Article

Prior History: BNP Paribas v. Pacific Carriers Ltd., 2002 NSWCA 379; 2002 NSW LEXIS 791 [Australia], abstracted at 2004 Annual Survey 249 and Pacific Carriers Ltd. v. BNP Paribas, 2001 NSW LEXIS 1241 [Australia], abstracted at 2003 Annual Survey 251.

Note: New England Agricultural Traders Pty., Ltd., an Australian grain trader, sold 10,000 metric tons of chick peas and 10,000 metric tons of dun peas to Buyer, Royal Trading Co. (Royal) in for delivery in Calcutta, India with payment by letter of credit. Financier, Swiss Singapore Overseas Enterprises Pte, Ltd., a company located in Singapore assisted Buyer by applying for the letter of credit which was issued by the Singapore branch of Bangkok Bank Public Co. Banque Nationale de Paris (Paribas) was nominated as Negotiating Bank.

While the goods were in transit, the market for legumes dropped significantly, and Buyer delayed in accepting the cargo and failed to pay for it. There were claimed discrepancies which Applicant refused to waive. Moreover, due to difficulties in the size of the vessel and draught, the carrier experienced difficulties in discharging the cargo by the carrier, Pacific Carriers, Ltd., which was ultimately discharged without production of the bills of lading.

To induce Carrier to release the cargo, it was provided with two letters of indemnity. The letters were issued by Beneficiary but they also contained the signature of an officer of the bank's letter of credit department and the bank's stamp since Carrier had indicated that it would not accept indemnities from Beneficiary unless signed by its bank.

Subsequently, the vessel was arrested and the claims of Applicant against Carrier were settled following an arbitration. Seller also became insolvent. Carrier brought this action against Negotiating Bank to enforce the letters of indemnity. The Supreme Court of New South Wales, Hunter, J., entered judgment for the carrier. It concluded that the signature of the bank on the letters constituted a representation that the Beneficiary/Seller had the financial capacity to honor its obligations under the indemnities. The trial judge, however, concluded that the Negotiating Bank was liable for its negligence in making this representation.

On appeal, the Court of Appeal, Sheller, JA., Handley and Giles, JA., concurring, concluded that the letter was a letter of indemnity but concluded that the officer lacked both actual and apparent authority to bind the bank and also rejected the negligence claims.

On appeal, the High Court of Australia, Gleeson CJ., Gummow, Hayne, Callinan and Heydon JJ., granted the appeal, reversed the decision of the intermediate and trial courts with respect to whether the letters were authorized, and remanded for further proceedings.

In deciding as to the significance of the letters of indemnity, the appellate court stated that:

"What is important is not [the officer's] subjective intention, or even what she might have conveyed, or attempted to convey, to [Beneficiary] about her understanding of what she was doing. The letters of indemnity were, and were intended by [Beneficiary] and [Bank] to be, furnished to [Carrier]. [Carrier] did not know what was going on in [the officer's] mind, or what she might have communicated to [Beneficiary] as to her understanding or intention. The case provides a good example of the reason why the meaning of commercial documents is determined objectively: it was only the documents that spoke to [Carrier]. The construction of the letters of indemnity is to be determined by what a reasonable person in the position of [Carrier] would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to [Carrier] and [Bank], and the purpose and object of the transaction [footnotes omitted]."

In considering the terms of the letters and their role in the transaction, the appellate court stated that:

"Relevant to the meaning of the document was not only what it said, but also what it did not say. There was nothing in the terms of the document to indicate that [Bank] was merely authenticating the execution by [Beneficiary], and there was nothing in the surrounding circumstances to suggest that [Carrier] would accept such authentication only. A reasonable reader in the position of [Carrier] would have understood the document as a bank endorsed absent bills of lading indemnity, and would have understood that the bank was undertaking liability as an indemnifying party to support the liability undertaken by [Beneficiary]."

The appellate court noted that the letters were signed by the manager of the letter of credit department and not the unit of the bank that issued guarantees and indemnities. In addition, evidence showed that the officer was not entitled to bind the bank by her signature without the co-signature of another.

Negotiating Bank argued on appeal that the officer could not hold herself out as having authority to sign for the bank. The appellate court described this argument as "an over-simplification". It noted that there is "[a] kind of representation that often arises in business dealings ... flows from equipping an officer of a company with a certain title, status and facilities. ... The reference to corporate administrative procedures under which an officer is armed with a document to which he or she can, by signature, impart an appearance of authenticity is a reminder of the wider principle of estoppel which may be relevant to a question of ostensible authority [footnote omitted]. The holding out might result from permitting a person to act in a certain manner without taking proper safeguards against misrepresentation."

"Issuing a letter of indemnity which bound the bank ('a bank endorsed absent bills of lading indemnity') was a transaction forming part of the ordinary course of business of a bank providing documentary credits in connection with international sale of goods transactions. The letters of indemnity now in question were sought from, and provided by, the employee of the bank whom the bank described as the Manager of its Documentary Credit Department. No question of the competence of the bank under its constituent documents or the competence under those constituent documents of particular organs or office holders of the bank intrudes. Rather, documents evidencing transactions ancillary to and in the ordinary course of the bank's business of providing documentary credits in connection with international sale of goods transactions were signed for and on behalf of the bank by the person whom it described as its Manager of the Documentary Credit Department."

"[Carrier's] reliance upon the letters of indemnity was based upon their form and contents, the signature of a person who appeared to be (and was) an officer of the bank, the stamp or 'chop', and the fact that [Carrier] was sent copies of the documents, directly or indirectly, by [Bank]. The stamp was probably more significant to [Carrier] than the signature, which was indecipherable. It was designed for use on letters of credit, and it allowed the person who was authorised to use it to give an appearance of authenticity to documents to which it was applied. The organisational structure of [Bank] in Sydney at the time was such that [the officer] was the bank officer to whom [Carrier's] request, would be, and was, communicated by [Beneficiary]. She was the person who dealt with the request, and who communicated [Bank's] response to [Carrier]. That response, involving her signature of the letters of indemnity and fixing the bank's stamp to them, would signify to a reasonable third party, and signified to [Carrier], agreement to what was requested. The stamp was not [Bank's] common seal, but placing it on a commercial document which named the bank as a party strongly enhanced the appearance that the document was signed on behalf of [Bank]. [The officer] was given the stamp without any instructions as to how she should use it."

"The assumption made by [Carrier], found by the trial judge to have been reasonable, upon which [Carrier] acted to its detriment, was induced and assisted by the conduct of [Bank] in placing [the officer] in a position which equipped her to deal with the letters of indemnity as requested by [Carrier]. It would be unjust to permit [Bank] to depart from the assumption."

[JEB/rdhf]

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