Bulgrains & Co Ltd v Shinhan Bank

Factual and Procedural Background

This opinion concerns an expedited trial by consent to determine the liability of the London branch of the Defendant Bank to pay US$825,000 to the Plaintiff pursuant to an irrevocable letter of credit issued on 13 March 2013. The Plaintiff is a company registered in Bulgaria, trading primarily in wheat and similar foodstuffs, controlled by its sole shareholder. The Defendant denies the Plaintiff’s claim in full, alleging discrepancies in the documents presented under the letter of credit and other defenses. The Plaintiff claims wrongful refusal to pay under the letter of credit.

The letter of credit was issued by the Defendant's Seoul office at the request of a third party for the supply of 3,000 metric tonnes of wheat bran pellets. The letter of credit required payment upon presentation of stipulated documents including a commercial invoice, bills of lading, certificates of origin, quality, fumigation, veterinary, and others. Documents were presented to the Defendant on 29 April 2013, but the Defendant alleged significant discrepancies and refused payment, notifying the Plaintiff accordingly.

Legal Issues Presented

1. Whether the documents presented under the letter of credit were discrepant and if so, whether the Defendant was entitled to reject them.
2. Whether the Defendant’s rejection of the documents complied with the timing and procedural requirements of the Uniform Customs and Practice for Documentary Credits 2007 Edition (UCP 600), specifically Articles 14(b) and 16(c).
3. Whether the Plaintiff has title to sue, i.e., whether the Plaintiff remains the beneficiary under the letter of credit or whether the rights were negotiated to a third party bank.
4. Whether the Defendant is entitled to refuse payment on the basis of alleged fraud by the Plaintiff concerning the documents presented.

Arguments of the Parties

Defendant's Arguments

• The documents presented were discrepant, notably due to differences in the beneficiary’s name ("Bulgrains Co Limited" vs. "Bulgrains & Co Limited") and the description of goods on the commercial invoice not conforming to the letter of credit.
• The Defendant properly notified the Plaintiff of discrepancies within the time limits prescribed by UCP 600 using SWIFT messages, thereby validly refusing to honor the letter of credit.
• The Plaintiff may have sold its rights under the letter of credit to a third party bank (D Commerce Bank), who would then be the proper party to sue, thus the Plaintiff lacks title to sue.
• The Defendant relies on the fraud exception to the autonomy of documentary credits, alleging the documents were false and presented recklessly or knowingly without belief in their truth.

Plaintiff's Arguments

• The difference in the beneficiary's name was a non-material discrepancy caused by limitations in the SWIFT system (inability to transmit ampersands) and did not cause confusion as the correct address and executive director were clearly identified.
• The description discrepancy was not material or sufficient to justify rejection.
• The Defendant’s notices of refusal did not comply with UCP 600 requirements as they lacked clarity on the nature of the discrepancies and did not explicitly state refusal to honor or negotiate.
• The Plaintiff denies having sold its rights under the letter of credit and disputes that D Commerce Bank is the proper claimant.
• The Plaintiff denies any fraud and argues that findings of fraud require oral evidence which was not presented.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the documentary discrepancies under the strict compliance principle governing letters of credit, as established by the cited authorities. The discrepancy in the beneficiary's name—using an ampersand in the invoice but not in the letter of credit—was held to be material and not a mere typographical error, justifying rejection. The court rejected the Plaintiff’s argument that SWIFT transmission limitations excused this discrepancy, emphasizing that the word "and" could have been used.

The difference in the description of goods between the letter of credit and the commercial invoice was also found to be a material discrepancy under Article 18(c) of the UCP 600, which requires the commercial invoice description to correspond exactly with the credit.

Regarding the timing and form of the Defendant’s refusal notices, the court found that the notices were sent within the required period under Article 14(b) and that the use of the MT734 SWIFT message, even if implicit in refusal wording, complied with Article 16(c)(i). The court rejected the Plaintiff’s contention that the notices lacked sufficient detail, holding that identifying the discrepancies by reference to the name and description was adequate. The court also accepted that the term "notify" in the refusal message was an industry term of art signifying the documents would be held pending further instructions, satisfying Article 16(c)(iii).

On the issue of entitlement to sue, the court found the evidence inconclusive and unsatisfactory to establish that the Plaintiff had assigned or negotiated its rights under the letter of credit to the third party bank. The absence of direct evidence refuting the allegation was noted, but the court was not persuaded to find negotiation on the balance of probabilities.

Concerning the fraud exception, the court declined to find fraud in the absence of oral evidence and direct testimony from the key individuals. The court emphasized the high standard of proof for fraud and the necessity of assessing credibility through live evidence, which was not presented.

In conclusion, the court found that the Defendant’s first ground of defense—discrepancies in the documents—was established, entitling the Defendant to reject payment and dismissing the Plaintiff’s claim.

Holding and Implications

The claim is dismissed.

The court’s decision directly affects the parties by upholding the Defendant’s refusal to pay under the letter of credit due to material discrepancies in the documents presented. The Plaintiff’s claim is therefore unsuccessful. No new binding precedent was established beyond the application of existing principles of strict compliance and UCP 600 provisions. The Defendant is awarded costs subject to a proportionate costs order limiting the Plaintiff’s liability to two-thirds of the Defendant’s costs, reflecting the partial success and failure of the parties on various issues.

The court also ordered the release of the US$825,000 held in the Defendant’s solicitors’ client account to be paid to the Defendant, rejecting the Plaintiff’s application for permission to appeal on grounds that no error of law was demonstrated.