Fortis Bank SA NV v Stemcor UK Ltd

An issuing bank is not liable in damages to a beneficiary where a confirming or nominated bank has already honoured the credit. Its obligation is then to reimburse that bank, not to pay the beneficiary. A claim for consequential loss also requires proof that the breach caused the loss on the balance of probabilities. Where a bank is named as consignee in a bill of lading merely because the letter of credit requires that form of consignment, that does not ordinarily authorise the seller to contract with the carrier as the bank’s agent. A bank therefore does not assume the shipper’s liabilities under the bill merely by being named as consignee. Restitutionary claims likewise require proof that the bank discharged, or was enriched by the discharge of, a liability for which the bank was legally responsible.

Stemcor sold steel scrap to SESA International Ltd under five contracts, payment being secured by letters of credit opened by Indian Overseas Bank and advised by Fortis Bank. Fortis confirmed three credits and paid Stemcor; it advised the other two without confirmation. Indian Overseas Bank rejected or failed to honour the presentations, relying in part on a documentary discrepancy. Earlier judgments held that the bank was precluded from relying on that discrepancy because it failed to return the documents with reasonable promptness, and the Court of Appeal dismissed its appeals in [2011] EWCA Civ 58.

Stemcor claimed port storage and container demurrage as damages for delayed payment, alternatively in restitution after paying the carriers. The issues were whether Indian Overseas Bank owed contractual duties to Stemcor, whether its conduct caused the loss, and whether Stemcor had discharged a liability of the bank or obtained rights by subrogation.

1. Contractual liability. In relation to the unconfirmed credits, Indian Overseas Bank was in breach of obligations owed to Stemcor. Where a valid documentary discrepancy initially entitled the bank to refuse payment, the breach arose only when the bank failed to return the documents with reasonable promptness. In the circumstances, despatch within three banking days was ordinarily required; the bank became precluded from relying on the discrepancy on 7 November 2008.
2. In relation to the confirmed credits, UCP 600 art 7(a)(ii) meant that Fortis, as confirming and nominated bank, had the initial obligation to honour. Since Fortis paid promptly, Indian Overseas Bank never became obliged to pay Stemcor. Its obligation under art 7(c) was to reimburse Fortis, and that obligation was not owed to Stemcor.
3. Causation. Stemcor failed to prove that prompt payment would probably have caused SESA or MSTC to take up the documents and collect the cargo. The evidence showed a determined refusal to pay and take delivery, driven by the collapse in steel prices. The damages claim therefore failed for every credit. The judge expressed considerable doubt about whether losses of this kind would in any event be an effective consequence of a claim based solely on non-payment, but left that issue undecided.
4. Mitigation. Had the issue arisen, Stemcor would not have acted unreasonably in delaying cheaper storage, settling the carriers’ claims as it did, or declining to treat the contracts as repudiated. The proposed termination course also did not engage the principles in White & Carter (Councils) Ltd v McGregor closely enough to assist the bank.
5. Restitution. Under the Carriage of Goods by Sea Act 1992, a lawful bill holder assumes liabilities only in the circumstances specified by section 3(1), including taking or demanding delivery or making a claim under the contract of carriage. Indian Overseas Bank had done none of those things. Nor did the requirement that it be named as consignee authorise Stemcor to contract with the carriers on its behalf. Stemcor was therefore not discharging a liability of the bank, and the bank was not enriched by the payments. Subrogation also failed because no express or implied term of the settlements transferred the carriers’ liens to Stemcor.
6. The claims in damages and restitution were dismissed.

The judgment records that earlier Commercial Court decisions were appealed by Indian Overseas Bank. The Court of Appeal dismissed those appeals in [2011] EWCA Civ 58, holding that the bank was precluded from relying on the documentary discrepancy because it failed to return the documents with reasonable promptness. No appeal from that decision had yet been made to the Supreme Court.