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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2010 LC CASE SUMMARIES 2009 Dubai Ct. Cassation (8 December 2009) [U.A.E.]
* Case name, case citation, and proper names of parties are unavailable. of Al Tamimi & Company, counsel for Seller/Beneficiary]
[Source: Case summary based on article by Ammar Haikal and Suzanne Abdallah
Topics: Waiver; Injunction; Limitations; Underlying Contractual Obligation When Payment by LC; UCP and Local Law; Preclusion
Type of Lawsuit: Beneficiary sued Issuer and Applicant for injunction.
Parties: Plaintiff/Appellee/Appellant/Beneficiary - Company (Counsel: Ammar Haikal and Suzanne Abdallah of Al Tamimi & Company)
Defendant/Appellant/Appellee/Issuer - Bank
Defendant/Appellant/ Appellee /Applicant - Local Trading Company
Underlying Transaction: Sale of three Analyser Shelter Units.
LC: Commercial LC for Euro 639,571.31 (or its equivalent in AED). Subject to UCP500.
Decision: The Dubai Court of Cassation, applying the U.A.E. Commercial Code, reversed the decision of the Dubai Court of Appeal, affirming the Court of First Instance's decision in favor of Seller/Beneficiary.
Rationale: Where issuer endorsed a bill of lading consigned to its order and delivered it to applicant, issuer is unable to assert that documents are discrepant.
Where an LC is subject to rules of practice, these rules displace non-mandatory provisions of local law.
Article
Factual Summary: To pay for analyzer equipment, Buyer/Applicant, a U.A.E. company, obtained a commercial LC in the amount of Euro 639,571.31 in favor of Seller/Beneficiary. When Seller/Beneficiary presented documents it appears that they did not comply although the report of the case does not explain in what respect the documents were non-compliant. The Buyer/Applicant, however, took up the documents including a bill of lading that was consigned to order of Bank/Issuer, obtained the endorsement of Bank/Issuer, and presented it to the carrier, receiving the goods. It appears that Bank/ Issuer did not send a timely or adequate notice of refusal. Buyer/Applicant however, refused to pay, claiming quality defects for the goods, and Bank/Issuer also failed to pay Seller/Beneficiary. Seller/ Beneficiary then sued Bank/Issuer and Buyer/ Applicant.
The trial court entered judgment for Seller/ Beneficiary and against Bank/Issuer and Buyer/ Applicant jointly. On appeal, the Intermediate court reversed as to Bank/Issuer. On appeal, the ultimate appellate court reversed the decision of the intermediate appellate court and reinstated the decision of the trial court.
Legal Analysis:
1. Limitations Period: Buyer/Applicant argued that Seller/Beneficiary's action was subject to a two-year limitations period and time barred. The ultimate appellate court ruled that under the Commercial Transaction Code issued by Federal law no. 18 of 1993 (U.A.E. Commercial Code), LCs are subject to a ten-year limitations period of Article 95 starting from the date when fulfillment began.
2. Underlying Contractual Obligation When Payment by LC: The ultimate appellate court interpreted the U.A.E. Commercial Code to permit Seller/Beneficiary to sue Buyer/Applicant for nonpayment of products delivered to buyer notwithstanding an agreement to pay the LC in cases where the LC was not honored.
3. UCP and Local Law: The ultimate appellate court ruled that the provisions of Chapter 3, Section 7 of the Commercial Transaction Law (Law No. 18 of 1992) regarding LCs are not mandatory which means that the parties can agree to apply UCP500 rules instead (to which the LC in this case was subject) and this pursuant to article 2 (1) of the U.A.E. Commercial Transaction Law (CTL). Article 2(1) of the CTL stipulates that:
"Merchants and acts of commerce are governed by the agreement entered into by the two contracting parties unless such agreement contradicts an imperative commercial law provision".
4. Preclusion: The ultimate appellate court ruled that where the Issuer turns non-complying documents over to the applicant, endorsing the bill of lading, it is unable to raise discrepancies and obligated under the LC to pay the beneficiary. The court relied on UCP500 Articles 4 (a), 5(a & b), 9(a & b), 13(a & b), 14(b, c, d & e), 15, 20(a, b & c), 21, 42, 43, and 44.
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