Safa Ltd v Banque Du Caire

The principle that a complying letter of credit is treated as cash remains important. It does not require summary judgment where the issuing bank is materially involved in the underlying transaction and has a real prospect of establishing a liquidated set-off or another substantive defence. Summary judgment may also be refused where there is a compelling reason for a trial, including a properly arguable case of fraud or misrepresentation by the beneficiary which induced the credit.

Safa Ltd, as assignee of the beneficiary’s rights, sought summary judgment against Banque Du Caire under two letters of credit issued to fund financial guarantees for loans which the bank was considering making. The High Court refused summary judgment. The bank alleged, among other matters, that the beneficiary had made fraudulent or misleading representations, that the guarantees never came on risk, and that the bank had liquidated claims capable of being set off against the credit proceeds.

Safa appealed, arguing that the established rule treating letters of credit as cash required judgment in its favour despite the bank’s potential claims arising from the underlying transaction.

1. Appeal dismissed. The Court of Appeal held that the established principles governing bills of exchange, letters of credit and performance bonds continue to guide applications for summary judgment under CPR 24.2. A complying letter of credit ordinarily ranks as cash, and a counterclaim will normally not prevent judgment.
2. CPR 24.2 uses the word “may”. Summary judgment should therefore be refused where the defendant has an actual defence with a real prospect of success, or where exceptional circumstances provide a compelling reason for trying liability on the credit. A mere unliquidated claim ordinarily remains a counterclaim. A liquidated claim arising directly from the same transaction may support a set-off.
3. The ordinary rule requires adaptation where the issuing bank is unusually involved in the related transaction. Here the bank was the proposed lender, the beneficiary of the guarantees, and the party whose funds were intended to pay the insurance premium. It was arguable that the guarantees never came on risk and that the beneficiary was not entitled to retain the sums beyond any brokerage. The bank therefore had a real prospect of establishing an immediate liquidated reimbursement claim.
4. The bank also had arguable claims that the demand was fraudulent, that the beneficiary had breached duties concerning the insurer’s creditworthiness, and that misrepresentations had induced the bank to enter into the credit transactions. In that context it would be unjust to compel payment summarily while preventing the bank from raising those claims by way of set-off.
5. The general principles remain necessary to facilitate ordinary commerce. The unusual facts of this case made a trial appropriate. Safa’s status as assignee did not improve its position beyond that of the assignor. The appeal was dismissed, with the appellant ordered to pay £30,000 on account of costs.

• Court of Appeal (Civil Division): Appeal from the refusal of summary judgment by Timothy Walker J was dismissed.