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Note: In January 1982, the Central Bank of Sudan (Issuer) requested the London Branch of Habib Bank LTD (Confirmer) to confirm two LCs originally totaling US$17,435,000 issued to finance oil purchases, undertaking to "indemnify" Confirmer. When the documents were presented in London, Issuer authorized Confirmer's London branch "to negotiate the documents as presented notwithstanding any discrepancies." Interest was compounded at LIBOR plus 2% for the first 180 days from the dates of the bills of lading and at LIBOR plus 3% thereafter. For eight years after payment was made by Confirmer, Issuer made reimbursement payments of approximately 10% of the amount due. After February 1991, however, no further payments were made.

In June 2003, Confirmer sued Issuer in London, having received permission for service to be effected outside of the jurisdiction. After several extensions and evidence having been presented that Sudanese authorities had not taken steps to serve the process, an alternative method of service was permitted by which service was affected on the Sudanese Ministry of Foreign Affairs in 2005. Issuer, however, "failed to acknowledge service or to have anything to do with the proceedings."

A trial was ordered on the merits despite the absence of participation by the Issuer and, accordingly, the Queen's Bench Division (Commercial Court), Field, J., entered judgment in favor of Confirmer for the sum of US$101,881,346.14.

As the contracts negotiated by Confirmer and Issuer lacked an express choice of law provision, the court had to determine what the appropriate governing law would be. Applying common law principles, the court noted that "[t]he governing law is...that of the country with which the contract has its closest and most real connection." Because "the contemplated performance by [Confirmer] was notification and confirmation of the letters of credit, inspection of the documents presented and negotiation of the documents" and all of those "steps involved action to be taken in England", the court determined that English law governed the transactions.

The court next determined whether or not Confirmer had complied with the terms of the LCs. The court noted that there was no doubt that Confirmer had paid out on the LCs, but indicated that at the time draws were made on each LC, there existed discrepancies with the documentation presented. The court noted that, however, Issuer was aware of the discrepancies and, as to the first LC, Issuer "authorised [sic] the negotiation of the documents in advance". In the case of the second LC, Issuer failed to make any objection. The court noted that "in any event, [Issuer] lost its right to object to payment against discrepant documents", by citing UCP290 (1974) Article 8 (the preclusion rule).

Also addressed by the court was the issue of limitations or prescription period. Although "the limitation period for [Confirmer's] claim [was] six years", the court noted that Issuer had effectively extended the limitation period by virtue of a serious of acknowledgments of its obligation to Confirmer that Issuer sent to Confirmer in the years after Confirmer honored the LCs.

[JEB/aee]

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