Article

Note: Kolmar Group AG (Buyer) contracted with Traxpo Enterprises PVT Ltd. (Seller) for purchase of methanol FOB for resale. To pay, Buyer was required to open a commercial letter of credit in favor of Seller subject to UCP600. Buyer then opened an LC during, but not before, the shipping period.

Seller later prevailed on Buyer to amend the contract and the letter of credit for a higher price and lower quantity of goods or risk non-fulfillment of the contract. Buyer reluctantly agreed in order to satisfy contractual obligations to its own customers. Seller claimed that the original contract was not binding because Buyer failed to provide an acceptable LC within a reasonable time after the contract had been made. The contract was silent as to the time for opening an LC. Buyer sued Seller for restitution on economic duress grounds for the amended contract. The Queen's Bench Division, Commercial Court, Clarke, J., entered judgment in favor of Buyer for damages totaling US$2.23 million.

The Judge ruled that the LC was opened within a reasonable time, and that the restitution claim was proper because economic duress was established. The Judge stated that if an FOB contract was silent as to the time for opening an LC, the buyer had to provide the letter of credit within a reasonable time before the beginning of the shipping period. The Judge reasoned that "even if [Buyer] was in breach of its obligations in respect to the opening of a letter of credit because it failed to open a letter of credit in time, [Seller] waived that breach". Seller waived this breach by: (i) asking Buyer for an LC during the shipping period; (ii) by only later asking for amendments; and (iii) by signifying receipt of the LC and its content, and by failing to suggest that the contract was voided for want of a satisfactory LC.

The Judge listed three other approaches to defining reasonable time, namely, whether applicant has provided an LC: i) within a reasonable time after the contract date; ii) within such a time as would enable the vessel to load the contractual quantity within the shipment period; or iii) within a reasonable time before shipment. The Judge concluded that under all the three alternatives; Buyer had opened the LC within a reasonable time.

[JEB/meg]

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