Swotbooks.com Ltd v Royal Bank of Scotland Plc

In documentary credit transactions, the issuing bank must comply strictly with the credit’s terms and cannot rely on the underlying commercial relationship or extraneous documents. A document described as a transport document must evidence consignment by the carrier; a retrospective summary or confirmation based on information supplied by the beneficiary is insufficient. An invoice must provide adequate evidence of the sum payable in the credit’s currency, and a unilateral conversion of a prior euro debt into sterling may be discrepant.

An unauthorised payment is not ratified by accounting entries where the customer’s records also expressly preserve a claim against the bank. Nor does the mere fact that the payment benefited the customer establish unjust enrichment. The bank must meet the customer’s claim, subject to any applicable contractual allocation of risk and set-off.

The claimant, an internet book retailer, obtained a standby letter of credit from the defendant bank in favour of its wholesaler, Libri GmbH. The credit required, among other things, a certified copy invoice and a certified copy transport document, and incorporated UCP 500.

Libri presented revised documents shortly before expiry. The bank accepted them and paid £231,021.49, debiting the claimant’s security account. The claimant contended that the documents were discrepant and that the debit was unauthorised. The bank relied alternatively on ratification through insolvency accounting entries and on unjust enrichment.

The central issues were whether the transport document and invoice complied with the credit, whether the payment had been ratified, and whether recovery from the bank would unjustly enrich the claimant.

1. Discrepant documents. The DHL letter and attached packing list did not constitute the required transport document. A transport document ordinarily evidences receipt or consignment of goods by the carrier and their despatch. The DHL letter gave no sufficient details of the date, place or consignee and relied on information said to be according to Libri. Binding the packing list to the letter did not alter its nature. The credit required transport documents for the consignments claimed; a summary document was insufficient. The documents were also facially inconsistent with the invoice, which referred to numerous transport documents. ([2011] EWHC 2025 (QB), paras 18–27)
2. The invoice was also discrepant. Although UCP 500 imposed no general requirement that an invoice be contemporaneous, the invoice had to evidence the precise sum due. The credit was denominated in sterling. Applying an unexplained exchange rate at a later date to a prior euro total gave the bank no reliable basis for determining the amount payable. The bank was therefore not entitled to accept the revised invoice. (paras 28–37)
3. Ratification. Accounting entries reducing the debt to Libri might, viewed alone, have amounted to unequivocal adoption of the payment. Viewed as a whole, however, the statement of affairs expressly described the payment as unauthorised and recorded a claim against the bank. The inconsistency meant that the claimant’s conduct did not unequivocally demonstrate ratification. (paras 40–48)
4. Unjust enrichment. The claimant had received payment from its customers but remained liable to Libri. Because the bank’s unauthorised payment did not discharge that liability, recovery of the claimant’s own money from the bank was not a double benefit. The mere fact that the payment enured to the claimant’s benefit did not establish an equity or unjust enrichment. The contractual terms were also relevant: the bank could not decline to rely on provisions which might preclude recovery and then assert that recovery was unjust without addressing their effect. (paras 49–56)
5. The claimant was entitled to a declaration that the bank was not entitled to debit the security account in respect of the payment. The amount recoverable was subject to set-off for sums admitted to be due to the bank, with the precise balance and interest left for agreement or further argument. (paras 57–58)