Summary

By issuing and sending a letter of credit using the SWIFT network and form MT700, a party had indicated that it was the issuing bank. None of the letter of credit's terms indicated another party was the issuer or the wrong form had been used, and the party's disclaimers were insufficiently clear to dispel the conclusion that it was the issuer.

Facts

The claimant company issued proceedings against the defendant financial services company claiming payment of $3 million pursuant to a letter of credit.

The defendant was a member of the SWIFT network, a global platform for secure financial messaging using common standards and forms. It was party to contractual arrangements pursuant to which members of the Suisse Bank Group instructed it to send SWIFT messages. In 2013, acting on the Group's instructions, the defendant sent a letter of credit (LC1) for $7 million, which included a disclaimer "no our responsibility for payment", to a Chinese bank by a SWIFT MT700 message. The bank forwarded it onto the claimant stating that the issuer was the defendant. The claimant later presented documents to SB Plc, the reimbursing bank named in LC1, which was a member of the Group. The defendant sent a SWIFT message to the claimant relaying the Group's refusal to pay and reiterating its disclaimer. The claimant and the Group agreed a reduction in payment terms to $3 million and the cancellation of LC1. A second letter of credit (LC2) was then drafted by the Group with the issuer being SBOL, another member of the Group. In March 2014 the defendant sent a SWIFT MT700 message containing LC2 to another Chinese bank who forwarded it onto the claimant describing the defendant as the issuer. Shortly afterwards, documents were presented under LC2 to SBOL. The Group refused to pay owing to discrepancies in the documents. It later waived them but did not make any payment. The claimant sought payment from the defendant as issuer of LC2.

The defendant denied liability (1) because it was not the issuing bank; (2) alternatively, because LC2 excluded the normal liability of an issuing bank under the Uniform Customs and Practice for Documentary Credits 600 (UCP); (3) arguing estoppel by convention.

Held

Was the defendant the issuer on the true construction of LC2? Yes. Extrinsic evidence could be relevant to a letter of credit. The relevant material had to go to the question of the identification of the contractual parties, and it had to have been known, or at least available, to the parties. The documentation relating to LC1 formed part of a continuous course of dealing. By issuing and sending LC1 by MT700, the defendant indicated that it was the issuer. It did not understand itself to be undertaking an issuer's obligations, but that understanding was not passed on to the claimant at the time. The defendant knew that MT700 should be used to transmit a documentary credit by the credit issuer, and MT710 was to be used to advise of the credit. From the use of MT700 and the fields completed in LC1, which equated to those relied upon in LC2, a reasonable reader with the knowledge available to the parties would have concluded that the defendant was LC1's issuer. The bank notifying the claimant of LC1 referred to the defendant as issuer, as did documents presented under LC1. Communications sent after that by the defendant, which contained disclaimers, were not sufficiently clear to dispel the conclusion that it was the issuer, although the cancellation of LC1 was by mutual consent between the claimant and SB Plc, which was consistent with SB Plc being the issuer. The defendant was not involved in the discussions concerning a new letter of credit. Those communications did not convey any clear message. There was no indication that LC2's issuer would be different to LC1 or that the claimant knew that the Group's representative was not authorised to act on the defendant's behalf. LC2's terms had to be construed against that background and how they would appear to a reasonable reader with the parties' background knowledge and with a reasonable knowledge of SWIFT. The starting point was the use of MT700, rather than the correct form MT710, which connoted that the sender was the issuer. That was important as it was an international form, designed to be read in the same way globally and in the context of an industry that utilised mechanisation to a large extent. The other terms of LC2 did not indicate that another party was the issuer or that the defendant had used the wrong form. The fact that the claimant sought payment from SBOL did not show that it did not regard the defendant as also liable. The defendant relied upon matters which showed the parties' subjective understanding of their contractual obligations. They were not the type of extrinsic facts properly to be considered under contractual construction. Alternatively, those matters did not show that LC2's issuer was SBOL (see paras 49-57, 62 of judgment).

Was the defendant's liability excluded? No. LC2 contemplated that SBOL would pay as the nominated bank. SBOL accepted the documents presented and waived the discrepancies whereupon it became obliged to pay, but did not do so. The preconditions for the issuing bank's obligations to come into effect under the UCP art.7 had been satisfied. There was no question of exclusion of the UCP's terms. It was a matter of what those terms, as incorporated, meant. The terms concerning instructions to the paying/accepting negotiating bank and those for sender-to-receiver information were entirely consistent with the defendant being the issuing bank. The defendant was bound by SBOL's waiver of the discrepancies in the documents and it became liable to pay when the nominated bank, SBOL, did not (paras 74-76, 80-82).

Was there an estoppel by convention? No. There was no shared assumption that the defendant was not the issuer and therefore there was no estoppel by convention (paras 94-96).

Judgment for claimant