FORTIS BANK SA/NV V INDIAN OVERSEAS BANK

[2010] EWHC 84 (Comm), Queen's Bench Division, Commercial Court, Mr Justice Hamblen, 28 January 2010

Banking - Letters of credit - Obligations of issuing bank in relation to return of documents - Discrepant documents, waiver and notice - Non-compliant presentation of documents under letter of credit - Notice of refusal to honour or negotiate - Issuing bank gave notice that it intended to return or hold documents pending further instructions - Issuing bank failed to promptly return documents - Construction of UCP 600 - UCP 600, article 16(c) and (f)

IOB, the defendant issuing bank under five letters of credit had rejected documents containing a discrepancy and had given notice of return under UCP 600 article 16(c)(iii) of the documents to the claimants. After further correspondence, they had given a notice to hold the documents. The claimants in due course requested the return of the documents but did not receive them immediately. The claimants then informed IOB that their failure to return the documents constituted an affirmation of the presentations as complying presentations in accordance with article 16(f) of UCP 600, whereupon the documents were returned. The claimants obtained summary judgment on 25 September 2009 in respect of all five letters of credit issued by IOB, except that one of IOB's defences in relation to some of the drawings was not suitable for summary judgment. In relation to those drawings, the judge had held that there was a valid documentary discrepancy and that as a result it was not possible to deal summarily with the claimants' case that IOB was precluded under article 16(f) of UCP 600 as incorporated into the letters of credit from relying on any such discrepancy. This was the trial of that point as a preliminary issue. Hamblen J gave judgment for the claimants. The defendant was precluded from relying on the documentary discrepancy. The judge accepted that a purposive approach to construction of the UCP 600 was appropriate. The court should generally seek to construe the UCP as contractually incorporated so as to reflect "the best practice and reasonable expectations of experienced market practitioners". The judge assessed the value of the Commentary to the UCP 600 and did not think the analogy with travaux preparatoires for an international convention was appropriate. The comments made were of interest, but did not have evidential status. The evidence of a person involved in the drafting of the UCP 600 as to what was intended by the replacement of UCP 500 article 14 with UCP 600 article 16 was inadmissible - the judge had objectively to construe the wording as adopted in UCP 600 without regard to what may or may not have been subjectively intended by its draughtsmen. In response to the three specific questions, the judge held that: (1) the preclusion in article 16(f) of UCP 600 did apply in relation to actions taken or not taken by an issuing bank at the time of or subsequent to the issuance of an article 16(c)(iii) notice, as followed from a proper construction of article 16 according to "best practice" or the "reasonable expectations of experienced market practitioners", or indeed from an implied term to that effect; (2) the issuing bank must act in relation to a "return" notice or in relation to a "hold" notice with reasonable promptness; and (3) IOB's actions or inactions following their respective article 16(c)(iii) notices had indeed been such that they were precluded from relying upon the relevant discrepancy.