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

The N ature o f D em and Guarantees

provisions on provisional court measures to prevent payment under the instrument70 and a list of the grounds, such as fraud or abuse, on which the court can exercise such powers.71 However, the parties are allowed the freedom to exclude the Convention in part or in its entirety.72 Therefore, the parties may, if they wish, exclude the Convention and incorporate the URDG 758 into their guarantee or ISP98 into their standby credit.

C.OHADA Uniform Act on Securities

3.41A further unification project at a regional level is that of the Organisation for the Harmonisation of Business Law in Africa, commonly known by its French acronym, OHADA.73 OHADA is an international organization created by treaty74 consisting of 16 Member States.75 A principal objective of the organization is to harmonize and modernize the business laws of Member States. This objective is carried out by means of legislation, known as Uniform Acts.76 These are directly applicable in all Member States77 in the same way as EU Regulations are directly applicable in EU Member States. The OHADA Uniform Act on Securities, adopted on 17 April 1997, contains provisions on demand guarantees that are applicable in all OHADA Member States.

3.42The Uniform Act seeks to balance the interests of the parties. On the one hand, the indepen­ dence of the issuer’s undertaking is recognized so that the beneficiary is entitled to payment on presentation of a complying demand even though there may be disputes relating to the underlying contract. On the other hand, to protect the account party, the court is empow­ ered to give restraining relief to stop payment where there is evidence of fraud or abuse in the demand.78 Also, like the URDG 758, the Uniform Act requires that a demand should be accompanied by a beneficiary’s statement stating that the account party is in default and the respects in which he is in default.79 Unlike the URDG 758, the Uniform Act has the force of law, just like the UN Convention. However, unlike the UN Convention, the Uniform Act does not allow the parties the freedom to exclude any part of the Act.

II.TH E CONTRACTUAL RELATIONSHIPS

1.Contract between Beneficiary and Account Party

3.43As in the case of a letter of credit, it is the underlying contract between the beneficiary and the account party that normally stipulates for the provision of a demand guarantee. In a contract for the sale of goods the guarantee is to be provided by the seller. The matters which the contract should specify include: the maximum amount payable and the currency of

70Art. 20.

71Art. 19(1).

72Art 1.

73Organisation pour I’Hdrminsation en Afrique du Droit desAffaires.

74Signed on 17 October 1993 in St Louis, Mauritius.

75The Member States are: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Cote d’Ivoire, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, Senegal, and Togo.

76OHADATreaty, Art. 2.

77OHADA Treaty, Art. 10.

78Uniform Act, Art. 36.

79Uniform Act, Art. 34.

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2. Contract between the Account Party and his Bank

80Sее Edward Owen Engineering Ltd v. Barclays Bank International Ltd{\97&\ 1 QB 159.

81See, e.g. Banque de Paris et des Pays Bas v. ST Omnium Technique des Transportpar Pipelines et Commercial Bank o fSyria, Paris, 26 April 1983, D. 1983.IR.485, obs. Vasseur.

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The N ature o f D em and Guarantees

beneficiary, where the bank is the issuer, or to the issuing bank, where the bank instructs another bank to issue the guarantee. This undertaking is commonly referred to as a counter­ guarantee or counter-indemnity. If the counter-indemnity only requires the account party to indemnify the bank for sums that it is obliged to pay under the guarantee, the account party will be able to question the basis on which the bank made payment before reimbursing the bank. Since such an indemnity does not provide the bank with adequate protection, the counter-indemnity signed by the account party is usually drafted in terms that are wider than those of the performance guarantee itself, requiring the account party to pay whatever amount the bank has in fact paid without being able to question the bank’s obligation to pay under the guarantee. Thus the account party may be liable to indemnify the bank even though the bank has made payment where the demand guarantee was invalid.

3.49This is illustrated by G ulfBank KSC v. Mitsubishi Heavy Industries Ltd (No 2)82 where, in return for a bank issuing an advance payment guarantee, the account party gave an undertak­ ing to indemnify the bank ‘against any and all claims, demands, liabilities, costs, losses, damages and expenses which may be made of the Bank or which the Bank may incur or sustain under or in connection with the issue of the Guarantee’. The counter-indemnity also expressly provided that any demand made of the bank under or in connection with the guarantee ‘shall be sufficient authority to the Bank for the Bank’s making payment of any amount so demanded and the Bank need not concern itself with the propriety of any claim made or purported to be made under or in connection with such Guarantee’. The undertak­ ing also stated that the account party’s obligation shall not be discharged or diminished by any ‘invalidity, illegality or unenforceability’ of the guarantee. The account party attempted to resist the bank’s claim under the counter-indemnity on the ground that the guarantee had no legal effect under its proper law. But the Court of Appeal held that the objective of the express provision of the counter-indemnity was that the bank was entitled to make payment on the demand made with ‘no questions asked’. Savile L.J. said that ‘as a matter of commer­ cial common sense, it seems to me that it was the clear objective of the agreement to preclude any debate or discussion about legal effectiveness or validity of the guarantee when the ques­ tion arose either of payment under the guarantee or reimbursement under the terms of the counter indemnity’.83

3.50The bank will normally require the account party’s undertaking to indemnify the bank to be secured by a deposit of the amount of the guarantee or personal guarantees. Also, the coun­ ter-indemnity may be worded so that the account party and any guarantor of the account party may be required to make payment before there has been a demand on the demand guarantee itself.84

3.51There are indications in the authorities that in certain cases there may be an implied indem­ nity by the account party either in the absence of an express indemnity or in addition to any express indemnity. This is discussed further in paragraph 12.70 below.

3.52In view of the liability of the account party to indemnify the bank, the risk of any unjustified or abusive demand by the beneficiary ultimately falls on the account party. For this reason,

82[1994] 2 Lloyds Rep. 145.

83Ibid., at 152.

84See, e.g. the counter-guarantee in Technical & General Guarantee Co Ltdv. Patterson, Ch D, 12 February 2003, discussed in para 12.59 below.

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II. 7Ъе Contractual Relationships

the account party is allowed in certain circumstances to oppose the bank’s decision to make payment and the court can intervene, as an exception to the principle of independence, to grant restraining reliefpreventing the bank from making payment where the account party’s objection is justified. This is the case, for example, where the beneficiary’s demand does not comply with the requirements of the guarantee.85 Even in certain cases where the demand appears on its face to comply with the requirements ol the guarantee, the account party may be able to obtain restraining relief either against the beneficiary or against the bank where there is fraud on the part of the beneficiary, where the beneficiary’s conduct, though not amounting to fraud, is unconscionable or lacking in good faith, where the guarantee itselfor the underlying contract is illegal, or where the beneficiary’s demand, if made, will be in breach of an express term in the underlying contract. The extent to which the account party

may succeed in each of these situations is considered in Chapters 5, 7, 8, and 9.

3. Contract between the Instructing Bank and the Issuing Bank

foreign laws and usages. Article 31 provides that a counter-guarantor shall indemnify the guarantor against ‘all obligations and responsibilities imposed by foreign laws and usages, including where those foreign laws and usages impose terms into the guarantee or the counter-guarantee that override its specified terms’. This means that where the bank that issues the demand guarantee, in the beneficiary’s country, is obliged by the law of that country to make payment to the beneficiary in circumstances where the issuing bank would not have been entitled to demand payment under the terms of the counter-guarantee, the bank is entitled to payment from the instructing bank under the indemnity contained in Article 31. The instructing bank in turn has a similar indemnity under Article 31 against the account party. This is not unfair. The risk arising from the foreign law should ultimately rest with the account party who is the party on whose behalf the banks are giving their under­ takings. Tlte English courts appear to have adopted a similar approach. In Esal(Commodities) Ltd v. Oriental Credit Ltd,ss Reltor agreed to sell a quantity of sugar to Estram, an Egyptian company. OCL, Reltor’s bank, instructed Wells Fargo Bank to establish a performance bond

85e.g. Lome StewartPic v. HermesKreditversicberungsAG andArneyAssetServices/.fr/[2001] AUER (D) 286, account party obtained an injunction to restrain the issuing bank from making payment to the beneficiary in circumstances where the demand was made out of time.

86See, e.g. IE Contractors v. Lloyd’s Bank Pic [1990] 2 Lloyd’s Rep. 496, discussed in para 4.51 below.

87Banque Saudi Fransi v. Lear Siegler Inc [2007] 2 Lloyd’s Rep. 47.

88[1985] 2 Lloyd’s Rep. 546.

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The N ature o f D em and Guarantees

for the benefit of Estram, through their correspondents in Egypt, Banque du Caire, and to instruct Banque du Caire to add its confirmation. Wells Fargo instructed Banque du Caire as requested and Banque du Caire gave the undertaking to Estram. Eventually Estram made a demand under the performance bond which was non-compliant, at least under English law, and Banque du Caire refused to pay. Estram brought arbitration proceedings against Banque du Caire before a judicial body constituted by a decree of the Minister of Justice of Egypt. Judgment was given in favour of Estram and the award was final and not open to challenge before any other court or authority. Banque du Caire claimed summary judgment against Wells Fargo and Wells Fargo claimed summary judgment against OCL. Leggatt J. gave judgment in favour of Banque du Caire against Wells Fargo and summary judgment in favour of Wells Fargo against OCL in the same sum. The Court of Appeal upheld the deci­ sion and rejected a contention that Banque du Caire had paid on a demand that was not valid. The court accepted that the demand was not valid but held that Banque du Caire did not pay under or pursuant to any demand by Estram. It paid pursuant to the judgment of the arbitral tribunal. Ackner L.J. explained that since Banque du Caire had added its confir­ mation at the request of Wells Fargo, the inevitable consequence of Banque du Caire refus­ ing to pay under Estram’s demand was that it would be liable to be sued in Egypt. He concluded that ‘[ajccordingly [Banque du Caire] is entitled to be indemnified against those consequences irrespective of whether the Egyptian tribunal were right or wrong’.89 That indemnity, which was imposed to protect the bank that was obliged to pay the beneficiary under foreign law, is similar to the indemnity introduced in Article 31 of URDG 758.

3.55Another situation where the indemnity in Article 31 may be useful is where the expiry dates of both the demand guarantee and the counter-guarantee pass without a claim being made but the issuing bank is later required to pay after the expiry date, in accordance with the law and usages of its country. 90 In such a case, the issuing bank may face difficulties claiming under the counter-guarantee which has expired. Article 31 gives the issuing bank a claim against the counter-guarantor. This particular solution appears to have been anticipated in one French case9192where a Syrian issuing bank was obliged to pay a Syrian beneficiary after the expiry date of the demand guarantee. The issuing bank was allowed to claim against the instructing bank in France. The Paris Court ofAppeal discharged an injunction obtained by the French account party restraining the French bank from making payment to the Syrian bank. Again, it seems fair that the account party, rather than the issuing bank, should bear the risk of foreign laws and usages.

3.56The need for certainty in transactions involving demand guarantees and counter-indemnities is such that the courts do not lightly imply a term into a counter-indemnity. This is the case

especially where the term to be implied is one which requires the instructing bank to get involved in matters concerning the underlying contract. In CauxellLtd v. Lloyd’s Bank Р1сш the underlying contract was for the purchase of a quantity of beef by the Iranian Meat Organisation (IMO) from Cauxell Ltd. Lloyds Bank instructed Bank Melli, an Iranian bank, to issue the required demand guarantee to IM O and in return Lloyds Bank gave

89Ibid., at 550.

90See R Jones and R Gwynne, ‘Uniform Rules for Demand Guarantees: URDG 758’ [2010] 3 Bankers Law 4 at 10.

91Banque de Paris et des Pays Bas v. 5/1 Omnium Technique des Transportpar Pipelines et CommercialBank o f Syria, Paris, 26 April 1983. D. 1983.IR. 485, obs. Vasseur.

92The Times, 26 December 1995 (QBD).

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II. The Contractual Relationships

Bank Melli a counter-indemnity. Bank Melli’s performance guarantee was stated to com­ mence only on its receipt of a statement from Lloyds Bank that the underlying contract had been signed and that a satisfactory confirmed credit had been issued from IM O ’s bank. Bank Melli argued that Lloyds Bank’s counter-indemnity was subject to implied terms that Lloyds Bank was obliged to take reasonable steps to fulfil the condition precedent and/or to ascer­ tain the position with regard to the contract and the letter of credit. Cresswell J. rejected that contention. He said that ‘[t]he Courts will rarely imply terms into letters of credit or first demand guarantees. There is a need for certainty in commercial transactions and this is, as I have emphasised, particularly important in the case of obligations assumed by banks under letters of credit and first demand bonds and associated counter-undertakings.’

As indicated in Chapter 2,93 in the case of a letter of credit, in international transactions 3.57 the bank in the beneficiary’s country will confirm the credit issued by a bank in the account party’s country. However, confirmation is not normally used in the case of a demand guarantee. The normal practice is for the bank in the beneficiary’s country to issue the guarantee in return for a counter-guarantee or counter-indemnity given by the instructing

party. However, the technique of confirmation is possible in a demand guarantee transaction and there are a few examples in reported cases.94

4. Contract between the Issuing Bank and the Beneficiary

93Para 2.52.

94e.g. Esal (Commodities) Ltd v. Oriental Credit Ltd [1985] 2 Lloyd’s Rep. 546; Chartered Electronics Industries PteLtdv. Development Bank o fSingapore [1999] 4 SLR 655.

95United Trading Corp SA v. AlliedArab Bank [ 1985] 2 Lloyd’s Rep. 554 at 559,/wAckner L.J.

96e.g. Enka InsaatVe SanayiAS v. Banca Popolare DellAlto Adige Spa [2009] 2410 (Comm).

97See discussion in Chapter 11.

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The N ature o f D em and Guarantees

III. D IFFEREN T FROM SURETYSHIP

GUARANTEES

3.61A demand guarantee is similar to a true or suretyship guarantee in the sense that, as explained above, a commercial purpose of a demand guarantee is, like a suretyship guarantee, to secure the performance of obligations under the underlying contract. That is why they are both referred to as guarantees. However, a distinction should be drawn between the two because they differ in important respects. The key difference is that the undertaking of the issuer of a demand guarantee is independent of the underlying contract in respect of which the guarantee is issued but the undertaking of the surety under a suretyship guarantee is dependent on the liability of the principal obligor under the underlying contract.98 From this main point of distinction a number of important differences flow. They relate to the nature, extent, and conditions of the liability, the effect of a variation of the underlying contract by the beneficiary and the account party, and the requirement of writing under the Statute of Frauds 1677.

1.Nature of the Liability

3.62Under a suretyship guarantee the surety assumes secondary liability to pay in the event of default of the principal debtor.99 By contrast, under a demand guarantee the issuer assumes primary liability to pay on demand notwithstanding any dispute between the parties to the underlying contract.100 This is not to say that every guarantee which includes a provision to the effect that the surety is liable as a ‘principal debtor’ or ‘primary obligor’ automatically becomes a demand guarantee. In some cases a ‘principal debtor’ clause is inserted in an instrument which otherwise creates a secondary obligation in order to make the guarantor liable as primary obligor in limited circumstances only. In such a case, the instrument will remain a suretyship guarantee though the guarantor will be liable as principal obligor in the limited circumstances envisaged by the instrument.101 The point is that under a demand guarantee the issuer’s liability to make payment is primary and independent of the underly­ ing contract.102 To put it another way, whereas a suretyship guarantee contains a promise to answer for the debt of anotherperson if that person defaults, a demand guarantee contains a promise by the issuer himself to make payment on demand. The existence of a principal

98For a detailed treatment of the contract ofguarantee, see G. Andrews and R. Millett, Law o fGuarantees (5th edn, Sweet & Maxwell, London, 2008); J. O ’Donovan and J. Phillips, TheModern Contract o fGuarantee (English edn, Sweet & Maxwell, London, 2003).

99Mallettv. Bateman (1865) LR 1 CP 163 (ExCh); HarburgIndia Rubber Comb Co v. Martin [\0Q2\ 1 KB 778 at 784.

100The issuer of a demand guarantee is not concerned in the least with the relations between the parties to the underlying contract nor with the question whether the account party has performed his contractual obligations or not: Edward Owen Engineering Ltd v. Barclays Bank InternationalLtd [1978] QB 159.

101Healdv. O’Connor [1971] 1 W IT 497; General Produce Co. v. United Bank Ltd [1979] 2 Lloyd’s Rep. 255, esp. at 259.

102See, e.g. the guarantees in VanDer Merwe v. IIG CapitalLLC [2007] EWHC 2631 (CH) and Wittmann (UK) Ltd v. WiUav EngineeringSA [2007] EWCA Civ 824.

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III. D ifferentfrom Suretyship Guarantees

debtor is essential for a suretyship guarantee103 but it is not necessary for a demand

guarantee.

2. Extent of the Liability

Co-extensiveness of liability is another feature of a suretyship guarantee that distinguishes it 3.63 from a demand guarantee. Whereas as a general rule a surety’s liability is со-extensive with

that of the primary debtor,104 in general the liability of an issuer of a performance bond is not со-extensive with that of the account party. Thus, whereas in the case of a suretyship guaran­ tee the amount payable is the full amount for which the principal debtor is liable to the credi­ tor, in the case of a performance bond the amount payable is usually a small proportion of the value of the underlying contract.105 A maximum amount of 10 per cent of the contract price is common.106 In Van Der Merwe v. IIG Capital L L C f07 for example, the undertaking of the issuer under the guarantee was limited to payment of the ‘guaranteed monies’. It did not extend to the performance by the account party of any of its other obligations under the underlying contract. Lewison J. held that that was consistent with an obligation to pay as a primary obligor because the usual contract of suretyship would extend to all the obligations of the principal debtor under the underlying contract. This feature was one of the factors which led the judge to the conclusion that the instrument in that case was not a contract of suretyship.108

3. Conditions of Liability

A. Proof of liability

Another feature which distinguishes the two instruments is the issue of proof of primary 3.64 liability. Under a suretyship guarantee the general rule is that the creditor must prove the extent of the surety’s liability. Even a judgment or arbitration award obtained by the creditor

103Lakeman v. Mountstephen (1874) LR7 HL 17 at 24.

104Moschi v, Lep Air Services Ltd [1973] AC 331; Hampton v. Minns [2002] 1 WLR 1. However, the general rule is subject to certain exceptions. The parties may agree to limit the liability of the surety in certain respects

without altering the nature of the contract as a suretyship guarantee.

105 It is different where the bond is issued to secure repayment of a loan or an advance payment. In such a case the maximum amount payable under the bond is normally the full amount of the loan or advance payment. However, even in such a case, the terms of the guarantee may be limited so that the issuer is not liable to pay in certain circumstances even though the account party has come under a liability to repay the money pursuant to the terms of the underlying contract: Rainy Sky SA v. Kookmin Bank [2010] EWCACiv 582.

106 y[OWever, that is not the case in every industry. In the shipbuilding industry, for example, there is no standard practice as to the amount of the bond: Gold CoastLtdv. Caja DeAhorros DelMediterraneo, 2 May 2001 at [27].

107 [2007] F.WHC2631 (Ch), */«/[2008] EWCACiv 542.

108 The position is similar in India. Section 128 of the Indian Contracts Act 1872 states that the liability of a surety is со-extensive with that of the principal debtor ‘unless otherwise provided for by the contract. The Indian courts treat demand guarantees as cases where the contracts provide otherwise. And it is on this basis that the courts are able to enforce a demand guarantee as a separate and distinct transaction from the underlying contract: see, e.g. United CommercialBank v. Bank ofIndia AIR 1981 SC 1426; Damatar Paints (P) lad v. Indian OilCorp AIR 1982 Delhi 57; PesticidesIndia v. State Chemicals & Pharmaceuticals Corp ofIndia AIR 1982 Delhi 78. A similar approach has been adopted in Malaysia since s 81 of the Malaysian Contracts Act 1950 is a replica of s 128 of the Indian Contracts Act 1872: see, e.g. Syarikat Perumahan I'egawai Kerajaan Sdn Bhd v. Bank Bumiputra Malaysia Bhd [199 i ] 2 MLJ 565.

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The N ature o f D em and Guarantees

against the principal does not bind the surety.109 In other words, the surety’s liability to pay depends on proof of actual default by the principal debtor and the amount due to the creditor. By contrast, in the case of a demand guarantee liability depends not on evidence of actual default of the account party but on a demand, accompanied by any required documents. So long as the beneficiary makes a complying demand, the issuer of a demand guarantee is liable without proof of either breach or damage.1101In Esal (Commodities) v. Oriental Credit L tdu 1 Aclcner L.J. explained that if the bank’s obligation to pay under a performance bond was conditional on the resolution of disputes under the underlying contract ‘then unless there was clear evidence that the [account party] admitted that he was in breach of the contract of sale, payment could never safely be made by the bank except on ajudgment by a court of competent jurisdiction and this result would be wholly inconsistent with the entire object of the transaction, namely to enable the beneficiary to obtain prompt and certain payment’.11213It is because the beneficiary is not required to prove either breach or damage that in IE Contractors v. Lloyd’s Bank Plcm Staughton L.J. said that ‘there is a bias or presumption in favour of the construction which holds a performance bond to be conditioned upon documents rather than facts’.

B.Account party’s defences

3.65In the case of a suretyship guarantee, the guarantor is entitled to raise all legal and equitable defences available to the primary debtor against the creditor.114 Thus a guarantor can prima facie avail himself of any right of set-off possessed by the primary debtor against the creditor.115 In contrast, in the case of a performance bond the issuer is not entitled to raise against the beneficiary any defences available to the account party, since the issuer’s obligation is independent of the underlying contract.116

C.Is a demand necessary?

3.66A further difference between a demand guarantee and a suretyship guarantee may be found in the circumstances when a demand is required to trigger the guarantor’s liability. It is not uncommon for a suretyship guarantee to stipulate that the surety will make payment ‘on demand’. The position is that where a person promises to pay ‘on demand’ another person’s debt, which he is under no obligation to pay, a demand is necessary to trigger the liability to pay. In other words, to enforce liability against a mere surety there must be a demand before action is brought.117 However, where a surety undertakes as ‘principal debtor’ or ‘primary obligor’ to pay ‘on demand’ a debt that is immediately payable, a demand is not necessary

109Bruns v. Colocotronis [1979] 2 Lloyd’s Rep. 412. The position is different where the terms of the guarantee make the surety liable to pay sums awarded in an arbitration award against the principal debtor or where the terms make the guarantor liable to pay against a certificate issued by a bank, e.g. BritishAmericaAssurance Co. v. Redekopp (1973) 38 DLR (3d) 631.

110Marubeni v. Government o fMongolia [2005] 2 All ER (Comm) 289 at [9].

111[1985] 2 Lloyd’s Rep. 546.

112Ibid., at 549.

113[1990] 2 Lloyd’s Rep. 496 at 500.

114Bechervaise v. Lewis (1872) LR 7 CP 372; Heald v. O’Connor [1971 ] 1 WLR 497.

115BOC Group Pic v. Centeon LLC [1999] 1 All ER (Comm) 53.

116Edward Owen EngineeringLadv. BarclaysBank InternationalZ*7[1978] QB 1S')-,Esal(Commodities) Ltd v. Oriental Credit Ltd \1985] 2 Lloyd’s Rep. 546; Gold CoastLadv. Caja deAhorros delMediterraneo [2002] 1 All ER(Comm) 142.

117Bradford Old Bank Ltd v. Sutcliffe [1918] 2 KB 833; Re Browns Estate [1893] 2 Ch. 300; Hampton v. Mines [2002] 1 WLR 1.

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III. D ifferentfrom Suretyship Guarantees

before action, in spite of the fact that it is stated to be payable on demand.118 Whether or not a demand is required before action is a question of construction of the guarantee.119 The point is that in the case of a suretyship guarantee, there are circumstances when a demand is not necessary even though the instrument provides for payment ‘on demand’.

This contrasts sharply with the position relating to a demand guarantee under which a 3.67 demand is a condition precedent for the issuer’s liability. The reason is that the issuer of a demand guarantee promises to pay only if a demand that complies with the requirement

of the instrument is made. Therefore, the issuer is not liable unless and until a complying demand has been made. In Britten Norman Ltd (in liq) v. State Ownership Fund o fRomania,1201 Peter Leaver QC, sitting as a Deputy Judge of the Chancery Division, held that ‘[u] ntil a demand was made, [the issuer] was under no actual liability to the [beneficiary]. Its liability was only a potential liability. When the demand was made, in conformity with the terms of the Letter of Guarantee, [the issuer’s] potential liability crystallised into an actual liability.’

4. Effect of Variation of the Underlying Contract by the Beneficiary and the Account Party

where a guarantor was able to rely on the rule because it was held that the instrument in that case was a suretyship guarantee giving rise to secondary liability, the court appeared to accept that an issuer who was liable as a primary debtor could not rely on a variation of the underlying contract in order to escape liability. Similarly, in Mercers v. New Hampshire

118MS Fashions Ltd v. Bank o f Credit and Commerce International SA [1993] Ch. 425; Simpson v. Smith

[1999] Ch 340; TS&S GlobalLtdv. Fithian-Franks [2007] EWHC 1401 (Ch).

119Joachim v. Swiss Bank Corporation [1921] 3 KB 110, 129.

120[2000] Lloyd’s Rep. Bank 315.

121(1877) 3Q BD 495.

122Polak v, Everett (1876) 1 QBD 669, 673; Egbert v. National Crown Bank [1918] AC 903, 908. It has

also been adopted in many Commonwealth jurisdictions including Canada (see, e.g. Bank o fMontrealv. Wilder [1986] 2SC R551, 562; Marmlife Bank ofCanada v. Conlin [1996] 3 SCR415, at [2]) and New Zealand (e.g. Nelson Fisheries Ltd v. Boese[ 1975] 2N ZLR 233,235). In some Commonwealth jurisdictions this rule has been put in statutory form. See, for example, s 86 of the Malaysian Contracts Act 1950, applied in Kidurong Land Sdn Bhdv. Lim Gaik Hua [1990] 1 MLJ 485.

123 [1995] 1 Lloyd’s Rep. 315, 366.

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