Nasaralai Enterprises Ltd. Vs Arab Bank Nigeria Ltd. (1986)

LawGlobal-Hub Lead Judgment Report

BELLO, J.S.C.

The dispute between the parties in this appeal had its root embedded in the use of a letter of credit issued to facilitate international trade for the purchase of 100,000 bags of rice at the price of (US)$2,200,000 by a buyer in Nigeria from a seller in Thailand.

On the application of Nasaralai Enterprises Ltd. which was the buyer and is hereinafter referred to as the Appellant, the Arab Bank (hereinafter referred to as the Respondent) issued on 15th September 1978 an irrevocable letter of credit to Bank of Tokyo in Thailand wherein the Respondent instructed the Bank of Tokyo to pay the said price to World Grain Company Ltd., which was the seller, on receiving from the seller documents drawn in conformity with the terms and conditions of the letter of credit. One of the terms of the letter of credit was the rice should be put on board a vessel on or before 15th October 1978 but the date was later extended by the parties to 15th November, 1978.

It appears that toward the end of November 1978 because 30th November 1978 was the expiry date for negotiating the letter of credit, the seller presented to the Bank of Tokyo a bill of lading and other documents showing that the rice had been loaded on board a vessel called M.V. “Lucky Dragon” at Port of Thailand on 15th November 1978. Relying on the documents the Bank of Tokyo paid the purchase price to the seller and advised the Respondent of the payment.

It also remitted the documents to the Respondent. On the 15th December 1978 the Managing Director of Appellant, Alhaji Lamidi Popoola, accepted the documents on behalf of the Appellant and authorised the Respondent to debit the purchase price to the Appellant’s account. Accordingly, the Respondent debited the Appellant’s account at its Isolo Branch with the sum of N778,607.97 in partial satisfaction of the purchase price.

The M.V. “Lucky Dragon” was most unlucky on its voyage. It sailed from Bangkok in Thailand at the end of November 1978 with the consignment of the rice and it arrived at Singapore in early December 1978 where it broke down and was ultimately sold as a scrap. The rice was discharged from the vessel and stored at the Singapore Port Authority “Go-Downs.”

The rice was expected to arrive in Lagos by 27th December 1978 but it did not do so up to March 1979. On 3rd March 1979 the Managing Director of the Appellant, Alhaji Popoola, went to Bangkok to investigate and from there he proceeded to Singapore where he found the consignment of the rice stored. By an agreement dated 10th March 1979 between Alhaji Popoola on behalf of the Appellant and Hong Choon Hing Enterprises S.A., the latter agreed to transship the rice to Lagos on board M.V. the “African Phoenix.” The rice was loaded on the vessel which sailed from Singapore on 8th April 1979 bound direct for Lagos.

On its voyage, the” African Phoenix” also suffered misfortune, became unseaworthy and flooded. She was diverted to Port Elizabeth in South Africa where the rice was off loaded because the vessel was so badly damaged that she could not continue with the voyage. Some of the rice was so badly damaged that it was unfit for human consumption and was condemned by the South African Health Authority. It was conveyed outside of Port Elizabeth where it was dumped. The sound rice was stored in a warehouse. Although the documentary evidence shows that a vessel, “Mount Rainer”, retranshipped the sound rice from Port Elizabeth for West African Ports, there is no evidence that any bag arrived in Nigeria. Alhaji Popoola testified that not a bag had been delivered to the Appellant.

It was on account of the foregoing transactions that the Appellant as plaintiff caused a writ of summons to be issued against the Respondent as defendant by the High Court of Lagos State claiming:

“The Plaintiffs claim is for the sum of N1,231,807.97k being special and general damages for breach of contract by the Defendants by its failure to endorse the provisions of section 5 of the Merchant Shipping (Amendment) Decree No.9 of 1978 on Letter of Credit. No. LS 24278 of 15th September, 1978 contrary to the intention of both the Plaintiff and the Defendant and also for breach of contract by the Defendant’s agent (The Bank of Tokyo, Muang Thai Life Building 335 New Road, Thailand) in respect of payment wrongfully made out on Letter of Credit No. LS 24278 of 15th September, 1978 issued by the Defendants on the instructions of the Plaintiff and contrary to the terms and conditions of the said letter of credit.

2. Alternatively the Plaintiff claims the sum of N1,231,807.97 being special and general damages for negligence on the part of the Defendants and its said agents Bank of Tokyo in:

(a) The defendants issuing Letter of Credit No. LS 24278 of 15/9/78 without endorsing on it the mandatory provisions of section 5 of the Merchant Shipping (Amendment) Decree No. 9 of 1978. (b) The defendants agents accepting and making payments on a forged bill of lading issued by Shun Shing Shipping Company Limited which said bill of lading also contained terms contrary to the instructions of the Plaintiff.

3. A Declaration that in view of the above, the Defendant is not entitled to debit the Plaintiffs account No. 012107 with the Isolo Branch of the Defendants’ Bank with any sum and or interest and commission arising from the above transaction and an Order that the Defendant should forthwith revert or cancel all debit entries so made.”

The facts averred in the Statement of Claim as constituting the alleged breach of contract and/or negligence by the Respondent may be summarized as follows;

(1) it was agreed at the time of the issuance of the letter of credit that the Respondent should endorse on the letter of credit all statutory regulations governing the importation of goods into Nigeria including the provisions of the Merchant Shipping (Amendment) Decree No.9 of 1978 that “no ship other than a Nigerian ship shall trade in or from the waters of Nigeria unless not more than 15 years have elapsed since the date of the first registration of such ship” and the Respondent failed to endorse the said provision contrary to the agreement and the practice of other Commercial Banks;

(2) the Respondent’s breach and/or negligence had resulted in the use of “Lucky Dragon” which was first registered in 1947 and was old and unseaworthy and in causing the financial loss suffered by the Appellant;

(3) the Bank of Tokyo as agent of the Respondent accepted documents which on their face were not in accordance with the terms of the letter of credit, to wit:

(a) By the terms of the letter of credit as amended the rice must be loaded on board a vessel on or before 15th November 1978. While the Bill of Lading presented to the Bank of Tokyo showed the rice had been loaded on board the “Lucky Dragon” on 15th November 1978, the Loading Report accompanying the Bill of Lading showed the vessel had arrived at the port of loading on 21st November 1978 and the loading had commenced on 22nd November 1978.

(b) the letter of credit did not permit transhipment but the Bill of Lading permitted transhipment and

(c) that the Bank of Tokyo should have detected that the Bill of Lading was a forgery.

In their pleadings, the respondent denied having agreed to endorse the provision of the Decree on the letter of credit and also denied the Bill of Lading to be a forgery. The Respondent averred that the loading was an error. With regard to transhipment the Respondent stated that the rice was shipped direct from Thailand to Lagos and that the printed form “Direct or with Transhipment” on the Bill of Lading only referred to the services provided by the Line. The main defence of the Respondent was:

(1) If the acceptance of the documents relating to the transaction by the Banks of Tokyo was irregular, the Appellant subsequently accepted and confirmed the documents and authorised the Respondent to debit its (Appellant’s) account, and

(2) that the issuance of the letter of credit was subject to the General Conditions for opening of documentary credits by the Respondent which the Appellant agreed to and executed and that by virtue of the said General Conditions the Respondent was not liable to the Appellant in the claim.

After having considered the evidence adduced by the parties, the trial judge in his judgment found:

(1) that on the face of the documents on which the Bank of Tokyo negotiated the letter of credit there was inconsistency as to the date of loading. While the Bill of Lading (Exh. G5), the Packing List (Exh. G), the Certificate of Origin (Exh. G1) and the Certificate of Weight (Exh. G3) stated the date of loading on board the “Lucky Dragon” to be 15th November 1978, the Hatch Report (Exh. G6) and the Loading Report (Exh. GIO) showed the vessel had not arrived at the Port of Bangkok until on 21st November 1978 and the loading commenced on 22nd November 1978 and completed on 24th November 1978;

(2) that from the premise the Respondent was in breach of the duty imposed on it by Article 7 of the Uniform Customs and Practice for Documentary Credit, 1974 to examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms of the credit;

(3) that contrary to the express term of the letter of credit, the Bill of Lading permitted transhipment;

(4) that the Respondent had a duty to endorse the provisions of the Decree on the letter of credit and that its failure to do so resulted in the shipment of the rice on board “Lucky Dragon” which was a ship more than 15years old and in consequence thereof the Appellant suffered financial loss.

The learned trial judge concluded his judgment thus:

“As a result of the use of an unseaworthy vessel, the consignment of rice was imperilled in Singapore. Surely, the plaintiff cannot be blamed for taking steps, reasonable steps for that matter, to minimise loss. He had to go to Singapore to arrange transhipment of the rice.

In any case whether or not it was unreasonable for the plaintiff to take the steps that he took, that fact should not discharge the negligence of the Defendants.

Other defences raised were Exhibit P – the general conditions governing the opening of letters of credit – the Exclusion clause, and estoppel or waiver.

I do not think that having regard to the general law on exclusion clauses, that Exhibit P could exclude the negligence on the part of the defendant. An exclusion clause cannot, in my view, override the fundamental terms of a contract.

Finally, the Defendants rely on Exhibit O as estopping the plaintiff from challenging the conduct of the Bank in this transaction. Exhibit O is a three (sic) letter which says “we accept the documents pertaining to the above mentioned bill XXX” and signed by the plaintiffs representative. Exhibit O is of doubtful value. There must be strong evidence to infer waiver or estoppel. The plaintiff could have written “we have seen them” instead of the use of the words “we accept.”

On the evidence which I have accepted, I find negligence proved against the Defendants. They are therefore liable in damages to the plaintiff for the loss sustained by him and for all the direct consequences of their negligence.”

He assessed damages in the sum of N1,181,807.97 and ordered the reversal of the debit entry of N778,607.97 in the Appellant’s account. Judgment was entered for the Appellant accordingly. The Respondent was not satisfied with the decision of the trial court. So he appealed to the Court of Appeal. Among the several grounds of appeal canvassed in the Court of appeal was the issue as to whether the High Court of Lagos State has jurisdiction to entertain the claim. A full court unanimously held that the High Court of Lagos has no jurisdiction. In a very thorough and comprehensive reasoned judgment Nasir P. (Ademola, Nnaemeka-Agu, Mohammed and Kutigi JJCA concurring), having referred to the decision of this Court in American International Insurance Co. Ltd. v. Ceekay Traders Ltd. (1981) 5 S.C. 81 which firmly laid down that Admiralty jurisdiction is vested in the Federal High Court, applied the test stated in Eschershain (1974) 3 All E.R. 307 at p. 318 and approved by this Court in Ceekay case for determining Admiralty jurisdiction, in other words for determining whether a particular agreement is an “agreement relating to the use or hire of a ship” within the meaning of section 1(h) of the Administration of Justice Act 1956 of England. The test was stated in these terms:

“It seems to be that the court, in deciding whether a particular agreement is an agreement relating to the use of a ship or not, should look at the substance of the matter.”

The learned President then proceeded to examine the Appellant’s pleadings and the findings of the trial court. He high-lighted his conclusion that the matter is within the Admiralty jurisdiction as follows:-

“It is pertinent in this case to bear in mind that the main cause giving rise to the claim was the breaking down of the ship “LUCKY DRAGON” which this time was not so lucky as it broke down seven days after leaving the port of shipment. It was also part of the Respondent’s case that when the ship did not arrive the respondent (the Plaintiff) with the permission of the Appellant (Defendant) went to Singapore and arranged for a new ship to carry the goods to Lagos. It was the failure of this second ship to reach Lagos which gave rise to the claim as framed by the Respondent. On the whole I am satisfied that the agreement between the parties in respect of the issuance of the Letter of Credit also substantially covered the provisions of the Merchant Shipping (Amendment) Act, 1978, the seaworthiness of the ship to be used and the supervision of the loading and monitoring of the ship used. In my opinion the substance of the agreement related to shipping and statutory provision relating to ships. I have therefore come to the conclusion that the issue before the trial court related to Admiralty jurisdiction. This is exclusively within the jurisdiction of the Federal High Court in view of the provisions of section 1(g) and (h) of the Administration of Justice Act 1956 of England which applies in this case.”

(The italics are mine)

It is apparent that the decision of the Court of Appeal was predicated on the premises that the letter of credit substantially covered the provisions of the Merchant Shipping (Amendment Act, 1978, the seaworthiness of the ship to be used and the supervision of the loading and monitoring of the ship used and that the substance of the agreement related to shipping and statutory provisions relating to ships. It appears that the claim in the trial court was also based on these bases.

With all due respect, I think the decision of the Court of Appeal was founded on misconception of the law and practice relating to commercial letter of credit in international trade. It is pertinent to state the law and practice at this stage.

The basic tenor of the law and practice relating to commercial letter of credit is that parties deal in documents not in goods or ships. Article 8(a) of the Uniform Customs and Practice for Documentary Credits 1974, which apply to the letter of credit (Exh. C) in this appeal, provides: “In documentary credit operations all parties deal in documents and not goods.” The only thing a bank is required to do is to examine documents and to treat them on their face value. There is a plethora of authorities on the matter. I need to mention a few only.

In the recent case of United City (Investments) Ltd. v. Royal Bank of Canada (1983) A.C. 168 at 182-183, Lord Diplock explained that four contracts are involved in a commercial letter of credit. He said –

“It is trite law that there are four autonomous though interconnected contractual relationships involved. (1) the underlying contract for the sale of goods, to which the only parties are the buyer and the seller; (2) the contract between the buyer and the issuing bank under which the latter agrees to issue the credit and either itself or through a confirming bank to notify the credit to the seller and to make payments to or to the order of the seller (or to pay, accept or negotiate bills of exchange drawn by the seller) against presentation of stipulated documents; and the buyer agrees to reimburse the issuing bank for payments made under the credit. For such reimbursement the stipulated documents, if they include a document of title such as a bill of lading, constitute a security available to the issuing bank; (3) if payment is to be made through a confirming bank the contract between the issuing bank and the confirming bank authorising and requiring the latter to make such payments and to remit the stipulated documents to the issuing bank when they are received, the issuing bank in turn agreeing to reimburse the confirming bank for payments made under the credit; (4) the contract between the confirming bank and the seller under which the confirming bank undertakes to pay to the seller (or to accept or negotiate without recourse to drawer bills of exchange drawn by him) up to the amount of the credit against presentation of the stipulated documents.”

At page 183 of the Report, Lord Diplock said:

“Again, it is trite law that in contract (4), with which alone the instant appeal is directly concerned, the parties to it, the seller and the confirming bank, “deal in documents and not in goods,” as article 8 of the Uniform Customs puts it. If, on their face, the documents presented to the confirming bank by the seller conform with the requirements of the credit as notified to him by the confirming bank, the bank is under a contractual obligation to the seller to honour the credit, notwithstanding that the bank has knowledge that the seller at the time of presentation of the conforming documents alleged by the buyer to have, and in fact has already, committed a breach of his contract with the-buyer for the sale of the goods to which the documents appear on their face to relate, that would have entitled the buyer to treat the contract of sales as rescinded and to reject the goods and refuse to pay the seller the purchase price.”

(The italics are mine)

I may add that in respect of letter of credit requiring a bill of lading, there is the fifth contract, which is the contract of affreightment between a shipowner and a shipper, i.e. the seller or his agent, by which a shipowner agrees to carry in his ship for reward the goods for which the letter of credit was issued and to deliver the goods to the buyer or his agent. It is pertinent to emphasize that although the five contracts are inter-related, a bank – whether the issuing bank or correspondent bank – had nothing to do with the execution or performance of the contract of sale between the buyer and the seller or the contract of of freightment. The law has been aptly stated by Lord Denning M.R. in Edward Owen Engineering Ltd. v. Barclays Bank International Ltd. & Umma Bank (1978) 1 Lloyd’s Rep. 166 at 170 thus;

“It has been long established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit. That was clearly stated in Hamzeh Malas & Sons v. British Imex Industries Ltd. (1958) 2 Q.B. 127 at p. 129. Lord Justice Jenkins, giving the judgment of this Court, said: …. it seems to be plain enough that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties as to whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers’ confirmed credits are of that character, and, in my judgment, it would be wrong for this court in the present case to interfere with that established practice.”

In Singh & Co. v. Banque de L’lndochine (1974) 2 Llyod’s Rep. 1 at 11 in clear terms Lord Diplock stated the duty of a banker thus:-

“The fact that a document presented by the beneficiary under a documentary credit, which otherwise conforms to the requirements of the credit, is in fact a forgery does not, of itself, prevent the issuing bank from recovering from its customer moneys paid under the credit. The duty of the issuing bank, which it may perform either by itself, or by its agent, the notifying bank, is to examine documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. The express provision to this effect in art. 7 of the Uniform Customs and Practice for Documentary Credits does no more than re-state the duty of the bank at common law. In business transactions financed by documentary credits banks must be able to act promptly on presentation of the documents. In the ordinary case visual inspection of the actual documents presented is all that is called for. The bank is under no duty to take any further steps to investigate the genuineness of a signature which, on the face of it, purports to be the signature of the person named or described in the letter of credit.”

In the same case, Lord Diplock reiterated the statement of the law by Viscount Sumner as follows:-

“So this appeal ultimately turns upon the only question on which there was a difference of opinion in the Court of Appeal, viz., whether the certificate, on the face of it, conformed with the requirements of the documentary credit.

The law to be applied in answering this question is clear and simple. It was stated succinctly by Viscount Sumner in Equitable Trust Company of New York v. Dawson Partners Ltd., (1927) 27 LI.L. Rep. 49 at p. 52 in the following passage from his speech:

It is both common ground and common sense that in such a transaction the accepting bank can only claim indemnity if the conditions on which it is authorized to accept are in the matter of the accompanying documents strictly observed. There is no room for documents which are almost the same, or which will do just as well. Business could not proceed securely on any other lines. The bank’s branch abroad, which knows nothing officially of the details of the transaction thus financed, cannot take upon itself to decide what will do well enough and what will not. If it does as it is told, it is safe; if it declines to do anything else, it is safe; if it departs from the conditions laid down, it acts at its own risk.

This often-cited passage has never been questioned or improved upon.”

Again in the American case of Sztejn v. J. Henry Schroeder (1941) 31 NY.S 2nd 631 which was cited with approval by Lord Denning M.R. in Owen v. Barclays Bank (Supra) Judge Shientag said:

“It is well established that a letter of credit is independent of the primary contract of sale between the buyer and the seller. The issuing bank agrees to pay upon presentation of documents, not goods. This rule is necessary to preserve the efficiency of the letter of credit as an instrument for the financing of trade.”

Finally, it must be appreciated that subject to the law relating to acceptance, estoppel and waiver, all the parties, i.e. the buyer, the issuing bank and the correspondent or confirming bank, have the right to reject documents which do not comply with the terms and conditions of the letter of credit and in the case of a buyer if the documents do not also comply with his mandate to the issuing bank for the opening of the letter of credit: J.H. Rayner & Co. Ltd., and the Oilseeds Trading Co. Ltd. v. Hambros Bank Ltd. (1943) Lloyds Rep. 10 (CA.); Bank Melli Iran v. Barclays Dominion, Colonial & Overseas (1951) 2 Llyod’s Rep 367; Panchaud Freres S.A. v. Et. General Grain Co. (1970) 1 Llyod’s Rep. 53 at 57. I shall amplify the law relating to the right to reject later in this judgment.

It is clear from the foregoing that it is trite law that all parties to documentary credits must accept and pay for documents which appear on their face to be in accordance with the terms and conditions of the credit. Subject to acceptance, estoppel and waiver, the rights and liabilities of the parties may be summarised:

(1) the issuing bank has contractual duty to write in the letter of credit all the terms and conditions the buyer as its customer instructed it to open the credit. If a bank fails to comply with the mandate of the buyer, then the bank is in breach of contract and the buyer has the right to reject documents for non-compliance with his mandate and is not liable to reimburse the bank for any payment made by it irrespective of whether the goods have been shipped to the country of the buyer or not;

(2) where the letter of credit complies with the mandate of the buyer but the documents with which the letter of credit was negotiated do not comply with the terms and conditions of the letter of credit, the buyer has the same right of rejection and non-liability for reimbursement;

(3) an issuing bank has also the right to reject documents accepted by its correspondent Bank and to refuse to reimburse the latter bank for any payment made to the seller by the correspondent bank if the documents do not comply with the terms and conditions of the letter of credit. For in such a situation the correspondent bank will be in breach of its contract with the issuing bank in failing to comply with the instructions contained in the letter of credit; and

(4) the correspondent bank has also the right to reject documents and refuse paying the seller if the documents presented to it by the seller do not comply with the terms and conditions of the letter of credit even if the seller has shipped the goods to the buyer. The breach by the seller for non-compliance with the credit has nothing to do with goods.

I may now revert to the judgment of the Court of Appeal, which, after having stated that the break down of the two ships, the “Lucky Dragon” and the “African Phoenix” gave rise to the claim as framed by the Appellant, thought the provisions of the Merchant Shipping (Amendment) Act 1978, the seaworthiness of the two ships and the supervision of the loading and monitoring of the two ships were all relevant in the determination of the Appellant’s claim in the trial court. The judgment of the Court of Appeal was unequivocal on this aspect. The learned President said:

“For the plaintiff/Respondent to succeed they had to prove as alleged in the statement of claim (1) that the Defendant/ Appellant had failed to insert the provisions of the Merchant Shipping (Amendment) Act on the letter of credit and the effect of the Act on the agreement (2) that the ship was not seaworthy and that it was the responsibility of the Appellant to see that it was seaworthy (3) that the Appellant authorised the use of the second ship (4) that the loss of the goods arose out of the Appellant’s negligence (5) that the documents relied upon as to the date of shipment were forged and (6) that the Appellant or their agents had failed to take due care and attention in detecting the forgery. I fail to see how all the above could be tried without direct recourse to the Admiralty jurisdiction of the High Court.”

If this had been the case, the matters would have been governed by maritime law which is within the exclusive Admiralty jurisdiction. Having regard to the decision of this Court in American International Insurance Co. v. Ceekay Traders Ltd. (Supra), the Court of Appeal would have been right that the High Court of Lagos State has no jurisdiction. But this was certainly a misconception of the law and practice of commercial credits.

Now, in the business world of documentary credits, parties are not factually concerned with the seaworthiness of a ship or loading it or monitoring its voyage or ensuring its compliance with the maritime law of the country of the discharge of its cargo. They are not concerned with actual delivery or non-delivery of goods. The whole transaction may in reality be a fraud or forgery. There may be no ship and there may be no goods at all. Parties are only concerned to ensure compliance on papers with the relevant terms of their respective contracts. It is all essentially a matter of documentary contract between a banker and his customer, which has nothing to do with maritime law. It is a matter within the jurisdiction of the High Court of Lagos State and not of the Federal High Court: Jamal Steel Structure Co. Ltd. v. African Continental Bank (1973) 1 ALL NLR (Part.2) 208.

For the aforesaid reasons and the reasons stated by my learned brother, Eso, J.S.C., in A.M.O. Akinsanya v. United Bank for Africa, S.C. 95, 1985 delivered this morning, I hold that the matter in dispute does not fall within the Admiralty jurisdiction. The High Court of Lagos State rightly exercised jurisdiction in the matter.

Although the Court of Appeal held that the trial court had no jurisdiction, nevertheless and quite appropriately, it considered the Respondent’s appeal before it on the merits. It allowed the appeal and set aside the decision of the trial court.

I now proceed to reiterate the salient relevant facts and issues, in so far as they relate to the credit canvassed in the trial court and in the Court of Appeal.

The Appellant’s case was that the Respondent was in breach of contract or negligent in that:

(1) the Respondent failed to insert in the letter of credit as its terms and conditions the Appellant’s instructions that the provision of the Decree that the ship, if not a Nigerian ship, should not be more than 15 years old, and

(2) the respondent accepted documents which on their face were inconsistent with one another and with the letter of credit.

Apart from general denial, the main defence of the Respondent was that the Appellant had accepted the documents and thereby waived any breach or negligence of the Respondent. The Respondent also pleaded estoppel and exception clause.

I have earlier shown in this judgment that the trial court accepted the case of the Appellant that it had instructed the respondent to endorse the provision of the Decree and “no transhipment” in the letter of credit. The Respondent endorsed the non-transhipment condition but not the provision of the Decree. The trial court also found the documents accepted by the Bank of Tokyo and the Respondent were inconsistent on their face in that the Bill of Lading, Exhibit C, permitted transhipment. It also showed the date of loading on the “Lucky Dragon” as 15th November 1978 while the Hatch Report and Loading Report state the date to be 21st November 1978. With a cursory observation, the trial court dismissed the defences of acceptance, estoppel and exception clause. It found The Respondent liable for negligence.

In their judgments, the Court of Appeal observed that the trial Judge did not find that there was an agreement between the parties to incorporate in the letter of credit the provision of the Decree. The learned President had this to say:

“In any event if the only ground for negligence was based on the provision of the law it was in fact clear from the statutory provisions that the law had never come into force. It is, in my view, too remote to hinge the negligence of the Appellant to a law which had not come into force. Furthermore it had not been alleged that it was the responsibility of the Appellant Bank to hire the ship to be used for the carriage of the rice. In my opinion there is no justification to hinge liability for negligence on the Appellant on the basis of the provisions of Act. No.9 of 1978 whether as a matter of statute law or on the basis of contractual obligation which has not been established.”

The reversal of the trial court’s finding of fact on the agreement to incorporate the provision of the Decree and the passage of the judgment of Nasir, P. above quoted are the subjects of the complaint in Ground of appeal No.2.

Learned counsel for the Appellant, Professor Kasunmu, SAN., submitted that the Court of Appeal misdirected itself in reversing the finding of fact by the trial court, which finding was amply supported by the evidence. He argued that the Court of Appeal misconceived the Appellant’s case in that the liability of the respondent was not, as the Court of Appeal thought, based on the allegation that it was the responsibility of the Respondent to hire the ship for the consignment of the rice but that the Appellant’s case was that it was the failure of the Respondent to endorse the provision of the Decree which made the use of the “Lucky Dragon” possible and that the direct consequence of the breach was, as the Trial Judge found, the cause of the loss sustained by the Appellant.

Responding, learned counsel for the Respondent submitted that there was no specific finding by the trial court as to the request to endorse the provision of the Decree but that the trial court held as a matter of law that the respondent had a duty to endorse the provision of the Decree. He contended that the Decree did not impose such duty on Bankers.

I think there is substance in the complaint in so far as it relates to the reversal of finding of fact. The evidence shows that the Managing Director of the Appellant, PW2, testified that he had instructed the Respondent to endorse the provision of the Decree while PW3, a banker, stated that it had been the practice of bankers to do so. The trial Judge accepted the evidence of both witnesses. He stated:

“there is the evidence of P.W.3 a Banker of many years of experience, whose evidence I accept. I accept also the evidence of the 2nd P.W. Now, having regard to the Financial involvement of Bank, the admission by the only witness for the defence that he knew of the existence of the said law and the consequences of not complying with it, and also having regard to the mandatory provisions of that law, it becomes clear to my mind that it was the duty of the Bank to endorse the provisions of this law on the letter of credit.”

In my view, the matter being in a civil proceeding wherein proof of a fact is only required within the balance of probability, the evidence appears to be more probable than not that P.W.2 so instructed the Respondent. The Court of Appeal erred in its assessment of the evidence to reverse the finding of fact. I am satisfied there is sufficient evidence to support the finding of the trial court that P.W.2 instructed the respondent to incorporate the provision of the Decree and the Appellant failed to do so.

Now, a lot of unnecessary heat was generated in respect of the retracted operations of the Decree. I consider all the lengthy submissions, to wit, concerning the enactment of the Decree on 15th May 1978, its coming into force on 13th August 1978, its suspension with retrospective effect’ from 13th August 1978 by the Merchant Shipping (Amendment) (No.2) Decree 1978 of 2nd October 1978 and the question as to whether having regard to its suspension it had ever been in force as being academic. In my opinion the gravamen of the issue was that the Respondent failed to incorporate in the letter of credit, as instructed by the Appellant non-user of a ship more than 15 years old. So far as strict compliance with the terms and conditions of the letter of credit is concerned, it is irrelevant whether the Decree has been in force, suspended or repealed.

The law is well settled that in opening a letter of credit, a bank has a duty to comply with the instructions of its customer: Midland Bank v. Seymour (1955) 2 Lloyd’s Rep. 147. I hold that the failure of the Respondent to endorse the provision of the Decree in the letter of credit, Exhibit C, constituted a breach of its obligation to the Appellant.

In its consideration of the inconsistency between the Bill of Lading and the Hatch Report as regards the date of loading which the Bill of Lading shows to be 15th November 1978 whereas the Hatch Report shows the ship did not arrive at the port until on 21st November 1978 and was inspected for loading on 22nd November 1978, the Court of Appeal stated that it was impossible from the evidence to determine the accuracy of one or the other document as to the actual date but found solace on the fact that by their letter of 23rd November 1978, Exhibit W2, the authors of the Hatch Report intimated the dates in the Report were errors and corrected both to 12th and 13th November 1978 respectively. The Court concluded its consideration with this observation:

“In the present appeal the Bill of Lading had the date of 12th November, 1978 as the date of loading and the Hatch Survey Report had the date of loading 21st November, 1978, as the date of loading. One of them could not be correct. The problem in this appeal is minimised as there is in evidence Exhibit W2 a letter from the authors of the Hatch Survey Report, which was admitted in evidence without any objection which corrected the date of 21st November 1978 on the Hatch Survey Report to read 12th November 1978. This letter also explained the cause of the delay. In my opinion the Hatch Survey Report must either be accepted together with the letter correcting the date or both of them must be disregarded as contradictory. The letter, Exhibit W2, had not been considered by the learned trial judge in his assessment of the falsity of the Bill of Lading. I think this is a serious omission. In addition the learned trial judge did not give reasons as to why he thought the Bank of Tokyo received all the documents in Exhibit G7 on the same date.

Assuming however that all documents in Exhibit G7 were received on the same date by Bank, the obligation of the Bank (the Appellant) was to consider all documents listed in the letter of credit. The Hatch Survey Report was not one of them.”

In parenthesis, it may be observed that the Court of Appeal mistakenly stated the loading date on the Bill of Lading, Exhibit C, as 12th November 1978. In fact it is 15th November 1978. The Court also mixed the Hatch Report, Exhibit G6, which stated the date of arrival of the ship at the port and its fitness for loading with the Loading Report, Exhibit G8, which stated loading had started on 21st November 1978. The Court did not advert its mind to the Loading Report.

Grounds of appeal No.3 and No.4 complain against the decision of the Court of Appeal on the issue of the date of loading. The grounds read:

“3. Having held that the date of the loading Report and Hatch Report differed from that in Bill of Lading. The learned judges of the Court of Appeal erred in law in exonerating the Respondent Bank from liability on the basis of the clarification contained in Ex. W2.

Particulars of Error

The duty of the Respondent Bank is to check documents used to negotiate the credit at the time of negotiation and the clarification contained in Ex. W2 – coming months after payment by the Respondent Bank – cannot exonerate them from liability for negligence at the time of negotiation.

4. The learned trial judges of the Court of Appeal erred in law in holding that no reason was given by the trial judge for holding that the Bank of Tokyo received all the documents listed in Ex.G7 on the same date, and that even if it did, it was not obliged to consider the Hatch Report as this was not one of the documents listed in the letter of credit.

Particulars of Error

(a) There was clear evidence before the trial court that all the documents on Ex. G7 were received by the Bank of Tokyo on the same date.

(b) The obligation of the Respondent Bank under the Uniform Custom and Practice is to examine all documents with care and also to see that the documents tendered are not inconsistent with one another.”

Learned Counsel for the Appellant argued that even though some of the documents sent to the Bank of Tokyo were not called for under the credit in as much as they were presented to the bank and were inconsistent with the documents called for the Bank of Tokyo and the Respondent were negligent in not discovering the inconsistency as is required of both banks by Article 7 of the Uniform Customs and Practice for Documentary Credits 1974 hereinafter referred to as the Rules. He further contended that in its Defence the Respondent did not join issue with the Appellant as to the non-receipt by the Bank of Tokyo of any document said by the Appellant to be among the documents with which the credit was negotiated; that there is sufficient evidence to support the finding of the trial court that the Hatch and Loading reports were sent to the Bank of Tokyo when credit was being negotiated and, consequently, the Bank had notice of their inconsistency as to the date of loading. If the two banks failed to notice the inconsistency both were in breach of their obligation under the said Article 7.

Finally, learned counsel contended that it was not the function of the Court of Appeal nor of the trial court to resolve which of the two dates of loading was correct. The function of both courts is to find whether the documents were consistent or not. On their face, the documents presented by the seller to the Bank of Tokyo are undoubtedly inconsistent as to the date of loading according to learned counsel.

The response of learned counsel for the Respondent to the foregoing submission was short, cursory and in accordance with view of the Court of Appeal. He simply argued that the Hatch Report was not among the documents called for by the credit and that there is no evidence that it was presented to the Bank of Tokyo.

It seems to me the Court of Appeal was right that the Hatch Report was not among the documents called by the credit but was wrong in its finding that there is no evidence the Hatch Report was presented to the Bank of Tokyo together with the documents called for. P.W.2 gave evidence of the documents which were presented to the Bank thus:

“I see Exhibits C, G and H. Exhibits G and H are the documents used to negotiate the Letter of credit for the Bank of Tokyo.”

It may be noted that Exhibit G is a bundle of documents admitted in evidence by consent and marked Exhibits G-G 10 which included the Hatch Report and the Loading Report, Exhibits G6 and G8 respectively. Furthermore, P.W.2 had personal knowledge of the documents for which payment was made by the Bank of Tokyo when the documents were presented to him by the respondent at the time he signed the document of acceptance, Exhibit O.

That being the case, the finding of the trial court that the Hatch and Loading Reports were among the documents presented to the Bank of Tokyo cannot be faulted.

The documents called by the letter of credit, Exhibit C, may be stated. They are Commercial Invoice, Bills of Lading, Certificate of Weight, Packing List and Certificate of Origin and are Exhibits D, G5, G3, G and G1 respectively. The credit did not call for Hatch and Loading Reports.

The next question for consideration is: Is a bank entitled to overlook an un-called document which on its face is inconsistent with documents that are called for if all the documents have been presented to the bank The Court of Appeal appears to think the answer to the question to be in the affirmative. The case of Soproma S. P.A. v. Marie and Animal By-Products Corporation (1966) 1 Lloyd’s Rep. 367 seems to furnish the correct answer to the question. In that case an un-called document mistakenly put with the documents called was taken into account in the examination of document for consistency with the credit. The facts of the case relevant to this appeal may be summarised: An Italian buyer agreed to purchase from an American seller fish fullmeal of “Protein 70% min.” and a letter of credit was established for the purpose. The seller presented the documents specified in the credit showing “fishmeal protein 70%” but by inadvertance there had been enclosed an invoice from the seller’s supplier showing that the fishmeal had a minimum protein content of 67%. The buyer advised his issuing bank he would not accept the documents as they showed that the product was 67% protein. The rejection by the buyer was upheld.

Although the Soproma case was a decision of the High Court, I think it correctly states the law and is in accordance with Article 7 of the Rules which reads:

“Article 7- Banks must examine all documents with reasonable care to ascertain that they appear on their face to be in accordance with the terms and conditions of the credit. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in accordance with the terms and conditions of the credit.”

The rule says “all documents”. It does not qualify nor restrict the documents. Had the Bank of Tokyo examined all the documents with reasonable care the Bank would have noticed that the documents appeared on their face to be inconsistent with one another. The Bill of Lading and other documents showing 15th November 1978 as the loading date on the one hand while on the other hand the Hatch and Loading Reports showed the date to be 21st November 1978. Consequently, the Bank would have discovered if it had examined the documents with reasonable care that the documents did not appear on their face to be in accordance with the terms and condition of the letter of credit, Exhibit C, which required the date of loading to be 15th November 1978.

Again, as regards the condition of the letter of credit against transhipment, it is incontrovertible that the Bill of Lading, Exhibit G5, on its face permitted transhipment. Had both banks, the Bank of Tokyo and the Respondent, exercised reasonable care both would have noticed the inconsistency.

It is trite law that an advising bank, the Bank of Tokyo in this appeal, must act strictly in accordance with the mandate as contained in the letter of credit of the issuing bank, the respondent in this appeal, and should not effect payment against documents which do not fully comply with the terms of the letter of credit: Bank Melli Iran v. Barclays Bank (1951) 2 Lloyd’s Preport 367. Since the documents appeared on their face inconsistent, the Tokyo Bank should have rejected them and refused payment: Panchaud Freres S.A. v. Et. General Grain co. (1970) 1 Lloyd’s Rep. 53 at 57. For the same reasons, the respondent should also have rejected the same and refuse to reimburse the Bank of Tokyo.

It follows from the foregoing that the Bank of Tokyo has broken its obligation to the Respondent and the Respondent has also brokenits obligation to the Appellant by making payments against documents which did not comply with the terms of their respective contract. The trial court was therefore right, in my view, in its finding that both the Bank of Tokyo and the Respondent were negligent with regard to the date of shipment and transhipment.

To summarise, I find the Respondent was in breach of its obligations to the Appellant, to Wit:

(1) to insert the provision of the Decree on the letter of credit,

(2) for accepting inconsistent documents.

Now, on account of the Respondent’s default, the Appellant had the right to reject the documents presented to it by the Respondent on the two grounds of breaches of obligations or on either ground. On their rejection, the Appellant would not have lost a kobo from the transaction other than the profit it would have earned if the transaction had not been aborted. The loss now suffered by the Appellant would have been in the courts of the banks. However, the Appellant did not reject the documents. He accepted them as per Exhibit O. The trial court said Exhibit O was not effective acceptance.

The Court of Appeal disagreed with the trial court in these words:

“Furthermore, in Exhibit “O”, the Respondent had signified his acceptance of the documents pertaining to the Bill of Lading without any objection. The learned trial judge had explained Exhibit “O” as a three-line letter where the learned trial judge said:

“Finally, the Defendants rely on Exhibit “O” as estopping the plaintiff from challenging the conduct of the Bank in this transaction. Exhibit “O” is a three (sic) letter which says “we accept the documents pertaining to the above mentioned bill X X X” and signed by the plaintiff’s representative. Exhibit “O” is of doubtful value. There must be strong evidence to infer waiver or estoppel. The plaintiff could have written “we have seen them” instead of the use of the words “we accept.”

It is difficult to understand the reasoning of the learned trial judge. The Plaintiff/Respondent was a company with immense experience of international trade and in the use of letter of credit in such trade (see evidence of P.W.2 at page 25 of record). The Respondent chose to write “we accept” and concluded the passage referred to above by the learned judge as follows:-

“and authorise you to debit the amount to our account with you including your charges”.

Reading the letter, Exhibit “O”, as a whole, I cannot accept the conclusion by the learned trial judge that the Respondent could have written “we have seen them” only as this would not have justified the concluding part of the letter which authorised the debiting of the Respondents’ account. Whether this was estoppel in pais or not, it does show that the respondent was given opportunity to object to the document, but there was approval instead of objection. Whether (sic) the argument as to when the Respondents’ account was debited this letter, Exhibit O, had normalised the position.”

Ground of appeal No.5 challenges the decision of the Court of Appeal in the aforequoted passage of the judgment of the Court of Appeal. The Ground reads:

“The learned Justices of the Court of Appeal erred in law in holding that in Ex. ‘O’ the Appellants “had signified its acceptance of the documents pertaining to the Bill of Lading without objection” when on the finding of the trial Court there was no strong evidence from which the Court could infer waiver or estoppel having regard to evidence on the date and circumstances surrounding the execution of Ex.O, the date on which the Appellants’ account was infact debited by the Respondent Bank and including the Bill of Lading are inspite of the wording of Ex.O still in the possession of the Respondent Bank and have not been accepted or handed over to the Appellants.”

In his brief and oral argument, learned counsel for the Appellant contended that the evidence of P.W.2 showed Exhibit O was prepared undated by the Respondent when the letter of credit was opened, that Exhibit O dated 15th December 1978 could not be the authority for debiting the account of the Appellant since the account had in fact been debited on 15th September 1978; that the documents used to negotiate the credit were never shown to the Appellant and that having regard to the evidence the Court of Appeal erred in law in reversing the decision of the trial court that Exhibit O could not operate as a waiver or estoppel.

Mr. Akinrele, SAN, for the Respondent submitted that there is no evidence Exhibit O was prepared by the Respondent and handed over to the Appellant at the issuance of the letter of credit. Relying on Panchaud Freres S.A. v. Et. General Grain Co. (Supra) he urged us to hold Exhibit O as constituting estoppel in pais against the Appellant.

I accept the contention of learned counsel for the Respondent that there is no evidence Exhibit O was executed at the time of the opening of the credit. P.W.2 admitted having signed the document but did not say he had signed it undated as contended by learned counsel for the Appellant. The document was dated 15th December 1978. In the absence of admissible evidence to the contrary, the document speaks for itself and the P.W.2 is presumed to have signed it on the said date.

Furthermore, the Respondent’s witness, who was the Manager of the Respondent at the material time, testified that the Appellant accepted the documents and signed Exhibit O. He said the Respondent kept the documents because the Appellant had not paid the balance to its debit. I am satisfied the from decision of the Court of Appeal that the Appellant accepted the documents against which the credit was negotiated is supported by the evidence.

The effect of acceptance of documents under the commercial law of documentary credits may now be considered. Acceptance may amount to waiver or estoppel or both depending on the circumstances of each case. Waiver, in its legal sense, takes place when a person, with knowledge of a breach, does an unequivocal act which shows that he has elected to affirm the contract as still existing, instead of dis-affirming it. On the other hand, the basis of estoppel by conduct is that a person has so conducted himself that it would be unfair or unjust to allow him to depart from a particular state of affairs which another person, who will be affected by the departure, has taken to be settled or correct. The law was succinctly stated by Lord Denning, M.R., in Panchaud Freres S.A. v. Et. General Grain Co. (Supra) at p. 57. I consider the dictum very crucial to the issue that I quote it extensively:

He said:

“This doctrine of estoppel by conduct underlies the dictum of Mr. Justice Devlin (as he then was) in Kwei Tel, Chao and Others (Trading as Zung Fu CO.) v. British Traders and Shippers Ltd. N.V. Handelsmaatschappij J. Smiths Import-Export, Third Part, (1954) 2 Q.B. 459, at pp. 480 and 481; (1954) I Lloyd’s Rep. 16, at pp. 48and 49. It is so very apposite that I will read it in full:

If there is a late shipment, as there was in this case, the date of the shipment being part of the description of the goods, the seller has not put on board goods which conform to the contract description, and therefore he has broken that obligation. He has also made it impossible to send forward a bill of lading which at once conforms with the contract and states accurately the date of shipment. Thus the same act can cause two breaches of two independent obligations.

However that may be, they are distinct obligations, and the right to reject the documents arises when the documents are tendered, and the right to reject the goods arises when they are landed and when after examination they are found not to be in conformity with the contract. There are many cases, of course, where the documents are accepted but the goods are subsequently rejected. It may be that if the actual date of shipment is not in conformity with the contract, and the error appears from the documents, the buyer, by accepting the documents, not only loses his right to reject the documents, but also his right to reject the goods, but that would be because he had waived in advance reliance on the date of shipment. (Emphasis added).

Mr. Justice Devlin used the word “waived”. But he used it in its popular sense. Not in its legal sense. When “waiver” is used in its legal sense, it only takes place when a man, with knowledge of a breach, does an unequivocal act which shows that he has elected to affirm the contract as still existing instead of disaffirming it as, for instance, in waiver of forfeiture: see Matthews v. Smallwood, (1910) 1 Ch. 777.

In the present case Mr. Justice Roskill thought that Mr. Justice Devlin had used “waived” in that sense: and he held that these buyers had not waived the right to reject for late shipment because they had not got actual knowledge of that breach. At most they had constructive notice of it and our commercial law sets its face resolutely against any doctrine of constructive notice: see Manchester Trust v. Furness, (1895) 2 O.B. 539, at p. 545, by Lord Justice Lindley, and Greer v. Downs Supply Company, (1927), 2 K.B. 28, at p. 36, by Lord Justice Scrutton.

The present case is not a case of “waiver” strictly so called. It is a case of estoppel by conduct. The basis of it is that a man has so conducted himself that it would be unfair or unjust to allow him to depart from a particular state of affairs which another has taken to be settled or correct, see the cases I referred to in Central Newbury Car Auctions Ltd. v. Unity Finance Ltd. and Another. Mercury Motors, Third Parties, (1957) 1O.B. 371, at p. 380.

Applied to the rejection of goods, the principle may be stated thus: If a man, who is entitled to reject goods on a certain ground so conducts himself as to lead the other to believe that he is not relying on that ground, then he cannot afterwards set it up as a ground of rejection, when it would be unfair or unjust to allow him so to do. Mr. Lloyd gave good illustration. Suppose, he said, in this case the bill of lading had contained the true date of shipment – Aug. 12 – (whereas the last date under the contract was July 31): so that, when the buyer took up the documents, he could have seen, if he had read it, that the date of shipment was Aug. 12. If he did not trouble to read it, but instead took up the documents and paid for them, he could not afterwards reject the goods on the ground of late shipment.

Even though he had not read the bill of lading – and so was ignorant of the late shipment – he could not afterwards reject the goods on that ground: for the simple reason that he had the full opportunity of finding out from the contract documents what the real date of shipment was and yet he did not trouble to do so. It would not be fair or just to allow him afterwards to reject the goods. Mr. Evans was inclined to accept this illustration as correct.

Another instance can be given from the ordinary sale of goods. If a buyer does not choose to examine the goods when they arrive, and puts it off beyond a reasonable time, he loses his right to reject; see sect. 35 of the Sale of Goods Act, 1893. Although he did not know they were not in conformity with the contract, nevertheless, by letting reasonable time to go by, he loses his right to reject.”

In the case on appeal, the Managing Director of the Appellant accepted on behalf of the Appellant the documents as per Exhibit O, which reads:

“We accept the documents to the above mentioned bill, and authorize you to debit the amount to our account with you including your charges.” (the particulars of the letter of credit were written on top of the document).

The Director did not stop there. He went to Singapore where he took delivery of the rice and arranged for its transhipment to Nigeria. In my view the conduct of the Appellant constituted both estoppel and waiver either which was a bar to any claim the Appellant might have against the Respondent. Accordingly, the decision of the Court of Appeal on the issue of estoppel is right and impeccable.

The appeal should and is hereby dismissed. The decision of the Court of Appeal is affirmed. N300.00 costs to the Respondent.

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Other Citation: (1986) LCN/2266(SC)