Implied Obligations of Banks And Purposive Interpretation of UCP Articles

In a recent lawsuit involving a letter of credit，the beneficiary found one original page of a bill of lading missing when the issuing bank returned the related documents after refusing payment. The beneficiary sought damages，claiming errors in the disposal of documents by the issuing bank. The local intermediate and higher courts ruled against the beneficiary and ultimately the supreme court declined a request to review the case. The supreme court based its decision on the grounds that under literal reading of UCP Article 16，the issuing bank's payment obligation terminated irreversibly once it sent the refusal notice. That meant that the beneficiary's claim of damages should be settled outside the L/C. The dispute reminded me of a landmark case in the UK – Fortis Bank & Stemcor UK Ltd v. Indian Overseas Bank [2011] EWCA Civ 58. Both of the cases touch upon the complicated theme of the issuing bank's obligations in document disposal after giving a refusal notice under an L/C. However，the Fortis case adopts purposive interpretation of UCP Article 16 and seeks resolution under the L/C in the framework of the UCP. More importantly，it offers us insights on how to interpret UCP articles. Let us first quickly review the main facts of the Fortis case.

Main Facts

Indian Overseas Bank – the issuing bank – issued five L/Cs. After presentation，IOB sent a refusal notice stating RETURN on Nov.4，2008. Initially，the nominated bank – Fortis Bank – requested IOB to hold the documents and not return them.

On Jan.13，2009，Fortis Bank requested the issuing bank to endorse the bill of lading (originally made out to order of the issuing bank) and return the documents via urgent carrier. On Jan.19，Fortis Bank again requested the issuing bank to return all the documents. On Feb.9，IOB claimed it was in no position to endorse the B/L and insisted on holding the documents. On the same day，Fortis Bank warned IOB that according to UCP Art.16 (f)，its refusal to return the documents constituted a confirmation of the complying presentation. On Feb.16，the documents were returned at last without endorsement.

Later，Fortis Bank and the beneficiary sued the issuing bank claiming all the L/C sums and goods damages.

Literal vs. Purposive Approach

In the Fortis case，the judge put forward the following key question. An issuing bank which rejects documents and states it is returning them must return them. But does this obligation arise under the UCP or outside the UCP? In a word，do UCP articles preclude the issuing bank from claiming non-compliance when it does not act as stated?

UCP500 Art.14 (e) states: "If the Issuing Bank…fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of，or return them to the presenter，the Issuing Bank…shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit." This is known as the Preclusion Rule，which reappears in UCP600 in a slightly modified form. UCP600 Art.16 (f) states: "If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article，it shall be precluded from claiming that the documents do not constitute a complying presentation."

The judge in the Fortis case held that the issuing bank had an obligation to return the documents. He selected the purposive approach of interpretation in order to resolve the matter under UCP600. Though UCP600 articles seem silent on this issue，the requirement of acting as stated is implied in the UCP. Purposive rather than literal interpretation of UCP articles should be adopted.

In the past，UK courts tended to adopt a literal approach. This requires reading articles literally and discourages any creation of meaning. In this sense，strict semantic and grammatical analysis is preferred. By contrast，the purposive interpretation emphasizes realization of the underlying purposes of the statutes. In the 1970s，Lord Diplock started attempts at adopting the purposive approach. As Lord Denning said in his book Landmarks in the Law，although a judge must not alter the material of which the law is woven，he can and should iron out the creases.

The judge in the Fortis case cited three reasons; first，the consequences of not returning documents in time when stating so is exactly the same as not refusing the presentation within the time limit of five banking days. The beneficiary will be unable to deal with the goods，thus causing damages and demurrages. Second，though UCP600 does not expressly state this requirement，it has been consistently embodied in UCP articles since UCP290 (see Art.8 (f)) in 1975. Moreover，the US Uniform Commercial Code also expressly stipulates that "an issuer that has dishonored a presentation shall return the documents or hold them at the disposal of，and send advice to that effect to阅读全部文章，请登录数字版阅读账户。 没有账户？ 立即购买数字版杂志