Note: Plaintiff/applicant intended to construct an auto-racing track in Korea and contractually acquired exclusive rights to stage a grand prix motoring event there. Applicant further agreed to obtain a standby LC in favor of defendant/beneficiary to secure the undertaking. The agreement provided that, "if for any reason ... the event does not take place in 1998, without prejudice to any other rights that may be available to [beneficiary], [the beneficiary] shall be (a) absolutely entitled to draw down and retain all amounts secured by (or retain all amounts drawn under) the LC ... (b) deemed to be released from any of its obligations relating to the staging of that event for 1998...."

Applicant was unable to construct the auto-racing track in 1998 due to a serious downturn in the Korean economy. Applicant alleged that on April 2, 1998 beneficiary's executive officer and applicant orally agreed to terminate the agreement for exclusive rights and the LC, and agreed to form a new contract at a later date. However, neither beneficiary's officer nor applicant were aware that beneficiary's accounts department had drawn on the LC that very day. The beneficiary refused to refund the proceeds, and asserted that the future negotiation of a new contract for exclusive rights had "no bearing on the LC." The applicant brought action against the beneficiary for wrongful presentation of documents in the Queen's Bench Division, England.

Applicant contended that beneficiary orally agreed to revoke the standby LC. The court ruled that the beneficiary did not waive its rights to draw because the beneficiary's executive officer did not specifically agree to forego the beneficiary's rights to the LC under the original contract.

That the "LC position was left open ... seems to [the court] to follow from the following matters: (1) The inherent unlikelihood that any substantial variation in the parties' legal position was intended to be agreed at a [April 2, 1998] meeting primarily arranged so that [beneficiary's executive officer] could discuss matters with the [governor of applicant's province], to which [applicant's representatives] came at the last minute, at which it was agreed that no lawyers need be present and of which no one made a contemporaneous note. (2) The fact that ... the questions of the date for the Grand Prix and thus the termination of the contract for 1998 were the first matters to be discussed at the meeting; it was only once it was it was clear that the Grand Prix would have to be in the year 2000, if at all, that the question of the letter of credit was raised by [applicant's representative]. (3) [A written termination agreement] was never signed by beneficiary ... and ... [the contract] envisages a further discussion not apt to reflect a binding agreement as to the fate of the letter of credit. (4) The minutes of [applicant's] board meeting of April 6, 1998 do not mention any revocation of the letter of credit; indeed they do not mention the letter of credit at all saying merely that the current contract was agreed to be terminated 'without payment of penalty' ... ."

The Queen's Bench Division ruled that the applicant's claim failed.



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.