Marathon Electrical Manufacturing Corporation v Mashreqbank PSC [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Mance J. |
| Judgment Date | 13 May 1997 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 13 May 1997 |
Queen's Bench Division (Commercial Court).
Mance J.
Michael Brindle QC and Richard Handyside (instructed by Nicholson Graham & Jones) for the plaintiffs.
Gabriel Moss QC and Fidelis Oditah (instructed by Stephenson Harwood) for the defendants.
The following cases were referred to in the judgment:
Brice v BannisterELR(1878) 3 QBD 569.
Business Computers Ltd v Anglo-African Leasing LtdWLR[1977] 1 WLR 578.
Rother Iron Works Ltd v Canterbury Precision Engineers LtdELR[1974] QB 1.
Letter of credit Assignment Set-off Company assigned proceeds of letter of credit to suppliers Company's bank collected proceeds and applied them to reduce company's existing indebtedness Whether assignment valid Whether assignment outright or by way of security Whether bank entitled to set off proceeds against company's indebtedness Uniform Customs and Practice for Documentary Credits (1993 Revision), art. 49.
This was an application for summary judgment and an application by the first defendants (Mashreqbank) for determination of issues of law concerning an assignment to the first and second plaintiffs (in proportions of 29 and 70 per cent respectively) of proceeds under a letter of credit advised by Mashreqbank in favour of the second defendant (Munradtech).
Munradtech had a banking relationship with Mashreqbank, to which it had given a debenture and a general letter of set-off and to which it owed substantial sums at all material times. Munradtech assembled engine generation sets, acquiring generators from the first plaintiffs (Marathon) and diesel engines from the second plaintiffs (Detroit Diesel), to both of whom Munradtech became substantially indebted. The assembled engine generation sets were supplied to, inter alia, Taiwanese buyers called Chiing Wei, to be paid for under letter of credit. Chiing Wei procured the opening by a Taiwanese bank of a letter of credit in favour of Munradtech. Mashreqbank presented shipping documents and collected moneys under the letter of credit.
Munradtech was heavily indebted to the plaintiffs and to secure further supplies agreed to assign to the plaintiffs the proceeds of the letter of credit. Munradtech gave to Mashreqbank notice of assignment to the plaintiffs of the proceeds due under the credit and Mashreqbank sent them notice of the assignment. Payments were made to the plaintiffs but Mashreqbank then applied the proceeds to reduce Munradtech's outstanding indebtedness. The plaintiffs challenged its right to do so.
Held, dismissing the plaintiffs' action:
1. In order to continue trading with the plaintiffs, nothing but an irrevocable assignment of proceeds by Munradtech would suffice and that was what the language achieved as against Mashreqbank as advising bank.
2. The notice of assignment was capable of being effective even though it was given prior to the existence of the relevant indebtedness on the part of Mashreqbank in respect of proceeds received under the credit. Equity permitted an assignment of the actual proceeds as and when collected under a credit.
3. The suggested defence that the assignment was not outright but by way of security and hence invalid for want of registration as a charge under the Companies Act 1985, s. 395, raised arguable points for investigation or some other reason for trial within O. 14.
4. Any assignment of the proceeds of the credit by Munradtech to the plaintiffs was subject to Mashreqbank's right at common law to set off Munradtech's pre-existing indebtedness. A debt which accrued due before notice of an assignment was received could be set off against the assignee. Mashreqbank was therefore entitled to set off against the plaintiffs' claims to proceeds of the credit corresponding amounts of Munradtech's preexisting indebtedness. Accordingly the plaintiffs' claim would be dismissed (Rother Iron Works Ltd v Canterbury Precision Engineers LtdELR[1974] QB 1andBusiness Computers Ltd v Anglo-African Leasing LtdWLR[1977] 1 WLR 578 applied.)
Mance J:
The plaintiffs apply by summons for judgment under RSC, O.14. The first defendants (Mashreqbank) ask under O. 14A and/or O. 33, r. 3 for summary determination of a number of questions, which could dispose of the action in their favour. The issues concern the existence, validity and priority of what is described in the amended points of claim as an assignment to the first and second plaintiffs, in proportions of 29 and 70 per cent respectively, of proceeds under a letter of credit advised by Mashreqbank in favour of the second defendant (Munradtech).
Munradtech carried on at the material times the business of assembling engine generation sets. This involved acquiring generators from the first plaintiffs (Marathon) and diesel engines from the second plaintiffs (Detroit Diesel), to both of whom Munradtech became substantially indebted. The assembled engine generation sets were supplied to, inter alia, Taiwanese buyers called Chiing Wei Enterprise Co Ltd (Chiing Wei), to be paid for under letter of credit. Munradtech had a banking relationship with Mashreqbank, to whom it had given a debenture on 20 December 1993 and a general letter of set-off on 22 December 1993, and to whom it also owed substantial sums at all material times. It also banked with National Westminster Bank plc, which had a prior debenture until September 1994 and thereafter afforded Munradtech overdraft facilities which were guaranteed by Mashreqbank up to 750,000.
In order to pay for various generator sets due to be shipped by Munradtech by 15 June 1996, Chiing Wei procured the opening by Grand Commercial Bank of Kaohsuing, Taiwan in favour of Munradtech of a letter of credit. The credit allowed partial shipments. It was advised to Munradtech by Mashreqbank, though it was expressly available with any bank, by negotiation against beneficiary's draft(s) at sight for full invoice valueaccompanied by shipping documents, including bills of lading. It was subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) (UCP). Mashreqbank copied the text of the credit to Munradtech, with confirmation of its authenticity. Mr Gwynne, a partner in Mashreqbank's solicitors, has said on affidavit that the letter of credit wasleft by Munradtech with Mashreqbank for collection. Whatever precisely this may mean, it is clear that Munradtech engaged the services of Mashreqbank to present shipping documents and collect moneys under the letter of credit. On 2 April 1996 Munradtech purported to give to Mashreqbank notice of assignment, in the following terms:
We refer to the above mentioned creditwhich you have advised to us.
Out of the proceeds due under this credit (or from any payments of proceeds you at any time may make under or in relation to the credit), we hereby irrevocably authorise and direct you to pay the sum of $384,360to Marathonand Detroit Diesel
Pursuant to an assignment agreement which we entered into with them.
The letter went on to state $113,200 and $271,140 as the maximum sums payable to Marathon and Detroit Diesel respectively and to identify the proportions of 29 and 70 per cent in which payments were to be made from each drawing in the event of part payments. It ended by asking Mashreqbank:
Please send to the assignee a copy of this notice of assignment which is subject to the relevant Articles of Uniform Customs and Practice for Documentary Credits (1993 revision)
Mashreqbank on 12 April 1996 then sent to each plaintiff a letter in this form:
We wish to confirm receipt of a letter dated 2 April, 1996 copy attached, from the beneficiaries of the above Letter of Credit, which we trust you will find self explanatory.
The letter has been duly signed by their authorised signatories as per the mandate currently held by ourselves.
Upon compliance by the beneficiaries with the terms and conditions of the above letter of credit, and receipt of the proceeds by ourselves, the instructions contained in the said letter will receive our further attention in absence of any hinderance legal or otherwise.
The plaintiffs do not suggest that this letter itself creates any contract or gives rise to any legal rights, although they do place some emphasis on its terms in other respects.
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