Article

Factual Summary:

Bank issued LC whose terms stated, "Upon receipt at our counters in Geneva of documents in strict conformity with this stand-by LC terms and conditions, we shall pay you as per your instructions, value two Geneva/New York Bank working days." The beneficiary presented the required bill of sale and the acceptance of sale which stated that the date of delivery was August 21, 1998 in Geneva. Issuer dishonored presentation because "date of delivery of the vessel was stated in the bill of sale and the signed acceptance of sale to be 21 August 1998 when the LC stated that the vessel 'was for delivery...August 17-20 1998.'" Beneficiary sued issuer for wrongful dishonor. The High Court of England awarded summary judgment for the beneficiary on the basis that jurisdiction existed because England was "the place of performance of the obligation" and that the documents complied. On appeal by issuer, dismissed.

Legal Analysis:

1. Jurisdiction: Issuer contended that because the LC stated that the documents were to be presented "at our counters in Geneva", England did not have jurisdiction based on a decision of the European Court of Justice, Shenavai v. Kreischer [1987] ECR 239 at paragraph 19, which states, "...in a particular case of dispute concerned with a number of obligations arising under the same contract and forming the basis of the proceedings commenced by the plaintiff...it will be the principal obligation which will determine ... jurisdiction." The court rejected this argument, stating that "where a claim is based upon failure to pay money, the obligation in question is the obligation to pay the money, and the place of payment is the place of performance for the purposes of Article 5(1) [of the Brussels Convention] [a multinational treaty among the states of the European Union providing for jurisdiction and enforcement of judgments in civil and commercial matters]." The court stated that, "the place the obligation is to be performed usually constitutes the closest connecting factor between the dispute and the court having jurisdiction over it." It concluded that since the obligation of the issuer is the obligation to make payment, wherever the issuer is to make payment dictates jurisdiction.

2. Jurisdiction: Place of Performance of the Obligation: Issuer contended that the place of performance of the obligation was Geneva based on the terms of the LC which provided, "Upon receipt at our counters in Geneva of documents in strict conformity with this stand-by LC terms and conditions, we shall pay you as per your instructions, value two Geneva/New York Bank working days." The court rejected this argument, stating that it would "construe those words as contemplating that the place for payment was at the option of [the beneficiary] and to be stipulated in their instructions at the time of presentation of the documents to [the issuer]." The court also noted that "the provision [in the LC] for 'value two Geneva/New York Bank working days' [was] designed to allow for a sufficient time to cover the international transfer of dollar funds from Geneva to the place of payment...."

3. Jurisdiction: Forum Shopping: The issuer further argued that the beneficiary should not have an unfettered choice as to where litigation will take place, that the place of performance should be ascertainable from the contract itself, and that the place of performance should have a connection to the reality of the contract. The court ruled that the "gravamen of [issuer's] argument is 'forum shopping', which is not made out." The court found no evidence that the beneficiary chose London as a place of payment simply to give the English courts jurisdiction. The court ruled that it must ascertain the due place for payment according to the apparent intention of the contract and thus, "if by those terms, the parties anticipate that the place for payment may be determined at the option of one party and subsequently communicated in instructions to the other, then there...is no convincing argument of principle or policy why the rule of jurisdiction in Article 5(1) [of the Brussels Convention] should be treated as inapplicable, simply because the parties have agreed to the crystallization of the obligation as to the place of payment be postponed in that manner."

4. Discrepancy: Description of the Goods: Issuer contended that a discrepancy existed between the presentation documents and the LC. Issuer argued that "whereas the LC stated that it was in respect of a sale agreement for delivery during 17-20 August 1998, the acceptance and bill of sale presented stated that delivery had been made on 21 August 1998." The court rejected the issuer's claim, as "the LC does not state that the documents and in particular, the acceptance of sale and bill of sale, have to show that the vessel has been delivered within any range of dates, in particular the period August 17-20." "If it had been intended that the Bank was obliged to pay only against documents showing that delivery of the vessel had been effected by a particular date, that could readily have been provided for."

The court ruled that the issuer's claim of discrepancy was not sufficient because "the words 'for delivery in Taipei during 17-20 August 1998' were not part of the description of the goods" and thus the delivery documents were not discrepant with the LC. The court also stated that because "there was ample descriptive information in the acceptance and bill of sale presented which made clear that the vessel delivered and accepted was the vessel the subject of the sale agreement...it does not seem...that the date of actual delivery stated, i.e. one day behind the range 17-20 August appearing in the credit, rendered the description of the vessel contained in the documents inconsistent with the description of the goods in the credit."

Further, there was no "good reason" commercially to require the goods to be delivered on that particular date. "The fact that it was a day or so later than the delivery date provided for in the sale agreement would commercially be neither here nor there." Comment:

Comments

The meaning of the Brussels convention is beyond the scope of LC law. If "the place of the obligation" turns on the obligation to pay under the LC, however, LC law is relevant. The terms of the LC permitted the beneficiary to instruct the issuer to wire funds in the event that a decision to honor was made. That power, however, did not mean that the obligation to pay operated in the place where the funds were to be wired. The obligation to pay arose or existed at the place where the decision to honor or dishonor was made and where the funds to be wired were made available. Forwarding the proceeds of the LC, if any, is accidental to the decision to pay and should not subject the issuer to the jurisdiction of a court at the place where funds were to be wired for that reason alone. The LC is quite clear that the place of presentation and payment is in Geneva and would be so understood under standard international letter of credit practice.

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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.