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

V. Un reimbursed B a n k’s Claims

he would have would be against his own company and that would be a pointless indemnity. But Longmore L.J. said that:

[t]he judge, however, pointed out in paragraph 12 of his judgment that if it turned out that money paid under the guarantee were not due it should be possible (whether by a claim in restitution or otherwise) for Mr Garcia to recover and I am told that in the litigation there is now a claim in restitution made by Mr Garcia for the purpose of recovering if the demand was unjustified. [Counsel for Mr Garcia] says claims in restitution are not as clear-cut as claims on an indemnity. That may well be so but it cannot possibly be said at this stage that Mr Garcia has no remedy if the demand is unjustified.101

To be sure, Mr Garcia’s company, as the parry to the underlying contract with the brokers (the 1 2 .6 7 beneficiary of the guarantee) has a remedy against the brokers in the ‘final accounting’ between

the parties.102 However, it is not clear that Mr Garcia, as the issuer, can have a remedy against the beneficiary, the brokers, in restitution.103 There is no unjust factor as the issuer paid the money in accordance with the terms of a valid contract. The issuer may have a remedy by means of a term implied into the demand guarantee contract with the beneficiary but such an implied term was firmly rejected by the Court of Appeal in the Uxinterimpex case.

V. UNREIMBURSED BANK’S CLAIMS

Since the paying bank is not entitled to recover any overpayments made to the beneficiary, 1 2 .6 8 the bank will normally be interested only in being reimbursed by the account party or any instructing bank. But where for any reason the bank is not reimbursed it may become inter­

ested in any overpayments in the hands of the beneficiary or in the hands of the account party. Before examining the circumstances when the unpaid bank might have a claim to any overpayment it is helpful to briefly consider its ordinary claim for reimbursement.

1. Claim for Reimbursement from Instructing Party

The issuer’s primary route for recovery is through the security which it would have taken 1 2 .6 9 from the account party (or the instructing bank) before it issued the performance bond.

A common form of security in this context is an indemnity or counter-guarantee issued by the account party (or instructing bank) for the benefit of the issuer. In such a case, the sum paid out to the beneficiary by the issuer will be recovered from the account party (or instruct­ ing bank) under the indemnity or counter-guarantee. Another form of security which the issuer may take before issuing a performance bond on behalf of the account party is a deposit.104 In such a case, once the issuer pays under the performance bond it uses the deposit to reimburse itself. An issuer who is reimbursed whether through a counter-guarantee or deposit will not be interested in any surplus in the hands of the beneficiary.

101Ibid., at [9].

102See discussion at para 12.30 above.

103It is ofcourse a different matter ifit turns out that the beneficiary’sdemand was fraudulent. In such acase, Mr Garcia would have a claim against the beneficiary, as discussed in Chapter 11. The claim may be either for damages for deceit (see paras 11.03-11.05) or for restitution of money paid under mistake (see para 11.17).

104See, e.g. the arrangement in Greenland Bank Ltd (in liq) v. American Express Bank Ltd [2009] EWCA Civ 14.

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Claims Against the Beneficiaryfo r Overpayments

1 2 .7 0 In some cases the issuer, for one reason or another, has failed to take any security from the account party and there is no express agreement between the parties imposing an obligation on the account party to reimburse the issuer. It is thought that in the absence of an express indemnity from the account party the law will imply such an indemnity. In IIG Capital v. Van Der Merwe,™ the shareholders ol a family company, who were also its only directors, issued performance bonds to a lender in order to support a loan facility to the company. In an action to enforce payment under the bonds it was argued that in the absence of an express indemnity the law would not imply any such indemnity. However, that contention was rejected. Waller L.J., who delivered the unanimous decision of the Court of Appeal, said: ‘I am not persuaded that the [account party] would not be bound to indemnify the [issuer]. It seems to me that where a loan agreement requires the giving of guarantees whether on demand guarantees or only secondary guarantees of that loan, a call and payment of what is found to be due from the guarantors will lead almost certainly to a right of indemnity from the [account party] if the guarantee has to be paid’.510617There seems no reason why this implied right of indemnity should not be available in other cases where the underlying transaction is not a loan agreement under which the account party has received the loan money. In

Tradigrain SA v. State Trading Corporation o fIndia,™ where the underlying contract was for the sale of goods, Christopher Clarke J. held that if the seller recovered an overpayment from the buyer in circumstances where the seller’s bank had not reimbursed the issuing bank, the seller would be under an obligation to restore the money to the issuing bank. He did not consider it necessary to determine whether the seller would be bound to make payment through its bank or directly to the issuing bank. However, he was inclined to the view, obiter, that the obligation would be to pay the issuing bank directly, since in that case the sellers requested the issuing bank to issue the guarantee and also because payment to the issuing bank would satisfy the sellers’ implied obligation to indemnity the issuing bank for the cost of issuing the guarantee, as well as any obligation to the instructing bank.108

1 2 .7 1 Where the bank is able to get reimbursement from the account party, whether on the basis of its security or on the basis of the implied indemnity, it will not be interested in any surplus in the hands of the beneficiary.

2.Claim to Recover Overpayment from the Beneficiary

12 .7 2 However, where the bank has not been reimbursed and, for any reason, the account party has not recovered the overpayment from the beneficiary, the bank will be keen to explore any possible basis for maintaining a claim against the beneficiary for the overpayment. We con­ sider below the question whether the bank can do so on the basis of subrogation. Where the account party has already recovered the overpayment from the beneficiary but has not yet reimbursed the bank the question arises whether the bank has any claim to the money in the hands of the account party.

105[2008] EWCA Civ 542.

106Ibid., at [26].

107[2006] 1 Lloyd’s Rep. 216.

108Ibid., at [35].

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not reimbursed the bank to keep any money recovered from the beneficiary. To avoid such injustice, the account party is under an obligation to restore the money to the paying bank113 or, if the paying bank has been reimbursed, to the bank that has reimbursed the paying bank. However, the precise nature of the obligation owed by the account party to the banks is unclear. One view is that the account party should hold the money on trust for the bank that has not been reimbursed.114 However, as was pointed out in the Tradigrain case,115 the trust analysis may give rise to difficulties in a case where there are two banks and the paying bank has not been reimbursed by the reimbursing bank. It is not clear which of the two banks will be the beneficiary of any trust. Nor is it clear whether there would be successive trusts, whereby a trust arises in favour of the reimbursing bank when the account party receives payment from the beneficiary and a trust in favour of the paying bank when the reimbursing

109Ibid., at [27].

110Boscawan v. Bajwa [1996] 1 W I.R 328 at 335. See also Banque Financiere de la Citiv. Parc (Battersea) Ltd

[1999] 1 A C 221.

111See para 12.27.

112See para 12.29.

113Tradigrain v. State Trading Corporation o fIndia [2006] 1 Lloyd’s Rep. 216 at [34].

114 Cargill International SA v. Bangladesh Sugar & Food Industries Corporation [1996] 2 Lloyd’s Rep. 524 at 530.

115 [2006] 1 Lloyd’s Rep. 216 at [23].

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Claims Against the Beneficiaryfo r Overpayments

bank receives payment from the account party, or a trust and sub-trust whereby, on payment by the beneficiary, the account party will hold the money on trust for the reimbursing bank who will in turn hold it on trust for the paying bank.

12.76In Tradigrain Christopher Clarke J. did not find it necessary to determine the precise nature of the obligation owed by the account party upon receipt of the overpayment. However, as indicated, he was inclined to the view that in circumstances where the instructing bank had not yet reimbursed the paying bank, the account party’s obligation is to make payment to the paying bank directly. That view was based in part on the fact that in the circumstances of that case it was the account partywho requested the paying bank to issue the performance bond.116 The position may therefore be different in the ordinary case where the account party instructs his bank and his bank in turn instructs the issuing bank in the beneficiary’s country.

12.77One advantage of the trust analysis, from the issuer’s point ofview, is that if the account party is insolvent, any overpayment recovered from the beneficiary will go to the issuer11718rather than into the general pot to be available for distribution to all the account party’s creditors. This is an important protection for the bank.

12.78The protection afforded the bank by means of the trust may not be available in some jurisdic­ tions where the concept of trust is unknown or where a trust will not arise in the context of overpayments recovered from the beneficiary. In the Scottish case of Spiersbridge Property Development Ltd v. M uir Construction L td 118 where the insolvency problem was raised and the trust solution of English law was considered, neither party supported the notion that Scots law would recognize a trust in such circumstances. In that case, the judge concluded that ‘[i]f the insolvency problem is not solved in this way [sc by the trust], so be it’.119120The absence of a trust in Scots law to protect the bank means that an issuer in Scotland might be left without protection or without a solution to the insolvency problem in circumstances where it would have been protected by the trust in England.

VI. INTEREST

12.79In General Surety and Guaranty Co Ltd v. Francis Parker L td 120 Donaldson j. said that it was not so certain that the surplus to be repaid by the beneficiary was repayable with interest. Yet commercial fairness requires that the beneficiary should pay interest on sums retained that he is not entitled to keep. So, more recently it has been accepted that the money is repayable with interest.121 The question that arises is as to the time from which interest begins to run.

12.80This should depend on the time that the beneficiary comes under a duty to repay the surplus. Is it immediately the beneficiary receives the overpayment or is it at some future time? The consensus ofjudicial opinion tends to support the view that the beneficiary’s liability to repay does not arise immediately he receives the money. In Cargill International SA v. Bangladesh

116Ibid., at [35].

117Subject to the usual problems where there is commingling.

118[2008] CSOH 44.

119Ibid., at [20].

120[1977] BLR 16, 21.

121Tradigrain v. State Trading Corporation o fIndia [2006] I Lloyd’s Rep. 216.

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VI. Interest

Sugar & Food Industries Corporation122 Morison J. did not have to decide precisely when the beneficiary’s obligation to return the overpayment arises. However, it is clear from a number of passages in his judgment that he did not consider that the obligation arises immediately upon the beneficiary’s receipt of payment but rather that the obligation arises at some future time. He said, for example, that when the bond is called ‘there will, at some stage, be an “accounting” between the parties in the sense that their rights and obligations will be finally determined at some future date’.123 In Comdel Commodities Ltd v. Siporex Trade SA'24Potter L.J. expressed a similar view. This suggests that repayment of the surplus becomes due when the fact that there is a surplus is established. This is the view adopted by Christopher ClarkeJ. in Tradigrain SA v. State Trading Corporation o fIndia'75where he stated that he preferred the view that the time when the obligation to repay the surplus arises is when the fact that there has been an overpayment is established by judgment or agreement (including arbitration). If this is correct, then the time from which interest should run is the date of final accounting.

This view seems correct in principle. Since we are concerned here with cases where the 12.81 beneficiary’s demand is not in breach of the underlying contract and complies with the terms

of the performance bond, the beneficiary is entitled to the use the money from that date. TIius, although the account party will ultimately reimburse the banks for the amount paid to the beneficiary, until the obligation to repay has arisen, the account party cannot com­ plain that the beneficiary has kept him out of pocket. Moreover, in most cases, the intention of the parties to the underlying contract is that the money paid to the beneficiary under the bond would form part of the general assets of the beneficiary and be used by the beneficiary as he pleases, subject to the obligation to repay any surplus when this has been determined upon final accounting.

122[1996] 2 Lloyd’s Rep. 524.

123ibid., at 528.

124[1 9 9 7 ] i Lloyds Rep. 424.

125Tradigrain v. State Trading Corporation of India [2006] 1 Lloyd’s Rep. 216 at [28J.

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13

CONFLICT OF LAWS

I. IN TRO D UCTIO N

problems of conflict of laws. First, the uniform rules apply only where they are incorporated into the relevant contract. Secondly, even where the rules are incorporated, it would still be necessary to identify the country whose law is the applicable law because, as indicated in Chapters 2 and 3, ICC’s uniform rules do not deal with all the rights and obligations of the parties. For example, they do not deal with exceptions to the independence principle, so that the question whether a bank is entitled or obliged to refuse payment on the ground of fraud, nullity, recklessness, unconscionability, or illegality is one to be determined according to the applicable law.1Article 1.02 of the ISP98, for example, expressly states that the rules only

1 See, e.g. Art. 1.05 ofISP98 which expressly states that the rules do not define or expressly provide for ‘. . . defences to honour based on fraud, abuse or similar matters’. These are matters expressly ‘left to the applicable law’.

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Conflict o f Laws

‘supplement the applicable law to the extent not prohibited by that law’. Thirdly, even where the dispute is on a matter covered by one of the uniform rules, differences in interpretation between courts in different countries could make it necessary to identify the country whose law is the applicable law.

13.03The URDG 758 contains provisions on jurisdiction and applicable law2 which, in the case of performance bonds subject to the URDG, the courts will apply as part of the agreement of the parties, unless modified or excluded by the parties. However, the UCP 600 does not deal with questions ofjurisdiction and choice of law. So, in relation to letters of credit subject to UCP 600 the courts still have to determine questions ofjurisdiction and choice of law on the basis of their national law.

13.04In the following account, the rules on the jurisdiction of the English courts and the exercise of it will be considered before discussing the rules by which the English courts identify the applicable law.

II.JU RISDICTION

13.05If a claimant brings proceedings in England, an English court will apply English law to deter­ mine whether or not it has jurisdiction. English law on jurisdiction today may be divided into two main regimes: the European and the common law regimes. In broad terms the European regime applies in cases where the dispute is a civil or commercial matter within the scope of one of the four instruments mentioned in the next paragraph and the defendant is domiciled in a European Community (EC) Member State3 or in a Member State of the European Free Trade Association4 (EFTA). Even where the defendant is not domiciled in an EC or EFTA state, the European regime may still apply, for example where the parties have agreed to confer jurisdiction on an EC or EFTA state. The common law regime applies in cases falling outside the European system. It may be helpful to discuss the European regime before looking at the common law regime.

1. The European Regime

A. Introduction

13.06The European regime covers the rules applicable under the Brussels I Regulation, the ЕС/Denmark Agreement, the Brussels Convention, and the Lugano Convention. Council Regulation (EC) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels I Regulation) is an EC instrument5 which unifies the

G reece, H ungary, Iceland, Italy, Latvia, L ithuania, L uxem bourg, M alta, the N etherlands, Poland, P ortugal, R om ania, Slovakia, Slovenia, Spain, Sw eden, an d the U n ited K ingdom .

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11A rt. 26(6)(a).

12A rt. 10(2)(a).

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Conflict o f Laws

This Convention was concluded on 30 October 2007 between the EC and the EFTA

countries.16 It replaces the 1988 Convention17 on the same subject.18

13.10The provisions of the 2007 Lugano Convention and the Brussels I Regulation are very simi­ lar, although there are some differences in terminology. Indeed, in relation to jurisdiction, in the context of claims relating to letters ofcredit and demand guarantees, there is no signifi­ cant difference between the two. For this reason and because of the similarities between the Regulation and the Brussels Convention, in the discussion that follows reference will be made to the provisions of the Brussels I Regulation only. However, the phrase ‘Regulation State’ will be used instead o f‘Member State’ to take account of Denmark.19

13.11The scope of the Brussels and the Lugano Conventions and the Brussels I Regulation is lim­ ited to ‘civil and commercial’ matters. It is suggested that most disputes relating to letters of credit and demand guarantees will be civil and commercial matters and therefore will fall within the scope of the Conventions and the Regulation. The European Court of Justice20 has jurisdiction to give rulings on the interpretation of the Regulation21 and the courts of Regulation States are bound by the jurisprudence of the European Court ofJustice.22 In this respect the jurisprudence of the European Court of Justice on provisions of the Brussels Convention that have been maintained in the Regulation should still be relevant in the application of those provisions in the Regulation.

13.12The Regulation provides for various bases of jurisdiction.23 In the context of letters of credit and demand guarantees the most relevant bases of jurisdiction are those based on the defendant’s domicile under Article 2, special jurisdiction underArticle 5(1), and jurisdiction agreement under Article 23.

16 F or the E C th e C o n v e n tio n was ratified by the C o u n c il o f M inisters o n 18 M ay 2 0 0 9 . D en m ark ratified

it on 2 4 S eptem ber 2 0 0 9 . It w as ratified by N o rw ay o n 1 July 2 0 0 9 . Tire C o n v e n tio n en tered in to force for the E C , in clu d in g D en m ark , a n d N orw ay on 1 Jan u ary 2010 . The C o n v e n tio n is n o t yet in force in Sw itzerland

19 A lth o u g h reference is m ade to the R egulation, the discussion applies to N orw ay a n d Sw itzerland a n d also

to Iceland w hen she ratifies the L ugano C o n v en tio n .

20 S h o rth a n d for the C o u rt o f Justice o f the E uropean C o m m u n ity , now the C o u rt o f Justice o f the E u ropean

U n io n , after the c o m in g in to force o f the T reaty o n the F u n ctio n in g o f the E u ropean U n io n (Treaty o n the E u ropean U n io n ) o n 1 D ecem ber 2009 .

21 A rts 68 an d 2 3 4 o f the T reaty on the E uropean U n io n . The E u ropean C o u rt o f Justice also has jurisdiction

to give rulings on the in terp retatio n o f the L ugano C o n v e n tio n (Pream ble to P rotocol 2). Flowever, a reference for such a ru lin g can only he m ade by a c o u rt in a M em b er State o f the C o m m u n ity an d n o t by EFTA states. B ut u n d er A rt. 1(1) o f Protocol 2 co u rts in an E FT A state are required to take in to acco u n t relevant decisions o f the E u ro p ean C o u rt o f Justice w hen in terp retin g the provisions o f the C o n v e n tio n .

tion (Section 1); (ii) special jurisdiction (Section 2); (iii) jurisdiction in m atters relating to insurance (Section 3); (iv) ju risd ictio n over co n su m er contracts (Section 4); (v) ju risd ictio n over individual contracts o f em p lo y m en t (Section 3); (vi) exclusive ju risd ictio n (Section 6); an d (vii) pro ro g atio n o f ju risd ictio n (Section 7).

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that has special jurisdiction. The basis of special jurisdiction that is most relevant to claims relating to letters of credit and demand guarantees is that concerned with matters relating to contract as contained in Article 5(1).29 It provides that a person domiciled in a Regulation State may be sued in another Regulation State:

1.(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;

th en u n d e r A rt. 59(2), in o rd er to determ in e w h eth er the individual is d o m iciled in a n o th er R egulation State, the c o u rt shall apply the law o f th at R egulation State.

discussion. A rt. 6 is co n cern ed w ith actions such as w here th e d efen d an t is o n e o f a n u m b er o f defendants so th a t he m ay be sued in the state w here o ne o f the o th er d efendants is dom iciled or w here the defen d an t is sued as a third party in th e c o u rt o f th e state seised o f the original proceedings. A rt. 7 is concerned w ith actions relat­ ing to liability arising from the use or op eratio n o f a ship.

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