Bulgrains & Co Ltd v Shinhan Bank

Documentary credits are autonomous undertakings, and payment depends on documents complying with the credit. A discrepancy in a beneficiary’s name is material unless it is clearly and demonstrably a typographical error. The court considers the documents and the credit, not the underlying transaction.

A commercial invoice must correspond with the credit’s description of the goods. A bank may rely on a later, timely notice of refusal where its substantive position and reasons remain unchanged. In communications between banks, recognised industry terms may satisfy the notice requirements if their meaning is clear to bankers. Failure on additional defences does not prevent judgment for the bank, but may justify a proportionate costs order.

The claimant, a Bulgarian grain trader, sought payment of US$825,000 under an irrevocable letter of credit issued by the defendant bank for the supply of wheat bran pellets. The bank refused payment, alleging discrepancies in the beneficiary’s name and in the description of the goods, and relied on notices sent under UCP 600.

The bank also alleged that the claimant had transferred its rights to the nominated bank and that the documents were fraudulent. The principal issues were whether the documents complied with the credit, whether the refusal notices were timely and sufficient, whether the claimant had title to sue, and whether fraud defeated the claim.

1. Documentary discrepancies. The difference between “Bulgrains Co Ltd” in the credit and “Bulgrains & Co Ltd” in the invoice was not clearly and demonstrably a typographical error. It was therefore a material discrepancy. The invoice’s description, “Bulgarian wheat grain pellets”, also differed from the description in the credit.
2. Commercial invoice. Article 18(c) of UCP 600 required the description in the commercial invoice to correspond with that in the credit. A compliant description in another document did not cure the defective invoice.
3. Notice of refusal. The bank’s third SWIFT message was received on the balance of probabilities and was given within the period required by Articles 14(b) and 16(d). Article 35 also excluded responsibility for loss in transit or transmission errors. A later notice could correct an earlier defective refusal where the bank’s position and substantive reasons remained unchanged, provided the later notice was timely.
4. Content of notices. The notices sufficiently identified the discrepancies. They did not need to reproduce the discrepancies verbatim where the relevant documents and the required conformity were obvious. The reference to Article 16(c)(iii)(b), together with the industry term “notify”, sufficiently communicated what would happen to the documents. A message expressly stating that it was to be regarded as MT734 implicitly communicated refusal to honour.
5. Alternative issues. The evidence did not establish on the balance of probabilities that the claimant had negotiated or sold its rights to D Commerce Bank. The judge would also have declined to find fraud without oral evidence from the relevant individuals concerning their knowledge, intention and state of mind.
6. Disposition and costs. Ground 1 succeeded and the claim was dismissed. The claimant was ordered to pay two-thirds of the defendant’s costs, subject to detailed assessment and set-off for earlier costs orders. Permission to appeal was refused, and the US$825,000 was ordered to be paid over.