Экзамен зачет учебный год 2023 / The independence principle of letters of credit and demand guarantees

II. Jurisdiction

of Justice on this point to identify the obligation in question in a claim under a letter of credit. The credit was issued by a French bank with a branch in Geneva. Under the credit, upon receipt of complying documents at the branch in Geneva, the bank was bound to pay ‘as per your instructions’. The beneficiary presented documents at the branch in Geneva and instructed the bank to make payment to its account with Midland Bank in London. The bank refused to pay and the beneficiary brought an action in England claiming the amount payable under the credit plus interest. After considering the jurisprudence of the European Court of Justice, the Court of Appeal held that the obligation in question was the bank’s obligation to pay under the credit since the beneficiary’s claim was based ‘simply upon the refusal to pay’.34 The position should be similar where it is the beneficiary of a demand guar­ antee who is claiming for payment against the issuer who has refused to pay under the guar­ antee. In such a case, the obligation in question is the issuer’s obligation to pay under the guarantee, since the claim is based upon the refusal to pay.35

rem u n era tio n from th e person to w h o m the service is provided.

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under a letter of credit or demand guarantee transaction will involve the provision of ser­ vices, since in each a bank will carry out a particular activity in return for remuneration.38 Thus, in the contract between the issuing bank and the account party in a letter of credit transaction, in consideration for the fees that it charges and the account party’s promise to indemnify it, the bank will carry out a number of activities which include: issuing the letter of credit, procuring another bank to add its confirmation if required, receiving the docu­ ments tendered by the beneficiary, examining the documents, making payment according to the terms of the credit, and forwarding the documents to the account party.

13.20Another instance where a contract may fall outside of Article 5(l)(b) is where, although the type of contract is one for the sale of goods or provision of services, the goods or services are to be provided in a country which is not a Regulation State. Subparagraph (b) only deals with cases where the goods or services are to be delivered or provided in a Regulation State.39 In the case of a letter of credit or demand guarantee, although the type ol contract may be within Article 5(l)(b), if the services were provided or should have been provided in a nonRegulation State (New York, for example) Article 5(l)(b) will not apply and Article 5(1) (a) will apply instead.

13.21Where the contract is one for the provision of services in a Regulation State, so that Article 5(l)(b) applies, the rule is that unless otherwise agreed by the parties, the place of perfor­ mance of the obligation in question is the place where the services were provided or should have been provided. Even where the contract is one for the provision of services, Lord Bingham has said that if the contract does not contain a term as to the place where the services are to be provided then subparagraph (a) applies.40

13.22Under the original Article 5(1), now Article 5(1) (a) of the Regulation, the place of perfor­ mance of the obligation and therefore jurisdiction depends on the obligation on which the claim was based. This means that different courts can have jurisdiction over one and the same contract depending on the obligation sued on. For example, in a contract for the provision of services to be provided in England in return for payment to be made in Japan, under the original Article 5(1) the English courts had jurisdiction if the claim was to enforce the obliga­ tion to provide competent services but not if the claim was to enforce the obligation to pay for those services. To avoid this situation of multiple jurisdiction in certain specified cases, Article 5(1)(b) stipulates for a sole jurisdiction in cases falling within the subparagraph.41

38 I f the narrow er defin itio n is ad o p ted , so th a t cases w here the rem u n era tio n is n o t provided by the person

to w h o m the services are provided are excluded, th en som e o f th e au to n o m o u s contracts in the chain o f co n ­ tracts in a letter o f cred it o r d e m a n d guarantee transaction will fall o u tside o f A rt. 5(1) (b ). T his will include, for exam ple, the co n tract betw een th e issuing b an k a n d the beneficiary a n d the co n tract betw een the issuing b an k and the co n firm in g bank.

39 S ubparagraph (c) states th at ‘ifsu b p arag rap h (b) does n o t apply then subparagraph (a) applies’. From this it w ould appear th a t w here, u n d e r a co n tract, the services are to be provided in a non -R eg u latio n S tate so th at

R egulation, such as th e place o f dom icile (u n d er A rt. 2).

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II. Jurisdiction

In Color Drack GmbHv. Lexx International Vertriebs GmbHJ2a case concerned with a sale of goods contract, the European Court of Justice explained the purpose of Article 5(1) (b) in this way:

By that provision (Article 5(1) (b)), the Community legislature intended, in respect of sales contracts, expressly to break with the earlier solution under which the place of performance was determined, for each of the obligations in questions, in accordance with the private inter­ national law rules of the court seised of the dispute. By designating autonomously as ‘the place of performance’ the place where the obligation which characterises the contract is to be per­ formed, the Community legislature sought to centralise at its place of performance jurisdic­ tion over disputes concerning all the contractual obligations and to determine sole jurisdiction

was determined by the law governing that obligation according to the conflict of laws rules of the national court seised.4748This approach was adopted by Potter L.J. in Chailease Finance Corporation v. Credit Agricole Indosuez48 which was concerned with a letter of credit and which was decided underArticle 5(1) of the Brussels Convention. The same approach should apply under Article 5(1) (a) of the Regulation 49 which is in the same terms as Article 5(I) of the Convention. In Scottish & Newcastle International v. Othon Ghalanos,50 which concerned a contract for the sale of goods, the House of Lords confirmed that the same approach applies under Article 5(1) (b) of the Regulation. Lord Bingham of Cornhill said that the Regulation does not purport to impose a uniform concept of delivery on all Regulation States. It leaves national courts to apply whatever, under their rules of private international law, is the law

42Case C -3 8 6 /0 5 [2007] 11. Pr 35.

43Ib id ., at [39].

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applicable to the particular contract. The same reasoning applies to the concept of provision

of services.

13.26However, the European Court ofJustice has given some guidance in cases where the services in question were provided or to be provided at several places in different Regulation States. In such a case, the court needs to identify the place where, pursuant to the contract, the main provision of services was to be carried out.51 Where it is not possible to determine the place of the main provision of services under the terms of the contract, but the service provider has already provided such service, the court may take into account the place where the services have for the most part been carried out.52 When applying Article 5(1) to a letter of credit or demand guarantee transaction a number of issues are worthy of note.

13.27The first is where the letter of credit or demand guarantee provides for a place of payment. In the case of a letter of credit transaction, in the contract between the beneficiary and the issuing bank and that between the beneficiary and the confirming bank, it is the bank that is providing the service (to receive documents, examine them, and make payment). In many cases these services will be performed in the same country. The position is the same with a bank that issues a performance bond. If the credit or bond specifies that the services are to be performed in one Regulation State there should be no difficulty underArticle 5(l)(b). However, where the services are to be performed in several Regulation States, for example, documents are to be presented in the United Kingdom and payment is to be made in France, then the court will need to identify the main provision of services, as discussed above. It is submitted that in the case of a letter of credit or performance bond, the main provision of services is the making of payment to the beneficiary who has tendered complying docu­ ments, since that is the main object of a letter of credit or performance bond transaction. Therefore, in the example mentioned the courts of the Regulation State where payment is made or to be made should have sole jurisdiction over all claims arising from the contract.

13.28Where, under the terms of the letter of credit or performance bond, the place where the issu­ ing bank is to receive documents and make payment is a non-Regulation State, the case falls outside Article 5(1)(b) and therefore has to be decided under Article 5(1)(a). Under that provision the concept of sole jurisdiction does not apply and it is the place of performance of the obligation in question that matters. Therefore, if the claim is one by the beneficiary against the bank for failing to pay under the credit or bond, it is the court of the place of pay­ ment that will have jurisdiction under subparagraph (a). The parties may either specify the place of payment at the time the letter of credit or performance bond contract is concluded or they may in the contract put in place a machinery by which that place is to be identified when a demand for payment is made. Thus, in the Chailease Finance case, as indicated above,53 the letter of credit stated that documents were to be presented to the bank in Geneva but payment was to be made as instructed by the beneficiary. 'The beneficiary instructed that payment should be made in London. The Court of Appeal held that London was the place of payment under the letter of credit contract. Potter L.J. said that in determining the place of performance, the court should have regard to the outcome of any machinery or method for the subsequent determination of the place of payment which is anticipated or permitted

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pay RBS. RBS commenced proceedings in England against the Italian banks. But the Court of Appeal held that the English courts did not have jurisdiction under Article 5(1) of the Brussels Convention because England was not the place of performance of the reimburse­ ment obligation, since there was a clear contractual obligation on the issuing bank to make reimbursement through the banks in New York or Philadelphia.57

13.31The same principle applies where the contract between the issuing bank and the confirming bank does not specify the place of reimbursement. In such a case, if the place of actual reim­ bursement is not in England the English courts are unlikely to assume jurisdiction under Article 5(1)(a).58

13.32Where a performance bond makes no provision as to the place of payment, again the solu­ tion depends on whether it is paragraph (a) or (b) of Article 5(1) that is applicable. Under Article 5(l)(a), where a performance bond contract does not specify a particular place of payment and does not make provision for the nomination of a place of payment at the time of demand for payment, the English court will determine the place of payment according to English law if English law is the law governing that obligation under English conflict of laws rules.59 Under English law, the general rule is that the debtor is under an obligation to seek out his creditor at his residence or place of business.60 In the context of a performance bond this means that it is the duty of the paying bank (debtor) to seek out the beneficiary (creditor) and make payment to the beneficiary in the beneficiary’s country of residence or place of business. Elowever, the general principle is not applied by the courts to every type of contract. In particular, in certain types of contract where application of the principle would have been out of step with the practical demands of the transaction, the courts have not applied the general principle but have applied a more efficacious alternative.61 For example, the rule does not apply to the relationship between a bank and a customer who has opened a current account. In such a case, the place of payment is the branch where the account is kept since, to obtain payment, the customer must demand payment at that branch.6263

13.33In the case of the contract between the issuer of a performance bond and the beneficiary that question was addressed in Britten Norman Ltd v. State Ownership FundofRomaniaa where Peter Leaver Q .C., sitting as a Deputy High Court Judge, held that the general principle did not apply. Tire reason for that decision is that in the absence of a term in the instrument specifying the place of payment, the bank’s obligation is to pay at the place where the demand is made and where the liability to pay crystallizes, namely at the paying bank’s offices as specified in the instrument. The fact that in that case the beneficiary had requested that

57 'Ih e C o u rt arrived at this conclusion in spite o f the provision in U C P (now A rt. 13(c) U C P 600) to the effect th a t an issuing b an k is n o t relieved o f the obligation to provide reim b u rsem en t if reim b u rsem en t is n o t

m ade by a reim b u rsin g bank.

58 cf. RoyalBank o fScotlandPic v. Cassa di Risparmio delle Lombardi [1991 ] 11. Pr 4 1 1 , w here P hillips J. held th at b an k in g practice was th a t if no place for reim b u rsem en t was agreed, the co n firm in g b an k will request for p ay m en t to be m ade in to a specified acco u n t w hen the d em an d for reim b u rsem en t is m ad e an d the issuing ban k n orm ally com plies w ith such a request.

59 For E nglish choice o f law rules relating to con tractu al obligations, see discussion below a t paras 13.34 to 13.69.

60 Robey & Co v. The Snaefell Mining Co L,td(1887) 20 Q B D 152; The Elder [1893] P 119, 1 3 6 -1 3 7 . 61 RoyalBank o fScotland Pic v. Cassa di Risparmio delle Provincie L.ombardi [1991] I L Pr 411 at [ 18].

62Arab Bank v. Barclays Bank DCO [ 1954] A C 495 .

63Britten Norman Ltd (in liq) и State Ownership Fundo fRomania [2000] L loyd’s Rep. B ank 3 15 .

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ments are presented under the credit.68 However, it has been argued that neither Offshore International nor Power Curber should be regarded as authority for that proposition because the courts in those cases were not concerned with the place of payment for jurisdictional purposes but were seeking to identify, for choice of law purposes, the law that had the closest

64[1977] 1 W L R 3 9 9 .

65Ib id ., at 401 .

66[1981] 1 W L R 1 2 3 3 .

67Ib id ., at 1240.

68 M a le k & Q u est, ja ck: D ocum entary Credits (4 th ed n .T o tte l Publishing, 2 009) para 13.21.

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and most real connection with the credits.69 Moreover, it may be argued that in Power Curber the Court of Appeal took the view that the letter of credit, which contained a provision for the reimbursement of the paying bank, by its terms, required payment at the place of presen­ tation of documents to the paying bank (North Carolina). Thus, Griffiths L.J. said that ‘[u]nder the letter of credit the [issuing] bank accepted the obligation of paying or arranging the payment of the sums due in American dollars against presentation of documents at the [beneficiary’s] bank in North Carolina. The [issuing] bank could not have discharged its obligation by offering payment in Kuwait’.70 It would appear, therefore, that the case is really one where the credit specified (whether expressly or impliedly) the place of payment and therefore is not authority on the rule to be applied where the credit does not provide for the place of payment.

13.37Be that as it may, where the letter of credit does not make provision (expressly or impliedly) for the place of payment, there is something to be said for the view that the place of payment is the place of presentation of documents on the basis that since the beneficiary is obliged to demand payment by presenting the required documents at the specified bank, the liability to pay crystallizes at the time and place of presentation.7’ There seems no reason why this posi­ tion, which has already been adopted in the context of a demand guarantee, in a case decided under the original Article 5(1), should not be adopted for letters of credit in cases where Article 5(1)(a) apply, since the two provisions are the same.

13.38Where the case falls under Article 5(l)(b) and the credit contains no terms as to the place of provision ofservices then, as Lord Bingham has suggested,72Article 5(1 )(a) applies. However, it is very unlikely that in a letter of credit transaction there will be no term as to the place for the provision of any of the services since the credit will normally specify where documents are to be presented by the beneficiary and therefore received by or on behalf of the issuing bank. Since receipt of documents and their examination constitutes provision of some of the services, the place where the documents are presented or to be presented is likely to be regarded as the place where, under the credit, the bank is to perform the services, including the making of payment.

13.39The position is similar in the case of the contract between a bank that has instructed another bank to issue a performance bond and the issuing bank. Reimbursement in such a case is normally by means of a counter-guarantee given by the instructing bank to the issuing bank. In the contract between the instructing bank and the issuing bank it is not clear which bank is providing the services. It is submitted that by analogy with the letter of credit case the bank providing the services is the issuing bank that undertakes a number of activities at the request of the instructing bank in return for remuneration. The services provided by the issu­ ing bank include the issuing of the performance bond, receiving and examining the docu­ ments presented by the beneficiary, and making payment to the beneficiary if the documents are compliant. These services are provided in return for remuneration by the instructing bank. The purpose of the counter-guarantee or indemnity given by the instructing bank is to secure the instructing bank’s obligation to indemnify the issuing bank. Thus, where the issu­ ing bank provides the services in a Regulation State, Article 5(1)(b) applies and the courts of

69 Bundle & Cox, L a w o f B a n k Payments (3rd edn, Sweet & Maxwell, 2004) 744. 70 [1981] 1WLR 1233,1242. Emphasis added.

71 B ritten N orm an L td (in liqitidation) v. State Ownership F u n d o f R om ania [2000] Lloyd’s Rep. Bank 315. 72 Scottish & Newcastle International L td v. O thon Ghalanos Zfo/[2008] UKHL 11 at[3].

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the jurisdiction agreement is domiciled in a Regulation State and the agreement satisfies the formal requirements of Article 23(1). Where none of the parties to the jurisdiction agree­ ment is domiciled in a Regulation State the courts of other Regulation States may exercise jurisdiction over the dispute only after the courts chosen have declined jurisdiction.75 In practice, most letters of credit does not contain a jurisdiction clause.76 Even the UCP, to which many letters of credit are subject, does not contain rules on jurisdiction. However, the URDG 758 contains provisions on jurisdiction.77 Therefore, in the case of a performance bond subject to URDG 758 its provision on jurisdiction applies as a jurisdiction agreement. Thus, for such a performance bond, Article 35(a) stipulates that unless otherwise provided in the bond, the courts of the country of the bank’s branch or office that issued the bond shall have exclusive jurisdiction. And in the case of a counter-guarantee, Article 35(b) is to the effect that unless otherwise provided in the counter-guarantee, the courts of the country of the counter-guarantor’s branch or office that issued the counter-guarantee shall have exclusive jurisdiction.78

73[1993] 1 L loyd’s Rep. 132.

74Ib id ., at 136.

75A rt. 23(3).

76As D avid Steel J. observed in M arconi C om m unications International L td v. P t Pan Indonesia B ank L td T B K

[2004] 1 L loyd’s Rep. 594 at [19].

77A rt. 35.

78U n d er A rt. 1(b) o f U R D G 7 5 8 , w h e re a t the request o f a co u n ter-g u aran to r, a p erform ance b o n d is issued

subject to U R D G , the co u n ter-g u aran tee shall also be subject to th e U R D G , unless the co u n ter-g u aran tee excludes the U R D G . B ut a d em an d guarantee does n o t becom e subject to the U R D G m erely because the co u n ter-g u aran tee is subject to the U R D G .

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2.The Common Law Regime

13.42Under the common law rules, the jurisdiction of the English court in actions in personam is founded on service of process on the defendant, except where the defendant has submitted to the English court’s jurisdiction. The defendant may be served with process either within the jurisdiction, without the permission of the court, or outside the jurisdiction, with the permission of the court.

A. Service within the jurisdiction

(i)Service o fprocess

13.43Process may be served on the defendant even if he is present in the jurisdiction only for a fleeting moment.79 Rules on the method of service of process within the jurisdiction are set out in Part 6 of the Civil Procedure Rules (CPR).80 Once jurisdiction has been assumed on the basis of service of process on the defendant it continues even if the defendant leaves the jurisdiction.81 Since jurisdiction based on service within the jurisdiction means that in cer­ tain cases the English court will have jurisdiction even though the case has little or no con­ nection with England, assumption of jurisdiction on this basis is subject to a discretionary power to stay English proceedings in cases where England is aforum non conveniens.82*

(ii)Forum non conveniens

13.44As Lord Golf explained in Spiliada Maritime Corp v. Cansulex Ltd,S3a stay will be granted on the ground o fforum non conveniens ‘where the court is satisfied that there is some other avail­ able forum, having jurisdiction, which is the appropriate forum for trial of the action, ie in which the case may be tried more suitably for the interests of all parties and the ends ofjustice’. Where the claimant has served process on the defendant within the jurisdiction, the burden is on the defendant who applies for a stay ofproceedings on the ground offorum non conveniens84 to show that there isan alternative available forum which is clearly or distinctly the appropriate forum for trial.85 However, the main criteria that govern the application of the forum conve­ niens doctrine, where the claimant wants to serve process abroad, are the same as those that govern application of theforum non conveniens doctrine, where the defendant wants to stay English proceedings.86 There are two main stages in the process of applying the doctrine.

13.45In the first stage the court considers whether England is the natural forum’ in the sense of the forum with which the action has its closest and most real connection. In doing so the court takes into account a wide range ofconnecting factors including: the nature of the dispute, the legal and practical issues involved, such as questions of local knowledge, the availability of witnesses and their evidence and expense,87 the connections between the parties and the cause

79HRH M aharanee Seethaderi GaekwarofBarodav. Wildenstein [1972] 2Q B 283; ColtIndustries Inc v. Sarlie

[1966] 1 A1IER 673.

80CPR Pt 6.3 to 6.19.

81Myerson v. M artin [1879] 1 WLR 1390.

82Spiliada M aritime Corp v. Cansulex Ltd [1987] AC 460; Conelly v. RTZ Corp Pic [1998] AC 854; Lubbe v. Cape Pic [2000] 1 WLR 1545.

33 [1987] AC 460 at 476.

84'Ihe application is made under CPR Pt 11.

85e.g. Bank o fCreditand Commerce Hong Kong Ltd (in liquidation) v. Sonali Bank [1995] 1 Lloyds Rep. 227.

86Spiliada M aritime Corp v. Cansulex Ltd [1987] AC 460.

87Amin Rasheed Corp v. Kuwait Insurance Co [1984] AC 50 at 12, per Lord Wilberforce.

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