Fortis Bank SA/NV & Anor v Indian Overseas Bank

Under UCP 600 article 16, an issuing bank that rejects documents must act in accordance with its disposal notice. A notice that documents will be returned requires their return with reasonable promptness. Failure to do so precludes the bank, under article 16(f), from alleging that the presentation was non-complying.

Strict compliance does not demand literal identity in every case, but a certificate which reallocates a stated cost from the beneficiary to the issuing bank is a material discrepancy. Where a credit expressly requires presentation within a period from the bill of lading date, that express term prevails over UCP provisions concerning the date of shipment.

Stemcor sold containerised scrap to SESA under five letters of credit issued by Indian Overseas Bank. Fortis confirmed three credits and paid Stemcor; it also acted as the nominated bank for the remaining credits. The credits were subject to UCP 600.

Indian Overseas Bank rejected presentations, asserted discrepancies, and gave notices that it would return or hold the documents. It did not return them until February 2009. Hamblen J held that the bank was precluded from relying on a discrepancy because it had not returned the documents promptly: [2010] EWHC 84 (Comm). An earlier judgment had upheld one discrepancy in the beneficiary’s consolidated certificate and determined other issues: [2009] EWHC 2303 (Comm).

The appeal concerned preclusion and the bill of lading date. The cross-appeal concerned whether the certificate was discrepant.

1. Appeal and cross-appeal dismissed. Thomas LJ, with whom Etherton and Arden LJJ agreed, upheld Hamblen J’s conclusions.

2. The consolidated certificate was non-complying. The credit required certification that the negotiating bank had been instructed to send the documents by courier at the beneficiary’s cost. The certificate instead stated that the issuing bank would bear that cost. This was neither an obvious misnomer nor a trivial discrepancy discernible as an error from the documents. Strict compliance permits judgment and does not invariably require literal identity, but a banker could not treat this certificate as conforming.

3. UCP 600 must be construed internationally and purposively, consistently with international banking practice and the reasonable expectations of traders and bankers. Applying the approach in [1996] 1 Lloyd’s Rep 135, article 16(c) implicitly requires an issuing bank to act on the disposal option stated in its rejection notice. A bank which rejects documents cannot retain them indefinitely. If it elects to return them, it must return them with reasonable promptness. Article 16(e) reinforces that construction, and breach engages the preclusion in article 16(f).

4. Indian Overseas Bank’s initial requests to retain the documents did not excuse its breach. Fortis was insisting that the bank accept and pay against complying documents, not consenting to continued retention following rejection. Once Fortis later instructed return, the bank should at least have returned the documents unendorsed. Its substantial delay therefore precluded reliance on the certificate discrepancy.

5. The bill of lading date was its stated date of issue, 14 November 2008, rather than the earlier shipped-on-board date. The credit expressly required presentation within 21 days of the bill of lading date. UCP 600 provisions deeming or identifying a date of shipment did not displace that clear contractual term.

• Court of Appeal (Civil Division): Indian Overseas Bank’s appeal and Fortis and Stemcor’s cross-appeal were dismissed.
• High Court (Commercial Court): Hamblen J held that article 16 of UCP 600 required the issuing bank to return documents with reasonable promptness and that its breach caused preclusion under article 16(f): [2010] EWHC 84 (Comm) .
• High Court (Commercial Court): Hamblen J held that the consolidated certificate was discrepant, but rejected the other alleged discrepancies and determined the confirming-bank and bill-of-lading-date issues in favour of Fortis and Stemcor: [2009] EWHC 2303 (Comm) .