United City Merchants (Investments) Ltd v Royal Bank of Canada
| Jurisdiction | UK Non-devolved |
| Judge | Lord Diplock,Lord Fraser of Tullybelton,Lord Russell of Killowen,Lord Scarman,Lord Bridge of Harwich |
| Judgment Date | 20 May 1982 |
| Judgment citation (vLex) | [1982] UKHL J0520-1 |
| Date | 20 May 1982 |
| Court | House of Lords |
[1982] UKHL J0520-1
Lord Diplock
Lord Fraser of Tullybelton
Lord Russell of Killowen
Lord Scarman
Lord Bridge of Harwich
House of Lords
My Lords,
This appeal, which is the culmination of protracted litigation, raises two distinct questions of law which it is convenient to deal with separately. The first, which I will call the documentary credit point, relates to the mutual rights and obligations of the confirming bank and the beneficiary under a documentary credit. It is of general importance to all those engaged in the conduct and financing of international trade for it challenges the basic principle of documentary credit operations that banks that are parties to them deal in documents only, not in the goods to which those documents purport to relate. The second question, which I will call the Bretton Woods point, is of less general importance. It turns unon the construction of the Bretton Woods Agreements Order in Council 1946 and its application to the particular facts of the instant case.
All parties to the transaction of sale of goods and its financing which have given rise to the appeal were represented at the original hearings before Mocatta J. The sellers and their own merchant bankers to whom they had transferred the credit as security for advances were the plaintiffs, the confirming bank was the defendant, the buyers and the issuing bank were joined as first and second third-parties respectively. The issuing bank admitted its liability to indemnify the confirming bank for any sums for which the latter as defendant should be held liable to the plaintiffs, and in the later stages of the proceedings, although the confirming bank has remained nominally the respondent, the conduct of the appeals both in the Court of Appeal and in your Lordships' House has been undertaken by counsel for the issuing bank. Your Lordships, are however, only indirectly concerned with the contractual relationship between the buyers and the issuing bank or between the issuing bank and the confirming bank. The documentary credit point depends on the contractual relationship between the sellers (or their transferee) and the confirming bank. The Bretton Woods point is about the effect on that relationship of certain special provisions in an agreement between the sellers and the buyers that was collateral to their contract of sale.
Mocatta J. delivered his judgment in two parts with an interval between them. The facts that are relevant to the documentary credit point are set out in detail in the first part (reported in [1979] 1 Lloyd's Rep. 267): the additional facts that are relevant to the Bretton Woods point are set out in the second part (reported in [1979] 2 Lloyd's Rep. 498). For the purpose of identifying the questions of law that are dispositive of this appeal it is sufficient to state those facts in summarised form, starting with those that raise the documentary credit point.
A Peruvian company, Vitrorefuerzos S.A. ("the Buyers") agreed to buy from the second appellants ("the Sellers") plant for the manufacture of glass fibres ("the Goods") at a price of $662,086 f.o.b. London for shipment to Callao. Payment was to be in London by confirmed irrevocable transferable letter of credit for the invoice price plus freight, payable as to 20% of the invoice price upon the opening of the credit, as to 70% of the invoice price and 100% of the freight on presentation of shipping documents and as to the balance of 10% of the invoice price on completion of erection of the plant in Peru.
The Buyers arranged with their Peruvian bank, Banco Continental S.A. ("the Issuing Bank") to issue the necessary credit and the Issuing Bank appointed the respondents, Royal Bank of Canada ("the Confirming Bank") to advise and confirm upon its own behalf the credit to the Sellers. The Confirming Bank duly notified the Sellers on 30th March 1976 of the opening of the confirmed irrevocable transferable letter of credit. So far as concerned the 70% of the invoice price and 100% freight there was nothing that was unusual in its terms. It was expressed to be subject to the Uniform Customs and Practice for Documentary Credits (1974 Revision) of the International Chamber of Commerce ("the Uniform Customs") and to be available by sight drafts on the Issuing Bank against delivery inter alia of a full set "on board" bills of lading evidencing receipt for shipment of the Goods from London to Callao on or before a date in October 1976, which was subsequently extended to 15th December, 1976.
The initial payment of 20% of the invoice price was duly made by the Confirming Bank to the Sellers. Thereafter, in July 1976 the Sellers transferred to their own merchant bankers, the first appellants, their interest under the credit as security for advances; but nothing turns on this so far as either the documentary credit point or the Bretton Woods point is concerned. In dealing with the relevant law on each of these points I shall accordingly treat the Sellers as having continued throughout to be the beneficiaries of the confirmed credit.
The Goods, which had to be manufactured by the Sellers, were ready for shipment by the beginning of December 1976. It was intended by the loading brokers acting on behalf of Prudential Lines Inc. ("the Carriers") that they should be shipped on a vessel belonging to the Carriers ("American Legend") due to arrive at Felixstowe on 10th December 1976. (The substitution of Felixstowe for London as the loading port is immaterial. It was acquiesced in by all parties to the transaction). The arrival of "American Legend" at Felixstowe was cancelled and another vessel, "American Accord", was substituted by the loading brokers: but its date of arrival was scheduled for 16th December 1976, one day after the latest date of shipment required by the documentary credit. The Goods were in fact loaded on "American Accord" on 16th December 1976; but the loading brokers, who also acted as agents for the Carriers in issuing bills of lading, issued in the first instance a set of "received for shipment" bills of lading dated 15th December 1976 and handed them over to the Sellers in return for payment of the freight. On presentation of the shipping documents to the Confirming Bank on 17th December that bank raised various objections to their form, of which the only one that is relevant to the documentary credit point was that the bills of lading did not bear any dated "on board" notation. The bills of lading were returned to the Carriers' freight brokers who issued a fresh set bearing the notation, which was untrue:
"These goods are actually on board 15th December 1976. E. H. Mundy and Co. (Freight Agents) Ltd. as Agents."
The amended bills of lading together with the other documents were re-presented to the Confirming Bank on 22nd December 1976, but the Confirming Bank again refused to pay on the ground that they "had information in their possession which suggested that shipment was not effected as it appears in the bill of lading".
The learned judge after a careful hearing, lasting for no less than thirty days, held that Mr. Baker, the employee of the loading brokers to the Carriers who was in charge of the transaction on their behalf, had acted fraudulently in issuing the bills of lading bearing what was to his knowledge a false statement as to the date on which the plant was actually on board "American Accord". The judge held, however, that neither the Sellers (nor their transferee) were parties or privies to any fraud by Mr. Baker; at the time of both presentations of the shipping documents to the Confirming Bank on 17th and 22nd December 1976 they bona fide believed that the plant had in fact been loaded on "American Accord" on or before 15th December 1976, and that the annotation on the re-issued bill of lading, stating the goods to be actually on board at that date, was true.
The additional facts that give rise to the Bretton Woods point may be stated even more concisely. The Sellers' original quotation for the sale price of the glass fibre making plant was half the figure that ultimately became the invoice price for the purposes of the documentary credit. The Buyers who were desirous of converting Peruvian currency into U.S. dollars available to them in the United States, a transaction which was contrary to Peruvian exchange control regulations, persuaded the Sellers to invoice the plant to them at double the real sale price in U.S. dollars and to agree that they would within ten days after drawing upon the documentary credit for each of the three instalments of the invoice price remit one half of the amount so drawn to the dollar account in Miami, Florida, of an American corporation controlled by the Buyers. This the Sellers agreed to do; and of the first instalment of 20% of the now doubled invoice price of $662,086, which was the only drawing that they succeeded in making under the credit, they transmitted one half, viz. $66,208 to the American corporation in Florida. They would have done the same with one half of the next drawing of 70% of the invoice price payable against shipping documents, if the Confirming Bank had paid this instalment.
The Documentary Credit Point
My Lords, for the proposition upon the documentary credit point, both in the broad form for which counsel for the Confirming Bank have strenuously argued at all stages of this appeal and in the narrower form or "half-way house" that commended itself to the Court of Appeal, there is no direct authority to be found either in English or Privy Council cases or among the numerous decisions of courts in the U.S.A. to which reference is made in the judgments of the Court of Appeal in the instant case. So the point falls to be...
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