UK: HFW Commodities Bulletin - November, 2009

Last Updated: 15 December 2009

UCP 600 – An Early Decision

By Guy Hardaker

In its recent judgment in Fortis Bank and Stemcor UK Limited v Indian Overseas Bank (25 September 2009) the Commercial Court provided guidance on the interpretation of provisions in the new UCP 600.

Indian Overseas Bank ("IOB") had opened five letters of credit in favour of Stemcor under contracts for the sale of containerised scrap metal. The L/Cs were expressly subject to UCP 600. Stemcor made a number of drawings under each of them. Fortis confirmed three of the L/Cs and forwarded the cargo documents to IOB seeking reimbursement. In respect of the other two L/ Cs, Fortis acted as nominated bank and passed the documents which Stemcor presented to it on to IOB. IOB refused to authorise reimbursement to Fortis or payment to Stemcor.

Fortis and Stemcor applied to the Commercial Court seeking summary judgment against IOB. IOB resisted their application on a number of grounds.

IOB firstly contended that there were discrepancies in the documents. The Court rejected all but one of the alleged discrepancies on the bases that, where instructions in the L/Cs were ambiguous, Fortis had acted on a reasonable construction of them, or, considering the matter intelligently rather than mechanically, the documents were not in fact discrepant.

IOB's second argument was that Fortis was not authorised to act as a confirming bank, and was therefore not entitled to reimbursement, because it could only act as nominated bank. This argument failed because of Article 2 of UCP 600, which provides that a confirming bank is one which adds its confirmation to a credit "upon the issuing bank's authorisation or request". In this case, each of the confirmed L/Cs stated in the confirmation instructions that Fortis "may add" its confirmation and in the additional conditions that it "may be confirmed at the request and cost of beneficiary". IOB argued that in the three cases where Fortis had added its confirmation at the request of Stemcor, it had done so without IOB's authorisation, so rendering the confirmation silent and therefore outside the scope of UCP 600. The Court rejected this, holding that the term "may add" in the confirmation instructions meant that IOB had authorised the confirmation.

IOB further contended that Fortis was not entitled to reimbursement acting as a nominated bank, because it had not negotiated or honoured a complying presentation according to the terms of UCP 600; principally because of a delay in negotiation of more than 5 days after presentation, placing it outside the terms of UCP Article 14(b). This argument failed too. Article 7(c) of UCP 600 states that " issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement... is due at maturity." The Court held that this obligation to reimburse arises if, in fact, the nominating bank has negotiated or honoured a complying presentation and forwarded the documents to the issuing bank. There was no doubt on the facts that Fortis had done so.

The Court did not make a final decision in relation to an argument by Fortis that IOB were precluded from relying on the documentary discrepancies which the Court identified. A further hearing will take place in January 2010, after which judgment is expected to be given.

Reading The Small Print – Incorporating Standard Terms Into Negotiated Contracts

By Brian Perrott and Richard Merrylees

Judgment was handed down earlier this month in an appeal from an arbitration award to the Commercial Court concerning the effect of incorporating printed charter forms into terms agreed by way of fixture recaps.

In Cobelfret Bulk Carriers NV v Swiss Marine Services SA (13 November 2009), Cobelfret as owners and Swiss Marine as charterers entered into a voyage charter for the carriage of coal in bulk from Richards Bay Coal Terminal to Rotterdam and Immingham. Cobelfret claimed demurrage and Swiss Marine claimed despatch in relation to discharge at Immingham. HFW acted for Swiss Marine.

The charter was contained in a fixture recap which stated "Scale load / 25,000 MT SHINC" (i.e. Sundays and holidays included) and "otherwise as per Eurosailor – CP dated 2 March 2004 with clause 42 last para deleted logically amended to reflect main terms agreed as above..." That printed charter form provided for a discharge rate of 25,000 MT SHINC "excluding Super Holidays".

The cargo was discharged at Immingham at Christmas 2005. The central issue was whether laytime ran on the "super holidays" during that period. This involved deciding whether the words "excluding Super Holidays" in the printed charter form could be reconciled with the words "25,000 MT SHINC" in the fixture recap.

The Commercial Court held that the fixture recap and the words in the printed form were not inconsistent. Relying on previous case law, the Court held that for the two clauses to be inconsistent, it was not enough for one to qualify the other. One term must actually contradict the other or be in conflict with it, so that effect could not fairly be given to both. The two clauses could be read together with the effect that laytime ran on Sundays and holidays, but not on super holidays.

This decision is important given the prevalence of the practice of concluding charters by way of fixture recaps whilst incorporating standard printed forms by reference. It underlines the importance of including in recaps a statement to be effect that terms in the recap will prevail over terms in the printed form in cases of inconsistency.

HFW leads the field

The 2010 edition of the U.K. Chambers and Partners legal directory was published in November 2009. For the second year running, HFW is the only firm to be top-ranked for both Physical Commodities and Shipping. Several lawyers from our Trade & Energy group have again been identified as leading practitioners in the field of Physical Commodities. These rankings underline the strength and focus of HFW's practice, and that HFW is uniquely placed to provide combined expertise of the highest quality in the commodities and shipping sectors.

Conferences and Events

ISTA (International Steel Trade Assocation)
Annual Lunch
The Brewery, London (4 December 2009)
Andrew Ridings

Lloyd's Maritime Academy
Derivatives and Risk Management in Shipping
Bonhill House, London (7-8 December 2009)
Brian Perrott, Damian Honey

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.

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