Court can interpret contract documents but not to rewrite or make new contracts in the process of its interpretation
OWIGS AND OBIGS NIGERIA LIMITED v. ZENITH BANK PLC
CITATION: (2020) LPELR-50702 (CA)
In the Court of Appeal
In the Abuja Judicial Division
Holden at Abuja
ON TUESDAY, 1ST SEPTEMBER, 2020
Suit No: CA/A/1016/2018
Before Their Lordships:
PETER OLABISI IGE, JCA
EMMANUEL AKOMAYE AGIM, JCA
YARGATA BYENCHIT NIMPAR, JCA
OWIGS AND OBIGS NIGERIA LIMITED
ZENITH BANK PLC
LEADING JUDGMENT DELIVERED BY YARGATA BYENCHIT NIMPAR, J.C.A.
The appellant at the High Court of the Federal Capital Territory, Abuja by writ of summons instituted a claim for a various sum of money for unlawful deduction and breach of contract caused by the respondent. The appellant executed two main supply contracts for the supply of Tin ore, Tantalite, and Columbite Ore with three Chinese companies. As a result of the failure to execute the contract on time, the contract was cancelled and the respondent from the appellant’s account deducted penalty fees. The appellant aggrieved by the said cancellation which was because the respondent did not confirm the Letter of Credit, instituted monetary claims against the respondent.
At the close of trial, the Court dismissed the claim of the appellant. Dissatisfied with the Judgment, the appellant appealed to the Court of Appeal.
ISSUES FOR DETERMINATION
The Court determined the appeal on the following issues:
1. Whether the respondent was negligent in its duty of care to the appellant and said negligence ignored by the trial Court in the Judgment, thereby occasioning a miscarriage of Justice to the appellant.
2. Whether the trial Court should rewrite the contract for parties or rewrite the globally laid down principles of documentary letters of credit to the detriment of the appellant?
3. Whether the trial Court should single-handedly substitute documents tendered in evidence for other/irrelevant purposes or import evidence not traceable to any of the parties in the determination of the case before the Court to cause a miscarriage of Justice against the appellant?
On issue one Learned Counsel to the appellant submitted that the respondent was negligent in the performance of her duty of care to the appellant under International Commercial Contract causing it a colossal financial loss, that the trial court failed to evaluate the evidence on negligence and its consequences on the appellant in the dismissal of its claim in the Judgment, thereby occasioning a miscarriage of justice. Relying on Makwe V Nwukor (2001) 7 NSCQLR @ 448 Counsel listed the elements of actionable negligence. Further reliance was placed on First Bank Of Nigeria Plc. V Associated Motors Co. Ltd (1998) 10 NWLR (Pt. 750) 441 AT 464. The appellant further stated that applying the principles of actionable negligence laid down by the apex Court to this matter, the appellant was the seller/supplier of solid minerals worth sixty-four million, one hundred and seven thousand dollars ($64,107,180.00) and the Respondent was the seller’s bank for the contract and the confirming bank of the letter of credit but the respondent negligently held unto those letters of credit issued to her in favour of the appellant without either declining to confirm or confirming same within the validity period and this constituted a breach of the fundamental term of the contracts to the detriment of the appellant resulting into the failure of the contracts without remedy.
That in International Commercial Credit, the corresponding bank (not the issuing bank) is the confirming bank. In support, it relied on Nwangwu V First Bank Of Nig Plc. (2009) 2 NWLR (Pt. 1125) 203 AT 225 and submitted that the buyer’s bank i.e. Industrial and Commercial Bank of China (ICBC) issued the required letter of credit as approved by Zenith Bank, being the beneficiary bank and the confirming bank of the letter of credit issued, received same. That the respondent negligently failed to carry out its contractual duties as required of the receiving and confirming bank of letter of credit, instead demanded a cash deposit from both the appellant and the issuing bank contrary to the laid down procedure and protocol of international commercial contract and consequently breached the contract in issue with a penalty for the breach.
On issue two, the Learned Counsel to the appellant submitted that a Court is not allowed to re-write the contract between the parties and Courts are expected to honour international conventions and agreements, particularly where Nigeria is a signatory, citing Cannitec International Co. Ltd V Solel Boneh (Nig) Ltd (2017) 10 NWLR (Pt. 1572) 79; A.G Rivers V A.G Akwa Ibom & Anor (2011) 3 SC 1; (2011) 8 NWLR (1248) 31.
On issue three, the appellant’s counsel submitted that the trial Court misconstrued mere correspondences between parties as banking rules, misapplied documents, and applied pieces of evidence not traceable to any of the parties to arrive at the wrong conclusion in the judgment delivered, thereby occasioning a miscarriage of justice against the appellant.
For the respondent, it was submitted that the trial Court was right in coming to the conclusion that the respondent was not negligent in handling the Export Trade Business of the appellant. This, they explained was because the duty of care owed the appellant which was strictly covered by the terms and conditions of the facility sought by the appellant. The respondent submitted that there was nowhere in the reliefs before the trial Court wherein the appellant alleged that the Respondent was negligent. That the reliefs sought were various sums of money for the “defendant’s unilateral termination of the aforesaid contract, damages for the termination of the aforesaid contract”, damages for the termination of the contract, and unlawful withdrawal. If there was an occasion wherein there was a breach of the contractual obligation between the appellant and the respondent, it was definitely not in respect of the International Trade Transaction. Neither could it have been in respect of Performance Guarantee Bond requested by the appellant in respect of one of the Chinese Companies; because it was specifically requested by the appellant.
The respondent submitted that from the evidence, particularly the documentary evidence provided by both parties, it revealed that the appellant neither had the funds or collateral with which he could have obtained an export facility/loan from the respondent except for the undertaking to obtain a confirmed letter of credit in favour of the respondent. Furthermore, in International Commercial Transactions, the use of documentary letters of credit is the usual form of payment, thus the basis of the law and practice relating to commercial letters of credit is that parties deal in documents and not in goods or ships, citing Akinsanya V Uba (1986) 4 NWLR (Pt. 35) 273 AT 284.
RESOLUTION OF THE ISSUES
Relying on the definition of negligence In Okwujiminor V Gbakeji & Anor (2008) LPELR-2537 (SC) the Court held that it is trite that a claimant must prove the three basic components of the tort of negligence, which are: i. Duty of care ii. Breach of the duty of care iii. Damage caused by the breach.
It was held that the duty on the appellant is to establish the three ingredients in the tort of negligence. Relying on the proximity test as suggested by the apex Court in I.M.N.L. V. Nwachukwu (2004) LPELR-15269 (SC), it was held that the relationship between the parties herein presents the reasonable contemplation that the respondent if careless on his part may likely cause damage to the appellant in which a prima facie duty of care arises and in this case, it can be said to satisfy that test, their relationship is one that the respondent owes the appellant a duty of care.
On whether the respondent breached the said duty, the Court considered the background facts that are grounded on a banker-customer relationship in an international transaction and the documentary evidence tendered. It was held that the area highlighted by the appellant is the release of penalty fee for breach of the contract, which the respondent paid out after the contract was cancelled. That the complaint of the appellant is that the international contracts were time-bound in performance and the respondent delayed it by holding onto the letters of credit without action and attempted to alter the terms of the letter of credit after it was issued on the respondent’s terms and it finally declined to confirm them within the validity period. In such international contracts, the corresponding bank is the confirming bank (the respondent). Going by international conventions, commercial letters of credit are also known as documentary credits, frequently also used in the sale of goods and services in cross border transactions. The Uniform Commercial Code and the Uniform Customs and Practice provide detailed provisions for Documentary Credits (UCP). They focus on the parties, process, documentation, and a detailed analysis of the terms of a letter credit.
The Court held that the law recognizes four types of contracts that are based on documents as recognized by International Commercial credit and these are: a. The contract between the buyers and the overseas seller; b. The contract between the buyer and the local issuing Bank; c. The contract between the issuing bank and its overseas confirming or respondent Bank; and d. The contract between the correspondent Bank and the seller.
The type relevant into this appeal is the third one; the contract is between the issuing bank and its overseas confirming or correspondent bank. Reliance was placed on ACB Ltd V Obmiami Bricks & Stone (Nig) Ltd (1990) LPELR-19860 (CA).
The Court held that trade in international practice is done through a letter of credit and not cash. A letter of credit is an important method in international trade. That the failure of the respondent to confirm the letter of credit caused the appellant the loss of the sum deducted as a penalty, which the respondent paid in the sum of $4,486.04. The trial Judge was held to have fallen into error when it found that no negligence was established. If the respondent confirmed the letter of credit as expected by international practice, the appellant could not have lost the penalty sum and the contracts could not have been cancelled. Issue one was therefore resolved in favour of the appellant.
On issue two, the Court held that it is not the duty of the Court to make a new contract for the parties by jettisoning internationally recognized practices as was done in this case. Reliance was placed on TFS Investment Ltd V Brawal Line Ltd & Ors (2010) LPELR- 1610(SC). The Court further held that it can interpret documents but not to rewrite or make new contacts in the process of its interpretation particularly where international conventions and customs are involved.
On issue three it was held that it was the negligent conduct of the respondent that occasioned the payment of the penalty of $4,486.04 which was deducted from the appellant’s account NO.5070298728 with the respondent because the contract failed. The contract failed because the respondent as confirming the bank refused to confirm letters of credit insisting that there must be cash backing contrary to international practices and customs. The appellant is said to be entitled to the refund of the said sum as payment of the said sum will restore the appellant to the position before the revocation of the contract and in conformity with the essence of damages.
Finally, the appeal was held to be meritorious and was allowed in part. Refund in the form of damages in the sum of $4,486.04 was awarded in favour of the appellant. The respondent was to refund the said sum taken from the dollar account of the appellant.
The appeal was allowed in part.
U. O. SULE SAN with him,
CHUMA AJAEGBU, Esq.
A. I. MOHAMMED Esq.
HATSAT I. USMAN Esq.
G. E. OTTI Esq.
SAMUEL O. ZIBIRI, SAN with him
OLAYINKA A. ADEDEJI Esq.
MICHAEL ISOKPEHI Esq.
Compiled by LawPavilion