PT Adaro Indonesia v Rabobank: Dispute over Letter of Credit & Refusal of Payment

In PT Adaro Indonesia v Rabobank, the High Court of Singapore heard a claim by PT Adaro Indonesia against Rabobank for US$1,297,255.06 on an irrevocable documentary credit. The court, presided over by Judicial Commissioner Tay Yong Kwang, found in favor of PT Adaro, holding that Rabobank was estopped from refusing payment due to their conduct and the acceptance of discrepancies by Premjee (Singapore), the applicant of the Rabo L/C. The court also rejected Rabobank's attempt to set off the funds against Premjee's debts.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Judgment for the Plaintiffs

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

PT Adaro Indonesia sued Rabobank for refusing payment on a letter of credit due to discrepancies in documents. The court ruled in favor of PT Adaro.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
PT Adaro IndonesiaPlaintiffCorporationJudgment for the PlaintiffWon
RabobankDefendantCorporationClaim DismissedLost

3. Judges

Judge NameTitleDelivered Judgment
Tay Yong KwangJudicial CommissionerYes

4. Counsels

Counsel NameOrganization
Molly LimWong Tan & Molly Lim
Wang Shao-IngWong Tan & Molly Lim
Oon Thian SengJoseph Tan Jude Benny
Aileen BoeyJoseph Tan Jude Benny

4. Facts

  1. The Plaintiffs claimed US$1,297,255.06 on an irrevocable documentary credit issued by the Defendants.
  2. Bank of Ayudhya Public Company Limited issued an export letter of credit in favour of G Premjee Trading Pte Ltd.
  3. Premjee (Singapore) applied to the Defendants for an import letter of credit.
  4. The Defendants issued the import letter of credit in the Plaintiffs’ favour.
  5. The Defendants sent an 'Advice of Refusal of Documents' to HSBC Jakarta pointing out discrepancies in the documents submitted.
  6. Premjee (Singapore) confirmed acceptance of any discrepancies noted.
  7. The Defendants received payment under the BAP L/C but used the funds to set off part of the debts owing by Premjee (Singapore).

5. Formal Citations

  1. PT Adaro Indonesia v Rabobank, Suit 1016/2001, [2002] SGHC 114

6. Timeline

DateEvent
Bank of Ayudhya Public Company Limited issued an export letter of credit in favour of G Premjee Trading Pte Ltd.
Premjee (Singapore) applied to the Defendants for an import letter of credit.
The Defendants issued the import letter of credit in the Plaintiffs’ favour.
Cargo of coal was loaded at the Indonesian port of Banjarmasin.
Cargo of coal was loaded at the Indonesian port of Banjarmasin.
The Plaintiffs faxed copies of the documents required to be tendered under the Rabo L/C to the Defendants.
Premjee (Singapore) sent the Defendants a negotiation schedule enclosing the documents to be tendered for negotiation under the BAP L/C.
The Defendants received Premjee (Singapore)’s negotiation schedule and the documents.
The Defendants checked the documents and noted some discrepancies.
Premjee (Singapore) instructed the Defendants to send the full set of documents to BAP for payment.
The Defendants received documents tendered by HSBC Jakarta in respect of the Rabo L/C.
The Defendants sent a SWIFT message entitled 'Advice of Refusal of Documents' to HSBC Jakarta.
The Defendants faxed to Premjee (Singapore) eight pages of documents which included the Arrival Notice dated 9 October 2000.
The Defendants sent a SWIFT message to BAP to enquire about the status of the bills of exchange drawn on the BAP L/C.
HSBC Jakarta advised the Plaintiffs of the Defendants’ Advice of Refusal.
The Defendants received the Customer’s Advice signed by Premjee (Singapore) confirming acceptance of any discrepancies noted.
Premjee (Singapore) was placed under interim Judicial Management.
The Defendants received a SWIFT message from BAP confirming that they had instructed their New York bankers to pay US$1,720,496.50 under the BAP L/C to the Defendants.
The Defendants sent an amended Arrival Notice to Premjee (Singapore).
The Defendants received payment under the BAP L/C.
The Defendants proceeded to use the funds received to settle the amount of the freight loan and interest thereon amounting to US$352,370.96 advanced by them to pay for the freight charges for the cargo of coal.
Email from A. S. Krishnan of Premjee (Bangkok) to the Plaintiffs confirmed that they had 'already accepted the discrepancies in the documents presented'.
HSBC Jakarta sent a SWIFT message to the Defendants stating that they had not received the Defendants’ acceptance advice and asking for the reasons for the non-acceptance.
The Defendants replied by SWIFT to HSBC Jakarta, referring to their advice of refusal of documents dated 9 October 2000 and reiterating the discrepancies in the documents.
The solicitors for the Judicial Managers of Premjee (Singapore) wrote to the solicitors for the Defendants confirming that the company had replied to the Defendants accepting the discrepancies on 10 October 2000.
Judgment Date

7. Legal Issues

  1. Discrepancies in Documents
    • Outcome: The court found that there were some valid discrepancies in the documents.
    • Category: Substantive
    • Sub-Issues:
      • Overdrawing on the letter of credit
      • Incorrect unit of measurement in certificates
      • Address discrepancy
    • Related Cases:
      • [1993] 1 SLR 141
      • [1922] 13 LLR 21
  2. Estoppel
    • Outcome: The court held that the Defendants were estopped from relying on the discrepancies to refuse payment because they had stated their stand to the Plaintiffs in their Advice of Refusal of Documents that they would refer the discrepancies to Premjee (Singapore) for acceptance and it was patent that the applicants of the Rabo L/C had accepted all discrepancies and had conveyed such acceptance to the Defendants.
    • Category: Substantive
  3. Set-off
    • Outcome: The court held that the Defendants were only entitled to set off the amount in respect of their freight loan as that arose out of the transaction but were not entitled to set off against what was due to the Plaintiffs.
    • Category: Substantive
    • Related Cases:
      • [1989] 3 AER 513

8. Remedies Sought

  1. Monetary Damages

9. Cause of Actions

  • Breach of Contract
  • Conversion
  • Conspiracy

10. Practice Areas

  • Commercial Litigation
  • Banking Law

11. Industries

  • Banking
  • Commodities Trading
  • Coal Mining

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Indian Overseas Bank v United Coconut Oil Mills IncCourt of AppealYes[1993] 1 SLR 141SingaporeCited for the principle that strict compliance with the terms of a letter of credit does not require literal compliance to the extent of nitpicking.
English, Scottish and Australian Bank Ltd v Bank of South AfricaN/AYes[1922] 13 LLR 21N/ACited for the principle that banks are not expected to know detailed trade customs or jargon to determine if documents comply with the terms of a letter of credit.
Hong Kong and Shanghai Banking Corp v Kloeckner & Co AGN/AYes[1989] 3 AER 513N/ACited for the principle that a bank is only entitled to set off the amount in respect of their freight loan as that arose out of the transaction but were not entitled to set off against what was due to the Plaintiffs

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
No applicable statutes

15. Key Terms and Keywords

15.1 Key Terms

  • Letter of Credit
  • Documentary Credit
  • Discrepancies
  • Back-to-back Credit
  • Set-off
  • Estoppel
  • Negotiation Schedule
  • Advice of Refusal
  • Mate's Receipt
  • Judicial Management

15.2 Keywords

  • Letter of Credit
  • Documentary Credit
  • Banking
  • Singapore
  • International Trade
  • PT Adaro Indonesia
  • Rabobank
  • Coal
  • Trade Finance

17. Areas of Law

Area NameRelevance Score
Letters of Credit95
Banking Law90
Documentary Credit80
Set-off60
Contract Law60
Commercial Law50
Estoppel40

16. Subjects

  • Banking
  • International Trade
  • Finance
  • Letters of Credit