Bulgrains & Co Ltd v Shinhan Bank [2013] EWHC 2498 (QB)

[2013] EWHC 2498 (QB)Case No TLQ/13/0593
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
Venue The Royal Courts of JusticeDate Wednesday, 24 July 2013
Strand
London WV2A 2LL
Before
HIS HONOUR JUDGE GORE QC
Between
BULGRAINS & CO LIMITEDRespondentSHINHAN BANKAppellant
Digital Transcript of Wordwave International Ltd (a Merrill Corporation Company)8th Floor, 165 Fleet Street, London, EC4A 2DYTel No: 020 7421 4036  Fax No: 020 7404 1424Web: www.merrillcorp.com/mls Email: courtcontracts@merrillcorp.com(Official Shorthand Writers to the Court)
MR D GRANT (instructed by Bilms LLP) appeared for ClaimantMR T STONE (instructed by Hill Dickinson) appeared for Defendant
Judgment

JUDGE GORE:

[1]This is the expedited trial ordered by consent intended to determine the liability of the London branch of the defendant Bank to pay the sum of US$825,000 to the claimant, pursuant to the irrevocable letter of credit issued on 13 March 2013. The defendant denies the claim of the claimant in full.[2]At paragraph 23-004 of Benjamin’s Sale of Goods, 8th Ed, the author states:
“The basic idea of a documentary credit can be stated simply; a bank commits itself to a financial undertaking that it will fulfil against the presentation of stipulated documents.”
[3]As set out in Hudson’s The Law of Finance 1st Ed 2009 at paragraph 31-44:
“Letters of credit are the most common form of documentary credit in international trade…. In essence, a letter of credit is a right which entitles a shipper of goods to be able to insist on payment from the paying bank once documents evidencing delivery of those goods have been delivered to that paying bank.”
[4]Millett J (as he then was) in Re Charge Card Services [1987] Ch 150 at 168 said:
“The sole purpose of the letter of credit is to provide security to the seller to replace that presented by the shipping documents which he gives up in exchange for the credit.”
[5]Hudson continues also in paragraph 31-44:
“The standard mechanism for structuring letters of credit is by means of the usual customs and practice for documentary credit (UCP) which was published in a number of evolving versions between 1933 and 2007 by the International Chamber of Commerce. The current version is UCP 600 …. 31.45 The purpose of a letter of credit in essence is that the seller has an irrevocable right to payment for the goods on condition that a bill of lading in respect of those goods is delivered to the paying bank …. 31.46 The letter of credit is a legal document separate from the contract between the parties which therefore has a legal life of its own: the letter of credit is ordinarily entitled to be settled distinct from the contract between the parties.”
[6]The claimant is a company registered in Bulgaria and registered with BCCI. It trades within and out of Bulgaria primarily in wheat and similar foodstuffs. The sole shareholder is Mr Metodi Nikolov, who also controls the claimant. Mr Nikolov was contacted by a Mr Hyun Seung Ju acting on behalf of Heungsung Fee Company Limited by email on 30 March 2012, who was looking to buy approximately 3,000 metric tonnes of wheat bran pellets. Almost a year later, on 15 March 2013, at Heungsung’s request, the defendant in Seoul issued a letter of credit No MT42421303NU00300 for the sum of US$825,000 in relation to the supply of 3,000 metric tonnes of grain. (The letter of credit appears in trial bundle 1 tab 5 pages 56-61.). I observe, as far as is material to this judgment, that the beneficiary is identified as:
“Bulgrains Co Limited, Sofia, Bulgaria 9 Pozitano Str – presumably the street – “represented by M Nikolov Executive Director.”
The description of the goods to which the credit relates was:
“1. Wheat bran pellets in bulk. Moisture max 13.5PCT – Protein Min 12.0PCT –Ash Max 7.0PCT – Fiber Max 12.0PCT –Free from alive and dead insects – Pellet’s diameter 6-12mm – Pellet’s length 20-30MM 2.Quantity: 3,000 M/T(10% M/L)”
. There is no dispute that “PCT” means per cent, “MT” is metric tonnes and “ML” is “more or less”.[7]Under the letter of credit, the defendant was required to pay the sum of US$825,000 to the claimant once the claimant presented or had presented to the defendant’s main office in Korea the documents listed in the letter of credit, which can be summarised as being: 1. A signed commercial invoice in quadruplicate; 2. A full set of clean on-board ocean bills of lading made to the order of the defendant in Seoul marked “Freight fee paid and notify applicant”; 3. Certificate of origin or “Euro 1” issued by local Chamber of Commerce (one original and three copies; 4. A copy of the phytosanitary certificate; 5. A certificate of quality and quantity issued by independent inspectors (again one original and three copies); 6. A fumigation certificate (again one original and three copies); 7. A veterinary certificate (one original); 8. The hold’s Cleanliness certificate issued by independent inspectors; 9. A loading manifest and/or stowage plan issued by the vessel’s agent at the loading port.[8]It is now common ground that documents were presented and received by the defendant on 29 April 2013. The documents received by the defendant’s head office are alleged by the defendant to have been discrepant in significant respects, as a result of which it has failed to pay upon the letter of credit, and the claimant claims this to have been wrongful and claims to enforce the letter of credit.[9]The defendant submits that the claimant’s claim fails on three distinct grounds. Ground 1 asserts that, on the documents alone, the claim cannot succeed because, firstly, the documents for payment under the letter of credit were not in conformity with the letter of credit. Specifically, there was a discrepancy between the name of the beneficiary as it appears on the letter of credit (where it appears as Bulgrains Co Limited), and allegedly it was markedly different, referring to Bulgrains & Co Limited on one of the documents presented. And, in addition, on the commercial invoice the description of the goods does not conform with that in the letter of credit.[10]The defendant alleges that these discrepancies were notified to the claimant in two substantively identical notices, each of which conformed to the requirements of the ICC’s Uniform Customs and Practice for Documentary Credits 2007 Ed (the so-called UCP 600), which there is no dispute were incorporated into and govern the letter of credit. Notification that the letter of credit would not be honoured was sent via SWIFT to the claimant directly on 6 May 2013. A second SWIFT notice allegedly was sent via a relaying bank, ING Sofia, on 7 May 2013. In both cases the notices, if valid, were sent by the defendant within the stipulated period for notification that the documents were being rejected, such that there is now no issue as to timing. It is submitted that, if the defendant’s case on ground 1 is proved, that would suffice to deal with the claim in its entirety and the court would not need to consider the other two defences raised by the defendant. There appears to be no dispute on that point.[11]Ground 2 alleges that it is doubtful whether the claimant in fact has title to sue. It is alleged that any rights Bulgrains might have had under the letter of credit have been sold to D Commerce Bank Sofia, the nominated bank under the letter of credit. This is because, on 29 April 2013 D Commerce Bank expressly stated in correspondence with the defendant that it had “negotiated” (which means, under the UCP 600, purchased) the documents and was seeking reimbursement in respect thereof. Thus, if anyone has a claim under the letter of credit, it was D Commerce Bank and not the claimant. This is denied by the claimant.[12]Ground 3 alleges that, in any event, if grounds 1 and 2 fail, the defendant is entitled to invoke the so-called “fraud exception” to the autonomy of documentary credits because it has been released from any obligation to pay against the documents presented because, on the evidence before the court, it is submitted to be clear that the defendant presented documents relating to the alleged shipment of goods that were false, knowing them to be false and without belief in whether they were true, or recklessly, or being careless as to whether they were true or false. This too is denied by the claimant.[13]So the following matters are to be determined. Firstly, whether the documentation was discrepant. Secondly, whether the defendant complied with inter alia Articles 14(b) and 16(c) of the UCP in purporting to reject. Thirdly, whether the claimant has title to sue, i.e. whether the claimant is the beneficiary identified in the letter of credit, and whether the claimant sold its rights under the letter of credit to D Commerce Bank. Fourthly, whether there was fraud on the part of the claimant, entitling the defendant not to honour the letter of credit. Documentation.[14]There is no dispute that the letter of credit sent by SWIFT sets out the beneficiary and its address thus:
“Bulgrains Co Ltd, Sofia, Bulgaria 9 Pozitano Str represented by M Nikolov - Executive Director.” (As I have already indicated, see for example trial bundle 1 tab 5 at page 56, but it also appears at tab 9 page 202.) There is also no dispute that the commercial invoice that was in due course presented sets out the seller and its address thus: “Bulgrains & Co Ltd, 9 Pozitano str, 1000 Sofia, Bulgaria.”
The invoice is then signed on behalf of the seller “M Nikolov – Executive Director” (trial bundle 2 tab 16 page 435).[15]There is a dispute about whether the invoice is discrepant, and also about whether the defendant’s reliance upon it is valid. There is no dispute that the description of the goods at line 45A in the letter of credit (trial bundle 2 tab 17 page 500) was in the following terms:
“Wheat bran pellets in bulk – moisture max 13.5%, protein min 12.0%, hash max 7.0%, fibre max 7.0%, free from alive and dead insects, pellets diameter 6-12 mm, pellets length 20-30 mm.”
However, the commercial invoice (trial bundle 2 tab 17 page 509) is in markedly different terms. Under the heading “Description of goods” one finds the following:
“Bulgarian wheat grain pellets.”
There is no dispute about this discrepancy, but only about whether the defendant’s reliance upon it is valid.[16]Therefore, the first issue for me to decide is whether the presence or absence of either the ampersand or the word “and” between “Bulgrains” and the word “Co” (for company) makes the documentation discrepant. The defendant submits that the general requirement for conformity between the letter of credit and the documents presented thereunder is well established. In particular, it submits that the rule is that a set of documents which does not precisely meet the terms of the credit should ordinarily be rejected – see Equitable Trust Company of New York v Dawson Partners Limited (1926) 27 Ll L Rep 49 at 52, per Viscount Sumner, cited with approval by Lord Diplock in Gian Singh & Co Ltd v Banque de L’Indochine [1974] 1 WLR 1234, and in particular at pages 1239 and 1240. The defendant, adds that the concept of strict compliance is the foundation stone of the approach of the English courts to the operation of documentary credits. As Sir Thomas Bingham MR (as he then was) put it in Glencore International AG v Bank of China [1996] 1 Lloyd’s Rep 135 at 152:
“The duty of the issuing bank is, and is only, to make payment against documents which comply strictly with the terms of the credit.”
[17]The only exception, the defendant submits, may be where the discrepancy is insignificant or trivial such that it cannot be regarded as material – see Astro Exito Navigacion SA v Chase Manhattan Bank NA, The Messiniaki Tolmi [1986] 1 Lloyd’s Rep 455 (a case also cited by the claimant), and also Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep 443. The defendant submits that materiality is the key, as illustrated by Bankers Trust, where the misstatement of a telex number was regarded as trivial. By contrast, in Seaconsar (Far East) Ltd v Bank Markazi Jomhouri Islami Iran [1993] 1 Lloyd’s Rep 236, in particular page 240 columns 1 and 2, per Lloyd LJ (as he then was), with whom Beldam LJ agreed, the Court of Appeal’s judgment being left undisturbed on this point by the House of Lords on appeal, [1993] 3 WLR 756, the Court of Appeal held that the absence of the buyer’s name from the presented documents was fatal to a claim for payment, because the letter of credit specifically required that it be stipulated. There is no dispute between the parties that, as the authorities cited above make clear, in determining what is material the court must have regard to the terms of the letter of credit alone.[18]The test to be applied by the court is best summarised by the editors of Jack: Documentary Credit 4th Ed 2009 at paragraph 8.38 in saying:
“It is suggested that the correct approach is that a document containing an error with a name or similar should be rejected unless the nature of the error is such that it is unmistakeably typographical and the document could not reasonably be referring to a person or organisation different from the one specified in the credit. In assessing this, the bank should look only at the context in which the name appears in the document, but not judge it against the facts of the underlying transaction.”
[19]In support of this proposition the defendant cites the United States case of Beyene v Irving Trust Company [1985] 762 Fed Rep 2nd series at page 4, in which the name “Sofan” was misspelled in the bills of lading as “Soran”. The United States Court of Appeals Second Circuit stated:
“While some variations in a bill of lading might be so insignificant as not to relieve the issuing or confirming bank of its obligation to pay…we agree with the district court that the misspelling in the bill of lading of Sofan's name as ‘Soran’ was a material discrepancy that entitled Irving to refuse to honor the letter of credit. First, this is not a case where the name intended is unmistakably clear despite what is obviously a typographical error, as might be the case if, for example, ‘Smith’ were misspelled ‘Smithh.’”
[20]This approach, that a typographical error is a discrepancy, but anything that might be anything other than an inadvertent misspelling is not, is exemplified in the decision in Singapore in United Bank Limited v Banque National de Paris [1992] 2 SLR 64, in which the court held that the bank was entitled to reject documents in the name of a company called Pan Associated Pte Ltd, when the letter of credit was issued in favour of Pan Associated Ltd, even though there was evidence that under Singaporean company law there could not be two different companies with those names, and even though in the relevant documents the same address was given for each corporation described.[21]To the contrary, the claimant relies on Benjamin’s Sale of Goods, where at paragraph 23-099 the authors state this:
“Applying the principle of compliance according to appearance, a requirement that a document be issued by a named person or entity”
This passage is then emphasised by the claimant. “is satisfied if the document appears to be issued by that person or entity.” The authors continue:
“That appearance may be created by the use of that person or party’s letterhead.”
Again emphasised by the claimant, the authors continue:
“Alternatively, the document may appear to have been signed by or on behalf of that person or party.”
I continue with the citation, but without emphasis:
“Where a document is issued under a name different from that required by the credit, an endorsement that the named issuer is the stipulated issuer renders the document compliant. It is not for banks to question the veracity or authenticity of such an endorsement.”
[22]So the claimant submits that because ampersands cannot be transmitted by the SWIFT system (which fact is not disputed), and the correct address and director name had ensured that there could be no doubt as to the entity identified, there was, in its submission, no relevant or material discrepancy.[23]In my judgment, the ratio and reasoning of Tin J in United Bank Limited explains why this cannot be the case, because, having considered a lot of authority, including some of the cases cited to me, he said at page 73I to 74B:
“On these authorities it seems reasonably clear that any discrepancy, other than obviously [his emphasis] typographical errors, will entitle [his word] either the negotiating or the issuing bank to reject. It is tempting to say that whether a bank is entitled to reject must surely depend on whether the discrepancy is really material. But why should a bank assume the responsibility of determining the question of materiality and take the risk of it, if it goes wrong. As is so clearly stated in the UCP, documentary credit transactions are concerned with documents. There cannot be any doubt that the name of the beneficiary is a very significant matter.”
He adds at page 75B:
“A negotiating bank can only be certain of the position if it makes a search at the Registry of Companies. But I seriously doubt that the Bank is expected to make such enquiries, bearing in mind that all that should be looked at are the documents.”
[24]I agree, and I find therefore, that there was a discrepancy as to name that was not clearly and demonstrably simply a typographical error and was material, and it, together with the discrepancy as to description in the invoice, gave the defendant the right to reject the documents. Even if there was no facility to insert an ampersand in SWIFT, the word “and” could have been used, and, in my judgment, it also should have been used because the name of the company in the Cyrillic alphabet, included the single letter the translation of which means “and” which word therefore should have been used.[25]A hare set running by me was whether the discrepancy as to description of the goods in the invoice was cured by the fact that a compliant description was given in another presented document, namely the quality and quantity certificate (trial bundle 2 tab 16 page 449).

(c) of the UCP is clear and unequivocal and states in terms:

“The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.”
[26]The next issue then is whether the rejection was in time and in conformity with the UCP.

(b) provides:

“The issuing bank shall have a maximum of five banking days following the day of presentation to determine if a presentation is complying.”
[27]There are three relevant messages: a free form SWIFT message on 6 May 2013 (trial bundle 2 tab 17 page 538); another free form SWIFT message on 6 May 2013 (trial bundle 2 tab 17 page 539), and then an NT734 SWIFT message on 7 May 2013 (trial bundle 2 tab 17 page 541). The claimant takes various points about these messages, but as to time, all are within time within Article 14(b) if, as a matter of law, all that is required is transmission rather than receipt. If, however, receipt is required, the claimant alleges that the third message was not received and, therefore, if what is necessary for the defendant’s case on ground 1 is reliance on the third message, it is out of time, but also invalid for other reasons that I turn to later in this judgment.[28]As far as is relevant, article 16 states under the heading “Discrepant Documents, Waiver and Notice” the following:
“c. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter. The notice must state: i. that the bank is refusing to honour or negotiate; and ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and iii. a) that the bank is holding the documents pending further instructions from the presenter; or b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or c) that the bank is returning the documents; or d) that the bank is acting in accordance with instructions previously received from the presenter.”
Then (d) of article 16 continues:
“The notice required in sub-article 16(c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation… f. If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.” i. that the bank is refusing to honour or negotiate; and ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and a) that the bank is holding the documents pending further instructions from the presenter; or b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or c) that the bank is returning the documents; or d) that the bank is acting in accordance with instructions previously received from the presenter.”
[29]Mr Grant, who appears for the claimant, submits that article 16 requires receipt. First, he submits that that is the natural meaning of the word “given” that appears in article 16(d). I disagree; that word could mean “present” (that is transmit) or “deliver (that is receive), according even to the Concise Oxford Dictionary. Secondly, he refers to article 16(c) which states that notice must be given by “to the presenter” but, again, that begs the question as to the meaning of “give” and the same answer, it seems to me, applies.[30]To the contrary, Mr Stone submits that, as a matter of fact, I should find that the message was received. He invites me to reject the protestation of Mr Velkov to the contrary (which is to be found at trial bundle 1 tab 10, page 291, paragraph 8) because, firstly, he might have missed it because of the complexity involved in checking all SWIFT messages received, which is not a straightforward exercise and, in addition, he demonstrates on the evidence that every other SWIFT message was received and acted upon. Lastly, he draws attention to the words “message acknowledged” in the top left-hand corner of the sender’s version of the document at page 542, purported to be the copying of the NT734 from ING, the alleged recipient, at page 541, to D Commerce Bank on the same day and containing the text.[31]In my judgment, Mr Velkov can assert a negative but he cannot, and does not, prove it and, indeed, I accept Mr Stone’s submissions that, on a balance of probabilities, the message was received. In the alternative, Mr Stone prays in aid article 35, which I agree is clear and explicit in providing that, for the purposes of the UCP, a bank, therefore the defendant, assumes no liability or responsibility for loss in transit of messages or errors in their transmission, which seems to me to be a complete answer on this point. I therefore find that the third message, if otherwise operative and adequate, was given in time within article 14.[32]Four points remain: first, the claimant submits that the defendant can rely, and rely only, on the first notice of refusal it gives, namely, the first message. Mr Grant relies upon Benjamin’s Sale of Goods, paragraph 23-180, which so asserts. The author of that passage cites United Bank Limited as authority but, in my judgment, although Tin J appears to say that at pages 76(e) to (i), firstly, the observation, arguably, was obiter because he found as fact that the second message in that case was out of time and therefore invalid (also at page 76(i)).[33]Moreover, in that case, there was a substantive change in position in the two messages and, if that case is authority for any proposition regarding this issue, it is that a second message advancing a changed position cannot be relied upon. In this case, the defendant’s position has remained the same throughout and I do not accept, as a matter of principle, that where the position and reasons remain unchanged, the receiver cannot correct an earlier defective refusal by serving a later correct refusal, as long as it does so in time and adopting the same substantive reasons.[34]Therefore, in my judgment, reliance can be placed on the third message. If that is correct then, subject to the second, third and fourth points that the claimant takes in common against all three messages, it is conceded that the third message would be valid and effective because DOCDEX decision number 303 advises that the standard-form message MT734, when sent, makes the recipient, to use the Panel’s words, “perfectly aware” that the documents are refused. Accordingly, ground 1 of the defence would be made out, subject only to the three remaining grounds of complaint.[35]In the alternative on this point, if contrary to my ruling the third message cannot be relied upon, the defendant, conceding in a relevant witness statement that it does not rely on the second message as advice of refusal, I would have held that the first message sufficed. That message said:
“Pls regard this msg as MT734. 77J discrepancies: beneficiary’s name on the document is different from LC. Description of goods on invoice is not correspond with the description in the credit.

(b) ”

[36]“Pls”, it is common ground means “please”; “msg”, it is common ground means “message”, “LC” is clearly a reference to the letter of credit. This message is to be found in trial bundle 1 tab 6, at page 158. Mr Grant submits that that is not article 16-compliant. He relies on Benjamin’s Sale of Goods, which states at paragraph 23-181:
“Article 16(c)(i) requires that the ... [I insert the words ‘the notice’] must state that the bank is refusing to honour or negotiate. In this respect, the wording of UCP 600 departs from UCP 500, which contained no such explicit requirement. The structure of article 16(c), by making the refusal statement to distinct requirements suggests that ideally [and he emphasises these words] the notice should contain a separate specific statement of refusal and that, at least, the onus relies on the refusing bank to communicate its intention to refuse in unambiguous terms.”
[37]He also relies on DOCDEX decision 303, there being no dispute between the parties that such decisions are persuasive, see Fortis Bank SA/NV & Stemcor UK Limited v Indian Overseas Bank [2011] EWCA Civ 58, at paragraph 34, to this effect. In DOCDEX decision 303, the Panel were asked:
“Does specific wording ‘we refuse to honour’, or similar, need to be stated on an MT734 in order to satisfy UCP 600 sub-article 16(c)(i)?”
[38]In its analysis, the Panel stated:
“In order to comply with UCP 600 sub-article 16(c)(i), an express statement of refusal to honour or negotiate is needed when a SWIFT message other than MT734 is sent to a bank, i.e. an MT799, or in those cases when a refusal message other than SWIFT message is sent directly to the beneficiary by a bank where the beneficiary acted as presenter.”
[39]Mr Stone replies, in my judgment correctly, that Decision 303 in the full final paragraph of the analysis recognises the potential validity of implicit, as opposed to explicit, refusal precisely because the standard message MT734 is universally accepted as so notifying, even if the text of the message does not say so in terms.[40]The Panel advised that:
“As the ensuing refusal to honour or negotiate is implicit [my emphasis] the use of MT734 meets the requirement of UCP 600 sub-article 16(c)(i)”
[41]The Panel continued:
“Moreover, this panel wishes to underline that, according to UCP 600, article 16(c), the advice of refusal is to be sent to the presenter which, in the great majority of cases [I digress to observe, in this case too] is a bank that is expected to be perfectly aware of the meaning of the message.”
[42]Moreover, he submits, again correctly in my judgment, that the final sentence of the paragraph relied upon by Mr Grant is, in effect, obiter because Decision 303 was an MT734 case not a case where some other SWIFT message was used, and he submits that, though persuasive, it is not binding authority. I would add in that regard that, if MT734 advice of refusal is an industry term of art, the meaning of which is clear, though implicit, to bankers who can therefore be excused spelling that out verbatim, as between the same class of persons, there is no meaningful difference in a freeform message saying, as this message did, “Please regard this message as MT734”.[43]Secondly, it is submitted that all of the refusals are defective as regards the discrepancy as to name because there is no indication how the beneficiary’s name differs, in other words, the messages do not provide the detail required. Thirdly, it is submitted that all of the refusals are defective as regards the description discrepancy because the messages do not list how and to what degree the description of the goods in the letter of credit does not correspond with that in the invoice. Again, the message does not provide the detail.[44]As regards both complaints, Mr Grant relies upon two sources: at paragraph 23-181 of Benjamin’s Sale of Goods, the authors state:
“A notice of refusal [and he emphasises these words] must identify discrepancies with sufficient clarity that it is clear what needs to be rectified. Thus, a notice that states ‘certificate of origin for Form A presented’ and shows content is inconsistent with other documents, is inadequate: [he emphasises these words] it fails to indicate the other documents with which the certificate is inconsistent and the nature of the inconsistency. In contrast, the statement that “documents show gross weight inconsistent with each other” suffices. Moreover, the requirement of a single notice of refusal precludes subsequent clarification by a second communication, an approach that may be justified commercially by the potential for denying an opportunity to realise the credit where the discrepancies could have been cured and a fresh, timely and complying presentation could have been made had the discrepancy been stated with clarity in the original notice.”
[45]I observe, relating back to a ruling I have already made, that this supports my finding that a technically-compliant later and timely notice can be relied on in place of an original non-compliant rejection notice. I indicated that Mr Grant relies upon two sources, the second is DOCDEX Decision 296 which states:
“When refusing documents received under a documentary credit, the issuing bank must act in accordance with UCP 600 article 16. That includes the following principles [and omitting some words, the decision continues] ... the notice must state each discrepancy in respect of which the bank is refusing. It follows that each notice must be stated and must be complete and specific.”
[46]There is no dispute between the parties, but the purpose of setting out with clarity the alleged non-conformities is to provide the beneficiary with the opportunity to rectify such matters. The defendant replies that it does not have to set out the discrepancies verbatim. On the facts of this case, there was only one document naming Bulgrains to compare with the letter of credit, and Mr Stone asks, in effect, “What else is needed than to say that the names are not the same?”[47]As regards the invoice, again, there is only one document to compare with the letter of credit. Mr Stone asks, in effect, “What else is needed than to say that the descriptions are not the same?” When Mr Grant complains that the notices must tell the presenter what he has to do, the answer is that the names and the descriptions must conform. Moreover, Decision number 296 does not really help Mr Grant, in my judgment. Three of the six grounds in that case involved findings that the documents were not discrepant and, therefore, do not address the point in issue in this case.[48]As regards discrepancies 3 and 5, which were essentially the same point, the point was that the letter of credit was silent on the allegedly discrepant point, and that left the receiver none the wiser as to what it had to do, whereas here there were frank and express discrepancies and it was plain that what was necessary was that the documents should conform with each other.[49]As regards discrepancy 4, there was a failure to identify the document to which the alleged discrepancy related; not so in this case. For these reasons, I reject the second and third complaints of the claimant.[50]The fourth and final point common to all three messages is that the defendant fails expressly to state what it is proposing to do with the documents pursuant to the requirement so to do in article 16(c)(iii), in that it merely identifies the provision 16(c)(iii)(d). DOCDEX Decision 296 states, and I quote:
“When refusing documents received under documentary credit, the issuing bank must cite, in accordance with UCP 600 article 16, that includes the following principles: the notice to state the disposal of the documents, i.e. what the issuing bank is doing with the documents.”
[51]True it is that the message does not say in terms what is to be done with the documents in this case, but Mr Stone submits that the critical point is that it does say, “Notify, as per UCP 600 article 16(c)(iii)(b)”. He submits that what is critical is the word “notify” because it is another industry term of art clearly and unequivocally understood to mean: “Documents held until the issuing bank receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver.” (See trial bundle 2 tab 17, page 558D, as inserted at the defendant’s request, without objection from the claimant). Relying on Fortis Bank at paragraphs 56 and 59 where Thomas LJ, as he then was, identified that the words “return” and “hold” were conventional terms in article 16 that should be accepted to mean what was accepted industry-wide, Mr Stone submits so to here as regards notifying, and nothing more was required than was required in Fortis Bank. I agree and would only add by reference to the reasoning in Decision number 303 that, in communication between banks, which this was, even if the language used might appear to the lay person to be code, if, as between bankers, the meaning is plain and universally-understood, that suffices. I therefore reject this ground of complaint.[52]Accordingly, I find that the defendant has made out ground 1 of its defence and that suffices to dispose of this action which is, accordingly, dismissed. Entitlement to sue:[53]However, in relation to entitlement to sue, I deal with this aspect in deference to counsel who addressed to me oral and written submissions upon it, but in view of my finding on ground 1 and the invitation to deliver an ex tempore judgment, in the interest of all of the parties, it is not necessary to do so at any great length.[54]The issue turns on whether or not I am satisfied on the balance of probabilities that the claimant sold its rights under the letter of credit. The defendant contends it had, relying primarily on the letter from D Commerce Bank to the defendants Korean office dated 25 April 2013, which is at trial bundle 2 tab 16, page 434.[55]I have found the evidence on this issue unsatisfactory. The defendant relies on this letter and its use of industry terms of art such as “negotiation”, which emanate from the UCP, which apply universally, were drafted in English and which it is submitted would be understood by banks the world over, including sender and receiver of this document. Sent by D Commerce Bank, it acknowledges that the credit is available with D Commerce Bank by negotiation, which Mr Stone submits is no more or less than it is obliged to do under article 8(a)(ii) of the UCP, because he says that flows from the letter of credit itself identifying D Commerce Bank as a confirming bank, as defined in article 2, and also because the letter of credit itself identifies the credit as available by negotiation with D Commerce Bank, which is therefore also a nominated bank within the same definition. Moreover, the document purports to say that D Commerce Bank, “Claimed reimbursement”, which he submits it would not have done if it had not negotiated the instrument and because the document also says in terms that D Commerce Bank, “Negotiated by ourselves documents”.[56]He also relies upon the fact that, whereas the defence, taking this point, was served on 15 May 2013, the claimant has adduced no direct evidence or witness evidence specifically refuting the allegation, which would be peculiarly within its knowledge and power, and therefore he invites me to draw an adverse inference from this failure.[57]On the other hand, Mr Grant submits that it is clear from the letter that English was not the first language of the person who wrote the words the meaning of which is now in dispute. What is beyond doubt, however, is that the beneficiary is stated in terms to be Bulgrains Co Ltd, represented by Mr Nikolov, Executive Director, which he submits is inconsistent with D Commerce Bank having become the beneficiary by negotiation. Moreover, at no point did D Commerce Bank act, or purport to act, as principals and at no point did anyone, including the defendant, act as if it were. As is evident elsewhere, D Commerce Bank continued to receive and forward SWIFT messages on behalf of the claimant, for example the SWIFT communication at trial bundle 1 tab 5, page 61 from D Commerce Bank to the defendant’s London branch: “According to beneficiary’s instructions, we are kindly informing you that on 22 April 2013 our customer has refused the asked cancellation.” and also, the freeform messages sent by the defendant’s Seoul headquarters on 6 May 2013 purporting to reject the documents.[58]Most persuasive to my mind against a finding that the instrument has been negotiated is that, if that had been the case, one or other of only two events would have flowed: either the claimant would have been paid, in which case it would not be a party but D Commerce Bank would have been the claimant seeking reimbursement, or the claimant would not have been paid, in which case it would have sued, at least as a joint defendant, D Commerce Bank. It is, in my judgment, implausible that it would have proceeded against the defendant alone once the allegation of negotiation had surfaced, if there was real persuasive evidence of it.[59]Despite it being unsatisfactory that the claimant has not put in evidence a clear and unequivocal denial of negotiation from the one source from which that could come, and despite the unsatisfactory nature of the fact that D Commerce Bank only denied that it had added its confirmation to the letter of credit (see trial bundle 2 table 13, page 400) which is, therefore, only a partial answer to the defendant’s allegation, I find the evidence inconclusive on this issue and I am not prepared to find, on a balance of probability, the fact alleged, namely, negotiation to D Commerce Bank, for which the direct evidence is equivocal and which assertion is based on inference and submission rather than satisfactory hard evidence. Fraud.[60]The defendant in ground 3 seeks in the final alternative to invoke the so-called fraud exception. Again, I deal with this aspect in deference to Mr Stone for the defendant, who addressed oral and written submissions upon it. But, in view of my finding on ground 1 and the invitation to deliver this ex tempore judgment, it is not necessary to do so at any great length. I record that I did not call upon Mr Grant.[61]In short summary, I would not have found fraud. Mr Stone is right to submit, as Warren J observed in Christopher Catchpole v Trusteesof the Alitalia AirlinesPension Schemeand another [2010] EWHC 1809 at paragraph 28, and I quote:
“It is sometimes possible on the papers alone to reject what a complainant or other person says in a letter or sometimes even in a witness statement without the need to hear oral evidence under oath from that party. Sometimes what is said is flatly inconsistent with contemporaneous documentation which is not open to challenge; sometimes a story is so inherently implausible that it can be rejected. No doubt there are other circumstances where what is said in a letter can safely be rejected.”
[62]So too Mr Grant in his skeleton argument was correct to remind me of the words of Lord Sumption in his speech in Mutual Holdings (Bermuda) Limited & Ors v Diane Hendricks & Ors[2013] UKPC 13 at paragraph 28, that: “The allegation was one of fraud, which fell to be proved to the high standard on which the courts have always insisted, even in civil cases.” and his further caution that findings of fraud on issues in dispute should be based on oral evidence from the individuals concerned so as to enable the judge to: “... assess their character, honesty and candour of their evidence, and the quality of their recollection.” and, I would add, the adequacy, plausibility and truth of any explanations they might give for matters that raise a relevant index of suspicion.[63]So it seems to me that, whether the so-called fraud exception could be invoked in this case depends critically on the evidence of Mr Nikolov and possibly also of others, none of whom are called, and also a critically relevant issue is what was his state of mind and intention, as well as his state of knowledge, at the time of presentation of the relevant documents, none of which is canvassed in live evidence before me. I can speculate as to exculpatory explanations, but there is no evidence.[64]Mr Stone’s excellent analysis and submission, however, do not, in my judgment, enable me to reject what Mr Nikolov says without the need to hear oral evidence under oath and therefore to find fraud, and I would have declined to do so in the circumstances.[65]However, the conclusion reached for the reasons that I have given is that the claim is dismissed.[66]For the reasons that I have set out in my judgment, the claimant’s case has failed although it is right to say that the basis upon which it has failed involved findings in favour of the defendant in respect of only one of the three grounds advanced by way of defence. Mr Stone, who appears for the defendants, invites me to make an order in the usual way that provides that in those circumstances the claimant pay the defendant’s costs of the action subject to detailed assessment.[67]Mr Grant, who appears for the claimant resists that. He resists that in one respect that is not contested, namely that there are costs orders in his client’s favour made as a result of interlocutory orders which should stand in the claimant’s favour and should be set off against any liability that it may have to pay the defendant’s costs of the action. I do not detect any serious resistance to that on the part of Mr Stone and therefore I accede to that and the order that I am about to make will be subject to a set off in respect of the costs awarded in favour of the claimant in previous orders.[68]The second submission that Mr Grant makes in this regard is that because the defendant has not succeeded on all of the issues raised it should not, as a matter of principle, recover all of the costs of the action. In this respect the relevant provisions are to be found in CPR Part 44.1(3) and in short summary, there is no dispute that although the usual order is that costs follow the event, I have a wide ranging general discretion to depart from that order if, in my discretion I consider it appropriate to do so. That means, if I consider it to be just to do so. If I am to consider such a departure I am required by CPR Part 44.3(4) to consider what can be described in shorthand as conduct which affords a basis but not the only basis on which the court is entitled to depart from the usual order.[69]Mr Grant submits essentially this: that for the reasons that I have given in my judgment, the defendant has so clearly and unequivocally failed on the two grounds that it has failed upon, that that does afford conduct reasons to depart from the usual order. I am not satisfied that that is the position. Nonetheless, Mr Stone acknowledges and accepts that there remains, whether or not I make an adverse finding as to conduct, a general discretion on my part to depart from the usual order.[70]I observe in this regard, that the second and third grounds advanced by the defendant upon which the defendant has failed have contributed to an escalation of the volume of evidence that was prepared, filed and served in these proceedings and has also engaged the time and intellect of the parties’ respective solicitors and counsel, as is evident from the detailed submissions that have been made in relation to those issues. Moreover, I am entirely satisfied that absent those issues, this trial probably could have been concluded in one day rather than the two days that it took and the third day that we are now on for the purpose of delivering judgment and dealing with consequential orders. I am entirely satisfied therefore that the costs have been significantly increased as a result of those allegations in respect of which the defendant has failed.[71]Moreover, I ask myself the question in making a judgment upon the question of the justice of the costs order why should the unsuccessful claimant be obliged to pay for the costs of the successful defendant failing upon issues that it chose to advance and in respect of which, in one case it had the legal burden of proof and in the other case it at least had an evidential burden of proof. It is not just in those circumstances that the unsuccessful claimant should, in fact, have to pay for those costs. It is rightly agreed that in this respect if I feel able to do so, I should decline to make an issue-based order and instead, if persuaded that it is appropriate to do so, make a proportionate costs order and that is the consequence of CPR Part 44.3(6) and (7). I am satisfied that it is possible and appropriate for me to make a proportionate order in those circumstances.[72]Mr Grant invites me to find that the claimant should only be liable for one-third of the defendant’s costs but that is too mechanistic and arithmetic a view and suggests that it is based upon the observation that since the claimant has succeeded on two of the three issues so its liability should be restricted only to one-third. I do not agree but equally, I am not satisfied that Mr Stone’s suggestion of 85 to 90 per cent is appropriate in the circumstances to reflect the significant increase of costs that I find has been occasioned by these allegations on which the defendant has failed.[73]It is equally however, not right for me to apportion those costs 50:50 to account for the second day. Rather the appropriate proportionate order that I should make and which I do now make is that the claimant pay the defendant’s costs of the action on a standard basis to be subject to detailed assessment if not agreed but limited to two-thirds of the defendant’s costs.[74]As a matter of history it is the case the pursuant to the order of HHJ Seymour QC, sitting as a judge of the High Court, the defendants paid to the claimant’s solicitors the sum of US$ 825,000 to abide the event. I am given to understand and there is no dispute that that sum sits to this day in a dollar account of Mr Grant’s instructing solicitors. Mr Stone invites me to make an order that that sum should be paid out forthwith, that is, today by automatic transfer together with any interest approved thereon, to the claimant’s solicitors.[75]Mr Grant resists that order because he invites permission to appeal and he submits that the point and purpose of the order would be frustrated and lost if I were to accede to Mr Stone’s second application and if I were also to permit the application to appeal. The grounds upon which he seeks permission to appeal were advanced with clarity and with all the due respect that one can traditionally expect from the bar in what is always a difficult application to be made in the face of the judge with whose judgment the advocate in question disagrees.[76]In summary the essence of Mr Grant’s application is that permission to appeal should be granted because in effect, on two issues relating to the proper construction and application of Article 16(c) of the UCP, I may have, to use the shorthand, made new law. With the greatest of respect to Mr Grant, the submissions that he advances with due respect do not submit that I have erred in law, which is the ground upon which permission should be granted or refused. I do not detect any error of law and simply because I may have made what he calls new law, is not a sufficient reason for the grant of permission to appeal. Permission to appeal is refused.[77]Mr Grant, I will complete the necessary form in my chambers and it will be available to those instructing you later today. That being the case, the principle ground of resistance to the order sought by Mr Stone disappears. I was initially attracted by the notion that the claimant perhaps should be protected by the continuation of the order at least until such time as the claimant had the opportunity to file and serve a notice of appeal and then leave it to the Court of Appeal to decide the issue. On reflection, there being no evidence that there is any lack of security in relation to the sum in question, it being accepted that the injunction of Judge Seymour was essentially a merits-based injunction rather than a risk-based injunction and the merits having been found against the claimant, I see no reason why I should not make the normal usual order that would flow. Therefore I do direct that the claimants pay over to the defendant’s solicitors by 1.00pm tomorrow, together with interest thereon, the sum of US$ 825,000 that presently sits in Mr Bilmes’ client account.