Fortis Bank SA & Anor v Indian Overseas Bank

This is the judgment on a preliminary issue which I ordered to be tried following Fortis and Stemcor’s (“the Claimants”) application for summary judgment under 5 letters of credit (“L/Cs”) issued by the Defendant (“IOB”) in August 2008. Judgment on that application was given on 25 September 2009 in which I held that all of IOB’s defences failed, save for one in relation to some of the drawings in respect of which I held that there was a valid documentary discrepancy (the “Consolidated Certificate Discrepancy” – see judgment at §§ 46-54). I ordered that there be summary judgment in respect of the drawings that were not affected by the Consolidated Certificate Discrepancy, but did not consider it possible to deal summarily with the Claimants’ case that IOB were in any event precluded under Article 16(f) of UCP 600 as incorporated into the L/Cs from relying on any such discrepancy. Instead I ordered that this preclusion point be determined as a preliminary issue and gave directions leading up to a trial of that preliminary issue.

The general factual and contractual background is summarised in my earlier judgment at paragraphs 3 to 16.

The preclusion contended for by the Claimants arises out of Article 16(f) of UCP 600 to which each of the relevant L/Cs is subject. Article 16 deals with “Discrepant Documents, Waiver and Notice” and provides as follows:

“a.

When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.

b.

When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14(b).

c.

When a nominated bank acting on its nomination, a confirming bank, if any, or 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.

d.

The notice required in sub-article 16(c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.

e.

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.

f.

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 ...”

The preclusion issue which arises in the present case concerns the situation where an issuing bank determines that a presentation does not comply and states in its Article 16(c) notice:

The specific terms of the preliminary issue which the parties invited me to determine were as follows:

On various dates between 4 and 19 November 2008 IOB rejected a number of drawings under L/Cs 1, 2, 3 and 4, accompanying them with SWIFT messages stating “RETURN”. It was common ground that that codeword equates to the option under Article 16(c)(iii)(c). These “return” notices were mostly dated 4 November 2008, but there were some dated respectively 11, 15 or 19 November 2008.

In relation to the earliest such rejections (4 and 11 November 2008) Fortis immediately responded, urging IOB not to return the documents, but to accept and pay. On 4 November 2008 the wording was "Documents must not be returned, but must be paid without further delay". On 11 November 2008 it was slightly different: "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 most or all of these rejections and also to (i) the subsequent rejections on 15 and 19 November 2008 and (ii) the presentations which were currently under consideration by IOB. Their instructions on this occasion were as follows: "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 the presentations which had been under consideration and on this occasion served a notice which stated “HOLD”. It was common ground that that codeword equates to the option under Article 16(c)(iii)(a) of UCP 600.

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 that the bills of lading be endorsed to Fortis’s 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 2February 2009 the Claim form was received by IOB in their offices in Kolkata.

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 question about the endorsing of the bills of lading or about their 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 Article 16(f) and accordingly that it had no further interest in the documents. The documents were returned (not endorsed) on 16 February 2009.

There were two particular periods of delay relied upon by the Claimants: first, immediately following the “return” notices in early November (affecting the “return” notices), and second, in relation to both the “return” and the “hold” notices, after 13 January 2009.

Aside from the documentary evidence, there was a Civil Evidence Act witness statement from Mr Ramakrishnan, the Deputy General Manager of the International Business Branch of IOB. There was also evidence from two experts in the field of banking practice in relation to letters of credit:

The experts addressed banking practice and market understanding when dealing with documents following service of a notice under Article 16(c)(iii) of UCP 600. There was a degree of agreement between the experts as to what good international banking practice is in such circumstances.

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”.

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.

Both experts also highlighted, and commented on, the extent to which any material change was introduced by reason of an amendment to UCP 500. That arises because the equivalent provision in Article 14 of UCP 500 was expressed as follows:

“d

i.

If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, 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. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.

ii.

Such notice must state all discrepancies in respect of which the bank refused the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.

…

e If the Issuing Bank and/or Confirming Bank, if any, 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 and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.”

(Emphasis added)

It is apparent from the emphasised words that UCP 500 required the issuing bank to act in accordance with the disposal statement which it had made, and that preclusion would result if it failed to do so. 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, and also that is precluded from relying on alleged non compliance of the documents if it fails so to do.

Both experts agreed that the UCP seeks to codify accepted international banking practice and to achieve a common and certain standard to be applied worldwide. Mr. Collyer said that in relation to the preclusionary effect of failing to act in accordance with a notice given there was no relevant change in international banking practice prior to, or after, 1 July 2007 when UCP 600 came into force. Mr. Jones did not suggest that there had been any such change, nor that there had been any particular problems or unhappiness in the international banking community with the preclusionary provision of UCP 500. In his experience, however, it was not an issue which had arisen.

Against that background, Mr Collyer said that the omission of the words “...and/or fails to hold the documents at the disposal of, or return them to the presenter...” in the equivalent provision in Article 16(f) of UCP 600 did not reflect any change in international banking practice. He pointed out that the UCP 600 Drafting Group’s Commentary on UCP 600 (of which he was Chairman), which did identify specific substantive changes which were brought about by UCP 600, gave no indication of any change in that regard. Mr. Collyer suggested that the revision of UCP 500 could be explained as reflecting the general aim of UCP 600 to reduce and simplify the text of UCP and that the omitted words would have been “unwieldy” had they been retained and revised in view of the addition of the two further options added in Article 16(c)(iii)(b) and (d) of UCP 600.

Mr. Jones said that in contrast to UCP 500, the actual dealing with documents after a refusal notice now falls outside the ambit of UCP 600 and he regarded the change in the wording of UCP as being “substantive and material”.

It would appear that the only text in which the issue of the change in wording is specifically discussed is a publication of The Institute of International Banking Law and Practice by its director Professor Byrne called The Comparison of UCP 600 and UCP 500. In the commentary on Article 16 it is said that “the removal of this provision arguably takes it outside of the UCP 600 preclusion rule”. It therefore recognises the argument but does not express any firm or reasoned view on its correctness.

When an issuing bank decides to refuse to honour or negotiate that issuing bank must give a single notice to that effect stating inter alia that the issuing bank is exercising one of the four options set out in Article 16(c)(iii). In the present case, IOB’s notices stated that it was exercising the option in Article 16(c)(iii)(c) and thereby that it “...is returning the documents...”. In relation to five drawings under L/C3 IOB’s notices stated that it was exercising the option under Article 16(c)(iii)(a) and thereby that it “...is holding the documents pending further instructions from the presenter...”.

In light of IOB’s failure to return the documents until 16 February 2009 (being between 89 and 104 days after the “return” notices and 34 days after Fortis’s 13 January 2009 instruction to return the documents in respect of the “hold” notices) the Claimants contended that IOB had failed to “...act in accordance with the provisions of [Article 16 of UCP 600]...”.

In particular, the Claimants contended as follows:

The Claimants had a further argument that to be a valid notice it must be true. In relation to the “return” notices they contended that meant that the issuing bank had to be in the process of arranging the return of the documents at the time that it served its notice. In relation to the “hold” notices they contended that this meant that at the time of the notice the issuing bank had to intend to comply promptly with such instructions as might be given and have established the means for prompt compliance with any future instruction for the return of the documents.

Finally, the Claimants contended that IOB’s silence and inaction in response to Fortis’s 13 January 2009 request for the return of the documents involved an election not to refuse to honour or negotiate the documents.

IOB stressed that the Claimants’ case necessarily involves the implication of terms. There is no express term in Article 16 requiring an issuing bank to act in accordance with the notice it has given. Article 16(c) states that the bank must give a notice and “the notice must state (i) that the bank is refusing to honour or negotiate; and (ii) each discrepancy ... and (iii) (a) that the bank is returning the documents”. This is not an expression of an obligation to return the documents.

IOB contended that a case based on the implication of terms would face an insuperable hurdle in terms of establishing presumed intention. They submitted that there is in all cases a presumption against adding to a contract a term which the parties have not expressed, and that that presumption is strengthened where there is a written contract which represents an apparently complete bargain between the parties.

IOB further contended that that presumption must be of particular strength when what is sought to be implied is an addition to an established trade code such as UCP, which is designed to be a complete self contained code and whose terms are negotiated by experts within the business for months before any change is made. Further, it is a code aimed at practitioners who will be expected to implement it according to its express terms.

IOB submitted that the presumption must be insuperable when (as has happened between UCP 500 and UCP 600) the code has been amended to remove a similar (but less extreme) provision than that contended for by the Claimants.

In any event, IOB submitted that the implication contended for was not necessary to give business efficacy to the contract: the contract between the parties works perfectly well without such a term.

Similar points were made in relation to the Claimants’ case that the statement made in the notice must be true. That too would involve the implication of terms and be objectionable for all the reasons identified above. Further, it would not be sufficiently clear to amount to an implied term. In particular, a proposed term requiring the issuing bank to “be in the process of arranging the prompt return of the documents” is a vague obligation offering ample room for dispute.

As to the alleged election, IOB submitted that on any view there was never the clear and unequivocal representation necessary to found an election.

There was some debate between the parties as to the proper approach to questions of construction and implication given that the issues which arise concern an international code of rules incorporated into an English law contract.

As stated by Sir Thomas Bingham MR in relation to the UCP in Glencore International AG v Bank of China [1996] 1 Lloyd’s Rep. 135 at p148:

“Practice is generally governed by the Uniform Customs and Practice for Documentary Credits ("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 Brindle and Cox on Law of Bank Payments at paragraph 8-005 it is stated as follows:

“As to the interpretation of the UCP itself, while some courts have tended to construe its provisions according to traditional English canons 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”

In support of this it refers to Sir Thomas Bingham’s remarks in the Glencore v Bank of China case.

I accept that a purposive approach to construction is appropriate and in particular that the Court should generally seek to construe the UCP as contractually incorporated so as to reflect “the best practice and reasonable expectations of experienced market practitioners”.

There was also some debate as to what evidence was admissible in relation to the issue of construction. The Claimants relied on the UCP 600 Drafting Group’s Commentary on UCP 600in which Mr Collyer was heavily involved. It was submitted that this was analogous to the travaux preparatoires for an international treaty or convention. I am not sure that that is an apt analogy bearing in mind that the Commentary is not an official document or record, nor was it produced before the publication of UCP 600. Further, it is by no means clear that the limited conditions under which travaux preparatoires may be used to aid interpretation are satisfied here – see Fothergill v Monarch Airlines [1981] AC 251 at p278A-B per Lord Wilberforce. The Commentary is a discussion of UCP 600 provided by those involved in its drafting. The comments made are of interest, but I do not consider that they have an evidential status.

Mr Collyer also gave some evidence as to what was intended by the replacement of Article 14 of UCP 500 by Article 16 of UCP 600 and why it was done as it was. I do not consider this to be admissible. I have objectively to construe the wording as adopted in UCP 600 without regard to what may or may not have been subjectively intended by its draughtsmen.

Both parties also referred to Opinions of the ICC Banking Commission in support of their arguments. These Opinions are of persuasive weight, as explained in Brindle and Cox at paragraph 8-005:

“The Commission has stated that its Opinions “reflect international practice in their interpretations of the stated circumstances and/or documents presented…aim to encourage uniformity of practice…[and]…serve as guideposts to courts interpreting ICC rules…” These materials are not of course legally binding as a matter of English law, but as time goes on it seems increasingly likely that the English Courts will regard them as having considerable weight”.

In relation to implication it was common ground that English law principles applied, but IOB stressed that the Court should be particularly wary of in effect implying terms into an international code. However, in relation to the UCP it is clear that this is something which English Courts have been prepared to do, applying English law principles – see Seaconsar v Bank Markazi [1999] 1 Lloyd’s Rep. 36 at p39; Bankers Trust v SBI [1991] 1 Lloyd’s Rep. 587 at p599.

Turning to the proper construction of Article 16 as incorporated into the English law L/Cs, the essential issue between the parties was whether it imposes an obligation on the issuing bank to act in accordance with the disposal statement made in its Article 16(c)(iii) notice. That Article obliges the issuing bank to state what it is and is going to be doing with the documents. It does not speak only to the time of the notice itself. It is saying that the issuing bank is going to be holding the documents pending further instructions, or returning the documents, or holding them in accordance with instructions previously received. It requires the issuing bank to state what it will be doing with the documents. That the statement to be made speaks to the future is illustrated by the requirement to state that the documents will be held “pending further instructions”, or until it receives “a waiver” or “further instructions”.

In a contract a statement that a party will do something is generally to be understood as involving an undertaking to do it. Prima facie I consider that the same applies to a statement as to what a party will do which it is contractually required to make.

If one asks what the contractual significance is of a statement contractually required to be made as to what a party will do, the natural and obvious conclusion is that it will be contractually obliged to do what it says it will do.

In the present case there are a number of matters which support that construction of the disposal statement required to be made under Article 16. Further or alternatively to the reasons advanced by the Claimants, I would emphasise the following:

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.

This has also been required international banking practice as enshrined in UCP 500 and indeed its two predecessor versions, going back to the early 1960s.

No good reason was identified by Mr Jones or IOB as to why an issuing bank should not be obliged to act in accordance with an Article 16 disposal statement it has made. It was suggested that it might lead to uncertainty because Article 16 does not spell out in terms that this is to be done. However, being required to act in accordance with normal, expected and long established required international banking practice is unlikely to lead to difficulty or uncertainty.

If it is appropriate to have regard to the terms of UCP 500 in considering the proper construction of Article 16 then I consider that it fortifies the conclusion which I have reached. Article 14(e) of UCP 500 shows that it is recognised international banking practice to require an issuing bank to act in accordance with the disposal statement it has made, as indeed had been reflected in earlier versions of UCP. There was no evidence of any expression of dissatisfaction with that codified practice or of any request for change.

In so far as it is right to speculate as to why Article 16 (unlike Article 14 of UCP 500) does not make express reference to the obligation to act in accordance with the disposal statement made, I accept that there are many explanations other than the desire to effect a change, such as the desire to avoid superfluous or unwieldy drafting. No good banking reason was advanced as to why such a change should be made to this long established and recognised requirement.

There is little doubt that “best practice” supports a construction of the required disposal statement as carrying with it an obligation to act in accordance with the statement made. In considering the “reasonable expectations of market practitioners” it is right to have regard not merely to “best practice” but also to the consequences of the rival construction arguments. On the Claimants’ construction the issuing bank will be required to act in accordance with normal, expected and recognised practice. That cannot be said to be an unreasonable or onerous requirement. On IOB’s construction there will be no contractual means of ensuring that the issuing bank acts as it has stated that it would. Failing to deal with the documents as stated can have very serious consequences. How rejected documents are dealt with, and in particular documents of title, is a matter of considerable importance and affects the beneficiary’s rights and security. The disposal statement is a matter of real import which the beneficiary will be expected to and will rely upon as being carried out. If, for example, the issuing bank says it is returning the documents but does not do so, or only does so after considerable delay, the beneficiary may lose opportunities to deal in the documents or lose the opportunity to re-present conforming documents before the L/C expires. It may also, as the facts of the present case illustrate, involve incurring significant demurrage or storage costs.

For all these reasons, I am therefore satisfied that the proper construction of Article 16 is that it does impose an obligation on the issuing bank to act in accordance with the disposal statement it has made in its Article 16(c)(iii) notice. Such a construction reflects both “best practice” and the “reasonable expectations of experienced market practitioners”.

Alternatively, if that is a conclusion which can only be arrived at by implication I am satisfied that such implication must be made.

In relation to the issue of implication I was referred to the recent Privy Council case of Attorney General of Belize v Belize Telecom Limited [2009] 1 WLR 1988. Giving the judgment of the Privy Council Lord Hoffman said that the essential question is “what that instrument, read as a whole against the relevant background, would reasonably be understood to mean” (at paragraph 21) and explained that the various different formulations which the courts have used all come back to this question and are different ways of saying “although the instrument does not expressly say so, this is what a reasonable person would understand it to mean..” (at paragraph 25).

The Belize Telecom case was considered in the Court of Appeal decision Mediterranean Salvage & Towage Limited v Seamar Trading & Commerce Inc [2009] 2 Lloyd’s Rep. 639. In that case it was emphasized that the touchstone remains necessity rather than reasonableness.

Both parties referred to the considerations set out by Lord Simon of Glaisdale in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 , 282–283 in support of their arguments for/against implication. In that case Lord Simon identified the following considerations:

“(1)

it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

As is made clear in the Belize Telecom case, these are not to be viewed as independent tests to be satisfied, but rather as considerations relevant to the general question of what the instrument, read as a whole against the relevant background, would be understood to mean.

As to (1), I consider it is both reasonable and equitable to require an issuing bank to act in accordance with the mandatory disposal statement it has made under the contract. That is what it would be reasonably expected to do and that is what is commonly done. It is also reflects what has been required under UCP for over 40 years. IOB submitted that it is not reasonable that the draconian remedy of preclusion should be imposed in such a case, but that has been the case under UCP for a long period of time and the sanction of preclusion serves to ensure compliance.

As to (2), IOB submitted that it is not necessary for compliance with a disposal statement to be a matter of contractual obligation since as a matter of practice banks generally do act as stated. However, unless there is such an obligation there is no contractual means of ensuring that they do so and it is how the contract itself works that matters, not what may or may not happen outside the contract. To square the contractual circle it is necessary that the issuing bank should not only state what it will do, but do what it says it will do.

As to (3), I agree with the Claimants that it is so obvious that it goes without saying that if an issuing bank makes a disposal statement as required under Article 16 it must actually do what it says it will do. As the evidence showed, that is what any bank would be expected to do in such circumstances and it has long been what UCP requires.

As to (4), there was force in IOB’s forensic criticism that the Claimants’ precise case on the term to be implied has developed, but their essential point has always been that the issuing bank should be required to act in accordance with the statement it has made. The term ultimately argued for is clear: there should be added at the end of Art.16(c)(iii) the words: "and the bank must act in accordance with such statement…".

As to (5), it was not suggested that there was any contradiction with the express terms of the contract.

IOB further contended that, in the light of the Claimants’ reliance upon market practice in support of their case on implication, a term should only be implied if they could satisfy the strict test for implication from usage or custom as set out in Chitty on Contracts (30^th ed) Vol 1 at paragraph 13-018. However, the Claimants’ case is put more widely than that and I do not accept that market practice is only relevant to implication if a custom can be proved. It is background which is going to be relevant to the reasonable expectations and understanding of the parties and an unduly compartmentalised approach to the implication of terms is contrary to the guidance given in the Belize Telecom case.

If necessary, I am therefore satisfied that the Claimants’ case on implication is made out. Many of the reasons given for reaching the conclusion which I have as a matter of construction support an implication to similar effect, if it is required. If one asks what Article 16(c)(iii) read as a whole against the relevant background would be reasonably understood to mean, the answer is that it would be understood to require not merely that the issuing bank should make a disposal statement, but that it should also act in accordance with the statement it has made.

Even if the Claimants are correct in their case as to there being an obligation to act in accordance with the disposal statement made, to prove their case on the facts they also need to establish that a term that the documents should be returned within a period of time is to be implied. They contended that the appropriate term in the international banking context was that the documents should be returned “with reasonable promptness” following a “return” notice or an instruction to return the documents. They submitted that this is what is meant by a reasonable time in this context.

Where there is a contractual obligation which needs to be performed within a period of time but that period has not been expressed it will generally be implied that it is required to be performed within a reasonable time. Timeous performance is clearly an important consideration both in relation to documentary credits and the UCP generally and to Article 16 in particular. Thus the refusal notice under Article 16 must be given within five banking days of the presentation and by expeditious means. The need for expedition in giving a refusal notice would be seriously undermined if there was no time constraint in respect of actions which are required to be taken following the giving of such a notice.

This is borne out by the ICC DOCDEX Decision No. 242 given in respect of a documentary credit subject to UCP 500. The ICC DOCDEX process is an expert-based dispute resolution mechanism which parties can agree as an alternative to court or arbitration proceedings. In that case the issuing bank’s refusal notice stated that the issuing bank was returning the documents to the presenter. The experts appointed decided:

“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 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 documents once notice is sent, the Experts agree that once notice is sent stating that documents are being returned, documents should be returned without delay and by expeditious means.

Accepting this minimal standard, the fact that documents were not returned until at the earliest 12 days after sending a notice of refusal stating that documents are being returned, and at the latest 26 days after sending a notice of refusal that documents are being returned, the Experts consider that the delay appears unreasonable and fails to comply with the spirit, if not the letter of UCP.”

The experts in that case regarded an obligation to return documents without delay and by expeditious means as a “minimal standard”. 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.

If this case had concerned UCP 500 I have little doubt that, in line with the ICC DOCDEX case, a Court would conclude that the obligation to return the documents in accordance with a return notice which it has given has to be performed timeously. I also accept that given that it is established banking practice to act promptly in such circumstances, and given the obvious importance of priority processing of documents following a return notice or instruction, a reasonable time in this context means with reasonable promptness. If so, then the same analysis must apply to the like obligation which I have held to exist in UCP 600. I am therefore satisfied that the obligation to act in accordance with the disposal statement made involves, in relation to a statement that documents are being returned or held pending or in accordance with instructions, an obligation to return the documents and comply with instructions to return them with reasonable promptness.

IOB submitted that this could operate unfairly since there may be local conditions which make prompt action difficult or impossible. However, a requirement to act with reasonable promptness may take into account the particular circumstances facing the issuing bank in question. Further, in so far as performance is prevented by circumstances beyond the issuing bank’s control the force majeure provision in UCP 600 Article 36 could be relied upon. It was also submitted that such an obligation would create uncertainty. However, in the vast majority of cases concerning the return of documents I would not expect it to do so. It is simply a matter of following normal and expected practice. One would generally expect most banks participating in international banking to be able to employ expeditious means, such as a courier, to return documents and to be able to despatch the documents within one or two banking days; the evidence of both experts bore that out. It is not as if, in contrast to the refusal notice itself, any decision has to be made. The issuing bank’s decision has already been made and stated. Thereafter it is simply a question of doing with the documents what they have said they are doing, or what they have been instructed to do.

As to the Claimants’ secondary case that the notice must be true when given, I can see force in the argument that the statement made involves a representation of present intention and, if in fact the issuing bank has no intention of acting in accordance with its disposal statement at the time that it was made, then it is a false statement and an invalid notice. However, that was not the way in which the Claimants put their case and in any event it is not borne out by the evidence. The evidence of Mr Ramakrishnan, which I accept, was that IOB acted as it did following the return notices because of the messages sent by Fortis insisting that IOB retained the documents rather than because of any pre-determination not to return the documents. Equally, his evidence in relation to the 13 January 2009 instruction, which I also accept, was that IOB acted as it did because of concern as to the legality of the instruction given to endorse the documents. It was not shown that at the time of giving the “hold” notices IOB had already determined not to follow any instructions as to the return of documents which might subsequently be given.

In relation to the “return” notices the Claimants’ case was that they are untrue notices if the issuing bank is not in the process of returning the documents at the time that the notice is given. I reject that case. That is not how the statement made would be reasonably understood. Whilst the statement made is that the issuing bank “is” returning the documents that would not be understood as meaning that it is already in the process of doing so, as the evidence of both experts made clear. Mr Collyer acknowledged that a return notice did not mean that you were already returning the documents and that it would encompass doing so the following banking day. Nobody would consider, for example, that if you initiate the return process one minute before giving a return notice then the statement made is true, but if you do so one minute after giving the notice then it is untrue. Further, as IOB submitted, it is very unclear what being “in the process” of returning the documents actually means.

In relation to the “hold” notices I can see no basis for implying a representation that the issuing bank has established the means for prompt compliance with any future instruction for the return of the documents. That is not what the notice says. In any event, it is very unclear what the alleged representation covers. Most banks have the means to comply promptly with such an instruction. It simply involves the gathering together of the documents and their despatch by expeditious means. If something more is required it is unclear what it would be or why it would be necessary to be contingently put in place. As to an implied representation as to intent, I have dealt with that above.

As to the Claimants’ case on election, assuming without accepting that election may arise in circumstances where the right to reject has already been exercised, I am wholly unpersuaded that the required clear and unequivocal representation was made. The Claimants rely on IOB’s unexplained delay in returning the documents after their 13January 2009 instruction as amounting to a representation and election not to refuse to honour and negotiate the documents, notwithstanding the notices of refusal already given. However, there may have been many explanations for IOB’s delay and accompanying silence. One explanation is what actually occurred, namely the need to take legal advice. Another would simply be inefficiency. Another would be continuing attempts to see if the applicant would accept the documents. In short, I find that it has not been established that IOB represented that it was no longer going to be refusing to honour and negotiate the documents, still less that a clear and unequivocal representation to that effect was made.

I turn then to consider the facts in the light of my above rulings on law.

In relation to the “return” notices IOB submitted that even if it was obliged to return the documents with reasonable promptness it was not in breach of duty since the notices were immediately answered with a request by Fortis that they retain the documents and not return them. If Fortis had, for example, stated that it acknowledged IOB’s rejection of the documents and statement of its intention to return them but requested that they be held to Fortis’ order rather than returned, then it may well be that there would be no breach of duty, or none that Fortis could complain of. However, that is not what occurred. Fortis’ response to the “return” notices was categorically to reject IOB’s refusal of the documents and the insistence that the documents be retained was clearly on the basis that IOB had no right to reject them. It was not a request to retain them notwithstanding their rejection, but rather a request so to do because there was no right to return them.

I agree with the Claimants that what Fortis said was that IOB should pay against the documents and should not return them; it was not an instruction by a party acknowledging its power to give instructions as to the disposal of its own documents, but a demand for payment and an assertion in effect that it had no interest in the documents. That did not undermine or alter the obligation to return documents made the subject of a “return” notice, a notice which only IOB could give and which was never changed or withdrawn.

Whatever the exact period of time embraced by the obligation to return the documents with reasonable promptness, it is clear that IOB’s delay in doing so for a number of weeks following its “return” notices involved a failure to do so in accordance with the provisions of Article 16 and hence the preclusion under Article 16(f) applies.

In relation to the “hold” notices IOB submitted that no valid instruction to return the documents was ever given because Fortis’ 13 January 2009 notice was to do so on the basis that the documents were endorsed, a requirement which it had no right to insist upon under UCP. In this connection I was referred to ICC Opinion R214 in which it was said that the practice of banks when returning documents where discrepancies are found is to return the documents presented in the same manner as they were received and there is no right to object if they are returned unendorsed. That Opinion was given under UCP 500 but both experts agreed it would equally apply to UCP 600.

Opinion R214 was concerned with a situation in which the issue of endorsement did not arise until after the documents had been returned. In such circumstances it makes it clear that the presenting bank cannot complain if the documents are returned unendorsed. However, it does not address the situation where the presenting bank requests endorsement prior to the return of the documents. Fortis had negotiated the documents under L/C3 and was thus the owner of the documents so that on the face of it the request for endorsement of the bills of lading was one which Fortis was entitled as a matter of law to give. Even if that were not so, the instruction did not prevent IOB from returning the documents unendorsed, as they ultimately did.

Instead of returning the documents IOB apparently sought legal advice as to whether Stemcor’s authority was required before the documents could be endorsed. Since the documents had been negotiated by Fortis no such authority should have been required. Even if it was reasonable for IOB to question this it should have informed Stemcor of what it was doing and why. Instead it remained silent and did not respond to Fortis’ requests for the urgent return of the documents until well into February 2009.

I do not consider that Fortis’ instruction to return the documents was an invalid instruction under Article 16 which could be ignored. It clearly involved a request to return the documents. As such IOB should either have returned the documents or at least queried the instruction and explained why it felt unable to do so. It did neither for some weeks.

In all the circumstances I am satisfied that IOB failed to comply with Fortis’ instructions to return the L/C 3 documents with reasonable promptness, that this involved a failure to act in accordance with the provisions of Article 16 and hence the preclusion under Article 16(f) applies.

I therefore find and hold that the Claimants have made out their case on preclusion.

As to the terms of the preliminary issue, I answer the questions posed as follows:

I accordingly hold that IOB is precluded from relying on the Consolidated Certificate Discrepancy and that the Claimants are entitled to judgment on their remaining claims.