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The reason for this is that many of the banks active in the field are genuine multinational corporations, with offices in different countries. The American-based Citibank and Chase Manhattan, the French Bank Indosuez and Banque Nationale de Paris, the British Standard Chartered and others, such as the Hongkong and Shanghai Banking Corporation and the Bank of China, are telling examples in point.
Frequently, when a bank of this type refuses to make payment against documents tendered under a letter of credit, the beneficiary - or his negotiating bank - search for the forum most likely to be sympathetic to their case. As documentary credits do not normally include choice of forum clauses, any attempt to combat the beneficiary's forum shopping efforts must rest on an available legal principle. In the United Kingdom - and other countries governed by English law - the doctrine usually resorted to is that of forum non conveniens.
The doctrine of forum non conveniens - a product of Scottish ingenuity - was received into English law in 1978 in MacShannon v. Rockware Glass Ltd(1), where Lord Diplock emphasized two elements that have to be established in order to induce an English court to grant a stay of proceedings commenced before it. One is the existence of another forum - to which the defendant is amenable - at which justice can be done between the parties at substantially less inconvenience or expense. The other is that the stay must not deprive the plaintiff of a legitimate personal or juridical advantage which [is] available to him in an English court. Later cases tended to emphasize the first rather than the second element(2), although the existence of an advantage to the plaintiff remains one of the factors taken into account when an application for a stay is considered(3).
The Spiliada case
The most authoritative statement of the doctrine is to be found in Spiliada Maritime Corporation v. Cansulex Ltd.(4) An action for damages for erosion, caused by a wet cargo of sulphur to the ship on which it was transported from Vancouver to India, was instituted by the shipowner against the cargo owners in London. The ship in question was managed partly in England and partly in Greece but flew the Liberian flag. Staughton J granted leave to serve the writ out of the jurisdiction under RSC O 11 r 4(2). His decision was first reversed by the Court of Appeal, which held that London was a forum non conveniens; and then restored by the House of Lords.
Delivering the leading judgment, Lord Goff of Chieveley quoted with approval a passage from a classic Scottish case in point(5), which decided that the object, under the words forum non conveniens is to find that forum which is the more suitable for the ends of justice, and is preferable because pursuit of the litigation in that forum is more likely to secure those ends. Lord Goff went on to list(6) the points to be taken into account by a court in reaching its decision where a defendant applied for a stay on the ground of a forum non conveniens argument. These can be summarized as follows:
First, a stay would be granted only if the court was satisfied that some other court, which had competent jurisdiction, was a more appropriate forum in the sense that the case might be tried by it more suitably for the interest of all the parties and the ends of justice.
Second, although each party has to establish the facts on which it relies, the defendant bears the onus of satisfying the court that some other forum is more appropriate than the English court. The onus shifts if the Judge is satisfied, prima facie, that there is such other forum.
Third, as the plaintiff institutes his action by right, the burden is on the defendant to show that the English court is not the natural or appropriate forum and that there is another court available which is clearly and distinctly the more appropriate forum. In this context, Lord Goff made specific reference to international commercial cases, in which no forum could be described as the natural forum for the trial of the action. He could see no reason why the English court should not refuse to grant a stay in such a [commercial] case, where jurisdiction has been founded as of right(7). His Lordship mentioned, at the same time, that a stay would be granted even in this type of case if the defendant's connection with the English forum was fragile, for instance, if he had been served during a short visit to the UK.
The fourth factor listed by lord Goff was that, in reaching its final conclusion, the court was entitled to consider certain specific facts. Basically, these were the factors described in MacShannon as those indicating that justice could be done elsewhere at substantially less inconvenience and expense. Reconsidering the phrase, Lord Goff held that, in this context, natural forum had to be understood as being that with which the action had the most substantial connection(8). Lord Goff then listed amongst the connecting factors, to be considered in addition to convenience and expense, such factors as the law governing the relevant transactions and the places where the parties reside or carry on business.
Lord Goff concluded that where such an enquiry established that no other court was a more appropriate forum than the English court, a stay would be refused. In contrast, if the court concluded that the factors pointed to some other court as being the more appropriate forum, a stay would be granted unless reasons of justice required that it be refused. Lord Goff added that, when a court conducted such an enquiry, it had to take into account all the facts of the case. The mere fact that the plaintiff had a legitimate personal or juridical advantage in proceedings in the original court was not decisive; regard must be had to the interest of all the parties and to the ends of justice(9).
Key elements for L/Cs
Lord Goff's judgment in Spiliada remains the cornerstone of the doctrine of forum non conveniens as applied by the English courts. From amongst the elements highlighted by him two are of specific importance as regards litigation pertaining to documentary credits. The first is the general reluctance of English courts to grant a stay in disputes involving multinational transactions. Letters of credit transactions fall into this category because they invariably involve the participation of banks functioning in separate countries. In consequence, a common letter of credit transaction does not have a clear, determinative, nexus with a single place. It follows that a stay is likely to be granted only if the link between the letter of credit and the UK forum is tenuous.
Second, even where the nexus is shown to be fragile, an English court may refuse a stay if there are serious doubts about the due process or justice available to the plaintiff at the alternative forum. Justice, in this regard, has to be understood not in its narrow, public law sense of the word, but in a much broader sense encompassing mercantile justice as viewed by the international business community in general. If, for instance, an English court concludes that the proposed foreign court of convenience does not uphold the fundamental doctrine of the autonomy of letters of credit - as currently expressed in Article 3 of UCP 500 - a stay will be refused.
The points just made are echoed in the English authorities in point. One of these was actually decided in the eighties, that is, before the ambit of the forum non conveniens doctrine was settled in English law. One, more recent case, involved the application of the doctrine in the post Spiliada period.
Other cases
In one of the earlier cases, Power Curber International Ltd. v. National Bank of Kuwait(10), a Kuwaiti importer instructed the local National Bank of Kuwait office (BK Bank) to issue a letter of credit, through their American correspondents, in favour of a supplier of machinery in North Carolina. The BK Bank's irrevocable credit called for certain documents accompanied by two drafts on the Kuwaiti importer. When disputes arose between the supplier and the importer, the court in Kuwait enjoined payment on the ground that some proceedings were pending before it in respect of the underlying sales transaction. The injunction was, thus, granted on the basis of the alleged defect in the goods and not on the ground of a fraud related to the documentary credit itself. The supplier, in turn, brought an action to enforce the letter of credit in London, where the BK Bank had an office.
Reversing Parker J's decision to grant a stay, the Court of Appeal held that the governing law was that of North Carolina, where documents were to be negotiated, and not that of Kuwait. Their Lordships' main ground, though, was the importance of maintaining the integrity of the documentary credits system. The order of the Kuwaiti Court, restraining payment on the basis of matters related solely to the underlying transaction, was incompatible with the precepts of international trade. In the words of Lord Denning(11): ... it is part of the law of international trade that letters of credit should be honoured - and not nullified by an attachment order [or an injunction granted] at the suit of the buyer.
A considerably later case involved a decision by Mance J in Bank of Baroda v. Vysya Bank Ltd.(12) The Baroda Bank's office in London confirmed an irrevocable credit issued in India by the Vysya Bank in favour of G Ltd, an Irish industrial firm with premises in London. Reimbursement was to be effected in New York by drawings on Citibank. Subsequently, the Vysva Bank alleged that the transaction was tainted with fraud and, on this basis, cancelled the reimbursement instruction given by it to Citibank and refused to accept documents tendered by the Baroda Bank. As the Vysva Bank did not have an office in London, the Baroda Bank applied, under R.S.C. O 11, r. 1, for leave to serve a writ out of the jurisdiction. The Vysya Bank defended, inter alia, on the ground that London was a forum non conveniens.
Granting leave to serve out of the jurisdiction, Mance J rejected the argument that the grant of an injunction enjoining payment by an Indian court established that the more appropriate forum was in India. His Lordship emphasized that the payment obligation matured in London, that the evidence respecting all questions of fact, such as the conformity of the documents tendered, was available in London and was to be determined on the basis of English law, that English law governed the contract, and that some related proceedings had been commenced in London. On this basis, Mance J concluded that England provided the natural or most appropriate forum. He added that the grant of the injunction in India indicated further that the Indian court was an inappropriate forum for deciding the legal questions related to documentary credits which had been raised in the instant case.
Common themes
The thread running through these cases is the English courts general reluctance to stay actions for the enforcement of documentary letters of credit. Despite the Justices unwillingness to interfere with the procedures and practices of foreign courts and the wish of the courts to observe the norms of international comity, the ultimate message is clear. A stay will be refused if the foreign court cannot be trusted to uphold the basic international principles of the law of letters of credit, especially the autonomy doctrine.
The very point is neatly illustrated by the recent decision of the Supreme Court of Singapore in Agritrade International Pte Ltd v. Industrial and Commercial Bank of China(13). A court in the People's Republic of China relied on allegations made against the quality and standard of certain goods as a basis for an order enjoining payment under, and even purporting to cancel, a letter of credit issued by the ICBC Bank in Guanxi in favour of a beneficiary in Hong Kong. Refusing to recognize that decree, Selvam J ordered the Singapore office of ICBC to pay the amount of the letter of credit. His Honour said(14): The principle of autonomy of credit, excepting fraud, is sacrosanct in the law of letter of credit. Any inroad into the principle will undermine and annihilate the trust and confidence in the use of documentary credits in international trade. The court must therefore do its utmost to preserve its integrity. Obviously, Selvam J regarded the sanctity of the autonomy doctrine as overriding the principle of comity. His decision brings to the forefront the policy discernible in the views of the English authorities.
Professor E.P. Ellinger is Director of Research at Rajah & Tann in Singapore. His e-mail address is [email protected].
1.[1978] A.C. 795, esp. 812, adopting the reasoning in The Atlantic Star [1974] A.C. 436.
2.See, e.g., Trendtex Trading Corporation v. Credit Suisse [1982] A.C. 679 in which a stay was granted although proceedings before a Swiss Court deprived the plaintiff of the procedural advantage inherent in discovery; Caltex Singapore Pte Ltd v. BP Shipping Ltd [1996] 1 Lloyd's Rep. 286; Re Harrods (Buenos Aires) Ltd [1992] Ch. 72 (CA), where a stay was granted although the foreign court could not give certain remedies available in an English court; and see The Abiden Daver [1984] A.C. 384 in which Lord Diplock himself, at p. 410, recognized that the need of striking an appropriate balance was more important than the preservation of the plaintiff's advantage.
3.See, e.g., Charm Maritime Inc. v. Minas Xenophon Kyriakou [1987] 1 Lloyd's Rep. 433 (CA) - stay refused due to plaintiff's advantage in bringing two actions in the same place.
4.[1987] A.C. 460.
5.Clements v. Macaulay [1866] 4 Macph. 583 (per Lord Cowan).
6.[1987] A.C. at pp. 475-478; and see, Dicey & Morris, Conflict of Laws 12th ed., Vol. 1, pp. 399-400; Cheshire & North, Private International Law, 12th ed., p. 223 et seq.
7.[1987] A.C., at p. 477; and also see European Asian Bank AG v. Punjab and Sind Bank [1982] 2 Lloyd's Rep. 356; The Vishva Abha [1990] 2 Lloyd's Rep. at p. 314 (collision at sea case).
8.[1987] A.C. at p. 478; and see The Abidin Daver [1984] A.C. 398 at p. 415.
9.[1987] A.C. at p. 478; for a more recent example see Banco Atlantico SA v. British Bank of the Middle East [1990] 2 Lloyd's Rep. 504, where one of the reasons against a grant of a stay was that the appropriate court would not have applied the law governing the relevant bill of exchange but its own domestic law under which the plaintiff was bound to fail.
10. [1981] 2 Lloyd's Rep. 394.
11. Ibid., at p. 399.
12. [1994] 2 Lloyd's Rep. 87.
13. Unreported decision of Selvam J. of 31 January 1998.
14. Transcript, at p. 16.
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