Court Of Appeal Considers Whether Dishonouring LC Bank Has Title To Sue Under Indorsed Bill Of Lading

Does a dishonouring LC bank have title to sue under an indorsed bill of lading?

Standard Chartered Bank v. Dorchester LNG(2) Limited (Erin Schulte) [2014] EWCA Civ 1382

In our November 2013 Legal Update, we reported on the first instance decision in the Erin Schulte, which subsequently went to appeal. The Court of Appeal has recently given judgment in this case, which has important implications for all traders who rely on letters of credit for payment security in their sale and purchase transactions.

The background facts

The underlying transaction in this case was a sale by Gunvor International BV ("Gunvor") to United Infrastructure Development Corporation of a cargo of gasoil for delivery CIF Takoradi, Ghana. That sale was secured by the transfer of a letter of credit (the "LC") confirmed by Standard Chartered Bank ("SCB"). Having shipped the cargo on the Erin Schulte ("the Vessel"), Gunvor presented the documents, including bills of lading indorsed to SCB, required under the LC to SCB on 4 June 2010. SCB wrongly rejected the presentation and refused to pay. In the meantime, the Vessel was ready to discharge and, to avoid delays, Gunvor arranged for an LOI to be issued to the carrier to permit discharge of the cargo without presentation of the bills of lading, which were still held to their order by SCB.

Gunvor ultimately commenced proceedings against SCB under the LC ("the LC Proceedings") and, following service of those proceedings, SCB promptly agreed to pay the full amount claimed by Gunvor plus interest and costs and did so on 7 July 2010.

As a result of confirming acceptance of amendments to the LC with the issuing bank that had not been agreed by Gunvor, SCB, having paid Gunvor, had no recourse against the issuing bank. Accordingly, almost one year later, SCB...