Montrod Ltd v Grundkotter Fleischvertriebs GmbH
| Jurisdiction | England & Wales |
| Judge | Thorpe,Potter L JJ,Sir Martin Nourse |
| Judgment Date | 20 December 2001 |
| Date | 20 December 2001 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Thorpe and Potter L JJ and Sir Martin Nourse.
Nigel Jones QC and Sara Benbow (instructed by Simmons Stein & Co) for Montrod.
Alain Choo-Choy (instructed by Sherrards, St Albans) for Grundkotter.
Ali Malek QC and Michael Kay (instructed by Lawrence Jones) for Standard Chartered.
The following cases were referred to in the judgment of Potter LJ:
Caparo Industries plc v DickmanELR [1990] 2 AC 605.
Consolidated Oil Ltd v American Express Bank [2002] CLC 488.
Czarnikow-Rionda Sugar Trading Inc v Standard Bank London Ltd [1999] CLC 1148.
English v Dedham Vale Properties LtdWLR [1978] 1 WLR 93.
Gian Singh & Co Ltd v Banque de l'IndochineWLR [1974] 1 WLR 1234.
GKN Contractors Ltd v Lloyds Bank plcUNK (1985) 30 BLR 48.
Group Josi Re v Walbrook Insurance Co Ltd [1995] CLC 1532 ; [1996] 1 WLR 1152.
Hamble Fisheries Ltd v L Gardner & Sons LtdUNK [1999] 2 Ll Rep 1.
Hedley Byrne & Co Ltd v Heller & Partners LtdELR [1964] AC 465.
Henderson v Merrett Syndicates Ltd [1994] CLC 918 ; [1995] 2 AC 145.
Lambias (Importers and Exporters) Co Pte Ltd v Hong Kong & Shanghai Banking Corp
Owen (Edward) Engineering Ltd v Barclays Bank International LtdELR [1978] QB 159.
Phipps v BoardmanELRELR [1965] Ch 992 (CA); [1967] AC 46 (HL).
Sztejn v J Henry Schroder Banking Corp (1941) 31 NYS 2d 631.
Turkiye Is Bankasi AS v Bank of ChinaUNK [1996] 2 Ll Rep 611.
United City Merchants (Investments) Ltd v Royal Bank of CanadaUNKELRELR [1979] 1 Ll Rep 267; [1982] QB 208 (CA); [1983] 1 AC 168 (HL).
Banking — Sale of goods — Documentary credit — Fraud exception — Negligence — Fiduciary duty — Documentary credit subject to UCP 500 required certificates of inspection to be signed by claimant — Without fraud, beneficiary signed certificates and presented apparently conforming documents — Claimant informed paying bank and beneficiary that it had not signed or authorised certificates — Whether issuing bank entitled to refuse payment — Whether fraud exception should be extended to case where conforming document was a “nullity”— Whether claimant could claim against beneficiary in negligence and for breach of fiduciary duty for signing inspection certificates.
These were appeals and applications for leave to appeal from a judge's decision ([2001] CLC 466) on applications for summary judgment and permission to amend in an action concerning a documentary credit.
A German company, “Grundkotter”, agreed to sell 400 mt of frozen pork sides to a Russian entity, “Ballaris”, cif Moscow. “Montrod”, a company carrying on a finance and investment business in England, was engaged through an intermediary to provide the documentary credit required by the contract of sale. On Montrod's instructions Fibi Bank requested Standard Chartered Bank (“SCB”) to issue a documentary credit in favour of Grundkotter. To protect Montrod the credit called for the presentation of certificates of inspection signed by Montrod. In that way Montrod intended to ensure that the credit would not be operable until it had been put in funds by Ballaris. The credit was subject to the Uniform Customs and Practice for Documentary Credits (UCP 500). Ballaris led Grundkotter to understand that it could sign the certificates of inspection on behalf of Montrod and Grundkotter did so. Grundkotter was therefore able to present apparently conforming documents to SCB which accepted them and paid Grundkotter, despite an assertion by Montrod that the inspection certificates presented by Grundkotter had not been signed or authorised by Montrod. Ballaris disappeared with the meat. Fibi Bank refused to reimburse SCB. Montrod claimed against Grundkotter and SCB. Grundkotter sought summary judgment on Montrod's claim against it. SCB sought summary judgment against Fibi Bank. Fibi Bank, if it was liable to SCB, sought summary judgment against Montrod.
The judge ([2001] CLC 466) found that the inspection certificates had indeed been signed without the authority of Montrod but that Grundkotter was not fraudulent and was entitled to payment by SCB, which was entitled to payment from Fibi, which was in turn entitled to reimbursement by Montrod. The judge rejected Montrod's alternative argument that SCB was entitled to refuse payment on the ground that, even if Grundkotter was not fraudulent, SCB and Grundkotter had been made aware prior to payment that the inspection certificate had not been signed or authorised by Montrod and as such was a “nullity” and/or a non-conforming document. Montrod and Fibi appealed on the “nullity” issue.
If Montrod had to pay Fibi, it sought to add a new Pt. 20 claim against Grundkotter in negligence on the basis that (i) Grundkotter owed a duty of care to Montrod in relation to presentation of documents under the credit generally (“the primary negligence claim”), or (ii) had assumed a duty of care by signing the inspection certificates (“the narrower negligence claim)”, or (iii) had assumed a fiduciary duty by holding itself out as Montrod's agent. The judge rejected amendments (i) and (iii) but gave Montrod permission to amend to plead the duty alleged in (ii). Montrod sought leave to appeal in respect of (i) and (iii) and Grundkotter sought permission to appeal in respect of (ii).
Held, ruling accordingly:
1. Neither as a matter of general principle, nor under UCP 500, was an issuing bank obliged to question or investigate the genuineness of documents which appeared on their face to comply with the terms of the credit. (Gian Singh & Co Ltd v Banque de l'IndochineWLR[1974] 1 WLR 1234 applied.)
2. The fraud exception was part of the common law and was apt to apply despite the fact that UCP 500 made no mention of such an exception.
3. The argument for Montrod that, where fraud on the part of the beneficiary could not be established, there should nonetheless be room for a nullity exception in the case of a document which was not genuine and had no commercial value, involved an undoubted extension of the fraud exception as hitherto propounded in the English authorities. The judge was correct in the decision to which he had come on the nullity issue. The fraud exception was and should remain restricted to fraud or knowledge of fraud on the part of the beneficiary or other person seeking payment under the credit. The exception should not be extended to a case where a document, which as presented conformed on its face with the credit, was nonetheless said to be of a fraudulent character in itself independently of the knowledge and bona fides of the demanding party. In the instant case the seller/beneficiary had created the document said to be a nullity but should be entitled to payment because it had done so without any fraudulent intent and in the belief that it had enjoyed the authority of Montrod to sign and issue the certificates. The appeal on the nullity issue was dismissed. (United City Merchants (Investments) Ltd v Royal Bank of CanadaELR[1983] 1 AC 168 applied.)
4. There were sound policy reasons for not creating any general nullity exception. It nevertheless remained possible in an individual case that the conduct of a beneficiary in connection with the creation or presentation of a document forged by a third party though not amounting to fraud might be of such a character as to disentitle the beneficiary to payment.
5. The judge was right to have refused Montrod permission to amend to advance the primary claim in negligence. There was no duty of care on a beneficiary in respect of the presentation of documents in the absence of a voluntary assumption of responsibility. Montrod was refused permission to appeal on that issue.
6. The judge was right that there should be a trial of the issue whether Grundkotter, having assumed the right and responsibility of issuing and signing the certificates of inspection, owed a duty to Montrod to check or clarify its instructions. Grundkotter was refused permission to appeal on that issue.
7. The judge was wrong to have dismissed the claim for breach of fiduciary duty on the basis that it added nothing to the claim in negligence. Where someone put himself in the position of a self-appointed agent in relation to the affairs and interests of another he was liable to be regarded as a fiduciary in respect of the exercise of powers in the name of that other. The only vice of the amendment was that if, in truth, it added nothing to the negligence claim, argument on the point of principle would lead to a some increase in court time and possibly of costs. The latter could be compensated for within the costs order made at trial. Montrod's application for permission to appeal on that issue was granted, the appeal was allowed and the amendment permitted.
Potter LJ:
1. The various appeals and applications for permission to appeal before us arise from orders made by HHJ Raymond Jack QC (sitting as a judge of the Commercial Court) on 28 November 2000 following his judgment in relation to the liability of the various parties arising from payment made by Standard Chartered Bank (“SCB”) in London pursuant to a documentary credit issued by SCB in favour of Grundkotter Fleischvertriebs GmbH (“GK”), a German company named as beneficiary, through the advice of its German bank, Commerzbank. That credit had been issued at the request of Fibi Bank (UK) plc (“Fibi ”) acting on the instructions of Montrod Ltd (“Montrod”), the claimants in the action, who were named as applicants in the credit. The underlying contract was a contract of sale made between GK as sellers and Ballaris, a Russian entity of uncertain status, as buyers of a consignment of 400 mt of frozen pork sides sold cif Moscow. The credit called inter alia for the presentation of certificates of inspection signed by Montrod.
2. There were before the court applications whereby (a) GK sought summary judgment...
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