Neutral Citation Number: [2007] EWHC 2165 (Comm)
Case No: 2007-1222
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 24 September 2007 

Before :

MR JUSTICE ANDREW SMITH
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Between :

	Phillip Thomas Oliver and anor	Claimants	
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	Dubai Bank Kenya Ltd.	Defendant	

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Mr John Passmore & Mr James Watthey (instructed by Williamson & Barnes) for the Claimants
Mr Guy Blackwood (instructed by Hill Dickinson LLP) for the Defendant

Hearing date: Wednesday 19 September 2007
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Judgment

THE HON MR JUSTICE ANDREW SMITH : 

1.	In these proceedings, the claimants, who are husband and wife, claim as beneficiaries under a standby letter of credit issued by the defendant bank and dated 21 September 2006.  The first question is whether a term of the letter of credit that one of the documents against presentation of which payment was to be made should be a telex issued by the bank itself is to be disregarded because of the provisions of the Uniform Customs and Practice for Documentary Credits (1993 revision) ICC publication no. 500 (the “UCP”) (to which the letter of credit is subject by its express terms).  The claimants say that it is and seek a declaration accordingly.   Alternatively, they say that the bank is in breach of an obligation to the claimants because it has not issued such a telex, and seek an order that it do so or that the court issue the required telex.  
2.	The letter of credit states that the “type of SLC [standby letter of credit]” is “irrevocable transferable”.   The applicant is named as Finance Asia Limited  (“Finance”), a company with an address in the British Virgin Islands.  The claimants are named as beneficiaries.  The expiry date is 27 September 2007, and the amount is £1,290,000.00.   The letter of credit states:
“We Dubai Bank Kenya Ltd hereby issue our irrevocable transferable standby letter of credit no. DBK/SLC/R034/06 by order of our client Finance Asia Limited and on behalf of Colonial Homes (Europe) Limited, for amount of GBP 1,290,000.00 (sterling pounds one million two hundred ninety thousand only) in favour to PT and SE Oliver regarding property deal.
This standby letter of credit expires at our counters on 27 Sept. 07.
The credit is available by payment against presentation to us of the following documents.
1. Draft for the default amount.
2. Certificate from the beneficiary stating that Colonial Homes (Europe) Limited failed to perform its obligation as per agreement dated 30th May 2006 between (1) Philip Thomas Oliver (2) Colonial Homes (Europe) Limited.
3. Authenticated swift msg and tested telex addressed to beneficiary’s bank through advising bank issued by us i.e. Dubai Bank of Kenya Limited confirming the beneficiary’s fulfilment of their commitments towards the Colonial Homes (Europe) Limited.
4. Partial drawings not permitted.
5. The draft under this standby letter of credit must be marked drawn under standby letter of credit No DBK/SLC/R034/06.
6. All bank charges outside the issuing bank are for the beneficiary’s account. 
7. All claims under this standby letter of credit must be presented within 372 days from the date of issue after which this credit will be treated as null and void.
8. This SLC can be transferred by the advising bank. Transferring bank must notify the issuing bank the details of transfer, name of transferee and effective date of transfer by Swift/Telex.  Copy of such notification to accompany the documents. 
We hereby engage with the drawer that drafts drawn in compliance with the terms of this standby letter of credit will be duly honoured by us upon presentation of the above mentioned documents duly complied with the terms and conditions stated in this standby letter of credit.”
The letter of credit concludes with the words “sender to receiver info: this SLC is subject to UCPDC1993R ICC publication no. 500”.       It will be observed that, despite the numbering in the letter of credit, payment was to be made against presentation of only three documents: a draft and a certificate which were within the power of the beneficiaries to provide, and a telex to be issued by the bank, referred to in what I shall call “condition 3”.
3.	The terms of the UCP to which reference was made in argument are these:
Article 1: 
“APPLICATION OF UCP
The Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No 500, shall apply to all Documentary Credits (including to the extent to which they may be applicable, Standby Letter(s) of Credit) where they are incorporated into the text of the Credit.  They are binding on all parties thereto, unless otherwise expressly stipulated in the Credit.” 

Article 2

“MEANING OF CREDIT

For the purposes of these Articles, the expressions ‘Documentary Credit(s)’ and ‘Standby Letter(s) of Credit’ (hereinafter referred to as ‘Credit(s)’), mean any arrangement, however named or described, whereby a bank (the ‘Issuing Bank’) acting at the request and on the instructions of a customer (the ‘Applicant’) or on its own behalf, 

i  	is to make a payment to or to the order of a third party (the ‘Beneficiary’), or is to accept and pay bills of exchange (Draft(s)) drawn by the Beneficiary, or

		ii	authorises another bank to effect such payment, or to accept and pay 		such bills of exchange (Draft(s)), or

		iii	authorises another bank to negotiate, 
against stipulated document(s), provided that the terms and conditions of the Credit are complied with.  
	
For the purposes of these Articles, branches of a bank in different countries are considered another bank.”

Article 3:
		     “CREDITS v CONTRACTS
a.  Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the Credit.  Consequently, the undertaking of a bank to pay, accept and pay Draft(s) or negotiate and/or to fulfil any other obligation under the Credit, is not subject to claims or defences by the Applicant resulting from his relationships with the Issuing Bank or the Beneficiary.
b.  A Beneficiary can in no case avail himself of the contractual relationships existing between the bank or between the Applicant and the Issuing Bank.”
Article 4
“DOCUMENTS v GOODS/SERVICES/PERFORMANCES
In Credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.”
Article 13
“STANDARD FOR EXAMINATION OF DOCUMENTS
a.  Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit.  Compliance of the stipulated documents on their face with terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles.  Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit.  
Documents not stipulated in the Credit will not be examined by banks.  If they receive such documents, they shall  return them to the presenter or pass them on without responsibility.
b.  The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.
c.  If a Credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them.” 
Article 21
“UNSPECIFIED ISSUERS OR CONTENTS OF DOCUMENTS
When documents other than transport documents, insurance documents and commercial invoices are called for, the Credit should stipulate by whom such documents are to be issued and their wording or data content.  If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented.”
4.	The letter of credit refers to an agreement dated 30 May 2006 between Phillip Thomas Oliver, the first claimant, and Colonial Homes (Europe) Limited (“Colonial”).  That is a share transfer agreement for the sale by Mr Oliver to Colonial of a company called Archcare Limited (“Archcare”).  The commercial purpose behind the agreement was that Colonial wished to acquire a freehold interest in a holiday park in Deal, Kent known as Kingsdown, and the business based there.  Indeed the letter of credit describes the transaction as a “property deal”.  The agreement provided that completion of the sale and purchase of the shares should take place on or before 4 August 2006, and there is no dispute that the shares have been transferred to Colonial.  Payment of the greater part of the consideration (in broad terms, some £1.2million of a total consideration of £1.5 million) was deferred, and the agreement provided that “the Buyer shall at Completion provide to the Seller a Guarantee by an internationally recognised Bank in a form reasonably acceptable to the Seller unconditionally guaranteeing the due payment to the Seller of each instalment of the Deferred Payments together with agreed interest”.  Mr Oliver, as seller, gave various warranties such as might be expected in an agreement of this kind: for example, warranties relating to the activities of Archcare since its Accounts Date on 31 December 2005; warranties relating to the holiday park and the buildings there; warranties relating to the employees of Archcare.  
5.	There is a dispute between Mr Oliver and Colonial about whether Mr Oliver is in breach of warranties, but it is not for me to consider the merits of that dispute.  This case has come to trial with expedition because the letter of credit expires on 27 September 2007.  The claimants put in evidence a witness statement of Mr Phillip Oliver and part of a witness statement of his son, Mr Jason Oliver: in face of an objection from the defendant the claimants did not adduce paragraphs 21 – 88 of Jason Oliver’s statement.  The defendant put in evidence a witness statement of Ms Claire Jane Messer, a legal executive at its solicitors.  There was no cross-examination, and there is no factual dispute between the parties.  Specifically there is no dispute that the bank has not received instructions from either Finance or Colonial to issue a telex such as contemplated in condition 3 and no dispute that Colonial, through its solicitors, informed the bank that Mr Oliver had not fulfilled his obligations to Colonial and that a mediation of the dispute has been unsuccessful.  For its part the bank does not contend that Mr Oliver has in fact failed to fulfil his obligations or commitments. 
6.	I shall first consider a difference between the claimants and the bank about the meaning of condition 3, and specifically about what is referred to by the phrase “the beneficiary’s fulfilment of their commitments towards Colonial Homes (Europe) Limited”.     Mr John Passmore, who represents the claimants, argues that it refers only to Mr Phillip Oliver’s obligation to transfer the shares.    Mr Guy Blackwood, who appears for the bank, submits that it refers to all of Mr Oliver’s obligations under the share sale agreement.   (There is, of course, no dispute, despite the reference to their commitments, the condition is concerned with commitments only of Mr Oliver.)         
7.	I can deal with one observation made by Mr Blackwood shortly.     He argued that the fact that the letter of credit was approved in draft by Mr Oliver’s solicitors is relevant to the interpretation of the letter of credit, and so, as I understand it, that interpretation of the letter of credit should, if in dispute, be the less favourable to the claimants.    I am unable to accept that this is admissible as an aid to construction, and even if it were I cannot accept that it would assist in this case.
8.	However, I am also unable to accept the claimants’ argument that condition 3 contemplates that the telex should be concerned only with the transfer of the shares and not with Mr Oliver’s other contractual commitments.  The ordinary and natural meaning of the word “commitments” does not justify such a restricted interpretation, the more so because the plural “commitments” is used after the singular “obligation” in the preceding condition.
9.	The claimants’ argument for their interpretation of condition 3 is that the parties should be taken to be referring to commitments of such a kind that the bank could readily judge whether or not Mr Oliver had fulfilled them, and his obligation to transfer the shares was such a commitment whereas his obligations to fulfil the warranties were not.     I am not convinced by this reasoning.  First, by the time that the letter of credit was issued, the date for completion under the share sale agreement had passed, and, on the face of it, it might seem unlikely that condition 3 should be directed only to what Mr Oliver should already have done and would, presumably, be known by Finance to have done (although the relationship between Finance and Colonial is not clear).   Secondly, I do not accept that the bank could necessarily judge readily whether Mr Oliver had fulfilled his obligation for the transfer of the shares: for example, if they had been transferred after 4 August 2006 there might be a dispute about whether Colonial had acquiesced in the delay.   In any case, this consideration does not persuade me that condition 3 should be given what to my mind is not its ordinary and natural meaning.
10.	These considerations are sufficient to reject the claimants’ interpretation.    Mr Blackwood also argued that, because the underlying contract was essentially a “property deal” and it was so described in the letter of credit and because the sale of shares was simply a fiscally efficient way of transferring the property owned by the company, therefore it would be surprising if the parties intended to restrict the meaning of “commitments” so as not to cover the warranties going to ensure that the company retained its assets pending completion.    For my part, I am far from convinced that such consideration of the underlying transaction should inform the interpretation of a letter of credit, but since I have reached a clear conclusion about this question on the basis of the language of the letter of credit itself, I shall say no more about that.
11.	The claimants contend that condition 3 should be disregarded because of article 3a or article 13c of the UCP.   The argument based on article 3a is that condition 3 contravenes the principle (sometimes called the “autonomy principle”) embodied in articles 3 and 4 of the UCP, that the performance of the contract that gave rise to the letter of credit (typically between the applicant or a related party and the beneficiary or a related party) is independent of the performance of the credit.   As it was put by Lord Justice Waite in Themehelp v West, [1996] QB 84 at p.89E, “Letters of credit, performance bonds and guarantees are all subject to the general principle that they must be treated as autonomous contracts, whose operation is not to be interfered with by the court on grounds extraneous to the credit or guarantee itself”.      
12.	None of the limited exceptions to the autonomy principle (fraud on the part of the beneficiary and possibly illegality: see Mahonia v JP Morgan Chase Bank, [2003] 2 Lloyd’s LR 911) is relevant in this case.   Accordingly, Mr Passmore submits that condition 3 requires the bank to be concerned with the share sale agreement and so offends that principle; and adds that this is the more obviously so if, as I have held, the reference to “commitments” in condition 3 is not confined to the obligation to transfer the shares.    This is because on its true interpretation condition 3 does not only require the bank to pay against the presentation of the telex.  It also puts the bank under an obligation to consider and decide whether it should issue the telex and to issue it if it decides that it should do so.
13.	None of this seems to me to make out an argument that condition 3 offends article 3 of the UCP.   Article 3 stipulates that the fact that the contractual rights and obligations of the applicant have been breached does not relieve the bank of its payment obligation or any other obligation.     But the bank does not seek to rely upon any claims or defences that Colonial or Finance might have – either to answer a case that it is in breach of its obligation to pay or to answer an allegation of breach of some obligation concerning issuing the contemplated telex.     Article 13 of the UCP is (as its heading reflects) directed to the bank’s “examination of documents stipulated in the Credit”.   It is the essential nature of a documentary credit or a standby letter of credit that payment (or acceptance or instructions to another bank) is made “against stipulated document(s), provided that the terms and conditions of the Credit are complied with”: see article 2.      Hence article 13c provides that if a condition does not state the relevant “stipulated documents”, it is to be disregarded.
14.	I do not accept that article 13 has any application in this case.  Article 13c is concerned with an attempt to make a payment (or equivalent) obligation conditional upon something other than a documentary condition in a letter of credit.   The letter of credit in this case does not lay down any condition for payment other than that it is to be made against the draft (properly marked), the certificate and the telex referred to in condition 3.     The claimants’ argument is, I think, that the bank is also under an obligation arising from condition 3 with regard to issuing the telex, and because of that obligation condition 3 gives rise to a “condition without stating the document[s] to be presented in compliance therewith”, it is to be disregarded under article 13.     
15.	The express terms of the letter of credit do not make, or purport to make, the obligation to pay conditional upon anything other than a documentary condition.     (If they did, then the court might have to consider whether the general words that incorporate the UCP into the letter of credit should prevail over the parties’ express stipulation in condition 3: see Jack, Documentary Credits, 3rd Ed. (2001) para 8.18; and do so recognising that, as Mr Blackwood points out, article 1 of the UCP provides that it applies to standby letters of credit “to the extent to which they may be applicable”.)   It is said that condition 3 imports an implied obligation to issue the telex in some circumstances, and indeed Mr Blackwood on behalf of the bank did not contend otherwise.       However, the basis for any such implication would be that it is necessary in order to give business efficacy to condition 3, and no obligation can be said to be implicit in condition 3 if the effect of implying the term is that condition 3 is to be disregarded and so given no business efficacy.
16.	I therefore reject the claimants’ argument that condition 3 is to be disregarded.    I add only that I am not dissuaded from this conclusion by the claimants’ observation that this in effect puts it within the bank’s sole power to prevent the letter of credit becoming payable.   After all, the claimants’ interpretation would put it within their sole power to ensure that the letter becomes payable in any circumstances: it would, in the United States language referred to by Jack, cit sup, at para. 12.10, be a “suicide credit”. 
17.	I come to the claimants’ alternative argument that they are entitled to have the bank issue and send to them a telex to enable them to present it in fulfilment of condition 3.  As I read their pleaded case and understand Mr Passmore’s submission, this argument depends upon interpreting condition 3 as referring only to Mr Oliver’s commitment to transfer the shares, an argument that I have rejected.     However, I should say a little more about it.
18.	As I have said, Mr Blackwood accepted that the bank is under some implied obligation to the claimants under the letter of credit with regard to issuing the telex contemplated in condition 3.    He formulated what the obligation is in various ways:
i)	That instructions of Finance or Colonial to issue the letter are a necessary and sufficient condition to obligate the bank to issue a telex.
ii)	That the bank is obliged to act reasonably prudently and with good faith with regard to deciding whether to issue a telex.
iii)	That the bank is obliged to understand correctly the meaning of condition 3 (at least with regard to the “commitments” referred to) and then to act reasonably prudently and with good faith with regard to deciding whether to issue a telex.
19.	I am not convinced that Mr Blackwood is right to concede that the bank is under any obligation as onerous as any of these formulations, or that it was obliged to do more than to act in good faith (and bad faith is not suggested).    I need say no more about this because, however an obligation is formulated, I am unable to accept that the bank is in breach of it.  I am also unable to accept that the bank is obliged to look behind the information that it was given by Colonial’s solicitors and also it has not been shown that had it done more, it would have determined that it should issue the telex.  
20.	I therefore dismiss the claims.