Dimitri,
I have reviewed the Attock case and the DCI article to which you refer. I can only say that I cannot see why the author says –with respect to Attock-‘the performance guarantee is not, OR AT ANY RATE NOT NECESSARILY, infected with the propoer law of the contract’ [emphasis added]. In Attock, Staughton LJ said:
“Proper law apart from express agreement
In the alternative the owners argued that the performance bond was by implication governed by English law.
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In Offshore International S. A. v. Banco Central S. A., [1976] 2 Lloyd's Rep. 402; [1977] 1 W.L.R. 399 Mr. Justice Ackner held that a letter of credit opened by a Spanish bank, and payable at (although not confirmed by) a bank in New York, was governed by the law of New York. In reaching that conclusion the Judge relied on Gutteridge & Megrah, The Law of Bankers' Commercial Credits (5th ed.) p. 198:
. . . the presumption must be that matters connected with the performance by the banker of his contract under a commercial credit are to be regulated by the law prevailing at the place of performance.
It does not appear what system of law governed the underlying commercial transaction, which was for the construction of an oil rig.
That decision was approved by the Court of Appeal in Power Curber International Ltd. v. National Bank of Kuwait, [1978] 1 Lloyd's Rep. 166; [1981] 1 W.L.R. 1233. It was there held that a letter of credit was governed by law of the place where payment was to be made under it. Once again it does not appear that the proper law of the underlying commercial transaction was thought to be relevant. Indeed Lord Denning M.R. quoted from the Uniform Customs and Practice for Documentary Credits (1974 revision):
(C) Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts.
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... I do hold that art. (C), quoted by Lord Denning M.R., does no more than restate the common law applicable to all letters of credit and performance bonds unless otherwise agreed. That appears from a number of recent cases - see for example Edward Owen Engineering Ltd. v. Barclays Bank International Ltd., [1978] 1 Lloyd's Rep. 166; [1978] Q.B. 159.
Almost every letter of credit or performance bond is issued pursuant to some underlying commercial transaction. Yet we were referred to no case where it had even been argued that one was affected by the proper law of the other. Seeing that the letter of credit of performance bond is intended to be a separate transaction, I would hold that it is not so affected, and is ordinarily governed by the law of the place where payment is to be made under it.
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Mr. Rokison relied on art. 26 of the building contract, which provided:
26.1 Regardless of the place of signing this TURNKEY CONTRACT the place of performance, or otherwise, this TURNKEY CONTRACT and all Annexures, amendments, modifications, alterations or supplements hereto, shall be construed under, governed by, and the legal relations between the Parties hereto determined in accordance with, the laws of ENGLAND.
I do not find that of any assistance, since I would not regard the performance bond as an annexure or a supplement to the building contract.
Accordingly I do not find there to be a good arguable case, at this stage, that the performance bond was by implication governed by English law.”
The other two judges simply agreed.
Jeremy