Banque de l'Indochine et de Suez S.A. v J. H. Rayner (Mincing Lane) Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE KERR,SIR SEBAG SHAW |
| Judgment Date | 17 December 1982 |
| Judgment citation (vLex) | [1982] EWCA Civ J1217-1 |
| Docket Number | 82/0493 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 December 1982 |
[1982] EWCA Civ J1217-1
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE PARKER)
Royal Courts of Justice.
The Master of The Rolls
(Sir John Donaldson)
Lord Justice Kerr
and
Sir Sebag Shaw (not Present)
82/0493
MR. MARK SAVILLE, Q.C. and MR. M. COLLINS (instructed by Messrs. Durrant Piesse) appeared on behalf of the (Plaintiffs) Respondents.
MR. ROGER BUCKLEY, Q.C. and MR. R. TER HAAR (instructed by Messrs. Clyde & Co.) appeared on behalf of the (Defendants) Appellants.
This is an appeal by sugar merchants from a judgment of Mr. Justice Parker who held that the bank was entitled to the repayment of money paid "under reserve" to the merchants who drew on a letter of credit confirmed by the bank. The facts and the reasons for the decision of the learned judge are admirably set out in his judgment of the 21st July, 1982, which is reported in (1982) 2 Lloyd's List Reports 476. Accordingly no useful purpose is served by restating them in my own words.
The issues in the appeal were:
-
(a) What was the agreement of the parties in paying and receiving the price of the sugar "under reserve".
-
(b) Whether the bank was under any obligation to pay under the letter of credit in the light of three alleged discrepancies in the documentation, namely:
-
(i) The absence of a Steamship Company Certificate certifying that the vessel belonged to a Shipping Company which was a member of an International Shipping Conference.
-
(ii) The clausing of the Bill of Lading "not portmarked, vessel not responsible for incorrect delivery. Any extra expense incurred in consequence to be borne by consignee".
-
(iii) [Numbered 4 in the judgment]. The difficulty in relating the certificates of weight, quality and packing and certificates of origin and E.U.R.I certificates to the remaining documents and to the letter of credit.
-
-
(c) The consequences of decisions under (a) and (b) above.
" Payment under reserve"
It seems that it is not unusual for a confirming bank to be asked to pay on documents which in its view do not fully comply with the terms of the letter of credit. The bank then has to decide whether (a) to refuse payment, (b) to pay, taking an indemnity from the beneficiary in respect of any loss or damage resulting from the deficiency in the documentation or (c) to pay the beneficiary "under reserve". Which course is adapted depends upon the extent and importance of the deficiencies as perceived by the confirming bank, the likelihood of the bank at whose request the credit was opened ("the issuing bank") and that bank's customer refusing to accept the correctness of any payment to the beneficiary and the credit worthiness, and value attached by the paying bank to the goodwill, of the person seeking to draw on the letter of credit. It is a tribute to the standing of J.H. Rayner (Mincing Lane) Ltd. in the City of London that, notwithstanding the bank's conviction that the documents were seriously defective, they paid them "under reserve".
The use of the expression "payment under reserve", as denoting the character of a payment, is, we were told, widespread and would undoubtedly serve a very useful purpose if it had a defined and generally accepted meaning. Unfortunately it seems that it has not. If this is correct, banks will be most unwise to use it without at the same time stating precisely what they mean by it. In the longer term the International Chamber of Commerce, who are the authors and guardians of the Uniform Customs and Practice for Documentary Credits might like to turn their minds to this problem when undertaking the next revision. Meanwhile we have to determine what the parties meant by the expression when they used it on this occasion.
It is common ground that it relates to the circumstances in which the beneficiary can be called upon to repay the money which he has been paid under the letter of credit. The competing submissions are that (1) the money is repayable on demand if the issuing bank, in reliance upon some or all of the deficiencies alleged by the confirming bank, declines to reimburse the confirming bank or to ratify the payment, the beneficiary then being left to sue the confirming bank; (2) the money is repayable if, but only if, the circumstances in (1) exist and the beneficiary accepts that the documentation was defective or this is established in a suit brought by the confirming bank against the beneficiary. If (2) is correct, the only effect of the qualification upon the payment, albeit an important effect, is that the beneficiary cannot resist an order for repayment on the basis that the payment itself had been made under a mistake of law. This was the submission accepted by the learned judge and his reasons appear at page 479L of the report of his judgment.
The point is clearly one of difficulty. Mr. Saville characterised the view of the learned judge as "a lawyer's view" as contrasted with "a commercial view" and I think that this is right. It depends for its validity upon the parties having had it well in mind that money payable under a mistake of law is irrecoverable and wishing to do no more than eliminate this defence. This seems to me to be an improbable premise, when the parties are a commercial bank and a commodity merchant. As I see it, the dialogue to be imputed to the parties goes something like this:
Merchant: "These documents are sufficient to satisfy the terms of the letter of credit and certainly will be accepted by my buyer. I am entitled to the money and I need it."
Bank : "If we thought that the documents satisfied the terms of the letter of credit, we would pay you at once. However we do not think that they do and we cannot risk paying you and not being paid ourselves. We are not sure that your buyer will authorise payment, but we can of course ask."
Merchant: "But that will take time and meanwhile we shall have a cash flow problem."
Bank : "Well the alternative is for you to sue us and that will also take time."
Merchant: "What about your paying us without prejudice to whether we are entitled to payment and then your seeing what is the reaction of your correspondent bank and our buyer?"
Bank : "That is all right, but if we are told that we should not have paid, how do we get our money back?"
Merchant: "You sue us."
Bank : "Oh no, that would leave us out of our money for a substantial time. Furthermore it would involve us in facing in two directions. We should not only have to sue you, but also to sue the issuing bank in order to cover the possibility that you might be right. We cannot afford to pay on those terms."
Merchant: "All right. I am quite confident that the issuing bank and my buyer will be content that you should pay, particularly since the documents are in fact in order. You pay me and if the issuing bank refuses to reimburse you for the same reason that you are unwilling to pay, we will repay you on demand and then sue you. But we do not think that this will happen."
Bank ; "We agree. Here is the money 'under reserve'."
I now turn to the alleged defects in the documentation.
The Conference Line Point
The letter of credit called for the presentation of documents covering shipment of 2,000 metric tons of sugar and were subject to the special condition "shipment to be effected on vessel belonging to Shipping Company that is a member of an International Shipping Conference".
This is an unfortunate condition to include in a documentary credit, because it breaks the first rule of such a transaction, namely, that the parties are dealing in documents, not facts. The condition required a state of fact to exist. What the letter of credit should have done was to call for a specific document which was acceptable to the buyer and his bank evidencing the fact that the vessel was owned by a member of a conference. It did not do so and as, accordingly, the confirming bank had to be satisfied of the fact, it was entitled to call for any evidence establishing that fact. All sorts of interesting questions could have arisen as to what evidence could have been called for and what would have been the position if, contrary to that evidence, the vessel was not owned by a conference member. In fact it was so owned and the merchants produced the evidence required by the bank before the expiry of the credit. Accordingly no such questions arise.
On this point I am in complete agreement with the learned judge. As he pointed out, this aspect of the dispute is of relatively little importance. At moat it affects the date upon which the merchants became entitled to be paid under the credit.
The Bill of Lading clause
The learned judge considered that this clause was not inconsistent with the credit because of the Special Condition: "All charges outside Djibouti if any are to be paid by applicant—payment of costs additional to the freight charges…is strictly excluded and is not covered by this letter of credit. Their reference on shipping documents should be considered as null and void when negotiated or paid under the terms and conditions of this letter of credit". He considered that this condition recognised that charges "outside" Djibouti might be incurred and, if incurred, mere to be paid by the applicant (the buyer) and not under the letter of credit. He might also have supported his view by reference to Article 16 (d) of the Uniform Customs and Practice which provides that:
"Banks will accept...
To continue reading
Request your trial
-
Indian Overseas Bank v United Coconut Oil Mills Inc
...which it receives. It is helpful to refer also to the case of Banque de l`Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd [1983] QB 711 There, the defendants tendered a set of documents under a letter of credit confirmed by the plaintiff. The plaintiff found that the tender was defec......
-
Lambias (Importers & Exporters) Co Pte Ltd v Hongkong & Shanghai Banking Corporation
...find assistance in this respect in the decision of Donaldson MR in Banque de l`Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd [1983] 1 All ER 1137 where he considered whether there was sufficient linkage among two certificates of weight, quality and packing, two certificates of orig......
-
Hill and another v Haines
...contract any benefit or detriment to the relevant party will normally suffice. Thus the compromise of a defence (see Banque De L'Indochine v J.H.Rayner (Mincing Lane) Ltd [1983] QB 711, 734) and the abandonment of a reference to arbitration (see The Leonidas D [1985] 1 WLR 925, 933C-D) may ......
-
Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran
...Ltd. (1926) 27 Lloyds List Reports 49, and the judgments of Parker J. and Sir John Donaldson M.R. in Bancfue de 1'Indochine et de Suez S.A. v. J.H. Rayner (Mincing Lane) Ltd [1983] 1 Q.B. 711. It is no good asking why the credit required the letter of credit number and the buyer's name to a......
-
The Documentary Nature of Demand Guarantees and the Doctrine of Strict Compliance (Part 1)
...the authorities cited there;and Oelofse op cit note 44 at 282-8.49In Banque de l’Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd [1983] 1 QB 711 (CA) at721E-F,Parker J commented on Viscount Sumner’s statement made in Equitable Trust Company of NewYork v Dawson Partners Ltd supra note......
-
LETTERS OF CREDIT: A CONFLICT OF LAWS PERSPECTIVE
...localize the dispute to the particular relationship and then apply the law which governs that relationship. 14 Art. 16(f) U.C.P.. 15 [1983] Q.B. 711; see also the decision of Parker J. [1982] 2 Lloyd’s Rep. 476. 16 Ibid. at p. 734. 17 Some guidance may be obtained from the House of Lords de......
-
Many a Slip . . . Acceptance by a Bank of Documents under an International Documentary Credit
...the bill of lading and the certificate of origin together complied with the letter of credit'. 33 Supra note 26. 34 Supra note 16. 35 [1983] 1 All ER 1137 (CA). © Juta and Company (Pty) 340 (1999) 11 SA Mere LJ with the description in the documentary credit, thus not admitting any descript......
-
STRICT COMPLIANCE IN LETTERS OF CREDIT: THE BANKER’S PROTECTION OR BANE?
...1 Lloyd’s Rep 611 (CA). 13 See Articles 22—42 of the UCP and Banque de L’lndochine et de Suez S A v. J H Rayner (MincingLane) Ltd[1983] 1 Lloyd’s Rep 228. 14 [1957] 2 Lloyd’s Rep 591 at 597. 15 The Commercial Banking Co of Sydney Ltd v. Jalsard Pty Ltd[1972] 2 Lloyd’s Rep 529 16 The late Ma......