Power Curber International Ltd v National Bank of Kuwait S.A.K.
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE GRIFFITHS,MR. JUSTICE WATERHOUSE |
| Judgment Date | 03 July 1981 |
| Judgment citation (vLex) | [1981] EWCA Civ J0703-1 |
| Docket Number | 81/0275 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 July 1981 |
[1981] EWCA Civ J0703-1
The Master of The Rolls
(Lord Denning)
Lord Justice Griffiths
and
Mr. Justice Waterhouse
81/0275
1981 P. No. 356
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(MR. JUSTICE PARKER)
Royal Courts of Justice.
MR. PETER CRESSWELL (instructed by Messrs. Jaques & Co.) appeared on behalf of the Plaintiffs (Appellants).
MR. ANDREW LONGMORE (instructed by Messrs. Allen & Overy) appeared on behalf of the Defendants (Respondents).
This case raises an important point in international trade. It has nothing to do with England except that an action has been brought here. It is brought by American sellers who exported goods from the U.S.A. to buyers in Kuwait. They were to be paid by a letter of credit issued by the National Bank of Kuwait. The bank wish to honour their obligations. They wish to pay the sums due under the letter of credit. But the courts in Kuwait have forbidden the bank to pay. What is the bank to do?
The plaintiff company's name is Power Curber International Ltd. You might think that it was an English company seeing that its name ends with "Ltd." But it is in fact an American corporation which carries on business at Salisbury in North Carolina. I will call it "Power Curber". It exports machinery to countries in the Middle East. It operates through a firm of distributors in Kuwait called Hammoudeh & Al Fulaij General Trading & Contracting Company WLL. I will call the firm "Hammoudeh". The directors have close contacts with America and spend their time between that country and the Middle East. They are the "distributors" for Power Curber in the Middle East. By which I take it they buy goods on their own account from Power Curber and re-sell them on a commission or other basis in the Middle East.
About July 1979 Power Curber agreed to supply machinery to Hammoudeh to be shipped from the U.S.A. not later than the 1st March, 1980 on c.i.f. terms and paid as to 25 per cent on presentation of documents and the remaining 75 per cent one year after date of shipment. The buyers (Hammoudeh) were to give usance drafts (that is, bills of exchange payable at a later date) for this remaining 75 per cent.
In order to be sure of payment, Power Curber required Hammoudeh to open a letter of credit in their favour. Hammoudeh went to their bank, the National Bank of Kuwait, and asked them to issue a letter of credit. No doubt Hammoudeh put the bank in funds or otherwise secured the bank so that the bank would be indemnified against their liability under the letter of credit.
The letter of credit
The letter of credit is dated "Kuwait 6 Sept. 1979". It was issued by the National Bank of Kuwait (the issuing bank) to the Bank of America, Florida, Miami, U.S.A. (the advising bank) through the North Carolina National Bank in Charlotte, North Carolina. It was an irrevocable credit but not a confirmed credit. It is so important that I will set out most of it.
"To BANK OF AMERICA,
FLORIDA, MIAMI, U.S.A.
Kuwait
6th Sept. 1979
OUR IRREVOCABLE CREDIT No. A02/164018/7
"Dear Sirs,
"At the request of Hammoudeh & Al Fulaij General Trading & Contracting Company WLL (A/c 49554–9), please advise our irrevocable credit through North Carolina National Bank in Charlotte, North Carolina in favour of Power Curber International Ltd., P.O. Box 1639, Salisbury, North Carolina, 28144, U.S.A. (A/c No. 411003742),…irrevocably valid in U.S.A. until 1st March 1980 and available by drafts without recourse as shown below drawn on the opener for 100% of the invoice value and accompanied by the documents marked (X) below."
(Here were set out invoices, bills of lading, etc.) "evidencing current shipment not later than 1st March 1980 from U.S.A. to Kuwait of:—
EQUIPMENT AND SPARE PARTS.
"The value of the usance drafts will be remitted by us at relative maturity dates provided all credit terms should have been fully complied with. Payment terms: 25% of the Ex-works value to be paid against presentation of documents called for in order as per credit terms. Remaining 75% of the Ex-works value after one year of the date of shipment.
"All drafts drawn under this credit must contain the clause:—
'"DRAWN UNDER L/C NO. (as above) OF THE NATIONAL BANK OF KUWAIT S.A.K. DATED (dated of this advice).'
"In reimbursement of your negotiations under this credit, please draw on our account with Bank of America (International), New York, in respect of sight payment provided you certify to us that all terms of the credit have been complied with, and forward the original documents direct to us by first Registered Airmail, duplicates by following Airmail.
"This credit is irrevocable on our part and we hereby undertake that all drafts drawn in compliance with the terms hereof will be duly honoured.
Except as otherwise stated herein, this Credit is Subject to the Uniform Customs and Practice for Documentary Credits (1974 Revision) International Chamber of Commerce Publication No. 290.
Yours faithfully,
For THE NATIONAL BANK OF KUWAIT S.A.K."
The goods are shipped
On the 26th December, 1979 the goods were duly shipped from the U.S.A. The shipment value was $101,059.28. 25 per cent of it was paid against presentation of documents. Hammoudeh drew a usance draft on the National Bank of Kuwait for the remaining 75 per cent which was $75,794.46, maturing on the 26th December, 1980. It was accepted by the National Bank of Kuwait who wrote on the 4th March, 1980 to the North Carolina National Bank:
"Our Letter of Credit No. A02/164018/7.
"…please note that the relative usance draft for U.S. $75,794.46 maturing on 26th December 1980 has been accepted by our principals. We shall not fail to remit to you the above mentioned amount through Morgan Guaranty Trust Co. New York at maturity on 26th December 1980".
The effect of the letter of credit
The law on the point is clear. I take it first from the case of Edward Owen Ltd. v. Barclays Bank (1978) 1 Queen's Bench at page 169:
"It has been long established that when a letter of credit is issued and confirmed by a bank, the bank must pay it if the documents are in order and the terms of the credit are satisfied. Any dispute between buyer and seller must be settled between themselves. The bank must honour the credit. That was clearly stated in Hamzeh Malas & Sons v. British Imex Industries Ltd. (1958) 2 Q.B. 127. Jenkins L.J. giving the judgment of this court, said, at p. 129:
'…it seems to be plain enough that the opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties as to whether the goods are up to contract or not. An elaborate commercial system has been built up on the footing that bankers' confirmed credits are of that character, and, in my judgment, it would be wrong for this court in the present case to interfere with the established practice.'
"To this general principle there is an exception in the case of what is called established or obvious fraud to the knowledge of the bank".
Those words apply not only to confirmed credits but also to irrevocable credits.
To which I would add these provisions of the Uniform Customs and Practice for Documentary Credits (1974 Revision) which I take from Gutteridge and Megrah on Commercial Credits, 6th edition, 1979, page 221:
"(c) Credits, by their nature, are separate transactions from the sales or other contracts on which they may be based and banks are in no way concerned with or bound by such contracts". And on page 222:
"A. Form and notification of credits ARTICLE 3
(a) An irrevocable credit constitutes a definite undertaking to the issuing bank, provided that the terms and conditions of the credit are complied with:
(i) to pay, or that payment will be made, if the credit provides for payment, whether against a draft or not;
(ii) to accept drafts if the credit provides for acceptance by the issuing bank or to be responsible for their acceptance and payment at maturity…"
The order made in Kuwait
It appears that early in November 1980 Hammoudeh filed a claim in the courts of Kuwait against Power Curber for 50,000 Kuwaiti dinars. That is about $150,000. We do not know the nature of the claim but it is thought it may be a claim for commission. Following on that claim, Hammoudeh applied to the court in Kuwait for an order for "provisional attachment" of the sums passable by the National Bank of Kuwait under the letter of credit to Power Curber. On the 5th November, 1980 the court in Kuwait ordered the "provisional attachment". This order prevented the bank from making any further payment under the letter of credit in Kuwait or outside Kuwait: and made the bank accountable to the court for the amount involved. The bank lodged a protest against the attachment: and applied to the court in Kuwait to set aside the order for "provisional attachment". But the court refused to set it aside. And its refusal has been upheld by the Court of Appeal in Kuwait.
The steps taken by Power Curber
As Power Curber did not receive payment, they sent a telex to the bank in January 1981, saying:
"WE HAVE NOT RECEIVED THE PAYMENT IN THE AMOUNT OF US DOLLARS 75,794.46 WHICH MATURED FOR PAYMENT ON DEC. 26, 1980. YOU HAD AGREED TO HONOR THE DRAFT UPON MATURITY UNDER THE RULES AND REGULATIONS OF THE...
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