UK: Letters Of Credit: Issuing Bank's Limited Liability As Consignee Under The Bills Of Lading

Last Updated: 9 May 2011
Article by Steven Fox and Reema Shour

(1) Fortis Bank S.A./N.V. and (2) Stemcor UK Ltd v Indian Overseas Bank [2011] EWHC 538 (Comm)

Please see our website at for the following related articles: "Letters of credit and documentary discrepancies: the doctrine of strict compliance" and "Implied obligation under Article 16(f) of UCP 600 to return rejected documents reasonably promptly". These articles have also appeared in our International Trade and Legal Updates for February and October 2010, also available on our website.

The background to this dispute

This Commercial Court decision is the latest in a line of judgments from the English courts dealing with various disputes arising out of five letters of credit ("L/Cs")that were opened by the Indian Overseas Bank ("IOB") at the request of an Indian government-owned company, MSTC, whose role includes assisting Indian companies to purchase steel scrap from abroad. The L/Cs related to five sale contracts for steel scrap, with Stemcor as the seller and SESA as the buyer. The advising bank was Fortis Bank in London. The letters of credit were all subject to the Uniform Customs and Practice for Documentary Credits, 2007 revision ("UCP 600").

The goods were shipped in containers from European ports to Haldia port in India over a period of almost seven weeks towards the end of 2008. The bills of lading named Stemcor as the shipper and the consignee was "to the order of" IOB. However, by the time of shipment, the market price for scrap steel had fallen considerably and was below the contract price. SESA wished to extract itself from the now unprofitable contracts and therefore raised with MSTC a number of alleged discrepancies in the documentation presented by Stemcor for payment under the L/Cs. However, by this time, Fortis had already negotiated and honoured the first three L/Cs, numbers 1-3, and had paid the relevant sums to Stemcor. In respect of the two remaining L/Cs, numbers 4-5, Fortis had not added its confirmation but had forwarded the documents presented by Stemcor to IOB.

Given SESA/ MSTC's allegations of discrepant documents, IOB declined to reimburse Fortis for the payments under L/C numbers 1-3 and declined to pay Stemcor under L/C numbers 4-5.

Previous court proceedings

In September 2009, the Commercial Court dismissed all the alleged discrepancies in the documents presented under the L/Cs, apart from the objection that the beneficiary's consolidated certificate failed to satisfy the requirements of the L/Cs. The judge held that this was a valid point of discrepancy, but left open the issue whether IOB was precluded from relying on this point because it had delayed in returning the documents to Fortis. Judgment was entered against IOB in respect of the shipments to which the preclusion point did not apply.

In January 2010, the Commercial Court held that, having given a refusal notice, IOB was under an implied obligation to return the rejected documents to Fortis / Stemcor reasonably promptly, that it had failed to do so and that it was consequently precluded under Article 16(f) of UCP 600 from relying on the discrepancy in the beneficiary's consolidated certificate.

IOB appealed to the Court of Appeal in respect of both judgments. In January 2011, the Court of Appeal dismissed the appeal. In respect of the preclusion point, the Court of Appeal commented that the practice of bankers and international traders was that, on rejection, the issuing bank would either hold the documents pending the presenter's instructions or return them promptly and without delay. Accordingly, where a bank elected to return documents, it was required to do so with reasonable promptness. On the facts of this case, the appeal judges concluded that IOB had not returned the documents with reasonable promptness (there was a period of some months between the Article 16 notice and actual return of the documents) and it was therefore precluded from relying on the discrepancy.

The present Commercial Court proceedings

The steel scrap had been left unclaimed at Haldia port and Stemcor incurred substantial storage charges and container demurrage costs. It subsequently sought to recover these costs from IOB either as damages resulting from IOB's wrongful delay in making payment under the L/Cs, alternatively by way of restitution. The judge dismissed Stemcor's claim in its entirety.

Claim in damages

L/C numbers 1-3: Stemcor had argued that IOB had breached its obligations under the letters of credit and was therefore liable for any damages caused. However, the judge agreed with IOB that, in respect of the L/C numbers 1-3, where Stemcor had been paid by Fortis as the confirming bank, IOB had breached its obligation to reimburse Fortis but that was not an obligation owed to Stemcor. Stemcor could not therefore claim damages for that breach.

L/C numbers 4-5: The judge held that IOB was in breach of contractual obligations owed to Stemcor. As to when the breach occurred in the cases where the discrepancy in the beneficiary's consolidated certificate applied, the judge held that IOB's obligation to return the documents with reasonable promptness meant within three banking days of the "return" notice, absent extenuating circumstances. Nonetheless, the judge held that the claim for damages under these L/Cs also failed because, on the balance of probabilities, IOB's non-payment under the L/Cs had not caused Stemcor's loss. Rather, the judge found that, on the evidence, SESA would likely have refused to pay MSTC for the goods, collect the steel scrap and paying outstanding charges. Nor did MSTC appear to have any means of forcing SESA to make payment.


The judge also dismissed the argument that IOB owed an obligation as named consignee under the bills of lading to pay the storage charges and the container demurrage to the carriers and that they should reimburse Stemcor for discharging that liability on their behalf. Under the Carriage of Goods by Sea Act 1992 ("COGSA"), IOB would only have been liable as consignee if it had taken or demanded delivery of the goods from the carrier or if it had made a claim under the bills of lading against the carrier in respect of those goods. However, the judge said that IOB was not the buyer of the goods, nor did it have an interest in the contracts of carriage. It had only a notional security interest.

He also rejected an argument that Stemcor had entered into the contracts of carriage on behalf of IOB. The judge doubted that every time a bank required in a letter of credit that it be named as consignee in the bill of lading, it was authorising the shipper to contract on its behalf: "such a conclusion would run contrary to the regime established by COGSA and open banks up to potentially enormous liabilities".


The judgment in this case acknowledges the limited involvement of banks issuing documentary credits in the context of the contracts of carriage relating to the sale contracts. An issuing bank will usually have no knowledge of the terms and conditions of any bills of lading issued, even though the bills may be made out to its order. Consequently, it would be unjust for a bank with only a security interest in the goods to be saddled with the liabilities of the original shipper simply because it was the lawful holder of the bills, except in circumstances where that bank sought to exercise or enforce its rights under those bills.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.