Lariza (Singapore) Pte Ltd

- vs -

Bank Negara Indonesia 1946

Judgment

KC Lai J

1. In this case, the plaintiffs are seeking a declaration that they are entitled to be indemnified by the defendants against the claims of the plaintiffs’ sellers or, alternatively, the plaintiffs claim against the defendants damages quantified in the sum of US$128,000 for breach of contract or negligence.

2. The plaintiffs are traders in commodities, particularly in crude palm oil, and the defendants are bankers, with a branch in Singapore.

3. By two agreements concluded in early 1980 the plaintiffs had agreed to sell to Bakrie & Brothers (Singapore) Pte Ltd (Bakrie) two lots of unbleached crude palm oil in bulk of 3,000 and 2,000 metric tonnes at the price of US$627 and $670 per metric ton respectively. It was agreed between them that payment for the palm oil was to be effected by a transferable and irrevocable sight letter of credit, the opening of which was to be advised by another bank in Singapore, Bank of Canton.

4. At or about the same time, the plaintiffs had agreed to buy similar quantities of the palm oil, back to back, from Ban Lee Oil Mill Co (S) Pte Ltd (Ban Lee) at the lower prices of US$601 and US$645 per metric ton respectively.

5. The defendants eventually opened or issued the required transferable letter of credit in favour of the plaintiffs. On 19 February 1980, the Bank of Canton advised the plaintiffs of the opening of the letter of credit. The plaintiffs requested the Bank of Canton to transfer the letter of credit. But the Bank of Canton declined to do so. Four days later, the plaintiffs by letter requested the Defendants to transfer the benefit of the said letter of credit to Ban Lee, their suppliers. But on 7 February 1980, the defendants refused to comply with the request of the plaintiffs. The plaintiffs took the view that the refusal was wrongful. In the event, the plaintiffs did not take delivery of the palm oil from Ban Lee and therefore could not deliver them to Bakrie. In the meantime, Bakrie had become insolvent and was wound up. As was inevitable the plaintiffs were sued by Ban Lee in the High Court for damages for breach of the contracts of sale. Ban Lee obtained judgment with damages to be assessed against the plaintiffs.

6. The plaintiffs now claim against the defendants, who had issued the letter of credit, for breach of their alleged contractual duty in wrongfully refusing to transfer the letter of credit to Ban Lee and for damages for negligence.

7. In my judgment, the plaintiffs have no cause of action against the defendants as the issuing bankers of the letter of credit. A transfer of the letter of credit, as must be well known, involves a new contract between a bank and the intended transferee of the letter of credit. A separate letter of credit in favour of the transferee has to be issued. No contractual commitment on the part of the defendants having been made, the plaintiffs should have made their own contractual arrangements with their own bankers, usually the notifying bank, such as the Bank of Canton. An issuing bank of the letter of credit has no obligation whatsoever to enter into a new contract with an intended transferee. The defendants as the issuing bank only had the obligation to pay against conforming documents which were never tendered.

8. The claim in negligence must also fail. In my view, it is beyond dispute that no duty of care had arisen in the purely commercial context in this case.

9. I therefore dismiss the plaintiffs’ claims with costs.

Representation

Belinda Ang Saw Ean (Godwin & Co) for the plaintiffs.

CR Rajah (Tan, Rajah & Cheah) for the defendants.