Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE THOMAS
LORD JUSTICE ETHERTON
| Fortis Bank S.A./N.V.
Stemcor UK Limited
|- and -
|Indian Overseas Bank
Mr Timothy Young QC and Mr Malcolm Jarvis (instructed by DLA Piper UK LLP) for the Respondent
Hearing dates: 8 and 9 November 2010
Crown Copyright ©
Lord Justice Thomas:
The factual background
|L/C ref:||L/C date:||L/C value (US$):|
|L/C1||585/LC/166/08||14 August 2008||1,160,000.00|
|L/C2||585/LC/170/08||18 August 2008||1,440,000.00|
|L/C3||585/LC/184/08||29 August 2008||2,625,000.00|
|L/C4||585/LC/171/08||13 August 2008||1,800,000.00|
|L/C5||585/LC/164/08||18 August 2008||1,240,000.00|
The first three were confirmed at Stemcor's request by Fortis. Each letter of credit was subject to UCP 600.
i) Fortis as confirming bank claimed US$5,024,041.80 under L/Cs 1-3;
ii) Stemcor as beneficiary claimed US$3,033,037.20 under L/Cs 4-5 which Fortis had not confirmed.
Stemcor and Fortis applied for summary judgment on all their pleaded claims (save for Stemcor's claims for container demurrage and port costs).
i) Whether there were discrepancies in the documents presented;
ii) Whether Fortis was technically a confirming bank;
iii) Whether the bill of lading date was the date of issue of the bill of lading or the date of shipment (and subsequently whether IOB would have a counterclaim if it were the latter on the basis that Fortis' presentation was non-compliant because it occurred more than 21 days after that date).
iv) Whether IOB by reason of its late return of the documents should be precluded under sub-article 16(f) of UCP 600 from claiming that the documents did not constitute a complying presentation.
1. Does the preclusion in sub-article 16(f) of UCP 600 apply at all (whether by a process of construction of the express words of the Article or by virtue of an implied term) in relation to actions taken or not taken by an issuing bank at the time of and/or subsequent to the issuance of a sub-article 16(c)(iii) notice?
2. If the answer to question 1 is "yes"
a. What is the content of the obligation on the issuing bank in relation to a "return" notice?
b. What is the content of the obligation on the issuing bank in relation to a "hold" notice?
3. Were IOB's actions or inactions following their respective sub-article 16(c)(iii) notices such that IOB were precluded from relying upon the relevant discrepancy?"
i) Whether IOB was precluded under sub-article 16(f) from relying on the discrepancies;
ii) Whether the Bill of Lading was the date of shipment on board;
iii) Whether there was a discrepancy in the beneficiary's consolidated certificate.
I. THE DISCREPANCY IN THE BENEFICIARY'S CONSOLIDATED CERTIFICATE
BENEFICIARY'S CONSOLIDATED CERTIFICATE CERTIFYING AS FOLLOWS:
WE HEREBY CERTIFY THE FOLLOWING
...D) THAT THE NEGOTIATING BANK HAS BEEN ADVISED TO DESPATCH ORIGINAL SHIPPING DOCUMENTS ONLY BY AIR COURIER SERVICE TO THE LC OPENING BANK AT OUR COST...."
"WE HEREBY CERTIFY THE FOLLOWING:
... D) THAT THE NEGOTIATING BANK HAS BEEN ADVISED TO DESPATCH ORIGINAL SHIPPING DOCUMENTS ONLY BY AIR COURIER SERVICE TO THE LC OPENING BANK AT ISSUING BANK'S COST"
"..the requirement of strict compliance is not equivalent to a test of exact literal compliance in all circumstances and as regards all documents. To some extent, therefore, the banker must exercise his own judgment whether the requirement is satisfied by the documents presented to him."
II. THE PRECLUSION ISSUE
(1) The legal issues
(a) The disputed issue of law
"When … the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.
The notice must state:
i. that the bank is refusing to honour or negotiate; and
ii. each discrepancy in respect of which the bank refused to honour or negotiate; and
iii. a) that the bank is holding the documents pending further instructions from the presenter; or
b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or
c) that the bank is returning the documents; or
d) that the bank is acting in accordance with instructions previously received from the presenter."
Sub-article 16(d) provides for the time within which the notice must be given:
"The notice requirements in sub-article 16(c) must be given …no later than the close of the fifth banking day following the date of presentation."
"If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation."
In the alternative they contended that, if article 16 could not be construed in this way, then a term to similar effect should be implied into article 16.
(b) The approach to the UCP
"Practice is generally governed by … the UCP, a code of rules settled by experienced market professionals and kept under review to ensure that the law reflects the best practice and reasonable expectations of experienced market practitioners. When courts, here and abroad, are asked to rule on questions such as the present they seek to give effect to the international consequences underlying the UCP."
"While the UCP aim to harmonise worldwide trade practices and aim to safeguard the interests of the international trade and banking community, national laws vary from country to country. The application of national laws to issues not expressly addressed by the UCP can result in a de-internationalisation of the rules and conflict with their purpose. The application of national laws and doctrines needs to be handled carefully. If the UCP generally address an issue in question but do not provide for an explicit solution to a particular aspect of it, there is also the option of considering whether a solution can be found in a general rule contained in the UCP. An interpretation of the UCP in accordance with their aims and evaluations is generally preferable."
"As to the interpretation of the UCP itself, while some courts have tended to construe its provisions according to traditional English cannons of interpretation, a more purposive approach is appropriate to a document which after all does not have its origin in English law, but represents international banking opinion and practice."
and Dr Kurkela's Letters of Credit and Bank Guarantees under International Trade Law at paragraph V.I.4
"The interpretation of such rules should be global and universal and should avoid parochial concepts and meanings."
(c) The practice upon rejection
"20. Mr. Collyer stated that where "return" is indicated, the return of documents "should occur immediately or at the very latest during the course of the following working day" and that where "hold" is indicated and the presenter instructs the issuing bank to return documents "it is international banking practice to comply promptly with instructions received from the presenter, especially instructions relating to the disposal of documents".
21. Mr. Jones said that "best practice" entails the "speedy" return of documents and, based on his own experience of UK practice, that would normally be "within a day or two unless there is a good reason why not". However, Mr. Jones also said that "there is certainly room for limited divergence in market practice dependent on local conditions" and referred in this context to matters such as weather conditions, religious holidays, the means by which the documents are in fact returned and courier pick-up times.
23….. I was referred to a number of ICC Opinions under UCP 500 in which it was recognised that the issuing bank would be liable if it failed to act in accordance with the required statement it had made, although none of them specifically addressed the issue of preclusion. The experts said that that the requirement to act in accordance with the disposal statement made related back to the 1963 revision of UCP, although it was thought that the consequent preclusion was introduced in the 1970's. It has therefore long been the position under UCP that the issuing bank is required to act in accordance with its disposal statement…..
52. It was the evidence of both experts that the reasonable expectation of a presenting bank which received an Article 16 disposal notice would be that the issuing bank would act as stated. That would be not only good practice, but normal and expected practice.
73. … The expert evidence in this case is that it is normal and expected international banking practice for documents to be returned and document disposal instructions to be complied with promptly"
"d. i. If the Issuing Bank …decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means without delay, but no later than the close of the seventh banking day following the day of receipt of the documents. …"
ii Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.
iii The Issuing Bank… shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.
e. If the Issuing Bank…fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank … shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit."
Decision 242 pointed out that neither the UCP nor any ICC paper provided a specific time or a time such as "without delay" or a means by which the documents should be returned:
"Notwithstanding the absence of a specific requirement or specific guidance in this regard, there is a market expectation that, consistent with the reading of Articles 13 and 14, international standard banking practice and the importance associated with possession of the documents, especially title documents, the timely return of dishonoured commercial documents requires priority processing, as delay in returning the documents may prejudice the beneficiary's rights and security.
While the Experts do not have the authority to establish such a standard concerning an exact time period to return the documents once notice is sent, the Experts agree that once the notice is sent stating that the documents are being returned, documents should be returned without delay and by expeditious means."
It was common ground that there had been no change in practice since UCP 500.
(d) Is an obligation to act in accordance with the notice to be found in sub-article 16(c) of UCP 600 as a matter of construction?
"A nominated bank acting on its nomination, a confirming bank if any or the issuing bank may, after providing notice required by sub-article 16(c)(iii) (a) or (b), return the documents to the presenter at any time"
It was submitted by IOB that sub-article 16(e) was necessary as an exception to the notice provision or simply set out for clarity and convenience a practice on which all were agreed. However, it seems to me clear that sub-article 16(e) is only necessary if an obligation to act in accordance with the notice is imposed by sub-article 16(c); the sub-article permits the issuing bank having given notice under (a) or (b) that it is holding the documents to act in a different manner; this provision would not be necessary if the issuing bank was under no obligation whatsoever.
i) sets out the four available options as to what an issuing bank which refuses to honour can do.
ii) requires the issuing bank to give notice of which of the four options it has elected within 5 days.
i) First, if the issuing bank was under an obligation under the UCP to act in accordance with the choice it had elected, it would have been easy to express in article 16 the obligations to act in accordance with the elected choice. This was not done. I cannot accept this submission. It is plain from the practice to which I have referred that it was the expectation that an issuing bank would return the documents; such a bank would do what it said it would do. There was no need to spell it out.
ii) Second, there was no uniform practice as to the time content of the obligation; using a term such as "reasonable time" or "promptly" or "with reasonable promptness" would cause uncertainty and be contrary to one of the objectives of the UCP which was to provide for certainty, consistency and ease of application. I cannot accept this; there is nothing to suggest requiring return "promptly" or with "reasonable promptness" would cause any uncertainty.
iii) Third, there were no words in sub-article 16(f) which expressly provided for the sanction of preclusion if there was a failure to act in accordance with the notice. Preclusion would be a harsh sanction where the content of the obligation was not spelt out in the article. I again cannot accept that submission as, for the reasons I have given, there is no uncertainty as to the obligation and the sanction is not uncommercial. The effect of not returning the documents or doing as the presenter instructs has very similar consequences to a delay in making a decision on the documents – the presenter cannot deal with the goods.
(e) The revision to UCP: a comparison with Article 14 of UCP 500
(f) Other evidence in relation to the revision of the UCP
(g) An obligation to return as an implied term of the letters of credit?
(h) Implication of a term into the UCP?
(2) The factual issue
(a) The findings made by the judge
"Documents must not be returned, but must be paid without further delay"
That of 11 November 2008 was:
"We insist that you hold the documents at your counters and that you effect payment as per L/C terms."
"In any event you must continue to hold the documents at your counter. They must not be returned to us, or released to any party, without our further explicit instructions."
"to do the needful to protect their interest in respect of the merchandise shipped under the contract/LCs in question".
"Please urgently confirm that you have acted in accordance with said instructions to endorse bills of lading to our order and return all documents to our counters…"
"We are not in position to endorse the bills of lading to your order in the absence of written authority to this effect from the shipper/beneficiary of LC. … we continue to hold the documents at your risk and responsibility."
Hitherto there had been no indication to Fortis that there was any difficulty about the endorsing of the bills of lading or about its demand for the return of the documents.
(b) The contentions
III: THE BILL OF LADING DATE
"Period for presentation: within 21 days from B/L Date but within the validity of L/C"
i) The Bill of Lading on its face contained the following:Place and Date of Issue: MSC(UK)Ltd – Ipswich 14 November 2008Shipped on Board Date: 31 October 2008
ii) Although a presentation under L/C3 was made on 18 November 2008, one of the documents, the Consolidated Certificate was not in an acceptable form. A new presentation with a Consolidated Certificate in proper form was made on 25 November 2008.
iii) If the "Bill of Lading Date" was 31 October 2008, that presentation was more that 21 days after that date; if the "Bill of Lading Date" was 14 November 2008, the presentation was within the 21 days.
i) Sub-article 14(c) provided"A presentation including one or more original transport documents …. must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit."
ii) This mirrored the provision in Field 48 of LC/3 by providing for presentation to be within 21 days of the bill of lading date.
iii) Sub-article 20 (a)(ii) of the UCP provided that:"The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment."
iv) The date of shipment was the date that the goods were "shipped on board" and not the date of issue of the bill of lading; there was a clear obligation under the UCP to present within 21 days of the actual shipment date as recorded in the bill of lading.
v) As LC/3 was subject to the UCP, it should be construed consistently with the UCP unless its terms evidenced a clear intent to vary the provisions of the UCP: Forestal Mimosa Ltd v Oriental Credit Ltd  1 WLR 631, 639.
Lord Justice Etherton:
Lady Justice Arden: