Letters of Credit in UK Law

Irrevocable letters of credit and bank guarantees given in circumstances such that they are the equivalent of an irrevocable letter of credit have been said to be the life blood of commerce. Thrombosis will occur if, unless fraud is involved, the Courts intervene and thereby disturb the mercantile practice of treating rights thereunder as being the equivalent of cash in hand.

A bank which gives a performance guarantee must honour that guarantee according to its terms. It is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the supplier has performed his contracts obligation or not; nor with the questionwhether the supplier is in default or not. The bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions.

The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear, both as to the fact of fraud and as to the bank's knowledge.

He pointed out that the assignment by way of charge between Wills and the second and third creditors was binding as between them and that the equitable doctrine of notice was concerned only to determine priority between competing incumbrancers. To allow the garnishee order to override the charges would enable the judgment debtor to obtain not the property of the judgment debtor, but that of someone else.

If the court of any of the countries should interfere with the obligations of one of its banks (by ordering it not to pay under a letter of credit) it would strike at the very heart of that country's international trade. No foreign seller would supply goods to that country on letters of credit—because he could no longer be confident of being paid. No trader would accept a letter of credit issued by a bank of that country if it might be ordered by its courts not to pay.

A debt is generally to be looked upon as situate in the country where it is properly recoverable or can be enforced and it is noteworthy that the sellers here submitted voluntarily to the dismissal of their earlier proceedings against the bank in North Carolina.

"Have the plaintiffs established that it is seriously arguable that, on the material available, the only realistic inference is that [the beneficiary] could not honestly have believed in the validity of its demands on the [letter of credit].