St George Bank Limited ACN 005 513 070 (Formerly Advance Bank Australia Limited ACN 002 953 335) v Heinz Salzberger and Norma Salzberger

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40023/00 DC 9829/97 SHELLER JA STEIN JA HEYDON JA Friday, 30 March 2001 ST GEORGE BANK LIMITED ACN 005 513 070 (Formerly ADVANCE BANK AUSTRALIA LIMITED ACN 002 953 335) v Heinz SALZBERGER and Norma SALZBERGER

Procedure - application for leave to appeal- issues of general importance - leave granted on such basis - issues not raised by appeal

Contract law- documentary letters of credit - Uniform Customs and Practice of Documentary Letters of Credit - discrepancy within documents

A letter of documentary credit was provided in accordance with the Uniform Customs and Practice for Documentary Credits 1993 by the appellant to the respondent for the purchase of fabric from an Italian supplier. The respondents did not reimburse the appellant for the amount paid out in respect of the letter of credit, due to a discrepancy in the documentation. The trial judge held that the bank had failed in its duty to ensure compliance with the requirements of the documentary letter of credit, and the respondents were not to be held responsible for the bank's error. The bank sought and was granted leave to appeal.

Leave to appeal was granted on the basis that the appeal raised an issue of general importance about commercial credit and the Uniform Customs and Practice for Documentary Credits 1993. The appeal raised no such issue of general importance, especially in respect to the construction or application of the Uniform Customs and Practice for Documentary Credits 1993.

2. Appellant to pay respondents costs of the leave application and the appeal. OoO

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40023/00 DC 9829/97 SHELLER JA STEIN JA HEYDON JA

Friday, 30 March 2001 ST GEORGE BANK LIMITED ACN 005 513 070 (Formerly ADVANCE BANK AUSTRALIA LIMITED ACN 002 953 335) v Heinz SALZBERGER and Norma SALZBERGER JUDGMENT 1 SHELLER JA: I agree with Stein JA.

2 STEIN JA: The appellant, St George Bank Limited, appeals against a decision of Dent DCJ entering a verdict for the respondents, Heinz and Norma Salzberger, on its claim to recover the sum of $55,604.87 pursuant to a documentary letter of credit. Leave to appeal was granted by the court because the appellant maintained that the appeal raised an issue of general importance about commercial credit and the Uniform Customs and Practice for Documentary Credits (the 1993 revision) published by the International Chamber of Commerce. That this was the reason for the grant of leave to appeal is evident from the order made at the time - reserving to the respondents the right to seek a special costs order in any event in light of the issue of general importance (Red AB 42). 3 The respondents wished to purchase 3600m of tensel piece goods from Tessili Speciali Italia (TSI) in Italy. To effect the purchase they applied to the appellant bank for an irrevocable letter of credit in favour of TSI in the amount of $US42,590. The application form specified that the credit was to be subject to the Uniform Customs and Practice for Documentary Credits, 1993, (the UCP). 4 On 18 June 1997 a documentary credit agreement between the respondent buyers and the appellant bank was executed. Clause 7 provided that all credits established were subject to the terms and conditions of the UCP. Clause 1 provided that the bank may debit the customers' account for all amounts paid or incurred by the bank in connection with the credit. 5 The documentary letter of credit issued on 19 June 1997. The appellant was the issuing bank. The intermediary bank appointed by the appellant was the Rolo Banca in Milan. 6 The documentary letter of credit was irrevocable and named the respondents as applicants and TSI as beneficiary. It provided that partial shipments were prohibited and described the goods as '3600m of Tencel Piece goods quality 2110 in assorted colours'. The documentary letter of credit expired on 6 August 1997. The documents required were listed, see Blue AB 79. 7 Subsequently, the goods were consigned to Sydney by Airway Bill which was dated 28 July 1997. On 5 August 1997 the goods were collected by the respondents from Sydney airport. This was the day before the credit was to expire. On or before 5 August 1997 Rolo Banca, as intermediary banker for the appellant, paid the beneficiary. It notified the appellant by document dated 8 August 1997 (which bears the date stamp as received by the appellant on 15 August 1997). The notification included the assertion that the documents presented were in order and 'Docs presented complying and within credit validity terms'. Rolo Banca sought reimbursement for the payment made. The exact date of the payment to TSI by Rolo Banca was not proved in evidence at the trial. 8 The respondents complained bitterly about the quality of the goods but nonetheless accepted delivery and made up the fabric into clothing. On 4 September 1997 the respondents wrote to the appellant refusing to accept the letter of credit, noting that it had expired. The reason given in the letter was that the goods were of 'inferior quality'. The trial judge described them as 'shoddy'. 9 On 9 September 1997 Rolo Banca advised the appellant to credit it without delay with the payment made to the beneficiary. On the same day the appellant advised the respondents that it was satisfied that the documents were acceptable within the UCP and, accordingly, that it must make payment to the Rolo Banca. The bank said that the respondents' account would be debited (Blue AB 121). 10 On 16 September 1997 solicitors acting on behalf of the respondents wrote to the appellant indicating that there was a partial shipment, being less than 95% of the 3600m called for by the letter of credit. On 17 September 1997 the appellant advised the Rolo Banca, drawing attention to the documents presented to it as containing a discrepancy of a partial shipment notwithstanding the advice received from Rolo Banca that all terms and conditions of the credit were complied with. Rolo Banca rejected the partial shipment discrepancy and sought payment without any further delay. Rolo Banca relied on Article 14(d)(ii) of the UCP that only one discrepancy could be notified and the appellant had already notified an earlier discrepancy, which had been rejected. Counsel for the appellant accepts this interpretation of Article 14(d)(ii). On 7 October 1997 the appellant paid Rolo Banca the sum of A$55,435.65, the Australian equivalent of the $US paid by the intermediary bank to the beneficiary TSI. 11 The appellant argues that it is entitled to recover from the respondents under the documentary credit agreement notwithstanding that it concedes that it was negligent in its examination of the documents and breached the provisions of the UCP incorporated into the agreement. It also argues that the respondents have been unjustly enriched by keeping the goods and later selling them and receiving a relatively small amount of compensation from TSI. Further, it argues that the respondents waived the appellant's breach of the agreement. Reliance is placed on Friedlander v The Bank of Australasia (1909) 8 CLR 85. 12 A documentary letter of credit is a means of providing payment to a seller of goods by substituting a bank for the buyer as the party which will make payment. Such payment is made, not against the transfer of the goods, but against the documents which represent the goods after they have been shipped (Jack, Documentary Credits, 2nd Ed 1993). The system is commonly used for international transactions and utilises the international banking system. Such transactions are wholly conducted on documents. Documentary letters of credit provide certainty of payment for the seller and facilitate international trade. 13 To facilitate the operation of documentary credits the International Chamber of Commerce first published the UCP in 1933. The subject transaction concerns the 1993 revision. The Code has almost universal acceptance by banks in over 160 countries and is observed in countless transactions every day, having become part of the rubric of international trade, (Jack 1.21). The UCP is not intended to be a legally enforceable code but to operate as a guide and code of behaviour. However, it is often incorporated into credit contracts by reference, see Lord Mustill in Royal Bank of Scotland plc v Cassa di Risparmio delle Provincie Lombarde [1992] 1 Bank LR 251. 14 What is plain is that the underlying contract between buyer and seller is irrelevant to the performance of the documentary credit agreement. For example, the banks involved have no responsibility for the quality of the goods. They are concerned only with the conformity of the documents in question to the credit. As Jenkins LJ said in Hamzeh Malas & Sons v British Imex Industries Ltd [1958] 2 QB 127 at 129, they impose on the banker an absolute obligation to pay, irrespective of any dispute between the parties. Both the issuing bank and any intermediary bank, are under an absolute duty to examine the documents with reasonable care to ascertain that they appear on their face to comply with the provisions of the credit, Gian Singh & Co Ltd v Banque de L'Indochine [1974] 2 All ER 754. The documents must strictly comply with what is required, see Viscount Sumner in Equitable Trust Co of New York v Dawson Partners Ltd (1927) 27 Lloyds Rep 49. See also Diplock LJ in Gian Singh, The English, Scottish and Australian Bank Ltd v Bank of South Africa (1922) 13 Lloyds Rep 21 and Banco National Ultramarino v First National Bank of Boston (1923) 289 F 169. 15 It follows that a partial shipment is unacceptable, see Donaldson MR in Banque de L'Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd [1983] 1 QB 711 and Commercial Banking Co of Sydney v Jalsard Pty Ltd [1973] AC 279. This doctrine applies even if the discrepancy is an extremely technical one, Glencore v Bank of China [1996] 1 Lloyds Rep 125 and Dawson. See further Gutteridge and Megrah, the Law of Bankers' Commercial Credits, 6th Ed 88 and following. 16 Where an intermediary bank fails to correctly perform its function, as the agent of the issuing bank (Bank Melli Iran v Barclays Bank [1951] Lloyds Rep 367 and Dawson) and the issuing bank also fails to spot any discrepancy, the buyer is entitled to refuse to accept the documents. As to the possible position between the issuing bank and the intermediary bank, see Jack at 116 and 128 and Megrah at 67 and following. 17 In my opinion, the dispute as to payment is one between the appellant and Rolo Banca. No question of waiver or estoppel arises, see Dawson at 52. It is difficult to see in the circumstances of this case how the principles of unjust enrichment have any application. 18 No evidence was presented at the trial of banking practice, of the arrangement or instructions between the appellant and its intermediary, of the date when the seller presented the documents to Rolo Banca or when the latter paid the beneficiary.

19 Moreover, Friedlander was determined in 1909 and appears never to have been applied or even cited. Its facts are very different to the present case. The relevant law has developed since Friedlander, see for example, Pavey & Mathews Pty Ltd v Paul (1987) 162 CLR 221. 20 Clearly, when examined, the appeal raises no question of general importance, and in particular no issue about the construction or application of the UCP. That being the case, coupled with the absence of the specific material mentioned earlier and that there is nothing to suggest that the trial judge's decision was in error, leads me to conclude that the leave to appeal should be revoked and the appellant pay the respondents costs of the leave application and the appeal. 21 HEYDON JA: I agree with Stein JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.