PT Pan Indonesia Bank Ltd TBK v Marconi Communications International Ltd

Where no law has been chosen, the presumption in article 4(2) of the Rome Convention may be displaced only by a clear preponderance of connecting factors favouring another country. A documentary credit creates several autonomous bilateral contracts, each requiring its own governing-law analysis.

For a contract between a beneficiary and an issuing or confirming bank, the commercially significant connections include the country where compliant documents are to be presented and checked and where the beneficiary is to receive payment. Where a negotiation credit contemplated those acts in England, those connections justified displacing the law of the confirming bank’s place of business under article 4(5).

Marconi supplied telecommunications equipment under a sale contract providing for payment by documentary credit. An Indonesian issuing bank opened a sterling negotiation credit, which Panin Bank confirmed. The credit contemplated presentation, checking and payment through Standard Chartered Bank in London. Panin Bank rejected drafts and accompanying documents presented on Marconi’s behalf.

David Steel J, in [2004] EWCH 129 (Comm), refused to set aside permission to serve Panin Bank outside the jurisdiction. He found a good arguable case that the contract between Marconi and Panin Bank was governed by English law and that the alternative jurisdictional grounds were also established.

The principal issue on Panin Bank’s appeal was whether article 4(2) of the Rome Convention presumptively selected Indonesian law or whether the circumstances justified applying article 4(5) and selecting English law. The court also considered contract formation, agency, breach within the jurisdiction and forum conveniens.

1. Appeal dismissed. The three-member court unanimously upheld the conclusion that English law governed the contract between Marconi and Panin Bank. Potter and Hooper LJJ also dismissed the appeal on the remaining jurisdictional grounds considered after the principal issue had been decided.

2. A documentary credit does not constitute a single contract with one characteristic performance. It generates several autonomous bilateral contracts, each potentially having a different governing law. Although commercial coherence makes a common governing law desirable, it is not essential.

3. Article 4(2) of the Rome Convention presumptively pointed to Indonesia because the confirming bank was situated there and was to effect the characteristic performance. Under article 4(5), however, that presumption could be displaced by a clear preponderance of contrary connecting factors. The court approved the reasoning in Bank of Baroda v Vysya Bank [1994] 2 Lloyd’s Rep 87.

4. The essential commercial purpose of a documentary credit is to enable the seller to obtain payment against compliant documents in the contemplated country of presentation and payment. The important connections were therefore that the credit was opened through a London bank, the documents were intended to be presented and checked in London, and the beneficiary was to receive sterling payment there through negotiation. These circumstances justified applying article 4(5) and selecting English law. The fact that negotiation did not ultimately occur could not alter the governing law, which depended on the intended operation of the contract when made.

5. For completeness, the two-member court held that foreign law is presumed to correspond with English law unless credible evidence demonstrates a material difference. Panin Bank’s Indonesian-law evidence was incomplete and internally inconsistent. It did not displace the good arguable cases that the confirmation became contractually effective when communicated in England and that the advising bank acted as intermediary for that purpose.

6. There was also a good arguable case that breach occurred in England because the pleaded breach included failure to remit the proceeds to London at maturity. England was clearly the appropriate forum. The judge had not reversed the burden of proof, and likely delay in Indonesia was a legitimate consideration alongside the documentary nature of the dispute.

1. Court of Appeal (Civil Division): The appeal was dismissed by the three-member court on governing law and by Potter and Hooper LJJ on the remaining jurisdictional grounds. The orders permitting service outside the jurisdiction remained effective: [2005] EWCA Civ 422.
2. High Court, Queen’s Bench Division: David Steel J dismissed Panin Bank’s application to set aside the orders permitting service outside the jurisdiction and refused a declaration that the court lacked jurisdiction: [2004] EWCH 129 (Comm).