Deutsche Bank AG, London Branch v CIMB Bank Berhad

In this case the Defendant seeks a stay of the proceedings commenced against it in this jurisdiction by the Claimant on the grounds that Singapore is the forum conveniens for the determination of the dispute between the parties.

The Claimant, Deutsche Bank AG London Branch, (“DB”) commenced proceedings in the Commercial Court against the Defendant, CIMB Bank Berhad, (“CIMB”) a Malaysian bank with a branch in London, seeking the sum of US$9,959,452.57, being the principal sum which CIMB is said to be liable to reimburse DB following DB’s payment of such sum under letters of credit governed by UCP 600, together with interest. The letters of credit had been issued by CIMB and DB had, pursuant to the authority of CIMB, confirmed those letters of credit. The beneficiary of the letters of the credit had presented the requisite documents to DB and DB, as the confirming bank, had paid out (or, it is said, is to be regarded as having paid out) the sums secured by the letters of credit. DB has expressed forensic (and perhaps genuine) disappointment that CIMB has not only refused to indemnify it in respect of the sums paid under the letters of credit but has also sought a stay of DB’s action.

This Application was heard on a Friday afternoon on a busy applications day in the Commercial Court. That is in keeping with the guidance of Lord Neuberger in VTB Capital v Nutriek International Corporation [2013] 2 AC 337 at paragraph 82 that applications of this nature “should not involve masses of documents, long witness statements, detailed analysis of the issues and long argument”. He added at paragraph 83 that “there is little point in going in too much detail.” Nevertheless, it is necessary to set out certain of the surrounding facts (or alleged facts). I do so with the assistance of a chronology prepared by Mr. Fletcher, counsel for CIMB, and the evidence filed on this Application.

By an agreement dated 19 November 2013 (“the Facility Letter”) CIMB agreed to provide banking facilities to its customer Cashcot Industries Pte. Ltd., (“Cashcot”) a trading company based in Singapore, in order to finance the purchase of goods by Cashcot using, in particular, letters of credit. CIMB’s standard terms and conditions provided, at paragraph 8, for a General Indemnity in these terms:

“As a separate and independent obligation, the relevant Obligor, shall fully indemnify the Bank from and against any expense, loss, damage or liability (as to the amount of which certificate from the Bank shall, in the absence of manifest error, be conclusive) which the Bank may incur or suffer ………….by issuing or establishing a L/C at an Obligor’s request or otherwise in connection with the Facilities…………….”

Between 3 September 2015 and 14 October 2015 CIMB opened 10 letters of credit at the request of Cashcot in favour of Global Tradinglinks Limited of Hong Kong (“Global”) to finance the purchase by Cashcot of Indian cotton. The requisite documents were to be presented at the premises of DB in London who was authorised by CIMB to add its confirmation to the letters of credit at the beneficiary’s request. The letters of credit were subject to the Uniform Customs and Practice for Documentary Credits 600 (2007 revision).

DB confirmed the letters of credit at the request of Global. Global does business internationally but has all of its central functions including management, credit and operations in London.

CIMB had security in respect of its liability under the letters of credit pursuant to the assignment by Cashcot of export letters of credit issued by Chinese banks at the request of Cashcot’s buyers in respect of which Cashcot were beneficiaries. By reason of the export letters of credit having expired CIMB is no longer able to obtain payment under the same.

The evidence filed on behalf of DB is that DB, pursuant to Global’s financing agreement with it, advanced loans to Global. The obligation to repay those loans was discharged upon the compliant presentation of documents under the letters of credit. After the documents under the letters of credit had been presented to DB between 22 and 26 February 2016 DB presented the documents to CIMB and made calls for payment. Between 26 February and 1 March 2016 CIMB notified DB of certain suggested discrepancies in the documents. On 7 March 2016 DB advised CIMB that Global had informed DB that Cashcot had accepted all the suggested discrepancies. But on the same day CIMB received an email from Cashcot saying that the discrepancies were not accepted. CIMB rejected the presentation of documents and refused to reimburse DB in respect of the letters of credit.

DB considers that, with one exception, the presentations were compliant. The one exception was corrected within the validity of the letters of credit.

On 11 July 2016 CIMB commenced proceedings against Cashcot in Singapore seeking a declaration that CIMB is entitled to an indemnity pursuant to the Facility Letter and the payment of certain sums into an escrow account again pursuant to the Facility Letter.

On 30 August 2016 CIMB commenced proceedings in Singapore against Bhadresh Trading Corporation Ltd. of India who had issued two guarantees of Cashcot’s obligations under the Facility Letter.

On 14 October 2016 CIMB obtained from the Singapore court two freezing orders against Cashcot and Bhadrash.

On 25 October 2016 DB commenced proceedings in the Commercial Court in this jurisdiction seeking reimbursement from CIMB of the sums it had paid to Global under the letters of credit.

On 7 November 2016 Cashcot was wound up pursuant to an order of the Singapore Court.

On 25 November 2016 CIMB issued its application for a stay of the English proceedings.

On 9 December 2016 CIMB issued a third set of proceedings in Singapore against Bhadresh, Global and DB (which has a branch in Singapore). In those proceedings CIMB alleges that Bhadresh, Global and Cashcot conspired to defraud CIMB. In paragraph 42 of the statement of claim it is alleged that the sale of the cargo to Global and an onward sale of the cargo by Global to Cashcot were sham transactions for the purpose of obtaining payment under the letters of credit at the expense, inter alia, of CIMB. Further, the tendered documents were doctored, altered or forged in an attempt to satisfy the requirements of the letters of credit. No allegation of fraud is made against DB. However, CIMB has joined DB to the proceedings and seeks a declaration that it is not liable to pay DB under the letters of credit because (a) the documents were non-compliant and (b) CIMB is not liable to pay “due to the existence of the fraud”. The particulars of fraud alleged are that Bhadresh, Global and Cashcot “conspired to defraud inter alia [CIMB] using the Tendered Documents. Paragraph 42 is repeated.” This could have been phrased more clearly but I accept that the fraud relied upon is not only the use of doctored or forged documents but also the creation of sham transactions for the purpose of defrauding inter alia CIMB.

In order to obtain a stay of the English proceedings CIMB must show that Singapore is clearly or distinctly more appropriate than England for the trial of DB’s claim against CIMB; see Spiliada Maritime Corp. v Cansulex Ltd. [1987] AC 460, 475-478.

The evidence of Mr. Aston, a partner in the firm of Holman Fenwick Willan who act for CIMB, is that the only connecting factors to England are that DB is the London Branch of a German bank and that CIMB, a Malaysian bank, has a branch office in London. I am not sure that that is entirely correct. DB’s customer Global also appears to have a real presence in London and the documents were tendered by Global to DB in London. However, the basis upon which it is said that Singapore is clearly and distinctly the more suitable forum is said to be (i) that continuation of the English proceedings would involve CIMB in duplicative proceedings, increasing the overall costs burden and giving rise to the risk of inconsistent findings in the two sets of proceedings and (ii) that the allegations of fraud involve witnesses and documents that are located in Singapore, India, Hong Kong and China and so very far distant from England. (Mr. Aston also said that the proper law of the letters of credit was that of Singapore, but Mr. Griffiths of DB said that no point of law is involved – the issues being factual - but that if there is an issue of law DB’s claim against CIMB is governed by English law. In the event no detailed submissions as to the proper law were made – though counsel for DB submitted in writing that the governing law of the relationship between the confirming bank and the issuing bank is the law of the place where the documents are first to be presented for payment. In the circumstances it is not necessary for me to discuss the question of the proper law.)

In considering the first argument it is necessary to bear in mind that it is well established that the contractual relationship between DB as the confirming bank and CIMB as the issuing bank is separate from the relationship between CIMB and its customer. No authority is necessary for this proposition but see, for example, Law of Bank Payments 4^th ed. by Brindle and Cox at para.8-030 and 8-050. Until CIMB sought a negative declaration against DB in Singapore on 9 December 2016 there was only one court which was required to decide the question whether CIMB was liable to indemnify DB, namely, this court. The spectre of duplicative proceedings and inconsistent decisions as between DB and CIMB therefore only came about by reason of the Defendant’s decision to sue DB for a negative declaration after proceedings had already been commenced in England by DB against the Defendant.

However, before 9 December 2016 there was a common issue of fact in the earlier Singapore proceedings brought by CIMB against Cashcot and Bhadresh and the later English proceedings brought by DB against CIMB, namely, whether the documents were compliant or not. It was said that there was a risk of inconsistent findings and reliance was placed on the observation of Brandon LJ. in the El Amria [1981] 2 Lloyd’s Reports 119 that it would be “a potential disaster from a legal point of view” if there were separate trials in London and in Egypt of the same issues of fact (the London trial being a claim by the cargo receivers against the Mersey Docks and Harbour Board and the Egyptian trial being a proposed action by the receivers against the shipowners; see p.128). It is however to be noted that that observation was made in a case where the most important evidence from surveyors and agronomists was to be found in England. That factor, coupled with the risk of inconsistent decisions, meant that there were strong reasons for not giving effect to an exclusive jurisdiction clause in favour of Egypt. In the present case it cannot be said that the evidence necessary to decide whether the documents were compliant is to be found in Singapore. That issue can be decided, possibly with the assistance of expert evidence, in either London or Singapore. All that is required is the documents themselves. The risk of inconsistent decisions and the duplication of costs on that issue does not point to Singapore being the more appropriate forum.

Further, it was submitted on behalf of DB that having regard to the express obligation in clause 8 of the terms and conditions of the Facility Letter that Cashcot indemnify CIMB the Singapore court will not have to consider the question of documentary compliance in circumstances where the English court has decided that the documents were compliant with the result that CIMB is liable to indemnify DB. This submission was challenged by the Defendant.

Mr. Fulton, for DB, submitted that a judgment of the English court holding CIMB liable to indemnify DB would enable CIMB to seek an indemnity from Cashcot on the basis that such judgment was “an expense, loss, damage or liability” which DB had suffered as a consequence of “issuing or establishing a L/C at an Obligor’s requestor otherwise in connection with the Facilities.” Indeed, it is to be noted that in the Singapore proceedings commenced against Cashcot CIMB sought a declaration that Cashcot indemnify it in respect of “any expense, loss damage or liability which [CIMB] may incur or suffer under any of the Letters of Credit issued by [CIMB] pursuant to the Facility Letter.” That claim would appear to be based upon clause 8 of the terms and conditions of the Facility Letter.

Mr. Fletcher, for the Defendant, submitted that clause 8 would not assist CIMB without a finding by the Singapore court that the documents were in fact compliant. First, he submitted that clause 8 dealt only with quantum and not with the fact of liability. This appears unlikely; clause 8 refers in terms to “liability” and provides that the amount of any such liability can be proved by a certificate from DB. Second, he submitted that when construing clause 8 regard must be had to the principle that when construing a guarantee very clear words are required before the court will accept that a guarantor has agreed to be bound by a judgment or award against the debtor without proof that the debtor was actually liable. Reliance was placed upon the discussion in The Modern Law of Guarantee English Edition by Courtney, Phillips and O’Donovan 3^rd ed. at paragraphs 5-140 – 144 and Rust Consulting Limited v PB Limited [2010] EWHC 3243 (TCC) at paragraphs 39-45 per Akenhead J. However, Mr. Fletcher did not refer to the application of that principle of construction in the context of letters of credit and in particular in the context of a clause whereby a bank’s customer agreed to indemnify the bank in respect of a liability arising out of the issue of a letter of credit at the request of the customer. The question is one of construction; does the indemnity against liability in clause 8 extend to a liability of the issuing bank to a confirming bank as determined by a judgment in action between the banks without proof, in the action between the issuing bank and its customer, that the issuing bank was actually liable to the confirming bank. Mr. Fulton submitted that in the context of letters of credit the natural construction of clause 8 is that it extends to and includes a liability established by a judgment as between the issuing and the confirming bank.

It would not be appropriate for this court to seek to determine this issue of construction because it a question to be decided in the litigation between the Defendant and its customer in Singapore. For the purposes of this stay application it suffices to say that each of the opposing submissions is arguable. A similar argument as to the true construction of the Guarantee given by Bhadresh (in particular clauses 1(iii) and 31) will have to be decided in Singapore.

Mr. Fletcher told me that CIMB intends, in the English proceedings, to allege not merely that the tendered documents were forged (and, I assume, that such fraud was known to DB at the material time) but also that the letters of credit were issued as a result of fraudulent misrepresentations and so are liable to be rescinded or avoided. He submitted that if those allegations are made out CIMB would not be liable to indemnify DB and in that regard relied upon Solo Industries UK Ltd. v Canara Bank (CA) [2001] 1 WLR 1800. Since the evidence establishing the suggested fraud was located in or near Singapore (and not in or near London) Singapore was clearly and distinctly a more appropriate forum than London.

I am unable to accept this submission. First, with regard to the question whether the tendered documents were forged the crucial enquiry is whether DB, before accepting the documents as compliant, had sufficient knowledge that they were forged. That depends upon what was apparent to the Bank from the documents themselves and from such other information as was available to DB at the material time. That evidence is in London. The court in Singapore is no better placed to determine that question than is the English court. Second, with regard to the question whether the letters of credit were issued as a result of fraudulent misrepresentations the evidence with regard to that allegation may be found in or near to Singapore (and not in or near to London) but no allegation of fraud is made against DB and since the contractual relationship between DB and CIMB is separate and distinct from the contractual relationship between CIMB and Cashcot and from the contractual relationship between CIMB and Bhadresh, which latter relationships are alleged to have been procured by fraud, there is no basis, as it seems to me, upon which CIMB’s liability as issuing bank to indemnify DB as confirming bank can be challenged upon the grounds of fraud. The fact that CIMB may be able to avoid its contractual relationships with Cashcot and Bhadresh on account of their fraud does not provide CIMB with a defence to DB’s claim against it. There is no suggestion that CIMB rescinded or avoided the contractual relationship between it and DB before DB accepted the documents as compliant and paid Global (or before such payment was deemed to have been made.)

I have reached the conclusion, having considered counsel’s submissions, that CIMB has not established that Singapore is clearly and distinctly the more appropriate court to determine DB’s claim against CIMB. There is a risk of inconsistent decisions on the question whether the documents were compliant but in circumstances where the documents can be considered by either this court or the Singapore court and the evidence cannot be said to be more readily available in Singapore such risk does not make Singapore clearly and distinctly the more appropriate forum. Similarly, the allegation that the tendered documents were forged to the knowledge of DB when they accepted them as compliant can be considered by either court and the evidence cannot be said to be more readily available in Singapore. The allegation that the letters of credit were issued by CIMB as a result of fraudulent misrepresentations will involve evidence which is likely to be more readily available in Singapore than in London. But such allegation cannot provide CIMB with a defence to the claim brought against it by DB.

It was argued that the Singapore proceedings were “significantly further advanced than the English proceedings” and therefore that it is most appropriate that DB’s claim be considered by the Singapore court rather than by this court. There has been a freezing order in the first two Singaporean proceedings and a statement of claim has been served in the third. This probably means that more has been done in Singapore than in this jurisdiction but I am not persuaded that the Singaporean proceedings are “significantly further advanced”. In both jurisdictions the proceedings are in their early stages. It is also said that if CIMB has to litigate in both jurisdictions that will involve duplication of cost and effort. That may be so with regard to the issue of whether the documents were compliant or forged to the knowledge of DB but such duplication, like the risk of inconsistent decisions, shows that there are disadvantages in the same issue being litigated in two different courts. Those matters do not show that Singapore would be clearly and distinctly the more appropriate forum than London.

Finally, it was argued that Singapore is the only forum which can give a single decision binding on all relevant parties. It is true that all relevant parties are involved in the Singapore proceedings but CIMB could join Bhadresh and Global to the English proceedings as Part 20 defendants. There might be a problem with Cashcot since it has been wound up; but then the winding up must equally affect its continued involvement in the Singapore proceedings. In any event, I very much doubt, in the context of a claim by a confirming bank against an issuing bank where the “cash principle” applies (that is, that the issuing bank is entitled to regard the issuing bank’s obligation to indemnify as the equivalent of cash) that it is appropriate to stay the confirming bank’s action in order that its claim can be decided along with the issuing bank’s claims against other parties which are of no concern to the issuing bank.

It follows that the application for a stay must be dismissed.