Letters Of Credit: Issuing Bank's Limited Liability As Consignee Under The Bills Of Lading

(1) Fortis Bank S.A./N.V. and (2) Stemcor UK Ltd v Indian Overseas Bank [2011] EWHC 538 (Comm)

Please see our website at www.incelaw.com for the following related articles: "Letters of credit and documentary discrepancies: the doctrine of strict compliance" and "Implied obligation under Article 16(f) of UCP 600 to return rejected documents reasonably promptly". These articles have also appeared in our International Trade and Legal Updates for February and October 2010, also available on our website.

The background to this dispute

This Commercial Court decision is the latest in a line of judgments from the English courts dealing with various disputes arising out of five letters of credit ("L/Cs")that were opened by the Indian Overseas Bank ("IOB") at the request of an Indian government-owned company, MSTC, whose role includes assisting Indian companies to purchase steel scrap from abroad. The L/Cs related to five sale contracts for steel scrap, with Stemcor as the seller and SESA as the buyer. The advising bank was Fortis Bank in London. The letters of credit were all subject to the Uniform Customs and Practice for Documentary Credits, 2007 revision ("UCP 600").

The goods were shipped in containers from European ports to Haldia port in India over a period of almost seven weeks towards the end of 2008. The bills of lading named Stemcor as the shipper and the consignee was "to the order of" IOB. However, by the time of shipment, the market price for scrap steel had fallen considerably and was below the contract price. SESA wished to extract itself from the now unprofitable contracts and therefore raised with MSTC a number of alleged discrepancies in the documentation presented by Stemcor for payment under the L/Cs. However, by this time, Fortis had already negotiated and honoured the first three L/Cs, numbers 1-3, and had paid the relevant sums to Stemcor. In respect of the two remaining L/Cs, numbers 4-5, Fortis had not added its confirmation but had forwarded the documents presented by Stemcor to IOB.

Given SESA/ MSTC's allegations of discrepant documents, IOB declined to reimburse Fortis for the payments under L/C numbers 1-3 and declined to pay Stemcor under L/C numbers 4-5.

Previous court proceedings

In September 2009, the Commercial Court dismissed all the alleged discrepancies in the documents presented under the L/Cs, apart from the objection that the beneficiary's consolidated certificate failed to satisfy the requirements of the...