The dispute between the parties in this appeal had its root embedded in the use of a letter of credit issued to facilitate international trade for the purchase of 100,000 bags of rice at the price of (US) $2,200.000 by a buyer in Nigeria from a seller in Thalland. On the application of Nasaralai Enterprises Ltd. which was the buyer and is hereinafter referred to as the Appellant, the Arab Bank (hereinafter referred to as the Respondent issued on 15th September 1978 an irrevocable letter of credit to Bank to Tokyo in Thailand wherein the Respondent instructed the bank of Tokyo to pay the said price to World Grain Company Ltd., which was the seller, on receiving from the seller documents drawn in conformity with the terms and conditions of the letter of credit. One of the terms of the letter of credit was that the rice should be put on board a vessel on or before 15th October 1978 but the date was later extended by the parties to 15th November, 1978.

It appears that towards the end November 1978 because 30th November 1978 was the expiry date for negotiating the letter of credit, the seller presented to the Bank of Tokyo a bill of lading and other documents showing that the rice had been loaded on board a vessel called M.V. “Lucky Dragon” at Port of Thailand on 15th November 1978. Relying on the documents the Bank of Tokyo paid the purchase price to the seller and advised the Respondent of the payment. It also remitted the documents to the respondent. On the 15th December 1978 the Managing Director of Appellant, Alhaji Lamidi Popoola, accepted the documents on behalf of the appellant and authorised the Respondent to debit the purchase price to the Appellant’s account. Accordingly, the Respondent debited the Appellant’s account as it Isolo Branch with the sum of N778,607.97 in partial satisfaction of the purchase price.

The M.V. “Lucky Dragon” was most unlucky on its voyage. It sailed from Bangkok in Thailand at the end of November 1978 with the consignment of the rice and it arrived at Singapore in early December where it broke down and was ultimately sold as a scrap. The rice was discharged from the vessel and stored at the Singapore Port Authority “Go-Downs.”

The rice was expected to arrive in Lagos by 27th December 1978 but it did not do so up to March 1979. On 3rd March 1979 the Managing Director of the Appellant, Alhaji Popoola, went to Bangkok to investigate and from there he proceeded to Singapore where he found the consignment of the rice stored. By an agreement dated 10th March 1979 between Alhaji Popoola on behalf of the Appellant and Hong Choon Hing Enterprises S.A., the latter agreed to transship the rice to Lagos board M.V. the “African Phoenix.” The rice was loaded on the vessel, which sailed from Singapore on April 1979 bound direct for Lagos.

On its voyage, the “African Phoenix” also suffered misfortune, became unseaworth and flood she was diverted to Port Elizabeth in South Africa where the rice was off loaded because the vessel was so badly damaged that she could not continue with the voyage. Some of the rice was so badly damage that it was unfit for human consumption and was condemned by the South African Health Authority. It was conveyed outside of Port Elizabeth where it was dumped. The sound rice was stored in a warehouse. Although the documentary evidence shows that a vessel, “Mount Rainer” retransshiped the sound rice from Port Elizabeth for West African Ports, there is no evidence that any bag arrived in Nigeria. Alhaji Popoola testified that not a bag had been delivered to the Appellant.

It was on account of the foregoing transactions that the appellant as plaintiff caused a writ of summons to be issued against the Respondent as defendant by the High Court of Lagos State

The High Court gave judgment in favour of the plaintiffs, and the defendant appealed to the Court of Appeal, which reversed the decision.

A further appeal was brought to the Supreme Court.