Article

Note: To pay for the purchase of goods, Kleinsorge, a German company, obtained a letter of credit in the amount of DM41,06,080 issued by Deutsche Bank in Dusseldorf, Germany, payable to Seller/Beneficiary, Indian Mineral & Chemicals Co. The credit was advised to Beneficiary in Calcutta through UCO Bank, which was not authorized to add its confirmation.

Beneficiary alleged that it presented documents to the Advising Bank in October 1992 and that the documents were forwarded to Issuer in Germany but that it never received payment or any other communication from Issuer. In 1995, Beneficiary filed an action in the Calcutta High Court against Buyer for payment and against Issuer for wrongful dishonor. In order to do so, it obtained leave to bring the action under the Letters Patent of 1865 which set forth the jurisdiction of the court. The Letters Patent empowered the court to hear cases where the cause of action has arisen in whole or in part in the geographical limits of the court's territorial jurisdiction.

Jurisdiction was claimed on three grounds: 1) the Advising Bank was within the jurisdiction of the court; 2) the documents were presented to the Advising Bank at that branch; and 3) Payment was to be received at that branch of the Advising Bank.

After Issuer responded to Beneficiary's complaint, it sought to have the leave to bring the action revoked on the ground that no part of the cause of action arose within the territorial jurisdiction of the court. The judge of the Calcutta High Court dismissed the application. Issuer appealed to the Division Bench of the Calcutta High Court, which reversed. On appeal, the Supreme Court of India, Ruma Pal, J., indicating that the trial court had ruled correctly, reversed the decision of the Division Bench and remanded.

The intermediate appellate court had reversed on the ground that "the averments in the [complaint] were not borne out by the letter of credit which was annexed." It also noted that "the letter of credit was to be honoured by payment 'at sight' and that if the terms and conditions of credit were fully complied with, the respondent would credit the account of UCO Bank, Dusseldorf and not in Calcutta as claimed in 300 the [complaint] and as such no part of cause of action had within the jurisdiction of the High Court." Issuer claimed that:

[T]here was no authorisation in favour of UCO Bank of [accepting] presentation of the documents. It is said that the UCO Bank was only an advising bank and it was neither the confirming nor the negotiating bank and that therefore there was no valid presentation of documents at Calcutta. [Isser] further submitted that the letter of credit provided for payment "at sight" and that was not conditional upon receipt of the documents by [Advising] Bank in Calcutta but by its branch in Germany. Finally it is said that the letter of credit was issued in Germany, that the entire transaction took place in Germany, that the documents and witness were present in Germany and that, the balance of convenience was in favour of the suit being tried at Germany.

The Indian Supreme Court noted that the trial court had determined that it would not be inconvenient for Issuer to defend the action in India where it had a branch, whereas it would be expensive and inconvenient for Beneficiary to bring an action in Germany.

The Supreme Court noted that it had been cited to various authorities with respect to the role of the advising bank. The court indicated, given that its review was limited to the allegations in complaint on its face, it could not reach a decision on this issue. It stated, however, that "[u]ltimately it will depend upon whether [Advising] Bank was acting for the Respondent or the appellants. All these matters will have to be decided on evidence and cannot be decided on an application for revocation of ... the Letters Patent."

Comments:

1. With a global presence, many international banks will increasingly face the possibility of being sued in distant fora in which they would not expect to be sued. The question is whether or not they will begin to insert forum and choice of law clauses in their commercial credits as many have done for years in standbys and guarantees.

2. The question is whether the presentation of documents to a bank nominated to advise but not given any other role in the credit transaction under the credit is sufficient to give rise to jurisdiction over the issuer.

3. The court's indication that the result would turn on a determination of for whom the advising bank was acting is troublesome, although it may yield a sound result in this case. The problem with this analysis is that it draws one into determinations of agency. In most cases, agency may provide a basis for rationalizing a conclusion but it does not justify the conclusion. An advising bank is not an agent for the issuer in the sense that it has any power to bind the issuer independently of the terms that the issuer forwards to it. It is no more an agent than is a courier or postal service.

[JEB/ss]

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.