Fortis Bank SA/NV & Anor v Indian Overseas Bank

This appeal raises a number of issues in relation to letters of credit. One of them is of more general importance as it raises an issue under the Uniform Customs and Practice for Documentary Credits, 2007 Revision, (“UCP 600”) as to the position which arises when an issuing bank which has rejected the documents gives notice that it is returning the documents, but fails to do so.

The second respondents to the appeal (Stemcor), a company carrying on in London an international business of selling steel, entered into five contracts to sell various quantities of containerised scrap to SESA International Limited (“SESA”) CFR CY Haldia (or Haldia/Kolkata) in August 2008. The contracts all provided for the incorporation of Incoterms 2000; and that (i) the law of England was to govern, with arbitration of disputes in London; (ii) payment was to be through a letter of credit opened by a first class bank acceptable to Stemcor in workable form and received in London with the advising bank nominated as the Aldermanbury Square branch of the first respondents (Fortis), an international bank incorporated in Belgium.

The contracts were made through MSTC Limited (“MSTC”), an Indian government owned company within the Ministry of Steel, who were described in the letters of credit as the “Facilitator”. The appellant, IOB, a bank carrying on business in India with its international business branch in Kolkata, issued the five letters of credit on the application of MSTC in favour of Stemcor in respect of the purchases by SESA. The letters of credit were made available by negotiation with Fortis’ London branch each naming Stemcor as beneficiary. The five letters of credit (L/C1 – L/C5) were:

Stemcor presented the documents under L/Cs 1-3 which Fortis accepted and paid Stemcor the amount due; the documents were forwarded by Fortis to IOB. The documents presented under L/Cs 4 and 5 were forwarded by Fortis to IOB.

IOB rejected the documents presented under L/Cs 1-4 on dates between 4 and 19 November 2008 on the basis of discrepancies (as I set out below in more detail). It refused to reimburse Fortis (in respect of the drawings under L/C 1–3) and payment to Stemcor (in respect of L/Cs 4–5) on the basis that the documents contained discrepancies in respect of L/Cs 1-4 and for a different reason in respect of L/C5. It gave notice under sub-article 16(c)(iii)(c) of UCP 600 stating that it was returning the documents in respect of all the presentations except for 5 presentations under L/C3 where IOB stated that it exercised the option under sub-article 16(c)(iii)(a) to hold pending further instructions from the presenter; those further instructions were given, on terms, by Fortis in January 2009. IOB did not return any of the documents until 16 February 2009.

Stemcor and Fortis commenced proceedings in the Commercial Court against IOB under the letters of credit for a sum in excess of $8m and for damages, including container demurrage and port costs:

IOB disputed their entitlement to summary judgment; the application was heard by Hamblen J in September 2009. By that time, IOB accepted that certain payments should have been made; they also abandoned reliance on some of the alleged discrepancies. The four principal issues that arose were:

In a judgment given on 25 September 2009, Hamblen J determined that the only discrepancies in the documents were in the beneficiary’s consolidated certificate; he also determined the second and third issues in favour of Stemcor and Fortis. He considered that the fourth issue in relation to preclusion should be determined as a preliminary issue and made directions for the trial of the following issues:

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?”

The preliminary issues were heard by him over three days in January 2010; expert evidence from two bankers was called. In a further judgment given on 28 January 2010, Hamblen J held that IOB, having elected to return the documents under article 16, was under an obligation under that article to return them with reasonable promptness; it also received instructions from Fortis with which it was obliged to comply. As it had failed in breach of its obligation to return the documents, it was precluded under sub-article 16(f) by reason of its breach from relying on the discrepancies in the beneficiary certificate.

IOB appeal with his permission on two issues and Fortis and Stemcor cross appeal on a third issue:

I will consider the third issue first, for if Fortis and Stemcor are correct in their cross appeal on this issue, the preclusion issue does not arise.

As I have set out at paragraph 8, Hamblen J rejected all of the discrepancies alleged by IOB, save for one in the beneficiary’s consolidated certificate. This was required under Field 46A, clause 7D, of each letter of credit:

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...."

The document presented under each of the letters of credit was:

“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 consolidated certificate did not therefore follow the terms of the letters of credit by referring to "OUR" cost and instead replaced it with a reference to the "ISSUING BANK'S" cost. The judge considered that the terms of Field 46A clause 7D required the documents to be despatched at Stemcor’s cost and not IOB’s. He rejected the contention that there was any ambiguity, as the “we” in the field was plainly Stemcor and therefore the “our” plainly referred to Stemcor. He also rejected the contention that, as IOB would know that it had not been charged for the air courier service by the time the documents were received by it, the discrepancy was trivial. He held that the bank was not only under no duty to check whether it had been charged (as no enquiry beyond an examination of the documents was required), but also that IOB did not know it would not be charged.

I agree with the decision of the judge on this short point.

The letter of credit on its ordinary reading required the beneficiary’s consolidated certificate to certify that the negotiating bank had been advised to despatch the shipping documents by air courier to the opening bank at Stemcor’s cost. The word “our” referred back to “we”. “We” was plainly the beneficiary – Stemcor. The certificate was plainly discrepant as it certified that the cost was not Stemcor’s but that of the issuing bank. It was argued, however, by Stemcor and Fortis that there was a sufficient ambiguity in the language of the letter of credit which would excuse the discrepancy; it is not necessary to consider the extent of any ambiguity or the consequences of any such ambiguity as, in my view there was none. I cannot see how “our” can be read as referring to the issuing bank.

Stemcor and Fortis next contended that, although strict compliance was required, trivial discrepancies could be ignored: Seaconsar Far East Ltd v Bank Markazi [1993] 1 Lloyd’s Rep 236 at 240. In determining whether there was compliance, the exercise of judgment rather than a mechanistic approach was required: reliance was placed on Kredietbank Antwerp v Midland Bank plc [1999] CLC 1108 at paragraph 12 where Evans LJ said:

“..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.”

I cannot accept that the discrepancy can be regarded as trivial or that a banker in the exercise of judgement would regard the documents as in conformity. Take for example the facts in Kredietbank where the letter of credit had specified a “Draft survey report issued by Griffith Inspectorate at port of loading”. What was presented was a draft surveyor’s report signed by Daniel C Griffith (Holland) BV on that company’s notepaper which also bore the notation “Member of the worldwide inspectorate group dedicated to the elimination of risk”. This court upheld the judge’s conclusion that any banker would know that there were a number of groups which carried out surveys and that what was required was a report issued by a Griffith company; there was an obvious misnomer and the document was compliant.

In contrast in the present case, there was no mistake of name or obvious error discernable from the document; the certificate certified that the charges were to be paid by the issuing bank. It appears that in fact the charges were paid by the beneficiary; it was therefore submitted that this must have been known by IOB as IOB had not engaged the courier and had not paid a charge on delivery. Even if this were known to someone in IOB, those checking the documents (including management supervising them) would not have known this; they could not have discerned this from the documents and they were under no obligation to make enquiries of others within IOB as to whether IOB had engaged the courier or paid the courier.

I therefore turn to the issue of preclusion which raises issues of more general importance.

The issue on preclusion gave rise to a dispute both as to the law and the application of that law to the facts.

The legal issues

The disputed issue of law

Sub-article 16 (c) of UCP 600 makes clear provision as to what an issuing bank must do if, after examination of the documents, it decides to reject them:

“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.”

Fortis and Stemcor contended that if the issuing bank gave notice that it would return the documents then, on the proper construction of article 16 it was under an obligation to return them promptly. If it failed to do so, then sub-article 16(f) applied:

“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.

IOB disputed this construction. Its primary case was that the issuing bank was under no obligation on a proper construction of article 16 to return the documents; the only obligation of the issuing bank was to give a notice; nor should any term be implied into article 16 of the UCP to that effect. Any obligation to return the documents was outside the scope of the UCP. If, contrary to its primary contention, there was an obligation to return the documents, then that obligation arose under an implied term of the letter of credit and not under article 16; if that were so, then Fortis and Stemcor could not rely on sub-article 16(f) as they could only do so if the issuing bank were in breach of its obligation under article 16.

It is plain that Fortis and Stemcor can only rely on preclusion under article 16(f) if the obligation to return arose under article 16. As it cannot realistically be disputed for the reasons set out below that an issuing bank which rejects documents and states it is returning them, must return them, the real issue is in fact whether the obligation to return arose under the UCP or outside the UCP.

The approach to the UCP

The generally accepted approach a court should take to the construction of the UCP is set out in the judgment of Sir Thomas Bingham MR in Glencore v Bank of China [1996] 1 Lloyd’s Rep 135 at 148.

“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.”

In Schutze and Fontane’s Documentary Credit Law throughout the World (2001, ICC), there is a helpful discussion at paragraph 2.2.4 of the relationship of national law and the UCP where the meaning of the UCP is in dispute or UCP does not contain an express provision for the issue that is before a national court.:

“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.”

Similar views are expressed in Brindle and Cox on the Law of Bank Payments, paragraph 8-005:

“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.”

In my view, a court must recognise the international nature of the UCP and approach its construction in that spirit. It was drafted in English in a manner that it could easily be translated into about 20 different languages and applied by bankers and traders throughout the world. It is intended to be a self-contained code for those areas of practice which it covers and to reflect good practice and achieve consistency across the world. Courts must therefore interpret it in accordance with its underlying aims and purposes reflecting international practice and the expectations of international bankers and international traders so that it underpins the operation of letters of credit in international trade. A literalistic and national approach must be avoided.

I turn therefore to consider first the commercial practice of international bankers and traders which arises when an issuing bank rejects documents, as that is essential to identify any underlying aim and purpose relevant to the issue.

The practice upon rejection

The evidence of practice was clear. As I have mentioned, the judge heard expert evidence from two bankers; Stemcor and Fortis called Mr Gary Collyer, a technical adviser to the ICC since 1996, a member of the ICC Banking Commission and Chairman of the ICC Drafting Group responsible for the revision of UCP 500 to create UCP 600. IOB called Mr Roger Jones, a retired banker who is chairman of the ICC UK Banking Committee and also a member of the ICC Banking Commission. Their reports contained evidence of practice. They also set out their views on the drafting of the UCP, its scope and other matters to which I refer at paragraph 50. Their oral evidence encompassed the issues raised in the reports.

The judge succinctly summarised their evidence on practice at various paragraphs of his judgment:

“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”

It is clear from this evidence that there was no difference in view as to the practice of acting in accordance with the notice and, if there was notification of return, of returning the documents promptly – as Mr Jones put it “within a day or two”; the only difference related to a minor difference as to how the practice of acting promptly was applied.

A clear illustration of this practice is DOCDEX Decision 242; DOCDEX decisions are decisions by experts selected by an ICC committee from a list maintained by the ICC Banking Commission on disputes referred for non- binding resolution according to the ICC DOCDEX Rules. Decision 242 related to UCP 500 article 14(d) and (e) (corresponding to article 16 (c) – (f) of UCP 600). Article 14 of UCP 500 provided:

“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.

It therefore seems to me indisputable that the practice of bankers and international traders is that, on rejection, the issuing bank must hold the documents in accordance with the instructions of the presenter or return them promptly and without delay.

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?

In my view construing the UCP in accordance with the approach to construction I have set out at paragraphs 26-29, sub-article 16 (c) contains an obligation to act in accordance with the notice. These are the principal reasons for my view:

First, the issuing bank has no option but to comply with the option it has chosen. It is fundamental to the operation of letters of credit that, when the issuing bank determines that the documents do not conform, it may reject them. If it does, then it cannot be entitled to retain the documents, as it is implicit in rejection that it has refused to accept them. It must either hold them at the disposal of or in accordance with the instructions of the presenter or return them. Therefore once the issuing bank has rejected the documents, it cannot do anything else but act in accordance with its chosen option. Thus, it was not necessary to spell out in the sub-article the issuing bank’s obligation to act in accordance with the notice. It was implicit in the wording of the article.

Second, the obligation to act in accordance with the notice is what is required by the standard international banking and trading practice set out at paragraphs 31-35 above. It is necessary to make letters of credit work in practice so that the presenter can deal with the goods which are represented by the documents which the issuing bank has rejected. The consequences of the inability of the presenter to deal with the documents are too well known to need enumeration; illustrations are obvious such as in the case of a perishable cargo, or where the market falls or where the ship arrives and seeks to discharge the cargo.

Submissions were made on behalf of IOB that there was no need for such an obligation, as letters of indemnity might be used to procure delivery. The fact that one consequence might in certain circumstances be overcome by the presenter providing a letter of indemnity to the carrier cannot be relevant to the existence of the obligation. Another submission made on behalf of IOB was that the presenter would have a remedy by bringing an action for conversion of the documents, if they were not returned. However, that submission implicitly accepts and confirms the position that the issuing bank has no right to retain the documents; if it has no right to retain, it is impossible to understand what the issuing bank is entitled to do other than to return the documents or hold them at the disposal of the presenter in accordance with its instructions or pending instructions.

It would make no commercial sense, contrary to the submissions of IOB, if having made an election to return the documents, the issuing bank was not obliged to do anything. It would have the absurd consequence that the documents of title would remain with the bank which had rejected them and the presenter would be unable to deal with them. It was hardly surprising that Mr Jones, the expert called by IOB, could not think of any reason why the issuing bank should not be obliged to act in accordance with the notice given under sub-article 16(c). Furthermore, as the UCP is intended to be a self-contained code for the areas which it covers, it would make no sense to interpret the UCP in such a way that the obligation to act in accordance with the notice was omitted from its scope.

It is also clear from the evidence of practice to which I have referred that an issuing bank that elects to return documents is expected to do so promptly and without delay. Taking into consideration the necessity for the presenter to be able to deal with the documents, it is clear in my view that if the issuing bank elects to return the documents, it must do so with reasonable promptness. I accept that the notice under sub-article 16(c) has to be given within the specified time of 5 banking days and what is reasonable promptness does not produce an equivalent exact time. However, I cannot accept that interpreting the provision in this way is likely to give rise to any real uncertainty. It is likely to be very clear whether the issuing bank has acted with reasonable promptness.

My third reason for my conclusion that the obligation is contained within article 16 of the UCP is that the provisions of sub-article 16(e) are necessary only if article 16 is construed in this way. The sub-article provides:

“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.

It was submitted by Miss Cockerill on behalf of IOB that this construction is wrong as all sub-articles 16 (c) and (d) require is what is set out on its face, namely:

The submission that the issuing bank is not required to go any further by article 16 and to carry out what it has elected to do was supported by a number of arguments:

In my view, therefore, in agreement with the judge, sub-article 16 (c) can and must be read as expressing an obligation that the issuing bank would act in accordance with the option it elected. Thus, as in most of the presentations in this case, where a bank elects to return the documents, the bank is required to return the documents with reasonable promptness.

The revision to UCP: a comparison with Article 14 of UCP 500

As I have set out at paragraph 34 above, the corresponding article of UCP 500, article 14, expressly provided that the issuing bank was precluded if the issuing bank failed to hold the documents at the disposal of or return them to the presenter. Although it was IOB’s primary case that the wording of UCP 500 was inadmissible as an aid to the construction of UCP 600, it was contended by IOB, that as these words had been omitted in the revision which produced UCP 600, it was clear that the drafters intended that not only was there no obligation to act in accordance with the notice given, but preclusion did not in any event arise if there was a breach of the obligation.

In considering this alternative submission of IOB and what can be derived from a comparison between UCP 500 and UCP 600, it is important to start from the position that neither article spelt out an obligation to act in accordance with the notice. The most that can be said is that it must have been implicit from the terms of sub-article 14(e) of UCP 500 that there was an obligation to act in accordance with the notice. However there was (and could be) no suggestion that the practice to which I have referred had in any way changed; it was, on the contrary, common ground that practice was unchanged. There is no reason therefore to read article 16 of UCP 600 as making any different provision to that in article 14 of UCP 500 as to the obligation to act in accordance with the notice. Viewed in that way, the omission in sub-article 16(f) of the words in sub-article 14(e) in no way changes the content of the obligation to act in accordance with the notice contained in article 14 of UCP 500 and article 16 of UCP 600.

It was also suggested by IOB that the provision in sub-article 14(e) was superfluous, as the problem had never arisen. The decision of the US District Court Missouri in Amwest Security 248F Supp 2d 867 (2003) however shows that such a case has arisen; the court was there concerned with a letter of credit subject to UCP 500. Article 5-108 (h) of the Uniform Commercial Code (which had been incorporated into the law of Missouri) contains an explicit obligation, on dishonour, to return the documents or hold them at the disposal of the presenter pending instructions, in addition to giving notice to that effect. The judge held that the effect of UCP 500 and s.5-108 was the same – the bank had an obligation to return.

It was submitted by IOB that it was significant that a period of five banking days within which the issuing bank had to make its decision was specified in UCP 600 in place of “a reasonable time, not exceeding seven banking days” specified in UCP 500. This demonstrated, it was submitted, that there was a drafting decision to move away from the uncertainty inherent in a “reasonable time” to a prescribed period. It would therefore not be consistent with this decision to read article 16 as containing any obligation which was required to be performed in a time not precisely expressed. However, for the reasons I have already given at paragraph 42, I do not consider this a realistic objection where one is looking at an obligation to return with reasonable promptness.

Other evidence in relation to the revision of the UCP

It was common ground that it was permissible to receive evidence both of banking practice and of the fact that the general purpose of the revision (as stated in the introduction to UCP 600) was to bring the UCP up to date with developments in practice and to make the operation of letters of credit run more smoothly. However the expert evidence before the judge was much more extensive; it encompassed evidence in relation to the drafting process, the ICC commentary on the drafting of UCP 600 and the views of the experts on the scope of the UCP and on the significance of the omission from Article 16(f) of the words contained in Article 14(e).

The circumstances in which evidence in relation to the negotiation of international conventions is admissible are set out in Fothergill v Monarch Airlines [1981] AC 251. At page 278 Lord Wilberforce made clear that travaux prėparatoires can be used where two conditions were fulfilled – the material involved is accessible and that it points clearly and indisputably to a definite legislative intention; in Effort Shipping Co Ltd v Linden Management SA (TheGiannis NK) [1998] AC 605 at 623 Lord Steyn put it pithily: “Only a bull's eye counts. Nothing less will do.” Although the documents representing a commentary on the drafting and the intentions of the drafting committee were public, there was no bull’s eye.

It is clear that the views of the experts on the scope of the UCP and on the significance of the changes to the wording are inadmissible; such evidence is subjective opinion on the meaning of the UCP.

An obligation to return as an implied term of the letters of credit?

It became clear to IOB in the course of argument that there were substantial difficulties in maintaining the position that an issuing bank was under no obligation to return. It therefore put greater emphasis on its alternative argument, that if there was an obligation to return, that obligation should be implied into the letters of credit, as distinct from the UCP the scope of which did not extend that far. As I have pointed out at paragraph 25, if the obligation was implied into the letters of credit, as distinct from the UCP, neither Fortis nor Stemcor could rely on sub-article 16(f).

However, as there was nothing in these letters of credit which differentiated them from other letters of credit as regards the obligation to return, it would be an uncommercial result to conclude that, even though an obligation to return had to be implied as a matter of necessity, it did not form part of the UCP obligations under article 16 for the reasons I have given.

Implication of a term into the UCP?

The judge was prepared to hold, in the event that he was wrong about the construction of article 16, that a term should be implied into the UCP. In Seaconsar v Bank Markazi, this court implied a term into the UCP, as did Hirst J in Bankers Trust v State Bank of India [1991] 1 Lloyd’s Rep 587, following an earlier decision of Gatehouse J in The Royan [1987] 1 Lloyd’s Rep 345. In the light of my views on the construction of article 16, it is not necessary to express a view on whether a term can be implied into the UCP, to the extent that a question of implication is different to a question of construction – see the opinion of the Privy Council delivered by Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988 at paragraphs 16-27. Whether a term can be implied into the UCP was not an issue specifically considered in the cases to which I have referred. It is not necessary to reach a concluded view in this case on this issue, though in my view there would be real difficulties in using a rule of national law as to the implication of terms (if distinct from a method of construction) to write an obligation into the UCP.

The factual issue

The findings made by the judge

In respect of L/C 1, 2 and 4 and one presentation under L/C3 IOB rejected the documents; it sent SWIFT notices stating “Return”; it was common ground that this was the conventional means of expressing the exercise of the option under sub-article 16(c)(iii)(c) of the UCP. Most were sent on 4 November 2008; some were sent on 11, 15, or 19 November 2008.

The response of Fortis was to tell IOB that it should not return the documents, but to accept them and pay. The response of 4 November 2008 was:

“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.”

On 21 November 2008, Fortis sent a further message relating to the rejections and to the presentations under consideration by IOB in these 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.”

On 26 November 2008, IOB rejected five of the presentations under L/C3; it sent a SWIFT message stating “HOLD”. It was common ground that this was the conventional means of exercising the option under 16(c)(iii)(a) to hold pending further instructions from the presenter.

On 23 December 2008 IOB stated that it had been trying to obtain the applicant's (i.e. MSTC's) acceptance of the documents and suggested that Fortis use its "good offices" with Stemcor to resolve the matter.

On 1 January 2009 IOB requested Fortis to advise Stemcor

"to do the needful to protect their interest in respect of the merchandise shipped under the contract/LCs in question".

On 13 January 2009 Fortis requested IOB that the bills of lading be endorsed to Fortis' order and "return them to our office via urgent courier".

On 19 January 2009 Fortis requested IOB to

"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…"

On 9 February 2009 IOB replied to say

"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.

On 9 and then on 11 February 2009 Fortis told IOB that its failure to return the documents constituted an affirmation of the presentations as complying presentations in accordance with sub-article 16(f) and accordingly that it had no further interest in the documents.

The documents were returned on 16 February 2009. None had been endorsed.

The contentions

There were two particular periods of delay relied upon by Stemcor and Fortis: first, the period beginning immediately following the "return" notices in November 2008, and second, in relation to both the "return" and the "hold" notices, the period after 13 January 2009.

IOB contended that, if it was under an obligation to return, the responses given by Fortis to its “return” notices, namely that IOB was to retain the documents, had the consequence that IOB was not in breach of its obligation. I cannot accept this contention for the reasons given by the judge at paragraph 83 of his judgment on the preliminary issues. It is clear that what Fortis was saying was that IOB had no right to reject the documents and should accept them; Fortis’ request that the documents be retained was solely for the purpose of IOB accepting them. As IOB continued to reject the documents, it was not entitled to retain them on the basis that it was holding them pending instructions from Fortis. It was obliged to return them. It did not do so for a substantial period of time and was therefore clearly in breach of the obligation under article 16.

As set out at paragraph 59 above, IOB’s notice on the rejection of five of the presentations under LC/3 was a “hold” notice under Article 16(c)(iii)(a). Fortis submitted that their instruction on 13 January 2009 (set out at paragraph 62) was an instruction to return with which IOB had failed to comply. IOB contended that it was not in breach as the instruction by Fortis was an instruction to return after endorsement and Fortis had no right to insist on an endorsement. The judge concluded that, as Fortis had negotiated the documents and was therefore their owner, it was entitled to give the instruction, but even if it was not, there was no reason why IOB did not return them unendorsed.

The judge was plainly correct in his conclusion that IOB was obliged to return the documents; on the assumption most favourable to IOB that it was right in its contention that Fortis were not entitled to require endorsement, IOB had, on that assumption, no right to retain the documents. It should simply have returned them unendorsed. IOB was therefore in breach of its obligation to return.

The final issue was a short issue raised by IOB in relation to L/C3. That letter of credit provided in Field 48 that:

“Period for presentation: within 21 days from B/L Date but within the validity of L/C”

At the summary judgment hearing, IOB contended during the course of argument that a presentation made under L/C 3 on 25 November 2008 was more than 21 days after the Bill of Lading Date; this was not a point taken at the time of presentation of the documents or at any time prior to the oral argument.

The facts can be briefly summarised:

The judge in a very short paragraph of his judgment held that the “Bill of Lading date” was the date the bill of lading was issued – 14 November 2008.

It was contended on behalf of IOB that the judge was wrong; the bill of lading date was the date of shipment. The judge had failed to give sufficient weight to the provisions of the UCP 600 and that his construction was therefore out of step with the approach of the UCP:

I cannot accept this submission. It is clear that the judge was right. L/C 3 expressly referred to presentation within 21 days from the date of the bill of lading, not the date of shipment. The date of the bill of lading was, as it stated on its face, 14 November 2008.

There is nothing in the UCP that can displace this clear provision. Sub-article 14(c) which requires presentation to be 21 days from the date of shipment simply makes a provision which is different; the express terms of L/C 3 prevail. Furthermore the definition in sub-article 20 (a) (ii) “The date of issuance of the bill of lading will be deemed to be the date of shipment” is a deeming provision for the date of shipment for the purpose of sub-article 14(c); it is not relevant to the construction of L/C3 which is on its face clear. In any event, even if it were relevant, it is not a provision deeming the date of the bill of lading.

I would therefore dismiss the cross-appeal and the appeal.

I agree.

I also agree.