186 / 330
GAZETTE
JULY/AUGUST 1986
But a
Mareva
injunction may not be granted where
the guarantee or letter of credit specifies a foreign
country as a place of payment, since the assets or
prospective assets are in no sense within the jurisdiction.
This was so in the
"Bhoja Trader"
case, where on the
facts of that case the guarantee which called for
payment at the offices of Citibank in Piraeus, Greece,
was given by the London branch of Bank de
L'Indochine et de Suez. Donaldson L.J. did not think
that the bank's obligation was to pay in London and
transfer to Greece. He remarked that "[t]he obligation
was solely to pay in Greece and the bank could achieve
this result how it liked — by drawing on funds already
in Greece, by transfer from a third country such as
France, in which the bank is incorporated, or by
transfer from Lo n d o n ." The Court of Appeal expressly
did not decide what the position would have been if the
money had been payable either within or without the
jurisdiction at the
beneficiary's
option.
25
* / am indebted to my colleague, Mark de B/acam,
Barrister-at-law, who read earlier drafts of this article
and made valuable suggestions for its improvement.
(Part 2 will appear in the next issue.)
Footnotes
1.
Hatsbury's Laws of England
(4tli Edition) Vol. 41, para. 960;
Crcsswell, Blair, Hill, Wood,
Encyclopaedia of Banking Law
para.'s (501)-(5I8); H.C. Gulleridgc and Mcgrali,
The Law of
Bankers' Commercial Credits
(1984) pp. 7, 61-64. 67-71 and 185-
189; F.M. Vcniris,
Bankers' Documentary
Credits
(2nd ed.,
1983) pp. 132-139; Graham A. Penn, "Pcrlormancc bonds: arc
bankers free from the underlying contract?" [1984] J.B.I.. 132:
Editorial, "Performance Bonds and letters of credit" (1984]
J.B.E. 106; Zouhair A. Kronfol, "The Syndication of Risk in
Unconditional Bonds" [1983] J.B.L. 13; The Courts; Banking
World, October 1984 p. 49; Graham Pcnn, "On demand bonds:
the question of fraudulent demand" (1985) 6 Co. Law 83.
2.
[1978] Q.B. 159.
3.
High Court, unreported, 16 February, 1984.
4.
Tradax
-v-
Irish Grain Board
(1984] I.L.R.M. 471 per O'Higgins
C.J. at 477. The then Chief Justice referred to the definition of
documentary credits set out in para. 2133 of the 2nd edition of
Benjamin's
Sale of Goods
(1981): "The definition of
documentary credits which is currently accepted by the banking
world is that of General Provision b of the Uniform Customs
and Practice for Documentary Credits [prepared by the Interna-
tional Chamber of Commerce], According to this definition a
documentary credit is "any arrangement . . . whereby a bank
(the issuing bank), acting at the request and in accordance with
the instructions of a customer (the applicant for the credit), (i) is
to make payment to or to the order of a third party (the
beneficiary), or is to pay, accept or negotiate bills of exchange
(drafts) drawn by the beneficiary, or (ii) authorises such
payments to be made or such drafts to be paid, accepted or
negotiated by another bank, against stipulated documents,
provided that the terms and conditions of the credit are complied
with". The other bank is sometimes called the "intermediary"
or "correspondent" bank.
5.
Edward Owen Engineering Limited -v- Barclays Bank Interna-
tional Limited In.
2,
supra,
at 169
per
Lord Denning M.R.
6.
See the remarks of Eveleigh L.J. in
Polton Homes Limited -v-
Coleman Contractors Limited,
The Times, February 28, 1984.
7.
There are many variations in the forms of commercial credits,
the principal distinctions being between revocable and
irrevocable credits, and confirmed and unconfirmed credits.
Under the Uniform Customs and Practice for Documentary
Credits ("the Uniform Customs") an irrevocable credit consti-
tutes a definite undertaking by the issuing bank that the credit
will be made available if the seller complies with the stipulated
conditions. A revocable credit does not constitute a definite
undertaking by tlie issuing bank and may be cancelled or
modified without notice. The distinction between a confirmed
and unconfirmed credit turns upon whether or not the inter-
mediary bank accepts a direct obligation to the seller to honour
the credit. In (he former event, the intermediary bank
"confirms" the credit, i.e., undertakes (sometimes for an extra
commission payable directly by the seller) to pay whether or not
it is put in funds by the issuing bank; in the latter event the credit
is unconfirmed; the intermediary bank merely informs the seller
that the credit has been opened in his favour, and the seller will
have no right of recourse against the bank in the event of its
refusing to pay.
8.
Similarly, a confirmed performance guarantee is one which
confers rights on the buyer vis-a-vis the correspondent (i.e., the
buyer's local bank).
9.
Schniillhoff's
Export Trade
(7th ed., 1980) p.248.
10. [1978] 1 Lloyd's Rep. 161 at 165.
11. [1978]Q.B. 146.
12. Fn. 2,
supra
at 171.
13. Fn. 2,
supra,
at 169.
14. [1983] A.C. 168. "The exception for fraud on the part of the
beneficiary seeking to avail himself of the credit is a clear excep-
tion of the maxim
ex turpi causa non oritur actio
or . . . "fraud
unravels all". The courts will not allow their process to be used
by a dishonest person to carry out a fraud."
per
Ford Diplock at
184.
15. A form of contingency insurance is available which will
indemnify the seller for a substantial percentage (approx. 90%)
of its ascertained net loss sustained in respect of its obligations
under its counter-indemnity to its bank up to a specific limit in
the event of unfair calling of the guarantee by the buyer (i.e.,
where the buyer is not entitled to call the guarantee). The
insurance will normally be subject to the provisoes that the seller
is not in material default of its obligation under its contract with
the buyer and that the call is made in circumstances which are
beyond the seller's reasonable control.
16.
Per
Kerr J., fn. 11,
supra,
at 155:
"The plaintiffs then still face what seems to me to be an insuper-
able difficulty. Tlicy arc seeking to prevent the bank from paying
and debiting their account. It must then follow that if the bank
pays and debits the plaintiffs' account, it is either entitled to do
so or not entitled to do so. To do so would either be in
accordance with the bank's contract with the plaintiffs or a
breach of it. If il is in accordance with the contract, then the
plaintiffs have no cause of action against the bank and, as it
seems to me, no possible basis for an injunction against it.
Alternatively, if the threatened payment is in breach of contract,
which the plaintiffs' writs do not even allege and as to which they
claim no declaratory relief, then the plaintiffs would have good
claims for damages against the bank. In that event the injunc-
tions would be inappropriate, because they interfere with the
bank's obligations to the Egyptian banks, because they might
cause greater damage to the bank than the plaintiffs could pay
on their undertaking as to damages, and because the plaintiffs
would then have an adequate remedy in damages. The balance of
convenience would in that event be hopelessly weighted against
the plaintiffs."
17. [1984] 1 All E.R. 351; [1984] 1 W.L.R. 392.
18. Although Donaldson M.R. was remarking about
ex parte
injunctions, it seems that his directive also applies in die case of
applications on notice or, as was the position in the
Bolivinter
case itself, where an application is made
ex parte
and one or
more of the defendants appear or are represented by counsel.
19. Donaldson M.R. did not attempt to elaborate the types of cor-
roborative evidence which would need to be adduced. For
further comment on this point, see the judgment of the Court of
Appeal in the
United Trading Corporation
case.
20. See
Potion Homes Ltd.
-v-
Coleman Contractors
(Overseas)
Ltd., per
Eveleigh L.J.,
infra.
21. Cresswell, Blair, Hill, Wood,
toe. cit.
para. (512.9).
22. [1981] Com. L.R. 235, C.A. This case was referred to with
apparent approval by the Court of Appeal in the
United Trading
Corporation
case.
23. [1981] 2 Lloyd's Rep. 256 (Court of Appeal).
24.
Per
Donaldson L.J. at 258.
25. See Cresswell
et at, toe. cit.
para.s (512.11) - (512.12).
176