VANATHAWILLUWA VINEYARD LTD v. COMMERCIAL BANK OF CEYLON

009-SLLR-SLLR-2008-V-1-VANATHAWILLUWA-VINEYARD-LTD-v.-COMMERCIAL-BANK-OF-CEYLON.pdf


68Sri Lanka Law Reports[2008] 1 Sri L.R
VANATHAWILLUWA VINEYARD LTDv
COMMERCIAL BANK OF CEYLONSUPREME COURTJAYASINGHE, J.
TILAKAWARDANE.J.
MARSOOF, PC, J.
SC CHC 31/1999HC CIVIL 27/1996 (1)
DC COLOMBO 12808 / MRNOVEMBER 10, 2005FEBRUARY 7, 2006APRIL 25, 2006MAY 8, 2006SEPTEMBER 25, 2006NOVEMBER 7, 2006DECEMBER 5, 2006JANUARY 16, 2007FEBRUARY 28, 2007MARCH 22, 2007
Commercial Transaction – Financing of Exports – Contracts of sale of goods ondocuments against payment (D/P) – Collection arrangement – Right of remittingBank discounting Bills to have recourse to exporter? – Bankers duty of care andduty to follow instructions? – Estoppel by representation? – Applicability ofUniform Rules of Collection (URC).
VWV Ltd shipped two consignments of gherkins to a buyer in Holland (K) on twomerchant vessels. The bills of lading issued by the vessels were made to theorder of Commercial Bank (CB). For procuring payment VWV Ltd drew on thebuyer K two bills of exchange payable to the order of CB at 'sight'. The Bills oflading were endorsed by CB with the words deliver to the order of Giro Van DeBank. On the instructions of VWV Ltd, CB discounted the two bills of exchangeand credited the VWV Ltd account with the equivalent of the value of the said billsof exchange in SL Rupees. The CB debited the account of VWV Ltd with therupee value of the bill of exchange, on the basis that the said bills of exchangehave been dishonoured. VWV Ltd instituted action to recover the rupeeequivalent of the value of the two bills of exchange that were debited by CB withinterest. The Commercial High Court held with the CB.
SC Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylongg
The plaintiff-appellant VWV Ltd contended that the action filed by the plaintiffshould be viewed as a case involving financing exports in the context of contractsof sale of goods on D/P terms involving a ‘collection agreement’, and thedefendant-respondent CB contended that this transaction should be disposed ofby applying the legal principles relating to discounting of bills of exchange. It wasalso contended by VWV Ltd that Giro Van De Bank was not a Bank in thecommercial sense, and the CB has acted negligently and without due care anddiligence in carrying out its duty/function of a remitting Bank.
Held:
The Commercial High Court has held that the payment for the said twoexports were on D/P terms and in the absence of any cross appeal by CB,the appeal has to be dealt on the basis that the transactions in questionwere on D/P terms.
There is a privity of contract between the exporter and the remitting Bankand also between the remitting Bank and the collecting bank but notbetween the seller and the collecting Bank, unless the seller contemplatesthat a sub agent will be implied and authorize the remitting Bank to createprivity of contract between himself and the collecting bank.
The relations between the seller and the remitting bank and between theremitting bank and the collecting bank will normally be governed by theUniform Rules of Collections (URC). These Rules have introduced privity ofcontract between the seller and the collecting bank because they providefor the rights and liabilities of the parties to collections to be establishedcontractually. The question as to the objectives of the remitting bank vis-a-vis the exporter, and the liability of the remitting bank for the wrongful actsand omission of the collecting bank have to be considered in the light of theprovisions of URC 1978.
It is the duty of the remitting bank to keep track of the bills sent fornegotiations to the collecting bank and to give instructions in regard to thehandling of the documents. In the event that the bills of exchange aredishonoured by non-acceptance or non payment, it is the duty of thecollecting bank to return all the documents including the bills of lading to theremitting bank from which the collection order was received.
The CB has failed to discharge its responsibilities as a remitting bank interms of the URC Rules. The remitting bank cannot take refuge in theinstructions given by the customer, if it had failed to act in good faith andwith reasonable care or acted in reckless disregard of the procedure set outin the URC Rules.
This case has to be dealt with as one involving a collection arrangement,the fact that the bills of exchange were discounted by CB does not changethe character of a documentary collection.
70Sri Lanka Law Reports[2008] 1 Sri L.R
A bill of lading represents the goods to which they relate, so that the transferof the bill of lading of itself constitutes a transfer of the goods themselves. Itis not like a bill of exchange or promissory note, a negotiable instrumentwhich passes by mere delivery to a bona fide transferee for valuableconsideration without regard to the title of the parties who make the transfer.The Maxim 'memo dat quod non habet'does not apply to a bill of lading infavour of the shipper even against a bona fide purchaser for value.
Under a collection arrangement the bill of lading is held as security forpayment of the price and should only be released against payment.
Per Saleem Marsoof P.C. J
“It is clear from Article 20 of URC 1978 that the remitting bank should act incollaboration with the collecting bank and must give timely and appropriateinstructions to the latter regarding the handling of the documents, it is alsocontemplated that if no contrary instructions are received from the remittingbank, the documents should be returned to the bank from which thecollection order was received”.
Held further
Per Saleem Marsoof P.C. J
“In order to succeed with a defence based on estoppel, the person raisingthe plea should establish that by reason of the representations he was ledto believe that the said representation was true and acted thereon to hisprejudice, it is obvious that the state of mind and the conduct of the personwho raises the plea of estoppel is of great relevance, and which the plea israised by a party that does not lead any evidence in support of it, the pleacannot succeed”.
The trial Court was in error in holding that VWV Ltd was estopped fromdenying that Giro Do Van de bank was a bank by reasons of the instructionsgiven.
APPEAL from the Commercial High Court – Colombo.
Cases referred to:
Harlow & James Ltd v American Express Bank Ltd – 1990 – 2 LloydsReport 343 at 349
Minories Finance Ltdv Afribank Nigara Ltd- 1995 – 1 Lloyds Report 134at 139
Scholar v National Westminster Bank Ltd 139- 1920 2 QB 719
Commercial Banking Co. of Sydney Ltd v Jalsard (Pvt.) Ltd 1974 – AL 279
Redomons v Allied Irish Bank PLC – 1987 – 2 KTLR 264 at 266
Honourable Society of the Middle Temple v Lloyds Bank – 1999 – 1 All ER(common) 193
SCVanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon71
(Saleem Marsoof, PC. J.)
Linklaters (afir) v HSBC Bank Ltd- 2003 – EWAC 1113 (common), 2003All ER (D) 345 (May)
Calico Printers Association Ltd. v Barclays Bank 1931 – 145 LT 51
Boastone & Firminger Ltdv Nasima Enterprises (Nyma) Ltd- 1996 – CLC1902 at 1908
RE Johns Ltd v Waring & Gillow Ltd 1926 – AL 670
Sze Hai Tong Bank v Rambler Ceyde Co Ltd – 1959 – AL 576 at 586
The Honda – 1994 – 2 Lloyes Rep 541 at 553(12a) Gurney v Behrend – 1854 3 E&B 622 at 633.
The Prinz Adalbert – 1917 – AL 586
H. M. Procurator – General – v Me Spencer Controller of Mitsui &Company Ltd -1945 A) 124
Maclaine v Catty – 1921 1 AL376 381 (H.L)
Hirdaramani Ltd v De Silva – 55 NLR 294
K. Kanag Iswaran PC with Dr. Harsha Cabral PC and Ms. Dilrukshi Boteju forplaintiff-appellant.
Romesh de Silva PC with Hiran de Alwis and Shanaka Cooray for defendant-respondent.
February 27, 2008SALEEM MARSOOF, PC. J.
This is an appeal from the decision of the Commercial HighCourt dated 12th July 1999 dismissing the action filed by the plaintiff-appellant Vanathawilluwa Vineyard Ltd., against the defendant-respondent Commercial Bank of Ceylon Ltd., with costs.Vanathawilluwa Vineyard Ltd., hereinafter referred to as the ‘VWVLtd.’ is a company incorporated in Sri Lanka, engaged in the export ofGherkins-in-Brine to USA, Europe and Australia. It is claimed thatVWV Ltd. enjoyed 60% of the market share in exports to Belgium and50% of the market share in exports to Holland. The Commercial Bankof Ceylon Ltd., hereinafter referred to as the 'Commercial Bank,’ is abank incorporated in Sri Lanka of which VWV Ltd. is a customer.
The facts material to this appeal may be briefly stated as follows:On 4th July 1990 and 14th August 1990 VWV Ltd., shipped twoconsignments of gherkins to a buyer in Holland named Hans VanKilsdonk on two merchant vessels 'MV CGM Rimbaurd’ and ‘MV
72Sri Lanka Law Reports[2008] 1 Sri L.R
Rubelend’ respectively. The bills of lading issued by the said merchantvessels were made to the order of the Commercial Bank, the port ofdischarge being Antwerp. The name and address of Hans VanKilsdonk also appear in the two bills of lading in the column meant forthe address of notification. It is common ground that for procuringpayment for the aforesaid consignments of gherkins, VWV Ltd. drewon the buyer Hans Van Kilsdonk two bills of exchange respectively forNetherlands Guilders 46,800.00 (P4) and 40,800.00 (P5) payable tothe order of the Commercial Bank ‘at sight’. Admittedly, the bills oflading were endorsed by the Commercial Bank with the words“Deliver to the order of Giro Van De Bank’. It is the position of theCommercial Bank that the said endorsements were made asinstructed by VWV Ltd. in the covering letters marked ‘P6’ and ‘P7’signed by the Director of VWV Ltd., with which the said bills of ladingand bills of exchange were submitted to the Commercial Bank fornegotiation. In view of the importance of these letters, which weresubstantially similar, the undated letter marked ‘P6’ that related to thefirst of the two shipments, is quoted below in full –
“Vanathawilluwa Vineyard Ltd.,
441/1 A, Razeendale Gardens,Colombo 4.
The Manager,
Commercial Bank of Ceylon Ltd.,
Wellawatte Branch,
Colombo 6.
Dear Sir,
HO LICENCE NO. CL71890/04772
We forward herewith final documents for negotiation by your OutwardBills Dept., Bristol St., Colombo 1. Kindly set off 5% of the Fob Value(US$. 1,627.50) as broker’s fee as shown in our abovementionedlicence and remit same by TfT to the under mentioned, and arrangefor the balance proceeds to be credited to our A/C 5820 (WellawatteBranch):-
SC Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon73
(Saleem Marsoof, PC. J.)
MICHAEL L. JONES,
A / C 232 096799Security Pacific National BankNEWBURRY PARK OFFICE 0232NORTH REINO ROAD,
NWBURRY PARK,
CALIFORNIA 913220, U.S.A.
Please courier the original documents to the under mentioned Bankand debit charges to our account:-
GIRO VAN DE BANK, KAMER VAN KOOPHANDEL
ODRDRECHT NR. 55988
HOLLAND.
Thanking you,
Yours faithfully,
VANATHAWILLUWA VINEYARD LTD.,
Sgd / Ms. V. Viswakula,
Director.”
On the instruction of VWV Ltd. the Commercial Bank discountedthe two bills of exchange and credited the account of VWV Ltd. withthe equivalent of the value of the said bills of exchange in Sri LankaRupees. The dispute that gave rise to this action and appeal arosefrom the subsequent decision of the Commercial Bank to debit theaccount of VWV Ltd. with the rupee value of the bills of exchange, onthe basis that the said bills of exchange have been dishonoured.
VWV Ltd., instituted this action on 23rd November 1992 to recoverthe rupee equivalent of the value of the two bills of exchange thatwere admittedly debited by the Commercial Bank but also the furtheramount charged by the bank as interest totaling to Rs. 2,377,759.72and Rs. 1,433,286.01 respectively, together with interest at 28 % from1st November 1992. This action was filed on the basis that ‘Giro VanDe Bank was not a bank in the commercial sense and that the
74Sri Lanka Law Reports[2008] 1 Sri L.R
Commercial Bank had acted negligently and without due care anddiligence in carrying out its duty and function of a remitting bank VWVLtd. alleged that the Commercial Bank had released the bills of ladingand the other shipping documents to the said buyer wrongfully,unlawfully, negligently, without due care and without collectingpayment thereon, and was therefore not entitled to debit the accountof VWV Ltd.
At the trial which commenced in the District Court of Colombo,twenty issues were settled on 2nd November 1995, and by reason ofthe transfer of jurisdiction to the Commercial High Court in terms ofthe High Court of the Provinces (Special Provisions) Act, No. 10 of1996, the trial was thereafter continued in the Commercial High Courton the same issues. It is unnecessary for the purpose of this appealto set out in full all the issues on which the case went to trial, as themain thrust of the case of VWV Ltd. is embodies in issue No.10 raisedon its behalf, and which is quoted below-
“10. Has the defendant-bank having discounted the said Bills‘P4’ and ‘P5’ acted negligently and without due care anddiligence in carrying out its duties and functions as aremitting bank?”
The position of the Commercial Bank was simply that the bills oflading and the bills of exchange were sent to the Giro Van De Bank incompliance with specific instructions received from VWV Ltd. in 'P6’and ‘P7 and that in these circumstances, it cannot be liable for anyloss that may have been sustained by VWV Ltd. The defence of theCommercial Bank is crystallized in issues 14, 15 and 16 which arequoted below-
“14. At all time material to this action, was the defendant entitledto and / or obliged to follow instructions given by the plaintiff.
15. (a) At all times material to this action did the defendant actas the agent of the plaintiff on whose behalf the Billsreferred to in the plaint were sent for collection.
(b) If issue 15(a) is answered in the affirmative is thedefendant not liable for the loss and damage, if any,caused thereby.
SQ Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon75
(Saleem Marsoof, PC. J.)
16. (a) By letters marked “P6” and “P7" did the plaintiff givespecific instructions to the defendant to send the saidBills and documents by courier to the address satedtherein.
If so, did the defendant comply with the said specificinstructions?
If issues 16 (a) and (b) are answered in the affirmativecan the plaintiff have and maintain this action.”
The other substantial defence taken up on behalf of theCommercial Bank relating to estoppel was formulated as issue No.18, and will be considered later in this judgement. Issue No. 19 raisedon behalf of the Commercial Bank related to the question ofprescription, but the issue was answered against the CommercialBank by the learned trial Judge, and the Commercial Bank has notappealed. At the trial before the Commercial High Court,Sachyarachchige Don Cyril Jiasena Perera, a banking expert, VerenaNirmalee Viswakula, the Director of VWV Ltd. and Nimal Perera,Director of Aitken Spence Shipping Ltd. gave evidence on behalf ofVWV Ltd. The latter was only a formal witness called to prove certaindocuments marked subject to proof.
The Pivotal Issue
The submissions of counsel throughout the argument of thisappeal focused on one pivotal issue, namely whether the action filedby VWV Ltd. should be viewed, as suggested by President's Counselfor the said company, as a case involving the financing of exports inthe context of contracts of sale of goods on ‘Documents againstPayment' (D/P) terms involving a ‘collection arrangement', or shouldbe treated, as contended by learned President's Counsel for theCommercial Bank, as one that can simply be disposed of by applyingthe legal principles relating to discounting of bills of exchange.
Learned President's Counsel for VWV Ltd., submitted that theappeal should be considered in the broader context of transactionsbased on ‘documentary bills’ which necessarily involve somecollection arrangement. He has quoted extensively from Schmitthoff’sExport Trade (10th Edition) and relies heavily on the followingpassage from page 145-
76Sri Lanka Law Reports[2008) 1 Sri L.R
‘The most frequent payment methods in which banks areinvolved are a collection arrangement or payment under a letterof credit. In a collection arrangement the bank receives itsinstructions from the seller. The exchange of the documents oftitle representing the goods and the payment of the price isnormally effected at the place at which the buyer carries onbusiness. Conversely, in the case of a letter of credit theinstructions to the bank usually emanate from the buyer. Theexchange of the documents and the price is normally effectedat the seller’s place of business. A considerable amount ofbusiness is transacted under letters of credit under which thebanker, on the instructions of the buyer, promises to accept,honour or negotiate bills of exchange drawn by the seller. Boththese methods, the collection arrangement and the letter ofcredit, enable the interposed bank or banks to use thedocuments of title as a collateral security.”
In regard to the ‘collection arrangement’ on which this action isalleged by VWV Ltd. to be based, learned President’s Counsel forVWV Ltd. submits that it is usual for the exporter to ask his bank toarrange for collection of the price by presenting the bill of exchangefor acceptance and / or payment, and that the bank will carry out thistask through it’s own branch office abroad or a correspondent bank inthe buyer’s country. He further submits that banking practice relatingto collection arrangements is contained in the Uniform Rules forCollection, and that at the relevant time it was the 1978 version ofthese Rules that were in force. He submits that the provisions of theseRules will have to be carefully examined and applied.
As against these submissions, learned President’s Counsel for theCommercial Bank contends that even if the transactions wereconsidered to be in the broader perspective as contended on behalfof VWV Ltd., some significance must be given to the issuance of thebills of exchange and the role played by the bills in the context of thetransaction. He submits that the bills of exchange in fact relates to themethod of payment, and is autonomous from the underlying sale ofgoods transaction. He quotes from Ross Cranston’s book, Principlesof Banking Law (2nd Edition) in which under the head The UnderlyingTransaction’ at page 381, it is observed that –
Sq VanathawMuwa Vineyard Ltd v Commercial Bank of Ceylon77
(Saleem Marsoof, PC. J.)
"If the bank, having bought a trade bill and still holding it, seekspayment from the buyer or acceptor on its maturity, can it bedefeated by any claim which the buyer had in relation to theunderlying contract – failure of consideration, late or defectiveperformance and so on? In general, the bank, as holder in duecourse of the bill, holds the bill free from any defect of title ofprior parties, as well as mere personal defences available toprior parties among themselves. So whatever claims theimmediate parties to the bill – the buyer and supplier – might beable to raise in proceedings between themselves, the bankwould not be troubled by them.”
Learned President’s Counsel submits that in the instant case, thebills of exchange were included as a part of the transaction so that ifthe buyer does not pay on the bills drawn on him, the exporter asdrawer of the bills is obliged to make payment to the bank.Accordingly, if the drawee fails to honour the bill, the exporter asdrawer is liable qua surety to the discounting bank. He submits thatthe remitting bank that discounts any bills of exchange has theultimate right of recourse to the exporter.
I have no doubt in my mind that while the aspect of discounting ofthe bills of exchange is relevant, this case should be dealt with in thebroader perspective of the financing of an international tradetransaction.
D/P terms and URC
A question of fundamental importance that arises in thisconnection is whether the sale of gherkins to the buyer in Holland wason ‘Documents against Payment’ (D/P) terms. The trial court hadformulated the issue as follows-
“2 (a) was payment for the said two exports on D/P terms?”
It is the case of VWV Ltd., that the two consignments of gherkinswere sold on ‘Documents against Payment’ (D/P) terms and that thehandling of documents relating to these transactions was governed bythe Uniform Rules for Collections, 1978 Revision (ICC Publication No.322). The Uniform Rules for Collections (URC) apply if incorporatedinto the contracts by the parties, whether expressly or by course ofdealings or simply by the international custom and practice of
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bankers. See Harlow & Jones Ltd. v American Express Bank LtdSVat 349, per Gatehouse J; Minories finance Ltd. v Afribank Nigeria
LtdS2) at 139, per Longmore J. Fortunately, it is not necessary to gointo the question of the applicability of URC 1978 to the collection inthis case, as ‘the Commercial Bank has in paragraph 13(c) of itsanswer admitted that URC is applicable, and in fact, both learnedPresident’s Counsel appearing for VWV Ltd. and the CommercialBank have relied extensively on the provisions of URC 1978, whichthey have agreed apply to the case.
However, the Commercial Bank did not admit the position that thetransactions were on 'Documents against Payment terms’. At the trial,the testimony of Verena Nirmalee Viswakula, who was a Director ofVWV Ltd., to the effect that the sale was on Document againstPayment (D/P) terms, was not challenged in cross-examination. Infact, Sachyarachchige Don Cyril Jiasena Perera, who was called onbehalf of VWV Ltd. as a banking expert, testified that when a bill ofexchange is used as a financing document and is drawn for paymenton sight, it signifies payment on D/P terms. The learned CommercialHigh Court Judge has in his judgement dated 12th July 1999answered issue No. 2 (a) in the affirmative, and in the absence of anycross-appeal by the Commercial Bank, this court has to deal with thisappeal on the basis that the transactions in question were on D/Pterms.
The Duty of Care v the Duty to follow Instructions
Two well-known duties of bankers and agents that are generallycomplementary to each other, come into loggerheads in the intriguingcircumstances of this case. VWV Ltd. contends that havingdiscounted the bills of exchange marked ‘P4’ and ‘P5 theCommercial Bank acted negligently and without due care anddiligence in carrying out its functions as a remitting bank in forwardingthe documents for collection to Giro Van De Bank, which was in factnot a ‘Bank’ in the commercial sense. The Commercial Bank withequal force argues that in sending the documents for collection to GiroVan De Bank, it simply acted in accordance with the instructions ofVWV Ltd contained in the letters marked ‘P6’ and ‘P7’.
In this case, it is common ground that VWV Ltd has given expressand clear instructions to the Commercial Bank to forward the
SC Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon79
(Saleem Marsoof, PC. J.)
documents to Giro Van De Bank for collection. Learned President’sCounsel for the Commercial Bank has submitted that as the agent ofVWV Ltd. and as the remitting bank, the Commercial Bank wasobliged to obey the specific instructions of VWV Ltd. While learnedPresident’s Counsel for VWV Ltd. strenuously argued that theCommercial Bank, as the remitting bank, was bound to exercise ahigh degree of care and was under a duty to verify whether the “bank”nominated by VWV Ltd., in fact existed, and to satisfy itself of itsstanding and ability to function as the ‘collecting bank’, learnedPresident’s Counsel for the Commercial Bank submitted the contrary.
Before going into the legal issues, it may be useful to consider theevidence placed before the trial judge in regard to the conduct of theparties. The main witness called to testify on behalf of VWV Ltd. in thisconnection was Verena Nirmalee Viswakula, the Director of VWVLtd., who testified in detail about the transactions in question. Itappears from the testimony of this witness that instructions relating tothe first shipment of gherkins were given to the Commercial Bank bythe undated letter *P6’ in consequence of which the Bank discountedthe bill of exchange marked ‘P4’ and the account of VWV Ltd., wascredited with a sum of Rs. 1,381,614.00 on 9th July 1990. Thereafter,on account of the second shipment regarding which the instructionswere given by a letter dated 16th August 1990 marked 'P7 the bill ofexchange marked ‘P5’ was also discounted by the Bank and a furthersum of Rs.880,275.25 was credited to the account of the saidcompany. The aforesaid amounts were credited to the account ofVWV Ltd. after discounting the ‘on sight’ bills of exchange marked ‘P4’and ‘P5’ drawn on Hans Van Kilsdonk, the buyer of the gherkins inHolland and made payable “to the order of Commercial Bank ofCeylon Ltd.” The account of VWV Ltd. was credited with the rupeevalues of the said bills of exchange less brokers fees, and the witnessexpected that the bills of exchange will be dispatched to Giro Van DeBank along with the bills of lading for collection.
The witness testified that she was perturbed when there was nointimation of payment on the bills of exchange and that around 16thor 17th August 1990 she got to know from the Manager – Exports ofthe Commercial Bank that no payment has been received on accountof the first shipment. She thereafter requested the Manager – Exportsto follow up with the Giro Van De Bank, and she produced in evidence
80Sri Lanka Law Reports[2008] 1 Sri L.R
a copy of the letter dated 17th August 1990 (P10) by which theManager – Exports of the Commercial Bank drew the attention of theManager of the Giro Van De Bank regarding the payment due on thefirst shipment. In fact the said letter refers to "a tele-inquiry of29/7/1990 for fate thereof.” This clearly shows that even on 17thAugust 1990, the Commercial Bank was under the impression thatthe Giro Van De Bank was a bank in the commercial sense.Thereafter, she got to know from the shipping agent, Aitken SpenceShipping Ltd., that the cargo on the first shipment had been deliveredon 23rd August 1990. When she communicated this information to theCommercial Bank and asked the Bank to find out how the gherkinswere delivered without payment, she was informed by the Manager -Marketing of the Commercial Bank, for the first time, that there was nobank by the name Giro Van De Bank and that consequently the buyerhad been able take delivery of the gherkins without payment.
When the account of VWV Ltd. was thereafter debited the witnessaddressed a letter dated 19th October 1990 (P13) to the CommercialBank in which significantly she states as follows –
“We negotiated our documents with you as our Bankers(Buyer’s Bank) under a complete fiduciary relationship to obtainpayment on further negotiating the ‘title to the goods’.
In the circumstances, kindly refrain from debiting our accountuntil you revert the ‘title to the goods’ negotiated through you.
Please expedite the returning of the documents within anotherweek as the goods are of perishable nature and necessaryaction has to be taken to recall the goods as soon as possible.”
The only response she received from the Commercial Bank wasthe letter dated 24th October 1990 (P14) by which she was calledupon to settle the sums of Rupees 1,381,536.00 on account of the firstshipment and Rs. 881,198.25 on account of the second shipment andfurther informed that the company account would be debited withthese amounts if she fails to settle. She further testified that thecompany account was thereafter debited with the aforesaid amountswrongfully and unlawfully.
Witness Viswakula could not produce the original bills of ladingand testified marking in evidence photo-copies thereof she hadobtained from the respective shipping agents and produced in
Sq Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylong1
(Saleem Marsoof, PC. J.)
evidence without objection. The witness took pains to point out thatthe endorsements of the Commercial Bank on the reverse of the saidbills of lading marked ‘P2’ and *P3‘ had been made using a rubberstamp where the words “Pay / Deliver to the Order of’ appear to bestamped, below which the words “Giro Van De Bank” have beeninserted in the hand writing of the Authorized Signatory above hissignature. The witness emphasized that the world “Pay" has beenscored off in ink at the time when the signature was placed, whichsignificantly may have facilitated the taking of delivery of the cargowithout making payment.
She also produced copies of the letters dated 8th February 1991addressed by the Commercial Bank to Aitken Spence Shipping Ltd(‘P18’), agents for Nedloyd Lines owning 'MV CGM Rimbaurd’ and toFreudenberg Shipping Agencies Ltd (‘P19’), agents for Happag-Lloydowning ‘MV Rubeland’ claiming damages for the wrongful delivery ofthe gherkins without due endorsement of the relevant bills of lading byGiro Van De Bank. She also produced copies of the responsesreceived from the owners of the said vessels, namely, the letter dated19th March 1991 (‘P20’) from Happag-Lloyd and the letter dated 16thApril 1991 (‘P21’) from Nedloyd Lines. It is admitted by the owners ofthe vessels in these letters that the gherkins were delivered to thebuyer, Hans Van Kilsdonk, without due endorsement on the bills oflading by Giro Van De Bank. As justification for the said action of thecarriers, it is expressly stated in both letters that there is no bank inexistence with the name ‘Giro Van De Bank.’ Additionally, it is statedin the letter of Hapag-Lloyd (‘P20’) that the words ‘Giro Van De Bank’in Dutch meant “account of the bank" and consequently theendorsement was taken as “an order to deliver the goods to the holderof the bill of lading for the account of the Bank (i.e. the CommercialBank of Ceylon Limited)”. The witness testified that the originals of thebills of lading, which had ben submitted by VWV Ltd with ‘P6’ and ‘P7’to the Commercial Bank for negotiation, were at no time returned tothat company. She claimed that in these circumstances, theCommercial Bank had not properly discharged its duties as theremitting bank and that the debiting of the account of VWV Ltd.without returning the original bills of lading was wrongful and unlawful.Under cross-examination she admitted that the said bills of lading hadbeen sent To Giro Van De Bank in accordance with her instructionsgiven in ‘P6’ and ‘P7’.
82Sri Lanka Law Reports[2008] 1 Sri L.R
The other witness called on behalf of VWV Ltd. wasSachyarachchige Don Cyril Jiasena Perera, who admitted undercross-examination that he only has “a hazy idea” about the facts of thecase, and was justifiably treated by the trial judge as “an expert withregard to banking practice only.” The gist of his testimony was thatGiro Van De Bank was a money transfer system and was not acommercial bank listed in the Bankers' Almanac. According to him, ifthere was any doubt in the mind of a remitting banker regarding theexistence or standing of an entity such as the Giro Van De Banknamed as a collecting bank, he should have the matter verified, andif necessary, negotiate the documents through his own correspondentbank. He expressed the opinion that in the event of a dishonour of adiscounted bill of exchange, the discounting bank has recourse to thedrawer of the bill only after returning the original shipping documentsincluding the bill of lading. However, it is noteworthy that under cross-examination he admitted that in the event of dishounour of the bill, theremitting bank is entitled to debit the customer’s account for the valueof the discounted bill, after giving notice of dishonour to the drawee.
It is significant that the Commercial Bank, which was in the bestposition to explain the circumstances in which the bills in questionwere dishonoured, chose to close its case without leading anyevidence. However, it appears that VWV Ltd. and the CommercialBank had believed that Giro Van De Bank was a bank which wouldcollect the proceeds of the bills of exchange as is customary in thiskind of international commerical transaction, although it wasadmittedly not listed in the Bankers’ Almanac.
Learned Counsel for the Commercial Bank submitted that both asagent for the exporter as well as the remitting bank, the CommercialBank was under a duty to comply with the instructions of the principal,and was not under any duty to advise the principal or to warn againstany commercial or other risks. He invited the attention of court to
decisions such as Schioler v National Westminster Bank Ltd.fi)Commercial Banking Co. of Sydney Ltd. v Jalsard Pty. Ltd(4)Redmons v Allied Irish Banks PLC (5) at 266, per Saville J.Honourable Society of the Middle Temple v Lloyds Bank PLC and
Linklaters (a fir) v HSBC Bank Pic (7). Learned President’s Counselfurther submitted that since speed is of the essence in transactions
gQ Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon83
(Saleem Marsoof, PC. J.)
involving international trade, the bank is obliged to follow theinstructions of the customer without undue delay. He relied heavily onthe following dicta of Lord Diplock in Commercial Banking Co. ofSydney Ltd. v Jalsard Pty. Ltd. (supra) at 286 in a case dealing withthe dealings of a bank with a letter of credit-
“Defay in deciding may in itself result in a breach of hiscontractual obligations to the buyer or to the seller. This is thereason for the rule that where the banker’s instructions from hiscustomer are ambiguous or unclear he commits no breach ofhis contract with the buyer if he has construed them in areasonable sense, even though upon the closer considerationwhich can be given to questions of construction in an action ina court of law, it is possible to say that some other meaning isto be preferred.”
Learned President’s Counsel for the Commercial Bank contendsthat as far as the instant case is concerned there was absolutely noambiguity in regard to the instructions that were given by the exporterto the Bank, and the instructions have been faithfully carried out by theCommercial Bank, and further submits that since the exporter hadselected the Giro Van De Bank as the collecting bank, theCommercial Bank cannot be held responsible for any act or omissionof the Giro Van De Bank.
In this context it may be relevant to observe that there is privity ofcontract between the exporter and the remitting bank, and alsobetween the remitting bank and the collecting bank, but not betweenthe seller and the collecting bank, unless the seller contemplates thata sub-agent will be implied and authorizes the remitting bank to createprivity of contract between himself and the collection bank. See Calico
Printers’ Association Ltd. v Barclays Bank LtdS8) However, relationsbetween the seller and the remitting bank, and between the remittingbank and the collecting bank, will usually be governed by the UniformRules for Collections (URC) and it is possible that as suggested by Rix
J in Bostone & Firminger Ltd. v Nasima Enterprises (Nigeria) Ltd (9)at 1908, these Rules have introduced privity of contract between theseller and the collecting bank because they provide for the rights andliabilities of the parties to collections to be established contractually.Therefore, the question as to the obligations of the remitting bank vis-a-vis the exporter, and the liability of the remitting bank for the
84Sri Lanka Law Reports[2008] 1 Sri L.R
wrongful acts or omissions of the collecting bank have to beconsidered in the light of the provisions of URC 1978 which isadmittedly applicable to this case.
Uniform Rules for Collection
The Uniform Rules for Collection embodies banking practicerelating to documentary collections codified by the InternationalChamber of Commerce. Although the Uniform Rules are revised fromtime to time, it has been agreed by President’s Counsel for bothparties in this case that the version that is applicable is the 1978Revision of the Uniform Rules for Collection. The provisions of theseRules apply to all ‘collections’ which term is defined as “the handling
by banks, on instructions received, of documentsin order to
(a) obtain acceptance and/or, as the case may be, payment, or (b)deliver commercial documents against acceptance and/or, as thecase may be, against payment, or (c) deliver documents on otherterms and conditions.”
It is expressly stated in these Rules that the term ‘documents’would include financial documents such as bills of exchange andcommercial documents such as invoices, shipping documents anddocuments of title such as bills of lading. In the context of the questionthat arises in this case as to the liability of the Commercial Bank asthe remitting bank, it is instructive to quote, Article 3 of the UniformRules for Collection in full-
“For the purpose of giving effect to the instructions of the principal,the remitting bank will utilise as the collecting bank-
(1) the collecting bank nominated by the principal, or,
(ii) in the absence of such nomination, any bank, of its own oranother bank’s choice, in the country of payment oracceptance, as the case may be.
The documents and the collection order may be sent to thecollecting bank directly or through another bank as intermediary.
Banks utilising the services of other banks for the purpose of givingeffect to the instructions of the principal do so for the account ofand at the risk of the latter.
SC Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon35
(Saleem Marsoof, PC. J.)
The principal shall be bound by and liable to indemnify the banksagainst all obligations and responsibilities imposed by foreign lawsor usages.” (Italics added)
Learned President’s Counsel for the Commercial Bank has arguedthat since in terms of ‘P6’ and ‘P7’ the Commercial Bank acted on theclear instructions of VWV Ltd. in sending the relevant bills and otherdocuments to Giro Van De Bank for negotiation, the services of GiroVan De Bank were utilised “for the account of and that risk of” theprincipal, VWV Ltd.
I cannot agree with this submission as it is in my view fundamentalto Article 3 that the collecting bank should be a “bank” in thecommercial sense. Giro Van De Bank does not appear in the Bankers’Almanac and no evidence has been placed before the original courtas regards its existence or standing as a banker. In this context, it isnecessary to refer to Article 1 of the URC 1978, which requires allbanks governed by the Rules to “act in good faith and exercisereasonable care”. It is evident from the correspondence produced inevidence marked 'P16 ’P18’, 'P19', 'P20’ and ‘P21’ that theCommercial Bank believed ‘Giro Van de Bank’ to be a commercialbank capable of functioning as a collecting bank, and had on thatbasis even presented a claim against the carriers for delivery of thegoods without due endorsement by Giro Van de Bank, only to beinformed by the carrier that ‘Giro Van de Bank’ was not a bank but wasin Dutch the equivalent of a “blank endorsement” which enabled thebuyer Hans Van Kilsdonk to collect the gherkins by presenting the billsof lading to the carrier.
An important feature of the URC 1978 is that they contain certainminimum standards for the conduct of business by remitting,collecting and other banks to whcih the Rules apply. For instance,Article 6 of the Rules expressly lays down that-
“Goods should not be dispatched direct to the address of a bankor consigned to a bank without prior agreement on the part ofthat bank. In the event of goods being dispatched direct to theaddress of a bank or consignd to a bank for delivery to a draweeagainst payment or acceptance or upon other terms without prioragreement on the part of that bank, the bank has no obligationto take delivery of the goods, which remain at the risk andresponsibility of the party dispatching the goods.”
86Sri Lanka Law Reports[2008] 1 Sri L.R
The various articles of URC 1978 also contain the procedure formaking the documentary collection. For example, Article 10 expresslyprovides that “the collection order should state whether thecommercial documents are to be released to the drawee againstacceptance (D/A) or against payment (D/P).” It further provides that inthe absence of such statement, “the commercial documents will bereleased only against payment." Article 14 provides that “amountscollected (less charges and / or disbursements and / or expenseswhere applicable) must be made available without delay to the bankfrom which the collection order was received in accordance with theinstructions contained in the collection order." Article 17 requires thatthe collection order should give specific instructions regarding protest(or other legal process in lieu thereof), in the event of non-acceptanceor non-payment. There was no evidence placed before the originalcourt that prior to dispatching the relevant bills of lading, which aredocuments of title to goods, to Giro Van De Bank, the CommercialBank had entered into any “prior agreement” with the Giro Van DeBank as contemplated by Rule 6, nor has the Commercial Bankproduced any evidence regarding the collection order dispatched bythe Commercial Bank to the Giro Van De Bank. In the absence of anyevidence in this regard, it has to be inferred that the Commercial Bankhad not only acted in total disregard of the provisions of the URC1978, but had acted recklessly in violation of its obligations to act ingood faith and to exercise reasonable care in discharging itsobligations as a remitting bank.
It is necessary at this stage to refer to Article 20 of the URC 1978,which requires collecting banks “to advise fate” of bills sent forcollection. The Article provides the following guidelines to be followedin the event of a dishonour-
“the presenting bank should endeavour to ascertain the
reasons for such non-payment or non-acceptance and adviseaccordingly the bank from which the collection order was received.
On receipt of such advice remitting bank must, within a reasonabletime, give appropriate instructions as to the further handling of thedocuments. If such instructions are not received by the presentingbank within 90 days from its advice of non-payment or non-acceptance, the documents may be returned to the bank from whichthe collection order was received. ” (Italics added)
qq Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylonqj
(Saleem Marsoof, PC. J.)
It is very clear from the above quoted Article that it is a durty of theremitting bank to keep track of the bills sent for negotiation to thecollecting bank and to give appropriate instructions in regard to thehandling of the documents. It is evident that the Commercial Bankfailed to discharge its responsibilities as a remitting bank in terms ofthis article. Furthermore, it is significant that this Article provides thatin the event that the bills of exchange are dishonoured by non-acceptance or non-payment it is the duty of the collecting bank toreturn all the documents including the bills of lading to the remittingbank from which the collection order was received. It appears from theevidence in this case that instead of returning the bills of lading to theremitting bank and through it to the exporter VWV Ltd., the buyer inHolland Hans Van Kilsdonk was permitted to take delivery of thegherkins without making any payment on the bills of exchange. It isthis kind of misadventure that responsible banks involved indocumentary collection are expected to avoid through compliancewith the accepted banking practice that has been codified by the ICCas the Uniform Rules. I am unable to agree that a remitting bank couldtake refuge in the instructions given by a customer if it had failed toact in good faith and with reasonable care or acted in recklessdisregard of the procedures set out in these Rules.
The Right of Recourse on a Discounted Bill of Exchange
In my view this case has to be dealt with as one involving a‘collection arrangement’ in which financial documents in the form ofbills of exchange marked ‘P4’ and ‘P5’ accompanied by commercialdocuments including the bills of lading marked ‘P2’ and ‘P3’ weresubmitted to the Commercial Bank with the covering letters marked‘P6’ and ‘P7’ for negotiation. The fact that the bills of exchange werediscounted by the Commercial Bank does not change the characterof a ‘documentary collection’.
However, learned President’s Counsel for the Commercial Bankhas stressed the importance of the principles relating to the right ofrecourse of a discounting banker against the exporter in the event thediscounted bill of exchange is eventually dishonoured. LearnedPresident’s Counsel contends that the issuance of the bills ofexchange is a significant factor, and empahsises the autonomousnature of the bill of exchange from the underlying sale of goodstransaction. He submits that as observed by Ross Cranston in
88Sri Lanka Law Reports[2008] 1 Sri L.R
Principles of Banking Law (2nd Edition) at page 381 “the bank, asholder in due course of the bill, holds the bill free from any defect oftitle of prior parties, as well as mere personal defences available toprior parties among themselves”. He submits that this proposition isfurther fortified by Holden, Law and Practice of Banking (5th Edition)where at page 316 (Volume 1) it is stated that-
“The legal effect of the negotiation of the bill is that thenegotiating bank becomes the holder in due course of the bill,and also holds the shipping documents by way of security."
He submits that therefore any claims that the buyer and suppliermight be able to raise in proceedings between themselves areirrelevant when recourse is had against the seller on the discountedbill.
I find it difficult to agree with the submission that the CommercialBank is a holder in due course of the bills of exchange marked 'P4’and ‘P5 This is because the Commercial Bank was named as theoriginal payee of these bills. In R. E. Johns Ltd. v Waring & Gillow
it has been held by the House of Lords that the original payeeof a bill of exchange does not fall within the expression ‘a holder in duecourse’. The reasoning of the House of Lords was that in terms ofsection 29 (1) of the Bills of Exchange Act of 1882, ‘a holder in duecourse’ is a person to whom a bill has been “negotiated”. Therefore,although generally a discounting bank may become ‘a holder in duecourse’ of the bill that is discounted, this does not occur when thebanker is also the payee.
Nevertheless, I am impressed by the submission of the learnedPresident's Counsel for Commercial Bank that in the instant case, thebills of exchange were included as a part of the transaction so that ifthe buyer does not pay on the bills drawn on him, the exporter asdrawer of the bills is obliged to make payment to the bank.Accordingly, if the drawee fails to honour the bill, the exporter asdrawer is liable qua surety to the discounting bank. In support of thisproposition he relies on the following passage from Cranston’s,Principles of Banking Law (2nd Edition) page 379-380 under theheading Trade Bills’:-
“Now assume the Bill is first negotiated to the supplier’s bank.The bank discounts the bill i.e., it buys the bill at less than its face
SQ Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylongg
(Saleem Marsoof, PC. J.)
value, to reflect the fact that it is out of its money till the billmatures. The supplier is, of course, paid immediately, which isthe very object of the exercise. The Bank claims against thebuyer on maturity of the bill. It collects the bill on its own account.In the event of non-payment, the bank will have recourse againstthe supplier, its customer. The bank, having discounted the billhas clearly given value.”
Learned President’s Counsel submits that in these circumstances,if the bill is dishonoured, the negotiating bank will necessarily look toits own customer as drawer to re-imburse it in respect of the amountof the bill, together with interest and charges, and that therefore thedebiting of the customer account by the Commercial Bank wasperfectly lawful.
However, in this case there is absolutely no evidence in regard tothe question whether the bills of exchange marked ‘P4’ and ‘P5’ wereforwarded along with the relevant bills of lading marked ‘P2’ and ‘P3’and other relevant documents to Giro Van De Bank. It is significantthat at the trial no admission was recorded, nor any evidence lead withrespect to the alleged dishonour of the two bills of exchange marked‘P4’ and ‘P5 Indeed there is no admission or evidence even in regardto the question whether the bills of exchange in question were everpresented to the buyer Hans Van Kilsdonk for acceptance / payment.It is trite law that a remitting bank has no right of recourse against thedrawer of a discounted bill of echange unless and until the bill hasbeen duly presented for acceptance / payment and has been in factdishonoured. In the absence of any evidence to show that the bills ofexchange in question were in fact dishonoured. In the absence of anyevidence to show that the bills of exchange in question were in factpresented to the drawee Hans Van Kilsdonk, I hold that theCommercial Bank had no right of recourse against VWV Ltd. nor anyright to debit its account with the value of the bills of exchange.
Duty of Discounting Bank to return Bills of Lading
In regard to the ‘collection arrangement’ on which this action isalleged by VWV Ltd. to be based, learned President's Counsel hasreferred us to Schmitthoffs Export Trade (10th Edition) page 155wherein it is stated as follows-
90Sri Lanka Law Reports[2008) 1 Sri L.R
‘The seller often attaches to a bill of exchange which he hasdrawn on the buyer the bill of lading to the goods sold. Such abill of exchange is known as a documentary bill. The purpose ofissuing.a documentary bill is mainly to ensure that the buyer shallnot receive the bill of lading and with it, the right of disposal of thegoods, unless he has first accepted or paid the attached bill ofexchange according to the arrangement between the parties. Ifthe buyer fails to honour the bill of exchange, he has to return thebill of lading, and, if he wrongfully retains the latter, the lawpresumes that the property in the goods sold has not passed tohim.” (italics added)
It is settled law that a bill of lading represents the goods to whichthey relate, so that the transfer of the bill of lading (in proper form andmanner) of itself constitutes a transfer of the goods themselves. Anorder bill of lading entitles the holder to call for delivery of the goods.Where the goods are surrendered to a person other than the holderof the bill of lading, the shipowner so delivering is exposed to risk of
liability to the holder: Sze Hai Tong Bank v Rambler Cycle Co Ltd (11)at 586. Leggatt LJ in The Houda (12> stated at 553-
“Under a bill of lading contract a ship owner is obliged to delivergoods upon production of the original bill of lading. Deliverywithout production of the bill of lading constitutes a breach ofcontract even when made to the person entitled topossession.”
A bill of lading differs from a bill of exchange and other negotiableinstruments in one important respect highlighted in the following dictafrom the old decision Gurney v Behrendh 2a) at 633-
“A bill of lading is not, like a bill of exchange or promissory note,a negotiable instrument, which passes by mere delivery to abona fide transferee for valuable consideration, without regard tothe title of the parties who make the transfer. Although theshipper may have endorsed in blank a bill of lading deliverable tohis assigns, his right is not affected by an appropriation of itwithout his authority. If it be stolen from him or transferred withouthis authority, a subsequent bona fide transferee for value cannotmake title under it as against the shipper of the goods. The bill oflading only represents the goods; and, in this instance the
SQ Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylong 1
(Saleem Marsoof, PC. J.)
transfer of the symbol does not appear more than a transfer ofwhat is represented”.
It follows that the maxim nemo dat quod non habet does apply inrelation to a bill of lading in favour of the shipper even against a bonafide transferree for value. Under a collection arrangement, the bill oflading is held as security for payment of the price, and should only bereleased against payment. An instructive decision in this connection is
the Prinz Adalbert ^3) jn which referring to a transaction of a similarnature with the immaterial difference that the financial documentinvolved was a draft and not a bill of echange, Lord Sumner made thefollowing observation at 589 and 590 of the judgement-
“When a shipper takes his draft, not as yet accepted, butaccompained by a bill of lading, endorsed in this way, anddiscounts it with a Banker, he makes himself liable on theinstrument as drawer, and he further makes the goods, which thebill of lading represents, security for its payment. If, in turn, thediscounting Banker surrenders the bill of lading to security for itspayment. If, in turn, the discounting Banker surrenders the bill oflading to the acceptor against his acceptance, the inference isthat he is satisfied to part with his security in consideration ofgetting this further party’s liability on the bill, and that in so doinghe acts with the permission and by the mandate of the shipperand drawer. Possession of the endorsed bill of lading enablesthe acceptor to get possession of the goods on the ship’s arrival.If the shipper, being then owner of the goods, authorizes anddirects the Banker, to whom he is himself liable and whoseinterest it is to continue to hold the bill of lading till the draft isaccepted, to surrender the bill of lading against acceptance ofthe draft, it is natural to infer that he intends to transfer theownership when this is done, but intends also to remain theowner until this has been done.”
The same principle is illustrated by the more recent decision in H.M. Procurator-General v M. C. Spencer; Controller of Mitsui &Company Limited.(14) In this case, a Japanese Company carrying onbusiness in Japan, had branches in London and Hamburg. Thebusiness in Germany was later incorporated there, but the whole ofthe shares in the German company were owned by the Japanese
92Sri Lanka Law Reports[2008] 1 Sri L.R
company and their trustees, and, in addition, the German Companywas controlled and staffed by, and was entirely dependent on, theJapanese company, being really a purchasing and selling house ofthat company. A contract, made before the outbreak of war in 1939,for the sale of goods by the Japanese company to the Germancompany stipulated, inter alia, Hamburg as the destination, the priceper ton, c.i.f. Hamburg, and that payment was to be by a three monthssight draft against a letter of credit on a Bank. An irrrevocable letter ofcredit was duly issued by the Hamburg branch of the Bank to theJapanese company, authorizing them to draw on the London branchof the Bank at three months for account of the German company forthe price of the goods. The letter contained instructions that the billsof lading, drawn in triplicate, were to be made out to the order of theBank, and the invoices and insurance, in triplicate, in the Bank’s nameor in that of the shipper and bank endorsed. Two sets of documentswere to be sent to the Bank at Hamburg, and one set, with drafts onLondon attached, was to be delivered to the Bank in London againstacceptance of the drafts. The goods were shipped in Japan on the M.V. Glenroy, a British vessel, and bills of lading issued, invoicesprepared and insurance taken out on 31st July 1939, in accordancewith those instructions. On 7th August 1939, the Japanese companydrew a bill in accordance with the credit, negotiated it through theJapanses branch of the Bank, which delivered three sets of thedocuments as arranged. The set sent to London was received on 13thSeptember 1939, and owing to the outbreak of war the draft was notaccepted nor the documents taken up. On September 13, 1939, theGerman company cancelled the contract unconditionally. Meanwhilethe Glenroy had been diverted to Liverpool, where she arrived on 17thOctober 1939, and there, on 2nd November, the goods were seizedas prize. A claim was made by the Crown that the goods were enemyproperty or contraband of war and as such liable to condemnation.Lord Porter at page 134 of the judgement of the Privy Council referredto section 19 (2) and (3) of the Sale of Goods Act, 1893 whichcorrespond to section 20 (2) and 20 (3) of the Sale of GoodsOrdinance and observed that-
"where the seller draws on the buyer for the price, and
transmits the bill of exchange and bill of lading to the buyertogether to secure acceptance or payment of the bill of
SQ Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon93
(Saleem Marsoof, PC. J.)
exchange, the buyer is bound to return the bill of lading if he doesnot honour the bill of exchange, and if he wrongfully retains thebill of lading the property in the goods does not pass to him,”(Italics added)
P. S. Atiyah, The Sale of Goods (1 Oth Edition) at page 430 extractsfrom the above decisions, the following principle-
“Even if the seller draws a bill of exchange on the buyer anddiscounts it with a Bank before it has been accepted by thebuyer, the property will still not pass. Although the seller mayobtain payment in this way he remains under a secondaryliability as drawer of the bill of exchange and so property remainsin him as security for this contingency. Indeed, even when theseller has received the full price in advance there may be specialcircumstances which give him some interest in retaining theproperty and it may be held that the transfer of the documentsremains necessary to pass property."
As already noted, it is clear from Article 20 of URC 1978 that theremitting bank should act in collaboration with the collecting bank andmust give timely and appropriate instructions to the latter regardingthe handling of the documents. It is also contemplated by the saidArticle that if no contrary instructions are received from the remittingbank, the documents should be returned to the bank from which thecollection order was received. As Schmitthoff in Export Trade (10thEdition) observes at page 164 –
“If the collecting bank releases the documents to the buyercontrary to instructions, for example, by not insisting on paymentor the acceptance of a time bill, the bank is liable in damages tothe seller for breach of contract and for conversion of thedocuments.”
It is trite law that in the absence of any agreement to the contrary,the remitting bank would be liable to the exporter for the acts of thecollecting bank, its agent. See Chalmers and Guest on Bills ofExchange, Cheques and Promissory Notes (15th Edition) paragraph1128. These principles fortify the position taken up by VWV Ltd. thata discounting bank can have recourse to the seller as drawer, onlyafter returning the original shipping documents.
94Sri Lanka Law Reports[2008] 1 Sri L.R
The Question of Estoppel
The other question that arises in this appeal is one of estoppel, andlearned President’s Counsel for VWV Ltd. has sought to impugn thedecision of the trial judge on this point. At the trial, the question ofestoppel by representation was raised by the Commercial Bank inissues 18 (a) to (g) which are quoted below:-
“ (a) Did the Defendant send the said Bills and documents to theaddress pleaded in paragraph 9 of the plaint in compliancewith specific instructions from the plaintiff?
By the documents marked ‘P6’ and *P7' and / or in thecircumstances pleaded in paragraph 12 (a) to 12 (h) or anyone or more of them, did the plaintiff represent to thedefendant that 'Giro Van De Bank’ is a Bank?
Did the plaintiff give the said instructions and make the saidrepresentation in order to cause the defendant to send thesaid Bills and documents to the said address?
Did the defendant and its officers believe the saidrepresentation to be true?
Did the defendant and its officers act on the saidrepresentation and cause the said Bills and documents to besent by courier to the said address?
If any one or more of the above issues marked 18 (a) to 18
are answered in favour of the defendant, is the plaintiffestopped from denying that the ‘Giro Van De Bank’ referredto in ‘P6’ and ‘P7’ and the plaint is a Bank?
If issue 18 (f) is answered in the affirmative, can the plaintiffhave and maintain this action?”
The learned trial Judge has answered issues 18 (a), (b), (c) and
in the affirmative while noting that there is insufficient evidence toanswering issues 18 (d) and (e). However, he has answered issue 18
in the affirmative and arrived at the conclusion that VWV Ltd.cannot have and maintain the action as it is estopped from denyingthat the ‘Giro Van De Bank’ is a Bank.
SC Vanathawilluwa Vineyard Ltd v Commercial Bank of Ceylon95
(Saleem Marsoof, PC. J.)
In The Law relating to Estoppel by Representation, (4th Edition),paragraph 1.2.2, Spencer Bower explains the concept of estoppel byrepresentation of fact as follows:
“Where one person (‘the representor’) has made arepresentation of fact to another person (‘the representee’) inwords or by acts or conduct, or (being under a duty to therepresentee to speak or act) by silence or inaction, with theintention (actual or presumptive) and with the result of inducingthe representee on the faith of such representation to alter hisposition to his detriment, the representor, in any litigation whichmay afterwards take place between him and the representee, isestopped, as against the representee, from making, orattempting to establish by evidence, any averment substantiallyat variance with his former representation, if the representee atthe proper time, and in proper manner, objects thereto.” (Italicsadded)
It is clear from this definition that in order to succeed with a defencebased on estoppel, the person raising the plea should establish thatby reason of the representation he was led to believe that the saidrepresentation was true and acted thereon to his prejudice. As Lord
Birkenhead put it in the case of Maclaine v Catty (15), the essence ofthe doctrine may be illustrated as follows: where ‘A’ has by his acts orconduct justified ‘B’ in believing that a certain state of facts exists, and‘B’ has acted upon on such belief to his prejudice, ‘A’ is not permittedto affirm against ‘B’ that a different state of facts existed at the sametime.
It is obvious that the state of mind and the conduct of the personwho raises the plea of estoppel is of great relevance. Where, as in thiscase, the plea is raised by a party that does not lead any evidence insupport of it, the plea cannot succeed. This is very clear from the
decision of the Supreme Court in Hirdaramani Ltd. v De Silva (16) inwhich Gratiaen, J. observed at 297 that he cannot see how ‘estoppel’can be applied to the facts of that case in the absence of evidence tosupport the view that the plaintiff was misled into the belief that thedefendant company would continue making certain payments thathad been made to the plaintiff by the owner of a business that thedefendant company had subsequently taken over. The learned trial
96Sri Lanka Law Reports[2008J 1 Sri L.R
judge was clearly in error in holding that VWV Ltd. was estopped fromdenying that 'Giro Van De Bank was a Bank by reason of theinstructions contained in 'P6’ and 'P7
Conclusions
For the foregoing reasons, the appeal is allowed, the judgment ofthe Commercial High Court dated 12th July 1999 is set aside andjudgment is entered in favour of the plaintiff-appellant VanathawilluwaVineyard Ltd. as prayed for in prayer (a) (i) and (ii) of the plaint. In allthe circumstances of this case I am inclined to award the plaintiff-appellant nominal costs in a sum of Rs.10,000 both as costs of suit interms of prayer (b) of the plaint and as costs of this appeal.
JAYASINGHE, J.- I agree.
TILAKAWARDANE, J.I agree.
Appeal allowed.