Article

Note: To facilitate its purchase of 3000 tons of scrap metal, Shinjeong Steel & Trading Co. (Buyer/Applicant) obtained a USD 1,185,000 letter of credit issued by Industrial Bank of Korea (Issuer) in favor of Franklin Global Resources (Seller/Beneficiary). The LC was subject to UCP600 and required, among other documents, presentation of a commercial invoice, bill of lading and an insurance policy certificate. After the LC was issued, Seller/Beneficiary and Buyer/Applicant agreed to a modification of the underlying contract which provided:

[Seller/Beneficiary] has requested that [Buyer/Applicant] instruct their bank to issue a Cancelation/Termination of the existing Documentary Letter of Credit No: M0493208NS00185 immediately and upon notification of the SWIFT Cancellation/Termination [Seller/Beneficiary] will issue new bank coordinates within 72 hours or less for the DLC to be re-issued to.

Ultimately, Issuer cancelled the LC and the goods were never shipped. Following cancellation, Seller/Beneficiary sent Issuer a letter providing:

[ [P]lease accept this letter as presentment under the existing Letter of Credit, and if such was cancelled, then under the re-issued Letter of Credit. If the Letter of Credit is not re-issued this letter constitutes a demand to make presentment pursuant to the Application of [Buyer/Applicant] for the Letter of Credit anticipated in the underlying contract…If [Issuer] is anticipating not issuing the Letter of Credit pursuant to the applications and instructions of [Buyer/Applicant], then [Seller/Beneficiary] is hereby requesting deposit of [USD]1,185,000.00 into my Trust Account, by wire transfer.

When Issuer failed to respond, Seller/Beneficiary sued Issuer for “tortious interference with prospective contract; breach of contract and tortious interference with contract; conspiracy to interfere with contract; and wrongful dishonor”. The trial court granted summary judgment in favor of Issuer finding that as a matter of law the parties cancelled the LC and Seller/Beneficiary “failed to adequately present the requisite documents under the original LC”.1 Seller/Beneficiary appealed. The United States Court of Appeals for the Fifth Circuit, Clement, Costa and Willett, JJ., affirmed.

Seller/Beneficiary argued that Issuer was required to explain its decision when dishonoring the purported presentation under UCP600. The appellate court disagreed, however, citing UCP600 Article 2 and noting that the “UCP places no obligation on [Issuer] to explain discrepancies or its decision to refuse the purported letter of presentation” as Seller/Beneficiary did not include any of the required documents under the LC.

The appellate court affirmed the trial court’s decision to exclude parol evidence regarding the modification to cancel the LC based on the unambiguous agreement between the parties. Moreover, the appellate court cited UCP600 Article 10 for the proposition that “once [Issuer] cancelled the LC, it had no duty to subsequently issue a new LC.”

Comment: While not determinative here, this appeal raises an interesting issue of “incomplete presentations”. Bryne, UCP600: An Analytical Commentary provides on page 191 that “a presentation need not contain all of the documents required by the credit in order to constitute a presentation. […] Notwithstanding the omitted document, the issuer or confirmer must treat the documents received as a presentation requiring a timely and adequate refusal”.

1
Franklin Global Resources v. Sang Don Lee, No. 1:13-CV-4, 2016 WL 9776330 at *11-12 (S.D. Tex. Aug. 12, 2016).

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