Societe Generale SA v Saad Trading & Anor

A customer’s obligation to indemnify an issuing bank for liabilities incurred under confirmed letters of credit is governed by the facility agreement, unless the transaction documents create an inconsistency. Under UCP 600, a confirming bank must forward the documents presented to it, including listed drafts, to the issuing bank. However, non-forwarding does not ultimately justify refusal to reimburse where the underlying presentation was compliant. A good-faith decision by the issuing bank to reimburse may also bind the customer where the facility so provides.

The claimant sought almost US$50 million from the first defendant under a trade-finance facility and from the second defendant under a guarantee. The facility financed gold purchases through two confirmed letters of credit. The confirming bank accepted the bills of exchange but forwarded the other documents without the bills. The claimant reimbursed the confirming bank, but the first defendant refused to indemnify it. The central issues were whether the facility required indemnification, whether UCP 600 entitled the claimant to refuse reimbursement, and whether the second defendant was liable under the guarantee.

1. Liability under the Facility. The first defendant was liable to indemnify the claimant under Schedule 1 clause 2(v). The relevant obligation arose from the Facility and the mandate to issue the letters of credit. UCP 600 governed the letters of credit but imposed no corresponding customer indemnity. The letters of credit contained no inconsistent undertaking, so clause 2(v) had its ordinary and natural meaning.
2. UCP 600. UCP 600 distinguishes between presentation and forwarding, and between honouring and reimbursing. The confirming bank must forward to the issuing bank the documents presented to it. That duty included the drafts, which were listed in the credits and had in fact been presented. The strict-compliance principle supported that conclusion.
3. The claimant was nevertheless obliged to reimburse the confirming bank. The documents presented by the beneficiary were compliant. Their omission from the forwarded package did not ultimately entitle the claimant to refuse reimbursement, since the claimant could not have relied on the missing drafts to establish that the original presentation was non-compliant. The claimant’s good-faith decision to reimburse was independently binding on the first defendant under Schedule 1 clause 2(vi), read with clause 2(v).
4. The suggested implied contract was not established by the communications between the parties. The restitutionary claim was not determined, since the contractual claim succeeded and restitution might be inconsistent with the parties’ agreement.
5. The second defendant was liable under the guarantee because the first defendant was liable under the Facility. An alternative unpleaded argument that the guarantee operated as a performance bond was not allowed, particularly because the second defendant had been unable to attend the trial. The further unpleaded claim that the second defendant was independently liable under the Facility was rejected.
6. Judgment was entered for the claimant against both defendants. Interest was recoverable under Senior Courts Act 1983, section 37. The parties were directed to agree the figures.

First-instance judgment. No appellate history was stated in the judgment.