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Note: As part of a contract to manufacture and ship equipment from Malaysia to Libya, AQ-Pacific Wide Sdn Bhd & Anor (Buyer) obtained an LC from Hong Kong Bank for RM523,000 in favor of APV Hill & Mills (M) Sdn Bhd (Seller).

The contract provided for shipment on a cost and freight basis at a total price of RM1,523,000, comprised of an advance payment of RM1,000,000 by Buyer to Seller in return for a performance bond for the same amount and Seller's LC for the balance of RM523,000. It prohibited transshipment of the equipment.

Seller's LC provided that transshipment was prohibited. It originally stipulated shipment from Malaysia to Libya, but was later amended to allow shipment from Singapore though the prohibition against transshipment was not removed.

Seller used a feeder vessel, the Seng Leong, transport the equipment from Malaysia to Singapore where it was to be loaded on another vessel, the Lady Jane, bound for Libya, despite the advice of Seller's Freight Forwarder that this would constitute transshipment. The equipment arrived in Singapore to await loading, but problems arose with the authorities in Singapore who asked that the equipment be removed. When Seller's shipping agent asked how the equipment should be returned to Malaysia, Seller replied that it no longer had any interest in the equipment. The equipment never reached Libya.

Buyer executed the performance bond, but Seller's draw on the LC was refused. Seller sued Buyer for the amount due on the LC and to restrain it from calling on the performance bond and Freight Forwarder for indemnification of any amounts judged due by Seller to Buyer.

At trial, the High Court initially granted an injunction against Buyer's calling on the performance bond, but on Buyer's counterclaim, it set aside the injunction and dismissed Seller's actions to recover LC funds from Buyer and for indemnification from Freight Forwarder. Seller appealed. The Court of Appeal (Putrajaya), Sulaiman, Zakaria, and Malanjum JJCA, dismissed Seller's appeal.

In denying Seller's appeal, the appellate court noted that Seller had several appropriate shipping methods available but failed to choose a shipping method in compliance with the transshipment prohibition despite the warning of Freight Forwarder and without the knowledge of Buyer. The court stated that transshipment means "goods transferred from ship to ship although there may be a break in the journey in the interim", referring to Houlder Brothers & Co v The Merchants Marine Insurance Company, Limited [1886] 17 QBD 354. It also noted that "transshipment ... may include storage pending the arrival of another ship", referring to Anglo- American Oil Company, Limited v Port of London Authority [1914] 1 KB 14.

The appellate court also noted that Seller presented a bill of lading under the LC to Issuer that "shows that the equipment was shipped on board the Lady Jane at [Malaysia] enroute directly to [Libya]" and that "[t]here was no mention made at all of Singapore port and the feeder vessel Seng Leong originating from [Malaysia] in the said bill of lading. The column for precarriage by was left blank. This creates an impression that there was no transshipment of the equipment from Malaysia to Libya." It quoted the trial judge who noted that "[t]his certainly is not the true situation. The plaintiff admitted that this is not true in their letter to [Issuer] ...."

[LHD/tjd]

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