(g) LC amount:
USD960,000-00
p class="MsoNormal" style="yle="margin-top: 1; margin-bottom: 1">
(h) goods: 6,000 cubic
metres of round logs
(i) port opment:
Enoghae, New Georgia, Solomon Islands.
2.5.1 NATION GOODWILL LCLL LC
Mbaeroko had been granted
duty remission at 100% on the first two shipment of logs on 15 July 1996
(see Exhibit
80). On 25th July 1996 documents were presented
for negotiation against the Goodwill LC. This went through a routine
screening
by officers of the bank and several discrepancies were noted
(Exhibit 83 and also see Transcripts 242-244, and 250-251).
In their
evidence before this court, Vaislyn Szetu and Toamanang Maraki both
stated that the discrepancies noted
could not be fixed by NBSIL and so
the documents were sent on what they refer to as “collection basis”.
This
simply meant the documents were sent to the establishing bank to
decide whether to accept the discrepancies or not. What
normally happens
in this instance is the discrepancies are referred to the applicant to
make the final decision
on them. Exhibit 85 was the covering form under
which the documents were sent on collection basis to Overseas Trust Bank
Ltd, Hong Kong.
<
On 31st July
1996, Mbaeroko advises NBSIL that the documents sent on collection basis
on or about 26th July 1996 had not yet been received and
requests that a telex message be sent advising the establishing bank
what the value of the logs were (Exhibit 90). On same date, the bank
sends a telex message advising Overseas Trust Bank
of the amount claimed
in the Goodwill LC (Exhibit 89). Overseas Trust Bank responded on the
same date advising
that a reduced amount of USD711,456.55 would be paid.
This was communicated to Mbaeroko who accepted the reduced payment
on 1st
August 1996 (Exhibit 91).
p class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
Also on same date, Ziru as
director of Mbaeroko instructed NBSIL to pay ICML a revised amount of
USD240,532.41
and the balance to be paid into the account of Mbaeroko
Timbers (Exhibit 98).
On or about 5th
August 1996, the Goodwill LC was negotiated on collection basis and the
proceeds credited to ICML and Ziru as
directed (Exhibit 6, 100, 106,
436, 437). Note this was the only shipment from Enoghae from which
proceeds had
been received and accounted for.
2.6 p; TAE QU LTER LC<
p clasoNorstylestyle="margimargin-lefn-left: 70t: 70.9pt; margin-top: 1; margin-bottom: 1">
Whilst was busy
sorting out the first shipment with Good Goodwill in May 1996, ICML opened
negotiations with Quarter
Enterprises Pty Ltd (hereinafter referred to
as “Quarter Enterprises”)on 24th June 1996, for the sale of
the second shipment of logs (3000 m³) (see Exhibit 66).
On 10th> July
1996, an agreement was entered into betweeetween Quarter Enterprises Pty Ltd
(“Quarter Enterprises”)
and Mbaeroko (hereinafter referred to as “the
Quarter Agreement”) for the sale of the second shipment of logs of
3000.351 cubic metres (see Exhibit 77). That agreement however was
signed by Mr. Lennea of ICML, as agent on behalf
of Mbaeroko. It appears
Mbaeroko was not informed of this agreement, though it is clear from the
management agreement
(Exhibit 438) that ICML was obliged to consult with
Mbaeroko regarding the sale of the logs. Ziru’s ignorance of the Quarter
Agreement is confirmed by the existence of another agreement entered
into on 31st July 1996. This was the Yellow River Agreement,
(see Exhibit 92) for the sale of 6000 m³ of round logs. The
parties in that agreement were Yellow River Industrial (Group) Co. Ltd,
Hong Kong and Mbaeroko.
This time Ziru signed for Mbaeroko.
So by 31st July
1995, there were in exce two contracts for the sahe sale of round logs
at Enoghae; one initiated by ICML
purportedly on behalf of Mbaeroko for
3000m³ and the other by Mbaeroko itself for 6000m³. Had the first one
entered
into by ICML been done in accordance with the terms of the
management agreement, no confusion or duplicity would have arisen.
On same date (31st
July 1996) a letter of credit no. IDo. IDLC 143721312 (Exhibit 3) was
established by Commonwealth Bank of Australia
- Sydney (“CBA”) with
NBSIL as the advising bank. This was the LC for the Quarter agreement.
This is known as
the “Quarter LC”. Details of this LC are set out below:
<
No. Of LC: IDLC 1423721312
(a) Applicant: Quarter
Enterp
p class="Mss="MsoNormal" style="margin-left: 108.0pt; margin-top: 1; margin-bottom: 1">
(b) Establishing Bank: CBA
(c) Advising BaBSIL
(d) Beneficiary: Mbaeroko
(e) Date of : 31st
July 1996
<
(f) Expiry date and place:
25tp> August 1996 Solomon Isla Islands
class="Mss="MsoNormal" style="margin-left: 108.0pt; margin-top: 1; margin-bottom: 1">
(g) LC Amount:
USD436,000-00
(h) Goods: 3,000 cubic
metres of round logs
(i) Porshipment:
Enoghae, New Georgia Solomon Islands.
On 2nd August
1996, the Quarter LC was received by NBSIL who advised ised Mbaeroko
straight-away (Exhibit 102). It is important
to take note of NBSIL’s
swift actions on receipt of the Quarter LC as it is totally inconsistent
with any suggestions
that the bank might have been involved in any
conspiracy with ICML to defraud the plaintiff. I would have expected the
bank here not to let Mbaeroko know what was going on if it was in
collusion with ICML about this shipment.
The terms of the advice
contained in that letter is important. I quote:
lass="Mss="MsoNormal" style="margin-left: 108.0pt; margin-top: 1; margin-bottom: 1">
“Dear Sir
las class="MsoNormal" style="margin-left: 108.0pt; margin-top: 1; margin-bottom: 1">
COMMONWEALTH BANK AUSTRALIA - SYDNEY IRREVOCABLE
DOCUMENTARY CREDIT NO.
IDLC 1423721312
FOR : USD 436,000-00
EXPIRING : 25 AUGUST
1996
O/A : QUARTER
ENTERPRISES PTY LTD
OUR REF:EXP 1117.
We enclose the original
Documy Credit which is advised wsed without any
engagement on our part
We recommend that you
carefully examine the terms and cond conditions of this credit and if you are
unable to
comply EXACTLY we could appreciate you advising us
immediately.
Upon presentation of
documents to this office we shae shall be pleased to negotiate drafts and
documents drawn
in compliance with the terms of this credit.”
covering letter not
only identified the particulaicular LC clearly but went on to advise Ziru to
examine carefully
the terms and conditions of the LC and to let the bank
know if he was unable to comply. If Mbaeroko had not been aware
of the
existence of the Quarter Agreement and the Quarter LC, it was now made
aware of their existence in no
uncertain terms; that is, it now had
notice of what its partner, ICML was up to, and this by NBSIL who was
supposed
to be in collusion with ICML!
<
2.6.1 & AMENDMENT TO
T THE QUARTER LC
On the same date (2nd
August 1996), Lennea as Managing Director of ICML requested Quarter
Enterprises to amend the Quarter LC to show
Mbaeroko and ICML as joint
beneficiaries (Exhibit 103). On 14th August 1996, ICML
requested a further amendment to the Quarter LC to show this time ICML
as the sole beneficiary,
plus a red clause advance of USD250,000-00
(Exhibit 112). No consultation with Mbaeroko appears to have been made
and no consent obtained.
Meanwhile, on 19th
August 1996, Goodwill claims Uims USD9,000-00 demurrage from Mbaeroko, as a
result of which Ziru directs Lennea
to cancel the agreement with Quarter
Enterprises so that all remaining logs could be sold to Goodwill
(Exhibit
115). One thing this letter confirms is that Ziru as director
of Mbaeroko was aware by this time, of the existence of the
Quarter
Agreement.
On 21st August
1996, in direct response to Lennea’s inst instructions of the 14th
August 1996 (Exhibit 112), Quarter Enterprises instructed CBA to amend
the beneficiary to that LC to ICML, instead
of Mbaeroko. NBSIL was then
informed by CBA of the amendment on 26th August 1996. This
was the first amendment to the Quarter LC (see Exhibit 124, also Exhibit
3/01).
Zipears not to have
been informed or kept informed by ICML of what was going on. Hon. However,
NBSIL as the advising
bank and recognising its obligation to the
beneficiary (in this case Mbaeroko), took immediate steps to convey
to Mbaeroko by fax, on the same date, the amendment to the
Quarter LC (see Exhibit 126). In his answer to interrogatory no. 11,
Ziru acknowledged receiving
that faxed document on or about 26th
August 1996 (Exhibit 454). Mbaeroko therefore can never plead ignorance
or lack of notice about what was happening
to the Quarter LC.
The only wrong thing, and
this is conceded, which the bank did in relation to that LC was that it
did not seek
Mbaeroko’s consent first before making the amendment.
However, the whole blame cannot be put solely on the shoulders of
NBSIL,
because the changes all along had been masterminded by ICML, in the
first place. Further, the amendments
sought were not done in the normal
way, where the beneficiary’s consent should have been sought first, if
the
amendments originated from the applicant (the buyer). The advising
bank’s role would then be to inform the beneficiary
of the proposed
changes and to get its consent before advising the establishing bank.
The circumstances surrounding
this case were slightly different. Whilst
ICML was holding out that it was acting as agent for Mbaeroko, its
conduct was not consistent with that relationship. In normal
circumstances, ICML would have first ensured Mbaeroko or Ziru
was aware
of what it was planning to do before embarking on such an activity, or
ensuring that it got Mbaeroko
or Ziru’s consent before making any
amendments to the Quarter LC. But it did not do that. Instead as a mere
agent,
it sought to make the necessary amendments as if they had been
authorised by Mbaeroko or Ziru. It was only NBSIL, as the
advising bank,
in discharge of its contractual obligations to Mbaeroko, who informed
Mbaeroko of the amendments.
One can hardly blame NBSIL for assuming in
the first place, rightly or wrongly, that the amendments may have been
authorised by Mbaeroko. But even if it had not sought Mbaeroko’s
consent, what is important to take note of is that,
at least, Mbaeroko
was made aware of the amendment straight-away. So even if the actions of
the bank may have
been wrong, respectfully I find nothing fraudulent
about what happened.
It is important to note how the bank responded on receipt of the amendment. FirstFirstly, it acted
swiftly and promptly
by notifying Mbaeroko of the amendment
straight-away. That can hardly be consistent with the actions of someone
with a hidden agenda and intention to defraud the plaintiff. Secondly,
it took immediate steps to ascertain who had
authorised the amendment
(Exhibit 128). On 26th August 1996, the following response
was received from CBA:
“Applicant advises that
Beneficiary requested that name be changed, however we have not been
told the actual reason
why. We understand that Mbaeroko and Island
Construction are one and the same company anyway. Please advise if ben.
wishes to formally reject amendment.”
The response received from
CBA is quite interesting. It assumed ICML and Mbaeroko were the one and
same company
when in fact they were not. On the other hand, ICML was
purporting to act as agent of Mbaeroko. Now, I would have expected-the
bank on receipt of such a fax document to get back to Mbaeroko and ask
them if they wished to reject that
amendment. The bank did not do that.
The omission however is not fatal, neither fraudulent. Mbaeroko had
already
been indirectly informed of what was happening and if it had not
agreed with what was happening it would have acted promptly.
It did not
do that. As the advising bank, I fail to find anything in its actions
that would suggest that the
bank had acted fraudulently.
I also find no evidence to
suggest that there was any conspiracy with ICML to have the Quarter LC
amended. Further,
there is clear evidence before this court which showed
that the changes had been instigated by ICML alone in the hope of
obtaining greater control over the distribution of proceeds as a result
of what had happened to the proceeds
in the first shipment (Lennea -
Transcripts 267-268). It is for the plaintiff to show on the evidence,
on the
balance of probabilities, that the amendment had been agreed to
by NBSIL in consort with ICML, with the common purpose,
to defraud.
Respectfully that has not been established.
2.7
TERMINATION OF QRARTETRCONTRACT
The Quarter Agreement
unfortunately was terminated by Quarter Enterprises on the grounds it
was not satisfied
ICML had “Government Approval” to export the shipment.
Reasons for the refusal to issue Government Approval are contained
in
the evidence of Mahlon Ali (Transcripts 108-109) and in the letter of
the Commissioner of Forests dated 5th September 1996 (Exhibit
145).Lennea was formally advised of the withdrawal of the buyer (Quarter
Enterprises)
by fax on 29th August 1996 (Exhibit 136). This
marked the end of the Quarter Contract.
2.8p; SIXTH
AMENDMENTHOF THEF THE MONO LC AND REPAYMENT OF THE RED CLAUSE ADVANCE.
On 21st August
1996, Hang Seng Bank amended the Mono LC yet again (Exhibit1/06)by
extending the expiry date to 25th November and latest date of
shipment to 10 November 1996. NBSIL by then was adamant the red clause
advance be
repaid before any extension should be granted. It will be
recalled NBSIL had made demand on Hang Seng Bank in accordance
with the
terms of the Mono LC as contained in Amendment 1/03, when it expired on
15th February 1996. Since then, no repayment had been
received. This time NBSIL put its foot down (see Exhibit 119 - hand
written notes of Lynette Kudu). On 26th and 27th
August 1996, further demands were made on Hang Seng Bank for
reimbursement (Exhibit 123, 124). The matter was
then brought to the
attention of Peter Wyatt, Manager International of NBSIL, who sent
another fax on 28th August 1996 (Exhibit 131 and transcript
164). Further correspondences were exchanged following which contact was
made with Philip Ng, a representative of the Applicant - POTCL. Ng
communicated with Wyatt and pressed for further
extension. Wyatt
eventually relented and agreed to an extension to 3rd
September 1996 (see Exhibit 139). On 31st August 1996, NBSIL
received some positive response for the first time from Hang Seng Bank
(Exhibit 140). On 2nd September 1996, NBSIL communicated to
Hang Seng Bank what the total amount due was (USD396,183-44 principal
plus interest and bank charges) (Exhibit 141).Ng however
further asked for an extension of ten days (Exhibit 142). This was
reluctantly agreed
to by Wyatt for a temporary extension to 12 September
1996 (Exhibit 143). This time payment of USD387,359-94 was duly made
on
12 September 1996 (Exhibits 148 and 149). POTCL was now out of pocket in
the sum of about USD709,853.94 (USD322,494 [for dead freight
and demurrage] plus USD387,359-94 for the red clause advance)
without receiving a single log from ICML. Note ICML’s debt to POTCL had
nothing to
do with Mbaeroko or Ziru.
It is important to note
also the reimbursement was made pursuant to the right (guarantee) vested
in the bank as
contained in the terms of the Mono LC, which provided
that in the event of default of negotiation of the Mono LC, the bank
was
entitled to call on the establishing bank to make repayment. The
reimbursement by Hang Seng Bank had nothing
to do with any attempts to
defraud Mbaeroko. It was made purely on the documents only relationship
which existed
with Hang Seng Bank. No evidence has been adduced to
suggest any collusion on the part of NBSIL with POTCL, Hang Seng Bank
or
ICML in the payment of that reimbursement.
2.8. 1 TVENTH
AMENDMENTDMENT TO THE MONO LC
n>
It is apparent from
correspondences between Hang Seng Bank annk and NBSIL that from 16th
February 1996 to 12 September 1996, Hang Seng Bank was stalling for time
to reimburse NBSIL for the red clause
advance because it had not been
put in funds by POTCL. Once the advance had been reimbursed, Hang Seng
further
amended the Mono LC (Exhibit 1/07) to ensure recovery for POTCL
when the LC was negotiated. The amendment was communicated
to ICML who
accepted and gave undertakings on or about 27th September
1996 (Exhibits 150, 153).
The effect of this
amendment naturally was to ensure that the amount of the reimbursement
was recovered from the
Mono LC when negotiated. In reality it was monies
owed by ICML to POTCL. There is no evidence to suggest that NBSIL
participated in this amendment with intention to defraud Mbaeroko or
Ziru or that there was even in existence at
this point of time any such
scheme or plan by ICML. If there was any, there is no evidence
whatsoever to suggest
that NBSIL was aware of it or any party to it.
<
2.9 p; THE HIGR COURTCOURTCOURT
ORDERS AND THE CONTRACT FOR SALE TO POTCL
&nbs>
<
After the first shipment
from Enoghae had been processed (this was the Goodwill LC), it became
apparent ICML was
dissatisfied over the distribution of profits. Lennea
was aware Clause 6 of the Agreement signed with Mbaeroko (Exhibit
438),
had provided that the gross profits should be shared equally between the
parties. He felt he had been unfairly
treated and deprived of his equal
share. This had a further detrimental effect on him as there were other
persons
involved directly in the operations who had been left unpaid and
had initiated court action. Lennea accordingly instituted
court action
against Mbaeroko, by writ filed on 23rd August 1996 (Exhibit
441 - Civil Case No. 244 of 1996). The relief sought included orders for
damages for breach
of contract, payment of outstanding profit
due(USD353,544-33), specific performance of the contract in respect of
the second shipment of logs (i.e. in accordance it seems at that time
with the Quarter Agreement) and restraining orders against the
defendant prohibiting him from disposing of the round logs other
than in accordance with the contract signed between them (Exhibit 438).
This subsequently led to
further intetory orders sought by ICML ICML from the Court. The first
order dated 15th October 1996, reflected this (Exhibit 444).
I quote:
“1. p; That the
tiPartiParties’ consignment of approximately 3, 000 cubic metres of round logs
at Enoghae,
Western Provbe so the tiff ) as soon as
possible to prevent them from further ther deterdeterioratioration.
2. &nbssp; Tsp; That
pr proceeds of sale of the said round logs be paid into an interest bearing
deposit
account in the joint names of the parties solicitors.”
This order, which I will
refer to as the first order, anticipaicipated a quick sale to preserve the
value of the
logs. Unfortunately nothing further was done until a second
order, similar to the first one was obtained two weeks later,
on 28
October 1996 (Exhibit 445). The bank concedes receiving notice of those
orders.
p class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
ICML proceeded thereafter
to have the logs sold. On 29th October 1996, it applied as
agent of Mbaeroko for a market price certificate and an authority to
export (Exhibits
167, 168). On 30th October 1996, Lennea
entered into an agreement with POTCL for the sale of those logs on
behalf of Mbaeroko (Exhibit
169). So far so good. Lennea had been
authorised by court order to effect sale of those logs. There was
nothing
wrong on the surface with the contract for sale entered into
with POTCL. Unfortunately, on closer analysis there was something
drastically wrong with how it was to be financed (Clause 8). This in my
respectful view turned that contract
into a sham from the beginning.
Ther a number of
important points to bear in mind. Fid. First, the agreement for the sale of
the second shipment
of logs was made between Mbaeroko and POTCL, not
ICML and POTCL. This meant Lennea had no right whatsoever in law or
otherwise, to use the Mono LC as the documentary letter of credit to
finance that shipment. That shipment did not
belong to ICML. He was
merely acting as agent for Mbaeroko in the sale. Secondly, he was acting
under orders
from this Court to make that sale. Lennea therefore should
have known better. A completely new and separate LC should have
been
established for that shipment. He did not do that.
Thirdly, tht Lennea
knew ICML was already indebted to POTCL OTCL under the Mono LC in respect of
the red clause
advance (USD387,359-94), meant even before negotiation,
the proceeds of that LC when negotiated would be lesser by that
amount.
ICML knew he may receive very little from that LC or nothing at all. Yet
he proceeded with that contract.
POTCL on the other hand,
given the opportunity, would seek naturally to recover what it can from
that LC. The
fact the value of that LC had been reduced to USD438,000-00
(Exhibit 169) meant little, if not anything at all, would be
expected to
be paid when the LC was negotiated.
2.10 AEMENTS
FOR THE THE SECOND SHIPMENT
 an>/p>
These were arranged by Ng
of POTCL. Ng got in touch with John Harding, an Australian Broker with
Australian Independent
Shipbrokers who was able to make contact with a
company, Elite-Far East Pte. Ltd (“Elite”) in Singapore who had a fleet
of tramp ships operating throughout the world (Exhibit 172). Captain
John Christensen, Elite’s operations manager
was able to secure a ship,
the MV Arktis Venture and makes first offer to POTCL (Exhibit 174). On 6th
December 1996, a voyage charter party was agreed upon between Elite and
POTCL in respect of MV Arktis Venture
to carry the second shipment to Ma
Wan or Hong Kong on Gencon terms (Exhibit 202). On 7th
December 1996, the charterparty was confirmed by POTCL (Exhibit 213) and
on 9th December 1996, Elite appoints ATASI as its shipping
agent for Solomon Islands (Exhibit 217). The vessel arrived at Enoghae
on 11th December 1996 and commenced loading (239).
John Ha and Captain
Christensen both gave meticulous ands and useful evidence on shipping
arrangements entered
into with POTCL.
2.11 & FURT
E EXTENSITENSIONS TO THE MONO LC, EXPIRY AND ACCEPTANCE OF DISCREPANCIES BY
HANG SENG BANK AND
INVOLVEMENT BY PROK BANK
/p>
On 25th November
1996 the Mono LC expired withouithout being utilised. The following day
however, POTCL confirmed to
ICML it would accept late shipment (Exhibit
178). On 27th November 1996, NBSIL was informed by Hang Seng
Bank it would accept discrepancies including the fact the Mono LC had
expired (Exhibit 179). ICML was notified of this acceptance on 3rd
December 1996 (Exhibit 183).
On 6th December
1996, an irrevocable assignment of proceeds of the Mono LC to the extent
of USD36,000-00 was executed
by ICML in favour of Prok Bank (Exhibit
204). This would have the direct effect of further reducing the proceeds
that may be received. Further, the assignment was done in direct
contravention of the order of this court dated 28
October 1996. That is
a clear contempt committed by Lennea. He knew what the terms of the
orders were and yet
deliberately executed that assignment, which would
have the effect of reducing the amount of the proceeds to be received
from that shipment.
2.12 ; DETN OF
TH THE VESSEL, CUSTOMS AND AND EXPORT OF THE LOGS
/p>
Loading was completed on 15
December 1996, at 5.30 am and tand the vessel left shortly for Noro before
8.00 am
(Exhibit 246). The tally sheets and summary (Exhibits 241 and
240) showed 901 logs had been loaded. Ng of POTCL signed
a certificate
to that effect (Exhibit 277). The Mate’s Receipt (Exhibit 251) signed by
the Master however showed
only 900 logs. This meant a discrepancy of 1
log.
On arrival at Noro, Customs
refused to clear the ship unless pass payment of duty was secured (Exhibits
246, 247,
255, 258, 259, 262, 267, 268). This meant further delay and
extra costs. Elite had indicated to POTC that the delay would
be charged
to them at demurrage rates (Exhibit 257).
On 16 or 17 Decemb96,
Lennea approached Wyatt if the bank would givd give a guarantee. In his
evidence Wyatt states,
he declined, but gave Lennea two options; a
further red clause advance or a stand-by letter of credit in favour of
NBSIL. On 19th December 1996, the bank was notified of a
stand-by LC established by Hang Seng in favour of NBSIL as the
beneficiary
to support payment of customs duty (Exhibit 4). This is the
stand-by LC number LC CPS 673724 (referred to in this judgment
as the
“Stand-by LC”). The amount of that LC was USD147,000-00 with a margin of
10% either way and expiry date
on 18th January 1997.
A stand-by LC es there
is sufficient security available, where tere the bank pays up, that it would
get reimbursed,
in the event no payment is received from the shipment of
logs. On receipt of the LC, the bank noted four crucial conditions.
1. &n“sp; fiener’sia
d drafts drawn in duplicate at sight on Hang Seng Bank Ltd., Hong Kong for
full statement
value bearing the clausawn uHang Bank Hong irrevocable sble stand-tand-by doby documencumentary tary credicredit no. CPS673724
dated 19 Dec 1996”
2. &nbbsp;& &bsp;&bsp;&nbp;
nefics ry’s statemtatement certifying that the amount drawn represents and
covers
the outstanding indebtedness due to you by Island Contion ement Ltd being the custom duty purpose to clear lear the vthe vesselessel
M. V.
Arktis Venture which anchored at Noro port in Solomon Islands.”
3. &nbssp; “Custoy
re receipt eipt showingowing exact amount of p; &nsp; &nbbsp;& p;&nbbsp duty paid.”
4. p;&nssp; “Cp; “Certificate
issued by Alliance Training Association Solomon Islands Point Cruzing
Shipping Agency in Honiara stating that the M.V. Arktis Venture has
cleared custom duty and has already left the port.”
An additional condition
imposed was:
<
“Upon your drawing all
documents of this credit must be sent sent to Hang Seng Bank Limited, Head
Office, Bills
processing section at Level 15, 83 Des Voeus Road,
Central, Hong Kong by registered airmail in one cover under
authenticated cable advice to us quoting the amount drawn and the number
of this credit.”
The significance of those
conditions and the expiry date of 18th January 1997 is that
the Stand-by LC must be negotiated before its expiry in Hong Kong with
all relevant conditions
met. So even if all the conditions of the
Stand-by LC had been met, these would still have to be sent to Hong Kong
for negotiation before the 18th January 1997. If the
conditions were not met before the expiry date, Hang Seng Bank would be
under no obligation
to honour the Stand-by LC.
2.12.2 EXHIBIT 459.
>
On receipt of Stand-by
LC, NBSIL wrote to Customs advising them them they had noted their records to
pay the duty
upon negotiation of the stand-by LC documents if they
strictly comply with that LC. This was Exhibit 459 and reads:
“NATIONAL BANK OF
SOLOMON ISLANDS LIMITED<
EXPORT DOCUMENTARY
LETTER OF CREDIT NO: CPS673724
FOR: USD147,000-00
ISSUED BY: HANG SENG
BANK- HONG KONG
DATED: 19DECEMBER 1996
As requested, we confirm
having advised the Documentary Credit (approximate FOB value
SBD533,188-25) and noted
our records to issue for export duty payable,
as calculated by the company on the export of Solomon Islands Round Logs
proposed for shipment aboard MV ARKTIS VENTURE upon negotiation of
documents presented to the bank in terms of
the Credit
Bovolume:
3000.350m³.”
According to the evidence
ofon Boso, Senior Collector otor of Projects (Exports), Customs viewed
this letter as
akin to a guarantee for the payment of duty. It was on
the strength of that letter that the vessel MV Arktis Venture was
released on 19th December with its cargo of logs from Enoghae.
Ms. Boso states the bank is
expected to pay the duty suty straight-away. Usually it pays up when the
documentary
credit is negotiated (see page 129 of transcripts).
Ms. Boso referred to
Exhibit 459 as a guarantee to pay export duty. Unfortunately this is a
misconception. I will
say more on this in this judgment.
class="Mss="MsoNormal" style="margin-left: 35.45pt; margin-top: 1; margin-bottom: 1">
2.13   BILLS OF LA LADING ESTABLISHED BY ATASI
Accorto the undisputed
evidence of Captain John Christhristensen, a bill of lading is a very
important document.
He explained in detail it can serve as a receipt for
the cargo shipped. On surrender, it is a receipt to the shipper that
the
owners had delivered that cargo to the owner. It also performs an
important function as a negotiable document.
A bill of lading can be
bought or sold. This meant it has value in itself. The person who
presents an original
bill of lading at the discharge port would claim
the cargo. If two or three original bills of lading had been issued, one
would be sufficient to be negotiated. Once that is done, the other two
become null and void.
lass="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
The initial shipping
instructions for the drafting of a bill of lading were issued to ATASI
by ICML on 6 December
1996 (Exhibit 206). This was superseded by the
authority given by the Master of the MV Arktis Venture in his letter
dated 10th December 1996 (see Exhibits 472, 228, 229). On 16th
December 1996, ATASI issued three original copies of bills of lading
(Exhibit 249). On same date, Elite requires
ATASI to amend the bills of
lading to conform with the Mate’s receipt regarding the number of logs
actually loaded.
According to Ng, there were 901 pieces, but according
to the Mate’s receipt there were only 900 pieces. This apparently
was
never made.
What eventually transpires
that the Bills of Lading iing issued by ATASI were withdrawn at a later
stage and fresh
Bills of Lading issued from Hong Kong by Chancefit
Shipping Company Limited (Elite’s shipping agent in Hong Kong and
hereinafter referred to as “Chancefit”).
2.14 &nbbsp;
E EVENTS DURING THE VOYAGE
<
The vessel was finally
perm to sail after Customs acce accepted the letter from NBSIL as a
“guarantee” to pay
Customs duty (this is the letter marked Exhibit
459).The vessel was cleared at 5.45 pm (Exhibit 276) and departed Noro
at 6.30 pm on 19 December 1996.
Elite then issued a freight
invoice (Exhibit 280) for freight, tax and detention/demurrage (Exhibit
282). This
was forwarded to POTCL to agree the amount and remit to Elite
so that the Bills of Lading could be issued (Exhibit 279).
Freight had
to be paid before the Shipper could agree to issue the Bills of Lading.
By fax dated 19th December 1996 (Exhibit 282), Ng sought to
explain what had caused the delay on loading at Enoghae and at Noro Port
and requested if the invoice could be reduced by as much as half. He
sought to explain POTCL was an innocent victim
to the delay and asked if
Elite could reduce its freight and demurrage charges. Elite however
remained firm,
of the view that the agreed demurrage had already been
much reduced.
<
POTCL eventually agreed to
pay the invoice in full but insisted that the bills of lading be issued
from Hong Kong
rather than Solomon Islands. On 28 December 1996, the
freight invoice was paid in full (Exhibit 323). On 30 December POTCL
still insisted that Chancefit (Elites shipping agent in Hong Kong) issue
the bills of lading from Hong Kong and
confirmed for the first time Hong
Kong as the port of discharge. Note the vessel had left Noro on 19th
December 1996, without knowing for certain where the port of discharge
was (Exhibits 327, 334, and 329). It was
between Ma Wun in China or Hon
Kong.
On 31st December
1996, Chancefit issued the full full set of originals and non-negotiable
bills of lading conforming
to the Mate’s receipt as instructed by Elite,
but without releasing them (Exhibits 341, 342, 347 and 357). Elite was
concerned about the bills of lading previously issued by ATASI (Exhibit
360). After confirming these had not been
released and giving
instructions to ATASI for their cancellation, Chancefit was authorised
to release the bills
of lading (249, 364 and 365).
2.15 AL OF V V VESSEVESSEL AND DELIVERY OF LOGS, AND NEGOTIATION OF BILLS OF LADING
The vessel docked at Hong
Kong on 2nd January 19ry 1997, and commenced unloading the next
day (Exhibits 366 309). After unloading was completed on 4th
January the vessel departed Hong Kong (Exhibit 376). On the same date,
Chancefit released the bills of lading
and delivery order to POTCL
(Exhibits 347, 348 and 353). One original bill of lading and delivery
order was endorsed
by POTCL and delivered to Modernize Products Holdings
Limited (hereinafter referred to as “Modernize”) who issued receipt
for
the delivery order and stamped the bill of lading [Exhibit
347/1(reverse page) and 353 (reverse page)].
/p>
The saga to the “lost logs”
was now finally determined once once and for all. The logs on delivery to
POTCL were
then sold to Modernize. Modernize was a purchaser for value
and secured title to the logs thereafter (Exhibit 327). There
is no
suggestion that it had notice as to other parties rights. By 4th
January therefore, the logs had been irretrievably lost. That however
does not mean we do not know who should
be made accountable for the
purchase value of those logs. We know who it is, and in my view, it is
crystal clear
POTCL should be made accountable to Mbaeroko, if not both
POTCL and ICML jointly and severally, for the purchase value
of those
logs. Herein lie one of the major problems in this case. POTCL had
simply not bothered to account for
the proceeds of sale of those 900
pieces of logs, totalling some 3000.350 m³. They had also declined to
accept
the discrepancies noted in the negotiation of the Mono LC sent on
collection basis by NBSIL to Hang Seng Bank. Mbaeroko
and ICML
accordingly had been left high and dry. Never mind the fact ICML owed
POTCL money, in the least, POTCL
should have accounted for the sale
proceeds of those logs. This was only part of the problem.
Mbaeroko and Ziru’s problem
on the other hand, was that all the proceeds should have been paid by
POTCL into an
interest bearing account, as directed by the Court ; and
not “pocketed” by POTCL, and used to pay off their debts, or off-set
with debts owed to Modernize or others. Unfortunately for Ziru and
Mbaeroko, the whole problem had been caused
right from the beginning by
the decision taken by Lennea to use the Mono LC for this shipment. Not
only was that
a foolish decision to take in the circumstances, but wrong
and contemptuous of the Courts orders of the 28th October
1996.
On the other having
said that, I do take note of the unfortunortunate financial predicament
Lennea found himself
in. He was a man even from the beginning of
operations at Enoghae, already heavily laden with monies owed to others.
What a man can do in such situations is hard to predict. Others might do
even worse. Whether his actions are fraudulent
will be addressed
separately in this judgment. The plaintiffs problems in this case had
also been compounded
by the fact POTCL had not been joined as one of the
defendants, or application made to that effect. Accordingly, this court
can make no order against POTCL, even though it may feel the plaintiff
has a good claim against POTCL. The plaintiff
may consider taking
separate action against POTCL. I note this had been suggested to Ziru
during cross-examination
by Mr. Sullivan but had been brushed aside as
inappropriate.
ass="Mss="MsoNormal" style="text-indent: -35.45pt; margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
2.16 pt">
EVENTROUNDING THE ATTEMATTEMPTED NEGOTIATION OF THE COMMODITY AND
STAND-BY LC
&pt"> nbsp;
On or about >th
January 1997, Lennea presented documentuments to the bank for negotiation
against the Mono LC. Documents presented
included the following:
· ;&nspp;
s a single
original Bill of Lading issued out of Hong Kong (Exhibit 347pan>
class="Mss="MsoNormal" style="text-indent: -18.0pt; margin-left: 126.0pt; margin-top: 1; margin-bottom: 1">
· p; &n sp;
a
non-negotiable copy of the same Bill of Lading (Exhibit 348);
· & p;&nssp;
sp;
an unsigned
commercial invoice in triplicate (Exhibit 349-
· &nnsp;&
sp; a fourth
photocopy of that invoice (Exhibit 352)
·
photocopy of
a summary log list (Exhibit 240) with supporting tally sheets;
>
· &nbbsp;
an undated
certificate of receipt from POTCL signed by Ng (Exhibit.
On receipt of these
documents, Toamanang Maraki of NBSIL, drL, drafts a letter (Exhibit 461),
signed by his immediate
superior Kudu, and sent to Customs for the
purpose of informing them about the FOB value of the logs in respect of
which the Mono LC was sought to be negotiated. Maraki however used the
phrase “have negotiated document” wrongly thinking negotiation
was complete on presentation of documents. This was not so. They had
merely been
presented but not yet negotiated for payment. Negotiation
can only be complete when the documents had been accepted and
payment
received. If the documents presented contain discrepancies, these will
either have to be “fixed” locally
where possible and if not, will have
to be sent on collection basis to the establishing bank. If the
discrepancies
are rejected then the LC will not be negotiated and no
payment received. More will be said on whether the phrase used above
amounted to fraud on the part of the bank or not.
Between 9 January and 14
January 1999 the documents presentedented were examined by Maraki in
accordance with
bank practice and compared with the LC requirements. A
number of discrepancies were noted and entered in the bank’s standard
form reading list (Exhibit 377). These included the following:
· &n sp;
/sp the absence
of drafts (Bills of Exchange drawn by the beneficiary on the
establishing bank in favour of the negotiating
bank);
· ;&nspp;
s inconsistency
between the Bills of Lading presented and those required;
<
& p; &nsp;
sp;
the
photocopies (instead of originals) of the log list and commercial
invo/span
·
the absence
of a beneficiary’s certificate; and
class="Mss="MsoNormal" style="text-indent: -18.0pt; margin-left: 126.0pt; margin-top: 1; margin-bottom: 1">
· p; &n sp;
that the LC
had expired.
These discrepancies were
checked by Vaislyn Szetu who noted two other additional discrepancies.
These included
the absence of a full set of original Bills of Lading and
that one of those presented was actually a non-negotiable copy.
In her
evidence before this court she stated that whilst some of the
discrepancies could be fixed in Honiara,
there were others which were so
great she decided to send these to Hang Seng Bank for negotiation on
collection
basis. The drafts and documents were sent under cover of a
standard form (Exhibits 378 and 379) on 14th January 1996.
At the same tihe
Stand-by LC was also processed. It was discovescovered that a number of vital
documents had not
yet been received, including ATASI’s certificate of
clearance of vessel from Noro and the certified amount of duty payable.
On 17th January 1997, Customs informed the bank what the
amount of the duty was (Exhibit 381). On the same date ATASI advised
that the original Certificate of Clearance had been forwarded to Hong
Kong (Exhibit 386). The bank then drew the
drafts and the beneficiary’s
certificate but decided not to pay out the money because the LC would
expire the
very next day, 18th January 1997. Wyatt states in
evidence he was not prepared to pay the customs duty at that point of
time as Hang
Seng and POTCL would be under no obligation to accept the
documents after expiry and to reimburse the bank if they pay
out any
money. The documents accordingly were sent for collection basis. As will
be seen this was a wise decision
taken by Wyatt.
2.17 REJECTION B HA G SENG SENG
The reason why the LC’s
went on collection basis was was so that the final decision can be made
by Hang Seng
Bank as, instructed by POTCL, whether to accept the
discrepancies or not. If POTCL refused to accept the discrepancies,
that
signalled the end of those LC’s. It meant Hang Seng Bank would not
negotiate the documents and make payment
on them.
On receipt of both sets of
documents, Hang Seng consulted POTCL iTCL if it would accept the
discrepancies. On
27th January 1997, Hang Seng Bank advised
the bank POTCL had refused to accept the discrepancies in the Stand-by
LC
(Exhibit 401). Also on same date, Hang Seng Bank advised that POTCL
had also refused to accept the discrepancies in the
commodity LC
(Exhibits 403 and 412). Both LC’s accordingly were never negotiated and
hence no payment received
by NBSIL.
3. THE FIRST ISSUE - THE
PROPER PLAINTIFF
This issue arises directly
from the claim of fraud and conversion of the 901 logs shipped from
Enoghae on the
MV Arktis Venture. Learned Counsel, Mr. Sullivan for
NBSIL, raised this point on the basis of the evidence adduced, which
showed, he submits, the claim would not make legal sense unless Mbaeroko
was acting for and on behalf of Ziru.
Learned Counsel pointed out
evidence which showed that the temporary occupation licence (“TOL” held
by Ziru)
was granted to Ziru personally, and not to Mbaeroko: Secondly,
the consent given by the Commissioner of Lands for the right
to harvest
the logs on Enoghae had been granted also to Ziru and not Mbaeroko.
Thirdly, he pointed out, the timber
licence had been granted to Ziru
trading as “Mbaeroko Timbers”, not Mbaeroko. Finally, there is no
evidence of
any assignment to Mbaeroko.
I note no real objection
han taken by learned Counsel for the Plaintiff, in my view, rew, rightly
so. Rather,
the view taken by the plaintiff was that the interest of
Ziru had been taken up by the corporate plaintiff in any event.
With
respect, that is incorrect in law. Ziru and Mbaeroko are two separate
legal entities. The legally correct
thing to do would have been to join
Ziru as one of the plaintiffs to this case. Unfortunately that had not
been
done. This case however had been proceeded with essentially on the
grounds that Mbaeroko represented the interests of no
one else than Ziru.
That meant for this cause of action to be considered meaningfully by
this court, that representative
action must be accepted by this Court,
especially when dealing with the question of costs which was part of the
reason for raising this issue in the first place.
It is clear from evidence
Ziru had been involved in theoceedings not only as direcdirector of
Mbaeroko but also
in his personal capacity. To hold otherwise would make
nonsense of the claim of Mbaeroko in this case. It is evident Ziru
was
the holder of the TOL and the person who had been granted the consent to
fell and harvest trees by the COL
and holder of the Timber Licence. It
is only proper in the circumstances that where appropriate Mbaeroko must
be viewed as acting for and on behalf of Ziru. I do note in Civil Case
231 of 1997, the very same issues raised here had
been raised by Ziru in
his defence, thus confirming the very close relationship between
Mbaeroko and Ziru and
the approach taken by them in prosecuting and
defending their cases.
4. THE SECOND ISSUE - ICML
AS AGENT OF MBAEROKO
Second Defendants
Submissions. Mr.
Sullivan submits ICML was acting as agent for Mbaeroko at all times.
Under the management agreement (Exhibit
438) ICML was responsible for
securing buyers at the best market price for the logs. He pointed out
Ziru also
acknowledged ICML acting as agent of Mbaeroko Timbers
and Mbaeroko (see Exhibits 77, 116, 167, 168, 169).
Plaintiffs Submissions.
Mr. Ashley for the plaintiffs submit there was never any agency involved
in the shipment of logs from Enoghae.
He argues these were two separate
parties and at no time was ICML appointed as Mbaeroko’s agent for the
shipment
of logs at Enoghae.
Courts Conclusions.
To understand ICML’s role in the shipment of logs, the starting point
must be the management agreement
entered into between the parties on 1st
December 1995 (Exhibit 438). Paragraph 5 of that agreement provides as
follows:
/p>
“The Manager, in
consultation with Mbaeroko Timbers, sha, shall be responsible for securing
markets for round
logs produced and shall ensure that the best and
fairest market prices are obtained.”
[The Manager referred to
here is ICML]
the terms of the
agreement, ICML is given express or actual authority to secure cure markets
for the sale of
the round-logs at the best and fairest market prices
available. Of-course ICML was to consult Ziru about what it did. When
ICML seeks to perform this function therefore, it is presumed he had
authority to do it. That is evidence in
my respectful view of the
existence of an agency relationship between Ziru and ICML which can be
implied from
clause 5 of the above agreement.
Secondly, there is clear
evidence by conduct, referred tor. Sullivan in his submissimissions,
that ICML had purported
to act as Mbaeroko’s agent in the past and that
this was known to Ziru. See the Exhibits referred to above; Exhibits 77,
116, 167, 168 and 169. Exhibits 168 and 169 in particular make crystal
clear what role ICML adopted in the shipment
of the Enoghae logs.
Thirdly Court Orders
of 15th and 28th October 1996, would have beee been
made to some extent on that basis. The court was aware there was dispute
as
to who was entitled to sell the logs. The court however permitted
ICML to sell the logs provided all the proceeds were
deposited into an
interest bearing account in the names of the Solicitors for the parties.
That indirectly imposes
upon ICML the role of an agent; to ensure that
the logs are disposed off at the best possible price and to account for
the proceeds not only to the court but to Mbaeroko and Ziru.
Fourthly, Lennea knew the
logs did not belong to him. He was merely acting, apart from the court
order, pursuant
to the agreement made with Ziru (Exhibit 438), from
which ICML’s rights were derived. The sale which Lennea arranged was
done purportedly on behalf of the owner, in any event. That is evidence
of an agency relationship (see Pyrene Co Ltd v Scindia Navigation Co
Ltd [1954] 2 All ER 158, 166).
The conclusion in law I
reach accordingly in respect of this issue whether ICML acted as agent
of Mbaeroko must
be answered in the affirmative.
5. THE VALIDITY OF THE
TIMBER LICENCE AND THE LYING LICENCE/AGREEMENT
The next issue raised by
Mr. Sullivan seeks to submit the li held by Ziru was a bare lire licence
in the absence
of a timber rights agreement. He argues the consent
referred to in evidence before this court to be insufficient.
Respectfully this
submission is misguidedis an undeniable fact Ziru had a valid
timber licr licence over the area
of land described as LR 395/2 Lot 75,
parcel number 098-005-70. That had been issued pursuant to a Consent
granted by the COL, who had the sole rights in law
to grant timber
rights over the said area of land (see case of Joyce Alamu & Rolland
Rodi v Ronald Ziru t/a Mbaeroko Timbers & Commissioner of Forests, CC
No. 103 of 1996, judgment delivered on 26th April 1996 at
page 5). It has never been disputed nor challenged, that the COL was
the person lawfully entitled to grant timber rights over the
said land.
It has also never been challenged that the Consent issued by the COL in
respect of the said area (note this is
Government Land not
customary land)
for Ziru to fell and harvest trees for export, was invalid, nor the
licence issued by the COF. The maxim “omnia presumuntur rite esse
acta” must surely apply here.
6. THIRD ISSUE - FRAUD
lass="Mss="MsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
6.1. &nbssp; SSBMIS
ON
OF THE PLAINTIFF ON FRAU FRAUD
as class="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
This is the crucial
submission of the plaintiff against both defendants. They They allege ICML
and NBSIL had conspired
together to defraud them of the proceeds of the
second shipment. They rely on the tort of conspiracy in support of their
allegations of fraud. They argue the defendants had agreed or combined
together to do an unlawful act, or to
do a lawful act by unlawful means
(see Mulcahy v. R. (1868) L.R.3, H.L. 306, 317). In other words
they had combined together with the common, purpose of injuring the
plaintiffs (see Lonrho Ltd v. Shell Petroleum Co. [1981] 2 All E. R.
456, H.L.; also the text “The Law of Torts” by John G.
Fleming, seventh edition, at page 666).
One of the specific
arguments put fo by the plaintiff was that,that, NBSIL was a party to
the conspiracy to defraud,
by consenting to all the amendments made to
the Mono LC so that ICML could at the, end of the day have the Mono LC
negotiated; irrespective of the fact the Mono LC was never negotiated.
They also allege NBSIL conspired with ICML
to have the log shipment
cleared with Customs by guaranteeing the payment of duty on the basis of
the Stand-By
LC.
class="Mss="MsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
6.1.1 THEIAL
LE ELEMENTS ENTS IN CONSPIRACY
There arecally two
crucial elements for proof in the tort tort of conspiracy. The first pertains
to the question
whether there is evidence to suggest there had been
concerted action taken together pursuant to an agreement to injure
the
plaintiffs. In other words is there evidence which showed that the
defendants had combined together to carry
out a common purpose?
The second relates to the
object or purpose in existencthe minds of the plaintiffstiffs. These two
elements will
be dealt with in conjunction with the issue of fraud as it
addressed in this Judgement.
p class="Mss="MsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
6.2 ;&nbssp; THE LAWE LAW FRAUD
The classic definition on
fraud is contained in the case of Derry v. Peek (1889) 14 App Cas
337 (referred to also in Robert Victor Emery and John Sullivan
& Another v. Toshio Hashimoto & Another Civil Cases No. 301 & 119 of
1993 judgment delivered on 26th May 1995; and
Island construction Management Limited v. Air Transport Limited
Civil Case No. 144 of 1996 judgement delivered on 3rd
February 1999). I quote the relevant paragraph:
“fraud is proved when it
is shown that a false representationation has been made knowingly, or without
belief
in its truth, or recklessly, careless whether it be true or
false”. (Per
Lord Herschell at page 374).
6.3 p;&nbbsp; STANDATANDARD OF
PROOF>
Two Australian cases have
been red to by Mr. Sullivan whic which correctly set out the degree of
persuasion and
satisfaction the court must have; that of clear and
cogent evidence. The first case referred to is Neat Holdings Pty Ltd
v. Karaian Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170, at 171 (Mason CJ,
Brennan, Deane and Gaudron JJ).
(Emphasis added)
The second case referred to
is Briginshaw v. Briginshaw (1938) CLR 336, at 362 (Dixon J):
“The truth is that, when
the law
requires the proof of any fact the tribunal must feel an actual
persuasion of its occurrence or existence before
it can be found. It
cannot be found as a result of a mere mechanical comparison of
probabilities independently
of any belief in its reality. No doubt an
opinion that a state of facts exists may be held according to indefinite
gradations of certainty, and this has led to attempts to define exactly
the certainty required by the law for various
purposes. Fortunately,
however, at common law no third standard of persuasion was definitely
developed. Except
upon criminal issues to be proved by the prosecution,
it is enough that the affirmative of an allegation is made out to
the
reasonable satisfaction of the tribunal. But the reasonable satisfaction
is not a state of mind that is attained or established
independently of the nature and consequence of the fact or facts to be
proved. The seriousness of an allegation made, the inherent unlikelihood
of an occurrence of a given description, or the
gravity of the
consequences flowing from a particular finding are considerations which
must affect the answer
to the question whether the issue has been proved
to the reasonable satisfaction of the tribunal.”
6.4 & p; Fsp; FRA ICMA ICML
The issue whether ICML was
fraudulent in its dealings with and handling of the Mono LC in my
respectful view must
first be addressed. One unusual but clear feature
of the shipment of the Enoghae logs by ICML was that Lennea, the brains
behind the Company, knew that the logs do not belong to ICML; they
belonged to Ziru. ICML also knew, that under
the management agreement
with Ziru, ICML was merely given the right to secure sale of the logs at
the best possible price but in consultation with Ziru. The Court
orders obtained on 15th and 28th October 1996 did
not give him any other rights or new rights for the sale of those logs;
in particular they did
not confer on him ownership rights. It is
important to accentuate this point now because as will be seen in this
judgement, Lennea’s actions not only contravened the terms of the
Court’s orders and thereby amounted to a contempt,
they were also done
contrary to the terms of the management agreement signed orders, but
unprepared to commit
itself to the terms of the courts orders. I will
say more on this in this judgment.
One of the arguments sought
to be presented with emphasis by Mr. Ashley was the suggestggestion that all
along Lennea
had intended to use the second shipment towards the Mono
LC. He submits all the warning signs were there. Lennea was in
deep
financial trouble, owing substantial sums to POTCL and that he was being
pressed by them to ship logs in
respect of that LC. That placed him in a
position where he had little alternative but to arrange for a shipment
from Enoghae to pay off his debts.
<
Whilst I find there may be
some substance to this submission, up to 28th October 1996
(date of issue of the second order), I find with respect little evidence
to support any suggestion
that Lennea intended to use the Mono LC at
that point of time to finance the second shipment with. Of-course there
was always the possibility that Lennea would use the second shipment to
negotiate the Mono LC with. But up to that
point of time, it was not
clear that that was what he was planning to do. The suggestion sought to
be put forward
by Mr. Ashley on behalf of the plaintiff that it must
have been obvious to all that this was what was intended all along
by
having the Mono LC extended must be viewed with caution. This court has
heard from the mouth of this witness
(Lennea) that he had been planning
to have a shipment of Kwila logs from Malaita towards that LC. That
would
have displaced up to that point of time any suggestions that
Lennea was planning to have or use the second shipment towards
this LC.
On the other hand, it might be argued that even if he was thinking of
any shipment from Malaita, that
was mere wishful thinking as there was
nothing going in Malaita that would lend credibility to such thought.
The only logical conclusion that this court accordingly could come to
was that Lennea intended all along to use the second
shipment or any
shipment from Enoghae towards the Mono LC. Unfortunately I do not think
that would be necessarily
so. I am prepared to go only as far as
accepting that the possibility exists for that to happen at that point
of time. But it was equally possible, ICML was prepared to comply with
the courts orders at that point of time and may
have had other plans in
mind as to how the Mono LC would be negotiated.
Also on 28th
October 1996, the Court was not aware, nor any suggestion or reference
made, to the existence of the Mono LC
and any possibility that it might
be used, or was going to be used by ICML, in the shipment which it had
sought
to seek the assistance of the court. Having come to court to seek
the assistance of the court with clean hands and insisting
that clean
hands be used, he was obliged to maintain clean hands throughout. Also
the fact he was in possession
of relevant knowledge which could affect
the way the shipment was to be funded, he was obliged to act reasonably,
responsibly and appropriately in the certain circumstances. As director
of ICML, Lennea had not done that.
<
On hindsight (we are always
wisehindsight) perhaps, what shat should have been done and could be
done in future
cases, is to insist on or incorporate an order to the
effect, that whatever contract of sale entered into in such situations
is to be done by agreement with the other party, if not, by sanction of
the court. Hopefully this should eliminate
any hidden agendas that the
seller might have, as had happened in this case.
The beginning or cause of the whole problem arose when ICML decided to enter intr into the sale
contract with POTCL
and to expressly permit the clause in that agreement
for the shipment to be financed by nothing other than the Mono LC.
ICML
need not have entered into a sale agreement with POTCL in the first
place. There was no requirement or obligation
in law that he enter into
such an agreement. But where that was done, Lennea should have ensured a
new LC was
used. Secondly, Lennea could also have found another buyer
other than POTCL. This would have ensured all the proceeds would
be
received.
As director of ICML, Lennea
knew, if not, he must be deemed to know, that it was not only
inappropriate for him
to use the Mono LC but wrong and a direct
contempt of the court order. I do not need to repeat the findings of
fact mentioned in this judgment
about the debts of ICML in the sum of
about USD710,000-00 owed to POTCL, for demurrage and freight and the red
clause advance plus interest. Lennea knew that if he was to use the Mono
LC in that shipment, at least the sum of USD387,359.94
(amount of the
red clause advance) would first have to be deducted in favour of
POTCL before the remainder would be remitted to NBSIL. In my respectful
view he was obliged not to use the Mono LC for that shipment, except by
consent of the parties and the sanction
of the court. He did not do
that. I am satisfied his actions were deliberate, purposeful and
intentional.
It is noteworthy that one
of the spc orders sought and obtainetained by him from this court had
been to have the
proceeds restrained. He knew therefore that his
interests, whatever they would be as determined by the court at the end
of the day would be adequately protected by that order. It follows he
should have ensured that the Mono LC was
not used in respect of that
second shipment as it had nothing to do with it. The Mono LC was a
documentary letter
of credit entered into between ICML and POTCL in
respect of operations at Mono and should not have been entangled or
confused with the Enoghae shipment.
This brings me next to the
crucial question that must be answered. Did his actions amount to fraud?
Respectfully
the inevitable finding must be against ICML. Lennea knew he
had been given mandate by the court, to sell the logs on the
understanding and condition that the proceeds (no exception whatsoever)
were to be paid into an interest bearing
deposit account in the names of
the solicitors for the parties. In other words he was obliged to ensure
the proceeds
were received and paid into the interest bearing deposit
account. He did not do that.
Secondly, as already
pointed out, so knew he owed duty to Mbao Mbaeroko Timbers to ensure the
proceeds were properly
accounted for so that the proceeds could be
equally shared between them at the end of the day in accordance with the
terms of their agreement.
It was on those footings,
ICML had been given the authority to effect the sale of the second
shipment. By entering
therefore into the sale agreement with POTCL and
agreeing to use the Mono LC, ICML represented to Mbaeroko and the Court,
that it would properly account for the proceeds of sale and to pay them
into an interest bearing deposit account
in the names of the solicitors
for the parties. This was false however, and Lennea knew it, if not, he
was careless
whether it be true or false. He knew from the outset he
would not receive any or all of the proceeds due. That in my respectful
view is a classic example of fraud; knowing that what he had represented
when entering into the sale agreement
with POTCL was not true.
class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
He also concealed from the
court and Ziru, (that is not disclosing and getd getting their consent) the
existence
of the Mono LC and all pertinent details about its application
to him and the shipment about to be made. He knew he should
not have
relied on the Mono LC for the shipment of those logs by virtue of the
fact that this was a separate
and completely different transaction. He
knew he should have obtained a new letter of credit for that shipment,
or sell to a different buyer. In the alternative, he could have
disclosed to POTCL the existence of the court order
and the requirement
that all proceeds were to be deposited into an interest bearing account.
He knew the logs did not
belong to him and therefore should have advised POTCL to have the
LC amended, so that all the proceeds are paid into the account
agreed to
by all parties. He knew the correct beneficiary to that LC would have
been Mbaeroko not ICML, but he
did not seek to have that amended. He
knew he owed POTCL substantial sums of money and that POTCL had made
clear
to him and intended to recover these from the Mono LC when
negotiated. This meant very little, if not anything at all,
would be
received from POTCL. Yet he proceeded with the arrangements as if all
was well, when in fact not all
was well.
With respect, I find fraud
against him as well as a clear contempt of this court’s
orders dated 15th and 28th October 1996.
Appropriate orders should be made against him.
6.5 &nnbsp;;
sp;
FRAUD - NBSIL.
It will be recalled part of
laim against NBSIL includedluded the tort of conspiracy. That the bank
had conspired
with ICML in defrauding the plaintiffs. In particular it
had conspired with ICML in the amendments to the various letters
of
credit established as well as conspiring with ICML for the shipment of
the logs by guaranteeing the payment
of Customs duty so that the second
shipment could be processed and proceeded with. I will now address in
detail
some of the particulars of fraud pleaded by the plaintiffs.
p class="Mss="MsoNormal" style="text-indent: -34.9pt; margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
6.5.1 lang="EN-GB" style="font-sont-size: 12.0pt">
b>“Paragraph 14(aa). aa). The First and Second Defendants knew that as early
as 27
December 1995, as claim paras 4(3 (4) he4) hereof,reof, LC C LC CPS
619890 was USD377,000 less, to reflect the amount advanced by
the second
Defendant to the First Defendant.”
I do not think it has ,ever
denied by both defendants tnts that a red clause advance to the tune of
USD377,000-00
was drawn on or about 27th December 1995 by
ICML towards costs of operations at Mono. Both knew this meant if the
Mono LC was negotiated,
it would be less by that amount. Unfortunately
what the plaintiff has failed to distinguish under this paragraph is
what was wrong or fraudulent about having that knowledge. No allegation
or evidence has been adduced as to what
the plaintiffs have sought to
allege was fraudulent about that knowledge as a fact I do not think ICML
or NBSIL
too have sought to deny the effect of such an advance to the LC
itself. Evidence adduced showed conclusively that a red
clause advance
is nothing unusual in letters of credit. It is often done to cover
situations where funds are
needed in advance before any shipment had
been concluded. Respectfully, I fail to see or find anything that should
link NBSIL or even ICML with any intentions to defraud the plaintiffs in
respect of this advance. When the advance
was drawn in December of 1995,
the involvement of ICML with operations at Enoghae had not yet taken off
the ground.
6.5. &nbParag
aph 14( ) (bb) (bb) The First and Second Defendants knew, as early as February 1996,
that the First
Defendant cnot sny lom Monortlands”
It is not disputed that
towards enJanuary 1996, Lennea had abad abandoned Mono, Shortland
Islands because of landowner
problems and the court injunction
re-instated around that time, which effectively prevented any further
logging
activity at Mono. The ship which was supposed to load logs at
Mono had to return empty incurring dead freight and demurrage
to the
amount of USD322,494-00. Both defendants knew by February 1996, no logs
could be shipped from Mono. The
effect of this can be summed up as
follows. NBSIL was out of pocket by the amount of the red clause
advance.
It had advanced monies towards ICML under that LC to be repaid
when the Mono LC was negotiated. Ultimately POTCL would
be out of pocket
by the same amount plus dead freight and demurrage charges. Note NBSIL
was secured by the Mono
LC that in the event no payment was received
from that LC, it would be reimbursed by Hang Seng Bank. The person most
affected by all this was ICML as it had incurred debts which it was
obliged to pay off under that LC.
Again it has never been
denied by ICML and NBSIL that they knew ICML ICML could not ship any logs
from Mono, Shortlands.
What NBSIL denies however is that it was a party
to or in league with ICML to have the Mono LC negotiated with any
shipment from Enoghae with the purpose or object to defraud Mbaeroko. In
particular it denies that having advanced
monies to ICML, it colluded
thereafter with ICML to have the Mono LC negotiated with a shipment from
Enoghae.
No evidence has been adduced to support any such suggestions.
The fact NBSIL may have been aware no logs from Mono could
now be
shipped in favour of that LC by February of 1996, it does not
necessarily follow that this was amounted
to fraud. It is unfortunate
the particulars raised in this paragraph 14(bb) is somewhat incomplete.
It did not
go on to specify in what way it was fraudulent. Mere
knowledge as correctly pointed out by Mr. Sullivan, cannot amount
to
fraud unless it can be established on the balance of probabilities, that
whatever representation was given
was false and made knowingly, or that
the maker was reckless whether it was true or false. Nothing of that
sort
had been raised under this particulars of fraud.
At the same time, it is
important to note that the knowledge referred to underunder this paragraph
would have
come to the attention of the bank through the normal course
of business dealings it had with ICML. There has been no evidence
or
suggestion raised by the plaintiff that this knowledge would have come
about through any suspicious plan or
scheme agreed upon between them. I
come to the conclusion that there is nothing fraudulent or wrongful
about
the allegation raised under this paragraph.
.
“Paragraph 14(cc)
- From February 1996 onwards, both the First and Second Defendants knew
that in order for LC
CPS 619890 be negotiated, the First Defendant was
to ship logs to Hang Seng Bank’s client, Pacific Ocean Timber Company
Ltd, thereby securing the refund of the amount advanced by the Second
Defendant to the First Defendant.”
p clas class="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
By February 1996 ICML was
well and truly indebted to POT not only for ther the red clause advance
(USD377,000)
but for the dead freight and demurrage (USD322,494)
incurred in respect of an empty ship from Mono in December of 1995.
Lennea knew he had debts to pay off in relation to the Mono LC. This
meant he had to find logs somewhere and
sell them off to POTCL, or find
other means and ways of repaying that debt. What he did eventually
decide to
do however was a matter for him and him alone to decide, not
NBSIL. There is no evidence in that regard to suggest in anyway
that
NBSIL was a party to or in league with ICML as to how the Mono LC was to
be negotiated; whether this was
to be by shipment of logs from Enoghae
or elsewhere. It is for the plaintiffs to establish this fact on the
evidence
before me. Nothing of that sort had been shown.
On the qon how the
advance was to be repaid, the terms ofms of the Mono LC provided inter alia,
that it was to
be recovered from the shipment of logs under that LC.
Only in the event of non-payment was the establishing bank to reimburse
NBSIL; again provided for under the LC (Exhibit 1/02). This meant to a
certain extent and I do not think it can
be denied, NBSIL would have
some interest in such a shipment. NBSIL’s interest however was well
secured under
the terms of that LC in the event of non-payment under
that LC. We now know the Mono LC expired on 15th February
1996 and on 16th February, demand was made on Hang Seng Bank
for repayment of that advance (Exhibits 131, 137, 139, 140,
147, 148 and 149). We also know from evidence before this Court that
NBSIL eventually was reimbursed in full the red clause advance plus
interest and charges on 12th September 1996. That would
dispose of any suggestions that NBSIL would continue to have the same
interest in
the shipment of logs as ICML, other than its obligations as
the advising bank to ICML under the Mono LC.
I accept that the bank
would have known by February 1996 at the earliest, if it applied its
mind to that fact,
that in order for the advance to be repaid, the Mono
LC would have to be negotiated in the first instance, and that meant
logs would have to be shipped to POTCL. The first point to note about
this fact is that I find on the evidence
before me this knowledge came
to the attention of NBSIL by virtue of its business relationship with
ICML. The
plaintiffs have failed to adduce any evidence to suggest
otherwise that this knowledge would have come to the attention
of the
bank through any scheme, plan, collusion or communication it might have
had with ICML.
Secondly, I accept the
suggesthat the bank would have some some interest in such a shipment by
virtue of the repayment
of the red clause advance (money it had advanced
under the LC towards ICML’s account). However that should be balanced
by
the equally important fact that the banks concern (advance) was well
protected by the guarantee secured under
the terms of the Mono LC in the
event of non-payment under the shipment anticipated for that LC. We know
the
bank activated that provision under the LC when it expired on 15th
February 1996. All the evidence adduced showed the bank making demand on
Hang Seng Bank to effect reimbursement.
This was eventually done on 12
September 1996. No evidence has been adduced by the plaintiffs to show
the bank
making any demands on ICML directly or applying pressure on
ICML to make the shipment. No evidence as well has been adduced
to show
that both parties conspired together about any such shipments or entered
into any discussions or communications
about how and when the shipment
was to be done.
It is important to
distinguish and differentiate the contractual relationship of ICML and
POTCL and the banker/client
relationship of ICML and NBSIL. These are
not the same. Whilst NBSIL was concerned about the repayment of its
advance to ICML, I find nothing on the evidence before me to suggest
that its dealings with ICML were other than that
based on the
relationship to be expected between an advising bank and the beneficiary
to that LC. NBSIL was never
a party to the business arrangements entered
into between POTCL and ICML and so would have little direct interest in
how their business relationships and the debts were to be paid. Whether
it knew what ICML would do with respect
to the shipment of logs, that
is, whether it would come from Enoghae or not, is immaterial to its
obligations
as banker. No evidence has been adduced to show that this
was fraudulent or that the bank did anything that was fraudulent
as a
result of this knowledge. Consenting to the amendments made in respect
of the Mono LC does not necessarily
mean NBSIL was a party to any
fraudulent scheme embarked on by ICML. It has to be proven on evidence
that NBSIL
was a knowing party to such fraudulent scheme. Respectfully,
no evidence has been adduced to that effect. Of crucial significance
against any such suggestions of fraud is that whilst it is possible that
the Mono LC would be negotiated by a
shipment of logs from Enoghae,
there is no evidence to suggest the existence of any common purpose or
intention
on their part to defraud Mbaeroko.
I find little evidence to
suggest there was any agreement, plan, collusion, or communication,
between the two
parties as to how and when the shipment was to be done
and to give any hints or suggestions of fraud. As I have pointed
out
already, it is for the plaintiffs to prove fraud under this particular.
They have not done that.
I find also on the evidence
befe that the knowledge obtainbtained by the bank in this instance came
to its attention
in the normal course of its business dealings. No
evidence has been adduced to show otherwise. That can hardly be
described as amounting to fraud.
6.5.4 &nbParag
14(d 14(dd) Both the First and Second Defendants knew that as LC 203010027085
cannot be amended
as it specifically named the Plainas th beneficiary, the contract cannot be interfnterfered ered with to satisfy the
conditions in LC CPS 619890.”
LC 203010027085 was the
Goodwill LC. It was established in respect of the first shipment of logs
from Enoghae
in favour of Mbaeroko and eventually negotiated for the sum
of USD711,366.55, divided up between Mbaeroko and ICML in the
following
amounts: SBD1,671,658.38 credited to Mbaeroko’s account, and
SBD855,074.33 credited to ICML’s account,
less bank charges.
The partis of fraud
pleaded assumed that ICML and NBSIL haIL had colluded with each other to
amend the Goodwill
LC in order to satisfy the conditions in the Mono LC,
but couldn’t because Mbaeroko had been named as the Beneficiary in
that
LC. This raises a question of fact. Is there evidence which supports
this allegation? It is for the plaintiff
to adduce evidence of
conspiracy, collusion, or whatever, that would show that the first and
second defendants
had such intention or plan in mind, but couldn’t carry
it out to completion because of the fact the LC had been named in
favour
of Mbaeroko. Have they done that in this case? Unfortunately, there is
no iota of evidence to suggest
any such collusion, plan or scheme.
6.5.5 & Para
14(ee)4(ee)4(ee) Both the First and Second Defendants knew that LC IDLC 1423721312
can be amended
and was it amended as referred to in paragraphs 4(9)
and 4(11) hereof.
Negotiations he
Quarter Agreement were commenced on 24thth
June 1996 (Exhibit
66) and signed on 10th July 1996 (Exhibit 77). No evidence
has been adduced to show that the bank took any part in the negotiations
and signing of the said agreement. The earliest time the bank became
aware of the existence of the LC appears to have been
on or about 2nd
August when a copy of the LC was sent to the Bank (Exhibit 3).
Immediately, Mbaeroko was informed of the said
LC (Exhibit 102). The
contents of that letter is relevant. At paragraph 1, the bank enclosed
the original Documentary
Credit and advised Mbaeroko that it was sent
“without any engagement on our part”. This meant the documentary
credit was being passed on without any alterations or involvement on
their part in
its establishment. The important point to note about the
actions of the bank is that it is not consistent with the suggestion
that it might be colluding with ICML to defraud Mbaeroko of the proceeds
of the said shipment. If NBSIL was in
league with ICML, I would not have
expected it to immediately send the documentary credit and details about
it
to Mbaeroko straight away. Rather, I would have expected the bank
either to conceal the said LC from Mbaeroko or delay
in sending it. But
that is not what happened here. NBSIL made sure the information and
document was passed on
straight away.
On the same date (2nd August) Lennea advised Quarter Enterprises to amend thnd the Quarter LC to
show Mbaeroko and ICML as joint beneficiaries
(Exhibit 103). Again there
is no evidence to suggest that NBSIL was in collusion with ICML about
this amendment.
It is one thing to make an allegation, it is another to
prove it.
rucial amendments were
done on 14th August 1996 (Exhibit 112 - ICML ICML requests
Quarter Enterprises to amend the Quarter LC to show ICML as
the sole beneficiary), 21st August 1996 (Exhibit
117 - Quarter Enterprises instructed CBA in turn to amend the
Beneficiary in the Quarter LC), and 26th August 1996 when
NBSIL received the Quarter LC amendment no. 3/01 (advising of change
of beneficiary). Straight away on same date, NBSIL sent a fax to
Mbaeroko advising it of the change of beneficiary (Exhibit 126) and on
the next day (27th August 1996) it sent an urgent message to
CBA enquiring about the amendment (Exhibit 128).
class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
The particulars pleaded
under this paragrapumed NBSIL and ICML were inre in consort together
about this amendment.
Unfortunately no evidence has been adduced to
prove this assertion. Further, I find the actions taken by NBSIL to be
totally inconsistent with the suggestion that it was conspiring with
ICML to defraud Mbaeroko. If there was intention
to defraud Mbaeroko or
suggestions to that effect, I find with respect no evidence whatsoever
to support such
intention or suggestion. It would have been more
consistent with such suggestions if NBSIL had not passed on such
information to Mbaeroko. But that’s not what it did. It is for the
plaintiffs to prove that ICML and NBSIL had conspired
together in this
amendment with the common purpose or object to defraud them. That has
not been done with respect.
Ziru acknowledged having
received the said advice (Exhibit 126) fr6) from NBSIL on the same date
(see his answers to interrogatories No. 11 - exhibit 454). In his
answers to interrogatory nos. 12 & 13 (Exhibit 455), Ziru stated he did
not reply to that document.
At the earliest possible time therefore Ziru
was made aware of the amendment by none other than NBSIL (the person
he condemns as colluding with ICML to defraud him). The fax
of 26th August 1996 (Exhibit 126) gave clear and unequivocal
notice to Ziru of the amendment. This meant he had notice of the
amendment at about the same time as the bank. He however has not been
able to produce any evidence to suggest
that the bank was a party to
this amendment or had anything to do with it, other than in its capacity
as the
advising bank. With respect I find nothing whatsoever to link
NBSIL with any fraudulent schemes or intentions to defraud
him.
Further, the actions or response of Ziru on receipt of the fax message from NBom NBSIL is crucial to
any allegations
of fraud against NBSIL. We know he did not do anything
about that message. If it was contrary to his interest, or as he
alleges
there was fraud involved, I would have expected him to immediately raise
the matter, not only with NBSIL
but directly with ICML, and with the
assistance of his solicitor put a stop to that amendment. He did none of
these. This raises the question, as to the effect of this in law. It
must be appreciated that when one seeks to enter
into a contractual or a
business relationship with another person, even merely doing nothing
about something
can have legal consequences, whether one appreciates it
or not. I find in the facts of this case with respect, the inaction
of
Ziru can be construed as amounting to a waiver of his rights as the
beneficiary to the Quarter LC. He knew
the Quarter LC was initially in
favour of Mbaeroko as the beneficiary. However, when it was brought to
his attention
that an amendment had now been made in favour of ICML, (to
his detriment), he did nothing about it. The amendment obviously
was
detrimental to his rights, yet he forbore to take any action. In my
respectful view, this can be construed
as a relinquishment of his rights
as the beneficiary to the Quarter LC (see discussions on
the doctrine of waiver in “Chitty on Contracts General Principles” 26th
Edition Vol. 1 and definition of Waiver in Black’s Law Dictionary sixth
edition) whether he appreciated that or not. In such circumstances,
it was no longer open to Ziru to come to this court now and say
that
NBSIL was a party to the amendment to defraud him, when at that time he
had opportunity and was given opportunity
to do something about it, to
reject the amendment, he did nothing.
6.5.6
S NBSIE AAVE ASKED MKED MBAEROKO FOR ITS CONSENT TO THE
AMENDMENT?
&pt"> nbsp;
Whilst on one hand, ideally
this is what NBSIL should have done in the circumstances, and learned
Counsel Mr.
Sullivan for NBSIL concedes this was wrong, it is my
respectful view that the fax sent to Mbaeroko on 26th August
1996 (Exhibit 126) amounted to basically the same thing. If it did
not ask him for his consent, it definitely gave him clear and
unequivocal notice of the change effected
by his business partner, IC
ML. The effect-of that letter was more or less the same. It simply
told him what had happened to the Quarter LC and NBSIL was
merely
passing it on to him. Note the last paragraph of that letter couldn’t be
any clearer. I quote:
“This fax message serve as an authorisation to yourselves to hand over the othe original credit
instrument currently
held with yourselves to
Island Construction
Management.”
If this was something he
did not agree with, I would have expected him to act immediately. To say
however that
this failure by the bank was fraudulent in my respectful
view cannot be substantiated. I find NBSIL’s actions to be inconsistent
with any suggestions of fraud. Further there is clear and cogent
evidence which showed that the change was effected
by ICML in the hope
of gaining greater control over the distribution of profits as a result
of what happened
to the proceeds in the first shipment (see evidence
of Lennea at transcript pages 267-268). There is no evidence
whatsoever to suggest that NBSIL was a party to what Lennea did or even
had anything to
do with it.
6.5.7 & “Paragraph
14(ff) Both the First and Send Second Defendants knew that once the sanction
of the Court was obtained
for the First Defendant to export the logs
pursuant to LC IDLC 1423721312 that the contract within LC IDLC
1423721312,
if there in fact was a contract, can be interfered with to
satisfy the conditions in LC CPS 619890.”
Paragraph 14(ff) has been
described by the second defendant as unintelligible. I too fail to
understand what it
is about and so must dismiss it as irrelevant.
6.5.8 “Paragra 14(gg) Bog) Bog) Both the First and Second Defendants are well aware of the terms
of the Court
orders dated 28 October 1996 in cc 244/96.”
as class="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
Civil Case No. 244 of 1996
was a case between ICML as the Plaintiff and MbaerMbaeroko as the Defendant.
That action
had been commenced by writ of summons filed on 23rd
August 1996. It had been based on an agreement entered into between the
parties (Exhibit 438) in which it had
been agreed inter alia, that the
gross profits defined in the agreement would be shared equally between
the parties.
ICML claims it had not received its fair share of the
profits from the first shipment and so sued for damages for breach
of
contract, payment of specific sums outstanding, specific performance in
respect of the contract for sale of
the second shipment and an
injunction to prevent Mbaeroko from disposing of the round logs other
than as agreed
upon between the parties. It will be recalled the Quarter
agreement had been entered into by ICML at this time for the
sale of the
second shipment, whilst Ziru had entered into a separate contract with
Yellow River for the same
shipment (Exhibit 92). Also on 19th
August 1996, Ziru had further instructed that all other contracts were
to be cancelled in favour of Goodwill.
This was the scene when ICML
commenced court action.
On 14 October
1996, an order was obtained from trom this court for the immediate sale of
the second shipment of logs
by ICML to prevent further deterioration. On
28th October 1996, a second order was obtained. That order
read:
“1.
&n & The e order made on
11/10/1996 authorising the
plaintiff to sell certain logs, the subject of what is described as
d shi, is ntinue.inue.
It i It is nots noted that the order does not
absolve the plaintiff from liability for a claim by the defendant based
on allegation of poor price that the plaintiff may have sold the logs
at.
2. p;&nbbsp;&nsp;&nbp;&nbp; Shoul
plai plaintiff tiff be unable to sell as authorised by the above order, the logs
are to be sold in accordance with the contract.
3. &nbbsp;& &bsp;&bsp;&nbp; The proceeds
are to b to be paid into the joint interest bearing account of the solicitors
for the parties. If letters of credit has been drawn vour e
plaintiff tiff or the defendant, that party is requirequired
tred to pay the whole into
the joint account of the solicitors stated herein.
4. & Parties are
o e to endeavour to agree as to the meaning of the terms of the contract as
to sharing
of theeeds.he evf the agre the proceeds will be paid out in equal sual shareshares, tha, that is t is 50% t50% to theo the plaintiff
and 50% to the defendant. Any claim as to more than a 50% share shall be
resolved at the final determination
of the substantive case. This
paragraph of the order does not absolve a party from liability for the
use of a
share more than a share he is found to be entitled to when the
case is finally determined.
5. &nbbsp; &nsp; Thi plaf tiff
is is to take the next step in the proceedings within seven days of today
and the rest of the pleadings are to follow in due compliance with the
es.”
There can be no doubt ICML
would have been well aware of the terms of the above order, it (being a
party to that
case. NBSIL although not a party, admits in its amended
defence at paragraph 12(a), being aware of that order as well.
This is
understandable as the order did refer to the proceeds being restrained
by order of the court and to be
paid into an interest bearing account of
the solicitors for the parties.
class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
The question I think which
the particulars under this paragraph seeks to infer is that NBSIL being
aware of the
implications of the orders of the 28th October
1996, was thereby obliged in law to protect the interests of the
plaintiffs under that shipment of logs.
Unfortunately, this
misconceives NBSIL’s responsibility under that court order. NBSIL was
never a party to that
court case (Civil Case 244 of 1996) and therefore
owed no duty to anyone under that court order. Secondly, NBSIL’s
knowledge of the said court order would make little difference to the
issues of liability arising from the terms
of that court order. NBSIL
only became involved on 30th October 1996, when ICML entered
into an agreement for sale with POTCL and it was agreed inter alia, that
the
Mono LC would be used to fund that shipment.
Now a further question may
be asked from this, bg in mind the order of 28th October
1996, whether NBSIL was obliged to protect Mbaeroko’s interest under the
Mono LC? Unfortunately again,
this misconceives the part played by NBSIL
under the Mono LC. I will say more on this when examining NBSIL’s role
in detail under this arrangement. Suffice to point out now that NBSIL’s
involvement under the terms of that LC was
confined to a documents only
relationship with ICML as the beneficiary on one hand, and on the other,
with Hang
Seng Bank as the establishing bank. NBSIL owed little or no
duty towards Mbaeroko. It was entitled in law to deal with
ICML as the
beneficiary under the terms of the Mono LC irrespective of the fact that
ICML was and may have been
acting only as the agent of Mbaeroko. It may,
but was not bound by law to go beyond the terms of that LC. The
transactions therefore entered into by NBSIL with ICML as the
beneficiary were valid and binding in law.
On the other hand, the
person wed a duty of care and accouaccountability to Mbaeroko was ICML
as its agent. It
could only perform that which it was authorised to do.
Anything beyond that, it must be prepared to take responsibility
for it,
including any legal consequences arising therein. I have already found
in the facts of this case that
ICML had fraudulently dealt with Ziru’s
logs and do not need to repeat same here. For purposes of the
particulars
raised in paragraph (gg), I find little in support of the
submission of fraud against NBSIL.
6.5.9&nbbsp; Paragraphs
(h), (i), and (j)
The allegations raised
er these paragraphs can be summarised as follows:
(1) &nnbsp;; bsp; that as early as
26 26 November 1996, both defendants knew that the First Defendant was to ship
the second shipment in accordance with the Mono LC;
(2) p;&nbbsp; bsp; bsp; that both knew as early as 26 November 1996, that the value of the Mono LC was being
mended to reflect the value of the second shipment of UD437,904.95; and
(3) &nbssp; that asat as early as
27 November 1996 the value of the Mono LC was only USD50,699.01 (that is
USD437,904.95 - USD387,250.94).
I understand from these
allegatioat the plaintiff seeks to i to infer in turn the following:
(a) ; tspt tha defendants had
had
conspired togetherICML to arrange
for the second
shipto beccordance with thth the Mone Mono LC;o LC;
<
(b) &nnbsp;; tspt that the
defendants had conspired together to have the Mono LC amended to reflect
the
value of the second shipment at USD43.95; span>
class="Mss="MsoNormal" style="text-indent: -36.0pt; margin-left: 144.0pt; margin-top: 1; margin-bottom: 1">
(c) & tsp; that
defendefendants had conspired together so that if any proceeds was to be
received, it would
only be in the vicinity of about USD5001.
The purpose or object of
these was to deprive the plaintifintiff of the proceeds of the second
shipment so that
ICML’s debts with POTCL would get paid.
lass="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
The first question tha must be asked is whether there is evidence to supporupport any suggestions
that both defendants
had conspired together to ship the second shipment
in accordance with the Mono LC. NBSIL does not deny the fact it was
aware as early as 26 November 1996, that the first defendant was to ship
the second shipment in accordance with
the Mono LC (see paragraph
12(a) of its amended defence filed 1st August 1997). What
it denies stringently is the suggestion that it had anything to do with
the decision to ship the second shipment
in accordance with the terms of
the Mono LC. Respectfully I must rule in favour of the second defendant.
There
is simply no evidence of any collusion between ICMU/Lennea on the
one hand and NBSIL or any of its officers on the other.
The plaintiffs
have simply not been able to point to any evidence (document or
otherwise) that supports the collusive
allegation.
As to the inferences in
paragraphs (b) and (c) above, the same conclusion must be made as to the
question of whether
any evidence in support had been made.
One of the crucial
submissions of the plaintiff arising from these was that by t by consenting
to the amendments
in the Mono LC NBSIL was participating with ICML in
the conspiracy to defraud. This raises in turn however a number of
important considerations which must be addressed. First, the role of
NBSIL in this saga and its relationship
to the parties; secondly the
setup of documentary credits, including their amendments and effects;
and thirdly
whether NBSIL owed any duty to either party.
6.5.10 THE ROLE OF
NAL BANK BANK OF SOLOMON ISLANDS LIMITED>
<
What was the role played by
NBSIL? NBSIL was the bahe banker of both Mbaeroko Timbers and ICML. It played
a crucial
role in facilitating the transfer and payment of funds from
the overseas buyers and the locally based parties, as the advising
or
confirming bank in the various documentary credits established;
including the Mono LC, the Goodwill LC, the
Quarter LC, and the Stand-By
LC. Its role in essence can be summed up as being based on the
contractual relationship established either as banker and
client or as
advising bank and beneficiary. In respect of Mbaeroko Timbers it was as
banker and client, whilst
in the various LC’s established it was between
advising bank and the beneficiaries to those LC’s. The analysis of
NBSIL’s role however would be incomplete without a proper understanding
of the set-up of documentary letters of credits.
6.5.11 DOCUMENTARY
TERS EF CREDITS<
Learned Counsel, Mr.
Sullivan had conveni set out in his written subn submissions at
paragraph 4(e) the four common
relationships identified in the set up of
commodity letters of credit transactions. I summarise these for
convenience
as follows:
1. &nbbsp; The
he
underlyderlying commercial
contract between buyer (applicant) and seller (beneficiary). [I contf the Mono LC, thC, this wois would ruld relate to POTCL (buyer) and ICML
(beneficiary).]
2. & cont act
act
between the buyer/aper/applicant and the establishing bank.
[This would relate to POTCL
(buyer) and Hang Seng Bank (establishing bank).]
3. p;&nbe
contract/undertaking between the establishing/issuing bank and the
advising/negotiating
bank. [This would relate to the to b relationship between
the oversoverseas beas bank Hang Seng Bank (establishing bank)
and NBSIL (advising
bank).]
4. &nnbsp;;&nspp; Tsp; The
e
relationship between the advising/negotiating bank and the
seller/beneficiary.
[This would relate to the
r relatielationship between NBSIL and ICML]
The first important point
to note about the relationships in paras. 3 and 4 is that they are based
on a documents only relationship. In relationship (3), the
advising bank is not concerned about the underlying commercial
transaction between
the applicant and establishing bank or between the
applicant and the beneficiary. In relationship no. 4, the
advising bank is also not concerned about the whereabouts of the goods
or its ownership. The guidelines
and practices drawn up by the
International Chamber of Commerce “Uniform Customs and Practice
for Documentary Credits published in 1993,(Exhibit 435) [herein
referred to as the “ICC Document”] at Articles 3 and 4 help to
shed useful light on the types of relationships described above. I
quote:
“Article 3
as class="MsoNormal" style="margin-left: 108.0pt; margin-top: 1; margin-bottom: 1">
Credits
v. Contracts
[a] Credits, by
thetr nature, are separate transactions from the sales or other
contract(s) on which they
may be based and banks are in no way concer ith ond by conts), even if any refy referencerence whae whatsoevtsoever toer to
such contract(s) is included in the Credit. Consequently, the
undertaking of a bank to pay, accept and pay Draft(s)
or negotiate
and/or to fulfil any other obligation under the Credit, is not subject
to claims or defences by
the Applicant resulting from his relationships
with the Issuing Bank or the Beneficiary.
[b] &nnbsp;ne Beiaric
can in no case avail himself of the contractual relationships existing
between
the banksetwee Appl and ssuing Bank.”
Article 4
Documents v.
GoodslServiceslPerformances
The comments of Lord
ock in the case United City Merchants (Investments) Ltd Ltd v. Royal
Bank of Canada [1982] 2 WLR 1039, 1042 (Lord Diplock) also makes the
same point.
“…The documentary credit
relates to the mutual righ rights and obligations of the confirming
bank and the beneficiary
under a documentary credit. It is of general
importance to all those engaged in the conduct and financing of
international trade for it challenges the basic principle of documentary
credit operations that banks that are parties
to them deal in documents
only, not in the goods to which those documents purport to relate.”
Article 7 of the ICC
Document also speut in simple terms what thet the responsibility of the
advising bank is.
I quote:
“[a] p; A Credit mdit may
be advised to d to a Beneficiary through another bank (the “Advising Bank”)
without engagement
on the part of the Advising Bank, but that bank, if
it elects to advise thdit, shall take reasonable able care to check
the
apparent authenticity of the Credit which it advises. If the bank elects
not to advise the Credit, it must
so inform the Issuing Bank without
delay.
[b] & I
e Advising Bank cannot establish such apparent authenticity it must
inform, without delay, the bank
from which the instructions appear to
have receihat i been unable to e to establstablish tish the authenticity
of the Credit and if it elects nonetheless to advise the Credit it must
inform the Beneficiary that it has not been able
to establish the
authenticity of the Credit.”
The role therefore played
by the advising bank in a credit arrangement is as its name indicates as
a medium or
channel through whom the credit arrangements are
facilitated. Its crucial function is to ensure that the credit facility
is genuine and then to advise the beneficiary of it and perform any
other functions that might be requested under
that documentary credit.
These would be set out clearly in the terms of the credit. It
is important to understand that the advising banks duties and rights
which may arise are confined strictly to that documentary credit. Hence
it is vital the bank checks the terms clearly
and ensure that these are
complied with strictly to the letter before any action can be taken. If
not, then the
advising bank should always as a matter of practice refer
the credit back to the establishing bank. This is what is referred
to in
bank language as “sending the documents back to the establishing bank on
collection basis”. In evidence
before this court, this was what NBSIL
had to do on several occasions regarding certain LC’s which it found had
not been complied with to the letter.
6.5.12. AMENDMENTS TO
DOCUMENTARYITS
Sometimes amendments are
required to be made on the documentary letters of credit that had been
established. Article
9[d](i) of the ICC Document also had some useful
guidelines to offer on this. I quote:
“Except as otherwise
provided by Ae 48, an irrevocable Creditredit can neither be amended nor
cancelled without
the agreement of the Issuing Bank, the Confirming
Bank, if any, and the Beneficiary.”
Now some confusion appears
to have been generated by what was said in Article 9 [d]9 [d](i) above. The
plaintiff views
what had been stated above to imply that in the case of
the Mono LC, NBSIL owed a duty to Mbaeroko as the owner of the
second
shipment, to refuse the amendments put through by Hang Seng Bank
(obviously on the instruction of POTCL).
They allege that by agreeing to
the amendments, NBSIL became a party to the fraudulent schemes of ICML.
This
raises the legal question, what is the effect of NBSIL’s agreement
to the various amendments done to the Mono LC? Does
this mean, it was
agreeing to the fraud sought to be perpetrated by ICML and thereby a
party to the fraudulent
schemes of ICML? Should they have rejected the
amendments, and does NBSIL owe a duty to Mbaeroko under the terms of
that LC?
class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
Again I find this
submission to be misguided. It confuses the role and obligations of
NBSIL as the advising bank
under that letter of credit. Once the
decision had been made, by ICML to use the Mono LC,(note I had not
found any clear or cogent evidence that would show that NBSIL had been
involved in anyway in the
making of that decision by ICML) NBSIL’s
duties and obligations arising from that LC became defined and confined
to the terms of that LC as advising
bank, irrespective of the various
knowledge it had of the existence of the Court Order dated 28th
October 1996, and of the red clause advance of approximately
USD387,359.94. It must be borne in mind NBSIL was
not a party to the
Civil Case 244 of 1996, nor was it a party to the underlying commercial
transaction between
ICML and POTCL, nor did it owe any duty directly to
Mbaeroko under that LC, other than the duty owed to ICML as the
principal to that LC. As pointed out in this judgment, the person who
owed a clear duty to Mbaeroko to act responsibly
and to protect its
interest, and properly account for its actions, was ICML. NBSIL’s
obligations were confined
to ICML under that LC. There has been no
suggestion made that NBSIL did not discharge its duties fully as
advising
bank under that LC. It should be borne in mind, NBSIL’s
relationship with ICML is confined only to a documents only relationship
and had nothing to do with the whereabouts of the logs and their
ownership. Hence the amendments effected by
NBSIL must be understood in
that context. They were amendments effected by NBSIL as channelled
through it by
Hang Seng Bank for the benefit of ICML. These are separate
transactions from the underlying commercial transaction between
ICML and
POTCL or between ICML and Mbaeroko. The arrangements between ICML and
Mbaeroko are matters for Lennea
and Ziru to address and sort out between
themselves. NBSIL’s knowledge of what might possibly be happening
between
them makes little difference and has little relevance to its
duties of and as an advising bank. No evidence has been adduced
to, show
if the amendments had been part of a conspiracy between ICML and NBSIL.
Refully, the
allegation against NBSIL had been confused or mistaken with the duty
uty
owed to Mbaeroko by ICML.
It is ICML who had a contractual relationship
with Mbaeroko for the shipment of those logs, and therefore owed a duty
in the peculiar circumstances of this case not to have used the Mono LC
from the beginning, by virtue of the fact
he owed POTCL substantial sums
of money under that LC.
On the questionefore
whether NBSIL owed any direct duty to MbaerMbaeroko under that LC, the answer
must be answered
in the negative. If there was any duty owed it was
equivalent to that owed to ICML in its capacity as the beneficiary to
that LC. On the question whether NBSIL was obliged to reject the
amendments, the answer must also be no. No valid
reason had been
advanced why NBSIL should have rejected the amendments.
6.sp; COMMON PURPOSE
BJR OBJR OBJECT
The issue of common purpose
bject as raised in the alle allegations of conspiracy to defraud
therefore can now
be finally laid to rest. I find no evidence of any
suggestion that NBSIL collaborated with ICML on any common purpose or
object to defraud the plaintiffs. Any such suggestions can only be
described as mere assumptions and conjecture,
if not arising from
misunderstandings of the role and functions played by NBSIL as the
advising bank under the
Mono LC. This allegation accordingly must be
dismissed as without foundation.
6.7 ;&nbsSTOMS DUTY -
EXHIBIT 459
>
I will now turn to address
speciftters raised in the submissbmissions of the parties. The first one
pertains to
the issue of the Customs duty payable under that second
shipment. It is not in dispute Mbaeroko had export duty exemptions
on
30,000 m³ of logs (Exhibit 80). This was granted as follows:
(a)ot;"> &nnsp;&&nsp;;&nspp;&nssp;
sp;
100% duty remission on the first two shipments; and
ass="Mss="MsoNormal" style="text-indent: -36.75pt; margin-left: 144.75pt; margin-top: 1; margin-bottom: 1">
(b) nbsp; p; &nbp; &nbssp; &nbs 40% >40% duty remission on the remaining shipment until the whole
total amount of 30,000 m3 was used up.
>
On 3rd Septem 1996 (Exhibit 450) this was amended so as to be babe based on volume. This
meant full remission was now
granted on the first volume of 30,000 m³
and 50% remission on the remaining 50,000 m³.
The issue of payment of
Customs duty came to a head when the vessel ssel was detained at Noro by
Customs for non-payment
of duty (Exhibits 246, 247, 255, 258, 259, 262,
267, 268). Following numerous correspondences, NBSIL wrote to Customs on
19th December 1996, to secure the payment of duty. This was
the letter written to Customs to advise that NBSIL had noted its
records
to pay duty upon negotiation of the stand-by LC documents if they
strictly comply with that LC (Exhibit
459). There has been some argument
over the meaning or effect of this document. The plaintiffs argue this
was
a guarantee provided by the bank to enable the ship MV Arktis
Venture to leave Solomon Islands and part of the actions
taken by the
bank in consort with ICML to ensure the shipment went through. The
second defendant argue it was
not a guarantee in the strict sense of the
word. Rather, it was a letter advising Customs that the bank will pay
custom duty upon negotiation of the documents presented to the bank in
terms of the Stand-by LC (see paragraph 2.12.2 of this judgment for
details of that letter as quoted).
6.7.1 THE TRUE
MEANING OF E OF EXHIBIT 459
Is Exhibit 459 a guarantee
by the bank to pay customs duty? What’s the difference? “A guarantee in
essence is
a collateral promise to answer for the debt, default or
miscarriage of another as distinguished from an original and direct
contract for the promisor’s own act (See Osborn’s Concise Law Dictionary
Sixth Edition).
lass="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
Exhibit 459 therefore can
never be described “guarantee” for the paymenayment of export duty.
There is no clause,
express or to be implied, which states that the bank
would pay customs duty in the event of default. Payment of duty
is the responsibility of the seller of the logs; in this case,
ICML or
Mbaeroko. It was never the bank’s responsibility to pay duty. The bank
also owed Customs nothing in terms
of the duty. All that Exhibit 459
purports to say is that the bank will pay Customs duty only upon
negotiation
of documents presented to the bank in accordance with the
terms of the Stand-by LC. In other words, if the bank is not
satisfied
that the documents presented do not comply with the terms of the
Stand-by LC then no payment can be
released towards the export duty.
Customs in turn cannot call on NBSIL to pay up the duty; that is they
cannot
have Exhibit 459 enforced in a court of law as if it were a
guarantee. There is no evidence that any action had been instituted
by
Customs in respect of that so-called guarantee. The hall-marks of a
guarantee is that it can be called upon
and enforced in a court of law.
lass="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
Now one of the submissions
sought to be put forward on behalf of the plaintiffs was that it was
unnecessary for
NBSIL to have recourse to a stand-by LC when there was
already in existence the Mono LC. The plaintiffs seek to infer from
this
that NBSIL did this in consort with ICML to ensure the shipment went
through so that POTCL would get paid.
Unfortunately this fails to
ake into account the fact that not only is the bank a separseparate legal
entity but a
financial institution as well with profit making as one of
its prime motives, and therefore is entitled to draw up and
set up its
own safe guards, requirements, rules and practices, on how it is to
secure its moneys that have been
lent, used or paid out. So the fact it
was aware the Mono LC would have been insufficient to cover the payment
of Customs duty, meant it was obliged to insist on whatever measures it
felt would protect its own interest if it was
to be required to part
with any of its money. That would have been based purely on a commercial
decision. It
should be noted however this was given as mere advice to
Lennea and Ng when they sought the bank’s urgent help about payment
of
the Custom’s duty (see unchallenged evidence of Peter Wyatt at
transcripts 10-171 and 274). The decision to
establish the Stand-by LC
was never initiated by NBSIL. There is no evidence to suggest the advice
given was
anything to do with any fraudulent schemes or plans between
ICML and NBSIL other than in the normal business relationship
between
them as banker and client.
p class="Mss="MsoNormal" style="margin-left: 70.9pt; margin-top: 1; margin-bottom: 1">
There has been some
suggestion that NBSIL Ziru the amount of the Cuse Customs duty.
Respectfully this has been
a misconception. It is not NBSIL who owed
Ziru any monies but ICML and POTCL.
6.7.2 ALSE REPRESEPRESEON - ON - EXHIBIT 459span>
Another crucial matter that
must be addressed is whether Exhibit 459 constitutes false
representation? Unfortunately,
as correctly submitted by Mr. Sullivan,
this is misconceived on two fronts. Firstly, I agree it has not been,
shown to my satisfaction Exhibit 459 contained any false statement. It
was a fact proven on evidence before me
that NBSIL had noted its records
(see Exhibit 5). At the same time it had not been proven to the contrary
that
on the happening of certain events NBSIL did not intend to pay
Customs duty owing out of the proceeds. No evidence has
been adduced to
show that NBSIL did not have such intention. Exhibit 460 would suggest
that NBSIL did have such
an intention. Further, we do know why NBSIL did
not pay the Customs duty. Hang Seng Bank (the establishing bank), did
not accept the discrepancies in the documents presented for negotiation
and so refused to pay. So it wasn’t the
case that NBSIL had lied about
the payments of Customs duty. It did not pay because it received no
payment from
Hang Seng Bank.
Secondly, I accept there is
no evidence to suggest that WyattWyatt did not have an honest belief in the
truth
of the contents of Exhibit 459. That disposes of any elements of
fraud that may be suggested. The fact the Mono LC may
have not been
sufficient to meet the export duty is immaterial to the issue of this
LC. It should be noted the
Mono LC was subsequently amended at any rate
(Exhibit 1/08) to include the payment of any export duty. The primary
concern of the bank in such situations is simply to ensure that whatever
goes out gets paid back in and that there
is sufficient security to
protect its interests. I find nothing to suggest fraud on the part of
NBSIL in the
contents of Exhibit 459.
6.8. BIT 4pan>s/b>
;
Exhibit 461 is the letter
from NBSIL to Ms. Alison Boso (Customs) drafted by Maraki and signed by
Kudu with some
hesitation about its contents. It reads:
ISLAND CONSTRUCTION
MANAGEMENT
EXPORT DOCUMENTARY
CREDIT NO. CP5619890>
FOR: USD975, 000-00
ISSUE BY: HANG SENG BANK
LTD, HONG KONG
DATED: 29 NOVEMBER 1995
For duty calculation
purpose reby affirmed that we have have negotiated documents under the
above mentioned credit
for USD437,865-38 (SBD1,581,883-60) which
represents value of 901 piece of mixed piece round logs with the total
volume of 3000.350 m³ as per attached invoice copy shipped per MV Arktis
Venture V. 9503.”
It appears the
plaintiffs seek to take issue about was the uthe use of the word “negotiated”
as implying that
payment had been received and that thereby NBSIL was
obliged to release payment in that sum. Unfortunately, NBSIL had
provided satisfactory explanation as to how that word came to be used
erroneously in that letter. NBSIL does not
dispute the word was used and
that it was used erroneously, acknowledging that it had been drafted by
one of
its officers who did not have a correct understanding of the use
or meaning of that word. The evidence adduced before this
Court is
entirely consistent with that explanation (see paragraph 2.16 of this
judgment). I do not need to repeat
what those evidence were. This must
dispose of any allegations of fraud that may have been linked to the use
of that word. It is clear the mistake was an honest mistake and nothing
more to it. No one has been unduly prejudiced by
it or had suffered
loss. Any suggestions of fraud therefore that might be linked to the
wrong use of the word
“negotiated” cannot be sustained.
6.9 p;&nbbsp; THE FAILURE LURE LURE TO
NEGOTIATE THE MONO LC AND THE STAND-BY LC
&nt">
Thee to be addressed
under this paragraph is whetherether the failure by NBSIL to negotiate the
Mono LC and Stand-by
LC amounted to fraud. In order to “prove that, the
plaintiffs will have to show that NBSIL knew that its refusals were
false and that it should have negotiated both LCs, thereby depriving the
plaintiffs of the proceeds of those
LCs.
In paragraphs 2.16 and 2.17
of this judgment I had set out in some detail, the evidence as adduced
before this
Court by the bank, as to the whys and hows of the failures
of negotiation of both LCs. I do not need to repeat them. The
bank has
shown and produced clear and satisfactory explanation (virtually
unchallenged) as to what happened to
the negotiation of those LCs. The
bank doesn’t have to prove anything. All it has to do is to adduce
sufficient
evidence that would provide a reasonable and satisfactory
explanation of its actions. I note it had gone out of its way
to produce
more than sufficient evidence (meticulous in detail) of the whats and
whys of its actions. On the
other hand, it is for the plaintiffs (as the
initiator of this action) to show on clear and cogent evidence before me
that what the bank did or did not do was fraudulent. The burden, I
reiterate, lies with the plaintiff, not the
bank. Regrettably, the
plaintiff has failed to show or satisfy me on clear and cogent evidence,
on the balance
of probabilities, that the actions of the bank had been
in any way fraudulent or even tainted with fraud. The bank therefore
must be categorically cleared of any allegations of fraud regarding the
handling of those two LCs.
6.10 &nbbsp; USION –
F FRAUD
<
span lang="EN-GB" style="font-size: 12.0pt">
The allegations of fraud
against Nin their entirety must be d be dismissed as being without
substance. They have
been based more on suspicion, surmise, assumptions
and mis-understandings, of the role played by NBSIL in the various
transactions regarding the establishment and negotiation of documentary
letters of credit.
7. FOURTH ISSUE –
CONVERSspan>
<
7.1 &nnbsp; THE DEFE DEFINITION
O OF CONVERSION
Conversion may be
defined as follows:
“…the intentional
dealing with goods which is seriously inconsistesistent with the possession
or right to immediate
possession of another person.” (Law of Torts in the
South Pacific Stephen Offei Institute of Justice and Applied Studies,
University of the South Pacific, 1997 page 234)
“…an intentional
exercise of control over a chattel which so seriously inte interferes with
the right of another
to control it that the intermeddler may justly be
required to pay its full value.” (Law of Torts by John G Fleming, Seventh
Edition , page 49)
where “…the person
tled to the possession < of a chattel is permanently deprived
of that possession and the chattel is converted to the use of someone
else.”
(Clerk & Lindsell on Torts 15th Edition paragraph
21-05).
In Penfolds Wines Pty Ltd
v. Elliot [1946] HCA 46; (1946) 74 CLR 204, 229 (Dixon J), defined the tort as follows:
“The essence of
conversion dealing with a chattel in a in a manner repugnant to the
immediate right of possession
of the person who has the property or
special property in the chattel. It may take the form of disposal of the
goods by way of sale, or pledge or other intended transfer of an
interest followed by delivery, of the destruction or
change of the
nature or character of the thing, as for example, pouring water into
wine or cutting the seals
from a deed, or of an appropriation evidenced
by refusal to deliver or other denial of title. But damage to the
chattel is not conversion, nor is use, nor is a transfer of possession
otherwise than for the purpose of affecting the
immediate right to
possession, nor is it always conversion to lose the goods beyond hope of
recovery. An intent
to
do that which would deprive “the true owner” of his immediate right
to possession or impair it may be said to form the essential
ground of
tort.”
p clas class="MsoNormal" style="margin-left: 72.0pt; margin-top: 1; margin-bottom: 1">
From these definitions,
three crucial elements can be separatedspan>:
(1) p;&nbbsp;&nsp; wsp; who had title to the goods or had possession or immediate right of possession of the
goods;
(2) &nbbsp; &nsp; that these wa
a an intentional dealing with the goods, or and intentional exercise of
control over the chattel; and
(3) p; that the dealing
was inconsistent with the immediate rights of possession of the other
party,
or which so seriously interfered with the rights of the other
party, or with the purpose of permanently depriving possession
or
impairing it and converting to own use.
as class="MsoNormal" style="margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
7.2 & p; COION
ION
BY ICML?
<
The first element:
Who was the owner of the goods or had possession or immediate right of
possession of the goods? I do not think
it has ever been seriously
argued that the owner or person who had immediate rights of possession
to the logs
was Ziru. ICML acknowledged it was not the owner of the logs
and that what it sought to do in arranging for the sale of
those logs
was purportedly on behalf of Mbaeroko, as authorised by this Court and
pursuant to the agreement with
Mbaeroko (Exhibit 438).
Tcond element:
That there had been an intentional dealing with the goods or an
intentional exercise of control over the chattel.
Was there an
intentional dealing of the logs by ICML? I do not think it can be
seriously disputed there was an
intentional dealing with the logs by
ICML. There is however an important distinction to be made between what
is expected of ICML as opposed to what it actually did. That distinction
in my respectful view would differentiate whether
what was done amounted
to conversion or not.
What was ICML expected to
do, in regards to the sale of the logs? First it is important to bear in
mind ICML was
authorised to effect sale of the second shipment-of logs
by order of the court. Secondly, as well as being authorised by
order of
the court, ICML was obliged under the agreement entered into with
Mbaeroko Timbers to secure markets
for the round logs at the best
prevailing prices. There can be no conversion therefore in respect of
that specific
authority to effect sale of the logs. However, there is an
important prerequisite attached to that authority. This is contained
in
paragraph (3) of the order of the court and reads:
“the proceeds are to be
paid into the joint interest bearing account of the solicitors for
parties. If letters
of credit has been drawn in favour of the plaintiff
or the defendant, that party is required to pay the whole into the
joint
account of the solicitors stated herein.”
The order of the court
could not be clearer. The authority to sell is expressly subject to that
condition. ICML
was not only expected, but required (this is an
order, it requires mandatory compliance at the risk of a contempt),
to effect sale on the condition the whole of the proceeds were
received and paid into a joint interest bearing account. It did not do
that. Instead it entered into an agreement
for sale with a buyer it was
heavily indebted to from previous operations, (it had nothing to do with
Enoghae)
and used an outdated documentary letter of credit (the Mono
LC), to finance that shipment. The effects of such action need
not be
re-stated, but it was only too obvious what the outcome would be, even
if the letter of credit (the Mono
LC) was negotiated. Little, if
anything, would be expected to be received. So the question was there a
dealing,
must be answered in the affirmative. There was an express
authority to deal with the sale of that second shipment of logs.
To that
extent, ICML was covered (authorised) in what it did. But that was as
far as ICML was covered. The moment
it entered into the agreement with
POTCL for the shipment of those logs and agreed to use the Mono LC, it
exceeded
its authority to arrange sale of those logs in accordance with
the orders of the court and the terms of the agreement with
Mbaeroko
Timbers.
Things me to the third
and deciding element for proof, whether the dealing was iwas inconsistent
with the immediate rights of possession of Ziru, or done in a manner
repugnant to the immediate rights of possession of Ziru?
ass="Mss="MsoNormal" style="margin-left: 72.0pt; margin-top: 1; margin-bottom: 1">
The answer to this question
in my respectful view must also be yes. That it was intentionally
done by ICML is beyond question. I do not need to repeat that Lennea
knew exactly what he was doing and what
the outcome would be. I find
Lennea dealt with the shipment of those logs in a manner inconsistent
with what
he had originally been authorised to do. He was not authorised
to deal with the logs as if they were his logs; that is,
selling them to
POTCL to off-set his debts previously incurred in an earlier botched
operation. That in very
simple terms amounts to conversion; doing
something intentionally which is contrary to or inconsistent with the
immediate rights of possession of Mbaeroko Timbers. As agent of Mbaeroko
Timbers; ICML was obliged to deal with the
goods consistent with the
title or the rights of the true owner (Ziru). He was not authorised to
sell to a buyer
which ICML was heavily indebted to and to use the
outdated Mono LC. It would have been fine if there was an understanding
that all the proceeds would be paid in any event and that whatever share
of the proceeds ICML became entitled
to at the end of the day would be
used to partly off-set any of its debts to POTCL. Unfortunately there
was no
such arrangement. Once the tainted contract was in place, the
ball was set in motion for the shipment to be processed and
concluded
pursuant its terms. Shipment had to be arranged by ICML and POTCL and
for the logs to be loaded at
Enoghae. Once loading had been completed,
Customs duty had to be paid before clearance could be given. Thereafter
property in the logs vested in the buyer until they were delivered to
Modernize, the Company named in the Bill of
Lading as the Consignee. The
unauthorised dealing, involving the unauthorised transfer and delivery
was completed
at that point of time on or about 4th January
1997. In my respectful view, the tort of conversion was completed by
ICML at that point of time. (See the case of Glass v. Hollander
[1935] NSWStRp 20; (1935) 35 S.R. (NSW) 304; and The Law of Torts by John G.
Fleming, seventh edition at page 54; also see Clerk & Lindsell on
Torts 15th Edition at paragraph 21-11 and 21-16, and
Lancashire and Yorkshire Ry -v- MacNicoll (1919) 88 L.J.K.B. 601).
The crucial question to be
ked here is was there conveconversion by NBSIL. The plaintiff argue that
the bank had
assisted ICML to convert the said logs. It alleged the bank
did not sit back but came up with the Stand-by LC to guarantee
the
payment of duty so that the shipment could be cleared. In other words it
was an active participant in what
ICML did. It also argued that because
the bank had notice of the order of the court, it was obliged to protect
the interest of Mbaeroko.
class="Mss="MsoNormal" style="margin-left: 72.0pt; margin-top: 1; margin-bottom: 1">
Mr. Sullivan for the bank
on the other hand makes the following arguments in response. He argues
the shipment
itself could not have been an act of conversion as it had
been authorised by court. Secondly, NBSIL had no direct involvement
with
the shipment until loading was completed on or about 15th
December 1996. He points out possession remained throughout with Ziru in
that period thus ruling out any prospects
of success of any arguments of
conversion against his client. He argues the only way conversion can be
imputed
to NBSIL was if it was proved it intentionally dealt with the
logs in a manner inconsistent with the rights of Ziru or
if there was
collusion with ICML. He submits there was no evidence of either.
/p>
The question of intent.
Was there an intentional dealing with the goods by NBSIL? Note
conversion can only result if there was an intentional
dealing; it does
not arise from negligent loss or destruction (see The Law of
Torts by John G. Fleming seventh edition, at page 51; Law of
Torts in the South Pacific by Stephen Offei, at paragraph
16.5.1 which also referred to the case of Ashby v. Tolhurst
[1937] 2 KB 242 at 251).What needs to be established accordingly is
that there had been an intentional dealing or interference with the
logs
by NBSIL by exercising dominion over them or in collusion with ICML. Has
there been any evidence of any
assertions of right or dominion over the
logs by NBSIL?
The amendments to the
Mono LC, in pular amendment no. 1/08.
I have already dealt in detail with the role played by NBSIL in the
amendments to the documentary letters of
credit established by Hang Seng
Bank on behalf of POTCL. I do not need to repeat these. They equally
apply here.
I find no evidence of any intent by the bank to deal with
the logs either on its own behalf or on behalf of ICML, other
than that
which was consistent with its obligations to ICML on a documentary only
based relationship. It has
already been established in this judgment
that in its relationship with ICML the bank was essentially dealing in
documents, not goods. NBSIL was not concerned with the questions of
sale, ownership of the goods or their delivery.
Theirs was a document
only relationship based on the establishment of the Mono LC and its
terms. NBSIL had nothing
to do with the sale contract entered into with
POTCL and the inclusion of the term in that contract to use the Mono LC
to fund the shipment of logs from Enoghae. That was a decision entered
into by ICML in collusion with POTCL.
NBSIL therefore cannot be said to
have participated in the unauthorised action by ICML to sell the second
shipment
to POTCL. That to a certain extent negatives any suggestions of
an intention to deal with the logs at any rate. There has
also been no
evidence to suggest that the bank colluded with ICML to effect the
amendments under the Mono LC.
Knowledge of the order of Court dated 28th
October 1996 places no obligation on the bank to deal directly with
Mbaeroko. It was sufficient it dealt with
ICML as the agent of Mbaeroko
Timbers and as the beneficiary named in the Mono LC. The fact that the
arrangements
entered into by ICML were tainted does not automatically
make NBSIL a participant of its activities. It would be like saying
that
the Shipper was also a participant of the unauthorised activities of
ICML merely because he was involved
in the shipment of those logs. But
that is not so without clear cogent evidence to show that they were
parties
to what ICML did.
This s me to the next
question, that of the establishmlishment of the Stand-by LC? Did that reveal
any intent
on the part of the bank to deal with the logs in a manner
repugnant to the ownership or rights of Mbaeroko Timbers? Again
this
must be answered in the negative. The Stand-by LC was established by
Hang Seng Bank on the instructions
of POTCL and ICML, not by NBSIL. The
unchallenged evidence adduced before this Court showed that Wyatt merely
gave advice when approached by Lennea and Ng, as to what would be
acceptable regarding the question of a guarantee for
payment of Customs
duty. That hardly reveals any intent on the part of the bank to deprive
Mbaeroko Timbers of
its immediate rights of possession to those logs.
Further there is no evidence to show that NBSIL colluded with ICML for
the establishment of that Stand-by LC.
What about Exhibit 459
this was the letter of “guarantee” sent by the bank to Cust Customs on
receipt of the Stand-by
LC)? Did that reveal any intent on the part of
the bank to exercise dominion over those logs? Again the answer must be
no (see the case of Kitano v. The Commonwealth of
Australia [1974] HCA 31; [1973] 129 C.L.R
151).
Note on 19th December 1996, constructive possession remained
with Mbaeroko Timbers as unpaid vendor, whilst property had vested on
POTCL when loading had been completed on 15th December 1996
(see Argonaut Navigation Co., Ltd v. Ministry of Food, SS Argobec
[1949] 1 All ER 160, 163, 166; Pyrene Co Ltd v. Scindia
Navigation Co Ltd [1954] 2 All ER 158; Halsburys Laws of England (4th
Edition) paragraph 933). Prima facie property passes under an FOB
contract on shipment when the goods are delivered
on board a vessel. It
is pertinent to note, whilst the vessel had been detained by Customs and
subject to their
control, it was not in their possession. The issue of
clearance therefore did not operate as a delivery of possession by
Customs to POTCL. The logs were already the property of POTCL. The
letter issued by NBSIL therefore could not
have amounted to any
assertion of dominion over ownership of those logs in any event.
Transferring Possession.
C Conversion would be incomplete without it being shown there was a
transfer of possession contrary to the
immediate rights of possession of
the owner; in this case Ziru. I have already pointed out transfer of
possession
was completed on 4th January 1996 when the logs
were delivered to Modernise as the purchaser for value of those logs.
Thereafter the
logs were lost beyond recovery. The issue which arises
from this is whether NBSIL colluded with ICML in effecting transfer
of
possession of the logs, in particular with respect to amendment number
1/08 of the Mono LC, the set up of
the Stand-by LC and the issue of
Exhibit 459. Respectfully these must be answered in the negative.
<
No evidenc been
adduced by the plaintiffs to show thow that NBSIL had colluded with
ICML to effect the amendments to the Mono LC, or to have the Stand-by LC
set up for the payment of Customs duty. The issue of the letter of
guarantee did nothing more than allow Customs to
clear the vessel for
departure. NBSIL accordingly could not have been party to the transfer
of possession of
logs to Modernize.
The issue ofusion.
Finally the issue of collusion can be shortly disposed of. This subject
has already been dealt with in detail
under fraud and I do not need to
repeat myself. Suffice to say that all that had been said earlier are
relevant
and equally apply to the arguments in relation to conversion.
The distinguishing factors remain the same; that is, that
NBSIL was
entitled to deal with ICML as the beneficiary to the Mono LC, and
secondly that its dealings with ICML
or Hang Seng Bank were based on a
document only relationship, not in goods. That accordingly can never
amount
to conversion unless it can be shown the bank had colluded with
ICML right from the inception of the contract it entered
into with POTCL
on 30th October 1996. That had not been shown. I must rule
accordingly against any suggestion that NBSIL had colluded in anyway
with ICML to convert the logs for the use of POTCL. The claim for
conversion against NBSIL must also be dismissed.
8. NEGLIGENCE
>
<
In essence the submission
of the plaintiffs was that the bank owed a duty to the plai plaintiff to
ensure that the
proceeds of the second shipment were received. It had
breached that duty and accordingly the plaintiffs have suffered loss
and
damage.
clas class="MsoNormal" style="margin-top: 1; margin-bottom: 1">
There are three crucial
elements in the tort of negligence: (a) a duty to take care; (b) breach
of that duty of
care; and (c) damage had occurred as a result of that
breach of duty (see Clerk & Lindsell on Torts 15th Edition
at paragraph 10-04; Law of Torts in the South Pacific by Stephen Offei
at paragraph 4.2).
1. &nsp; & p;
p;
The duty of care.
It was alleged the bank owed a duty of care to ensure the plaintiff
received the proceeds of the second shipment.
In order to establish the
existence of such a duty in the circumstances of this case, it is
important we consider
the relationship between the parties. It is not
disputed a banker/client relationship exists with Mbaeroko Timbers.
Mbaeroko Timbers operated an account with the bank (see Exhibits 59,
437, 62). I accept within that relationship
there exists a duty on the
part of the bank which it owes to its client. The plaintiff however does
not rely
on this relationship and correctly so. It does not have an
account with NBSIL. Rather, it seeks to rely on the relationship
which
appears to have arisen from the relationship of agency between ICML and
Mbaeroko Timbers, although this
was strenuously resisted by the
plaintiff. Unfortunately, apart from that relationship, there is little
that
the plaintiff can rely on to substantiate the arguments they wish
to advance under this tort. Duties of care do not arise
in vacuum. There
must exist some sort of relationship that helps to identify the duty of
care arising.
Mr. Sullivan for the bank
ces there exists a relationstionship between the bank and Mbaeroko
Timbers but denies
any such relationship exists between Mbaeroko and the
bank. He also accepts ICML acted as agent for Mbaeroko Timbers in
the
sale of the logs. He points out however that once the decision was made
to use the Mono LC as the vehicle
for funding the sale of the second
shipment, it necessarily follows any rights of ICML as beneficiary of
that
LC must be held on behalf of the putative owner, Mbaeroko Timbers.
To that extent any duty owed by NBSIL to the principal
of the
beneficiary, can be no more extensive than that owed to the actual
beneficiary.
I had already stated in
this judgment that once the decision was made made to use the Mono LC, as the
vehicle
for funding the sale of the second shipment, it set the bounds
of the relationship which NBSIL was to be involved in, or
the role it
was to play. Note, NBSIL had nothing to do with the decision to use the
Mono LC or that it conspired
with ICML to use the Mono LC to fund the
second shipment. NBSIL only became involved because of that LC. That LC
on the other hand was already in existence long before Mbaeroko came
into the scene. The fact NBSIL might have known
the Mono LC was
inappropriate in the circumstances made no difference to its obligations
as defined under that
LC. It had already advised Hang Seng Bank that the
use of the LC in any other circumstances was inappropriate. That however
is immaterial to the question whether the Mono LC would be used or not.
It was sufficient it had informed Hang
Seng Bank. The decision to use
the Mono LC and to keep it “alive” was a separate matter altogether. It
had nothing
to do with NBSIL and its duty under that LC.
’s duty arising from
that LC was confined to the contractual relationships earliearlier described
in this judgment
between Hang Seng Bank and NBSIL and with ICML. NBSIL’s
relationship in turn with Mbaeroko or Mbaeroko Timbers is as correctly
put by Mr. Sullivan, no more greater than that it owes to the actual
beneficiary, ICML. No evidence has been
adduced nor any authority cited,
to suggest that NBSIL’s relationship with Mbaeroko could be anything
more than
that between NBSIL and ICML, as between negotiating bank and
the beneficiary under the Mono LC and agent of Mbaeroko.
This raises the next
crucial question as to what that contractual duty amounted to.
The contractual duty of the
negotiating bank to the eishing bank and also I woul would add that of
the negotiating
bank to the beneficiary are similar. In
United City Merchants
(Investments) Ltd v. Royal Bank of Canada
[1982] 2 WLR 1039, 1046
(Lord Diplock), it is described as follows:
“It has, so far as 1
know, never been disputed as between confirming bank bank and issuing
bank and as between
issuing bank and the buyer the contractual duty of
each bank under a confirmed irrevocable credit is to examine with
reasonable care all documents presented in order to ascertain that they
appear on their face
to be in accordance with the terms and conditions
of the credit, and, if they do so appear, to pay to the
seller/beneficiary by whom the documents have been presented the sum
stipulated by the credit, or to accept or negotiate without recourse to
drawer drafts drawn by the seller/beneficiary
if the credit so provides.
It is so stated in the latest edition of the Uniform Customs. It is
equally clear
law, and is so provided by article 9 of the Uniform
Customs, that confirming banks and issuing banks assume no liability
or
responsibility to one another or to the buyer for the form, sufficiency,
accuracy, genuineness, falsification
or legal effect of any documents.”
[Ems added]
In Banque De L’
Indochine Et De Suez S.A -v- J.H. Rayner (Mincing Lane) Ltd [1983] 2
WLR 841 Parker J. described the same duty at page 850 as follows:
“Some margin must and
can be allowed, but it is slight and banks will will be at risk in most cases
where there
is less than strict compliance. They may pay on a reasonable
interpretation (see Commercial Banking Co. of Sydney Ltd.
v. Jalsard
Pty. Ltd. [1973] A. C. 279, 285-286) where instructions are ambiguous,
but where the instructions from the issuing bank are clear they are
obliged to see to it that the instructions are complied with and
entitled to refuse payment to the beneficiary unless
they are.”
The cent on appeal and
was upheld by the Court of Appe Appeal per judgment of Donaldson MR (Banque
de L’ Indochine et de Suez SA v. JH Rayner (Mincing Lane) Ltd [1983]
2 WLR 841, 856). His Lordship states:
lass="Mss="MsoNormal" style="margin-left: 72pt; margin-top: 1; margin-bottom: 1">
“I approach this aspect
of the appeal on the same basis as did the judge, namely, that the
banker is not concerned with why the buyer has called for
particular documents (Commercial Banking Co, of Sydney Ltd. v.
Jalsard Pty. Ltd. [1973] A. C. 279), that there is no room for
documents which are almost the same, or which will do just as well, as
those specified (Equitable Trust Co. Of New York v. Dawson Partners
Ltd. (1926) 27 LLL.Rep. 49), that whilst the bank is entitled to put
a reasonable construction upon any ambiguity in its mandate, if the
mandate
is clear there must be strict compliance with that mandate (Jalsar’s
case [1973] A.C. 279), that documents have to be taken up or rejected
promptly and without opportunity for prolonged inquiry (Hansson v.
Hamel and Honey Ltd. [1922] 2 A. C 36) and that a tender of documents
which properly read and understood calls for further inquiry
or are such as to
invite litigation are a bad tender
(M. Golodetz Co. Inc. v.
Czamikow-Rionda Co. Inc. [1980] 1 WLR 495).
The starting point is
therefore the mandate, read in the light of the Uniform Customs
and
Practice for Documentary Credits…”
2. &nbssp; & sp;& Breach of
duty outy of care
n lan-GB" ="fone: 12.0pt">
Having established the duty
owed by NBSIL as advising bank to ICML, the next crucial question that
must be addressed
is whether there had been a breach of that duty of
care. Respectively, this question can be very shortly disposed of. The
plaintiff has failed to prove on the balance of probabilities that the
bank had breached any of its duties as
owed to ICML as the principal to
the beneficiary under the Mono LC. I have already dealt in detail with
the submissions
pertaining to the negotiation of the Goodwill LC, the
attempted negotiation of the Mono LC and the Stand-by LC, and the
payment of the red clause advance. In none of these dealings has it been
proven or shown that NBSIL was negligent
in its duties towards ICML and
Mbaeroko. That in plain terms disposes of the claim for negligence
against NBSIL.
p class="Mss="MsoNormal" style="text-indent: -36.55pt; margin-left: 72.0pt; margin-top: 1; margin-bottom: 1">
30pt">.
& That Zirubae Mbaeroko hoko had suffered loss as a result of the
breach of the duty of care owed by NBSb>
>
That Ziru had suffered loss
in this very unfortunate turn turn of events cannot be denied. He had not
received
one single cent from his shipment of logs. In order for that
loss to be actionable however, it must relate directly to
the breach of
duty alleged. It is here where the crucial link in that chain fails. It
has not been shown on the
balance of probabilities that the loss had
been caused by any breach of the duty owed by NBSIL to Mbaeroko Timbers
or Mbaeroko through its agent, ICML. The claim for negligence against
NBSIL must also be dismissed.
9.
CONTEMPT AGAINST THE SECOND DEFENDANT
Finally, this ground must
also be dismissed against the second defendant thout substance. I
have already
analysed in detail where the contempt lies. There is
basically no evidence to support any suggestions that the bank was
a
party to the contemptuous actions of the first defendant.
10. ACTION 231/97
ass="Mss="MsoNormal" style="margin-top: 1; margin-bottom: 1">
This claim is for an
overdrawn balance in respect of account numbe20-3490-0101-2 in the
name of the Defendant,
Ronald Ziru. It has not been disputed Ziru
operated an account with the Plaintiff, NBSIL and was given a short term
overdraft facility to be cleared by proceeds of a letter of credit
established in favour of the Defendant’s Company
(Mbaeroko Timber
Limited) in respect of an anticipated shipment of logs from Enoghae. The
balance as at commencement
of this trial, which included interest and
bank charges was $5,976.40.
The defence of the
Defendant in essence were the very same issues that hen canvassed
in C in Civil Case 100 of
1997. That case has been dealt with and the issues
raised by the Defendant dismissed. That spells the end of this case
as
well. There is basically no defence to the claim of the Plaintiff and
judgment must be given in favour of
the Plaintiff for the amount
of the balance outstanding to date plus interest from 1st
November 1997. The counter-claim of the Defendant must consequently be
dismissed.
11. COSTS
Civil Case No. 100 OF 1997:
(I) A number of
matters have been raised by Mr. Sullivan under this heading. First, he
submits costs should be awarded
against Mbaeroko and Ziru on an
indemnity basis. The ground relied on was that there was no shred of
evidence
of fraud or collusive conversion by the bank and yet Ziru and
Mbaeroko insisted on making what it termed scandalous allegations
against NBSIL. As a result the bank had gone to great lengths to prepare
and defend its case, thus lengthening
the trial by many more days than
might have been necessary. Mr. Sullivan also sought to highlight the
point that
Ziru had not only given express instructions to plead fraud
but even when confronted with overwhelming evidence at the
beginning of
the trial, he refused to retract his allegations. In so doing he had
abused the process of the court.
He argues special circumstances exist
here for an order for costs against Ziru and Mbaeroko on an indemnity
basis.
In the case of Re Ta Finance and Insurance Services Pty Ltd [1994] 1 QdR 558, 559-560,
Moy Moynihan J. held that there were special circumstances which existed in
the facts of that case
which entitled an award of costs on indemnity
basis to be made against the Defendant Company as well as the directors
of the Company, who were not parties to the case. The facts related to
the registration of a mortgage debenture
by Talk Finance and Insurance
Services Pty Ltd, the company which had advanced Jela imports and
Marketing Pty
Ltd some money to finance its operations. Edward Moraies
and Pedro Dejero Morales were the two directors of Jela imports.
The two
Morales had sworn affidavits to the effect that the mortgage debentures
had not been duly executed by
them and that they were forgeries, knowing
full well that this was false. The Judge had found against them on this
after hearing evidence in the absence of the Morales and after their
Solicitor had obtained leave to withdraw from
the case. Moynihan J
found this amounted to a special circumstance which warranted an award
of costs on an indemnity basis. At page
559, line 50 and top of page
560, the learned Judge states:
“On the view I have
aken on the matter the two persons against whom the costs osts order is
sought put in issue the
execution of the documents and the validity of
their signatures in circumstances where, as I have concluded, they must
be taken to have known that they were doing so falsely. That
consideration also bears on the question of whether
the costs should be
ordered on what is commonly described as the indemnity basis. It is, of
course, unusual for
such an order to be made in contests between party
and party; but there is no doubt that it can be made if some
circumstance, often described as special circumstances; -can be pointed
to as justifying it.”
Not above case is also
authority for the proposition that costs on an indemnity basi basis can be
made against
a non-party to the case. In the above case, costs were
awarded both against Jela Imports and the two directors.
The issue before this court
is whether special circumstances exist in this case for costs to be
awarded against
Ziru and Mbaeroko on an indemnity basis. Respectfully I
would disagree with submissions of learned Counsel for the second
defendant that special circumstances exist in this case. Ziru wasn’t a
mere busy body in bringing this action.
He had reason to suspect there
was collusion between NBSIL and ICML in the way the various documentary
credits
had been processed and dealt with. There was a clear link
between Hang Seng Bank, NBSIL and ICML, but it was only in the
hearing
of this case when all the evidence had been adduced that it became clear
his allegations of fraud and
conversion were misguided. I do not think
that amounts to a special circumstance. Costs however will be awarded on
a common fund basis with certification for overseas counsel.
lass="Mss="MsoNormal" style="margin-top: 1; margin-bottom: 1">
The second raised was
whether costs can be made against a non-party to a case; in this case case
referring to
Ziru. I do not think this actually arises in this case
because as pointed out in the submissions of Mr. Sullivan, Ziru
would
have been liable for costs in any event under civil case 231 of 1997. At
any rate, I am satisfied Order
65 Rule 1 of the High Court (Civil
Procedure) Rules 1964 would be sufficient to authorise costs against a
non-party
who can be considered to be the “real party” to the litigation
(see Oz B and S Pty Ltd v. Elders IXL Ltd 117 ALR-128, 129-130;
Knight v. FP Special Assets Ltd (1992) 174 CLR 179, 192, 202;
Bichof v. Adams [1992] VicRp 61; [1992] 2 VR 198, 204; Symphony Group PLC v.
Hodgson [1994] QB 179, 191-195 and Re talk Finance and Insurance
Services Pty Ltd [1994] 1 QdR 558, 559-560.)
clas class="MsoNormal" style="text-indent: -35.25pt; margin-left: 35.25pt; margin-top: 1; margin-bottom: 1">
ORDERS OF THE COURT:
1. &nbbsp;& &nsp; Dsp; DISMISS
C OIMS OF THE PLAINTIFF IN CIVIL CASE NO. 100 OF 1997 AGAINST THE SECOND
DEFENDANT
FOR FRAUD, CONVERSIONLIGEND CON IN T
ENTIRETY>..
p class=lass="MsoNormal" style="text-indent: -36.0pt; margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
2. &&nsp;; AspRD
A
JUDGMENT AGAINST THE DEFENDANT IN CIVIL CASE NO. 231 OF 1997 FOR THE SUM
OF SBD5976.40
PLUS INTEREST AT 5% WITH EFFECT FROM DATE OF JUDGMENT.
span lang="EN-GB" style="font-size: 12.0pt">3. p; &nnsp;&nbp; AWARD COSD COSTS
OF THE SECOND DEFENDANT
IN CIVIL CASE NO. 100 OF 1997 AND COSTS OF THE
PLAINTIFF IN CIVIL CASE NO. 231 OF 1997 AGAINST MBAEROKO TS COM
LIMITED
AND ZIRU ZIRU ON COON COMMON FUND BASIS.
4. p; &bsp; AWARD
G JUD IN CIVN CIVIL CASE NO. 100 OF 1997 AGAINST THE FIRST DEFENDANT FOR
THE VALUE OF
THE SECOND SHIPMENT AT SBD1,581,833.60 PLUS INTEREST FROM
19 DECEMBER 1996.
5. p;&nbbsp;&nsp; Asp; AWARD DAMAGES
FO FOR FRAUD, OR CONVERSION AND CONTEMPT OF COURT, IN CIVIL CASE NO. 100 OF
1997 AGAINST THE FIRST DEFE TO BESSEDOT AGREED.
class=lass="MsoNormal" style="text-indent: -36.0pt; margin-left: 36.0pt; margin-top: 1; margin-bottom: 1">
6. p;&nbbsp; AWARD COSTS OSTS OSTS
OF THE PLAINTIFF IN CIVIL CASE NO. 100 OF 1997 AGAINST THE FIRST
DEFENDANT
ON INDY BASpan>.
THE COURT
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