Factual Summary: A commercial credit was issued and confirmed to cover payment for two shipments totaling 20,000 tonnes of bitumen. The latest shipping date listed in the credit was 15 September 1993. This date, however, was amended twice and extended to 25 October. Despite the extension, and due to the non-availability of the cargo, the ship was not completely loaded by the deadline. The beneficiary's broker urged it to seek another extension, but no extension was obtained. Ultimately, the broker, the beneficiary, and the ship owner agreed that the ship owner would authorize the broker to issue ante-dated bills of lading despite the fact that the ship would not be completely loaded until over a month past the latest shipment date. In return, the ship owner would receive early payment and an indemnity for any losses arising from the scheme. While the beneficiary had promised on paper to not present the fraudulent bill of lading until the shipment had actually set sail, the court discounted this promise as all the parties certainly must have known that presentation would have to be made prior to the ship's departure in order for the beneficiary to receive payment and for the ship owner to be paid. In order to make the ante-dated bills of lading appear to be in conformity with other documents, the parties also had to forge the master's signature to a document, request the inspector to delete certain language from its report, and make up phony excuses to explain the delay in shipment and the disparity in the ultimate amount of cargo loaded.

The beneficiary made presentation to the confirmer on 9 November, with 10 November being the latest date for negotiation of the documents. The presentation, however, did not include the required inspection certificates which the beneficiary promised to produce in a few of days. The inspection certificates arrived at the confirmer's on 11 November, but were taken away for corrections of typographical errors and represented to the confirmer on 15 November, three days after the latest date for presentation.

Notwithstanding the late presentation of the inspection certificates and various other discrepancies, the confirmer honored the drawing for US$ 1,155,772.77. The issuer, relying on a number of discrepancies, refused to pay on the credit. The confirmer took charge of the cargo and sold it for US$ 500,000. After expiry, the beneficiary completed a second presentation on the second shipment. The confirmer refused to honor this presentation based on expiry and other discrepancies but sought permission to pay from the issuer. The issuer refused and no payment was made on the second presentation.

When the confirmer discovered that the bill of lading from the first presentation had been ante-dated, it sued the beneficiary, the broker, the ship owner, and the inspector for deceit, negligent misrepresentation, and conspiracy. The confirmer later dropped the suit against the inspector, but won a judgment against the remaining parties. During the discovery process for the contribution hearing, the defendants learned that the confirmer's presentation to the issuer contained the following language, "Unless otherwise stated, documents were presented to us prior to the L/C expiry date and within the time allowed in accordance with UCP400 Article 47a (or Article 48a as appropriate)." The defendants seized upon this language to argue that an appeal should be granted based on the fact that the confirmer itself had attempted to commit deceit upon the issuer, and therefor should not be allowed to profit from its illegal act. Accordingly, an appeal was granted.

Legal Analysis:

On appeal, all of the defendants attempted to downplay their role in the deceit. The beneficiary testified that it had no knowledge that the loading of the cargo was not completed by 25 October. The court rejected this testimony as being plainly contradicted by the documentary evidence.

The broker further argued that the confirmer's document checkers had overlooked such egregious discrepancies that their conduct could not be explained as simple negligence and must have been part of the same scheme to defraud the issuer. The confirmer admitted that the presentation contained numerous discrepancies, but denied that its honor of the presentation was part of a scheme to defraud the issuer. The confirmer's document checkers all testified that presentations which were a day or two late were often accepted so as to facilitate trade. The confirmer, however, would not go on record as stating that this was in fact a standard policy. One expert also testified that while the rule was strict compliance, the reality was often far different.

The court found that the document checkers had not been suborned by the beneficiary and had no knowledge of the antedating of the bill of lading. In doing so, the court noted that the document checkers' workload and education had to be considered. The court doubted whether the checkers had received "adequate training", and concluded that while they had been negligent, they were not guilty of fraudulent misrepresentation:

"Without in any sense being derogatory, it must be remembered that the three documents checkers were low level employees who had the monotonous task of checking about 20 sets of documents a day. They were almost certainly inadequately supervised. They acted incompetently and misguidedly but they were not fraudulent."

The misstatement in the confirmer's presentation, the court concluded, "was the consequence of the checkers' erroneous decision to waive late presentation and treat the documents as compliant."

Finding only negligence, and not fraudulent intent, the court concluded that it would not offend the public's conscience to allow the confirmer to recover from these defendants for deceit and conspiracy notwithstanding the confirmer's own misstatement in its presentation to the issuer. Accordingly, the court found the three defendants equally liable for the confirmer's losses and ordered equal contribution.



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.