
Экзамен зачет учебный год 2023 / The-independence-principle-of-letters-of-credit-and-demand-guarantees-150-373
.pdfConflict o f Laws
(b)for the purpose of this provision and unless otherwise agreed, the place ofperformance of the obligation in question shall be:
-in the case of the sale of goods, the place in a [Regulation] State where, under the contract, the goods were delivered or should have been delivered,
-in the case of the provision ofservices, the place in a [Regulation) State where, under the contract, the services were provided or should have been provided,
(c)if subparagraph (b) does not apply then subparagraph (a) applies.
13.15In determining whether it has jurisdiction under Article 5(1)(a) the court will first have to decide whether the dispute is a matter relating to contract. If it is, the court will then seek to identify the obligation in question before trying to locate the place of performance of that obligation. In the case of a contract for the sale of goods or the provision of services, Article 5(l)(b) specifies the place for the performance of the obligation in question unless otherwise agreed.
(i) Matters relating to contract
13.16The Court of Justice has held on a number of occasions that for a dispute to be a matter relat ing to contract it must concern an obligation freely assumed by one party towards another.30 It is likely that in the case of a letter of credit the issuing bank and, where there is one, the confirming bank, have each freely assumed an obligation towards the beneficiary and there fore a claim by the beneficiary to enforce the bank’s obligation is a matter relating to contract. Thus, in Chailease Finance Corporation v. Credit Agricole Indosuez31 the Court of Appeal assumed that a claim by the beneficiary of a letter of credit against the issuing bank was a matter relating to contract under Article 5(1) of the Brussels Convention. The position is the same in respect of the relationships in a demand guarantee transaction, such as that between the issuing bank and the beneficiary or between the issuing bank and the instruct ing bank that has given a counter-guarantee. In Commercial Marine Idling Ltd v. Pierse Contracting Ltd?132for example, Ramsey J. concluded that a claim by the beneficiary of a guarantee against the guarantor was a matter relating to contract under Article 5(1) of the Brussels I Regulation.
(ii)Obligation in question
13.17The obligation in question depends on whether subparagraph (a) or (b) of Article 5(1) applies. Under Article 5(1) (a), which is the same as the original Article 5(1), the obligation in question’ does not refer to any obligation whatsoever arising under the contract; rather it is, as the European Court of Justice has held on a number of occasions, the contractual obli gation that forms the basis of the claimant’s legal action.33 In other words, the obligation in question is the obligation the enforcement ofwhich is sought in the legal proceedings. In the
Chailease Finance case the Court ofAppeal applied the jurisprudence of the European Court
30 Case C-26/91 Jakob H a n d te & Co G m b H v. Tm item ents M ecdno-C him iques ties Surfaces 5Л (T M C F ) [1992] EC R1-3967 at [15]; Case C -51/97 Reunion Europeenne SA v. Spliethojfs Bevrachtingskantoor 5K[2000] QB 690 at [17] and [19]; Case C-334/00 Fonderie Officine M eccaniche TacconiSpA v. H einrich Wagner Sinto M aschinenfabrik G m b H (H W S ) [2002] ECR 1-7357 at [23].
31[2000] 1 Lloyd’s Rep. 348.
32[2009] EWHC 224 (TCC).
33Case 14/76 Etablissem ent A D e Bloos sprlv. Societe en C om m andite Par Actions B o u yer[l9 7 6 \ ECR 1497 at
[11] and [14]; Shenavai v. K re isc h e riO lS ] ECR 239; Custom M ade C om m ercial L td v. Staw a M etallbau G m b H
[ 1994] ECR 1-2913 and 2957 at [23]. See also the decisions of the House of Lords in K leim vort Benson L td v. Glasgow C ity C o u n c il\V y)% 1 AC 153 лпА A gnew Lansforsakringsbolagens A B [2001] 1 AC 221.
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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
The position is different where the claim falls within Article 5(l)(b). This provision departs |
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from Article 5(1) (a) by introducing the concept of sole jurisdiction by which the court of the |
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place of delivery of goods or provision of services has sole jurisdiction over all disputes arising |
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in relation to the contract rather than just the obligation on which the claimant’s claim is |
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based. The principle of sole jurisdiction is explained further in paragraphs 13.22 to 13.23 |
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below. |
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(Hi) |
Place o fperformance |
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In order to identify the place of performance of the obligation in question it is necessary |
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first to determine whether the contract falls under subparagraph (b) ofArticle 5(1) and, if so, |
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whether it is a contract for the sale ofgoods (first indent) or for the provision ofservices (second |
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indent). Article 5(l)(b) is an exception to the original rule now reflected in Article 5(1)(a). |
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If the contract does not fall within subparagraph (b) then subparagraph (c) directs that |
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subparagraph (a) applies. One instance where subparagraph (a) will apply is where the con |
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tract is not one for the sale of goods or the provision of services. In the context of the present |
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discussion, the question is whether a letter of credit or demand guarantee contract is a con |
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tract for the provision of services. The Regulation does not define the concept of a contract |
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for the provision of services but the European Court ofJustice has held that ‘the concept of |
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service implies, at the least, that the party who provides the service carries out a particular |
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activity in return for remuneration’.36 This covers the case where the remuneration is pro |
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vided by the party to whom the services are provided, as where A provides a service to В and |
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В pays A for it. But it is not entirely clear whether it extends to a case where the services are |
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provided to one person but the remuneration is provided by a third person,37 as where A |
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provides services to В but C provides the remuneration to A. If this wider definition is |
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accepted, it is likely that each of the autonomous contracts in the web of contracts arising |
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34 |
[2000] 1 L loyd’s Rep. 3 4 8 , 353. |
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35 |
cf. CommercialMarine Piling Ltd v. Pierse Contracting Ltd [2009] F .W H C 2 2 4 1 (T C C ). |
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36 |
C ase C -5 3 3 /0 7 |
Falco Privatstifiung v. Weller-Lindhorst [2009] E C D R 14 at [29]. T herefore, a co n tract |
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u n d er w h ich th e ow ner o f an intellectual p ro p erty right grants a licence to the o th er co n tractin g p arty in retu rn |
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for a royalty is n o t a co n tract for the provision o f services for purposes o f A rt. 5(1) (b). |
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37 |
It m ig h t be considered th a t cases o f this k in d fall o u tside o f th e d efin itio n in th e light o f the clear reluc |
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tance o f the c o u rt in |
the Falco case to ad o p t a b ro ad d efin itio n o t th e co n cep t o f a co n tract for the provision |
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o f services (at [34] |
to |
[43]). H ow ever, there is no |
express sta te m e n t in |
the Falco decision th a t the co n cep t o f |
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a c o n tract for th e |
provision o f services is lim ited |
only to cases w here |
the provider o f th e service receives the |
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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
subparagraph (b) does n o t apply, th en |
subp arag rap h (a) sh o u ld apply. H ow ever, in one F rench case, Societe |
CeltelInternationalBVv. Tidjani, Paris, |
10 S eptem ber 2 0 0 8 , N o . de R G 0 8 /8 9 6 8 , the Paris C o u rt of A ppeal |
refused to apply subp arag rap h (a) w here sub p arag rap h (b) d id n o t apply because the services w ere to be provided |
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in C h ad , a n o n -R eg u latio n |
State. T he co u rt to o k the view th at the w hole o f A rt. 5(1) applies only w here the |
ju risd ictio n o f a R egulation |
S tate is involved. |
40 Scottish drNewcastle InternationalLtd v. Othon Ghalanos Ltd [2 0 0 8 1 1 L loyd’s Rep. 4 6 2 |
at [3]. |
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1he co n cep t o f sole ju risd ictio n relates only to ju risd ictio n u n d e r A rt. 5(1). The claim an t still retains the |
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o p tio n |
o f b rin g in g the actio n in the co u rts o f o th er states to w hich ju risd ictio n has been |
conferred by the |
R egulation, such as th e place o f dom icile (u n d er A rt. 2).
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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
for all claims arising out of the contract.423 |
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Although the court only made reference to ‘sales contracts’ in the passage quoted, the analysis |
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applies equally to a contract for the provision of services falling under Article 5(l)(b) since, |
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as the European Court ofJustice itself subsequently made clear, the rules for special jurisdic |
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tion under that provision relating to contracts for the sale of goods and the provision of |
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services ‘have the same origin, pursue the same objectives and occupy the same place in |
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the scheme established by that regulation’.44 The second indent ofArticle 5(l)(b) establishes |
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the place of provision of services as the autonomous linking factor to apply to all claims |
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founded on one and the same contract for the provision of services rather than merely to |
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claims founded on the obligation to provide the services.45 |
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In cases where Article 5(l)(b) applies, the concept of a sole jurisdiction has addressed some |
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of the difficulties which arose under the original Article 5(1) in the letter of credit and per |
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formance bond context, especially in connection with a paying bank’s claim for reimburse |
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ment by the instructing bank.46 |
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In the case of Article 5(1) of the Brussels Convention, the European Court of Justice had |
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decided on a number of occasions that the place of performance of the obligation in question |
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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].
44 |
Case C -2 0 4 /0 8 Rehder v. Air Baltic Corporation [2009] I L Pr 4 4 at [36]. |
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Case C - 19/09 WoodFloor SolutionsAndreas Domberger GmbH v. Silva Trade SA, 11 M arch 2010 . |
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See discussion in para 13.30 below. |
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e.g. Industrie Tessili Italiano Como v. Dunlop AG [1976] E C R 1473 at [13]; C ase C -4 2 0 /9 7 Leathertex |
DivisionsSinetici v. Bodetex BVBA [1999] C L C 1976 at [33]. |
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48 |
[2 0 0 0 | 1 L loyd’s Rep. 348. |
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See, e.g. CommercialMarine Piling Ltd v. Pierse ContractingLtd [2009] E W H C 2241 (T C C ) at [21]. |
50 |
[2008 ] 1 L loyd’s Rep. 4 6 2 at [4] an d [8]. |
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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
51 |
Case C -2 0 4 /0 8 Rehder v. Air Baltic Corporation [2009] I L P r 44. |
52 |
Case C -1 9 /0 9 Wood Floor Solutions Andreas Domberger GmbH v. Silva Trade 5/1, 11 M arch 2 0 1 0 , |
especially at [40]—[43]. |
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53 |
See discussion at para 13.17. |
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within the terms of the contract. Since, by the terms of the credit, the parties had anticipated |
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that the place for payment may be determined at the option of one party and subsequently |
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communicated in instructions to the other, the place so determined and communicated was |
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the place of performance under Article 5(1). Potter L.J. rejected a contention that the term |
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conferring a choice of place of payment on the beneficiary should not be enforced because it |
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enabled the beneficiary to exercise his choice solely for the purpose of conferring jurisdiction |
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on the courts of the place of performance.54 After stating that there was no evidence that the |
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beneficiary’s choice of London as the place of payment was made solely for the purpose of |
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giving the English courts jurisdiction, he said: |
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In this case, as the Judge held, given that the (beneficiary] was contractually entitled to nomi |
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nate London as the place of payment because the contract contemplated payment in accor |
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dance with such instructions as [the beneficiary] might give, those instructions when given |
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(whatever the motive underlying them), were indeed designed to determine the place where |
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[the bank] was liable to perform the obligation of payment.55 |
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Where a bank that issues a letter of credit requests another bank to add its confirmation and |
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honour it in a Regulation State, the place where the services are provided is the Regulation State |
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where the confirmation is to take place. Therefore, the courts of that state have solejurisdiction |
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under Article 5(l)(b) to hear all disputes relating to that contract between the two banks |
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including a dispute relating to the issuing bank’s obligation to reimburse the confirming bank. |
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1 bar will be the case even where the contract specified that reimbursement was to be made |
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by another bank in a non-Regulation State. Thus, where, for example, a credit is issued by a |
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bank in Germany and a confirming bank in England advises the beneficiary in England, |
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receives the documents, examines them, and pays the beneficiary in England, if the confirming |
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bank wants to sue the German bank, the English courts will have jurisdiction because the ser |
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vices were provided in England. The English courts will havejurisdiction underArticle 5(1) (b) |
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even where the parties had agreed that the confirming bank was to be reimbursed by a corre |
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spondent bank of the issuing bank in another country, for example Singapore. |
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The position is different where the confirming bank is to provide the services in a non- |
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Regulation State, so that the contract falls outside of Article 5(1) (b) and the place of perfor |
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mance is to be determined under Article 5(1) (a). In such a case the position is the same as |
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under the original Article 5(1) under which jurisdiction depended on the obligation in |
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respect ofwhich the claim was brought. So, in a claim for reimbursement by the confirming |
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bank, the obligation in question was the obligation of the issuing bank to reimburse. And if, |
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under the agreement, reimbursement by the issuing bank was to be made in a country other |
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than the confirming bank’s country, then the place of performance of the obligation in ques |
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tion was not the confirming bank’s country. This is illustrated by Royal Bank o fScotland Pic |
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v. Cassa di Risparmio delle Provincie Lombardi.56 In that case, a Scottish bank, Royal Bank |
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of Scotland (RBS), through its London branch, confirmed letters of credit issued by six |
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Italian banks. The agreement between the parties was that RBS would be reimbursed by |
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specified banks in New York or Philadelphia. RBS subsequently paid the beneficiaries in |
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London but by the time it asked for reimbursement from the American banks the Italian |
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banks had withdrawn their reimbursement authorization so the American banks did not |
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54 |
cf. Case C - 106/95 M S G и Les Gravieres Rbenanes SA R L [1997] E C R 1-911 at 945 . |
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[2000] 1 L loyd’s Rep. 3 4 8 ,3 5 7 . |
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[1991] I L I’r 4 1 1 , a jfd [ \9 9 2 \ 1 Bank L R 251 . |
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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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II. Jurisdiction |
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payment should be made into a specified account in Romania was simply an administrative |
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request rather than a contractual entitlement. |
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The decision in the Britten Norman case, based on what is now Article 5(1) (a) is not a direct |
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authority on how Article 5(1) (b) should be interpreted, since under Article 5 (1) (b) the search |
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is for the place where the service provider was to provide the services rather than the place of |
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performance of the obligation sued on (in that case, payment). Under Article 5(1 )(b) the |
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services provided or to be provided by the bank will normally be more than just making pay |
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ment to the beneficiary. They include receiving the documents and examining them. Since |
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in many cases the place of presentation of documents is specified in the bond, that place is |
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likely to be regarded not only as the place where the bank is to receive the documents but also |
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as the place where payment is to be made. If so, that will be the place of provision of the |
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services under the contract so that the result arrived at will be the same as that reached under |
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subparagraph (a) applying English law. |
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Where a letter of credit makes no provision for the place of payment, ifArticle 5(1) (a) applies |
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and the governing law of the contract between the beneficiary and the issuing bank is English |
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law, the question will be determined by applying English law. Under English law there is no |
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clear decision on the point. In Offshore International SA v. Banco Central SA6i the court had |
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to determine the law that governed a letter of credit which was issued by a Spanish bank |
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through a New York bank (which did not confirm the credit) for payment in US dollars |
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against documents presented to the New York bank. Applying the common law test which |
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seeks to identify the law that has the closest and most real connection to the transaction, |
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AcknerJ. held that New York lawwas the governing law because, ‘all matters ofperformance’, |
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including the performance of the payment obligation, were to take place in New York. |
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In other words, the place of payment was the place where the required documents were to be |
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presented. Spain, the place where the issuing bank had its place of business was simply ‘the |
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source of the obligation’.6456Ackner J .’s decision was approved by a unanimous Court of |
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Appeal in Power Curber International Ltd v. National Bank o f Kuwait SAK.№There, a bank |
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in Kuwait had issued a credit through a bank in North Carolina for payment against presen |
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tation of documents. The court rejected a contention that the obligation of the issuing |
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bank was to make payment in Kuwait. Lord Denning M .R. said that North Carolina was |
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the place ‘where payment was to be made (on behalf of the issuing bank) against presentation |
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of documents’.67 |
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Some commentators have relied on these cases to suggest that the general principle ofEnglish |
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law that a debtor must seek out his creditor should not apply in the case of a letter of credit |
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because, like the case of the performance bond, the bank’s obligation to pay crystallizes upon |
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presentation of documents and therefore the place of payment is the place where the docu |
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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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Conflict o f Laws
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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II. Jurisdiction |
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the Regulation State where the issuing bank provides the services will havejurisdiction, includ |
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ing jurisdiction over the issuing bank’s claim under the counter-guarantee or indemnity. |
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The position is different where the services are provided or to be provided in a non-Regulation |
13.40 |
State, so that Article 5(1) (a) applies instead of Article 5(l)(b). In such a case in a claim for |
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payment under a counter-guarantee the courts of the place where payment was to be made |
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will have jurisdiction, even if the issuing bank performed its services in another country. |
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Where the counter-guarantee specifies the place of payment, there should be no difficulty. |
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Where it does not, the place of payment is the place nominated by the issuing bank at the |
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time when it makes a demand for payment. In Turkiye Is Bankasi v. Bank o f China,73 a case |
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concerned with the governing law of a counter-guarantee, Phillips J. rejected a contention |
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that in the absence of a place of payment specified in the counter-guarantee, the contractual |
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place of payment should be the place of business of the counter-guarantor. Phillips J. referred |
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to his judgment in the Cassa di Risparmio case and said that in practice in international bank |
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ing transactions of this nature, where the place of payment is not expressly agreed, the credi |
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tor bank will specify the place in which it wishes to have an account credited with the moneys |
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due and the paying bank will normally comply with such a request. He went on to state that |
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‘[a]ny attempt to formulate some general rule as to the contractual place of performance is |
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unrealistic’.74 |
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D. Jurisdiction agreement |
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Where the parties have agreed that the courts of a Regulation State are to have jurisdiction to |
13.41 |
settle their dispute, under Article 23(1) those courts shall have exclusive jurisdiction unless |
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the parties have stated otherwise, provided that one of the parties (claimant or defendant) to |
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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 .
313