UK - Roger Fayers. US - James G. Barnes.
Volume 6 No 3 Summer 2000
Contrasting UK and US views of the controversial Banco Santa
Contrasting UK and US views of the controversial Banco Santa
In the Santander case, the judges opined that Santander discounted the documents to discharge its own debt as a confirming bank under the credit. But in fact, by such discounting, it had also simultaneously discharged the debt of the issuing bank, because the beneficiary, after receipt of the payment from the confirming bank, would not claim payment from the issuing bank.
So although there were two obligators for payment in the same LC (the issuing bank and the confirming bank), after discounting, the confirming bank had "killed two birds with one stone" i.e., had discharged two debts with one payment.
Thus we understand why the court considered that the confirming bank had discharged its own debt as well as the debt of the issuing bank itself by its discounting act.
If the confirming bank had also discharged the debt of the issuing bank, then the issuing bank might have an obligation to reimburse the confirming bank.
However, only if the confirming bank exercised its recourse action to the beneficiary, then the beneficiary might have a right to claim on the issuing bank for payment by making a second presentation of documents, but only before the LC's expiry. But the confirming bank could not have exercised its recourse right because of its role being a confirming bank, according to article 9 (b) (iv) of UCP 500 that states a confirming bank "negotiates" without recourse.
Negotiation is similar to discounting, althouogh the ICC Banking Commission considers that a bank buying its own drafts (drafts drawn on the discounting bank itself) is called "discounting" and buying other bank's drafts (drafts drawn on another bank) is called "negotiation". However, basically, the discounting bank is buying the drafts anyway, and most important of all, for the sake of "discharing of debts" argument here, the debt of the issuing bank under the same LC was simultaneously discharged after the discounting action by the confirming bank.
That approval or authority from the issuing bank for discounting is needed to trigger on the confirming bank's reimbursement rights is another issue.
DISCLAIMERS:
The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.
We are from www.tolee.com
[edited 12/27/01 5:45:38 PM]
So although there were two obligators for payment in the same LC (the issuing bank and the confirming bank), after discounting, the confirming bank had "killed two birds with one stone" i.e., had discharged two debts with one payment.
Thus we understand why the court considered that the confirming bank had discharged its own debt as well as the debt of the issuing bank itself by its discounting act.
If the confirming bank had also discharged the debt of the issuing bank, then the issuing bank might have an obligation to reimburse the confirming bank.
However, only if the confirming bank exercised its recourse action to the beneficiary, then the beneficiary might have a right to claim on the issuing bank for payment by making a second presentation of documents, but only before the LC's expiry. But the confirming bank could not have exercised its recourse right because of its role being a confirming bank, according to article 9 (b) (iv) of UCP 500 that states a confirming bank "negotiates" without recourse.
Negotiation is similar to discounting, althouogh the ICC Banking Commission considers that a bank buying its own drafts (drafts drawn on the discounting bank itself) is called "discounting" and buying other bank's drafts (drafts drawn on another bank) is called "negotiation". However, basically, the discounting bank is buying the drafts anyway, and most important of all, for the sake of "discharing of debts" argument here, the debt of the issuing bank under the same LC was simultaneously discharged after the discounting action by the confirming bank.
That approval or authority from the issuing bank for discounting is needed to trigger on the confirming bank's reimbursement rights is another issue.
DISCLAIMERS:
The opinions, comments and/or advices expressed here are solely for discussion or debating purposes. They may change with time, for example, when new perspectives are taken or after new developments or changes in trade customs and practices are seen in the respective fields. You should not rely on or act accordingly to such opinions, comments and/or advices and should seek professional opinions from your own lawyers, experts and/or consultants. We do not assume any liability or responsibility for any damages, losses or consequences of whatever nature, whether directly or indirectly related to or caused by our opinions, comments and/or advices.
We are from www.tolee.com
[edited 12/27/01 5:45:38 PM]
Contrasting UK and US views of the controversial Banco Santa
Dearest T.O.,
I have lunched most agreeably today and therefore at last feel inclined to take you up on your remarks regarding the decision made by our marvellous courts, in England, regarding the ‘Santander case’, which appeared to cause particular consternation in one or two quite excitable U.S. commentators.
The decision quite simply hinged on the fact that whereas in UCP 500 there is express protection for a negotiating bank (e.g. sub-Article 10(d) and sub-Article 14(a)) and whereas under English statute law there is protection for the discounter of a draft (S61 of the Bills of Exchange Act, 1882), there is not any protection for the discounter of documents presented under a credit available by deferred payment, whether under UCP 500 or English law, against allegations of fraud in the underlying transaction where settlement has been effected prior to the due date (unlike -I understand- the Uniform Commercial Code in the U.S.A.). Therefore, the discounting of documents under a credit available by deferred payment is done at the risk of the discounting bank, unlike with negotiation under a credit available by negotiation and discounting under a credit available by drafts drawn on the (U.K.) nominated/issuing (as appropriate) bank.
Trust this clarifies matters.
Best regards, Jeremy.
I have lunched most agreeably today and therefore at last feel inclined to take you up on your remarks regarding the decision made by our marvellous courts, in England, regarding the ‘Santander case’, which appeared to cause particular consternation in one or two quite excitable U.S. commentators.
The decision quite simply hinged on the fact that whereas in UCP 500 there is express protection for a negotiating bank (e.g. sub-Article 10(d) and sub-Article 14(a)) and whereas under English statute law there is protection for the discounter of a draft (S61 of the Bills of Exchange Act, 1882), there is not any protection for the discounter of documents presented under a credit available by deferred payment, whether under UCP 500 or English law, against allegations of fraud in the underlying transaction where settlement has been effected prior to the due date (unlike -I understand- the Uniform Commercial Code in the U.S.A.). Therefore, the discounting of documents under a credit available by deferred payment is done at the risk of the discounting bank, unlike with negotiation under a credit available by negotiation and discounting under a credit available by drafts drawn on the (U.K.) nominated/issuing (as appropriate) bank.
Trust this clarifies matters.
Best regards, Jeremy.
Contrasting UK and US views of the controversial Banco Santa
Jeremy,
We are commenting on the issue of "discharge of debts" in the Santandar case and not the issue of BOE Act 1882 of UK upon which your explanation is based.
We talk about the holes in a umbrella and you explain why the sky must rain, which of course we understand.
As Professor James Byrnes once commented: " 50% of the judicial decisions (USA only or also for the whole world? We are not so sure) are wrong. And for those 50% that are right, half of them are with the wrong reasons". That is what that concerns us.
Having said that, we also have 5 star Judges such as Lord Dunning, Lord Diplock and others that gave us golden versues to quote in our Expert's Report.
http://www.tolee.com
[edited 11/28/01 9:36:57 PM]
We are commenting on the issue of "discharge of debts" in the Santandar case and not the issue of BOE Act 1882 of UK upon which your explanation is based.
We talk about the holes in a umbrella and you explain why the sky must rain, which of course we understand.
As Professor James Byrnes once commented: " 50% of the judicial decisions (USA only or also for the whole world? We are not so sure) are wrong. And for those 50% that are right, half of them are with the wrong reasons". That is what that concerns us.
Having said that, we also have 5 star Judges such as Lord Dunning, Lord Diplock and others that gave us golden versues to quote in our Expert's Report.
http://www.tolee.com
[edited 11/28/01 9:36:57 PM]
Contrasting UK and US views of the controversial Banco Santa
T.O.,
Assuming I am able to do so, I shall try to respond to -what you consider to be- your separate point at some time in the future.
Jeremy
Assuming I am able to do so, I shall try to respond to -what you consider to be- your separate point at some time in the future.
Jeremy
Contrasting UK and US views of the controversial Banco Santa
T.O.,
I have carried out a review of the judgement of the Court of Appeal in the Santander case and regret I cannot find the judges opining that Santander discounted the documents to discharge its own debt as a confirming bank under the credit. I also notice that in his article in DCI, Roger Fayers says:
‘The court rejected Santander 's interpretation of the arrangement as being one where payment of the discounted sum to Bayfern discharged the obligations of Santander and Paribas (as confirming and issuing banks), finding instead that the intention was to effect an assignment and to keep alive the joint and several liability of the confirming and issuing banks.’
Perhaps you could kindly let me know where I may find the information on which your comments were based, so I may respond to them?
Finally, sincere apologies if I have missed something obvious in the Court of Appeal judgement or Roger Fayer’s article.
Jeremy.
I have carried out a review of the judgement of the Court of Appeal in the Santander case and regret I cannot find the judges opining that Santander discounted the documents to discharge its own debt as a confirming bank under the credit. I also notice that in his article in DCI, Roger Fayers says:
‘The court rejected Santander 's interpretation of the arrangement as being one where payment of the discounted sum to Bayfern discharged the obligations of Santander and Paribas (as confirming and issuing banks), finding instead that the intention was to effect an assignment and to keep alive the joint and several liability of the confirming and issuing banks.’
Perhaps you could kindly let me know where I may find the information on which your comments were based, so I may respond to them?
Finally, sincere apologies if I have missed something obvious in the Court of Appeal judgement or Roger Fayer’s article.
Jeremy.
Contrasting UK and US views of the controversial Banco Santa
Jeremy,
BANCO SANTANDER CASE ISSUES
When we refer to a legal case, for safety sake, we always refer to the original text of Lloyd’s Law Reports (Banking) which we subscribe every year as an important reference publication in our consultant library. Lloyd’s sends us a booklet almost each month to report the latest cases and at the end of the year, Lloyd’s would send a hard cover volume as a compilation of all the cases in that year.
We refer to the volume for 2000 reporting the decision of the Court of Appeal of Banco Santander SA v. Bayfern Limited and Ors., 1,2, February; 25 February 2000. Please see the judgment by Lord Justice Waller on pages 166-169. Please start with the paragraph beginning with
“Mr. Hapgood QC for Santander and Mr. Howard QC for Paribas approached the matter from different perspectives both unsurprisingly seeking to fight the battle on what they conceived to be their strongest grounds. Indeed their approaches indicated that they were at one as to which ground suited their respective cases best. So Mr. Hapgood wished to take his first point that the effect of the discounting by Santander was not an assignment. but a discharge of Santander’s obligation to Bayfern, and thus he argued his client’s claim was simply to reimbursement under Article 14 a i of the UCP…”
Comments by lawyers and experts may not share the views of the court. They cover only some of the issues important to the authors, but not necessarily every issue dealt with in the cases. That is perhaps why you do not see such issues in the article by Roger Fayers.
http://www.tolee.com
[edited 12/5/01 4:31:12 PM]
BANCO SANTANDER CASE ISSUES
When we refer to a legal case, for safety sake, we always refer to the original text of Lloyd’s Law Reports (Banking) which we subscribe every year as an important reference publication in our consultant library. Lloyd’s sends us a booklet almost each month to report the latest cases and at the end of the year, Lloyd’s would send a hard cover volume as a compilation of all the cases in that year.
We refer to the volume for 2000 reporting the decision of the Court of Appeal of Banco Santander SA v. Bayfern Limited and Ors., 1,2, February; 25 February 2000. Please see the judgment by Lord Justice Waller on pages 166-169. Please start with the paragraph beginning with
“Mr. Hapgood QC for Santander and Mr. Howard QC for Paribas approached the matter from different perspectives both unsurprisingly seeking to fight the battle on what they conceived to be their strongest grounds. Indeed their approaches indicated that they were at one as to which ground suited their respective cases best. So Mr. Hapgood wished to take his first point that the effect of the discounting by Santander was not an assignment. but a discharge of Santander’s obligation to Bayfern, and thus he argued his client’s claim was simply to reimbursement under Article 14 a i of the UCP…”
Comments by lawyers and experts may not share the views of the court. They cover only some of the issues important to the authors, but not necessarily every issue dealt with in the cases. That is perhaps why you do not see such issues in the article by Roger Fayers.
http://www.tolee.com
[edited 12/5/01 4:31:12 PM]
Contrasting UK and US views of the controversial Banco Santa
Dear T.O.,
I have re-read the Lloyds’s Law Report of the case to which you refer. I will readily admit that it is not without difficulty that I follow Waller LJ’s reasoning, and I could well imagine this being compounded if one’s first language were not English. Therefore, I could understand there being more than one interpretation of his words.
Having re-read the report, I have to say that am still unable to find any obvious evidence of the judges holding the opinion that -in law- Santander’s discount of the documents discharged its own debt, as confirming bank, to the beneficiary. Based on the report, and in particular the section you have quoted, my impression is that it was instead the barrister representing Santander (Mark Hapgood QC) who opined ‘the discounting by Santander was …… a discharge of Santander’s obligation to [the beneficiary]’.
On the contrary, it seems to me that in fact the judges did not regard Santander’s discount as discharging its obligations to the beneficiary. I would identify the following statements of Waller LJ in particular for this view:
Page 168, 2nd column:
“1. Santander could not on [the due date] be claiming as against Paribas as a confirming Bank which has paid, until it, as assignee of [the beneficiary], has notionally made the claim against itself at maturity date.
….. unless Santander can make good its claim as assignee of [the beneficiary], the terms of UCP are irrelevant …..”.
Page 170, 1st column:
“If I am right so far ……. Santander’s claim is as assignee ……
However, in case I am wrong in my conclusion so far …… I turn to the terms of the UCP.
Terms of the UCP
These terms would apply if Santander had paid [the beneficiary] on [the date of discount] the [lesser, discounted sum] in discharge of the obligations of Paribas and Santander under the letter of credit.”
I appreciate you might not share my views. However, should you wish to continue this discussion I feel I should mention that I do not understand -with apologies- the points you are making that follow on from your interpretation of the judgement and therefore would need clarification.
Regards, Jeremy
I have re-read the Lloyds’s Law Report of the case to which you refer. I will readily admit that it is not without difficulty that I follow Waller LJ’s reasoning, and I could well imagine this being compounded if one’s first language were not English. Therefore, I could understand there being more than one interpretation of his words.
Having re-read the report, I have to say that am still unable to find any obvious evidence of the judges holding the opinion that -in law- Santander’s discount of the documents discharged its own debt, as confirming bank, to the beneficiary. Based on the report, and in particular the section you have quoted, my impression is that it was instead the barrister representing Santander (Mark Hapgood QC) who opined ‘the discounting by Santander was …… a discharge of Santander’s obligation to [the beneficiary]’.
On the contrary, it seems to me that in fact the judges did not regard Santander’s discount as discharging its obligations to the beneficiary. I would identify the following statements of Waller LJ in particular for this view:
Page 168, 2nd column:
“1. Santander could not on [the due date] be claiming as against Paribas as a confirming Bank which has paid, until it, as assignee of [the beneficiary], has notionally made the claim against itself at maturity date.
….. unless Santander can make good its claim as assignee of [the beneficiary], the terms of UCP are irrelevant …..”.
Page 170, 1st column:
“If I am right so far ……. Santander’s claim is as assignee ……
However, in case I am wrong in my conclusion so far …… I turn to the terms of the UCP.
Terms of the UCP
These terms would apply if Santander had paid [the beneficiary] on [the date of discount] the [lesser, discounted sum] in discharge of the obligations of Paribas and Santander under the letter of credit.”
I appreciate you might not share my views. However, should you wish to continue this discussion I feel I should mention that I do not understand -with apologies- the points you are making that follow on from your interpretation of the judgement and therefore would need clarification.
Regards, Jeremy
Contrasting UK and US views of the controversial Banco Santa
Jeremy,
THE PASSAGE THAT CREATES THE CONFUSIONS
We do not think that the confusions arise from the passages quoted by you. The passage that creates the confusions should be the one recording the decision of Lord Justice Waller on page 168, at the end of the left hand side column, where our previous posting is based on. Now we would quote this passage as follows:
“I further accept that the liability of Santander and Paribas under the letter of credit was joint and several (see the same paragraph). But IT DOES NOT FOLLOW where as in the instant case there is a joint and several liability, and it is the intention of the parties to the assignment to keep alive the obligation which is joint and several, that THAT CANNOT BE ACHIEVED BY AN ASSIGNMENT BY THE OBLIGEE (IN THIS CASE BAYFERN) TO ONE OF THE JOINT AND SEVERAL CONTRACTORS, OF HIS RIGHTS AGAINST BOTH JOINT AND SEVERAL CONTRACTORS”.
By using “double negatives” in the statement “It does NOT follow that THAT CANNOT be achieved…”, Lord Justice Waller actually means “positive”. He intents to say “It FOLLOWS that THAT CAN BE ACHIEVED by an assignment by the obligee (in this case Bayfern) to ONE of the joint and several contractors, of his rights against BOTH joint and several contractors”.
Hence, we agree with the decision of Lord Justice Waller. In that case we have to modify our previous posting in this regard to avoid further confusions.
CONFUSIONS DUE TO USE OF DOUBLE NEGATIVE
We were in fact confused by the double negatives. That is one of the reasons why we advise you in our previous posting not to write like a Judge, using doubt negatives, which is a feature peculiar to English English but not in American English, as far as "in writing" is concerned. Anyway, many thanks for your reminder so that we may identify our confusions.
However, sometimes "double negatives" may not mean "positive". For example "I don't disagree" is used when one cannot convince the other side.
What if we used triple negatives? For example "I don't discourage you to disagree..." or "I don't disgree wtih you to disagree...". This appears to be stepping into the domain of Hatem, a master in English Literature from England.
http://www.tolee.com
[edited 12/8/01 5:09:08 PM]
THE PASSAGE THAT CREATES THE CONFUSIONS
We do not think that the confusions arise from the passages quoted by you. The passage that creates the confusions should be the one recording the decision of Lord Justice Waller on page 168, at the end of the left hand side column, where our previous posting is based on. Now we would quote this passage as follows:
“I further accept that the liability of Santander and Paribas under the letter of credit was joint and several (see the same paragraph). But IT DOES NOT FOLLOW where as in the instant case there is a joint and several liability, and it is the intention of the parties to the assignment to keep alive the obligation which is joint and several, that THAT CANNOT BE ACHIEVED BY AN ASSIGNMENT BY THE OBLIGEE (IN THIS CASE BAYFERN) TO ONE OF THE JOINT AND SEVERAL CONTRACTORS, OF HIS RIGHTS AGAINST BOTH JOINT AND SEVERAL CONTRACTORS”.
By using “double negatives” in the statement “It does NOT follow that THAT CANNOT be achieved…”, Lord Justice Waller actually means “positive”. He intents to say “It FOLLOWS that THAT CAN BE ACHIEVED by an assignment by the obligee (in this case Bayfern) to ONE of the joint and several contractors, of his rights against BOTH joint and several contractors”.
Hence, we agree with the decision of Lord Justice Waller. In that case we have to modify our previous posting in this regard to avoid further confusions.
CONFUSIONS DUE TO USE OF DOUBLE NEGATIVE
We were in fact confused by the double negatives. That is one of the reasons why we advise you in our previous posting not to write like a Judge, using doubt negatives, which is a feature peculiar to English English but not in American English, as far as "in writing" is concerned. Anyway, many thanks for your reminder so that we may identify our confusions.
However, sometimes "double negatives" may not mean "positive". For example "I don't disagree" is used when one cannot convince the other side.
What if we used triple negatives? For example "I don't discourage you to disagree..." or "I don't disgree wtih you to disagree...". This appears to be stepping into the domain of Hatem, a master in English Literature from England.
http://www.tolee.com
[edited 12/8/01 5:09:08 PM]
Contrasting UK and US views of the controversial Banco Santa
T.O.,
The passage you quote caused me particular difficulty and I had to read it several times in order to understand it (that is, assuming I have understood it). I will be honest and say that while I agree with the result of the case, I am not wholly convinced by Waller LJ’s reasoning.
As to double negatives, I agree(!) they are often frowned upon by those who advocate simple English, with good reason. However, I do believe they allow one to give words a nuance. For example, I regard that there is a subtle difference between ‘it us not uncommon that’ and ‘it is common that’.
As to Hatem, if he could please explain to me the use of the subjunctive tense in English (over and above what it would say in a dictionary), something with which I often struggle, I’d be most grateful.
Regards, Jeremy
The passage you quote caused me particular difficulty and I had to read it several times in order to understand it (that is, assuming I have understood it). I will be honest and say that while I agree with the result of the case, I am not wholly convinced by Waller LJ’s reasoning.
As to double negatives, I agree(!) they are often frowned upon by those who advocate simple English, with good reason. However, I do believe they allow one to give words a nuance. For example, I regard that there is a subtle difference between ‘it us not uncommon that’ and ‘it is common that’.
As to Hatem, if he could please explain to me the use of the subjunctive tense in English (over and above what it would say in a dictionary), something with which I often struggle, I’d be most grateful.
Regards, Jeremy