Article

Factual Summary: The buyer and seller agreed to pay for the sale of two sections of a floating dock by means of commercial LCs. As the court summarized it:

the sale agreement envisaged that the sections could arrive at or near Nigpo on Jan 29 but not earlier, and that delivery would take place by Feb 15. The letters of credit were required to be issued by Feb 1 and one of the specified documents, exhibit D, was to certify the place, date and time of arrival at or near Ningpo. Payment therefore for each section could not be demanded until after the section arrived, and delivery was to take place immediately after payment was received.

Application for the LCs was made in New York on 31 January 1985, two days before they were required to be issued under the sales contract. On 1 February, the text of the credit was received by issuer's London branch but referenced exhibits were not received until 4 February. As issued, the credits indicated that the "arrival date" of the sections was to be 29 January.

At that point, the beneficiary and its soliciters met with officers of the issuer in London and discussed problems with the credit in considerable detail. In particular, the court focused on the lack of awareness of the parties of the significance of the arrival date. The court concluded that the bank representatives had not focused on the difficulty of the arrival date and were not aware of the non-arrival of the sections on 29 January. The court found that there was no express reference during this meeting to the arrival date.

It was agreed that an amendment would be sought to Exhibit D which, among other things, would show the date of arrival. The court noted that: "It was not suggested by either side that the sections had already arrived, or that the date of arrival could be shown as Jan 29 there and then." One of the questions asked was: "Please clarify what is meant by Quote Arrival date arrive at Nigpo on 29 th Jan 85 Unquote followed by Quote The latest delivery date is 28 Feb 85 Unquote."

Negotiations ensued between the buyer/applicant and the issuer in New York, the seller/beneficiary and the buyer/applicant by telecommunication, and the seller/beneficiary and the issuer's branch in London. In the context of the communications between the seller and buyer, there were discussions regarding the arrival of the dock sections. On 5 February the London branch received the NY branch's response to query about the arrival date. It stated:

Regarding point 5 of your telex arrival date Quote Arrive at Ningpo on 29 January 1985 Unquote means the date the Dry Dock's arrive as opposed to the delivery date being the date that they are delivered to the Buyer.

Although it was 6:00 PM, the London branch contacted the beneficiary and showed it a portion of the reply but not the reference to the arrival date. The court concluded that this omission was not deliberate. The amendments were then typed but not mailed until 8 February for an unexplained reason and did not arrive at the beneficiary's offices until 12 February.

In the meantime, relying on the amendments, the beneficiary had ordered delivery of the sections. On 8 February, the London branch received a telex from the NY branch stating: "Openers think vessel arrived on 7 th February 1985. We would point out latest arrive date under Credits in 29 th January 1985." The court noted:

It is unusual for a message of this kind to be sent by the issuing bank, in effect warning the advising bank to take care when the documents are presented at some future date. No action was taken, apart from attaching the telex to the bank's file together with a note "F/D CARE" which meant "Front Desk take care" and was [the supervisor's] way of alerting the bill checkers to it.

Despite allegations from the beneficiary that these actions indicated that the issuer was concerned about the arrival date, the court concluded that "the fact of non-arrival by Jan 29 had made no impression on their minds".

When the documents were presented late on 8 February, the London branch made three examinations in accordance with its procedure for large presentations. That afternoon the beneficiary was informed that a telex was being sent to the NY office seeking approval of two discrepancies, namely the arrival date and the absence of evidence of a delivery date. On instruction of the NY office, the London branch dishonored on 12 February. Re-presentation was made in NY which was dishonored on the basis of the arrival date alone as was a third presentation. The beneficiary brought an action for wrongful dishonor on the basis of an agreement to honor the presentation or estoppel. The court found for the beneficiary on the basis of the existence of an agreement or implied representation on which they relied in delivering the dock sections.

Legal Analysis:

1. Estoppel: The court noted that there was an agreement between the issuer and the beneficiary to amend the credit. It then focused on the question of "whether the authorized agreement which was reached carried with it any necessary implication that late arrival of one or both sections would not be relied upon as a ground for rejecting documents otherwise in accordance with the credit." Using an objective test ("the meaning which may reasonably be attributed to the words or conduct of the offeror or representor, regardless of that person's actual intention at the time") the court concluded that:

a person obtaining the amending agreement from the bank could reasonably assume that the bank would not rely thereafter on late arrival, if he could first make the basic assumption that the bank knew of the existence of the arrival sentence in the credits (this the bank can scarcely deny' regardless of the identity or authority of the individuals involved) and that it knew of the fact of non-arrival on Jan 29 when the amending agreement was made on Feb. 4/5.

On this basis, it concluded that a reasonable person "was entitled to regard the amending agreement as disentitling the bank from rejecting the documents for non-arrival on Jan. 29 ... ." The court did not consider the presence of the beneficiary's solicitors nor their different understanding prevented the beneficiary from relying on this inference since they remained silent. Since the beneficiary ordered that the sections be delivered on the basis of the agreed amendments, the court also found detrimental reliance.

2. Non Documentary Conditions under UCP400: The beneficiary contended that the second reason for dishonor of the first presentation, the lack of evidence of a delivery date, was not supported by the terms of the credit. Noting that the credit did not specify a document evidencing this requirement, the court accepted the bank's contention that it was entitled to insist on documentary proof of delivery even though not specified in the credit.

Comment:

The application of equitable principles of estoppel to a presentation under an LC has been vigorously resisted by the LC community. Its use in this case, even given its extraordinary facts, is worrisome.

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