Factual Summary: The LC as amended provided that it was "[a]vailable by sight at the counter of [its London correspondent] against presentation of the original set of the following docs ...". Two presentations containing admittedly incurable discrepancies were made. The address of the beneficiary in the LC was in Hong Kong. The presented documents were accompanied by a cover letter (which was not a required document) from the beneficiary's address in Hong Kong which was "almost the same as the address in the letter of credit" which stated: "YOUR TELEX HAVE TO BE SENT TO OUR REP. OFFICE IN ITALY - TELEX NO 212085 SEAR M." The issuer's London correspondent gave verbal notice of dishonor of the first presentation in person to an authorized representative of the beneficiary who appeared at its offices.

The second presentation was made on Thursday, 4 December but did not indicate where notice was to be sent. On Tuesday, 8 December at 09:45 hours notice was given by telex to a number in Hong Kong. Unbeknownst to the issuer, the number was no longer that of the beneficiary.

After a protracted jurisdictional dispute was resolved in the House of Lords, the Commercial Court dismissed the beneficiary's claims of wrongful dishonor. On appeal, the British Court of Appeal affirmed.

Legal Analysis:

1. Payable at Sight: Payable at Our Counters: Although the LC undertaking was to pay at sight at its counters, the court indicated that this terminology "reflects the practice which existed long ago, when the beneficiary would present the documents at the bank's counter, and the bank would then and there examine the documents and either pay or decline to pay". The court recognized that this is "[n]ot so today. In the ordinary way we believe that documents are now sent by post or courier or by the messenger of a remitting bank, rather than being presented by the beneficiary in person; and although the bank may have something which can be described as its counter in the letter of credit department, it is not there that the documents are accepted or rejected, but by notification thereafter since time is spent checking them."

2. Nature of Dishonor: Telecommunication Mandatory: The beneficiary argued that notice of dishonor of the first presentation was required by UCP400 Article 16(d) to be given "via telecommunication" unless that was impossible. Since the cover letter contained a telefax number, the beneficiary submitted that notice by telecommunication was possible. The issuer had argued that communication must be directed to the representative who signed the cover letter. Since that person was in London, communication to a telex number in Italy would not be "without delay". The trial court adopted the issuer's theory. The appellate court rejected both approaches.

Examining the text of UCP400 Article 16 (d), the appellate court reasoned "it seems to us more consistent with the language used that the bank must first decide whether telecommunication is possible, and if not must choose some other expeditious means, and in either case the bank must act without delay". It also concluded that notice was to be given to the office of the beneficiary not the person who signed the letter.

Nonetheless, the court reached the same conclusion as the trial court by reading an implied term into the UCP. "As a matter of construction of the Uniform Customs, we do not consider that they require notice to be given by telecommunication if a senior official of the beneficiary (or the remitting bank, as the case may be), under whose aegis the documents were presented, is present at the bank to receive notice. It must surely be an implied term that notice can then and there be given viva voce, rather than to another person who is some distance away. By any test of an implied term, that seems to us a powerful candidate, although it has not hitherto featured as an argument for [the issuer] in this litigation".

3. Notice: Place to Which Sent: Separate Presentations: The beneficiary had argued that notice should have also been given to the address in Italy given in the first cover letter. The trial court rejected that argument and it was not raised on appeal.

4. Notice: Futility: The court carefully avoided basing its discussion on the issuer's argument that it would have been futile to give notice to the office in Italy since the representative is absent.

5. Cover Letter: The beneficiary argued that the issuer was obligated to give notice according to the terms of the cover letter. The court disagreed. "The beneficiary of a letter of credit is not, in our view, entitled to give instructions to the issuing bank or its agents; he must take the bank's promise as he finds it. He can, however, properly give information as to where he is to be found-for example by stating his address on the Internet, or telex or telephone number- at all events if the credit does not provide to the contrary."

6. Reasonable Time: The beneficiary also claimed that it took the five days to examine the second presentation and that this time was an unreasonable time under UCP400 Article 16(c). The court repeats this formula. In fact, as revealed in the opinion, the time is five calendar days and includes a two day week-end and also includes the banking day of presentation. The documents were actually examined within two banking days following the banking day of receipt according to the facts set forth in the opinion. Although the bank took five days to examine the documents and give notice of dishonor, there appears to have been no question raised in this case that the bank had taken an unreasonable time to fulfill its obligation under UCP400 Article 16(c).

7(a). Without Delay: Separate Test from Reasonable Time: The trial judge concluded that "it was artificial to consider the two questions (viz. reasonable time and without delay) in isolation. He amalgamated the two in these terms 'Based on my general conclusion that the telex of 8th December was despatched within a reasonable time of the receipt of the documents on 3rd December, I conclude that there was no delay between the taking of the decision and the sending of the telex.'" The appellate court noted that the beneficiary "would not know when the decision was taken. Indeed, in a great many cases the beneficiary would be unlikely to discover the fact, perhaps not until legal proceedings and discovery of documents. But that argument is somewhat two-edged. Can it have been the intention of the compilers of the Uniform Customs to impose an obligation which, in practice, it would be very difficult to enforce? All that the beneficiary will know, in the ordinary way, is whether notice of rejection has been given within a reasonable time. If it has, can he still complain that it was not given without delay?"

Nonetheless, the appellate court concluded that:

[t]he issue is whether, as a matter of interpretation of the Uniform Customs, there is a separate obligation in art 16(d) to give notice without delay. In our judgement there plainly is, and no amount of purposive construction or expert evidence or appeals to inconvenience can alter the fact. Article 16(d) spells that obligation out in express terms; and 16(e) provides that failure to comply with paragraphs (c) and (d) precludes the bank from claiming that the documents are not in accordance with the terms of the credit.

The time needed for checking documents must necessarily be somewhat vague; it depends how many documents are required by the credit, what detail they must contain, and how clearly or (as the case may be) obscurely that is spelt out. But once that is done and the decision taken, it will ordinarily be a fairly simple task to give notice to the beneficiary. We can see no reason why the bank, if it has checked the documents with greater dispatch than normal, should be allowed to carry forward a period of time as a credit against its next obligation. The judge thought they could but we cannot agree. If this seems stern doctrine, the answer is that letter of credit law is and has to be precise; it is not concerned with merits.

7(b). Without Delay: What Constitutes:The court noted that the expectation is that notice would be given within a working day of dishonor.

The words 'without delay' mean what they say, and nothing is to be gained by paraphrasing them. Were a decision to reject documents is made at or about the close of business on a Friday, as may have happened in this case, we would expect the obligation to give notice without delay to require that it be given on the Monday, which was the next banking day; ... It may well be that in other cases the obligation requires notice to be given on the same day as the decision to dishonor is taken. But the difficulty that we face is that we have no precise information as to what was done on Monday 7 December 1997; and the reason why we have no such information is not the fault of [the issuer] but of [the beneficiary], who did not take any point on the words 'without delay' until years afterwards.

7(c). Without Delay: When to Start Determination: Because the beneficiary delayed in raising the issue of whether notice was given without delay, the record did not contain facts to explain when the decision to dishonor was made and why notice was not given on the next day. As to the former question, the court assumed that the decision was made at the end of business on Friday, 4 December. In reaching this assumption, it recited the steps that were taken, including two examinations, and approval by two officers. The court rejected the issuer's argument that the decision could not have been made until the text of the rejection telex was also approved.

7(d). Without Delay: Factors: The court carefully considered the steps which had to be taken in giving notice of dishonor:

first, the drafting of a telex by which to notify the beneficiary of the rejection. This had to be done with care, since failure to notify a particular discrepancy would mean that [the issuer] would not be able to rely on it against [the beneficiary], but in all probability would be able to rely on it against [their correspondent]. [The issuer] in turn would be exposed to complaint from their customer ...

Then the telex would have to be typed. That cannot have been a very arduous task; the copy that we have contains only 18 lines, some of only one or two words. But there was evidence that the typists would give priority to payments which [the issuer] had to make that day, which should go out by 11.00am or 1.00pm, in preference to something such as a rejection telex.

Thirdly, the telex has to be approved and initialled by two further authorized signatories of [the issuer]. In the ordinary way this would involve comparing the draft telex with the bank's checking record, rather than with the documents themselves unless they could see something which looked wrong. Finally, the draft telex would be retyped into the telex machine and sent.

7(e). Without Delay: Burden of Proof: In view of the absence of evidence as to why it took more than one business day to give notice of dishonor, the court based its decision on who had the burden to prove that notice was delayed, the beneficiary. "It is for [the beneficiary] who allege delay to prove it, with the aid if necessary of discovery of documents or interrogatories and cross-examination. They have not done so."

8. Damages: The beneficiary obtained judgement against the carrier in Portugal for improper release of the goods which was executed for the face amount of the LC. In this action, the beneficiary sought to recover US$ 3,700,000 in interest. The court noted that this claim "gives rise to a separate dispute if their appeal is otherwise well-founded" (which it was not).

9. Expert Testimony: The beneficiary's expert testified as to his understanding of the UCP400 Article 16 phrase "if that is not possible". The court stated that:

[i]t is no part of the function of an expert witness, or for that matter of any other witness, to state his views on the meaning of ordinary English words in a written contract, unless it is sought to prove some custom which is pleaded and can be supported by appropriate evidence. Expert witnesses are nevertheless often called for that purpose; in our view that is simply a waste of money.

As to what constitutes a reasonable time to examine documents, the court stated "[i]t is, we suppose, competent for an expert or any other witness to say what a reasonable time is, or at any rate what tasks are involved in checking documents tendered under a letter of credit and how long it takes to perform them."

10. Authority: UCP Comparison: The attention of the court was directed to the 1974/1983 UCP Comparison. The court noted that the book "states in terms that the comments and views expressed are made by Mr Wheble in his personal capacity, and do not necessarily reflect those of the ICC Banking Commission. In those circumstances his opinion has the same value as that of any other commentator of comparable wisdom and experience, but no more."



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.