England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/07/2006

Mr. Justice Field :

Introduction

1. This is the third chapter in these proceedings. The first ended with the judgment of Cooke J reported at [2005] EWHC 2350 (Comm); the second with the judgment of Aikens J, see [2006] EWHC 1450 (Comm). This chapter is all about an application for a post-trial anti-suit injunction restraining proceedings brought by the defendant ("Kookmin") in Seoul Central District Court, Korea ("the Korean proceedings").
2. The Korean proceedings were begun in November 2004. They are brought against, inter alios,^[1] the claimant ("Trafigura") as beneficiary of a letter of credit ("the L/C") issued in respect of the sale and shipment of a cargo of 200,000 tons of decant oil which was delivered to the buyer, Huron & Co ("Huron"), against a letter of indemnity (a "LOI") rather than bills of lading. Put shortly, Kookmin claims that Trafigura: (i) were not entitled to present a LOI under the L/C; (ii) by presenting a LOI fraudulently misrepresented that the shipping documents were not available when they were; and (iii) acted tortiously by exchanging the original bills of lading for new claused bills and then putting them into the banking system.
3. Unfortunately for Kookmin, its customer, Huron, went into liquidation after taking delivery of the cargo but before paying for the L/C. In this situation an issuing bank would normally expect to be secured by holding the bills of lading but Kookmin holds only the new claused Bills and these confer on it no security interest in the cargo and no right of action against the carrier.
4. The Claim Form in the Korean proceedings was received by Trafigura on 18 March 2005. On 2 June 2005, Trafigura issued a Claim Form in the Commercial Court seeking a declaration that on the true construction of the L/C it was not liable to Kookmin as alleged in the Korean proceedings. Trafigura also sought an anti-suit injunction restraining Kookmin from pursuing its claim in Korea. Kookmin responded by issuing an application challenging the jurisdiction of the English court. That challenge and Trafigura's application for an anti-suit injunction were heard by Cooke J on 4 August 2005. Cooke J delivered judgment the next day. He found that England was clearly the appropriate forum as between Korea and England for the determination of the issues between the parties, the L/C was governed by English law, and given the meaning and effect of the L/C, all of Kookmin's claims were hopeless except possibly a claim that by putting the claused bills of lading into the banking system, Trafigura acted tortiously in Korean law. In light of this possible claim he declined to grant an anti-suit injunction and expressed the hope that the Korean court would either stay its own proceedings or, at the very least, await the English court's decision on the claims submitted to it, whether those of Trafigura alone or those of Kookmin also.
5. Following Cooke J's judgment, Kookmin submitted to the jurisdiction in Trafigura's proceedings. In the course of those proceedings it was ordered by Mrs Justice Gloster that there should be a trial of a Preliminary Issue to decide what law or laws governed the issues raised in Kookmin's claims against Trafigura. It was that issue that was decided by Aikens J. He found that those of Kookmin's claims that were persisted in before him were "issues relating to tort" for the purposes of s. 9 (1) of the Private International Law (Miscellaneous Provisions) Act 1995 and that those issues were to be determined by the application of English law. In reaching this conclusion Aikens J found that the sale contract and its financing was governed by English law and observed that it would be bizarre to hold that some different law governed Kookmin's tort claim.

The contractual background

The Sale Contract

6. The contract for the sale of the decant oil by Trafigura to Huron was a C&F Sale Contract made on 28 October 2003. By clause 16 title to the oil was to pass from Trafigura to Huron when the cargo "passes the flange connection of the vessel's intake hose at the loadport". By clause 18 it was provided that the contract was governed by English law and that all disputes were to be submitted to the exclusive jurisdiction of the English Courts. The contract further provided that payment was to be secured by an irrevocable documentary credit. The specified documents against which payment was to be made included the seller's commercial invoice and a full set 3/3 original bills of lading issued to or endorsed to the order of the buyer or 2/3 original bills of lading issued to or endorsed to the order of the buyer plus original master's/agent's/vessel owner's receipt for missing 1/3 original bill of lading. Clause 8 of the contract provided that if any of the "above documents" were not available at payment date the seller should present the seller's commercial invoice and a LOI in a prescribed form in favour of the buyers which included a clause stating that the LOI was subject to English law and that the parties submitted to the exclusive jurisdiction of the English Courts.

The L/C

7. The L/C incorporated the UCP (1993 Revision) and was in the sum of US$5,920,000. Field 41 D stated that it was available by negotiation at any bank. In the event it was advised to Trafigura through the London branch of ANZ Bank. The port of shipment was specified as "Balongan, Indonesia" (Field 44A) and the discharge port was specified as "one safe port/berth in South Korea" (Field 44B).
8. Field 46A listed the "Documents Required". These included "Full set 3/3 original Bills of Lading issued to or endorsed to the Order of Kookmin Bank, Seoul, Korea marked "freight payable as per charterparty."" This requirement is to be contrasted with that in the sale contract which specified that the bills be "issued to or indorsed to order of buyer."
9. Field 47 M ("the Section M option") provided:

If documents required are not available at the time of negotiation, payment shall be made against below documents:

A. Seller's commercial invoice …

B. Seller's letter of indemnity … in the following format:

Quote

Dear Sirs

We refer to a cargo of (quantity) of (product) loaded on board vessel ( ) pursuant to bills of lading dated ( ).

Although we have agreed to sell the said cargo to yourselves, we have been unable to provide you with the full set of original clean on board bills of lading (2/3 original bills of lading and Master's Receipt for 1/3 original bill of lading) and other original shipping documents covering the said sale.

In consideration of your paying the full purchase price of USD ( ) with value ( ) , we herby expressly warrant that we have marketable title to the goods, and that we have the full right and authority to transfer such title to you and to effect delivery of the said cargo.

We further agree to make all reasonable efforts to locate an(d) surrender you, as soon as possible, the full set of original bills of lading (or 2/3 bills of lading and master's receipt for 1/3 original bills of lading) and to protect, indemnify and hold you harmless from any and all damages, costs and expenses (including reasonable attorney fees) which you may suffer by reason of the bills of lading and other shipping documents remaining outstanding, including but not limited to, any claims and demands which may by made by a holder or transferee of the original bills of lading and other original shipping documents or by any third party claiming an interest in the cargo or the proceeds thereof.

This letter of indemnity shall be governed by and construed in accordance with the laws of England and each party expressly submits to the exclusive jurisdiction of the English Courts in London……

The Charterparty

10. The cargo was shipped to Korea under a charterparty based on the BPVoy 3 form. The contracting shipowners were Morelia Overseas Inc. By clause 36 of BPVoy 3 the charterers are permitted to order the shipowners to discharge the cargo without production of bills of lading if one is not available at the discharge port provided that the charterers fulfil the undertakings specified in the clause, including the provision of a LOI.

The Bills of Lading

11. Trafigura had purchased the oil from Pertamina PT ("Pertamina") and bills of lading were issued to Pertamina, the shippers of the cargo, who in the first instance retained the originals. In certain respects the bills of lading did not conform to the requirements of the L/C. Thus the port of shipment was specified as "Balongan, West Java," rather than "Balongan, Indonesia" and the discharge port was "the port of Korea" rather than "one safe port/berth in South Korea." The Bills also stated that freight was to be deemed earned on commencement of loading, rather than "freight payable as per charterparty". In addition, the Bills provided for the cargo to be discharged "unto made out or endorsed to the order of ANZ Bank" (sic) rather than "issued to or endorsed to the order of Kookmin Bank, Seoul, Korea".

The discharge of the cargo and the negotiation of the L/C documents

12. The vessel arrived at Pyongtaek in Korea on 30 November 2003 and discharge of the cargo into a bonded warehouse was completed on 2 December 2003 pursuant to clause 36 of the charterparty on the basis of a LOI. As both Cooke and Aikens JJ noted, it is common practice in the oil trade for shipping documents to be unavailable at the discharging port and for cargoes to be delivered against a LOI.
13. A number of the discrepancies in the bills of lading recorded above were noticed when an employee in Trafigura's Singapore office, Mr Goh, perused copies of the Bills. In view of these discrepancies, Trafigura decided to exercise the Section (M) option. Thus on 12 December 2003, instead of presenting bills of lading Trafigura presented at ANZ's London branch a seller's invoice and a LOI in the prescribed form. ANZ accepted these documents and duly paid Trafigura the amount of the L/C. ANZ then sent the documents to Kookmin and was reimbursed in the usual way.
14. On about 31 December 2003, Trafigura having received payment under the L/C, the cargo was released to Huron.

New Bills for Old

15. On 12 January 2004 Kookmin asked the London branch of ANZ to "send the original documents which is mentioned by LOI ASAP". This message was passed to Mr Goh who obtained the three original bills of lading from Pertamina. Mr Goh asked the owners' managers, Tanker Pacific Management, to issue him with new "original" bills of lading that conformed to the L/C's requirements. The managers were prepared to comply with this request if the new bills of lading were claused to show that the voyage had been completed. Mr Goh agreed and in exchange for the original bills of lading the managers issued three new bills of lading claused with the words "voyage accomplished null and void". The managers retained one of the three new Bills on behalf of the Master on whose behalf they furnished a receipt for one of the originals.
16. Trafigura then sent the two original new bills of lading and the Master's receipt for the third to Pertamina who, as was contemplated, passed the documents up the banking chain to Kookmin.

Cooke J's findings on governing law and on Kookmin's claims against Trafigura

Governing law

17. In paragraph 15 of his judgment, Cooke J said:

In my judgment it is plain that the L/C is governed by English law as the incorporation of the prescribed form of LOI in it includes the English law and jurisdiction clause, the parties envisaged that documents would be presented in London to the ANZ Bank (although this was not mandatory) and the sale contract between Trafigura and Huron was likewise subject to English law and exclusive jurisdiction.

Kookmin's claims against Trafigura

18. The evidence dealing with Kookmin's claims in the Korean proceedings ("the Korean claims") was contained in the witness statements of two Korean lawyers, Mr Kang and Mr Yoon. Cooke J's findings on Kookmin's claims were these:

The claim against Trafigura is expressed thus: -

"[Trafigura] sold the shipment to Huron. [Trafigura] even though it has received the payment in its entirety through the letter of credit following the sales transaction, failed to restitute all original copies of the bill of lading to [Kookmin] and one of the three original copies remains in its custody to date. If any of the Defendants is found in possession of this copy of the bill of lading, this would constitute fraud, whereby [Trafigura] received the payment for the shipment with no intention to forward the remaining original bill of lading. If such proves to be the case, [Trafigura] is responsible for the damages caused to [Kookmin] by its fraudulent action and the amount of the compensation would equal the full amount of payment issued through the letter of credit." (para 13)

The L/C and Kookmin's claims in relation to payment under it

Fraudulent Misrepresentation

24. The construction of the wording of the L/C is a matter of English law. It was expressly subject to the Uniform Customs and Practice for documentary credits as set out in ICC Publication No.500 (1993 Revision). The provisions of the LOC are clear with regard to the documents to be presented to the accepting bank. Under Field 46A Trafigura was required to present a full set of 3/3 original Bills of Lading, together with other documents, in order to obtain payment. Upon receipt of documents, under the UCP, the issuing bank was required to determine, on the basis of the documents alone, whether or not they appeared on their face to be in compliance with the terms and conditions of the credit. Absent any waiver of compliance by the customer, the bank would refuse to take up the documents. If the documents comply then, under the term of the UCP, the bank must pay.

25. Under Field 47A(M) payment could be made against other documents "if documents required are not available at the time of negotiation". It is self-evident that the "documents required" are documents which conform to the terms of the credit and which would trigger payment. It is clear therefore that the provision in Field 47A(M) is intended to apply where conforming documents are not available so that this provision is directly applicable not just where there are no documents available but also where there are non-conforming documents which are available. The argument raised by Kookmin to the effect that the provision is inapplicable where Trafigura had available to it Bills of Lading which were non-compliant is to be rejected out of hand. It follows that, contrary to Kookmin's submissions, the presentation of the LOI cannot in itself constitute a representation that Trafigura did not have any Bills of Lading available to it. At most it could constitute a representation that it did not have conforming documents available to it which, it is common ground, was true.

26. In consequence, there can be no argument available to Kookmin of a misrepresentation on the basis put forward, let alone a fraudulent one. Since the L/C and LOI fall to be construed in accordance with English law it is impossible to construe their provisions as amounting to an implied representation of the kind which is alleged in Korea on the facts as they are shown by the documents and evidence.

27. Kookmin abjures reliance upon the LOI and any representation in it perhaps because it was not addressed to it, and perhaps because of the terms of the governing law and exclusive jurisdiction clause. As a matter of construction of that document where reference is made to inability "to provide you with the full set of original 3/3 clean onboard Bills of Lading… and other original shipping documents covering the said sale", this self-evidently refers to inability to provide compliant documents for the purpose of the letter of credit for which the sale contract provided. The LOI is addressed to Huron and must be read in the context of the sale contract which referred, in Clause 8, to payment under the letter of credit against presentation of specified documents including compliant Bills of Lading. The clause went on to say that "if any of the above documents are not available then Trafigura should present its commercial invoice and LOI in the format prescribed", which was identical to that referred to in the L/C.

28. There cannot be the slightest doubt therefore that, as a matter of construction of the L/C and, for good measure, the LOI and Sale contract, there is no room for any implied representation of the kind advanced by Kookmin. ". It is self-evident that the "documents required" are documents which conform to the terms of the credit and which would trigger payment. It is clear therefore that the provision in Field 47A(M) is intended to apply where conforming documents are not available so that this provision is directly applicable not just where there are no documents available but also where there are non-conforming documents which are available.

Restitution

29. A further claim will be made, according to Kookmin's counsels' skeleton argument for restitution on the basis that payment was made under the L/C under the mistaken belief that no Bills of Lading had been issued and that the cargo remained under the control of the carrier. Once again, this depends upon a construction of the L/C and LOI since it is not suggested that there was any other relevant contact between Kookmin and Trafigura, prior to payment on about 31^st December 2003. The only contacts made were in the context of setting up the L/C, in furnishing documents under the L/C and in the correspondence of 12^th January 2004 when Kookmin sought "original documents which is mentioned by LOI" and thereafter received the two sets of revised original Bills of Lading and the Master's receipt for the third set. As there is no allegation of any express representation nor any basis for suggesting that any mistaken belief of Kookmin was induced by Trafigura, this claim for restitution is equally hopeless.

Breach of the L/C

30. For exactly the same reasons, any allegation of breach of the L/C in presenting an LOI when Bills of Lading were in fact available, in discrepant form, has no prospect of success.

Conversion/wilful or negligent damage

31. The basis of Kookmin's claim under Korean law, according to Mr. Kang is Article 750 of the Korean Civil Code which provides that any person who causes loss to or inflicts injuries on another person by an unlawful act, wilfully or negligently, shall be bound to make compensation for damages arising therefrom. The unlawful acts on which Kookmin relies are set out as the acts by Trafigura in the course of the letter of credit transaction which caused Kookmin's loss of its security interests in the cargo. These are set out in paragraphs 7 and 11-16 of Mr. Kang's witness statement, to which Mr. Yoon's witness statement refers at paragraphs 8-10. An analysis of the points made in paragraphs 7.1 – 7.4 of the former's witness statement shows that, although framed as a tortious cause of action, the substance of what is alleged appears to depend upon the nature of the L/C and its provision for the use of the LOI as a means to trigger payment.

i) In para 7.1, it is said that under Korean law, if Bills of Lading are required to be presented to an issuing bank for payment under a letter of credit, the beneficiary must present valid Bills of Lading, otherwise the issuing bank receives no value or security for its payment. It is then said that if the beneficiary knowingly presents invalid bills and the issuing bank makes payment without knowing that they are invalid, this would constitute a fraud. As is plain from the facts outlined above and from Mr. Yoon's witness statement, all that the L/C, governed by English law, requires is that conforming documents be presented. The bank is not permitted, under the UCP, to refuse payment if conforming documents are presented unless those documents are fraudulent. No B/Ls were presented under the L/C because the LOI was presented instead. The presentation of the LOI was not a fraudulent act for the reasons already given and was accepted as a conforming document and payment made accordingly. It is a matter for the bank issuing the letter of credit to provide for the documents which are to be presented and, providing those documents are authentic, the bank must pay. That is what happened in the present case.

ii) In para 7.2 it is said that under Korean law, when presenting the documents to an issuing bank, the beneficiary must not wilfully or negligently make a false statement or representation which is material to the issuing bank's decision as to whether or not to make payment under the letter of credit. For the reasons already given, there is no evidence of any kind of any wilful or negligent false statement in the presentation of the documents. The documents presented here were accepted as conforming and were authentic documents so that there can be no question of any implicit false representation in their presentation.

iii) In para 7.3, it is said that under Korean law, the beneficiary under any letter of credit must not act detrimentally to the issuing bank's security interests in the cargo. Thus, if the Bills of Lading to be presented to the issuing bank for payment describe that bank as consignee, the beneficiary must not allow or take any part in the delivery of the cargo to a third party who is not the holder of the bill of lading. If the beneficiary wilfully or negligently does so and the issuing bank cannot take the cargo as a result, it would constitute a conversion. This really appears to be the basis of the claim that is currently being made, as set out in para 11 of Mr Kang's statement, namely that Trafigura conspired with the ship Owners to deliver the cargo to someone other than the bill of lading holders. The problem with this argument is that it once again ignores the relationship of Kookmin to Trafigura, which is governed by the English law L/C. The L/C provided in terms for presentation of the LOI, where conforming documents were not otherwise available and Kookmin agreed to pay on the basis of that LOI. With an English law contract governing the position, there cannot be any room for a tortious claim which runs directly counter to the contract, whatever the governing law of the tort, upon which Kookmin seeks to rely. As Mr. Yoon points out, it is up to a bank to issue letters of credit on terms which provide it with satisfactory security and if it provides for payment against a letter of indemnity addressed to its customer and not to itself, where the LOI in turn provides for the provision of two sets of Bills of Lading and a Master's receipt for the third set to the customer, after payment has been made, it cannot have any valid claim against the beneficiary who has complied with the terms of the L/C, just because the bank has no security in respect of its claims against its customer.

iv) In para 7.4, Mr. Kang states that under Korean law, if a beneficiary invalidates or depreciates the value of the Bills of Lading wilfully or negligently when it presents them to the issuing bank for payment, and the issuing bank suffers any loss, this would give rise to a cause of action in tort. Once again this ignores the terms of the L/C and the unilateral undertaking by Kookmin to Trafigura. Since Kookmin undertook to make payment against the LOI, with the terms in the LOI which provided for later sending of documents to its customer, no question of invalidating or depreciating the value of the Bills of Lading in presentation to it actually arises.

32. Kookmin's case, as set out in paras 11-16 of Mr Kang's statement, depends upon its assertion that it should have received Bills of Lading which gave it property rights in the cargo which it could have asserted against the carrier and thus avoided loss by exposure to its customer. The terms of the L/C and LOI did not however so provide in the circumstances which obtained, because the L/C provided for payment against the LOI which provided for two sets of the B/Ls and a Master's receipt to be sent, not to Kookmin but to Huron, although the means of transmission actually adopted was the banking chain. Where payment was made under the L/C against the LOI however, there was no provision for Kookmin to receive B/Ls at all, whether as security or otherwise.

33. The Sale contract provided for property to pass to the Buyer at the ship's flange at the load port and at the time when discharge instructions and delivery to Huron took place, the shipping documents were still in the control of the shippers who were entitled to change their delivery instructions to the ship Owners. No conversion could take place at either point because Kookmin had no entitlement to the cargo, no entitlement to any B/L and no interest in the cargo. Kookmin had agreed to pay against the LOI. Once payment was made under the L/C on presentation of the LOI, there could not be any issue as to who was entitled to the cargo, as between Trafigura and Huron and the ship owners were entitled to deliver the cargo to Huron on Trafigura's and Pertamina's instructions. It is Kookmin's misfortune that it failed to make appropriate arrangements which gave it a contractual right against the carriers or some form of security against its customer in respect of reimbursement of the sum which it had paid under the L/C, whether by requiring the LOI to provide for delivery of original B/Ls to it, rather than its customer or by some other means.

34. If complaint is made against Trafigura about what occurred after payment against the LOI, it can only be based upon the terms of the LOI, to which Kookmin was not a party, as it has repeatedly said. If it is not a party, it can have no claim under the LOI, whereas, if it did have such a contractual claim, it would be subject to the jurisdiction clause in favour of the English Courts. Kookmin agreed to pay against the commercial invoice and the LOI with the obligation in the latter to deliver Bills of Lading and/or a Master's receipt to Huron, not to itself. If documents were then delivered in accordance with the terms of the LOI, there could not be any unlawful act vis-à-vis Huron, nor an unlawful act as against Kookmin.

35. No case is expressly made by Kookmin that the Bills of Lading and the receipt which Mr. Goh obtained and put into the banking system for onward transmission did constitute a breach of the terms of the LOI, nor is any express reliance placed upon the unlawfulness of such breach against Huron as constituting an unlawful act as against Kookmin. The argument was however made that the sending of null and void Bills of Lading through the banking chain and the retention of one of the sets of Bills of Lading by the Master were unlawful acts falling within Article 750 of the Korean Civil Code. Whereas as a matter of English law, compliance with the provisions of the L/C and the LOI for which it provided leaves no room for complaint on the part of Kookmin, I cannot find that acts which constitute non-compliance with the terms of the LOI, to which Kookmin was not a party, could not in any circumstance constitute an unlawful act as against Kookmin. Whilst it seems to me on the evidence of Korean law highly unlikely, I cannot conclude that such a claim is bound to fail. The putting of the null and void documents into the banking chain, rather than sending them to Huron direct, might be said to indicate a consciousness of the bank's interests in receipt of Bills of Lading which should have been made "to the order of Kookmin Bank". It is just arguable that sending such Bills of Lading in accomplished null and void form, which was a breach of the LOI unless waived, was a negligent act which caused damage to them.

36. The unlawful acts of Trafigura set out in para 16 of Mr Kang's statement are said to be the presentation of the LOI to Kookmin, the transfer of one set of the revised B/Ls to the Owners, against the Master's receipt, the addition of the words "voyage accomplished null and void" on the other two sets and the supply of two sets to Kookmin, thereby invalidating them as documents of title. This claim tallies with and amplifies the claim which appears in the Korean Claim Form. Whereas the unlawfulness of Trafigura's conduct in English law falls to be judged by reference to the contractual position and the English law contracts leave no room for a claim in tort where the contracts are fulfilled, where there is non-fulfilment of the LOI, a claim under Korean law may just run. I cannot therefore say that there is no prospect of success in any tort claim against Trafigura.

19. I respectfully agree with everything said by Cooke J in these paragraphs. It is to be noted that his judgment has not been appealed by either party.

What claims is Kookmin now advancing in Korea?

20. After the delivery of Cooke J's judgment, Kookmin filed in the Korean proceedings a statement of its case dated 14 November 2005 which was referred to as "the November Brief" in the hearing before Aikens J. This document ("the NB") has been more or less accurately translated into English. It was expressly drafted on the basis that following Cooke J's refusal to grant an anti-suit injunction "it is no longer necessary to take into account the UK courts' positions in the proceedings". Paragraph 2 opens with the words "Ordinary obligations under a documentary letter of credit that give rise to Defendant Trafigura's liability" and then sets out a number of alleged obligations including:

In the context of documentary letter of credit transactions, the beneficiary, although such letter of credit transaction is based on documents, should not at lest infringe upon the issuing bank's interest in the cargo. If the beneficiary, described as the issuing bank in the bill of lading, in the knowledge to the effect, allows or takes any part in the delivery of the cargo to a third party who is not the issuing bank without justifiable reasons, this would infringe upon the using bank's right in the cargo that may rise out of the possession of the bill of lading and therefore constitute an unlawful act. (Para 2 B)

Further, in presenting to the issuing bank letter of credit documents, the beneficiary should not depreciate the value of a bill of lading, which is part of such letter of credit documents. If the bill of lading were presented in the first place for payment under the letter of credit, the issuing bank would have an opportunity to verify the validity of the bill of lading or refuse to pay. On the contrary, if any replacement for the bill of lading is first presented for payment under the letter of credit and the bill of lading is thereafter presented as supplementary, although this is permitted under the terms and conditions of the letter of credit, the beneficiary's act that may depreciate the value of the bill of lading to be presented afterwards and thus infringe the issuing bank's rights in the bill of lading should constitute an unlawful act. (Para 2 C)

21. The NB then goes on to particularise the alleged unlawful acts by Trafigura including:

In light of this function of bills of lading [ie as a document of title], Defendant Trafigura should have presented the letter of indemnity as a letter of credit document in accordance with the special provisions of the L/C stating that a letter of indemnity may replace a full set of three bills of lading, where the bills of lading were not available at the time of negotiation of letter of credit documents, if and only if the bills of lading had been unavailable objectively, other than due to a cause attributable to Defendant Trafigura…(Para 3 B (3))

A beneficiary of a letter of credit, as provided by the letter of credit, presents and delivers documents to the issuing bank through the negotiating bank, regardless of the importer under the underlying sale and purchase agreement. In return, the beneficiary receives payment under the letter of credit. Bills of lading should be presented to the issuing bank for payment under the letter of credit. In this Case, where the issuing bank is the beneficiary [consignee] of the bill of lading, Defendant Trafigura as the beneficiary of the bills of lading [letter of credit] should not act detrimentally to Plaintiff as the counterparty to the letter of credit transactions and, more specifically, should not allow or take any part in the delivery of the cargo to a third party who is not the holder of the bill of lading. (para 3 B (8))

In effect, by taking advantage of being in possession of the bills of lading originally issued, Defendant Trafigura allowed the Cargo to be released by Huron as the importer, returned without permission the original bills of lading to the carrier, and invalidated the second set of bills of lading issued in lieu of the original bills of lading. As a result, Defendant Trafigura deprived Plaintiff of any rights against the carrier under the bills of lading and permitted the Cargo to be delivered by the carrier without permission and impaired the rights of Plaintiff as the issuing bank. For this reason, Defendant Trafigura is in breach of its obligations as the beneficiary and therefore unlawful, which should constitute a tort against Plaintiff. (Para 3 B (9))

In the meantime, when properly asked by Plaintiff for supplementary submission of bills of lading under the L/C, Defendant Trafigura should have submitted to Plaintiff the bill of lading as it was delivered from the carrier. Rather, Defendant Trafigura continued to keep the first set of three bills of lading issued until it returned them to the carrier. These bills of lading should have been submitted to Plaintiff, if belatedly, and, if so, Plaintiff could have exercised its rights, including damage claim, against the carrier. (3 B (10))

22. Paragraph 4 of the NB is headed "Violation of L/C Terms – a separate cause of action" and pleads that in receiving payment against the LOI and not complying with the requirements of the LOI, Trafigura "unquestionably" breached the L/C.
23. Trafigura refers to the NB in paragraph 15 of its Particulars of Claim and pleads in paragraph 16 (4) that Kookmin asserts that by reason of the provisions of the L/C it had or ought to have had a security interest in the cargo in that Trafigura was obliged to present bills of lading issued to or endorsed to the order of Kookmin and even if payment was validly obtained against presentation of the LOI, Trafigura was still obliged to present the bills of lading.
24. In paragraphs 13, 15 and 17 b of its Defence Kookmin pleads:

13. The Bank (ie Kookmin) has advanced claims in the Korean proceedings to the effect summarised in paragraph 16 of the Particulars of Claim. The Bank will refer to its legal brief filed in the Korean proceedings for further particulars of its claims.

15. ….The Bank's claims that Trafigura acted tortiously in Korean law and/or in breach of the letter of credit are not inconsistent with the Bank's obligations under the letter of credit.

17 b The obligations of Trafigura to the Bank … and elaborated in the Korean proceedings, arise in Korean law of tort. They are separate from, and not excluded by, the rights and obligations under the letter of credit.

25. At the hearing before Aikens J the claim that Trafigura acted fraudulently and in breach of the L/C in presenting the LOI was referred to as "the Presentation Claim" whilst the claims that focussed on the discharge of the cargo and the exchange of the original bills of lading for new claused Bills were called "the Security Claim". At the outset, Aikens J was told that Kookmin no longer sought to rely on the Presentation Claim in the English proceedings. It was made clear, however, that Kookmin nonetheless intended to advance that claim in the Korean proceedings.
26. Aikens J had before him not only the NB but also a Statement of Principles of Korean Law ("the SoP") that had been ordered to be served by Mrs Justice Gloster. This document dealt only with the Security Claim and set out Kookmin's contentions based on Article 750 of the Korean Civil Code. (Article 750 is set out above in paragraph 31 of Cooke J's judgment).
27. Paragraph 4.2 of the SoP reads:

It is irrelevant that Trafigura did not have a contractual duty to provide the bills of lading to the Bank. Once it acted on the Bank's request to provide the bills to the Bank in the knowledge that the Bank had an interest in those title documents, it had a duty to perform the act in good faith. In this case, when providing a title document to the Bank, Trafigura had the duty to preserve the effectiveness of the document in accordance with the duty to preserve the effectiveness of the document in accordance with the duty under Article 2 of the Civil Act.

28. Mr Males QC for Trafigura contends that it is in the NB (which post-dated Cooke J's judgment) and not the SoP that Kookmin's claims in the Korean proceedings are to be found. He points out that the NB has been filed in the Korean proceedings whilst the SoP has not. He also says that the SoP was designed to enable Kookmin to advance an argument in England that at any rate part of its case in Korea is subject to Korean law even though the L/C is subject (as Cooke J held) to English law. By way of contrast, the authors of the NB, knowing that Cooke J had refused an anti-suit injunction, obviously thought that they had no need to present a case which would be defensible in England. And given Kookmin's case that Korean law applies to both the contract and the tort claims, it also had no incentive to fashion a tort claim completely independent of the contract claim. It is not surprising therefore, says Mr Males, to find that all the claims pleaded in the NB are predicated on Kookmin having certain rights or Trafigura being subject to certain obligations under the L/C.
29. Mr Onslow QC for Kookmin submits that Kookmin has throughout contended that Trafigura is liable in tort for acting detrimentally to Kookmin's security interest in the bills of lading and that that liability is not dependent on, and not affected by, such rights and obligations as Trafigura might have under the L/C. He says that it is not Kookmin's case in the Security Claim that Kookmin had a contractual entitlement against Trafigura to receive the bills of lading or that in acting as it did, Trafigura was in breach of the L/C or any other contract with Kookmin. Mr Onslow refers to Mr Kang's statement, Cooke J's finding that a claim under Korean law may just run and paragraphs 15 and 17 b of Kookmin's Defence. He also draws attention to the fact that Aikens J treated the SoP as "a useful summary of what Kookmin now alleges were unlawful acts by Trafigura that gave rise to the "security claim" under Korean law."
30. As for the reference in paragraph 3 B (9) of the NB to Trafigura's acts being unlawful because they were "in breach of its obligations as the beneficiary", Mr Onslow says this can only be understood as a reference to Trafigura's tortious obligation in the general law not to injure Kookmin's security rights, not as a reference to a breach of contractual obligation under the L/C.
31. I reject Mr Onslow's submissions. In my judgment, Mr Males is correct when he says that so far as the application before me is concerned the key document for identifying Kookmin's current claims in the Korean proceedings is the NB. I say this because the NB is a pleading in the Korean proceedings, which the SoP is not, and because Kookmin accepted in paragraph 13 of its Defence that Trafigura had accurately summarised the claims made in the Korean proceedings in the Particulars of Claim. In my opinion, paragraphs 14 and 17 b of Kookmin's Defence do not begin to show that Kookmin was making tortious claims independent of the rights and obligations said to arise out of the L/C.
32. I also accept Mr Males' submission that the tort claims pleaded in the NB proceed exclusively on the basis that Kookmin had a security interest in the cargo arising from the L/C and Trafigura acted in breach of the L/C. Thus the obligation claimed to have been owed by Trafigura in paragraph 3 B (8) of the NB is owed "as beneficiary of the letter of credit" and is owed to Kookmin "as the counterparty to the letter of credit transactions". And the "specific" obligation on Trafigura not to take part in the delivery of the cargo to a third party who is not the holder of the bill of lading is an aspect of the obligations arising under the letter of credit and not independent of them. Further, the unlawful means pleaded in paragraph 3 B (9) of the NB for the purposes of Article 750 of the Korean Civil Code is breach of the L/C by Trafigura. In my view, Mr Onslow's gloss on these words is wholly untenable: the words plainly mean what they say. In addition, in para 3 B (10) of the NB the allegations that Kookmin "properly asked for supplementary submission of bills of lading under the letter of credit" and that Trafigura "should" have submitted the bills of lading, predicate rights and obligations under the L/C, not under the general law. I can also find nowhere in the NB a plea that Trafigura, having chosen to respond to Kookmin's request to furnish the documents referred to in the LOI, assumed a new obligation, independent of the L/C, not to exchange the bills of lading for new claused Bills.
33. It is true that Aikens J treated paragraph 4.2 of the SoP as forming part of the way Kookmin put its claims but this is not decisive. Aikens J was engaged upon the task of characterising the claims Kookmin told him it was making; he was not required to and nor did he decide whether the SoP went beyond the NB.
34. Accordingly, I propose to proceed on the basis that the claims made by Kookmin in the Korean proceedings are as set out in the NB and that if there is to be a claim of the nature described in paragraph 4.2 of the Statement of Principles, the pleading in the Korean pleadings will have to be amended.

The parties' submissions on (a) the likely approach of the Korean Court to jurisdiction, recognition by the Korean Court of Aikens J's judgment and choice of governing law; and (b) the prospects of success of the Korean proceedings

35. Kookmin relies on two witness statements from Professor Chang Seung Wha of the College of Law, Seoul University. Professor Chang expresses the view that the Korean Court would most likely regard the judgment of Aikens J as improper as it could not have been rendered under Korean law because it is in the nature of a duplicative action; accordingly there is no possibility of the Korean Court rejecting Kookmin's on-going Korean lawsuit which was the first set of proceedings to be filed.
36. Professor Chang is also of the opinion that Aikens J's judgment and any resulting declaration of non-liability would not be recognised by the Korean Court because the Korean Court would find that the English Court did not have international jurisdiction over the dispute before it.
37. On the question of what the Korean Court would hold to be the law governing Kookmin's tort claims, Professor Chang says that he would expect the Korean Court to apply Korean law pursuant to Article 32 (1) of the 2001 Korean Act on Private International Law ("KAPIL") which provides that a tort shall be governed by the law of the place where it occurred. In Professor Chang's view Korea was the place where the tortious acts, or at least a part of them, were committed and the consequences of such acts (loss to Kookmin) occurred. Professor Chang recognises that some of the elements constituting the tort occurred outside Korea but says that in this case, faced with the choice of Korean law and a foreign law, the Korean Court would select Korean law either because that is the choice of the plaintiff or because that would be the selection of the Court.
38. So far as concerns the choice of law governing the claims for breach of the L/C contract, Professor Chang says the Court would find that there was no implicit choice of English law and that therefore, pursuant to Article 26 (1) of KAPIL, the governing law would be the law of the country which is most closely connected with the contract. Professor Chang states that in Korea commentators take the unanimous view that the law of the country which is most closely connected to the legal relationship between the issuing bank and the beneficiary under a letter of credit is that of the country where the issuing bank is located. He also refers to a pre-KAPIL decision of the Korean Supreme Court^[2] that held that the law of the location of the issuing bank is the governing law because that is where the issuing bank promised to make payment. (It would have been interesting to know whether in this case the documents were presented to the issuing bank itself or to a foreign correspondent bank but Professor Chang says nothing about this aspect of the case).
39. Professor Chang also says that the obligation to pay under a letter of credit would most probably be recognised as the performance of a service, and, this being the characteristic performance under the contract, the law where that performance is rendered could well be the governing law under Article 26 (2) of KAPIL.
40. Accordingly, it is Professor Chang's opinion that, since Kookmin is located in Korea, the Korean Court is highly likely to determine that the governing law of the L/C is Korean law.
41. Trafigura relies on a further statement from Mr Yoon. It is Mr Yoon's view that the Korean Court would apply Article 2 of KAPIL and Article 5 of the Korean Civil Procedure Act ("KCPA") and find that the English Court had jurisdiction over the dispute on the basis that Kookmin has a branch in England.
42. In Mr Yoon's opinion, even if Kookmin succeeded in establishing that the Korean Court had jurisdiction and Korean law applies to the disputes, Kookmin are doomed to fail because: (i) on any view the bills of lading were not actually available; (ii) the question whether presentation of a LOI under the L/C constitutes a false representation depends on the true construction of the L/C and the English Court has held that the L/C is governed by English law; (iii) Korean law does not recognise a contingent security interest of Kookmin based on an expectation that the bills of lading would be received; and (iv) the nature of any interest of Kookmin in the bills of lading or in the goods depends on the effect of the presentation of the LOI which is essentially a contract matter.
43. Replying to Mr Yoon, Professor Chang says that Article 5 of KCPA is perceived as one of the provisions of KCPA that should not be readily applicable to international cases. Professor Chang also says that he has reviewed the NB and the other submissions made by Kookmin in the Korean proceedings and in his view Kookmin has a good chance to prevail on the merits in respect of both the Presentation and the Security Claims. In his view, the Korean Court might reach a different conclusion on the meaning of "available" in the L/C than did the English Court and although the bills of lading were not in the hands of Trafigura, they were "obtainable" as a matter of law and fact. As to the Security Claim, Kookmin would be entitled to treat this as a separate tort claim and although he had not been asked to give a detailed final view on the merits, in his view this claim appears to be properly formulated and arguable under Korean law and has a good chance of success before the Korean Court.

Should the Korean proceedings be restrained?

The applicable principles

44. The principles applicable in determining whether to grant an anti-suit injunction were stated as follows by Cooke J:

i) The Court will grant an injunction where the pursuit of the foreign proceedings is "unconscionable", as is made clear by the House of Lords in Turner v Grovit [2002] 1 WLR107 at paragraphs 22-29, per Lord Hobhouse. The injunction is a personal remedy for the wrongful conduct of another party - a fault based remedial concept, in respect of conduct which the Court may describe as "vexatious" or "oppressive", but deriving from "the basic principle of justice".

ii) The Court will readily grant an injunction to restrain proceedings which are brought in breach of an exclusive jurisdiction clause save in circumstances where the Brussels Regulation applies – see Through Transport Mutual v New India Assurance Co. [2005] 1LLR 67 at paragraph 67 – 68. This is an example of the wider principle that an English Court will grant an injunction to prevent the pursuit of foreign proceedings which are vexatious, oppressive or unconscionable – see SNIA v Lee Kui Jack [1987] AC 871.

iii) Absent an agreement to the exclusive jurisdiction of the English Court, or some other special factor, a person has no right not to be sued in a particular forum. Where suit is brought in a foreign forum, the question whether or not that forum is an appropriate forum is a factor in assessing the conduct of the party suing there, for the purposes of considering whether to grant a restraining injunction, but if it is the only factor, it is easily overridden by other considerations (per Lord Hobhouse at para 25 of Turner (ibid)).

iv) To grant an injunction, the English Court must have a sufficient legitimate interest in the foreign proceedings, which means that if there is no contractual reason to prevent suit there, there must be proceedings in this country which require protection (per Lord Hobhouse at para 27 of Turner (ibid), by reference to the House of Lords' decision in Airbus Industries GIE v Patel [1999] 1 AC 119.

v) English law attaches a high importance to international comity and the perception of the foreign court of an interference in its proceedings, albeit indirect. There must therefore be a clear need for protection of the English proceedings (per Lord Hobhouse at para 29 of Turner (ibid) if an injunction is to be granted.

vi) An injunction should not be granted if its effect would be to deprive the claimant in the foreign action of an advantage in that forum of which it would be unjust to deprive him (Snia v Lee Kui Jak (ibid) at p 896). (Para 42)

Each side relied on this statement of the applicable principles and I gratefully adopt it.

Trafigura's submissions

45. Mr Males QC for Trafigura submits that here it is plain that the English court has a legitimate interest to protect its proceedings since: (i) the court has jurisdiction over those proceedings and Kookmin ultimately submitted to the jurisdiction in respect of the proceedings^[3]; (ii) the court has held that it is the appropriate forum as between England and Korea; and (iii) the court has now finally determined that Trafigura is not liable to Kookmin on Kookmin'claims.
46. Mr Males further submits that the Korean proceedings are vexatious since: (i) a request to the Korean Court to hold that the governing law is Korean law would fly in the face of the fact that the parties implicitly chose English law to govern the L/C; (ii) English law being the governing law of the L/C and the Sale Contract, it would be bizarre for some different law to apply to Kookmin's tort claims; (iii) even if Korean law applies to the L/C, this document is in English, its meaning is clear and all of Kookmin's claims are fundamentally inconsistent with such meaning; thus (iv) following the decision of Aikens J, the residual possibility of a successful tort claim that led Cooke J to refuse an anit-suit injunction has gone.

Kookmin's submissions

47. Mr Onslow QC for Kookmin submits that nothing has changed since the decision of Cooke J. Relying on the views of Professor Chang, he says that Kookmin continues to have viable claims in Korean law in tort and, just as Cooke J held, Kookmin should be allowed to bring its claims in Korea. In Mr Onslow's submission, the effect of granting an anti-suit injunction would be to deprive Kookmin unjustly of the juridical advantages stemming from the application of the Korean choice of law rules and the right in Korea to priority of Korean jurisdiction derived from the Korean proceedings having been started before the English proceedings. However undesirable it is in principle to have parallel litigation in two jurisdictions, the duplication of litigation does not in itself make it in the interests of justice to grant an injunction. It is no more or less unconscionable for Kookmin, a Korean company which has suffered a loss as a result of events in Korea, to seek the assistance of the Korean Court in obtaining remedies against those it alleges were responsible than for Trafigura to seek or obtain a declaration of non-liability in the English Court.

Discussion and decision

48. I do not accept that Cooke J proceeded on the basis that Kookmin and Trafigura had implicitly chosen English law as the governing law of the L/C. In my view it is plain that Cooke J held that English law was the governing law because England was the country most closely connected with the contract. In other words he adopted the approach taken by Mance J in Bank of Baroda v Vysya Bank [1994] 2 Lloyd's Rep 87 and the Court of Appeal in Marconi Communications International Inc v PT Pan Indonesia Bank Ltd TBK [2005] 2 All ER (Comm) 325. This conclusion is not fatal however to Trafigura's application.
49. Whatever the true ambit of the Security Claim, it is plain that the Presentation Claim is premised on the L/C having a meaning and effect that is inconsistent with the findings of Cooke J. As recorded above, Cooke J held in paragraph 25:

It is self-evident that the "documents required" [in Field 47A(M) of the L/C] are documents which conform to the terms of the credit and which would trigger payment. It is clear therefore that the provision in Field 47A(M) is intended to apply where conforming documents are not available so that this provision is directly applicable not just where there are no documents available but also where there are non-conforming documents which are available. ".

50. For my part I would be very surprised if the Korean Court were to hold otherwise than that England is the country most closely connected with the L/C contract and that therefore the L/C is governed by English law. But even if the Korean Court held that the governing law is Korean law, the question is simply one of construing a document in the English language and it is not suggested that under Korean law words in a commercial agreement are given other than their plain and ordinary meaning in light of the context in which they appear.
51. The English Court plainly has a strong legitimate interest to protect its proceedings in this case and in my opinion it is vexatious for Kookmin to attempt to persuade the Korean Court to apply Korean law to the Presentation Claim and to invite that court to: (i) construe the words "documents required" in Field 47A(M) of the L/C as including discrepant documents; and (ii) to hold that the original bills of lading were available when they were not physically in the custody of Trafigura. I say this not only because Cooke J has held that the Presentation Claim is hopeless but also because, even if Korean law is applied to the claim, it is obvious as a matter of English that the words "documents required" in this part of the L/C mean documents that conform to the terms of the credit and which would give an entitlement to payment. In addition, the injustice of the proposed claim is compounded by Kookmin's stated intention of founding an allegation of fraud on the back of their perverse construction of the L/C.
52. Thus, far from it being unjust to deprive Kookmin of the juridical advantages in the Korean proceedings of the application of the Korean conflicts of law rules and the Korean jurisdiction rules, it would be profoundly unjust to allow Kookmin to invoke those rules. At the very least therefore, Trafigura are entitled to be protected against the continuation of the Presentation Claim in Korea. Moreover, such an injunction would be effective for Kookmin has a registered place of business in England and carries on business here through a wholly owned subsidiary.
53. What of the Security Claim? In my opinion the prosecution in Korea of this claim would also be fundamentally unjust and should be restrained. My reasons are these. First, in a masterly judgment Aikens J has held that Kookmin's Security Claim (including that set out in para 4.2 of the SoP) is governed by English law and Kookmin concede that on this basis Trafigura is not liable on this claim. Second, Kookmin joined in the English proceedings and attempted, but failed, to persuade Aikens J to take a contrary view. Third, the tort claims presently pleaded in the Korean proceedings all depend on Trafigura being in breach in one way or other of the obligations it is said it was under as beneficiary of the L/C, and yet whether English law or Korean law applies to the L/C, it is clear on the plain meaning of that document (and for that matter the LOI and the Sale Contract) that Trafigura was not in breach of the L/C or of either of the other contracts.
54. Are Trafigura entitled to be protected against a claim in the Korean proceedings in the nature of that set out in para 4.2 of the SoP and introduced by amendment? Although such a claim is not currently before the Korean Court, I find that there is a real risk that Kookmin will seek to introduce such a claim unless restrained from so doing. I base this finding on Kookmin's insistence that such a claim is already part of the Korean proceedings and on Kookmin's declared intention to seek a remedy against Trafigura whether or not Trafigura were entitled to receive payment against presentation of the LOI.
55. The situation obtaining is different from that which confronted Cooke J. Aikens J has now held in proceedings in which Kookmin submitted to the jurisdiction that Kookmin's Security Claim, including the claim made in paragraph 4.2, is governed by English law and that it would be bizarre if those claims were governed by a different law from that which governs all the contractual relationships between the relevant parties concerned with the Sale Contract and its financing. And in so holding, Aikens J has finally determined Trafigura's claim for a declaration of non-liability, for Aikens J's judgment has inevitably led to Kookmin conceding that Trafigura are entitled to a declaration of non-liability. In these circumstances it would in my opinion be unjust for Kookmin to turn its back on the outcome of the English proceedings and to attempt to prosecute a paragraph 4.2 type claim in Korea in which it would invite the Korean Court to find that the L/C was governed by Korean law rather than English law and that the law governing the tort claims was different from the law that in all reason applies to the background contractual relationships, namely English law. Trafigura has not acted in any respect in breach of the L/C, the LOI or the Sale Contract. It was under no obligation to provide Kookmin (rather than Huron) with the original bills of lading. In no rational way can it be said that its exchange of the original bills of lading for two claused bills of lading was an act not in good faith. In my view therefore, tort claims that include a paragraph 4.2 claim are thoroughly unmeritorious and Trafigura is entitled to an injunction that restrains not only the current Korean proceedings but also any claim that asserts liability, in tort or in contract, arising out of Trafigura's acts in exchanging the original bills of lading for new claused bills of lading and putting the new bills of lading into the banking chain.

Post Script -- The terms of the Declaration of Non-Liability

56. Mr Males submits that Trafigura is entitled to a declaration in the following terms:

The Claimant (Trafigura Beheer BV) is under no liability to the Defendant (Kookmin Bank Co) in connection with:

(1) the presentation of a letter of indemnity under the Defendant's irrevocable letter of credit M07PS311NS00160 issued in favour of the Claimant on 12 November 2003; or

(2) the discharge or delivery of the cargo of decant oil shipped on board the M/T "Shanghai" at Balongan, Indonesia on 18 November 2003; or

(3) its dealings with the various bills of lading issued for the cargo shipped on the vessel; or

(4) any loss or damage which the Defendant may have suffered as a result of not being in a position to exercise the rights of a holder of the bills of lading issued for the cargo.

57. Mr Onslow submitted that there should be added to the words proposed by Mr Males:

Under the English Private International Law Act 1995, English law is applicable to the question of whether the Claimant is liable to the Defendant on the claims advanced by the Defendant against the Claimant in the Korean proceedings referred to in the Particulars of Claim. On that basis …

58. Mr Onslow accepted that his suggested wording was not necessary but submitted that it was sensible to spell out the basis of Aikens J's judgment in the declaration. If his wording were adopted confusion would be avoided in Korea.
59. I do not accept Mr Onslow's proposed wording. The suggestion that the basis of the decision should appear in a declaration of non-liability is novel. The function of such a declaration is to express the court's findings of non-liability. The legal basis of the declaration can be found in the judgment which is a public document and is therefore available to Kookmin to show to whomsoever they please.
60. Accordingly, Trafigura will have a declaration in the terms suggested by Mr Males.

Note 1   The proceedings are also brought against the shipowners, their managers and the shippers.    [Back]

Note 2   95 Da34385, May 9, 1997    [Back]

Note 3   Since the hearing before Cooke J Trafigura has learned that Kookmin is present in the jurisdiction and could have been served here without the need for service out of the jurisdiction.    [Back]