This case, in which Al Tamimi successfully represented the
Claimant at all levels of the proceedings, is significant for the
new legal precedent established by the Court of Cassation. It
speaks to what will constitute an implicit waiver to the terms
stipulated in a Letter of Credit.
An action was brought by an International trading company, based in the UAE (the "Claimant") against a bank ("1st Defendant") and a local trading company ("2nd Defendant") requesting the court to order the 2nd Defendant to pay the total value of the Letter of Credit ("LC") amounting to £ 697,329,37 ("Total Amount") or its equivalent in AED and to order the 1st Defendant to jointly pay with the 2nd Defendant £ 639,571,31 out of the Total Amount or its equivalent in AED plus 12% interest from the due date until full payment and to confirm the provisional attachment. The first Defendant requested the court to reject the case/action as the Claimant failed to fulfill its obligation regarding the site test and the factory acceptance test. The 2nd Defendant pleaded the court to reject/dismiss for its non-interest and for the action being time barred as it was initiated after two years as stipulated by article 467 (a) of the Civil Code.
Facts of the claim
The Claimant claimed that on 30th October 2005 a Sale contract ("SC") was concluded with the 2nd Defendant for the purchase of three Analyser Sheltey Units ("the Products") for the price of £ 639,329,31 along with accessories amounting to £ 57,758,06 and together form the Total Amount. On 18th April 2006 the parties carried out a joint inspection test on the product and the representative of the 2nd Defendant signed the inspection report on behalf of his company. On 3rd May 2006 the 2nd Defendant opened with the 1st Defendant an irrevocable LC for the value of the products payable as follows:
- An amount of £ 569,151,39 to be paid after 100 days of Completion of the factory acceptance test;
- An amount of £ 70,419,92 to be paid after 100 days of Completion of site test or after 180 days of completion of factory acceptance test, whichever is earlier.
On 18th May 2006 the 2nd Defendant issued an inspection
certificate proving that the products comply with the quantity,
quality and specification stated in the LC. This was, however,
followed by a Bill of Lading ("BL") in favor of the 1st
Defendant whereby the products were shipped to the relevant Port in
country "A". On 24th May 2006 all required documents,
including BL, were forwarded to the 1st Defendant branch in Hamburg
which in turn forwarded them to its Dubai branch.
On 31st May 2006 and 19th June 2006 the 1st Defendant notified the Claimant that the 2nd Defendant accepted the BL on 18th June 2006 and that the due date for payment/disbursement under the LC to be fixed after receiving the documents related to site test and manufacture's acceptance. Moreover, the 1st Defendant endorsed the BL to the 2nd Defendant which accordingly received the products. The Claimant requested the 1st Defendant to pay the LC but he declined and the 2nd Defendant also declined the payment of the due amount.
Court of First Instance
The court of First Instance ruled in favor of the Claimant and ordered the 2nd Defendant to pay the total amount or its equivalent in AED and ordered the 1st Defendant to pay jointly with the 2nd Defendant an amount of £ 639,571,31 (or its equivalent in AED) out of the Total Amount with 9% interest from the due date (which is 18th May 2006) until full payment and confirmed the provisional attachment order. The 1st and 2nd Defendants appealed against the judgment to the Dubai Court of Appeal.
Court of Appeal
The Court of Appeal appointed an expert to review the matter. The expert submitted his report. The Court of Appeal amended the lower's court award to state that:
- The 2nd Defendant to pay £ 697,329,37 or its equivalent
in AED at the due date or performance/execution date as the
claimant shall opt at the time of the performance along with 9%
interest from the due date 18th May 2006 until full payment.
The Court of Appeal also:
- Reversed the lower's court ruling with respect to 1st Defendant and dismissed the action against it; and
- Reversed the lower's court confirmation's of Provisional attachment and dismissed that application
The 2nd Defendant subsequently appealed to the Court of
Cassation through case no. 220/09 as did the Claimant through
Cassation case 235/09.
Court of Cassation
Arguments presented and Court's decision in Case no. 220/09
The 2nd defendant argued that the Court of Appeal erred in its decision to reject his pleading regarding time bar of the case. The grounds for the 2nd defendant's appeal were as follows:
- Article 476 (a) of the civil code that impose two years for an action to be time barred shall prevail over article 95 of the commercial code that in contrary imposes 10 years (starting from the date of payment) for an action to be time barred;
- The 2nd Defendant contended that the lower's court ruling was based on the expert report which concluded that "the claimant is entitled to claim the Total Amount of the products that were supplied to the 2nd Defendant as per the term of the SC. That the 2nd Defendant carried out on 18th May 2006 the required inspection and it issued a certificate confirming quality, quantity and specification as mentioned in the BL. However, it was clear from the expert report that "The certificate issued by Company X confirmed that the sold equipment had been delivered to and used by appellant contrary to its claim that it is "denying the receipt of the products". The expert report viewed the 2nd Defendant's claim as merely an attempt to avoid paying the outstanding Total Amount of the products and that the request to refer the case for examination to prove the discrepancies between the sold and received products was only intended to protract proceedings".
Whereas it was clear for the 2nd Defendant that: 1) the action was filed prior to the fulfillment of the suspended condition - as agreed in the SC - for the claimant carry out tests FAT & SAT (the "Tests") before full payment of the Total Amount, that were expected to be done after the delivery of the products to the factory of the 2nd Defendant in country A and that the claimant failed to provide any documents that prove the same; 2) that the documents filed with the docket list on 12th June 2008 and titled as a factory acceptance test of the Analyzer operating room under the title FAT producer is not binding upon the 2nd Defendant as it was not signed by or on behalf of the 2nd Defendant; 3) that exhibit four in the same docket list is not the required document – although the expert report attributed the 2nd Defendant failure to pay the outstanding amount is due to the claimant's failure to carry out both tests - and this exhibit is only a copy that has no evidential value against the 2nd Defendant as it predated the shipment of the goods to country A; 4) that the certificate issued by company X is not binding upon 2nd Defendant as it was not a party to this letter; 5) that the court did not address the evidence that was filed by 2nd Defendant proving that products remained in its factory awaiting inspection and operational test and hence it failed to address its plea to refer the products for examination to prove its refusal of the products; 6) that the court did not provide any reason for its conclusion that the awarded sum represented the value of the products received by 2nd Defendant or its position from the expert report especially that the court's conclusion differed from the expert's one as the report concluded that: "Whereas the 1st Defendant failed to transfer the value of the LC to the claimant does not negate its right to claim the Total Amount from the 2nd Defendant - without mentioning its entitlement to the Amount" the 2nd Defendant contended that the mere reference to the SC in the expert report does not evidence its entitlement to claim the Total Amount as it was clear from the LC that the value of the products is only AED 639,571/31 and that the expert report did not confirm that the inspection carried out on 18th April 2006 was a joint one unless its proven that the inspection certificate issued on 18th May 2006 - proving that the products comply with the quantity, quality and specification stated in the LC – replace the required tests.
For the first argument, the Court of Cassation interpreted articles 10, 95 and 4(1) of the Commercial Transaction Code – issued by Federal law no 18 of 1993 (Commercial Code) - to mean that unless proven otherwise, activities of commercial companies and traders are all related to their business and their obligations are governed by Commercial Code including among others the time bar for initiating an action which is 10 years starting from the due date of the fulfillment of the obligation. The Court of Cassation held that both companies (the Claimant and the 2nd Defendant) are commercial companies and traders, hence their activities are subject to the 10 years time bar as stated in article 95 of the Commercial Code.
The Court of Cassation held that articles 125, 130, 420 and 425 of the UAE Civil transaction Law (Civil Code) when read together with articles 489, 503, 508, 556, 246, 247 and 564 of the said Law can be interpreted to mean that the seller would have recourse against the buyer for the price of the products that had been sold and delivered to the buyer if the seller had not received payment under the LC that was issued covering the Total Amount. The Court of Cassation held that it has full discretion to interpret the facts of the case and weigh the evidence, including the expert report. The court also held that if the expert report is to be adopted it shall not be required to reply to any objections raised against the report or to give an answer to every argument the parties have put forward as long as it explains its decision.
Furthermore, it was obvious for the Court of Cassation that Claimant and 2nd Defendant had agreed that Claimant will supply the products. Parties agreed that the products were to be delivered and the price was to be paid as agreed in the SC which does not contain any suspended or resolute condition for the obligations of both parties. In other words the Court of Cassation concluded that the SC is a binding and enforceable contract, hence the 2nd Defendant should pay the claimant the Total Amount as ruled by the Court of 1st Instance and as also upheld on appeal as it was supported by the documents and the expert's report which clearly states that: "In spite of 2nd defendant denying the receipt of the products, the documents indicate that the 1st Defendant had presented the documents and endorsed the BL as well to the 2nd Defendant. The certificate issued from company X states that the products had been received and used by the 2nd Defendant which did not pay the value of the LC despite having acknowledged receiving the documents and the endorsed BL. The Court of Cassation held that the lower's court findings do not contradict the Law and is not affected by its defense that it did not pay the Total Amount because the Claimant failed to carry out the Tests and it did never signed the purported joint inspection test in addition to refuting the copy of the documents that had been filed in this regard.
Based on the above, it was obvious for the Court of Cassation that the 2nd Defendant has received the products (which did not contend the value or the method of payment) and assembled/gathered them in its factory in country A as confirmed in the aforementioned certificate and was able to counter evidence/prove the contrary of what has been stated in it and also did not allege that the products received were defective or are different from the products that it inspected previously despite that the claimant failed to carry out the Tests. Finally, it was obvious also for the Court of Cassation that although an action was filed by the claimant against the 2nd Defendant to pay the Total Amount but the latter did not take any counter measure that it enjoys – pursuant to article 564 of the Civil Code - to refrain from payment of the Total Amount or to withhold it, in the contrary the 2nd Defendant refrained from payment and contended that it did not received the products instead of relying on the said article. However, when it was demonstrated otherwise it contended that the required Tests, based upon it was entitle to withhold the payment, were not carried out.
The Court of Cassation held that the lower's court did not err when it refused to refer the case for examination to prove that the Claimant's failure to carry out the Tests entitles it to withhold payment. It was further obvious for the Court that the LC issued by the 1st Defendant upon 2nd Defendant's request and valid until 30/6/06 amounts to £ 639,571,31 which is the same as the claimed Total Amount. The Court found that the documents and claims were presented before that date and that contrary to 2nd Defendant's assertion/argument that the value of the LC is smaller than the claimed Total Amount. The Court of Cassation found that the 2nd Defendant did not pay the value of the LC to the Claimant and that it has the right to claim the Total Amount from the 2nd Defendant.
Arguments presented and Court's decision in Case no. 235/2009
The claimant argued that the Court of Appeal erred in its decision to reverse the lower's court ruling with respect to 1st Defendant jointly paying with the 2nd Defendant an amount of £ 639,571,31 or its equivalent in AED along with 9% interest starting from 18th May 2006 and dismissed the action against him. The grounds for the Claimant's appeal were as follows:
- Although the expert report concluded that "The claimant did not carry out the Tests as agreed in the LC", the 1st Defendant notified it (the Claimant) that the documents representing the goods do not conform with the LC requirement, he re-notified it again that the 2nd Defendant did accept these documents and based on this acceptance he endorsed the BL to it who in turn received the products. In other words, this means that the 2nd Defendant cannot plead that documents received are contrary to what has been agreed. The Claimant contended that 2nd Defendant should pay the value of the LC pursuant to Unified Rules for Documentary Credits 500 for the year 1993 (UCP 500) as agreed between parties under the LC contract at issue.
The Claimant argued further that the Court of Appeal erred in its decision to reverse the lower's court confirmation of Provisional attachment and dismissed that application. The grounds for the Claimant's Appeal were as follows:
- That nothing in the documents prove that the 1st Defendant reported its indebtedness within seven days of being notified of the attachment;
- That nothing in the documents prove that the 2nd Defendant has been duly notified
As to the 1st argument, the Court of Cassation held that it is a
settled principle in this Court that the provisions related to LC
as set out in Section 4 of Chapter 3 of the Commercial Transaction
Law – Law no.18 of 1992 are not mandatory but
complementary to the intention of the parties, meaning that the
parties of an LC may opt to apply the UCP 500 instead of the
provision of the said Law which is in compliance with art 2(1) of
the said Law. The Court held also that as parties consensually
agreed to apply the provisions of the UCP 500 namely article 4, 5
(a), 9 (a & b), 13 (a & b), 14 (b, c & d), 15, 20 (a, b
& c), 21, 42, 43 and 44 of the UCP 500 can be interpreted to
mean that when a purchaser (2nd Defendant here in our case)
accepted the documents, albeit non compliance of the documents, and
based on this acceptance the 1st Defendant proceeded and endorsed
the BL to the 2nd Defendant who in his turn claimed and received
the products, in this case the 1st Defendant may not withheld full
or part payment to the beneficiary (the Claimant). The Court
decided that whereas the 1st Defendant forwarded the BL, albeit non
compliance of the documents to 2nd Defendant, who accepted them and
in turn being the holder of the BL he claimed the products. Whereas
the LC is irrevocable and for the full value of the product the 1st
Defendant is under the obligation to pay the full amount of the LC
or part of it to the Claimant (the beneficiary of the LC) who
delivered the products to the 2nd Defendant. The Court decided that
the Court of Appeal erred in its decision to reverse the Court of
First Instance decision with respect to the 1st Defendant. The
court of Cassation upheld the decision of the Court of First
Instance which ordered the 1st Defendant to pay jointly with the
2nd Defendant an amount of £ 639,571,31 (or its equivalent in
AED) out of the Total Amount with 9% interest from the due date
(which is 18th May 2006) until full payment.
As to the second argument, the Court of Cassation held that the Court of Appeal erred also in its decision to reverse the lower's court confirmation of Provisional attachment for 2nd Defendant's assets under the garnishee (1st defendant) - due to the fact that the 2nd Defendant was not being informed – as the 2nd Defendant when it appealed the decision did not plead the cancellation of the attachment on the basis that it has not being informed. For the Court articles 259 and 261 of the Civil Procedure Law – Federal Law no 11 of 1992 as amended by Federal Law no. 30 of 2005 - ("CPL") can be interpreted to mean that garnishment may be obtained without prior notice to the debtor and takes effect once the attachment was notified to the garnishee and the service of such notice to the debtor as stipulated in article 261 of the CPL is not related to public policy hence it cannot be declared by the court on its own without being raised by the party concerned. The court of cassation held that the lower court cannot on its own decide on the attachment order without it being claimed by the concerned party.
In light of the above, whereas the 2nd Defendant accepted the documents that were submitted by the Claimant, albeit non compliance of the documents and whereas the 1st Defendant endorsed these documents to the 2nd Defendant, hence, enabling him to receive the products the subject of the LC. AAll the above is deemed to be considered as an implicit waiver to the payment terms as the 1st Defendant did not highlight specifically the discrepancies that exist in the documents within the period stipulated in the UCP 500.
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.