Oliver and Anor v Dubai Bank Kenya Ltd

Under a documentary or standby letter of credit, a condition requiring presentation of specified documents is not disregarded under article 13(c) of the UCP merely because the condition also gives rise to an implied obligation concerning the issue of one of those documents. Article 13(c) addresses payment conditions which do not specify a document for compliance. The autonomy principle does not prevent a credit from imposing obligations concerning the issue of a stipulated document, provided the bank is not relying on claims or defences arising from the underlying contract. Contractual wording such as “commitments” is given its ordinary and natural meaning. An implied obligation may require the bank to act in good faith, but the bank need not investigate beyond the information supplied where no breach is established.

The claimants, husband and wife, claimed as beneficiaries under an irrevocable transferable standby letter of credit issued by the defendant bank. Payment required presentation of a draft, a certificate stating that the underlying company had failed to perform its obligations, and a telex issued by the bank confirming fulfilment of the beneficiaries’ commitments.

The bank had not issued the telex. The claimants sought a declaration that the telex condition should be disregarded under the Uniform Customs and Practice for Documentary Credits (1993 revision), ICC publication no. 500, or alternatively an order requiring the bank to issue it. The central issues were the meaning of “commitments”, the application of articles 3 and 13(c) of the UCP, and the scope of any implied obligation on the bank.

The claim was dismissed.

1. Construction of condition 3. The reference to the beneficiary’s “commitments” was not confined to the obligation to transfer shares. Its ordinary and natural meaning, reinforced by the use of the plural after the reference to an obligation, included the claimant’s other contractual commitments, including warranty obligations.
2. Autonomy principle. The principle reflected in articles 3 and 4 of the UCP, and described in Themehelp v West [1996] QB 84, did not invalidate condition 3. Article 3 prevented the bank from relying on claims or defences arising from the underlying contract to avoid its payment or other obligations. The bank was not doing so.
3. Article 13(c). Article 13(c) applies where a credit makes payment conditional on something other than presentation of a stipulated document. Here payment was expressly conditional on presentation of the draft, certificate and telex. The article therefore did not require condition 3 to be disregarded. The fact that condition 3 might also create an implied obligation to issue the telex did not alter that conclusion.
4. Implied obligation. The court was not persuaded that the bank owed obligations as onerous as those advanced by the defendant, such as an obligation to act reasonably and prudently, but it was unnecessary to decide whether the obligation extended beyond acting in good faith. The bank was not shown to be in breach. It was not obliged to look behind the information supplied by Colonial’s solicitors, and it had not been shown that further investigation would have led it to issue the telex.