, in honouring the bank drafts, had the effect of conferring on it a right to possession of the cargo by way of security and that this right was lost as a consequence of delivery against the letters of indemnity. The delivery of the documents to Westpac was not solely to enable it to collect from BOC, but entitled it to have the goods delivered to it if its debt was not satisfied. In other words it was not merely acting as an agent for collection which held the documents only for the purpose of collection of the debt from BOC.
35 In my view, Westpac was the negotiating bank and as such it acquired rights to claim against BOC: European Asia Bank AG v Punjab & Sind Bank (No 2)  1 WLR 642 at 657-60.
36 The bills of lading which were delivered to Westpac in early July, served several purposes. First, it was necessary to present the bills of lading to BOC in order to obtain payment by that bank, as issuing bank, in respect to the letter of credit. Second, the bills also served as security in respect of the cargo which was the subject of the bills of lading in the event that payment was not made by BOC. When Westpac received the bills and made payment for the cargo and freight, it acquired special property as the entity entitled to delivery of the cargo. The provision of the bills to Westpac as pre-condition of the negotiation and payment of the amounts due gave rise to an implied pledge of title in the goods represented by the bills. The rationale for implication of the pledge is that the furnishing of the bills of lading to Westpac as security was a condition on which payment of the purchase price and freight was made by Westpac. The entitlement to delivery conferred by the possession of the bills of lading operated to secure Westpac against the contingency that BOC or its customers might not pay. The position is usefully summarised in The Law of Bankers’ Commercial Credits, Gutteridge & Megrah, 1984 at 210 where the authors say:
“As regards the issuing bank such right [of resort to the documents of title for reimbursement of sums of moneys paid against them] is usually given by the agreement between it and its customer identified in the application for the credit. The intermediary bank has an implied pledge when it pays or negotiates documents tendered to it by the seller.” (Emphasis added)
37 Further authority in support of this proposition can be found in Guaranty Trust Co of New York v Hannay & Co  KB 536, Ross T Smyth & Co Ltd v T D Bailey Son & Co  3 All ER 60 at 68, and Pagets Law of Banking, 11th ed, 1996, at 694. Having regard to these authorities, in my view, at all material times during the discharge of the cargo between 10 July through 14 July 1995 Westpac, as the entity entitled to call for delivery of the cargo, had a sufficient right to the cargo to make it a pledgee and to support its claim in conversion against the vessel for wrongful delivery.
38 Several further submissions require consideration in relation to the claim in conversion.
Possession of bills of lading
39 First, it is submitted for Jindalee and the vessel that as at the time of unloading, Westpac had lost any right or interest under the bills of lading, which it might have otherwise acquired, when it forwarded the bills of lading on 6 July 1995 to BOC for acceptance. It is submitted that Westpac thereby surrendered possession of the title documents and that at the time cargo was discharged from the vessel Westpac was not a bearer or holder of the bills of lading. As at 11 July when unloading began it is said that the bills of lading were either in the course of delivery to BOC or were in the physical possession of BOC for acceptance. The documents appear to have been received by BOC on 11 July 1995. In relation to this question, it is important to note that both the advice documents sent on 6 July, with which the bills were enclosed for acceptance, together with the BOC letter of credit itself, incorporate the 1993 edition of the Uniform Customs and Practice for Documentary Credits (UCP500) (“the UCP”). The relevant UCP provisions are as follows:
“C. Liabilities and Responsibilities
Standard for Examination of Documents
(a) Bank must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit shall be determined by international standard banking practice as reflected in these Articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit.
Documents not stipulated in the Credit will not be examined by banks. If they receive such documents, they shall return them to the presenter or pass them on without responsibility.
(b) The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.” (Emphasis added)
Discrepant Documents and Notice
(a) When the Issuing Bank authorises another bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against documents which appear on their face to be in compliance with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are bound:
(i) to reimburse the Nominated Bank which has paid, incurred a deferred payment undertaking, accepted Draft(s), or negotiated,
(ii) to take up the documents
(b) Upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear in their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents.
(d) (i) If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditions means without delay but no later than the close of seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.
(ii) Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.
(iii) The Issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.
(e) If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return then to the presenter, the Issuing Bank and/or confirming Bank, if any, shall be precluded from claiming that the documents are not incompliance with the terms and conditions of the Credit.
…” (Emphasis added)
40 The provisions of the UCP recognise that until the documents are accepted and taken up by the issuing bank the bills of lading are to be held for return to the presenter. This position accords with the commercial reality of the present situation where the bills were to provide security to Westpac as negotiating bank until the documents specified in the letter of credit were accepted by BOC. The documents, in my view, were despatched on the basis that until acceptance they were to retain their character as security for the moneys paid out by Westpac. The possession of the bills did not move into a legal hiatus when they were despatched on 6 July. They did not pass into the “possession” of BOC. As it turned out the documents required by the letter of credit were never accepted. In my view, they therefore never left the legal possession of Westpac, notwithstanding that they were not physically in the hands of Westpac at the time when the discharge of cargo was carried out. It could not, in my view, be suggested that Westpac ever had any intention, imputed or otherwise, to surrender its security or possessory rights under the bills before acceptance by BOC. Until the documents were accepted by BOC Westpac remained at risk in relation to the moneys which it had paid as negotiating bank.
Notification of Westpac
41 A second issue, which raises a question of fact, is whether Westpac was notified on or before mid-July 1995 of any proposal to discharge the cargo against a letter or letters of indemnity without production of bills of lading. If the answer to this question is in the affirmative, then consequential questions arise as to whether Westpac impliedly agreed or consented to this course. If it did, so the argument runs, it could not maintain its claim in conversion.
42 The evidence for Westpac on this point was given by Hollowood. In her first affidavit she makes no mention of any letter of indemnity. In her second affidavit she denies any awareness that Wang was considering the use of offer of a letter of indemnity to obtain release of the cargo without production of the bills of lading. There is no record of Westpac in evidence to indicate that it ever received any letter of indemnity or of any proposal to use a letter of indemnity in substitution for presentation of the bills of lading to obtain discharge of the cargo. Hollowood said that she was unaware of any such letter and that she had no appreciation of the function of such a letter at that time. She denied receiving any fax of any letter of indemnity in early July 1995 from Pacific. The first time she saw any copy of the fax of the letter of indemnity dated 4 July 1997, was in November 1995. There was no evidence of any cover sheets or file notes of the sending of any such letter of indemnity. In cross-examination Wang said that she had no recollection of informing Hollowood in July 1995 that she had signed a letter of indemnity.
43 In her affidavit evidence Wang does not assert that she ever mentioned any letter of indemnity to Hollowood. Nor does she produce any record of Jindalee or herself in relation to any such notification. If she had considered it important to notify Westpac one would have expected some record to have been kept.
44 I found the evidence given by Wang to be generally unsatisfactory and unreliable. Among other matters, it became increasingly apparent that her recollection was unclear as to specifics in relation to vital matters. On many occasions, if not most, she sought to press her position to the Court rather than attempt to answer the specific questions posed. An examination of the transcript of the cross-examination of Wang demonstrates this latter point quite clearly. Although, not unnaturally, Hollowood’s recollection of the detailed specifics of the dealings was far from perfect, I prefer her evidence to that of Wang wherever there is any conflict as to matters which are not the subject of unchallenged records.
45 The witnesses called on behalf of Pacific to support the contention that a copy of the letter of indemnity was sent to Hollowood on 4 and 7 July were Grierson and Pyeburne. Grierson said that on 4 July 1995 he had a conversation with Wang in which she requested him to send the letter of indemnity to Westpac. He says that he asked his fellow principal, Pyeburne, to send it. No further discussion took place between himself and Pyeburne about that letter until early November 1995. There is no evidence on file with Pacific to directly support the contention that any copy fax of the letter of indemnity had ever been sent to Hollowood in July. Grierson said that he recollected seeing a copy of the fax on his company file shortly after 4 July with the words “To Michelle” on it. He also said that in late October 1995, Hollowood called him and asked him for a copy of the letter of indemnity. He says that he “automatically” told her he would send her another copy. Grierson conceded in cross-examination that his evidence was self-contradictory and misleading as to what he said to Hollowood in this respect. In other evidence he had indicated that he was unsure whether a copy of the letter had been sent to Hollowood and this makes it unlikely that he would have referred to “another” copy in November 1995. There is no cover sheet in the records of Pacific in respect of any fax of the letter of indemnity being sent on or soon after 4 July. There was no follow-up with any confirming or covering letter which would normally be expected in the case of such an important letter. There is no suggestion of any request for the agreement by Westpac to the use of letters of indemnity. Grierson agreed that shortly before the hearing before me he had discussed the letter of indemnity and the contents of Pacific’s file with Pyeburne.
46 Pyeburne’s evidence was that the file of Pacific produced in evidence had originally been kept in strict chronological sequence but that in the course of preparation for this hearing the chronological order had been severely disrupted as the result of examination by legal advisers and others. He said that his recollection was that he made the note“For attention Michelle” on the fax, with a felt pen around 4 July and that he would not have done so unless he was then going to send it. His evidence was clearly a reconstruction. He agreed that the transmission of the fax was not a matter of particular concern to him in 1995 and that he had no particular reason for remembering the letter of indemnity. He said that no record was made of any reference in October or November 1995 to sending “another” copy or of any conversation with Westpac. Moreover, the absence of confirmation to Wang that a copy of the letter had been sent to Hollowood on 4 July was not in accordance with the common practice of Pacific to confirm such correspondence. For example, the day before 4 July, a fax to Wang confirms the carrying out of instructions in relation to another matter. Pyeburne appreciated that the release of cargo against the letter of indemnity could significantly prejudice the bank’s security.
47 In my view, given its importance and the need to clarify the position with regard to the consent of Westpac, when altering the security position of Westpac in relation to its possession of the bills of lading, one would have expected that a satisfactory record would have been kept and that some explanation would have been given in writing. In my view, the evidence from Grierson and Pyeburne is unsatisfactory and is largely reconstruction. I do not accept it on this issue. I prefer the evidence of Hollowood to that of Grierson and Pyeburn. It is inherently unlikely that such an important document would have been sent to the bank without any explanation or without a request for consent. In this connection it must be borne in mind that Wang, Grieson and Pyeburne are persons of considerable experience in international trade and shipping.
48 In the light of the above, I find that the fax was not sent by Pacific nor was it received by Westpac in July 1995 and that any question of the bank’s prior assent, waiver or estoppel to the use of the letter of indemnity to obtain discharge of the cargo does not therefore arise. I find that the bank was not aware of the letter of indemnity until much later in 1995.
Clause 43 of charterparty
49 The bills of lading issued on 28 June 1995 nominated “Mt Newman Joint Venturers” as the shipper and “Stone Gemini” as the vessel. The bills of lading were executed by the Master on that date and were made to order. They were endorsed in blank. Clause 1 of the conditions of carriage in the bills provide that all terms and conditions of the charterparty are incorporated in the conditions of carriage.
50 The charterparty is dated 27 May 1994. The owner is described as Spearhead Marine Ltd of Nevis. The “Stone Gemini” is referred to as having been built in 1980; flying a Cyprus flag, and being owned by Navalgalaxy Shipping of Nicosia. Included in the “Additional Clauses” is cl 43 which provides:
“If original Bills of Lading cannot be presented before discharging, Owners/Master to discharge/release the entire cargo against Charterers Letter of Indemnity in Owners P and I standard form without Bank guarantee/bank endorsement to be presented to Master on berthing with copy to the Owner’s prior arrival of the vessel at discharging port.”
51 The letter of indemnity is designed to provide a remedy for a ship owner, where the Master releases cargo at the request of a party, in respect of claims which may be brought as a consequence of such release. It is not an authority by the holder of the bearer bill of lading for the ship owner to deliver the cargo to whoever produces a letter of indemnity. Long-standing statements of principle make it clear that delivery without receipt of the bills of lading will result in exposure to liability on the part of the vessel to the person entitled to possession of the bill of lading: see “The Stettin” (1889) 14 PD 142; Barclays Bank Ltd v Commissioners of Customs & Excise  1 Lloyd’s Rep 81 at 88-89; Sze Hai-Tong Bank Ltd v Rambler Cycle Co Ltd  AC 576; SA Sucre Export v Northern River Shipping Ltd, “The Sormovskiy 3068”  2 Lloyd’s Rep 266 at 270 ff; and Voyage Charters, Cooke et al, 1994 at 387.
52 Jindalee and Navalgalaxy submit that the effect of cl 43 is to entitle the Master to discharge the cargo against a letter of letters of indemnity. The response of Westpac is that it was not a party to either the charterparty or the bill of lading and its rights cannot be affected by the provisions of those documents. Moreover, there is no evidence that Westpac was ever aware of the provisions of cl 43 of the charterparty at any time prior to the completion of the discharge of the iron ore.
53 A further submission is that there is a customary right to discharge on a letter of indemnity in the absence of a bill of lading. Although there was evidence that it was not uncommon in the relevant period for discharge of cargo to be effected on production of letters of indemnity, this does not provide an answer to the plaintiff’s case in conversion. The fact that there is a practice that vessels will discharge against letters of indemnity cannot detract from the rights of the holder of a bill of lading. To reach such a conclusion would undermine the integrity of the bill of lading as a document representing the entitlement to take delivery of the goods. All that the practice indicates is that some owners are prepared to run the risk of being held liable for wrongful discharge of cargo should problems arise in relation to payment. This argument does not, it seems to me, advance the defendant’s case to any extent. This question was considered by Clarke J in “The Sormovskiy 3068” 2 Lloyd’s Rep 266. In that case the Court held that the defendants were prima facie liable to the plaintiff because they delivered the goods without production of an original bill of lading and without any attempt to explain why the recipient was entitled to delivery or what had happened to the bill of lading. At 274 Clarke J said:
“It makes commercial sense to have a simple rule that in the absence of an express term of the contract the master must only deliver the cargo to the holder of the bill of lading who presents it to him. In that way both the shipowners and the persons in truth entitled to possession of the cargo are protected by the terms of the contract.”
54 The decision refers to cl 46 of the charterparty there under consideration which had been incorporated into the bill of lading. That clause provided that ship owners could discharge the cargo against production of a bank guarantee if the original bills of lading were not at the discharge port in time for the vessel’s discharge. The incorporation clause was held to be wide enough to incorporate cl 46 into the bills of lading. However, Clarke J said at 274:
“The purpose of the clause was to ensure that the defendants would discharge the cargo even if the bill of lading was not available for presentation, but on terms that they would be protected by a letter of indemnity. It thus contemplated that they would be liable to the holder of the bill of lading if they delivered otherwise than in return for an original bill of lading.” (Emphasis added)
55 In other words, what his Lordship is saying in substance, is that, in terms the letter of indemnity acknowledges that delivery must be made to the holder of the bill of lading and that if this is not done there could be a claim for wrongful delivery for which the vessel may be held liable. In such circumstances the owners of the vessel can enforce the letter of indemnity.
56 Accordingly, in my view, cl 43 and its incorporation into the bill of lading cannot, on a proper consideration, provide a defence to wrongful discharge of the cargo against the letter of indemnity establishing the claim in conversion.
Effect of arrangements with CMIE
57 The next question raised is whether any claim which Westpac may have acquired against the ship in conversion was discharged or extinguished by arrangements made with CMIE in the letter of 13 December 1995 which resulted in the payments made in February and March 1996.
58 On their face, the arrangements between Westpac and CMIE which resulted in a total payment in that year of about $US 700,000 did not expressly release or discharge any rights against CMIE or any other party. If there is such a release or discharge it must arise by implication.
59 The agreement made was that CMIE would submit funds directly to Westpac as they were received from the sale of the products manufactured from the iron ore fines. The agreement required CMIE to pay Westpac a total amount of $US 1,754,612. This amount was never paid. The amounts paid under the arrangement with CMIE are not sought to be recovered from any of the defendants in the present proceedings. The debt owed by CMIE has not been satisfied by such arrangements. There has not been any judgment obtained by Westpac against CMIE. Nor can it properly be said there has been any election on the part of Westpac.
60 It is true that the letter of 13 December refers to Westpac and CMIE agreeing that Westpac has a claim upon the proceeds of sale of iron produced from the cargo. On the basis of this it is submitted for the defendants that Westpac thereby acknowledged that title to the cargo had legally passed to CMIE and those entities receiving the cargo for processing to iron ore. The consequence of this is said to be that it must be implied that Westpac has acted inconsistently with respect to its claim against the present defendants by acknowledging lawful title in these entities. That is said to be the basis on which the payments were made. It is said that Westpac cannot now maintain its case based on conversion because that claim presupposes an unauthorised delivery. The arrangement is said to have discharged the defendants from liability because Westpac has acted in a manner inconsistent with the basis of its present claim as to the unlawfulness of the delivery to CMIE. Put another way, Westpac cannot be allowed to approbate and reprobate.
61 I do not accept this submission. The 13 December letter, in terms, does not purport to authorise the conversion by either CMIE or the vessel. It is an agreement to pay Westpac from the proceeds of sale of iron ore received by the Chinese manufacturers. It cannot be “teased” out of this arrangement that Westpac agreed to release any claims it may have against other wrongdoers. From a broader perspective there must be a real or fairly imputed intention to make an election or waive the right. There can be little doubt that Westpac, in seeking payment from one of several wrong-doers, never had any actual intention to relieve the other wrong-doers from liability for funds which could not be recovered pursuant to its arrangement with CMIE. Nor is it reasonable to infer such an intention. The obvious inference as to intention must be that Westpac, at the time of entering into this arrangement, intended to recover as much of its losses as it could from each of those who contributed to them. It cannot be said, as a consequence of this agreement, for example, that BOC, Jindalee or the vessel were intended to be discharged from liability. Such a conclusion would be contrary to commercial common sense. There is no suggestion in the evidence that when it made the agreement with CMIE, Westpac gave any consideration to the question whether it was acting in a manner inconsistent with any rights which it had to claim against other wrong-doers. Lord Atkin in United Australia Ltd v Barclays Bank Ltd  AC 1 at 29, aptly put the matter as follows:
“… a man cannot waive a wrong unless he either has a real intention to waive it, or can fairly have imputed to him such an intention, and in the cases which we have been considering there can be no such intention either actual or imputed. These fantastic resemblances of contracts invented in order to meet requirements of the law as to forms of action which have now disappeared should not in these days be allowed to affect actual rights. When these ghosts of the past stand in the path of justice clanking their medieval chains the proper course for the judge is to pass through them undeterred.”
62 Nor was there any substance in the submissions as to waiver or estoppel because there is no unambiguous conduct on the part of Westpac to waive the conversion claim against the vessel or any claim it may have against Jindalee. The conduct of Westpac in relation to the arrangement with CMIE does not found an estoppel by conduct. Moreover, there is no evidence of any reliance by Jindalee or the vessel on the agreement or of any detriment to them occasioned by Westpac entering into the December agreement with CMIE. Indeed, the effect of the arrangement with CMIE was for the ultimate benefit of the other defendants because it reduced the claim which is brought against them.
63 For these reasons I do not accept the defences, advanced by the vessel and supported by Jindalee, which are based on any express or implied agreement to release any of the defendants from liability. Also, in my view, there is no substance in the defences of waiver, estoppel, or election arising from the conduct of Westpac in relation to its arrangement with CMIE and the partial implementation of this agreement up to the time of CMIE’s breach arising from its inability to pay the balance provided for in that agreement. The loss still remains unsatisfied to the extent of an amount in the order of $US 1 million.
Possible claim by Westpac
64 A submission was made on behalf of Jindalee to the effect that Westpac was not entitled to recover any loss against the vessel and/or Navalgalaxy because it had failed to exercise its rights under Article 14 of the UCP which relevantly provides:
Discrepant Documents and Notice
(d) (i) If the Issuing Bank … decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.
(ii) Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to the presenter.
(iii) The Issuing Bank … shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursements which have been made to that bank.
(e) If the Issuing Bank … fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank … shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.”
65 It is submitted that BOC did not reject the documents within the required period of seven days and that it was therefore prevented from asserting that it was entitled to refuse the documents and consequently that Westpac should have sought to recover against BOC on the letter of credit. Therefore it is submitted that because Westpac did not exercise this right to recovery arising under the UCP, it should not be entitled to recover its loss.
66 There are several answers to this assertion. The first is that it has not been established that the rejection of the documents in fact occurred outside the seven banking day period referred to in the Articles. The documents were received by BOC on 11 July 1995. The rejection fax was sent by BOC on 18 July 1995 but apparently did not come to the notice of Westpac until the following day. The evidence does not establish that the documents were not rejected within the seven banking day period. In particular, there is no evidence as to what were the relevant banking days in China at this time. Second, the existence of a possible cause of action against BOC under the letter of credit, which has never been instituted, does not affect the entitlement of Westpac to recover its full loss against the vessel, or its owner, in respect of a separate claim in conversion. Third, no action has been commenced against BOC and there is no material to support a view that any proceeding which might be brought would be likely to proceed or that any funds would be likely to be recovered. Furthermore, there is no evidence as to the content and application of Chinese law if the matter were to be pursued in Chinese courts applying Chinese law. Nor was there any indication in the evidence that BOC has any assets in Australia. For all of these reasons I do not accept the submission that the possibility of an action against BOC should have been pursued by Westpac, or that the loss incurred by Westpac was not caused by the act of conversion because of the possibility that proceedings might have been instituted against BOC.
Navalgalaxy’s claim against Jindalee and Wang
67 By its amended cross claim Navalgalaxy, as owner of the vessel, sues Jindalee and Wang. The claim against Jindalee is for breach of the 4 July letter of indemnity in not making payments as provided for in that letter. Related claims are levelled against Jindalee under s 52 of the TPA. The claim against Wang is on the basis that as a director of Jindalee actively engaged in providing the letter of indemnity she was a party to or was knowingly concerned in breaches of s 52. As a consequence Navalgalaxy seeks an indemnity for damages against those parties.
68 The first question raised by this submission is whether the Master of the vessel and Navalgalaxy relied on the Jindalee letter of credit when making the discharge. This question calls for a determination as to when, if ever, those in control of the vessel received a copy of the Jindalee letter and whether the letter had any operative effect in procuring the discharge of the cargo.
69 The vessel left Port Hedland on 28 June and arrived at Qingdao in the night of 10 July 1995. It was unable to commence unloading at that time but began to discharge the iron ore early in the morning of 11 July. When the discharge commenced Captain Klouvas, the Master, had received a letter of indemnity from CMIE and he began to discharge against that letter of indemnity. It is common ground that he did not call for the bills of lading. It was not until some months later that he first saw the letter of indemnity from Jindalee. Unloading continued until 14 July. However, on 12 July Captain Klouvas had a telephone conversation with Captain Zolotas who was located in the Athens office of Navalgalaxy. Captain Zolotas informed Captain Klouvas that he held a letter of indemnity from Jindalee. After this conversation discharge of the cargo continued. Jindalee and Wang do not accept that the Jindalee letter was held by Captain Zolotas on 12 July. Nor do they admit that it was received prior to completion of the unloading. In the alternative, they submit that the cargo was discharged in reliance on the CMIE letter of indemnity alone.
70 After considering the detailed evidence on this point I am satisfied that, at the latest, the Jindalee letter was in the possession of Captain Zolotas on 12 July by about 5 pm Qingdao time and that the conversation between Captain Zolotas and Captain Klouvas took place at about that time in the terms asserted. I am satisfied that Captain Zolotas informed Captain Klouvas of the contents of the letter. I am also satisfied that the Jindalee letter was relied on by Captain Klouvas in permitting the discharge of the vessel to continue. Although the letter was received at a time when the vessel was already unloading I consider that it was one of the operative reasons for allowing the unloading to continue and for the conversion of the iron ore to be effected.
71 A submission was made that on such a finding moneys can only be recovered from loss suffered arising from discharge after the conversation on 12 July because up to that time there had been no reliance on the part of the vessel on the Jindalee letter of credit. In my view, this distinction is artificial in the extreme. The discharge process was a continuous one. It is obvious from the fact that the Jindalee letter was drawn up and sent to Captain Zolotas in Athens that Wang understood that it was intended to be relied on. Indeed the communications between Pacific and Jindalee in early July 1995 make it clear that the Jindalee letter was “required by the owner” in a formal manner with the Company seal affixed. It is apparent from the request, made on its behalf, that the owners intended to rely on the letter. There is no evidence that this intention had varied by 11 July. Because of the continuing process of unloading it is necessary to look at the unloading as a whole and I consider the Jindalee letter was an important factor in deciding to allow the unloading process to continue. The Jindalee letter in terms was designed to enable the unloading of the vessel without production of the bills of lading and it achieved this purpose. The suggested analysis of liability in conversion, based on a pre and post 12 July responsibility is not realistic having regard to the continuing nature of the unloading process. The evidence given by Captains Klouvas and Zolotas accords with common sense and what might reasonably be expected in the circumstances with which they were confronted. I find that the Jindalee letter gave rise to a binding agreement and that it was relied on by Navalgalaxy in allowing the discharge of the cargo to the Chinese interests and that such reliance cannot realistically be apportioned.
72 The indemnity given by Jindalee to the vessel is cast in broad language and is sufficient to cover all losses which the vessel and those interested in her may incur as a result of discharge of the cargo pursuant to the letter. This would include for example all moneys payable to Westpac together with all other moneys expended or debts incurred by the vessel including, among other claims, the costs relating to arrest and custody; the provision of security and the costs and expenses of obtaining release. The indemnity is also extensive enough to covers the loss of hire and the other claims as set out in section D of the Final Submissions filed on behalf of the vessel on 12 November 1998
Westpac’s amended cross-claim against Jindalee
73 By its amended cross-claim Westpac claims that Jindalee engaged in misleading and deceptive conduct in breach of s 52 of the TPA and acted negligently. Essentially the conduct alleged is said to be that Jindalee without the knowledge and consent of Westpac misrepresented to the Master of the vessel that it was entitled to possession of the bills of lading or that it was authorised by the holder of the bills of lading to deal with the cargo. A further alleged misrepresentation is that Jindalee was entitled to execute the letter of indemnity and that those interested in the vessels would be indemnified in respect of any loss which they might suffer by reason of delivering the goods to CMIE without production of the bills of lading. The particular given of this allegation is a reference to the letter of indemnity of 4 July 1995. There is also a claim in breach of contract in that Jindalee contrary to the letter of indemnity failed to indemnify Westpac against loss brought against it by reason of Westpac negotiating the BOC letter of credit.
74 In order to consider these claims it is necessary to have regard to the terms of the Jindalee letter. The letter does not assert that Jindalee was authorised to deal with the cargo. It is only a request. It is silent as to ownership of the cargo and as to any authority to deal with the cargo. Properly characterised, in my view, it amounts to no more than a promise to indemnify. The letter of indemnity having been acted on according to its terms, operated as an effective and binding undertaking and there is no misrepresentation to be derived as to its nature or effect or as to the intention of Jindalee to honour that agreement. There are no misrepresentations by silence, implication, or conduct that Jindalee was entitled to execute the letter of indemnity.
75 Insofar as it is alleged that by the letter of indemnity, Jindalee agreed to indemnify Westpac against loss by reason of negotiating the letter of credit with BOC; this has not been made out on the facts. Westpac was not aware of the letter of indemnity in the relevant period. The letter of indemnity does not refer any losses or damage which Westpac might incur or suffer. It is addressed to the Master, the Owners and the Disponent Owner of the vessel and not to Westpac. The letter is a request and does not purport in any way to be an authorisation or an assertion of authority.
76 In my view, the letter of indemnity upon discharge gave rise to a binding agreement. It did not independently or collaterally make any misleading misrepresentation. There is no liability as claimed either in negligence or under the TPA or in breach of contract as alleged. This cross-claim is therefore dismissed.
Agreement to perform unlawful act
77 By a further amended cross-claim Westpac alleged that Jindalee and Navalgalaxy collaborated to perform a wrongful act namely; the release of the cargo on presentation of the letter of indemnity from Jindalee, which operated to cause loss to Westpac. This claim is not based on the tort of conspiracy. It is to the effect that there was an agreement to perform a wrongful act as a consequence of which Westpac suffered damage.
78 The evidence adduced falls far short of supporting this allegation. There was a request on behalf of the ship owner for a letter of indemnity in the event that the shipping documents were not available when the vessel arrived and discharge of cargo had been undertaken. This letter was provided by Jindalee. There is, in my view, no basis to make out an allegation that there was any arrangement, agreement or collaboration between Jindalee, Wang and Navalgalaxy to perform a wrongful act against Westpac. There was, as I have found, a conversion of the goods but I am not satisfied that there was any arrangement to deprive Westpac of its rights. On the evidence I find that the parties did not direct their attention to the impact of their conduct on Westpac’s rights. I therefore reject this claim.
79 On the last day of the hearing, in the course of addresses and after Westpac had presented its address, counsel for Navalgalaxy sought to file an amended cross-claim against Jindalee and Wang claiming contribution as joint tortfeasors on the basis of the collaboration arrangement alleged by Westpac which I refer to above. This amendment was not consented to and I reject the application. It was made far too late in these proceedings which began in 1996. Moreover there is no foundation in the evidence for a claim of collaboration or conspiracy to commit an unlawful act against Westpac giving rise to damages. Furthermore, I consider that there could be prejudice to Jindalee and Wang which may have adduced further evidence or considered their case differently if the amendment had been made at an appropriate time prior to the commencement of the hearing. Accordingly, I reject the belated application to amend the cross-claim against Jindalee and Wang as sought on behalf of those interested in the vessel.
Jindalee’s cross-claim against Westpac
80 Jindalee says that if it is held liable to the vessel under the indemnity or otherwise then Westpac is liable in damages for breach of contract or negligence and is liable to pay compensation under the TPA.
81 These claims are based on allegations that Westpac misrepresented to Jindalee that the shipping documents sent to it, in order to procure payment under the letter of credit, were in accordance with the requirements of the BOC letter of credit when in reality they were not. Furthermore, it is said that Westpac was negligent in not properly checking the documents against the requirements of the letter of credit and failing to inform Jindalee of discrepancies in the documents. It is asserted that the documents were not in conformity with the letter of credit and that if Jindalee had been aware of this prior to July 1995 it would have revoked its letter of indemnity.
82 The fax sent by BOC on 18 July 1995, which was apparently not received by Westpac until the following day, refers to three discrepancies in the documents as follows:
“1. Description of goods differ
2. Draft certificate and draft survey report
3. Unit price differs”
83 I now turn to briefly consider these discrepancies.
1. Description of goods differ – this is a reference to the fact that on page 2 of the Jindalee Provisional Invoice the word “deliverd” (sic) has omitted the letter (“e”). The clause reads:
“PHYSICAL SPEC: FINE ORE TO BE DELIVERD (sic) SHALL BE SIZED AT MOMINALLY (sic) BELOW 6.00 MM ON A SQUARE APERTURE SCREEN ON A NATURAL BASIS.”
84 Even taking the strictest approach to the requirement for compliance between description and documents furnished there is no substance in this claim. The error is obvious and in my view insufficient to warrant rejection.
2. Certificate of weight – The BOC letter of credit required a CERTIFICATE OF WEIGHT N DRAFT SURVEY REPORT. In fact, what was furnished was described as a Draft Survey Certificate of Weight. The letter of credit requires that the document be issued by the manufacturer or public surveyor. In fact, the draft survey certificate furnished was issued by Inchcape Testing Services (Australia )Pty Ltd. It is signed by the Master and by a surveyor, Mr K I Wang at Port Hedland.
85 In the interests of certainty in international trade it is clear that there must be strict compliance between the documents proffered and those specified in the letter of credit. The UCP500 in Article 14(b) provides:
“Upon receipt of the documents the Issuing Bank … must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents.”
86 The existence of a “sufficient” discrepancy is to be determined according to international standard banking practice as reflected in the UCP articles. Documents which appear on their face to be inconsistent with one another will be considered as not in compliance with the terms and conditions of the credit. The evidence before me is not sufficient to establish whether the documents comply on the applicable standards although prima facie my view is that the contention of significant discrepancy in relation to the certificate of weight has substance.
3. Unit prices differ – This again refers to the provisions of the Provisional Invoice where in the description of the net price there is a bracket omitted. So far as I can determine there is no significance in this bracket and it is not misleading in any way. I consider it to be so insignificant as not to constitute a relevant discrepancy in the documentation.
87 I am not satisfied on the material adduced in evidence that Westpac has failed to exercise reasonable care. It is not necessary however to reach any final conclusions on this question. Assuming a duty of care, the material presently before me is insufficient to persuade me that Westpac has been negligent in relation to its examination of the documents. A finding of negligence in the present case on the part of Westpac would require considerably more evidence as to the actual practice and procedure of Westpac in checking the documents and as to international standard banking practice, than is presently before me.
88 I do not accept that there was any duty of care or contractual obligation owed by Westpac to Jindalee when checking the documents. On the findings I have made, Westpac was unaware of the letters of indemnity at all relevant times. The effect of the letters, which were provided to the vessel without Westpac’s knowledge, was to deprive Westpac of an important security for the payment it made namely on 6 July. In these circumstances I do not accept that Westpac should have anticipated the non-acceptance of the documents so as to prejudice Jindalee. The letters were provided behind its back. The necessary proximity to ground a duty of care in negligence was lacking. I therefore dismiss this cross-claim.
Jindalee’s cross-claim against Navalgalaxy
89 Jindalee has cross-claimed against Navalgalaxy on the basis that Jindalee was induced to execute the letter of indemnity as a result of and on the face of the representations of Navalgalaxy. The misrepresentations were said to have been made by Grierson on behalf of Navalgalaxy. He is said to have represented and advised Wang that (i) the execution of the letter of indemnity was a normal and standard practice, (ii) it would not involve Jindalee in any harm or loss, (iii) no problem would arise, and (iv) that there was nothing to be worried about by Jindalee executing the letter of indemnity. In other words it is said that there was an implied representation by Grierson to Wang that the letter of indemnity was a formality and would not be enforced. It is also said that the representations were made with the intention that Jindalee would execute the letter of indemnity.
90 There are two obstacles to the success of this argument. The first is that the documents make it clear, and Wang conceded in cross examination, that Grierson was acting for Pacific as a ship-broker on behalf of Jindalee in the transaction and that she asked them for assistance as to what she should do. She said that this was because she had engaged them as brokers. They were her agents.
91 A second difficulty is that Wang agreed that Grierson said that there was no need to worry, and that the letter was in the standard form required by a P & I Club, the wording could not be changed, and that it would only be used for discharge. On a proper reading of the statement attributed to Grierson, it seems to me that he is indicating that there was no present reason to anticipate any difficulties. This, in my view, was an accurate statement as at early July 1995.
92 A further difficulty is that the evidence suggests the conclusion that there was no reliance by Wang on the statements by Grierson. She is a highly educated, astute and experienced person in relation to matters of international shipping and trade, with a considerable mastery of English. There is no doubt that Wang understood the purpose and effect of the letter of indemnity and that it would create a binding legal obligations on her. Indeed, she accepted this in cross-examination. I find that she did not rely on any statements by Grierson as asserted by her.
93 For the above reasons the cross-claim by Jindalee against Navalgalaxy must be dismissed.
94 I am satisfied on the evidence that the loss to Westpac was caused by the wrongful delivery of the cargo without presentation of the bills of lading. As to quantum, Westpac claims that the damages to which it is entitled is the difference between the amount paid under the letter of credit, less the amount received from CMIE, which results in a figure in the order of $1 million. The precise amount was not finalised in detail on the hearing or in submissions. The precise amount of the order for damages and any accrued interest can be considered when the matter is brought back with respect to the orders which are appropriate to be made in the light of these reasons. The effect of my decision is that Westpac is entitled to damages in conversion from the ship and those interested in it and those parties in turn are entitled to an indemnity from Jindalee under the letter of indemnity of 4 July.
95 I will not make any orders at this stage. I direct the parties to bring in Short Minutes within fourteen (14) days to give effect to these reasons and as to costs.
I certify that the preceding ninety–five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin
Dated: 14 April 1999
Counsel for Westpac Banking Corporation:
Mr S D Rares SC
Dr A S Bell
Solicitor for Westpac Banking Corporation:
Mallesons Stephens Jaques
Counsel for Navalgalaxy Shipping Ltd and
For The Ship MV “Stone Gemini”:
Mr M J Slattery QC
Mr G Nell
Solicitor for Navalgalaxy Shipping Ltd and for The Ship MV “Stone Gemini”:
James Neill Solicitor
Counsel for Jindalee Trading Co Pty Ltd and Dr Rosie Rosalind Wang
Mr A J Sullivan QC
Ms A Philippides
Solicitor for Jindalee Trading Co Pty Ltd and Dr Rosie Rosalind Wang
Cleary Hoare Solicitors
Date of Hearing:
12 October, 19 –23 October and 30 October 1998
Date of Last Submissions:
12 November 1998
Date of Judgment:
14 April 1999