Before :
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Between :
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Judgment
Mr Justice David Steel:
Introduction
Indonesian bank. It has no place of business within this jurisdiction. Marconi claims
damages against Panin Bank for breach of contract in respect of the latters failure to
honour its obligations as a confirmer of a Letter of Credit. Marconi alleges that Panin
Bank wrongfully failed to accept drafts properly drawn upon it and presented to it
i) To set aside the order of Andrew Smith J dated 16th May 2003
permitting Marconi to serve the claim form on Panin Bank out of the
jurisdiction.
ii) To set aside the order of David Steel J dated the 12 th June 2003
permitting the Claimant to serve the claim form on the defendant at the
solicitors.
iii) To set aside the service of the claim form on Panin Bank.
iv) For a declaration that, in all the circumstances of the case, this court
has no jurisdiction over Panin Bank in respect of the subject matter of this
action.
3. Marconi resists the application on the basis that it has a good arguable case
that the English court has jurisdiction and that England is clearly the most convenient
Background
Indonesian company called PT Prismasentra Agung (the Buyers). The total contract
price was for $14,221,972.60 fob UK port, to be shipped from a UK airport or seaport
60 days from date of shipment, such credits to be established two weeks prior to the
5. The sale contract further provided that such letters of credit shall be
established and advised through Standard Chartered Bank, 25 New London Bridge
House, London SE1 9TB (SCB) to GPT upon contract signature. The payment for
advising bank. Clause 23 of the sale contract stipulated that its validity constitution
6. In accordance with the terms of the sale contract, the Buyers established
various Letters of Credit, including two relating to the final call-off of 7,500 units.
The first, which related to 3,000 units, was paid. The second, and final, Letter of
Credit was issued in respect of the remainder (4,500 units) of the call-off. It is this
second, and final, Letter of Credit (the L/C) which is the subject of these
proceedings.
7. The L/C was issued by Hastin Bank, another Indonesian bank, on the
application of the Buyers and it was duly advised to Marconi in this country by SCB
London by telex dated 27th March, 1997 at the direction of Hastin Bank. The relevant
INDICATING CREDIT :
9. ..
KINGDOM
SEAPORT
- CERTIFICATE
OF ORIGIN
- INSURANCE CERTIFICATE
NEGOTIATING BANK:
HONOURED AT MATURITY:
33. Panin Banks confirmation was added to the credit by telex dated 1 st April
34. The credit was also amended that same day to provide that the Beneficiarys
draft should be drawn on Panin Bank and that the documents were to be sent to Panin
Bank in Jakarta.
The Claims
35. The first and second shipments, respectively of 1000 and 500 units of
telephone equipment from the final call under the sale contract, were shipped by sea
to Singapore for delivery to the buyer. Marconi drew two drafts on Panin Bank
which, together with the other documents stipulated in the credit, were presented on
its behalf to Panin by SCB which, it is alleged, acted as Marconis collecting agent.
These documents were sent on about 23rd December 1997 and on 16th January 1998
respectively and were received by Panin Bank in Indonesia a few days later.
36. It appears, that on receipt of these documents, Panin Bank passed them on to
Hastin Bank which rejected them as not conforming to the documents required by the
credit. In turn Panin Bank also refused to take up the documents or accept the two
drafts, which had been drawn upon it, adopting the reasons for rejection advanced by
Hastin Bank. It is accepted that the reasons given by Hastin Bank for rejecting the
credit described the Beneficiary as GPT International Limited, Edge Lane, Liverpool
unjustified. But Panin Bank maintained its refusal to pay. Hastin Bank, in the
meantime, became insolvent. Indeed it is notable that shortly after the rejection of the
documents, both the Buyers and Hastin Bank asked for the balance of the sale
contract, and also the credit, to be cancelled because of the rapidly deteriorating
asserted on Marconis behalf that Panin Bank, as the confirming bank, was
responsible for communicating discrepancies under Article 14 (G) (i) of the UCP to
SCB from whom it had received the documents. An opinion supporting this
interpretation of Panin Banks obligations as a confirming bank was given by the ICC
UK Committee on 7th June 1997. Panin Bank has refused to accept this opinion.
39. Marconi has been paid for these two consignments by its Credit Insurers.
These proceedings have been brought in Marconis name for the benefit of such
insurers.
40. After correspondence and discussion failed to resolve the situation, a statutory
demand was then issued against Panin Bank in this country and, upon its failure to
comply, a winding up petition was presented against it. Panin Bank disputed the
jurisdiction of the Companies Court to wind it up. Panin Bank retained Messrs
Thomas Cooper and Stibbard for that purpose. Thereafter, Panin Bank, it was alleged,
removed its only asset from the jurisdiction, which was said to have consisted of a
credit balance with HSBC. In any event, the petition was dismissed by consent in
March 2003.
41. It was following such dismissal that this action was commenced in which the
42. The basis of the successful application to serve proceedings out of the
43. Panin Banks response in short is that the credit was governed by Indonesian
law not English law and, further, that by virtue of Indonesian law, all three of the
Governing Law
44. In the light of this summary of the issues, it is obviously convenient to start
with the question whether there is a good arguable case that the contract is governed
by English law rather than Indonesian law (the only viable alternative): Seaconsar
Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC.438.
45. Of course the primary question is what is the governing law of Panin Banks
confirmation albeit it is common ground that the same system of law must govern the
co-existing contracts between the issuing bank and the beneficiary, between the
issuing bank and the confirming bank and between the advising bank and the
beneficiary. However, in common with most letters of credit, the credit does not
contain a proper law or jurisdiction clause. Moreover, the UCP makes no provision as
47. It was Panin Banks submission that the presumption in Article 4 (2) inevitably
let to the conclusion that the contract is governed by the law of the place where the
confirming bank was situated i.e. Indonesia. In support, the bank relied upon a
48. In support of this passage, particular reliance was placed by Panin Bank on the
that case the relevant credit, issued by an Indonesian Bank, was confirmed by the
Barodas contract with Vysya was the addition and honouring of its confirmation of
the credit in favour of the sellers, the presumption contained in Article 4(2) was
accordingly that the contract between Vysya and the Bank of Baroda was governed by
English law. In turn this led to the conclusion that, to avoid the governing law
varying as to whether one was looking at the position of the issuing bank or the
confirming bank, the appropriate application of Article 4 (5) resulted in the conclusion
that the contract between Vysya and the buyer was governed, not by Indian law the
country in which the banking facility had been provided, but English law.
50. The position in the present case is of course that SCB did not confirm the
dated 27th March) and of its confirmation (by their letter dated 1st April), both
ii) The credit was available by negotiation and SCB were contemplated
by the credit as the (or one of the) negotiating banks. Although SCB did not in
the event negotiate the credit, it acted as collecting bank in checking and
account.
documents.
51. In short, it was contemplated that the credit would be communicated in this
country and become effective here, that the documents would be presented here and
significance in considering the application of Article 4 taken as a whole that SCB did
not add its confirmation. The availability of SCB as a negotiating bank would give
rise to the same closeness of connection with England. The performance characteristic
in those circumstances would remain the provision of the banking service in the form
governing law being dependant on the mode of negotiation chosen to contemplate that
a different law would govern in the event that negotiation did not take place.
52. Thus, whilst Article 4 (2) might still lead to the presumption that the contract
is most closely with Indonesia (being the country where the party who was to effect
performance which was characteristic of the contract was situated), there is a good
arguable case in my judgment that the application of Article 4 (5) would lead to a
disregard of that presumption since the circumstances as a whole demonstrate that the
53. Such would probably have been the outcome at common law. For instance, in
WLR 399 the relevant letter of credit had been issued by a Spanish bank although
opened and advised (but not confirmed) by a New York bank. Payment was to be
The contest here is between New York law and Spanish law.
What are the relevant factors in favour of each? As regards
New York, the credit was opened through a New York bank;
payment was to be made in US dollars. Further, such payment
was only to be made against documents presented in New York.
In favour of Spanish law being the proper law, is the fact that
the letter of credit was opened by a Spanish bank, the 1st
defendants.
54. In Power Curber International Ltd v National Bank of Kuwait SAK [1981] 1
WLR 1233 (C.A.), the claimant, a company based in North Carolina, contracted to
sell machinery to buyers in Kuwait. At the request of the buyers, the defendant bank
claimant. Against this factual background the Court of Appeal held that it was the law
of North Carolina with which the contact had its closest and most real connection
being the place where payment was to be made against presentation of documents.
Lord Denning observed that Offshore International SA and Banco Central SA was
rightly decided and could not be distinguished on any valid grounds. Lord Justice
In my view the proper law of the letter of credit was the law of
the State of North Carolina. Under the letter of credit the bank
accepted the obligation of paying or arranging the payment of
the sums due in American dollars against presentation of
documents at the sellers bank in North Carolina. The bank
could not have discharged its obligation by offering payment in
Kuwait. Furthermore, the bank undertook to reimburse the
advising bank if they paid on their behalf in dollars in America.
In Offshore International SA and Banco Central SA Mr
Justice Ackner held that the place at which the bank must
perform its obligation under a letter of credit determine the
proper law to be applied to the letter of credit. In my view that
case was correctly decided.
55. These two decisions were of course reached before the implementation of the
where the letter of credit has not been confirmed by the advising bank, was revisited
stated: -
56. I find that the claimants have made out a good arguable case that the contract
between the confirming bank (Panin Bank) and the beneficiary (Marconi) was
governed by English law since a chosen method of performance was by way of
negotiation of the documents at the offices of the advising bank in London with
payment in sterling. Any other conclusion would give rise to the very great
fact that, in the event, the documents were not negotiated by the advising bank but
were forwarded to the confirming bank as a collecting bank with the request that
57. As I understand it, if that conclusion be correct, it is common ground not only
that there is a serious issue to be tried as regards the conformity of the documents but
also that the defendants have not made out that the Indonesian Courts are distinctly
the more appropriate forum for determining the issues. Strictly speaking this makes it
unnecessary to consider the alternative paragraphs under CPR 6.20 relied upon by the
claimants. But, on the assumption that I am wrong and the Indonesian law is to be
treated as the governing law of the contract, I turn to consider the other grounds said
58. As regards the question whether the contract was made within the jurisdiction
or was made by or through an agent trading or residing within the jurisdiction, the
8. Material validity.
59. In respect of the question as to where the contract was made, the defendants
rely upon an opinion of an Indonesian firm of lawyers, Messrs. Remy and Darus, to
the effect that the contract was made as a matter of Indonesian law in Indonesia. This
is a somewhat surprising proposition given that the opinion expressly recognises that
beneficiary. For my part, I have difficulty in understanding why, as the opinion goes
provides the form of legal action decided by the court will be in accordance with the
laws and legislation of the country or place where the legal act took place)
nonetheless leads to the conclusion that the contract is not made at the place where
(and at the time when) the confirmation was duly conveyed. Thus, if it had been
material, I would have accepted that there is a good arguable case that Indonesian law
is no different from English law in this respect: see Jack Documentary Credits 3rd
60. As regards the question whether SCB was an agent of Panin Bank in advising
law: see Bank Melli Iran v Barclays Bank 1951 2 Lloyds Reps 362. The opinion of
(who is an agent) and a correspondent (who is not). The advising bank was
correspondent. I am not persuaded that Indonesian law is different from English law
in this respect. In short, if material, I would have accepted that there remains a good
61. As regards the fourth ground relied upon to serve out, namely that the failure
to pay out under the letter of credit amounted to a breach occurring within the
jurisdiction, the Indonesian lawyers emphasise that the obligation to pay was on Panin
Bank who was resident in Indonesia and the decision to refuse to pay was taken in
Indonesia. But it does not necessarily follow it seems to me that the breach did not
occur in England. I agree with the claimants that it must be extremely doubtful
whether it was open to Panin Bank to effect payment in Indonesia. On the face of it,
here, as a consequence of the request of SCB made for payment in London as, it is
alleged, a collecting bank. These considerations are not dealt with in the opinion of
the Indonesian lawyers and I conclude that there also remains a good arguable case
for service out on this ground even if, contrary to my earlier finding, Indonesian law
62. Of course, if Indonesian law is the governing law, this in turn would have
some bearing on the question whether this jurisdiction was an appropriate forum. But
the primary issues turn on an analysis of the documents (which are all in English) as
against the terms of the UCP for documentary credits. There is little, if any, scope for
witness evidence of fact. Any expert evidence is likely to be more readily available in
this country rather than in Indonesia. The provisions of UCP are expressly
incorporated in the credit (and in any event are apparently incorporated by Indonesian
Law). Where, as it follows, the competing fora have domestic laws which are
substantially similar in all material respects, the governing law is a factor of little
in the Indonesian courts. The evidence adduced by Marconi asserted that it is quite
usual for cases to exceed 10 years from commencement in the District Court to a
decision of the Supreme Court, and indeed, for the Supreme Court to remit the entire
case back to the District Court for re-hearing. There was a late response from Panin
Bank to the effect that the policy of the Indonesian courts is to achieve a much shorter
timetable. However, it is clear that the volume of business (or a shortage of judicial
procedure and experience of the competing courts, it is legitimate to have some regard
to potential delays of this magnitude, not least in a claim involving a letter of credit
Indonesian law governs the credit, it is not shown that Indonesia is distinctly the more
Alternative Service
65. I turn now to the challenge to the order permitting alternative service on
Messrs.Thomas Cooper and Stibbard. The basis of the leave that was granted was as
follows: -
66. In a supplementary statement the claimants solicitors have set out in some
detail the procedure under Indonesian law for service in that country (which is not
controversial) adding: -
67. The defendants argue that these considerations do not constitute good reason
for permission to serve by an alternative method under CPR 6.80 (1). In that regard
particular reliance was placed on a passage in the judgment of the Court of Appeal in
68. I am not persuaded that much assistance is to be derived from that case where
the enthusiasm for speed arose from a desire by the German claimant to avoid the
process of service under the Hague Convention (or under the bilateral convention
between the United Kingdom and Germany) which might take up to some 3 months
during which period there was a risk that the proposed German co-defendant would
institute its own proceedings in Germany and thus gain priority under Article 21 of the
Brusselss Convention.
69. The essence of the decision of the Court of Appeal is to be found in paragraph
59 of the judgment: -
In our judgment there cannot be a good reason for ordering
service in England by an alternative method on a foreign
defendant if such an order subverts, and is designed to subvert
in the absence of any difficulty about effecting service, the
principles upon which the service and jurisdiction are regulated
by agreement between the United Kingdom and its convention
parties. This is not a matter of mere discretion, but of
principle.
70. Here there is no question of the claimant seeking to steal a march on Panin
Bank. Whilst it is pointed out in the evidence filed by Panin Bank that part of the
elaborate procedure laid down for service of proceedings in Indonesia has a 14 day
time limit, there is no challenge to the assertion emanating from Marconi that, overall,
the process of service would take at least one year. Given the contemplated length
submission, it was to the effect that good reason for alternative mode of service could
not be established absent it being shown that service out of the jurisdiction was
the rules in force prior to the implementation of CPR. In my judgment the discretion
71. Whilst it cannot be said that service was impractical in Indonesia, it would
involve very extensive delay in a claim which was already stale. Furthermore the
inference I draw, given the apparent lack of merit in the defence, is that delay was the
sole aim of the defendant rather than any genuine desire to ensure the proprieties of
service where met. It is notable that Panin Bank had appointed Messrs Thomas
out of the jurisdiction by courier post to their principal office some time in August.
Albeit the petition was dismissed, it does not appear to be in issue that Thomas
Cooper and Stibbard were still actively involved in the proceedings on the question of
costs. In all these circumstances I regard the claimants as having established a
72.