Note: Buyer, Kanematsu Corporation, agreed to purchase soya bean meal for shipment and resell to another company. Payment was to be by commercial LC which required presentation of a bill of lading. The LC, which was in excess of US$2 million, indicated a latest date for shipment. When the seller/beneficiary, Vinsari Fruitech Ltd., presented the bill of lading, the issuer, Bank of Hawaii, dishonored since it was dated later than was permitted by the amended LC. When another bill of lading with an earlier date, issued to seller in order to cope with this problem, was presented, it, too, was rejected. Yet a third bill of lading for the entire cargo which included the goods at issue, called a "switch bill" by the court, was issued by the carrier and obtained by the buyer. It named the buyer as the notifying party. The vessel carrying the goods proceeded to the port of destination and, on presentation of this "switch bill," began unloading. When the shipowners, Transpacific Eternity SA, became aware of beneficiary's claim to ownership of the goods at issue, the disputed goods were left on board, and the shipowners initiated this interpleader action. The Queen's Bench Division (Commercial Court), Steel, J., entered a preliminary order that the goods be discharged and placed in storage pending resolution of who owned the goods and, subsequently, after a full trial, entered judgment for the seller/ beneficiary, declaring that it owned the goods at issue. Beneficiary argued that it owned the goods since it had not been paid. It claimed that since it was named as the shipper and was consigned to its order, the B/Ls preserved "a right of disposal and making it plain that the ownership would not be transferred until the condition to that reservation of right, namely payment, was effected." The buyer objected, claiming that property in the goods passed to it "at the ship's rail" in the underlying contract. The court rejected the buyer's claim, noting that nothing displaced the presumption that property in goods was to pass upon payment. It cited Section 19 of the Sale of Goods Act as creating the presumption. Section 19(2) says that "where goods are shipped, and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie to be taken to reserve the right of disposal". In declining to the find that presumption was overcome, the court referred to a passage of the appellate court's decision in Mitsui & Co Ltd v. Flota Mercante Grancolombiana SA [1989] 1 All ER 951, [1988] 1 WLR 1145, which reads "nor can I attach much weight to the fact that the balance of the price was (as I assume) payable by letter of credit. Even the most copper-bottomed letter of credit sometimes fails to produce payment for one reason or another; and the seller who has a letter of credit for 100% of the price will nevertheless often retain the property in his goods until he has presented the documents and obtained payment . Looking at the case as a whole I consider that the presumption in [Section 19] is not displaced." The buyer also contended that the goods had been prepaid by a running account between applicant and beneficiary and that the LC was "not established with a view to negotiation, but to provide [a third party company which was originally to sell the goods to applicant] with favourable pre-shipment credit". The judge also rejected this argument, stating that there was no documentation that payment had been made into a running account. He also observed that "the purpose of opening a letter of credit in the event that there had already been pre-payment remains, at least to me, incomprehensible". "if the letter of credit was for financing purposes only, there was no purpose to making arrangements for amendment of the letter of credit to allow documents to be negotiated," and no reason for applicant to request beneficiary to forward the documents for payment as it did. 2001 LC CASE SUMMARIES


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.