QCR Winter 2018: Issuing and sending letter of credit through SWIFT on form MT700 – Party issuing the letter of credit the Issuing Bank? – Extrinsic evidence could be relevant
Yuchai Dongte Special Purpose Automobile Co Ltd v Suisse Credit Capital (2009) Ltd – QBD (Comm Ct)  EWHC 2580 (Comm)
The claimant Yuchai Dongte, a Chinese manufacturer, sought payment pursuant to a letter of credit (LC) which it said had been issued by the defendant on 10 March 2014. The defendant provided financial services and was a member of the SWIFT network - a global platform for secure financial messaging using common standards and forms, but it was not a bank.
The claimant had sold some goods under a previous LC which was replaced by the present one. The bank involved in the first LC, Suisse Bank Offshore Limited (SBOL), agreed with the defendant to send a SWIFT message in respect of the second LC, which it did on a MT700 form, which included the disclaimer "no our responsibility for payment". Documents were presented under the letter of credit to SBOL. The defendant refused to pay owing to discrepancies in the documents, although it later waived them but did not make any payment.
The defendant denied liability on the basis that it was not the issuing bank liable to make payment in the event of non-payment by the nominated bank. Alternatively it argued that the terms of the LC are such that the normal liability of an issuing bank in the UCP600 is excluded. It also argued that the claimant was estopped by convention from claiming that the defendant had issued the letter of credit.
The issues before the Court were:
(a) whether the defendant financial services firm was the issuing bank of a LC which it communicated through Swift (and thereby liable on the credit pursuant to the incorporated provisions of UCP 600);
(b) if it was the issuing bank, was its liability to make payment excluded on the true construction of the LC, and
(c) was there an estoppel by convention to the effect that the defendant was not the issuing bank?
The Court found in favour of the claimant on each of the issues, determining points of principle as to the interpretation and effect of UCP 600 in documentary credits.
- The Judge concluded that the defendant was the issuer on the true construction of the LC, confirming that extrinsic evidence can be relevant to a LC. The relevant material had to go to the question of the identification of the contractual parties, and it had to have been known, or at least available, to the parties. By issuing and sending a LC using the SWIFT network and form MT700, a party had indicated that it was the issuing bank. None of the LC's terms indicated another party was the issuer or that the wrong form had been used, and the party's disclaimers were insufficiently clear to dispel the conclusion that it was the issuer. The use of MT700, rather than the correct form MT710, was important as it was an international form, designed to be read in the same way globally and in the context of an industry that utilised mechanisation to a large extent.
- In relation to the second issue, the Court concluded that the defendant's liability was not excluded. Article 7 (Issuing Bank Undertaking) of UCP 600 contemplates a series of situations where, if compliant documents are presented, the issuing bank must pay. SBOL accepted the documents presented and waived the discrepancies whereupon it became obliged to pay, but did not do so. The preconditions for the issuing bank's obligations to come into effect under the UCP art.7 had been satisfied. There was no question of exclusion of the UCP's terms. It was a matter of what those terms, as incorporated, meant. The Judge held that the terms – fields 78 and 72 in MT700 - concerning instructions to the paying/accepting/negotiating bank and those for sender-to-receiver information were entirely consistent with the defendant being the issuing bank. The defendant was bound by SBOL's waiver of the discrepancies in the documents and it became liable to pay when the nominated bank, SBOL, did not.
- In relation to issue 3, the judge confirmed that the principle of autonomy – which means that the LC transaction is separate from the underlying transaction - did not prevent reliance on estoppel by convention. The Judge disposed of the plea of estoppel, as there was no shared assumption that the defendant was not the issuer.
This decision highlights that extrinsic evidence can be relevant to a LC. The documentation relating to the LC formed part of a continuous course of dealing. The defendant, by issuing and sending the LC by MT700, had indicated that it was the issuer. It is irrelevant that the defendant might not have understood that it was undertaking an issuer's obligations when sending the LC by MT700.
The decision is also an important reminder that the Court is entitled to draw adverse inferences from the want of disclosure when a decision was made not to call a key witness and when key documents had not been disclosed.
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