Note: In March 2010, Cirrus Oil Services Ltd. (Buyer/Applicant) agreed to purchase 18,000 metric tons (mt) of gas oil from United Infrastructure Development Corp. (Seller/Beneficiary). The gas oil's intended use in the mining industry required the product to be of a certain quality. The sale agreements stipulated that payment was to be made by a commercial LC. Buyer/Applicant applied to United Bank of Africa (Issuer) for a commercial LC to be issued in favor of Seller/Beneficiary. Issuer issued an apparently transferable LC on 6 April 2010, subject to UCP600 with an expiry date of 12 June 2010. Standard Chartered Bank (Confirmer) agreed to confirm the LC on 12 April 2010.

On 23 April 2010, Seller/Beneficiary agreed to source the gas oil from Gunvor International BV (Transferee Beneficiary) who "became the second beneficiary pursuant to a transfer of the prime letter of credit". On 12 May 2010, 9,466 mt of gas oil were shipped to Ghana pursuant to the sales contracts. On 13 May 2010, another 9,208 mt were shipped onboard the vessel Erin Schulte, owned by Dorchester LNG (2) Ltd (Shipowner), also pursuant to the sales contracts. The bills of lading listed Transferee Beneficiary as the shipper and the "consignee 'to the order of Societe Generale, Paris.'" Societe Generale (Transferee Agent) also "acted as the agent of [Transferee Beneficiary] for the purpose of drawing under the transfer letter of credit".

When the first ship arrived off port in Ghana on 13 May 2010, it was determined that the gas oil was not of the required quality. Buyer/Applicant and Seller/Beneficiary then rejected the contents of both vessels under their respective contracts. Buyer/ Applicant offered to purchase the first shipment of gas oil at a reduced rate for general, rather than mining, use. Buyer/Applicant, however, did not wish to make the same arrangement for the cargo aboard the Erin Schulte. On 20 May 2010, Issuer proposed an amendment to the LC (Amendment) to Confirmer which "reduced the value and quantity of the cargo covered by the letter of credit to that shipped on board [the first ship]." On 25 May 2010, Confirmer sent the Amendment to Seller/Beneficiary seeking consent. The following day, Transferee Beneficiary presented documents under the LC to Confirmer with respect of the sale of the first shipment of gas oil.

Five days later, Seller/Beneficiary notified Confirmer of its consent to the Amendment. Confirmer then sent the Amendment to Transferee Beneficiary seeking its consent. The opinion stated that "on the same date [Confirmer] advised [Issuer] that [Seller/ Beneficiary] had consented to [the] Amendment". According to the Judge: "As events subsequently proved this was unwise in circumstances where [Confirmer] was still to hear whether [Transferee Beneficiary] had consented to [the] Amendment . . . It was not disputed that the effect of sending this message to [Issuer] was that whilst [Confirmer] remained obliged to honour the transfer letter of credit to its full value [Confirmer] could only seek recourse from [Issuer] to the limited extent permitted by [the] Amendment . . . ." The following day, Confirmer honored Transferee Beneficiary's presentation and paid for the first shipment of gas oil.

On 4 June 2010, Seller/Beneficiary informed Transferee Beneficiary that it had found two new buyers for the remaining cargo onboard the Erin Schulte. Two new letters of credit were opened by the new buyers in favor of Seller/Beneficiary, including one by Confirmer. Seller/Beneficiary requested Confirmer to transfer this LC to Transferee Beneficiary. However, before Confirmer could transfer the new LC, Transferee Beneficiary presented documents under the original LC with respect to the cargo onboard the Erin Schulte. The documents included the bills of lading with respect to the Erin Schulte cargo, "which had been indorsed in favor of [Confirmer]." Confirmer's London office received the presentation on 4 June 2010, scanned the documents, and sent them to its service center in Chennai, India for examination. Three days later, Transferee Agent confirmed that Transferee Beneficiary had, in fact, rejected the Amendment.

Confirmer sent a SWIFT MT734 (Advice of Refusal) to the Transferee Agent which provided:


This advice does not constitute a rejection of documents by applicant and is only sent in accordance with UCP600 article 16c. Discrepancies referred to applicant.

L/C amount overdrawn

Quantity overshipped

Disposal of documents

/Hold/ at your disposal we have not contacted issuing bank await your disposal instructions."

Transferee Agent responded that the presentation was valid.

In the time period that ensued, Confirmer believed that Transferee Beneficiary had agreed to the Amendment and recommended to Transferee Agent that a presentation should be made under the new LCs. Transferee Agent responded that "there would be no other letter of credit, that complying documents had been presented[,] and that payment should be made by [Confimer]." Confirmer received instructions and demands from both Seller/Beneficiary, the transferor, and Transferee Beneficiary. The latter demanded that Confirmer honor the complying presentation, while the former "made clear to [Confirmer] that any payment by it under the transfer letter of credit was at [Confirmer's] risk and that [Seller/Beneficiary] could not accept such payment because the transfer letter of credit related to 'a separate product and contract which [Transferee Beneficiary] failed to honour'."

Transferee Beneficiary instructed its solicitors to defend its interests. While negotiations were ongoing between 15 and 19 June 2010, Transferee Beneficiary instructed Shipowner to discharge the cargo onboard the Erin Schulte not against the bills of lading, which were still in Confirmer's possession, but rather against the production of letters of indemnity supplied by Transferee Beneficiary. Delivery was made to the two new buyers of the gas oil.

At this time, Confirmer sent letters to both Seller/ Beneficiary and Transferee Beneficiary stating: "One of the specific issues we would like to discuss is whether and if so the basis upon which [Transferee Beneficary] has instructed the carrier to split the gas oil cargo and discharge the same apparently without reference to [Confirmer] as the rightful holder of the Bill of Lading." As the Judge notes, "[i]t was apparent that [Confirmer], having realised that it had no right of recourse from [Issuer] in respect of its liability to [Transferee Beneficiary], hoped to find a commercial solution to its problem." However, Shipowner responded that Confirmer was obligated to pay Transferee Beneficiary and that there was nothing left to discuss. Transferee Beneficiary's solicitors gave an ultimatum on 24 June 2010 that unless Confirmer paid by 30 June 2010, proceedings on behalf of Transferee Beneficiary would be commenced.

Confirmer offered to make payment into an escrow account held by its solicitors, but on 1 July 2010, Transferee Beneficiary sued Confirmer to collect on the LC. On 7 July 2010, Confirmer agreed to pay Transferee Beneficiary the sum claimed plus interest and costs in return for Transferee Beneficiary discontinuing its claim. Confirmer paid Transferee Beneficiary's account with the Agent under cover of SWIFT MT756 (Advice of reimbursement or payment). Seller/Beneficiary subsequently notified Confirmer that payment had been received from the two new buyers of the Erin Schulte gas oil.

According to the Judge: "Thus, the somewhat extraordinary result of these events appears to have been that although [Seller/Beneficiary] has been paid for the cargo it has not paid either [Transferee/ Beneficiary] or [Confirmer] in respect of the cargo. [Seller/Beneficiary] is therefore the beneficiary of a windfall which resulted from [Confirmer's] error in notifying [Issuer] of [Seller/Beneficiary's] agreement to [the] Amendment . . . without obtaining [Transferee/ Beneficiary's] agreement to that amendment. That exposed [Confirmer] to the risk, which materialised, of having to pay [Transferee/Beneficiary] with no right of recourse from [Issuer]."

Confirmer then sued Shipowner under theories of misdelivery and/or conversion, seeking USD 6,132,355.74. The High Court of Justice, Queen's Bench Division Admiralty Court, Teare, J., ruled that there was a breach of contract and awarded Confirmer a judgment in the sum of USD 6,132,355.74.

At the outset, the Judge quickly disposed of the claim in conversion, stating that it added nothing to the claim in contract. Therefore, according to the Judge, the issue before the court was "whether [Confirmer] has title to sue under the Carriage of Goods By Sea Act 1992 ("COGSA 1992") as the lawful holder of the bills of lading relating to the cargo." In other words, did Confirmer become the awful holder of the bills of lading, thereby allowing it to recoup its losses from the Shipowner? Transferee Beneficiary defended Shipowner pursuant to the letters of indemnity against which Shipowner had discharged the Erin Schulte cargo.

COGSA 1992:

Under section 2(1)(a), "all rights of suit under the contract of carriage are transferred to and vested in" the holder of a bill of lading. Section 5(2)(b) defined a holder as "a person with possession of the bill as a result of the completion, by delivery of the bill, of any indorsement of the bill or, in the case of a bearer bill, of any other transfer of the bill"

Referring to prior case law, the Judge stated that section 5(2)(b) required that both indorsement and delivery be effected in order for a party to become a holder within the meaning of COGSA 1992. There was no dispute regarding the indorsed bills of lading. The parties disagreed over whether delivery had been effected. The Judge stated that delivery does not occur merely by obtaining an indorsed bill of lading. Rather, "delivery is a bilateral, not a unilateral, act" that requires a requisite amount of intent by both parties to the transfer.


Confirmer simply argued that Transferee Beneficiary delivered the indorsed bills of lading on 4 June 2010 when it made its presentation. From then on, Confirmer had been a holder under COGSA 1992 and entitled to sue on the contract of carriage.

Transferee Beneficiary argued that when Transferee Beneficiary made its presentation, despite the indorsement on the bills of lading in favor of Confirmer, Confirmer did not have the intent necessary to constitute acceptance of the bills of lading. This lack of intent, argued Transferee Beneficiary, was evidenced by the fact that Confirmer dishonored the second presentation on 4 June 2010, or alternatively, did not honor the presentation until 7 July 2010, when it finally paid Transferee Beneficiary. According to the history of LCs, "[s]o long as payment is not made, the bank will normally hold the shipping documents to the order of the seller." Therefore, Transferee Beneficiary argued that since Confirmer merely held the documents to the order of Transferee Beneficiary so long as the presentation went unpaid, Confirmer had not accepted the bills of lading.

The Judge disagreed with Transferee Beneficiary, finding that the indorsed bills of lading were delivered when Transferee Beneficiary presented documents to Confirmer on 4 June 2010, prior to the discharging which took place on 15-19 June 2010. The Judge reasoned that "[t]he aim of COGSA 1992 was to simplify the transfer of rights of suit under the contract of carriage contained or evidenced by the bill of lading. The transfer was to be linked to delivery of an indorsed bill of lading instead of, as was the case under the Bills of Lading Act 1855, to the passing of property under the contract of sale. Thus there is now no need to investigate when and to whom property passed under the contract of sale or what the contractual position was between the deliveror and deliveree of the bill of lading. The effect of [Transferee Beneficiary's] submission, however, is that in order to decide whether rights of suit have passed it is now necessary to investigate whether the bank to whom the bills have been indorsed has decided that the documents tendered under a letter of credit (which will include not only the bills but other documents as well) were compliant with the letter of credit or not. Indeed, he submitted that COGSA 1992 must be construed in the light of UCP 600. This approach to the construction of COGSA 1992 is not justified by the legislative aim of COGSA 1992 which was to simplify the transfer of rights of suit. [Transferee Beneficiary's] approach requires the simple act of delivery to be understood by reference to the terms of a letter of credit. There is no trace of this approach in the language or in the legislative aim of COGSA 1992."


The Judge and even the Confirmer appear to have concluded that the Confirmer's notification of the first beneficiary's consent to a proposed amendment to a transferred credit restricts the ability of the Confirmer to claim reimbursement for a drawing by the Transferee Beneficiary on the unamended credit. Unless something is missing from the facts stated in the opinion, this proposition is not sustainable.

By using a transferable credit and nominating a bank and not restricting the right to consent to amendments to the first beneficiary, the issuer should bear the risk that the credit will have been transferred, and the transferring bank has no duty to give notice to the issuer. Therefore, informing the issuer of the consent of the first beneficiary does not suggest that there is yet another beneficiary whose consent has not yet been given. While it might be prudent for the confirmer to provide such notice, there is nothing in UCP600 that vests a duty to inform the issuer of a transfer.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.