Экзамен зачет учебный год 2023 / The-independence-principle-of-letters-of-credit-and-demand-guarantees-150-373

Injunctions

relief (including a freezing injunction) in aid of foreign proceedings154 over which it does not have jurisdiction.155

1 0 .7 2 The applicant must be able to point to proceedings already brought or about to be brought, so as to demonstrate where and on what basis he expects to recover judgment against the defendant.156 This means that there must be an existing cause of action against the beneficiary. This will be difficult to establish in a case where the claim is based on a fraud in the demand, if the beneficiary has not yet made the demand, since the cause of action will only be complete after the beneficiary has made the demand. The same applies where the cause of action is that the beneficiary’s demand, if made, will be in breach of a term in the underlying contract, since in such a case the cause of action will only be complete when the demand is made. The court will not grant a freezing order in anticipation of the cause of action accruing.157

2. Serious Risk of Dissipation

1 0 .7 3 A claimant who succeeds in showing that he has a good arguable case needs to establish, in addition, that there is a serious risk that, unless restrained by injunction, the defendant will dissipate or dispose of his assets other than in the ordinary course of business so that a judgment or award against him will go unsatisfied.158 This will often be difficult to establish. Mere speculation as to the risk of dissipation is not enough. In one case, the judge described newspaper reports on which the applicant relied as ‘at best hearsay evidence, but not very compelling evidence’.159106The court is unlikely to be satisfied that there is a real risk of dissipa­ tion where the beneficiary is in a sound financial position. In Potton Homes Ltd v. Coleman Contractors Ltd™ the judge considered evidence as to the beneficiary’s financial position and concluded that it was not appropriate to grant a Mareva injunction. The Court of Appeal held that the judge had not erred in law in deciding not to grant the injunction.

1 0 .7 4 The court is also likely to refuse a freezing injunction where the beneficiary is a substantial trading company with a good commercial reputation, especially if the amount in question is relatively modest. In Permasteelisa Japan K K v. Bouyguesstroi161 the performance bond was for the sum of US$ 464,666. The beneficiary, Bouygues, was a Russian company and a sub­ sidiary of Bouygues Batiment International, a large French construction group and, it was claimed, one of the world’s leading contractors. Also the beneficiary and the account party had been in a contractual relationship for a number of years and there had been no allegation

154See discussion in para 10.02.

155Credit Suisse TrustSA v. Cuoghi [1998] QB 818 at 825,/wMilIett L.J.

156Fourie v. Le Roux [2007] 1 WLR 320 at [3], per Lord Bingham.

157In Veracruz Transportation Inc v. VC Shipping Co Inc [1992] 1 Lloyds Rep. 353 the Court ofAppeal put a stop to a practice which had developed in the Commercial Court whereby relief was granted in the form of a conditional injunction which was to take effect only when the cause of action accrued.

158Stronghold Insurance v. Overseas Union [1995] CLC 1268, 1273, per Potter].; Motorola Credit Corp v.

Uzan (No 2) [2004] 1 WLR 113 at [142]—j146]; TTM I v. ASM Shipping [2006] 1 Lloyd’s Rep. 401 at [24Н27].

159Britten Norman Ltd (in liq) v. State Ownership Fund o fRomania, 6 July 2000, Peter Leaver QC, sitting as a Deputvjudge of the Chancery Division.

160(1984) 28 BLR 19.

161[2007] EWHC 3508 (QB).

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V. Freezing/Mareva Injunction

that the beneficiary had failed to pay certificates as they had become due in the past. It was held that the claimant had failed to establish that there was a serious risk of dissipation. Ramsey J. said that the beneficiary ‘is a substantial trading company in the international construction industry and is not likely to put that and its parent company’s reputation at risk for the comparatively modest sums at issue’.162

Even fraud or dishonesty on the part of the defendant is not sufficient, without more, to 10.75 show a real risk of dissipation and therefore to justify the grant or maintenance of a freezing injunction.163 For the defendant’s dishonesty to be sufficient it must be one that in itself

really justifies an inference that the defendant is likely to dissipate his assets unless restrained by injunction. This will be the case where the fraud or dishonesty is one which reveals that the defendant is the sort of person who will stop at nothing to frustrate the claimant from making any substantial recovery by dissipating his assets, unless restrained by the freezing injunction.164

3. Where Proceeds Payable Abroad

In exceptional circumstances the court can grant a freezing order affecting the assets of 10.76 the defendant abroad165 (worldwide freezing order). So in principle the court can grant a freezing injunction in respect of proceeds of a letter of credit or demand guarantee which is payable abroad. However, the courts are very reluctant to grant freezing injunctions in such

cases, even where the claimant is able to satisfy the court that there are no (or insufficient) assets within the jurisdiction. In Intmco Ltd v. Notis Shipping Corp (The Bhoja Trader) ,166 a judge granted a freezing injunction restraining the beneficiary of a performance bond from removing from the jurisdiction or otherwise disposing of its assets, in particular the proceeds of the performance bond. In the Court of Appeal it was established that the bond was payable in Greece and not in London. For that reason the court discharged the injunction, stating that ‘[i]f. . . this bank guarantee had provided for payment in London, we would have agreed wholly with the learned Judge’s judgment’.16718More recently, in Permasteelisa Japan KKv. Bouyguesstroi168 a freezing injunction was refused where money payable under a performance bond was to be paid by a Japanese bank to a Russian bank via a New York intermediary.

In The Bhoja Trader case, the Court of Appeal left open the position where the beneficiary 10.77 had an option to demand payment within or outside the jurisdiction. It is doubtful whether

in such a case the beneficiary could be ordered to exercise his option by demanding payment in England.169 If the court would not deprive the beneficiary of his option then it is unlikely

162ibid., at [54].

163Thane Investments v. Tomlinson [2003] EWCA Civ 1272 at [28].

164e.g. Congentra AG v. Sixteen Thirteen Marine SA [2008] 2CL.C51.

165e.g. Derby & Co. Ltdv. Weldon (N os3and4) [1990] Ch. 65; Republic ofH aiti v. Duvalier [1990] 1 QB 202; Credit Suisse Fides TrustSA v. Coughi[ 1997] 3 AUER 724.

166[1981] 2 Lloyd’s Rep. 256.

167Ibid., at 258.

168Permasteelisa.Japan KK v. Bouyguesstroi [2007] EWHC 3508 (QB).

169In Malek and Quest, Jack: Documentary Credits, (4th edn, Tottel, 2009) 296, it is said that there is no ground on which the beneficiary could be forced to exercise his option in this way.

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Injunctions

that a freezing injunction could be granted in such circumstances since the beneficiary could

demand payment abroad thereby putting the case on the same line as The Bhoja Trader.

10.78Also, if payment was to be made abroad, the court is unlikely to make an order requiring the bank to pay the money into an account in England, since that would be an unjustified interference with the operation of the autonomy of the payment obligation under the performance bond or letter of credit.170

170 Britten Norman Ltd v. State Ownership Fundo fRomania [2000] 1 Lloyds Rep. Bank 315.

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11

CLAIMS AGAINST THE BENEFICIARY FOR A

WRONGFUL DEMAND

I. INTRODUCTION

In the preceding chapter we considered the situation where, before payment, a bank has 11.01 knowledge that a demand is wrongful, for example, because it is fraudulent. In such a case,

not only is the bank entitled to refuse payment but in principle the account party can apply lor an interim injunction to stop payment. This chapter is concerned with cases where the bank has made payment to the beneficiary before it is discovered that the demand was wrongful. In such a case, the bank may wish to bring a claim against the beneficiary to recover the money paid, especially if the account party refuses to reimburse the bank. Where, how­ ever, the account party has already reimbursed the bank before it is known that the demand was wrongful, it would be the account party who may wish to maintain a claim against the beneficiary to recover the money paid. This chapter examines the circumstances when such claims by the bank or the account party can be maintained against the beneficiary.

II. CLAIMS BY TH E PAYING BANK

A direct claim by the paying bank against the beneficiary is important in cases where the 11.02 paying bank is not entitled to reimbursement from the instructing bank or the account party

and in cases where, even if the paying bank is entitled to reimbursement, the account party has gone into insolvent liquidation. The question whether the paying bank has a claim against the beneficiary for the wrongful demand depends on the type of wrong involved. Where the beneficiary’s demand is wrongful because of fraud, the paying bank is entitled to

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Claims A gainst the Beneficiaryfo r a W rongful D em and

a claim either in damages for deceit or in restitution for money paid under mistake. Where the demand is wrongful because the defendant’s conduct in making it, although not amount­ ing to fraud, was unconscionable or lacking in good faith, as discussed in Chapter 7, it is unlikely that the bank will have a claim. In such a case, the impugned conduct of the benefi­ ciary is wrongful only in relation to the account party. The bank is not a victim of the con­ duct, as is the case with a fraudulent demand. The position is the same where the demand is wrongful because it is made in breach of a promise in the underlying contract, as discussed in Chapter 9. The bank has no claim because it is not a party to the underlying contract. Where there is no fraud or unconscionable conduct but the demand did not comply with the requirements of the letter of'credit or demand guarantee the paying bank will not normally have a claim against the beneficiary on the ground of restitution for money paid under a mistake or on the ground of negligent misrepresentation.

1.Damages for Deceit

11 .0 3 If the paying bank can show that the beneficiary obtained payment by fraud as discussed in Chapter 5 above, then the bank will have a claim against the beneficiary for damages for deceit. In Etablissement Esefka International Anstalt v. Central Bank o fNigeria,1a case con­ cerned with letters ofcredit, the underlying contract was for the sale ofcement to the Ministry of Defence of Nigeria. The Central Bank of Nigeria issued letters of credit and Midland Bank London was the advising bank. The documents were presented and Midland bank paid out nearly US$ 6 million in respect of certain parcels of the goods. However, the bank refused to honour subsequent demands in respect of other parcels after the buyers obtained very strong evidence that the bills of lading were not genuine but were forged and that there were doubts whether the vessels that were to ship the goods existed at all. Lord Denning held that if the sellers had presented forged or fraudulent documents in respect of any parcel the bank not only had a defence against being liable in respect of that parcel but also had ‘a counterclaim for the money which they have overpaid and which they paid on false documents’.123Similarly, in Balfour Beatty Civil Engineering v. Technical & General Guarantee Co Ltd? a case con­ cerned with a performance bond, Waller L.J. said that if the beneficiary has made a fraudu­ lent representation to the bank in order to obtain money under the bond there is no reason why the bank should not have a remedy directly against the beneficiary.

11 .0 4 In examining the paying bank’s claim in damages for deceit it is helpful to consider first the persons who could be liable to the bank before looking at the measure of the damages recov­ erable and assessing the defences that may be available to the defendant.

A.Who is liable?

1 1 .0 5 As indicated, where the bank pays before it discovers the beneficiary’s fraud it has a remedy in damages for deceit against the beneficiary.4 In Komercni Banka A S v. Stone & Rolls L td 5 where the beneficiary knowingly presented false documents to the bank and received pay­ ment as a result, the bank was awarded damages against the beneficiary in an action in deceit.

1[1979] 1 Lloyds Rep. 445, CA.

2Ibid., at 447.

3(1999) 68 Con LR 180.

4 KBC Bank v. IndustrialSteels (UK) Ltd [2001 ] 1 All F.R (Comm) 409. 5 [2002] EWHC 2263 (Comm); [2003] 1 Lloyd’s Rep. 383.

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the money recovered from the third party may make it easier for the company to discharge its own liability to the bank. In the Stone & Rolls Ltd case, neither the beneficiary company nor its fraudulent employee could satisfy the judgment obtained by the bank against them for some US$ 94 million. The action against the auditors was started by the liquidators of the

6[2001] AUER (Comm) 409.

7Standard Chartered Bank v. Pakistan NationalShipping Co (No 4) [2001 ] QB 167, CA.

8Moore Stephens v. Stone dr Rolls Ltd [2008] 2 Lloyd’s Rep. 319, where, however, recovery by the company was barred by the maxim ex turpi causa non oritur actio because the beneficiary company’s illegal conduct (vis-a-vis the paying bank) was inextricably linked to the company’s claim in negligence against its auditors. A ffd, [2009] UKHL, 39.

9[2008] 2 Lloyd’s Rep. 319.

10 Ibid., at [7].

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14Uzinterimpex (SC v. Standard Bank Pic [2007] EWHC 1151 (Comm),espat [150]—[151 J.

15[2001] 1 A U E R 409 .

16Smith New CourtSecurities v. Citibank NA [1997 ] AC 254, esp at 266.

17[2001] 1 A11ER 409 .

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II. Claims by the Paying B ank

buyer under the settlement.18 In other words, the paying bank gave credit for the amount it received under the settlement. Similarly, where the letter of credit was issued on the security of a credit issued by another bank then, if the claimant bank has received any payment under its security (the letter of credit issued by another bank), it will be required to give credit for the amount received.19

However, although the bank must give credit for benefits received, a benefit which flows 11.11 from an independent decision, that is to say, independent of the wrongdoing, does not arise

out of the transaction and so is not brought into account in assessing damages.2021Thus, the fact that the beneficiary decides to use the proceeds of the fraud to discharge a liability owed to the bank does not constitute a benefit for which the bank must give credit. In Komercni Banka AS v. Stone & Rolls Ltd21 it was argued that if the fraudster (beneficiary) decided to use the proceeds of his fraud to discharge a liability owed to the bank by a third party (the appli­ cant), the fraudster should be entitled to have that taken into account as a relevant benefit to the bank when calculating the loss resulting from his fraud. Toulson J. rejected that conten­ tion, explaining that:

[the beneficiary’s] use of the funds would be the result of his independent choice how to use the opportunity created by his fraud. Just as it would be wrong that a customer who could not repay his overdraft should be able to pay off the overdraft with funds obtained from the bank by deceit, and then defeat the bank’sclaim for deceit by saying that there had been no loss from his deceit (since the money obtained from it had been used to repay a debt that he could not otherwise have repaid), so also it would be wrong that a similar result should be achieved by a customer and an accomplice - as would be the case if the accomplice were able to obtain money from the bank by fraud, use it to discharge the customer’s indebtedness and then defeat the bank’s action in deceit by the plea that there had been no loss.22

It makes no difference that the beneficiary did not directly pay off the debt owed to the bank 11.12 by the applicant but paid money to the applicant which enabled the bank to reimburse itself

in respect of earlier obligations owed to the bank by the applicant.

C.Defences

(i)Contributory negligence?

It is now settled that in relation to fraudulent misrepresentation there is no common law 11.13 defence of contributory negligence.23 Consequently, in a claim by a paying bank against a beneficiary or against a third party who issued documents to the beneficiary, contributory negligence of the bank is no defence.2425In KBC Bank v. Industrial Steels (UK) Ltd25 a benefi­

ciary of a letter of credit presented documents to the paying bank. These included a benefi­ ciary’s certificate stating that the beneficiary had sent a set ofnon-negotiable documents to the account party, the buyer, by the deadline specified in the credit. The beneficiary was

22Ib id ., at [171].

23Standard CharteredBank v. Pakistan NationalShipping Co [2003] 1 A C 959 .

24Ib id ., at [42]. This po sitio n has been follow ed in Singapore: DBS Bank Ltd v. Carrier Singapore (Pte) Ltd

[2008] S G H C 53, w here the allegation was th a t the b an k was n egligent in failing to take adequate m easures to secure its financial po sitio n vis-a-vis th e ap plicant for the credit.

25 [2001] 1 A U E R 409 .

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Claims Against the Beneficiaryfo r a W rongful D em and

aware that this statement was false in that the documents had not been sent by the deadline. However, the documents included certificates of origin issued by the London Chamber of Commerce after the deadline, so that, contrary to the beneficiary’s certificate, a complete set of non-negotiable documents could not have been issued in time. Therefore, by reason of that inconsistency the documents did not conform to the letter of credit and the bank was entitled to reject them. But the bank negligently failed to notice that the documents were non-compliant and it paid the beneficiary before discovering the discrepancy. In an action by the bank for damages in deceit against the beneficiary, it was held that the bank’s contribu­ tory negligence was no defence. David Steel J. said that ‘[t]he fact that the claimants failed (negligently) to spot that the documents were non-compliant is irrelevant’.26

11.14Similarly, in Komercni Banka AS v. Stone & Rolls L td 27 the bank had paid money to the ben­ eficiary in reliance on false documents presented by the beneficiary. When the bank brought a claim against the beneficiary for damages in deceit it was argued that since the letter of credit required the bank to obtain or retain pre-payments from the account party and the bank failed to do so, its loss was caused by its own negligence in not obtaining or retaining pre-payment rather than the beneficiary’s fraud in presenting false documents. But this con­ tention was rightly rejected byToulson J. who held that the bank’s own negligence in failing to obtain or retain the pre-payment specified in the letter of credit ‘was a concurrent partial cause of the bank’s loss. However, the bank breached no duty to the beneficiary in that regard and its own contributory negligence is not available as a defence to a fraudster’.28

(ii)Illegality

11.15Asa general principle, the involvement of a claimant in some form of illegal conduct may in certain circumstances constitute a defence to the claimant’s legal action against the defen­ dant.29 This illegality defence is applicable to claims in the tort of deceit.30312For the defence to succeed in a claim in deceit it must be shown that the claimant is guilty of illegal conduct and that the conduct is connected with the claim against the defendant so as to justify refusing the claimant any remedy. In the context of a paying bank’s claim for damages in deceit against the beneficiary of a letter of credit or demand guarantee, the illegality defence will apply if the bank is guilty of illegal conduct and the conduct is sufficiently connected with the claim for damages.3’ This requirement is unlikely to be satisfied in many cases as any illegality on the part of the bank is unlikely to be intimately connected with the defendant’s fraudulent demand. This is illustrated by the decision in Standard CharteredBank v. Pakistan National Shipping Corp (No 2)?2 In that case, the defendant ship owners issued a bill of lading which, to their knowledge, gave a false date of shipment. They knew that the date stated in the bill oflading would or might be relied on by banks or other persons to whom the bill oflading might be presented under a letter of credit transaction for payment. The beneficiary of a letter of credit presented the bill of lading to Standard Chartered Bank (SCB), as the confirming bank. SCB was not aware of the inaccuracies in the bill oflading.

26Ibid ., at [49].

27[2003] 1 L loyd’s Rep. 383.

28Ibid., at [1571.

29See discussion in para 8 .02.

30 See, e.g. Saunders v. Edwards [1987] 1 W L R 1116; Colin Buchanan & Partners Ltd v. Marcus de Berg

[2003J E W H C 83 9 (Q B ) at [112]. In b o th cases the defence failed o n the facts.

31Tinsley v. Milligan [1994] 1 A C 340 .

32[2000] 1 All E R (C o m m ) 1, CA .

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II. Claims by the Paying B ank

However, it was aware that some of the documents (survey certificates) were presented out of time so that SCB was not obliged to pay the amount of the credit to the beneficiary. SCB chose to make the payment and claimed repayment from the issuing bank on the basis of a false statement that the documents were presented to it on time. In the event, the issuing bank, unaware of these falsities, properly declined to indemnify SCB on the ground of unre­ lated discrepancies in the documents. It was held that, despite its own fraudulent conduct vis-a-vis the issuing bank, SC B’s claim for damages for deceit against the carrier who had issued the bill oflading was not defeated by the illegality defence. In keeping with the reli­ ance rule in Tinsley v. Milligan,33 the illegality defence would defeat SCB’s claim only where its conduct in deceiving the issuing bank had to be pleaded as part of its cause of action against the carrier. In other words, SC B’s attempt to deceive the issuing bank had no connec­ tion with its claim against the carrier.

Where the illegality defence applies, it defeats the entire claim. If the defence does not apply, 11.16 the claim succeeds. It is all or nothing. There is no scope for apportionment. In the Standard CharteredBank case Evans L.J. expressed some concern that the lawwas prepared to overlook

the deceitful conduct of the claimant and suggested that apportionment might be appro­ priate in this type of case. Leave was granted to raise the apportionment issue at a further hearing. Llowever, at the conclusion of that further hearing the Court of Appeal, Evans L.J. dissenting, held that there was no basis for apportionment34 since, as explained above, the defence of contributory negligence is not available in a claim of damages for deceit. Ward L.J. said that although the conduct of the claimant bank in attempting to deceive the issuing bank was distasteful, the responsibility for the damage it suffered was wholly that of the defendant. He also stated that wider considerations ofcombating fraud in commercial trans­ actions dictated that the damages should not be reduced. He explained:

Commercial fraud must be condemned. It can only be properly condemned by an award of the whole of the damages which the defendant intended to cause. Highwaymen in commerce forfeit the right to just and equitable treatment. In my judgment in the law of deceit there is to be no apportionment. If the parties were in pari delicto then the claimant would fail to recover anything. In this field it is all or nothing. In my judgment the claimant is entitled to recover all its damage.35

2.Restitution for Money Paid Under Mistake

A.Where there is fraud

(i)Restitution available

An alternative legal route available to a bank that makes a payment pursuant to a fraudulent 11.17 demand is via a claim in restitution for money paid under mistake of fact or law.3637In Bank Russo-Iran v. Gordon Woodroffe & Co Ltd37 an Iranian bank paid under letters of credit as a

result of the fraudulent acts of an English company. The bank claimed damages for fraudu­ lent misrepresentation against the company and alternatively, the amount paid as money

33[1994] 1 A C 340 .

34[2000] 2 Lloyd’s Rep. 511.

35Ibid,, at [126].

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