In Fortis Bank SA/NV v Indian Overseas Bank

The facts and previous judgments

The facts and previous judgments

In August 2008 Stemcor entered into five contracts for the sale of steel scrap to SESA in India. Delivery was to be CFR Haldia/Kolkata in seller’s option according to INCOTERMS 2000. Payment was to be 100% by sight letter of credit (L/C) opened by a first class bank and advised by the first claimant bank (‘Fortis’) in London. MSTC, an Indian government owned company, who assisted SESA purchasing steel scrap from abroad, was the applicant for the L/Cs. IOB opened five L/Cs subject to UCP600 and notified Fortis. The first three L/Cs were confirmed by Fortis and the last two were just advised by Fortis. Each L/C required presentation of bills of lading (B/L) consigned to the order of IOB. Stemcor duly presented all the documents to Fortis including the B/L naming Stemcor as the shipper. Fortis made payment under L/Cs 1-3 and sought reimbursement from IOB. Meanwhile, Fortis forwarded documents related to other L/Cs to IOB. By the time of shipment the market price had fallen sharply and well below the contract prices, so that SESA had no wish to take delivery and pay for the cargo. It told MSTC that there were discrepancies in the presented documents. As a result IOB rejected most of the documents and declined to reimburse Fortis under L/Cs 1-3 or pay Stemcor under L/Cs 4-5.