Czarnikow-Rionda Sugar Trading Inc. v Standard Bank London Ltd
| Jurisdiction | England & Wales |
| Judge | Rix J. |
| Judgment Date | 06 May 1999 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 06 May 1999 |
Queen's Bench Division (Commercial Court).
Rix J.
Stephen Males QC and Michael Collett (instructed by Middleton Potts) for United European Bank.
Michael Brindle QC and Derrick Dale (instructed by Edwin Coe) for Banque Cantonale de Geneve.
Trevor Philipson QC and Clare Ambrose (instructed by Berwin Leighton) for Czarnikow-Rionda.
Nicholas Strauss QC and John McCaughran (instructed by Morgan Lewis & Bockius) for Standard Bank London Ltd.
The following cases were referred to in the judgment:
Anns v Merton London Borough CouncilELR [1978] AC 728
Bolivinter Oil SA v Chase Manhattan Bank NAUNK [1984] 1 Ll Rep 251
Channel Tunnel Group Ltd v Balfour Beatty Construction LtdELR [1993] AC 334
Deutsche Rückversicherung Aktiengesellschaft v Walbrook Insurance Co Ltd [1994] CLC 415; [1995] 1 WLR 1017
Discount Records Ltd v Barclays Bank LtdUNK [1975] 1 Ll Rep 444
GKN Contractors Ltd v Lloyds Bank LtdUNK (1985) 30 BLR 48
Group Josi Re v Walbrook Insurance Co Ltd [1995] CLC 1532; [1996] 1 WLR 1152
Harbottle (R D) (Mercantile) Ltd v National Westminster Bank LtdELR [1978] QB 146
Kvaerner John Brown Ltd v Midland Bank plc [1998] CLC 446.
Mareva Compania Naviera SA v International Bulkcarriers SAUNK [1975] 2 Ll Rep 509
Mercantile Group (Europe) AG v AiyelaELR [1994] QB 366
Norwich Pharmacal Co v C & E CommrsELR [1974] AC 133
Owen (Edward) Engineering Ltd v Barclays Bank International LtdELR [1978] QB 159
Siskina v Distos Compania Naviera SA (“The Siskina”)ELR [1979] AC 210
South Carolina Insurance Co v Assurantie Maatschappij “De Zeven Provincien” NVELR [1987] AC 24
Sztejn v J Henry Schroder Banking Corp (1941) 31 NYS 2d 631
Themehelp Ltd v West [1995] CLC 703; [1996] QB 84
Tukan Timber Ltd v Barclays Bank plcUNK [1987] 1 Ll Rep 171
Turkiye is Bankasi AS v Bank of ChinaUNK [1996] 2 Ll Rep 611
United City Merchants (Investments) Ltd v Royal Bank of CanadaELR [1983] 1 AC 168
United Trading Corp SA v Allied Arab Bank LtdUNK [1985] 2 Ll Rep 554
Banking — Letter of credit — Fraud — Interlocutory injunction — Whether plaintiff entitled to pre-trial injunction to prevent bank paying on letters of credit on grounds of fraud — Whether ex parte injunction should be discharged for non-disclosure.
This was an application to maintain a pre-trial injunction preventing a bank paying out to confirming banks at maturity the proceeds of three letters of credit.
A Brazilian group, “Dine”, imported alcohol into Brazil and the plaintiff, “Rionda”, which had a pre-existing business relationship with Dine, became involved in certain transactions as a financial intermediary. Rionda received a fee for using its own credit facilities to open letters of credit with the first defendant, “Standard”, addressed to and confirmed by certain Swiss banks to finance the import transactions between onshore and offshore Dine companies. The letters of credit opened by Rionda supported letters of credit issued by the Swiss banks in favour of Dine's suppliers. The alcohol was shipped to Brazil and before the maturity date of the letters of credit issued by Standard the Swiss banks accepted documents, which were forwarded to Standard, and made payments under the letters of credit on a discounted basis to Dine and to the suppliers. Rionda alleged that it had discovered that much of Dine's business was fraudulent and it obtained a Mareva injunction against Dine up to a value of US$50m which it claimed was its exposure on its transactions with Dine. Rionda also obtained ex parte orders restraining Standard from paying out under the letters of credit and restraining Dine from seeking payment under them on the grounds that it had entered into the import transactions on the basis of fraudulent misrepresentations by Dine. Rionda gave an undertaking in damages in the usual way and did not suggest that it might be unable to comply with that undertaking. Rionda also deposed that there was a real issue to be tried between Rionda and Standard in order to base an application to serve the Dine group defendants out of the jurisdiction.
On the inter partes hearing the Swiss banks argued that, even if a clear case of fraud could be made out, a claim for an interlocutory injunction against the issuer of a letter of credit would always fail on the balance of convenience for the reason explained in R D Harbottle (Mercantile) Ltd v National Westminster Bank LtdELR [1978] QB 146, as approved inUnited Trading Corp SA v Allied Arab Bank LtdUNK[1985] 2 Ll Rep 554. Rionda argued that where a sufficient case of fraud was made out the balance of convenience would be in favour of a pre-trial injunction, relying onThemehelp Ltd v West[1995] CLC 703; [1996] QB 84. The Swiss banks also sought discharge of the injunction for non-disclosure on the ex parte application.
Standard was in favour of continuation of the ex parte injunction provided that Rionda had a good arguable case that it was within the fraud exception.
Held, discharging the injunction:
1. Rionda's claim for a pre-trial injunction had to fail on the balance of convenience. Numerous cases recognised that banking contracts had to be insulated from the underlying transactions except in the case of fraud which came to the notice of a bank before the beneficiary was paid and in such a way that it could be said that the bank had knowledge of the fraud. Any injunction had to be based on Rionda's contractual claim against the bank for wrongly paying out in the face of fraud: if that was a good claim Rionda did not need an injunction and if it was not there was no cause of action for an injunction at all. (R D Harbottle (Mercantile) Ltd v National Westminster Bank LtdELR[1978] QB 146, Edward Owen Engineering Ltd v Barclays Bank International LtdELR[1978] QB 159, United Trading Corp SA v Allied Arab Bank LtdUNK[1985] 2 Ll Rep 554andGKN Contractors Ltd v Lloyds Bank LtdUNK(1985) 30 BLR 48applied.)
2. There was no distinction between seeking to prevent the beneficiary drawing on the letter of credit and seeking to prevent the bank paying on it. If an injunction could be granted on the basis that the claim was brought at an early stage, the present case could not be within any such exception since the claim came after negotiation of the documents and transfer of the goods. (Group Josi Re v Walbrook Insurance Co Ltd[1995] CLC 1532; [1996] 1 WLR 1152applied;Themehelp Ltd v West[1995] CLC 703; [1996] QB 84considered.)
3. There was no independent jurisdiction based on preventing fraud and even if there were the balance of convenience would still come down in favour of the bank. The availability of Mareva relief which Rionda had obtained against Dine was a highly important consideration and undermined Rionda's claim for an injunction. Further the court's provisional view was that the credits were available by negotiation and that the Swiss banks were authorised to and had negotiated them by giving value for them and that Standard had therefore come under an obligation to reimburse them long before any question of fraud arose. Also the facts that the contracts had been performed, the suppliers and Dine had been paid and that it was not clear whether Rionda would be entitled to rescind the underlying contracts were all factors against Rionda on the balance of convenience. The injunction would therefore be discharged without deciding whether Rionda could bring itself within the fraud exception. (Bolivinter Oil SA v Chase Manhattan Bank NAUNK[1984] 1 Ll Rep 251andDeutsche Rückversicherung Aktiensgesellschaft v Walbrook Insurance Co Ltd[1994] CLC 415; [1995] 1 WLR 1017considered.)
4. There had been non-disclosure by Rionda on the ex parte application of the co-operation between Rionda and Standard in respect of the litigation. It would be an abuse of process to seek to obtain effective relief against the Swiss banks by a collusive action against Standard within the jurisdiction if in truth there was no real issue between the colluding parties. It was doubtful whether there was a real issue between Rionda and Standard. There was also non-disclosure of Rionda's financial position since it was clear and should have been disclosed that it had suffered substantial losses as a result of its transactions with Dine and only continued to operate by agreement with its bankers including Standard.
Rix J: In these proceedings the plaintiff, Czarnikow-Rionda Sugar Trading Inc (“Rionda”) seeks to maintain a pre-trial injunction against the first defendant, Standard Bank London Ltd (“Standard”), to prevent it from paying out to two Swiss banks at maturity the proceeds of three letters of credit, which Standard had opened at the request of its customer, Rionda, and which the Swiss banks had at Standard's request advised and confirmed. Rionda seeks such an injunction on the basis of the “exception in the case of what is called established or obvious fraud to the knowledge of the bank” (see Edward Owen Engineering Ltd v Barclays Bank International LtdELR[1978] QB 159 at p. 169D, United Trading Corp SA v Allied Arab Bank LtdUNK[1985] 2 Ll Rep 554) even though (1) it claims no relief against the Swiss banks themselves; (2) the Swiss banks had already discounted the proceeds of the letters of credit either directly to the beneficiary or indirectly under back to back letters of credit issued to the beneficiary's suppliers [but not entirely back to back: in particular, the third “back to back” letter of credit matured within seven days of the bill of lading date, not 390 days as did Standard's credit]; (3) such discounting had taken place well before any question of fraud was raised; (4) the documentary sales in respect of which the letters of credit were opened have been performed; and (5) the shipping documents in connection with such sales had already long before been negotiated to and accepted by Standard. Can such a situation be...
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