Article

Factual Summary: Seller contracted with Purchaser to sell 11,390,685 shares of Coal Mining Company (Seller) for AUD 740,000,000. Under the sales agreement, the final installment of AUD 150,000,000 was “payable on the date which is the earlier of: (i) four years from the Completion Date [28 February 2011]; and (ii) the date of the first export of coal produced by [Coal Mining Company] via the newly constructed facilities and/or berth at the Port of Bunbury”. [¶8] To assure payment of the final installment the sales agreement also provided that “Purchaser must provide…Letters of Credit to the Vendors.” [Id.] The sales agreement defined “Letters of Credit” as “one or more Letters of Credit from each of Australia and New Zealand Banking Group, Westpac Banking Corporation and [Issuing Bank] for in aggregate the full amount of the Deferred Consideration on terms satisfactory to the Vendors”. [¶9] The sales agreement also provided that “The Vendors will notify the Purchaser at least on Business Day prior to calling on, or drawing dawn on, any of the Letters of Credit.” [¶8]

The sales agreement also provided a definition of the term “Business Day” in Clause 1.1 as “a day which is not a Saturday, Sunday, bank or public holiday in Perth, Western Australia” [¶ 9] and also provided in Clause 1.2(g) that “Unless expressed to the contrary, in this document . . . if the date on or by which any act must be done under this document is not a Business Day, the act must be done on or by the next Business Day.” [¶ 10] It was stipulated that the first export of coal would not have occurred by 28 February 2015.

Purchaser obtained three standby letters of credit from Issuing Bank, located in Singapore, in favor of Seller/Beneficiary, for AUD 50,000,000 each. The first and third standbys also named a Confirming Bank, located in Singapore, and Reimbursing Bank in Australia1; these letters of credit were confirmed. The second LC was straight.

The standbys were subject to ISP98, and the laws of New South Wales, Australia stated that the standbys expired on 1 March 2015. The two confirmed standbys provided that they were “Available at Confirming Bank’s counters.” [¶ 18] The straight standby was “Available at: Issuing Bank’s Counters.” [¶ 19] All three required a sight draft drawn on the issuer. All three standbys contained the provision: “Business Day: Any day (other than a Saturday or a Sunday) on which banks are open for general business in Singapore and Australia.” [¶ 19] All the standbys provided that “Drafts must be delivered to the Confirming Bank at the address at which this stand-by letter of credit is expressed to be available by no later than 1:30 pm (Singapore time) on or before the Expiry Date specified above”. [Id.]

One of the statements in the required declaration accompanying a drawing was “(E) The first export of coal produced by the Griffin Coal Mining Company Pty Limited CAN 008 667 285 via the newly constructed facilities and/or berth at the Port of Bunbury has occurred. If the draft is dated 1 March 2015 then this clause 2(E) does not apply…” [¶18]

Believing that it was unable to date a draft on 1 March 2015 since it fell on a Sunday which was not a business day in either Singapore or Australia, and recognizing that an earlier draft would require a statement that the first export of coal occurred, which it could not make because of the stipulation made in the sale agreement, Seller/Beneficiary sought declaration relief in Australia so it could make a timely presentation on 3 March 2015. The trial court dismissed Seller/Beneficiary’s petition.

Legal Analysis:

1. Timely Presentation. The expiry date stated in the three standbys was 1 March 2015. This date was a Sunday and not a business day in either Australia or Singapore. However, Monday 2 March 2015 was a banking day in Singapore, but it was a public and banking holiday in Western Australia where Seller/Beneficiary was located.

Seller/Beneficiary argued that the definition of a business day contained in the standby would override the definition of a business day in ISP98 with respect to when a timely presentation could take place. However, the Judge rejected this argument and, agreeing with the Issuing Bank and Purchaser’s positions, ruled that timely presentation was only relevant with respect to business days at the place where the presentation of documents was to be made, in this case at Issuing Bank’s counters in Singapore.

2. LC separate from the contract. The Judge found that the contract and LC were entirely distinguishable, and, “[n]either commercial sense nor convenience necessitates an extension of the time for presentation where there is no obstacle to that act taking place.” [¶65]

3. Contracting for a different definition of a business day. The Judge ruled that the standbys, as commercial instruments, must be construed with respect to their context. He ruled that where a LC states that it is subject to ISP98 and there is not an express modification indicating an exception for a definition, the ISP98 rules would control the undertaking even where a contradictory definition is provided elsewhere in the standbys. Furthermore, the Judge also differentiated between the clauses in the standbys which contained a different definition of a business day as intending to refer more towards the underlying agreement between Seller/Beneficiary and Purchaser, not Seller/Beneficiary and Issuing Bank.

4. Date of the Draft. Seller/Beneficiary argued that the draft could be dated on 1 March 2015 and the demand made on 2 or 3 March because the standbys distinguish between the drafts and the declarations. The Judge rejected this argument, citing ISP98 Rule 4.16(b)(ii) which requires a draft to contain a date indicating when the draft was issued. The Judge noted that “Under [ISP98] Rule 2.03, a standby is issued when it leaves an issuer’s control unless it clearly specifies that it is not then issued or enforceable. In my view, “issued” in Rule 4.16(b)(ii) is to be construed accordingly. A demand is issued when it is delivered and in any event not before it leaves the issuer’s control. A demand which bears a date before it is issued does not comply with Rule 4.16(b)(ii).” [¶77] Thus, the Judge concluded that Seller/Beneficiary’s request must be refused.

Comments:

  1. This case provides a cautionary lesson in drafting standbys, particularly where they are structured on a tight schedule.
  2. The court, however, is mistaken in its conclusion that ISP98 Rule 2.02 has any relevance in determining the issuance date of a draft. A draft is issued on the date that it is drawn and not the date that it is presented under a standby. A standby, on the other hand, becomes effective when it leaves the issuer’s control which is the point in time when it becomes irrevocable. Rule 2.02 addresses a different problem than the one faced in determining the date of drafts.
  3. It should be noted that this standby excluded ISP98 Rule 3.14. There is no explanation of why but it is not clear what the result would be if the issuer was closed on a business day. In such a situation, it is difficult to believe that the beneficiary would agree that its right to present would lapse. Variation of Rule 3.14 is entirely reasonable but exclusion of it is silly.
  4. The confirmation states that it is “valid up to 01 March 2015”. It is not clear whether this provision should be treated as an expiration and carried over to Monday 2 March (or the next business day) or not.
  5. The beneficiary/seller is not without hope, however. It can sue the attorneys who drafted this mess for malpractice.

TEXT OF CONTRACT [¶ 8]:

“Clause 6 of the Agreement is in the following terms:

“6.1 Deferred Consideration

The Purchaser will pay the Deferred Consideration to the Vendors in Immediately Available Funds in consideration for the transfer of the Sale Shares in the following manner:

(a)  $100 million payable on the date which is the earlier of: (i) two years from the Completion Date; and (ii) the date of receipt of the requisite approvals (including environmental approvals) for the development and operation of a railway line from the mining operations of GCMC to the export facilities at the Port Bunbury; and

(b)  $150 million payable on the date which is the earlier of: (i) four years from the Completion Date; and (ii) the date of the first export of coal produced by GCMC via the newly constructed facilities and/or berth at the Port of Bunbury.

6.2 Letters of Credit

(a)  The Purchaser must provide the Letters of Credit to the Vendors at Completion.

(b)  The Vendors will notify the Purchaser at least one Business Day prior to calling on, or 
drawing down on, any of the Letters of Credit.

(c) As soon as reasonably practicable after the execution of this document, the Vendors must provide the Purchaser with a draft Letter of Credit for each bank counterparty on items which are satisfactory to the Vendors (acting reasonably).

(d) If an event occurs which in the opinion of the Vendors (acting reasonably) causes (directly or indirectly) a bank counterparty who is providing a Letter of Credit to be unlikely to be able to comply with its obligations under the Letter of Credit, the Purchaser must use reasonable endeavours to procure that a new Letter of Credit from a different bank with an investment grade rating is obtained to replace that bank’s Letter of Credit.”

TEXT OF LC [¶ 18–19]:

The First Letter incorporates, relevantly, the following narrative:

“ICICI Bank Limited, 9 Raffles Place 50­01 Republic Plaza, Singapore 048619 (Issuing Bank) issues an irrevocable stand­by letter of credit as follows: 
Stand­By Letter of Credit No: 882BG911

Dated: 25 February 2011

Account Party: Lanco Resources Australia Pty Ltd, ACN 147 835 452

Address: Allen and Overy, Level 27, Exchange Plaza, 2 The Esplanade Perth WA 6000

Beneficiary: Griffin Energy Group Pty Ltd ACN 008 681 696 (Deed Administrators appointed) Kordamentha Level 11, 37 St Georges Terrace Perth WA 6000.

Issued in connection with: The obligations of the Account Party under a sale agreement between the Beneficiary, Carpenter Mine Management Holdings Pty Ltd ACN 122 080 684 having its office at Kordamentha Level 11, 37 St Georges Terrace, Perth, the Account Party, Lanco Infratech Limited having its office at Lanco House, Plot 397, Phase­3, Udyog Vihar, Gurgaon – 102 016, India and Lanco International Pte Ltd having its office at 8 Shenton way HEX32­03, Singapore 068811 dated 14 December 2010 (Agreement).

Maximum Liability: AUD 50,000,000.00 (Australian Dollar Fifty Million) Expiry date: 1 March 2015

Confirming Bank: Standard Chartered Bank, Trade Services, 6 Battery Road, Level 4, Singapore 049909. SWIFT SCBLSGSG

Available at: Confirming Bank’s counters

By Draft on: Issuing Bank

Payable at: Sight

Reimbursing Bank: National Australian Bank Limited, Melbourne, Victoria (Swift: NATAAU33033)

Business Day: Any day (other than a Saturday or a Sunday) on which banks are open for general business in Singapore and Australia.

Enfaced: “Drawn under stand­by letter of credit no. 882BG1311 dated 25 Feb 2011”

1. Drafts drawn under this stand­by letter of credit are payable to the credit of the Beneficiary’s account as nominated by the Beneficiary, and may be drawn for any amount not exceeding in aggregate the Maximum Liability specified above.

2. Drafts must be delivered to the Confirming Bank at the address at which this stand­by letter of credit is expressed to be available by no later than 1:30 pm (Singapore time) on or before the Expiry Date specified above, with a declaration stating that:

(A) The Declarants are two officers (which will include any Administrator, Deed Administrator, Receiver or Liquidator) of the Beneficiary and are making the declaration on behalf of the Beneficiary.

(B) The Declarants have authority to make the declaration on behalf of the Beneficiary.

(C) The Declaration is made under stand­by letter of credit No 882BG1311.

(D) The amount claimed is not more than the maximum liability under stand­by letter of credit No. 882BG1311.

(E) The first export of coal produced by the Griffin Coal Mining Company Pty Limited ACN 008 667 285 via the newly constructed facilities and/or berth at the Port of Bunbury has occurred. If the draft is dated 1 March 2015 then this clause 2(E) does not apply, and

(F) The amount claimed is due and payable to the Beneficiary by the Account Party.

3. Upon receipt of credit compliant documents as stipulated in clause 2 above at the counters of the Confirming Bank, the Confirming Bank will pay the Beneficiary within 4 Business Days.

4. Confirming Bank is authorised to add its confirmation to this standby letter of credit and advise the same to the Beneficiary through Second Advising Bank.

5. Confirming Bank is authorised to claim reimbursement from Reimbursing Bank upon receipt of credit compliant documents at its counters on or before the Expiry Date. Confirming Bank will be reimbursed within 3 Business Days of receipt of a notice by the Issuing Bank via authenticated swift at its Swift Address ICICSGSG to the attention of the Bank Guarantee Department and a claim to the Reimbursing Bank at its Swift Address NATAAU33033.

6. The Issuing Bank and the Confirming Bank need not investigate the authenticity or correctness of any matter stated in any declaration purportedly given under this stand­by letter of credit or of the capacity or entitlement of the Beneficiary or its relevant officers (including any Administrator, Receiver or Liquidator) to give and execute such declaration.

7. This stand­by Letter of credit is:

(A) Subject to the International Standby Practices – ISP98 (International Chamber of Commerce Publication No 590) except provisions of Article 3.14 and

(B) Governed by the laws applicable in New South Wales, Australia, and the Issuing Bank, Account Party and Beneficiary submit to the non exclusive jurisdiction of the courts in New South Wales, Australia.

8. The Confirming Bank engages wit the Beneficiary that drafts drawn under and in compliance with the terms of this stand­by letter of credit will be paid within 4 Business Days after presentation to the Confirming Bank.

We have added our confirmation to this credit. We shall accordingly honour your draft on due presentation if accompanied by documents as stipulated by and in compliance with the credit terms and conditions. This undertaking takes effect from the Issuance Date of the credit and is valid up to 01 March 2015 only and does not cover any subsequent amendment issued or received by us unless with our Swift consent.

This letter must be presented with all drafts and/or documents drawn under the attached Letter of Credit for negotiation/payment/acceptance.

Regards
LC Confirmation Desk”

The Second Letter of Credit contains relevantly the following narrative:

“ICICI Bank Limited, 9 Raffles Place, 50­01 Republic Plaza, Singapore 048619 (Issuing Bank) Issues an irrevocable Stand­by Letter of Credit as follows:

Stand­by Letter of Credit No: 882BG1111

Dated: 25 Feb 2011

Account Party: Lanco Resources Australia Pty Ltd ACN 147 835 452

Address: Allen and Overy, Level 27, Exchange Plaza, 2 The Esplanade, Perth WA 6000

Beneficiary: Griffin Energy Group Pty Ltd ACN 008 681 696 (Deed Administrators Appointed) Kordamentha Level 11, 37 St Georges Terrace, Perth WA 6000

Issued in connection with: the obligations of the Account Party under a sale agreement between the Beneficiary, Carpenter Mine Management Holdings Pty Ltd ACN 122 080 684 having its office at Kordamentha, Level 11, 37 St Georges Terrace, Perth, the Account Party, Lanco Infratech Limited having its office at Lanco House, Plot 397, Phase – 3, Udyog Vihar, Gurgaon ­102 016, India and Lanco International Pte Ltd having its office at 8 Shenton Way HEX32­03, Singapore 068811 dated 14 December 2010 (Agreement).

Maximum Liability: AUD 50,000,000.00 (Australian Dollar Fifty million).

Expiry date: 1 March 2015

Available at: Issuing Bank’s counters

By draft on: Issuing Bank

Payable at: Sight

Business Day: Any day (other than a Saturday or a Sunday) on which banks are open for general business in Singapore and Australia.

Enfaced: “Drawn under Stand­by Letter of Credit No 882BG1111 dated 25 Feb 2011”

1. Drafts drawn under this stand­by letter of credit are payable to the credit of the Beneficiary’s account as nominated by the Beneficiary, and may be drawn for any amount not exceeding in aggregate the Maximum Liability specified above.

2. Drafts must be delivered to the Issuing Bank at the address at which this stand­ by letter of credit is expressed to be available by no later than 1.30 pm (Singapore time) on or before the Expiry Date specified above, with a declaration stating that:

(A) The Declarants are two officers (which will include any Administrator, Deed Administrator, Receiver or Liquidator) of the Beneficiary and are making the declaration on behalf of the Beneficiary.

(B) The Declarants have authority to make the declaration on behalf of the Beneficiary.

(C) The declaration is made under stand­by letter of credit No 882BG1111.

(D) The amount claimed is not more than the Maximum Liability under Stand­by Letter of Credit No 882BG1111.

(E) The first export of coal produced by the Griffin Coal Mining Company Pty Ltd ACN 008 667 285 via the newly constructed facilities and/or berth at the Port of Bunbury has occurred. If the draft is dated 1 March 2015 then this clause 2(E) does not apply, and

(F) The amount claimed is due and payable to the Beneficiary by the Account Party.

3. Upon receipt of credit compliant documents as stipulated in clause 2 above at the counters of the Issuing Bank, the Issuing Bank will pay the Beneficiary within 4 Business Days.

4. The Issuing Bank need not investigate the authenticity or correctness of any matter stated in any declaration purportedly given under this stand­by letter of credit or of the capacity or entitlement of the Beneficiary or its relevant officer (including any Administrator, Receiver or Liquidator) to give and execute such declaration.

5. This Stand­by Letter of Credit is:

(A) Subject to the International Standby Practices – ISP98 (International Chamber of Commerce Publication No 590) except provisions of Article 3.14 and

(B) Governed by the laws applicable in New South Wales, Australia, and the Issuing Bank, Account Party and Beneficiary submit to the non exclusive jurisdiction of the courts in New South Wales, Australia.

6. The Issuing Bank engages with the Beneficiary that drafts drawn under and in compliance with the terms of this Stand­by Letter of Credit will be paid within 4 Business Days after presentation to the Issuing Bank.”

Regards

ICICI Bank Limited Singapore”

[ALC/MJK]

1
This bank may also have acted as advising bank. ¶ 15 states that it “acted as [Issuer’s] agent in issuing the Letters of Credit.”

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.