Article

Note: For several years, Grossman Rainer Horst and Beatson Cosmo Mark-Andrew (Sellers), codirectors of Classic Speed, sold imported cars to Sterling Motors Limited (Buyer). Buyer accrued a debt of EUREUR 1,800,000, and Sellers complained that they had serious difficulties in getting Buyer to repay the debt.

When Buyer ordered seven Mercedes-Benz Automobiles from Sellers worth EUR521,406 of which EUR487,406 was to be paid using three LCs that Buyer/Applicant had caused to be issued in Sellers/Beneficiaries' favor, Sellers/Beneficiaries sent seven Smart Cars worth considerably less in an attempt to force Buyer/Applicant to negotiate the outstanding debt. Sellers/Beneficiaries then presented forged documents indicating that the car models were Mercedes Benz and drew upon the LCs for their full amount.

Sellers/Beneficiaries were arrested and convicted on three charges of procuring credit entries in the records of a bank by deception and sentenced to 240 hours of community service. Since the conviction, Sellers/Beneficiaries also repaid Buyer the full amount of the order so that no loss was outstanding. The Secretary for Justice appealed "on the basis that the sentences imposed were wrong in principle and manifestly inadequate." The Court of Appeal, Stuart- Moore, VP, set aside the trial court's sentence and resentenced Sellers/Beneficiaries each to an eighteen months imprisonment, which was suspended provided that Sellers commit "no criminal offence punishable by imprisonment during the next two years."

The court stated:

The prosecution at trial had apparently accepted that the main blame lay with [Buyer/Applicant] and had, by this concession, provided massive mitigation to [Sellers/Beneficiaries] which is unlike anything we have encountered in any other letters of credit fraud. We were also astonished to find that, having embarked on this review, the case has been approached on precisely the same basis as other frauds involving letters of credit by drawing comparisons with other cases where no underlying goods existed at all. The whole basis on which this case proceeded was that the false representations made by [Sellers/Beneficiaries] were designed to get [Buyer/Applicant] to the negotiating table. It was accepted that the 7 Mercedes cars did exist and were ready to be sent. In effect, therefore, [Sellers/Beneficiaries] had, by dishonest means, taken the law into their own hands when trying to reduce the debt owed to them by [Buyer/Applicant]. However, rightly or wrongly, it had been conceded that this was a short-term device to reduce the level of the debt owed to [Sellers/Beneficiaries] by a person who was more to blame than they were for the situation which had arisen.

However, the appellate court stated that even though this was an exceptional case, community service orders were not sufficient because "the business world, where letters of credit are concerned, depends upon trust and, when fraud is disclosed, severe sentences are generally to be expected in order to act as a deterrent against this kind of conduct." As a result, the court noted that two years' imprisonment would have been imposed under normal circumstances, but given that Sellers/Beneficiaries had already completed their community service sentences and other extenuating circumstances, the sentences were reduced accordingly.

[JEB/dep]

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