1. C.M.A. No, 7001 OF 1989.
2. ' This is an application under Order 39, Rules 1 and 2 read with section 151, C.P.C. Praying that Defendants Nos. 1 and 6 be restrained from claiming payment under L.C. In question and Defendants Nos. 4 and 5 from making any payment thereunder.
3. ' Briefly stated the case of plaintiff-company is that it is carrying on the business of import of various items into Pakistan. The plaintiff company had entered into an arrangement with Defendant No, 1 for the import of 'Viscose Rayon Staple Fibre'. For this purpose the local agent of Defendant No, 1 issued a Indent on 26-12-1988. The plaintiff then obtained Import Licence and opened L.C. Through Habib Bank Limited, Defendant No, 4, in favour of Defendant No,1. The said L.C.
4. As amended was for U.S. $ 329,037.83 for payment 120 days after the date of Bill of Lading @ U.S. $ 2.4387 per Kg. The total quantity of `Viscose Rayon Staple Fibre' was 1,41,217.95 Kgs. Shipment was to be made not later than 31-7-1989 and the goods were to be laden on board the vessel and to be signed by authorised representative of carrier or Master. Part shipment was allowed, but trans- shipment was prohibited. The local agent of Defendant No, 1 informed the plaintiff that 94,027.2 Kgs.
5. In 336 bales of fibre was shipped on 25-6-1989 by vessel 'Al-Muntaza', while 2,23,485.8 Kgs. In 84 bales was shipped on 28-7-1989 by vessel `s.s. Paithoon'. The plaintiff came to know that the above information as also the statement contained in the Bill of Lading that the fibre was laden on board the vessel 'Al-Muntaza' on 25-6-1989 and in vessel Paithoon' on 28-7-1989 were false and fraudulent and made with a view to defraud payment under the L.C. In respect of the first consignment there was another breach of L.C. In that the goods were trans-shipped. The goods are apparently discoloured and defective. Hence neither Defendant No, 1 nor its banker Defendant No, 3 was entitled to claim payment under the L.C. Hence this suit with a prayer for such a permanent injunction and/or compensation amounting to Rs, 2 crores. Alongwith the suit an application for interim injunction is made as stated above.
6. ' I have heard Mr. Khalid Anwar, Advocate for the Plaintiffs and Mr. M.H. Kazmi, Advocate for the Defendants.
7. ' It was contended by Mr. Khalid Anwar that according to the Indent Annexure-`A' and L.C.
8. Annexure-T', it was clearly agreed that the Bill of Lading should show that the goods were shipped on board before 30-6-1989 which date was subsequently extended upto 31-7-1989 and that the trans-shipment was prohibited. These conditions were to be enforced strictly as these were underlined at two places on these documents. Letter dated 1-7-1989 Annexure'F sent by the Defendants' local agent showed that the first consignment was shipped on 25-6-1989, but Bill of Lading Annexure-P-1' showed that it was loaded from Bangkok in vessel `Al-Muntaza' and was certified in Bill of Lading to be laden on board. The second consignment, according to the Bill of Lading Annexure--`G' was sent by vessel s.s. `Paithoon' from Bangkok and shipped on board on 28- 7-1989. The above letter of Defendants' agent and the entries in the Rill of Lading were proved to be false from a telex of Lloyd's London Annexure-- 'H', which has given a complete record of the movements of vessels 'Al-Muntaza' ' and `s.s. Paithoon'. Mr. M.H. Kazmi has not challenged the correctness of this telex. According to Lloyd's, 'Al-Muntaza' was in Hongkong on 25-6-1989 and it had never touched Bangkok. Vessel `s.s. Paithoon' was between Bombay and Madras on 28-7-1989.
9. It was never in Bangkok. From the positions given in Lloyd's above telex it is quit clear that it was not possible for any one of these two vessels to be on the alleged ports of booking on the dates shown in the Bills of Lading. Hence both the Bills of Lading are false, incorrect and fraudulent documents.
10. The Defendants were, therefore, not entitled to encash these L.Cs. In this connection Mr. Khalid Anwar relied upon the following authorities:--
(1) Articles 3, 10, 15, 26, 27 and 29 of the I.C.C.-400.
(2) A citation from Letters of Credit by Sarna, which requires strict compliance of date of shipping necessary.
(3) A citation from Law and Practice of Letters of Credit by PARVIS and DARVAS which provides that strict conformity between the Bill of Lading and the Letter of Credit was necessary.
(4) An English decision reported in 2 K.B. 605/611 in which it was held that accuracy of Bill of Lading was essential otherwise buyer can reject the goods. At page 612 of the same ruling stress has been laid on the accuracy of Bill of Lading.
11. ' In reply it was pointed out by Mr. M.H. Kazmi that the plaintiff's sole contention was that the Bill of Lading was wrongly dated and as the terms of Letter of Credit were not strictly followed as to the boarding on ship and the nontrans-shipment, therefore, the Letter of Credit cannot be encashed.
12. Conceding that the violations were there, he submitted that the violations did not entitle the plaintiff to reject the goods. In this connection he has referred to Articles 1, D-1, 25-B and 29 of I.C.C.-400. The fact that the name of the ship was wrong or that trans-shipment was done, were immaterial as the shipment was made within the period prescribed under the Letter of Credit.
13. Apart from that, according to him the most significant question for the purpose of injunction application was, whether the plaintiff, after having taken delivery of the goods, having full knowledge that the breach has been committed, is entitled to get an injunction for prohibiting the payment under the Letter of Credit. He pointed out that it was admitted that the plaintiff had taken delivery of the entire goods on 10-8-1989. They had endorsed its acceptance on the relevant Bill of Exchange in order to get the document to enable them to take delivery of the goods. From the letters of the plaintiff dated 27-7-1989, 29-7-1989 and 24-9-1989 and Clearing and Forwarding Agent's letters dated 31-7-1989 and 18-9-1989, it was quite clear that the plaintiff had full knowledge of the wrong dates of shipping and trans-shipment in spite of which he took the delivery. After having taken delivery of the goods and after retaining them in his possession for more than 2-1/2 months, the plaintiff has filed this suit on 18-10-1989. Hence the plaintiff was not entitled to an injunction for restraining the payment by Habib Bank Ltd. Under the irrevocable Letter of Credit referred to above. He submitted that the Bill of Exchange was signed by the plaintiff and he had thereby authorised the bank to make payment. Now he was precluded from complaining that the shipment was not proper or there was defect in the Bill of Lading. In this regard he placed reliance on (1917) I Lloyd's Report 53, which is a leading decision by Lord Denning wherein he has held that by taking up the documents and paying for them the buyers in his judgment were precluded afterwards from complaining of the late shipment. He also relied upon a Division Bench's decision of this Court in the case of Koh-e-Noor Trading (Pvt.) Ltd. v. Mangrani Trading Co. 1987 CLC 1533 where it was held that in a case where the appellant had taken delivery of the goods from the carrier without any protest, the question whether the goods were dispatched in accordance with the description given in the Letter of Credit or there was any breach as to the quality, would be an issue at the trial. Under irrevocable Letter of Credit payment cannot be stopped on the ground that there was some breach on the part of the vendor as to the quality of goods. An irrevocable Letter of Credit is a negotiable document in commercial world, which is negotiated, inter alia, inter se between the banks and, therefore, the Court cannot lightly cause its dishonouring by one bank to another, unless prima facie a sufficiently grave cause is shown. Finally it was argued that the plaintiffs had not come with clean hands. They had suppressed that they had filed two suits on identical grounds wherein this Court had declined to restrain the bank from making payment on the ground that the goods had already been received.
14. ' I have given my thoughtful consideration to the contentions raised by the learned counsel for both the parties. Defendant No, 1 has not denied that the Bills of Lading contained wrong statements of facts, particularly about the dates of shipping, vessels in which the goods were loaded and that there was transshipment. If these Bills of Lading would have stated correct facts, the payment would not have been made by the Bank under the Letters of Credit, as the conditions in the Letters of Credit were not complied with by the Defendant No,1, while dispatching the goods. The defence of Defendant No, 1 is two-fold.
15. ' The first is that he has not caused any loss to the plaintiff by making incorrect statements in the Bills of Lading and that these incorrect statements were made bona fide and as a business practice, so that the bank may not refuse to make payment under the Letters of Credit. Alternately it was argued that since the plaintiff had taken delivery of the goods, which were lying in a bonded warehouse at the Port of Karachi, therefore, he was not entitled to seek an injunction restraining the encashment of Letter of Credit. In support of his contention Defendant No, 1 has placed reliance on a decision of Lord Denning reported in 1970 (1) Lloyd's Law Reports 53. This decision of Lord Denning is distinguishable from the facts of the present case. At page 56 it is stated as under:-- "Thereupon, the buyers for the first time--This was in 1968--3 years after the shipment--claimed to reject on the ground of late shipment and also on the ground of the false date in the Bill of Lading.
16. The sellers made this answer to buyers: 'By your conduct you have waived any complaint on this ground.' They also said: 'Your claim to reject on these grounds ought to have been made within 6 months and you are out of time.'"
17. ' While in the present case the goods were delivered by Karachi Port Trust to the plaintiff on 10-8- 1989. The plaintiff had already protested to Habib Bank Ltd. By letter dated 27-7-1989, that the Bill of Lading was fraudulent and defective. Similarly the delivery of the second shipment was taken on 10-10-1989 and the plaintiff had lodged a protest with Habib Bank Ltd. By letter dated 24-9-1989.
18. Hence in the present case the plaintiff had immediately protested with the bank and had filed the suit without much loss of time and even before the encashment of Letter of Credit.
19. ' This is in effect a case of sale of goods and would be governed by the provisions of section 41 of the Sale of Goods Act, which reads as under:-- "41(1) where goods are delivered to the buyer which he has not previously examined he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract."
20. ' Reliance is also placed on the judgment in the case of Mysore State Cooperative Marketing Society Ltd. v. Ko Maung Gyi & Sons AIR 1974 Mysore 20. It was held in this case that C.I.F. Contracts are commonly resorted to in international trade. In such contracts the cost of goods, insurance charges and freight have to be borne by the buyers. Payment is generally arranged through Letter of Credit issued by a banker at the instance of the buyer and the banker arranges payment to the seller on his producing the invoice, Bill of Lading and the insurance policy, but the banker does not act as agent of either the buyer or the seller and neither the delivery of invoice etc. Nor the receipt of money by the seller amounts to delivery of goods to the buyer. It was held that there is authority for the proposition that in C.I.F. Contract the purchaser is entitled to reject the goods as not being in accordance with the terms of contract notwithstanding that the property in the goods had passed to him by delivery of Bill of Lading, if he had no opportunity to inspect the goods before.
21. In this ruling reference has also been made to paragraph 297 of Volume 34 of Halsbury's Laws of England (IIIrd Edition) which deals with C.I.F. Contract which provides that "the buyer by acceptance of the documents does not thereby lose his right to reject the goods on actual delivery if the goods are not in accordance with the contract. The place of delivery is prima facie the proper place for inspection:'
22. Reliance was also placed on the English case of James Finlay & Co. v. N.V. Kwik Hoo Tong 1928 Volume 2, K.B.
604. In this case it was held that the 1 seller under a C.I.F. Contract is bound to procure and tender to the buyer a Bill of Lading which should correctly state the date of shipment. In this English case the buyer had not only taken the delivery, but had sold away the goods. It was held as follows:-- "In my judgment it is an implied condition of the contract that the bill of lading sought to be tendered shall be a true and accurate document and correctly state the date of shipment. Such a condition seems to me to be absolutely necessary to give to the transaction such business efficacy as the parties must have intended. It is on the fate of bills of lading that the buyer is called upon to pay the price if he has to pay cash against documents, or to make himself liable for the price if he has opened a credit or otherwise agreed to give his acceptance against documents, and it is on the fate of the bill of lading that he accepts the goods, so far as the essential fact of shipment date is concerned. He is indeed entitled to a reasonable time to inspect the goods after discharge from the ship, but he has as a rule no independent means of checking the accuracy of the bill of lading date, at least in any reasonable time, or before he has so acted as to have accepted the goods. In any case the buyer is, I think, entitled to rely on the accuracy of the bill of lading date, and to regard the seller as impliedly guaranteeing its accuracy, unless there are express terms in the contract to the contrary. If that were not so, the buyer would in most cases be left without any effective remedy in respect of most serious losses sustained by him through misdated bills of lading."
23. ' The decision in Koh-e-Noor Trading Ltd. v. Mangrani Trading Co. 1987 CLC 1533 is distinguishable from the present case, because the only ground given by the plaintiff in this case was that the goods which had been supplied were defective. It was specifically held that once it is proved that the banker knows that any demand for payment was already made or may be made thereafter, will clearly be fraudulent. Then in such an event the Letter of Credit cannot be encashed.
24. ' It is settled law that in cases of breach of contract the innocent party has a right to take such steps as would minimise the loss or damage. The plaintiff had a right to take delivery of the goods in spite of his protest not only for inspection, I but even for minimising the loss.
25. ' In the present case the Defendant No, 1 is seeking to confuse two completely independent legal issues. One is the question of the letter of credit. The second is the question of the delivery of goods.
26. In law these are completely independent and separate concepts and governed by different considerations. This can be seen by reference to the provisions of the Uniform Customs and Practice for Documentary Credits which admittedly apply in the present case. Articles 3 and 4 are absolutely clear and read as under:- "3. Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts, even if any reference whatsoever to such contracts is included in the credit.
4. In credit operations all parties concerned deal in documents, and not in goods, services and/or other performances to which the documents may relate."
27. ' Thus, it can be seen that there are two separate legal aspects of the matter. On the one hand the question is whether or not the encashment of the letter of credit should be stayed. This matter is to be decided on the basis of the fraud alleged to be perpetrated by the Defendants in issuing bills of lading containing false dates. In this case there can be no doubt about the fact that the provisions of the letter of credit have been violated and accordingly it cannot be encashed. The second completely independent question is that of damages by reason of the supply of defective goods.
28. However, the Defendants are seeking to confuse these two separate issues so as to obtain the encashment of the letter of credit which will then enable them to successfully evade compliance with the requirements of law. Since the Defendants are foreign companies with no assets in Pakistan, it necessarily follows that once they have successfully withdrawn the money from Pakistan the plaintiff will be left without any remedy.
29. ' I am, therefore, of the clear view that the plaintiff has a prima facie case. Hence in the circumstances mentioned above, they are entitled to be granted some interim relief of the nature, so as to ensure that, if a decree is passed in their favour, the same shall not be defeated. Hence I restrain the Defendants Nos. 1 and 6 from claiming payment under the Letter of Credit in question and Defendants Nos. 4 and 5 from making any payment thereunder until and unless the Defendants Nos.1 and 6 furnish bank guarantee equivalent to the amount of Letter of Credit with regard to any decree that may be passed in the suit.