Greenhill International Pty Ltd v Commonwealth Bank of Australia

[2014] HCATrans 46

[2014] HCATrans 046

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A27 of 2013

B e t w e e n -

GREENHILL INTERNATIONAL PTY LTD

Applicant

and

COMMONWEALTH BANK OF AUSTRALIA

Respondent

Application for special leave to appeal

HAYNE J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO ADELAIDE

ON FRIDAY, 14 MARCH 2014, AT 10.37 AM

Copyright in the High Court of Australia

MR M.C. LIVESEY, QC:   May it please the Court, I appear with my learned friend, MR T.P. BULLOCK, for the applicant.  (instructed by Duncan Basheer Hannon Barristers & Solicitors)

MR A.L. TOKLEY, SC:  May it please the Court, I appear with my learned junior, MR S.J.G. THOMAS for the respondent (instructed by Commonwealth Bank of Australia Legal Services)

HAYNE J:   Yes, Mr Livesey.

MR LIVESEY:   Thank you, your Honour.  In 1941 in Mackenzie v Rees, Sir Owen Dixon explained that the giving of a bill of exchange operated as a discharge for payment by payment subject only to whether the bill was later dishonoured.  He also explained that the Bills of Exchange Act stated exhaustively what amounts to dishonour and that it did not recognise dishonour cy‑près.  Those fundamental concepts or features of bills of exchange and of the legislation have been overlooked by the Full Court in this case.

The case for leave in the matter before the Court involves the failure by the Full Court to recognise the separate existence of the bills of exchange following the negotiation of the letter of credit.  Moreover, the Full Court’s decision construed the Bank’s right of recourse under a silent confirmation agreement on the basis that the letter of credit, for which the silent confirmation agreement was entered into, was subsisting and that was simply wrong.

The parties before the court were a customer and banker for over a decade and the evidence was that the customer had entered annually somewhere between 350 and 490 of these transactions each year.  The starting point for the analysis of the parties’ rights was the documentary credit or letter of credit which can be seen at appeal book page 49.  The Court will see that it is one of these electronically generated documents.  It announces itself as a documentary credit and if the Court can come about point 3 on the page, adjacent the number 40, it is an irrevocable letter of credit and it expires, a little further down, adjacent the number 31, on 31 May 2008.  That is to say, the letter of credit came to an end unless it was earlier negotiated.  That fact was overlooked by the Full Court.

Next, the applicant bank was the Bank of India and it issued the credit at the request of the applicant, my client’s customer in India, SBM.  My client was supplying waste paper sourced from Ireland to the Indian customer in Nagpur.  My client was the beneficiary under the letter of credit.  Valley View International was a trading name of Greenhill.  A little further down, the credit was available with:

Any bank in Australia by negotiation –

As that turned out, that was the Commonwealth Bank and the credit anticipated that there would be drafts which would mature –

180 DAYS FROM BILL OF LADING –

and that the drawee under those drafts would be the –

BANK OF INDIA –

One hundred and eighty days – there was no dispute about it – fell on 15 and 16 October 2008, given that there were two shipments.  The documents which require to be presented are set out at the foot of the page and there were 10 categories.  Of course, the point of a letter of credit is to disengage the underlying the commercial contract from the credit itself and to recognise a right to payment on the presentation of complying documents and no more.

Under the additional conditions the letter of credit made it clear that it was except as expressly stated:

subject to the uniform custom and practices for documentary credit 600 –

that is the UCP600.   Paragraph 6 under the additional conditions reinforced the point that the drafts had to be drawn under the Bank of India and:

presented for negotiation . . . not later than 21 days from the date of shipment –

As it turned out, the credits were negotiated and passed onto the Bank of India, and the Bank of India gave its acceptance to those credits on the 7th and then again on 21 May 2008.  The next step in the parties’ rights was the recourse clause, which can be seen at application book page 80.

This was an arrangement as between my client and the Commonwealth Bank which fell outside the UCP 600, and what it did is enabled my client to receive payment before the Commonwealth Bank had presented the complying documents to the Bank of India and received the Bank of India’s acceptance, amongst other things, of the bills of exchange.  So, it is for this early payment that my client paid a fee, the fee was for silent confirmation, but it was also for negotiation. 

The fee in respect of that four week window of early payment was on the basis stipulated in the letter and the letter, as one reads it, is all about the letter of credit, it says nothing at all about the bills of exchange which would follow from negotiation.  An example of that appears at application book 81 where it is made clear that:

silent confirmation is conditional upon receipt by the Bank –

the Commonwealth Bank –

of the Original Credit –

and the comply documents –

and all amendments any payment of our fee.

GAGELER J:   Now, the case turns on the construction of the sentence that appears two sentences further on.

MR LIVESEY:   It does.

GAGELER J:   Are you going to get to that?

MR LIVESEY:   Immediately.  When one looks at the words of that clause, the recourse clause, it refers in very general terms to:

delay/default/loss resulting from a dispute in relation to the commercial contract.

The point that is made on behalf of the applicant is that those general words in an agreement about silent confirmation concerning a letter of credit might, in a sense, literally embrace a bill of exchange, but one would wish to see much, much clearer words before the rights which are provided to my client and indeed all of the other parties to the bill of exchange were to be undermined.

HAYNE J:   How could they be any clearer?

MR LIVESEY:   It is altogether a too loose reading of that ‑ ‑ ‑

HAYNE J:   How could they be any clearer, Mr Livesey?  There was a dispute in relation to the commercial contract, was there not?

MR LIVESEY:   There was, that is so.

HAYNE J:   There was delay, default or loss occurring – resulting from that dispute?

MR LIVESEY:   No.

HAYNE J:   No?

MR LIVESEY:   That brings me to my second proposition, if the Court pleases.  What one sees in the way in which the events unfolded, and I will briefly provide the chronology, is that such delay or loss as there was followed from the bank’s failure to present the bills of exchange to the Bank of India.  Just to recapitulate, in mid‑April the credit was issued and negotiated. 

By mid‑May, the Bank of India had accepted the bills of exchange and implicitly that there was a complying presentation of documents, and then nothing more was said until – and I should interpolate there that by 31 May the credit on its face expired.  We say that it was negotiated and came to an end in any event, but literally it expired.

Then it was not until 24 September 2008 – application book 57 – that one sees the first sign of the dispute concerning the underlying commercial contract.  The important point about that was that the Bank of India was notifying the Commonwealth Bank – and I am moving down, in the interests of time, to the second half of the SWIFT message:

4^TH JOINT CIVIL JUDGE, SENIOR DIVISION, NAGPUR HAS ISSUED ORDER RESTRAINING –

my client –

FROM ENCASHING THE LETTER OF CREDIT.

Of course, that had already happened.  The letter of credit had been negotiated and the bills of exchange issued and been accepted by the Bank of India.  Accordingly, please:

ADVISE THE COMPANY . . . AND TAKE NECESSARY STEPS –

The Commonwealth Bank as the holder of the bills, the entity in whose favour the bills were drawn, had until 15 and 16 October to present those bills to the Bank of India for payment in the ordinary way mandated under the Bills of Exchange Act.

HAYNE J:   Could it do that without contravention of the order which had been issued?

MR LIVESEY:   There is no suggestion either that the literal terms of the order embraced the bill of exchange or, if it be relevant, the Commonwealth Bank thought that the literal terms of the order embraced the bills of exchange.

HAYNE J:   The Bank of India was restrained, was it not?

MR LIVESEY:   Not until much later in 2010.  The only restraint that operated as at September was as regards my client.  The wider terms of the restraint did not come until very much later.  So what occurred ‑ ‑ ‑

HAYNE J:   Why is not this delay, et cetera, of a kind spoken of in the relevant sentence in the confirmation agreement?

MR LIVESEY:   Because, with great respect, there was no delay apart from delay by the Bank.  What occurred is that the Bank simply did not present the bills for payment on 15 or 16 October.  The Bank allowed those dates to pass in silence.  The evidence before the trial judge was to the effect that the SWIFT messages – there are a bundle of them – represented the full extent of any dealings as between the Commonwealth Bank and the Bank of India. 

Just to anticipate a point that my friend might make, it was clear from the pleadings before the trial judge that the Commonwealth Bank’s conduct and whether it had taken appropriate steps to obtain payment was a matter squarely in issue.  That was pleaded at paragraph 15 of the statement of claim and responded to in the defence at paragraph 6 where the SWIFT messages were called in aid.  The Bank elected not to call any bank officer as to these relevant events and simply relied on the SWIFT messages.  In that sense, the case is a very discrete and neat one.

HAYNE J:   Where do we most conveniently find the Full Court dealing with this argument that you would seek to advance here?

MR LIVESEY:   The Full Court deals with the argument at application book page 30, paragraphs 35 through to 37.

HAYNE J:   Where do you say the Full Court is wrong in what it says?  Where do we encapsulate the error of which you complain?

MR LIVESEY:   With great respect, there are two steps.  The first step is in paragraph 37 where the court rejected the construction argument, as I have put it, and your Honour Justice Hayne responded to that in the course of argument.  But the foundation for the Full Court’s approach is the implication that the letter of credit subsisted:

the express right of recourse . . . ceased to exist upon issue and acceptance of bills of exchange under the terms of the letter of credit . . . On the contrary, if a “dispute in relation to the commercial contract” arose . . . it was quite likely that it would arise after the acceptance of bills of exchange.

The court said that in a context where at 35 it had already rejected the proposition that the bills of exchange, the bundles of rights embodied in the bills of exchange, superseded and replaced the letter of credit.

GAGELER J:   Is your point that the court has made a factual error?

MR LIVESEY:   Well, whether it is a question of law or a question of fact is perhaps open to debate.  The essential error is to wrongly suggest that a letter of credit survives after it has been negotiated and after the time that it is specified to expire; that is the first step.  One can debate whether on its terms that is a factual error or whether the process of negotiation involves a matter of law.  But the next step is that the Full Court said in the third and fourth lines:

thereafter the Commonwealth Bank could only seek recourse against the Bank of India on the bills of exchange –

That is not quite the case that is put.  The case that is put is that the bundle of rights that then subsisted required the Bank if it wished payment on 15 or 16 October to present those bills to the Commonwealth Bank and not simply lie by and do nothing about that.  The Bank of India, on presentation by the Commonwealth Bank, could decide to honour – as one would ordinarily expect in international trade – the terms of the bills of exchange, or in the unlikely event that it did not honour the bills of exchange, then the machinery contained in the Bills of Exchange Act which applied on presentation, dishonour – notice of dishonour and protest ‑ unless all of that is complied with my client is not liable.

One would not assume that unless all of that was done that the Bank of India would have regarded itself as discharged.  Only if all that machinery was engaged in by the Commonwealth Bank might it then ultimately have given rise to what the Bills of Exchange Act recognises as a right of recourse in the Commonwealth Bank as against Greenhill.  The contrast is that if the Commonwealth Bank does not engage in that machinery contained in the Act, if it does not do that, as it did not do so in this case, then by operation of the Act, my client is discharged from liability as and from 15/16 October.

That underscores the vice in what has occurred.  The bank has done nothing with respect to the bills of exchange.  It has not presented or complied with the language of the Bills of Exchange Act in any way.  Then after the time for presentation has passed, in January the following year it simply debited my client’s account unilaterally on the basis that there was by then, as Justice Hayne has put it, delay or loss.  That was not delay or loss arising under the terms of the commercial contract, or by reason of that contract.  We say that simply arose as a result of the Commonwealth Bank’s failure to present the bills.  One would not ordinarily construe the broad terms of the recourse right as cutting back the parties’ rights and obligations under the bills of exchange legislation.

GAGELER J:   Why not?

MR LIVESEY:   Because, in my respectful submission, when a letter itself is only concerned with a letter of credit and says nothing about the bills of exchange, one would not make the large leap to assume that those words, general though they may be, concerning letters of credit would thereby be transformed or embrace the bills of exchange machinery.

GAGELER J:   Is it correct that silent confirmation is not a term of art?

MR LIVESEY:   Silent confirmation, it is a matter of debate whether it is a term of art.  It is not recognised by the UCP600, but as I have submitted, it only picks up, as it were, the hiatus, or the delay, between the negotiation of the letter of credit and the approval by the Bank of India on a complying presentation.  My client gets his money four weeks early, in effect, until the Bank of India gives its imprimatur to a complying presentation. 

A small fee is charged for that, not the sort of fee that one would expect.  Indeed, on the Bank’s interpretation of these circumstances, my client was giving up valuable rights under the bills of exchange on the basis that he was paying a small fee for that, and one would hesitate to draw that conclusion.  It really involves a failure to have proper regard to the commercial circumstances and the applicable legislation affecting the securities that were entered into by the parties.

HAYNE J:   Why would one not read a written contract between banker and customer where there is a term permitting the banker to have recourse to its customer as a term that is engaged if there is delay of any kind in connection generally with the transaction which is the subject of the letter?

MR LIVESEY:   Might I respond to that in two steps?  The first step is that the right is contained in an agreement concerning letters of credit, not bills of exchange.  Second, the delay on the facts of this case had nothing to do, in my respectful submission, with the commercial contract.  It had to do with the failure by the bank to present the bills of exchange to the Bank of India on the dates of their maturity, and it was that delay following the

Bank’s own delay in presentation, three months roll forward, the Bank then turned around and said there is a delay or loss and want our money and debited the account.

That is not what, in my respectful submission, the recourse clause was designed, or can be taken to have been agreed by the parties, to have done.  The net result being that the Commonwealth Bank as the holder of the bills has allowed the benefit of those bills to be lost through its own inactivity and my client is being relegated despite having, in the first instance, a letter of credit and in the second instance bills of exchange, my client has been relegated to the position of a mere creditor as regards the Indian client.  If the Court pleases.

HAYNE J:   Thank you, Mr Livesey.  We will not trouble you, Mr Tokley.

Resolution of the issues litigated between the parties turned upon the construction and application, in the particular circumstances that had arisen, of the contract they had made.  No point of disputed general principle would fall for consideration if special leave to appeal were to be granted in this matter.  We are not persuaded that it would be in the interests of justice generally, or in this particular case, that there be a grant of special leave to appeal.  Special leave is accordingly refused.

MR TOKLEY:   May I seek an order for costs.

HAYNE J:   Can you resist costs, Mr Livesey?  With costs.

The Court will adjourn to reconstitute.

AT 10.58 AM THE MATTER WAS CONCLUDED