The Gazette 1986

GAZETTE

JULY/AUGUST 1986

open a confirmed irrevocable letter of credit in favour of the seller payable in London. A portion of the price was paid in accordance with the terms of the contract. The machinery was then shipped on 16th December 1976, but the shipping agent, who was aware that the letter of credit required shipment no later than 15th December 1976, falsely and fraudulently, but not as agent of the seller or of a merchant bank to which it had assigned the letter of credit, entered the date of shipment on the bill of lading as 15th December 1976. When the merchant bank presented the shipping documents to the defendant's London branch, it refused to pay because it had discovered that the dale on the bill of lading was false and that the machinery had been shipped after the contract date. The seller and the assignee of the letter of credit brought an action against the defendant seeking payment of the portion of the price which was agreed to be paid against the shipping documents. The trial judge rejected the defendants defence that it was entitled to reject the documents for non-conformity with the terms of the credit and fraud. The Court of Appeal held, with regard to a letter of credit, that a bank was only obliged to pay on the presentation of genuine documents in accordance with the requirements of the letter of credit. It held that where the documents presented were to the bank's knowledge false and made fraudulently by the person who issued them, they were not genuine conforming documents and the bank was obliged to refuse to pay, and the fact that the person who presented the documents had acted in good faith was irrelevant. It

relations between the supplier and the customer; nor with the question whether the supplier has performed his contract obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantee, on demand, if so stipulated, without proof or conditions. The only exception is when there is a clear fraud of which the bank have notice." 12 The fraud exception In the above quoted passage Lord Denning M.R. was referring to what is generally called the fraud exception which he explained thus: "[T]he bank ought not to pay under the credit if it knows that the documents are forged or that the request for payment is made fraudulently in circumstances where there is no right to p a yme n t . "" This exception is extrapolated from the authorities on documentary credits and in the latter context it was recently considered by the House of Lords in United City Merchants fInvestments) Limited and Others -v- Royal Bank of Canada and Others.^ The relevant facts were that the seller, an English company, contracted to sell fibre glass making machinery to the buyer, a Peruvian company. The terms of the contract involved, inter alia, the price being paid by an irrevocable letter of credit issued by a Peruvian bank. The Peruvian bank in turn arranged willi the defendant, a bank in England, to

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Keane: Company Law in the Republic of Ireland By the Hon Mr Justice Ronan Keane, BA(NUI) of Lincoln's Inn, Barrister, a Judge of the High Court .. perhaps the best book that has been produced on Irish Law to da t e . .. This book will contribute greatly to Irish jurisprudence'. Irish Law Times Hard cover £22.00 net ISBN 0 406 27290 5 Vaughan: Law of the European Communities Edited by David Vaughan, QC The definitive nanrative work on community law. Two volumes £120.00 net ISBN 0 406 00300 9 Orders may be placed with our Irish Representative. Miss Flnola O'Sulllvan. Telephone: Dublin 698206 Home Address: 120 Broadford Avenue. Balllnteer. Dublin 16 Post Orders to: Butterworth & Co (Publishers) Ltd. Borough Green. Sevenoalcs. Kent TN15 8PH Tel: 0732 884567. Bookshop: 9-12 Bell Yard. Temple Bar. London WC2 2JR Tel: 01-405 6900. No packing or postage charges apply to orders made from Ireland. For customers charged on account, payment may he In IR £ equivalent of sterling Invoice, or by credit card. For your FREE copy of Butterworths new Republic of Ireland law Catalogue 1986/87. write to: The Publicity Department. Butterworth 8t Co (Publishers) Ltd. 88 Klngsway. London WC2B 6AB Tel: 01-405 6900 i Bu t t e rwo r t hsi 171