National Infrastructure Development Co Ltd v Banco Santander SA (2016)
A beneficiary was entitled to summary judgment in respect of standby letters of credit issued by the defendant bank as security for the obligations of a Brazilian contractor in relation to a major construction project in Trinidad. It was not seriously arguable that the fraud exception applied because the demands under the letters of credit had not been honestly made.
The claimant sought summary judgment against the defendant bank as the beneficiary under standby letters of credit (SLCs) relating to a highway project in Trinidad, and the defendant sought a stay of execution if summary judgment was granted.
The claimant was a company used by the government of Trinidad and Tobago to effect public infrastructure works. It had entered into a contract with a Brazilian contractor to extend a major highway in Trinidad. The construction contract was governed by the law of Trinidad and Tobago and disputes were to be referred to LCIA arbitration with its seat in Trinidad. The contractor was obliged to provide the claimant with SLCs for 10 per cent of the contract price by way of performance security, and also provided SLCs as retention security, instead of the claimant withholding 10 per cent of the payments due. The defendant had issued SLCs in favour of the claimant at the contractor's request as performance and retention security. The claimant had purported to terminate the contract and disputes had been referred to arbitration in Trinidad. The claimant issued demands under the SLCs. The SLCs were subject to International Standby Practices ISP 98 and otherwise to English law and jurisdiction.
The defendant submitted that (1) the so-called fraud exception applied because the claimant was contractually required to certify and had certified that the sums demanded were "due and owing" from the contractor, whereas what was due was the subject of the arbitration and the claimant could not have believed that the statements in the demands were true, or was reckless as to whether they were true or not; further there was other evidence showing that the claimant did not believe that the relevant sums were due; (2) the claimant had recovered retention security from another bank and would be overpaid if the defendant was required to pay under its SLCs as well; (3) the demands were unconscionable in the circumstances; (4) there should be a stay of execution because the defendant was prohibited by an injunction granted by the Brazilian court from paying out on the SLCs.
(1) ISP98 r.1.06(d) provided that because a standby was documentary, an issuer's obligations depended on the presentation of documents and an examination of required documents on their face. Under r.2.01(a) an issuer undertook to the beneficiary to honour a presentation that appeared on its face to comply with the terms and conditions of the standby in accordance with the rules supplemented by standard standby practice. The demands had been in the form prescribed by the contract notifying the defendant that an amount was due and owing to the claimant from the contractor. The trigger for payment of the SLC was belief on the part of the claimant in its entitlement, not such entitlement having been subject to a final determination giving rise to a payment obligation. It was implicit that there would at some future stage be an accounting between the parties to the main contract when their rights and obligations were finally determined, J Murphy and Sons Ltd v Beckton Energy Ltd  EWHC 607 (TCC) applied. The belief of the claimant that its losses would be well above the amount of the SLCs was not a matter of analysis of English law or the law of Trinidad. The wording was not the same as that in other decided cases, but the words due and owing did not mean determined by a tribunal to be due or owing or due and owing as a matter of law. It was not seriously arguable that the claimant did not honestly believe in the validity of the demands. The fraud exception did not apply and the claimant was entitled to summary judgment, Enka Insaat Ve Sanayi AS v Banca Popolare dell'Alto Adige SpA  EWHC 2410 (Comm), Esal (Commodities) Ltd and Reltor Ltd v Oriental Credit Ltd and Wells Fargo Bank NA  2 Lloyd's Rep. 546 and Alternative Power Solution Ltd v Central Electricity Board  UKPC 31 considered. That conclusion was not undermined by the fact that the amounts that were claimed had not been mentioned in other correspondence. The claimant was entitled to rely on the demands.
(2) The alleged overcompensation was not significant in the context and was not such as to justify an inference that the demands were not honestly made or to prevent the court giving summary judgment.
(3) The court was not prepared to conclude that payment should be restrained on grounds of unconscionability, by reference to the existence of the Brazilian injunction. That was not the law of England, which the parties had chosen, even if the position might be different in Singapore. Also the significance of enforcing the SLCs lay not just in payment but in prompt payment, and postponing payment would undermine the time element that was an important part of the transaction.
(4) For similar reasons the court would refuse to stay execution of the summary judgment. The SLCs should be paid, and paid promptly. Any other result would tend to undo the straightforwardness of the bargain, Power Curber International Ltd v National Bank of Kuwait SAK  1 W.L.R. 1233 and Wuhan Guoyu Logistics Group Co Ltd v Emporiki Bank of Greece SA  EWCA Civ 1679 considered.