Financing International Trade Flashcards
Sale of Goods Act 1979, Article 28
S may make price payable on shipment (where confident in B’s creditworthiness)
Article 2, UCP 600
Documentary credit is “any arrangement, however named or described that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.”
Articles to read
Goode: “the most successful harmonizing measure in the history of international commerce” [1992] LMCLQ 190
Garcia v Page & Co Ltd (1936) 55 L1 L Rep 391
Case: Contract dated 27 May 1935; P sold 2000 tons of ammonium sulphate to G in Spain; Shipment to be made during first half of September 1925; CoS required G ‘to open immediately a confirmed credit in London’ in favour of P; On 22 Aug P wrote to G stating that if the credit was not received in London by 24 Aug the contract would be cancelled; Credit opened on 24 Aug but P not notified until 26 Aug; credit was not sufficient as it did not comply; P repudiated the contract; Satisfactory credit opened on 3 Sept but p maintained their repudiation
Decision: Under the original contract there was a condition precedent that a confirmed credit immediately, so this must be done within a reasonable time (which 27 May to 27 Aug is not)
Rule: B’s obligation to ensure that LoC issued to S is that prescribed by CoS is a condition precedent of S’s obligation to delivery to B
Kronman & Co v Steinberger (1922) 10 Li L Rep 39, 40, per Greer J
Rule: If S rejects because of defective credit, B may remedy defect if there is still time before the credit is required: B may simply procure the issue of a fresh credit
N.B. LoC must conform with CoS
Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145
Rule: If B fails to open or remedy a defective LoC in time = a repudiatory breach: S is entitled to treat the CoS as discharged and claim damages for breach of contract
Trans Trust SPRL v Danubian Trading Co Ltd [1952] 2 QB 297
Rule: S able to claim damages for loss of profit if (at the time the contract was made) such loss was within the reasonable contemplation of the parties as the probable consequence of the breach (if B fails to open or remedy a defective LoC in time)
Dix v Grainger (1922) 10 L1 Rep 496
Rule: If S elects to waive the breach and accept the nonconforming LoC, S loses his right to complain
Panoutsos v Raymond Hadley Corpn of New York [1917] 2 KB 473
Rule: S may decide to ship the goods despite B’s failure to open LoC on time or in required form: S may be deemed to waive non-conformity
Pavia & Co SpA v Thurmann-Nielsen [1952] 2 QB 84
Case: CoS for Brazilian groundnuts payment by confirmed irrevocable credit; shipment due in the period from 1 Feb to 30 Apr at S’s option; B did not open the credit until 22 Apr (putting seller at disadvantage); S claimed damages for breach of contract by delay in opening credit
Decision: S’s claim upheld
Rule: B must open the LoC by the date stipulated in the CoS (if specific date stipulated) and where there is no date specified then the credit must be made available to the seller at the beginning of the shipment period
Quote: “the very first date when the goods may be lawfully shipped in compliance with the contract” (per Denning LJ)
Ian Stach Ltd v Baker Bosley Ltd [1958] 2 QB
Case: FoB CoS for steel plates provided for payment by confirmed irrevocable credit; provided for shipment during Aug-Sept at B’s option; B failed to open LoC
Decision: B in breach of contract as the credit must be opened by the earliest shipping date at the latest
Rule: LoC should be in S’s hands a sufficient time before the shipping date to enable S to make the necessary shipping arrangements
Midland Bank v Seymour [1955] 2 Lloyd’s Rep 147
Case: CoS for feather from HK; credit issued by MB after receiving instructions from B given on the bank’s pro forma application form; B had instructed MB to make the credit ‘available in HK’; on presentation of the shipping documents the MB accepted, and later paid, various bills of exchange drawn by S; S were fraudulent and had shipped rubbish; B seeking to avoid reimbursing MB on basis that documents did not confirm to credit; credit was ambiguous, MB could construe documents as conforming
Decision: Devlin J ruled in favour of the bank that the issuing bank reasonably construed a conforming credit
Rule: IB only entitled to be reimbursed where instructions are ambiguous if it construes them reasonably
Quote: “The true view of the matter, I think, is that when an agent (*) acts upon ambiguous instructions he’s not in default if he can show that he adopted what was a reasonable meaning.” per Devlin J
N.B. IB does not contract with S on B’s behalf: IB enters into a separate contract with S as principal. See European Asian Bank AG v Punjab and Sind Bank (No 2) [1983] 1 WLR 642
Commercial Banking Co of Sydney Ltd v Jalsard Pty Ltd [1973] AC 279 (PC)
Quote: “The banker is not concerned as to whether the documents for which the buyer has stipulated serve any useful commercial purpose or as to why the customer called for tender of a document of a particular description. Both the issuing bank and his correspondent bank have to make quick decisions as to whether a document which has been tendered by the seller complies with the requirements of a credit at the risk of incurring liability to one or other of the parties to the transaction if the decision is wrong. Delaying in deciding may in itself result in a breach of his contractual obligations to the buyer or to the seller. This is the reason for the rule that where the banker’s instructions from his customer are ambiguous or unclear he commits no breach of his contract with the buyer if he has construed them in a reasonable sense, even though upon the closer consideration which can be given to questions of construction in an action in a court of law, It is possible to say that some other meaning is to be preferred.” per Lord Diplock
Article 4(a)(b), UCP 600
(a) Issuing bank is not concerned with the CoS - ‘autonomy principle’
(b) The credit should not include copies of the CoS
Article 5, UCP 600
“Banks deal with documents, and not with goods, services or other performance to which the documents may relate.”
i.e. IB is only concerned to ensure that documents presented comply (on their face); IB is not required to check accuracy of statements contained in the documents or to examine the goods