In 1995, Claimant, a UK company, and Defendant, an Indian company, entered into agreements between themselves and with other entities for the purpose of purchasing and supplying a given quantity of fertilizer. A dispute arose as a result of inconsistencies between the terms of the parties' contract and the terms of the letter of credit which Claimant was required to open in favour of Defendant. These terms referred to different Incoterms rules, one providing for insurance and the other not. In an interim decision on applicable law, subsequently incorporated into the final award by reference, the sole arbitrator ruled that the merits of the dispute would be decided in accordance with the contractual provisions, relevant trade usages and Indian law.

'On 27 August 1995, [Claimant] . . . and [the end-buyer] entered into a contract whereby [Claimant] would supply [end-buyer] with 50,000 MT of [fertilizer] at a price of US . . ../MT CIF liner terms Calcutta, including stevedoring and insurance up to Nepal destination ("[end-buyer] Contract"). A copy of the [end-buyer] contract was communicated to [Defendant] by [trading company, A] the next day.

On 4 September 1995, the parties met at [Claimant]'s offices in London and signed the Contract. The Contract provided, inter alia, that [Defendant] would sell [Claimant] 50,000 MT of [fertilizer] at a price of US$ . . ./MT C&F liner terms Calcutta. The Contract had been drawn up entirely by [Defendant] and is, in large part, a "cut and paste" assemblage of the terms of at least two other unrelated contracts. A number of terms of the Contract arc not consistent with obligations under the [end-buyer] Contract, and the Contract itself contains a number of internal inconsistencies or contradictions: these will be discussed in Section IV infra. Although the Contract provided for [Claimant] to open a letter of credit ("L/C") within four days of signature, [Claimant] proved unable to do this. The evident problem was that [the end-buyer] had not yet opened their L/C in favour of [Claimant], and [Claimant] did not have the financial resources independently to open its own L/C in favour of [Defendant]. [Claimant] was, during this period, pushing [the end-buyer] and [Bank 1] to get the L/C opened in its favour. [Defendant] was aware of this problem and was also directly in contact with [Bank 1]. It was also during this period that [Defendant] lost its supply commitment from [trading company, B] and was therefore searching for various alternative suppliers for the [fertilizer] it had committed to sell to [Claimant].

On 14 September 1995, [Bank 2] issued the US$ 93,500 Performance Bond which [Defendant] was at that time required to supply to [Claimant] pursuant to the Contract. On 19 September 1995, [Claimant] instructed its bank to convert the bid bond issued in favour of [the end-buyer] into a "non-operative" Performance Bond, subject to the issuance of [the end-buyer]'s L/C. Both of these Performance Bonds were subsequently reduced due to a change in the delivery schedule of [fertilizer] from two shipments to four smaller shipments.

[The end-buyer]'s L/C in favour of [Claimant] was finally issued on Friday 13 October 1995; [Claimant] promptly informed [Defendant] that the L/C had arrived, and on 16 October 1995, communicated a copy to [Defendant]. This was critical because [Claimant] anticipated transferring the L/C issued in its favour to [Defendant], albeit at the lower price provided in the Contract. [Defendant], on 16 October 1995, faxed [Claimant] a request for amendments in the L/C, notably an effective increase in its sale price to USS . . ./MT and a change in the shipping dates. [Defendant]'s fax concluded with the words: "terms and conditions of original L/C, please interpret it in line with the terms of contract signed with us and not in terms of what you have signed with [the end-buyer]". The L/C was modified to request the price increase, but there was no change in shipping dates. On 17 October 1995, [Defendant] sent [Claimant] a fax setting forth the text of the transferred L/C on the terms on which [Defendant] wished it issued: these terms contained a number of differences from the master L/C issued on behalf of the [end-buyer] and the L/C as ultimately transferred to [Defendant]. On 18 October 1995, [Defendant] requested yet further changes to the L/C to be transferred, which, again, were not all acted upon. On 20 October 1995, the L/C was transferred from [Bank 1] to [Defendant] through their bankers, [Bank 2]. On 26 October 1995, [Defendant], sent [Claimant] a fax referencing the [fertilizer] L/C and indicating that their financial advisor was in [Indian city] meeting [Defendant]'s bankers on the subject and that the outcome of their meeting should be known in a few hours. Although the transferred L/C did not conform to all changes requested by [Defendant], or to certain terms of the Contract, [Defendant] did not cause it to be returned or rejected. The negotiations concerning the L/C and its discrepancies were the subject of extensive pleadings and conflicting testimony. These negotiations and their legal import are discussed in detail in Section IV (B) infra.

[Defendant] was during this time continuing to search for [fertilizer] suppliers and on 7 November 1995, faxed a potential supplier requesting that he urgently send proof of stock. Meanwhile, [the end-buyer], whose L/C in favour of [Claimant] had been opened for more than three weeks, was in urgent need of [fertilizer] supplies and was increasingly questioning [Claimant]'s capacity to perform. On 9 November 1995, [Claimant] sent [Defendant] a strongly worded letter to this effect which pointed out that the consequences of failure to supply would be "extremely grave". The letter went on [to] state that the situation would become yet graver if [Claimant] were to activate their Performance Bond in favour of [the end-buyer], and this without a corresponding, albeit smaller, guarantee in [Claimant]'s favour, and to say that if [Defendant] did not make their Performance Bond operative the next day, [Claimant] could only conclude that it had no other option but to seek supplies elsewhere, and would therefore request the return of the L/C that had been transferred to [Defendant]. [Defendant] replied the following day expressing surprise that [Claimant] had sent such a letter but confirming that it was giving instructions to make its Performance Bond active. [Defendant]'s reply went on to discuss its negotiations with a potential supplier. It concluded with the phrase: "in a nutshell, we should take the business seriously together", and a request for an amendment from [the end-buyer] to provide the shipment beyond C&FFO terms instead of C&F liner terms. These important letters are quoted and discussed in detail in Section IV (B) infra,

Thereafter, both parties continued to seek potential suppliers of [fertilizer] in order to supply the ultimate end-user in Nepal. [Claimant], in particular, contacted numerous real or purported suppliers in many countries but was never able to close a supply arrangement. In February 1996, [Claimant] was in extensive negotiations with a [trading company, C], and even went so far as to fax [C] a signed contract directly between [Claimant] and [C] to purchase [fertilizer] at US$ . . ./MT, but [C], along with many other potential suppliers, ultimately proved unable to supply on the conditions requested. It appears, in particular from expert testimony and exhibit . . . submitted by [Claimant], that a central problem was that [fertilizer] prices had increased sharply since the summer of 1995, and that it was impossible to find a supplier who could produce stocks at a price less than the US$ . . ./MT that had been promised to [the end-buyer]. In February 1996, [the end-buyer] requested [Claimant] to extend the validity of its Performance Bond, which [Claimant] did while requesting [Defendant] to also make a corresponding extension. [Defendant] initially sought a conditional extension of their Bond, subject to receipt of an amended Letter of Credit, but upon [Claimant]'s protest, the Bond was extended through the end of April. On 27 March 1996, [Claimant] made a demand for payment on the Performance Bond issued on [Defendant]'s behalf, and two days later [the end-buyer] began procedures to draw down on the Performance Bond issued to it on [Claimant]'s behalf. Both these drawdowns were ultimately successful, thereby crystallising this dispute. Although [Defendant] and [Claimant] continued to correspond concerning other possible transactions, by July of 1996 letters were being exchanged between their respective lawyers with, evidently, no agreement as to the consequences of the failure of the [fertilizer] transaction.

. . . . . . . . .

IV. Findings

(A) Issues in the case

Clause 4.3 of the Contract provided that [Claimant] would issue a "confirmed, transferable, irrevocable, divisible, assignable, and unrestricted commercial letter of credit" within four (4) working days from the date of the receipt of a hard copy of this signed Contract. [Claimant] has admitted that it did not timely issue the L/C in [Defendant]'s favour, and that the L/C it caused to be opened did not in all respects comply with the Contract . . . As indicated above, the reason for the delay in opening the L/C was [the end-buyer]'s delay in issuing their Letter of Credit in favour of [Claimant]. The discrepancies between the L/C and the Contract were due to both the constraints of [the end-buyer] and their bankers in modifying their L/C and the differences in terms between the [end-buyer] Contract and the Contract. The discrepancies between the Contract and the L/C ultimately caused to be issued by [Claimant] are discussed in detail below.

It is Claimant's essential case that the parties amended or varied the Contract to deal with the various discrepancies that did not conform to Contract or, alternatively, that Defendant waived such strict performance and is estopped from raising it now. At the hearing, Claimant acknowledged Defendant's arguments that the burden of proof in showing such amendments, waiver or estoppel is on the Claimant.

Defendant, for its part, acknowledged in its closing statement and elsewhere that it had waived the timely issuance of the L/C (i.e., within four days of Contract signature), but maintained that the L/C was never accepted and that the Contract never amended or waived on the discrepancies in dispute. As a consequence, Defendant asserted that its key obligations, notably the obligation to ship the [fertilizer], never came into force and it is Claimant that is therefore in breach of the Contract and, notably, had no right to draw down on the Performance Bond posted in its favour.

Both parties submitted extensive evidence, arguments and law on these issues, and both parties argued that common sense supports their position. The threshold issue in this case is the resolution of these widely divergent positions as to the Contract.

Only if it is determined that terms of the Contract were varied or waived, such that Defendant remained bound thereunder, is it necessary to address Defendant's other defences and the damages that might flow to Claimant.

(B) The Contract and the L/C

As indicated above, the Contract provided that [Claimant] should post a conforming L/C within four business days of receipt of the signed Contract. Moreover, [Defendant]'s obligation to ship the goods, and the schedule for shipment was, by operation of clause 3.0 of the Contract, triggered by the opening of an "operative L/C complete in all respects". Specifically, the "effective L/C date" was defined as being seven days after the opening of the conforming L/C, and the first shipment was to be made within forty (40) days thereafter, with the balance seventy-five days thereafter.

It is undisputed that the L/C was not timely opened. It therefore appears clear that [Defendant] could have, four business days after Contract signature, notified [Claimant] of its breach of this provision and exercised any legal remedies then available to it for the same; but [Defendant] did not do so. Indeed, [Defendant] conceded this point at the hearing stating "Defendant does not challenge the lateness of the L/C, but it is our case that it did not conform."

It is also undisputed that the L/C did not conform to the terms of the Contract. The degree of such non-conformity, its effect, and especially, whether such non-conformity was later agreed or waived was the subject of a huge amount of evidence, conflicting testimony and argument.

. . . . . . . . .

[Defendant] has identified six discrepancies between the L/C and the Contract . . . These are listed and discussed below:

. . . . . . . . .

(iii) "The price mentioned in the Letter of Credit read 'including stevedoring at Calcutta/Haldia and insurance up to [the end-buyer]'s warehouse in Nepal'."

The [end-buyer] Contract obligated [Claimant] to deliver the [fertilizer] "CIF liner terms basis, including stevedoring and demurrage at Calcutta port, with insurance up to [the end-buyer]'s warehouse in Nepal". The L/C issued to [Claimant], and hence the L/C transferred to [Defendant], reflected this requirement. This is at least facially discrepant to the Contract which provided for [Defendant]'s delivery to be merely "C&F liner terms Calcutta". Moreover, Clause 2.2 of the Contract expressly stipulates that "all changes related to cargo at unloading port will be at the 'BUYERS' expenses [sic]".

The materiality, at least in dollar terms, of this discrepancy was the subject of minor debate at the hearing. Both parties agreed that transportation (albeit not the insurance therefore) from Calcutta to Nepal would be for [the end-buyer]'s account. But [Defendant] also asserted that there would be significant expense in local transport to [the end-buyer]'s "go down" warehouse in Calcutta. These alleged local transport costs are not reflected in the L/C and therefore go to the issue of a possible reduction in [Claimant]'s damage claim; this is discussed in Section V(A), infra. [Defendant's witness] did not testify on this discrepancy in any detail, but generally made clear that [Defendant] was seeking to "derisk" the transaction from its point of view and was therefore not interested in assuming the potential complications or expense that could result from stevedoring, local transportation, insurance claims or the like. [Claimant's witness] testified that C&F liner terms puts stevedoring at the vessel's expense, and that this alleged discrepancy was therefore a non-issue. Although the expression "liner terms" is vague and now disfavoured, [Claimant]'s interpretation appears correct. See Guide to Incoterms 1990 (ICC publication 461/90) at p. 79; accord, Incoterms in Practice (ICC publication 505(E), 1996) at p. 135 ("[t]he term "liner terms" has a similar meaning to "gross terms" and means that the shipowner bears all costs related to the cargo handling and carriage").

(iv) "The Letter of Credit required the Defendants to produce the original insurance certificate."

[Claimant] was, under the [the end-buyer] Contract, clearly responsible for insuring the goods it sold up to [the end-buyer]'s warehouse in Nepal. The L/C issued to [Claimant], and hence the L/C transferred to [Defendant], reflected this by requiring that an original insurance policy be one of the documents presented in order to negotiate payment. The Contract is contradictory inasmuch as Clause 4.3 entitled "payment" does not require that an insurance policy be presented, while Clause 6.6 of the Article of the Contract entitled "Documents" does require presentation of an insurance policy for payment. On the other hand, the "C&F Liner Terms" on which [Defendant] was to effect delivery, do not require a seller to insure the goods. These contradictory and overlapping clauses are obviously the result of the fact that [Defendant] cobbled the Contract together from the provisions of several disparate agreements. Claimant, at the hearing, pointed out these inconsistencies, but acknowledged that the ultimate responsibility for the costs of the insurance was on [Claimant]. Nevertheless, the fact that the requirement of an original certificate of insurance figures, however inconsistently, in the Contract put together by [Defendant], renders it highly questionable whether the same requirement figuring in the L/C can constitute a discrepancy which places [Claimant] in breach (see also discussion of "CIF" term in section B(1 )(v) infra.)

On cross-examination, [Defendant's witness] ultimately agreed that the clauses 4.3 and 6.6 of the Contract were, on their face "incongruous" as to insurance, but went on to add that he had an "understanding" with . . . (a [Claimant] officer) on the subject, but did not elaborate. [Defendant's witness] and [Claimant's witness] both testified that [Claimant] agreed to locate suitable insurance cover and advance costs for the same. [Defendant's witness], however, stated that he categorically rejected this offer, as [Defendant] did not want the risk of being involved in insurance claims or other complications. [Defendant's witness]'s testimony was the least precise on the subject and would contradict the fact that [Defendant], by that time, well knew that [Claimant] would not be able to alter the transferred L/C to remove the insurance requirement. There was undisputed testimony that the total cost of insurance cover for the shipments would be in the region of US $75-78,000 or some $19,500 for each of the four shipments, depending on the insurer and the place of shipment. There remains the fact that, although both [Defendant's witness] and [Claimant's witness] testified that they discussed insurance costs, there were no written exchanges on the subject after the 20 October 1995 transfer of the L/C. This may, in large part, be explained by the fact that there was no certain source of supply, much less nomination of a vessel, rendering detailed specification of insurance coverage premature and unnecessary.

(v) "The Letter of Credit provided for CIF terms whereas the Contract between the Claimant and the Defendant was on C&F liner terms."

The Contract provided for [Defendant] to deliver and sell on "C&F Liner Terms Calcutta", but the L/C, in conformity with the [the end-buyer] Contract, provided for "CIF Liner Terms Calcutta". The only difference between C&F and CIF terms is that under the latter term, the seller has the added obligation to procure insurance. See Guide to Incoterms 1990 (ICC Publication No. 461/90) at pp. 86-87. It should, however, be noted that clause 5.4 of the Contract, dealing with contractual penalties (see discussion at Section III (c), infra) calculates that penalty on the "CIF value of the delayed quantity". That use of the CIF term introduces yet another contradiction in the Contract as concerns insurance. For the rest, this discrepancy alleged by Defendant is, essentially, the same as the insurance discrepancy alleged by Defendant, and is subsumed in the discussion above.

(vi) "The Contract required automatic reinstatement of the Letter of Credit after the first shipment, whereas the Letter of Credit allowed reinstatement only with the approval of [Bank 3]."

Both the [end-buyer] Contract and the Contract provided for a revolving L/C which would be "reinstated" or "revalidated" automatically after each shipment. As noted above, there were originally intended to be only two shipments, but [the end-buyer] later insisted on four shipments; consequently the L/C would have "revolved" four times. Although this change to four equal shipments was accepted by [Defendant], [Defendant] still complains that the L/C did not provide for automatic reinstatement as required by Contract, rather it required [Bank 3]'s notice prior to reinstatement.

It does indeed appear that the initial L/C as issued by [Bank 3] to [Bank 1] contained the language "each revolving to revolve with our prior notice", but that this provision in the L/C was rapidly amended . . . The same original text and proposed amendment was communicated to [Defendant] on 16 October 1995 . . .

The operative L/C as ultimately transferred to [Defendant] did not contain the language requiring the "prior notice" of [Bank 3] for reinstatement and did contain the key language "L/C will be deemed automatically reinstated for full value once all stipulated documents . . . have been negotiated." The L/C then, however, somewhat incongruously adds "and reinstatement by [Bank 3]". This language was cited, without elaboration, by Defendant as being a remaining discrepancy. Although the requirement of prior notice by [Bank 3] was removed by amendment, Defendant is presumably arguing that the remaining unexplained language raises the spectre that [Bank 3] could have blocked the L/C from revolving by somehow refusing reinstatement, although this is not clear in practice. See UCP 500 at p. 46. It may well be that the additional language was inserted by [Bank 1] to ensure that their obligation did not exceed that of [Bank 3]. [The end-buyer] would, of course, have had little motivation to make use of the incongruous language to block the L/C from revolving if they wanted [the fertilizer], since, if the L/C did not revolve, it is clear that neither [Defendant] nor [Claimant] would ship or deliver (and [the end-buyer] would likely have been in breach of contract). It is pertinent to note that [Claimant] on at least two occasions in November 1995 wrote to [the end-buyer] informing them that the amendment removing prior notice was acceptable. Defendant did not raise this issue after 18 October 1995 and has not briefed it extensively. Under these circumstances Defendant has not demonstrated that the alleged discrepancy was material. To the extent that there was a material discrepancy it was agreed and acquiesced to by [Defendant].

1. Was the Contract Amended?

Claimant's essential position is that the parties, by oral agreement, also evidenced by correspondence in the late October and early November period, effectively amended the Contract to conform to the L/C and thereby eliminated all the above discrepancies. Alternatively, Claimant's position can be stated as being that the acceptance of the L/C by Defendant varied or amended the underlying Contract correspondingly. See Ficom S.A. v. Sociedad Cadex Limitada [1980] 2 Lloyds Rep. 118. Both parties stipulated that under Indian Law (as with English Law) a written contract may subsequently be varied or amended orally, unless the contract contains an express clause forbidding it. No such clause is present in the Contract.

Defendant cleaves to the position that as the L/C discrepancies were never agreed to by [Defendant], there can be no subsequent amendment of the Contract to conform it to the L/C. On the contrary, Defendant takes the position that [Defendant] was entitled to, and did, insist on a strictly conforming L/C. Defendant cites a number of precedents highlighting the need for strict compliance in the terms of a contractually promised letter of credit, and holding that the opening of such credit is a condition precedent to seller's obligations. See, e.g., Garcia v. Page & Co. (1936) L.I.L.R. 391. Defendant avers that as this condition precedent was not satisfied, its obligation to ship the goods never arose.

Defendant is correct that if there was not subsequent agreement to modify certain terms of the Contract (or a waiver thereof, as discussed below), then it is entitled to insist on a substantially conforming letter of credit. This is all the more the case where, as here, some of the discrepancies were clearly material and in fact prejudicial to Defendant. But this begs the question of whether Defendant did so insist, or whether a new arrangement was agreed.

It is pertinent, in this connection, to note that the Contract clearly was amended to provide for a $1/MT price increase in [Defendant]'s favour. It also appears indisputable that the Contract was amended to provide for four shipments of 12,500/MT, rather than an initial shipment of 12,500/MT and a subsequent shipment of 37,500/MT, as originally envisaged. Although this change originated with [the end-buyer] and was initially resisted by Defendant, the smaller shipments resulted in both [Defendant] and [Claimant] being able to reduce their respective Performance Bonds by fifty percent. [Defendant] having carried out this reduction cannot now credibly claim that they did not agree to the four shipment mechanism. The existence of this agreement is further supported by a 17 October 1995 letter from [Claimant] to [the end-buyer] wherein [Claimant's director] writes: "our suppliers had agreed to a smaller revolving L/C although it was extremely awkward for them".

It is furthermore clear that [Defendant] itself requested changes in the L/C that were not consistent with the Contract, notably further extensions in shipping dates and suggestions that the shipment be on CFF&O basis, which would have added significantly to the buyer's cost and would have required a renegotiation with [the end-buyer]. Indeed, at various times, [Claimant] also was suggesting other terms to [the end-buyer], notably including a higher price. [An agent called as a witness for Claimant] testified that had the parties truly had [the fertilizer] available, [the end-buyer], in light of the grave shortage they were experiencing, would likely have accepted a price increase. As discussed above, there was strong evidence that [the end-buyer] would have also agreed to extend delivery dates, had they been convinced that there was [fertilizer] ready for delivery. Thus, the transaction was always somewhat in flux even as the parties were going forward; and the precise terms of the transaction would probably only have been fixed at the time that a sure, shipment-ready, supply of [the fertilizer] was located, which never happened.

In light of this, it is difficult to conclude that the parties amended the Contract on all unresolved or discrepant points. One can conclude that [Defendant] initially agreed to the slightly tighter shipping schedule contained in the L/C, but the existence of that agreement is somewhat academic in the absence of any material to ship. Thereafter it is logical to assume that the parties' agreement was that an extension would be required if the goods could be located. The weight of the evidence clearly indicates that [Defendant], however grudgingly, agreed that the L/C be non-transferable and restricted, and acted on that basis (and therefore certainly waived those L/C requirements). The inclusion of the words "including stevedoring" in the L/C does not appear to be material; to the extent it had any significance, it also would likely have been worked out in a context of an actual shipment. This is also true for the confusing, but more material, issue of insurance and the CIF term in the L/C. The parties clearly discussed mechanisms by which [Claimant] would pay for insurance, and the weight of the evidence is that agreement was reached on that principle. The detailed mechanism for the insurance and payment of insurance was never fixed, presumably because it would be idle to do so in the absence of specific knowledge as to how and from where the cargo would he shipped. The L/C was modified to remove the prior notifications requirement to its automatic reinstatement, and Defendant has not demonstrated that any remaining discrepancy in that L/C clause was material.

The difficulty of finding the Contract amended on all discrepant or divergent points is, of course, compounded by the fact that there is no post-20 October 1995 correspondence specifically fixing the terms of what Claimant alleged to be amendments to the Contract. Defendant's acquiescence in the L/C does not here fully accomplish this. The 26 October fax from the Defendant and the 9-10 November exchange of letters (discussed below) are helpful to Claimant's allegations, but do not go far enough. For there to have been legally cognisable amendments, there must be agreement not only as to the principle of the amendments, but also reasonable certainty as to their terms. As [Claimant's director] himself testified in connection with insurance, it was "premature" to fix the exact modalities by which [Claimant] would pay or reimburse insurance costs. The same might be said of some of the other apparent amendments.

The problem, always, was that the parties did not have a secure source of supply for [the fertilizer]. In the absence of such a supply, it appears that many details remained in suspense: the exact shipping schedule and insurance costs, as well as more minor matters. The parties continued, however, to seek to perform the transaction, which already differed significantly from the exact terms of the Contract. Had [fertilizer] promptly been located at a commercially feasible price, one can imagine that the parties, fully committed to the transaction, would have rapidly resolved any remaining open points, but, once again, this did not happen.

Claimant has produced significant evidence that the Contract was amended and varied, and it is quite clear that the parties continued to try to perform it. But Claimant has the burden of proving amendment on all discrepant points, and Claimant has not done this.

It must, accordingly, be examined whether there is waiver by, and/or estoppel of, Defendant.'