Question 1 The doctrine of strict compliance is best articulated by Lord Summer inEquitable Trust v Dawson Partners1wherein his Lordship stated:”It is both common groundand common sense that in such a transaction the accepting bank can only claimindemnity if the conditions on which it is authorized to accept are in thematter of the accompanying documents strictly observed. There is no room fordocuments which are almost the same, or which will do just as well. Businesscould not proceed securely on any other lines”.
The implication of this statement is that every single party to aletter of credit transaction is required to tender strictly complying documentsin order to be entitled to receive payment. It is for the bank to check thatall documents are in strict compliance. The purpose of this strict compliancerule is mainly to protect the customer from a beneficiary who may be concealingnon-performance or fraud in the transaction. On the face of it the bank has nodiscretion in reviewing the documents and must refuse payment if there areminor discrepancies.
For example, if a certificate signed byexperts is required, a certificate signed by a single expert is not in strictcompliance, as was the case in EquitableTrust v Dawson Partners.2 In Moralice v. E.D. and F3the doctrine of strict compliance was reaffirmed. It was specified that themaxim “de minimis non curat lex” (i.e., the rule of insignificance) did notapply and the bank was entitled to reject the goods.
The discrepancy in thiscase was between the quantity of shipped goods required by the letter of creditand the goods that form the documents which had actually been shipped. Thedifference was equal to 0.06%. The Bank has the right to refuse documents that do not comply with theparticulars specified in the Letter of Credit, it does not need to consider thevalue of the documents or their legal significance.
4Mackinnon LJ stated in JH Rayner & Co Ltd v Hambro’s Bank Ltd,5that a banker cannot be expected to have knowledge of the customs and customaryterms of everyone of the thousands of trades for whose dealings he may issueletters of credit. Thus, the bank will have to pay provided the conditionsspecified in the letter of credit are met. Devlin J highlighted this in Midland Bank Ltd v Seymour6 when he said:”..it is not for the bank to reason why..
“It would be easy to jump to the conclusion that doctrine of strictcompliance, and the principle of law “de minimis noncurat lex” was absolute. SopromaS.p.a. v Marine and Animal By-Products7 highlights the fact thatthe courts are open to some relaxation of the principal of strict compliance. McNairJ held in that case that the description of the goods in the invoices wasaccurate and the bare statement in the bill of lading was adequate (despite theconflated reference to fish meal instead of fish full meal) but that thediscrepancies in protein count (“67% minimum” and “protein 69.
7%”) in bothquality and analysis certificates rendered them invalid.8 Lord Diplock in GianSingh v Banque9 made reference to Lord Summer’s dictum in Equitable Trust v Dawson Partners and statedthat it had:-“neverbeen questioned or improved upon” and also stated”The relevance of minor variations ..
. depends on whether they aresufficiently material to disentitle the issuing bank from saying that inaccepting the certificate it did as it was told.”This would suggest that the rule of strictcompliance did not cover minor discrepancies which were insufficiently materialto justify a refusal of payment.
It would appear that the increasing complexity oftrade documentation10 and governmental requirements isputting pressure on the doctrine of strict compliance as outlined by LordSummer in 1926 and that courts appear to be willing to explore the extent towhich strict compliance should be enforced. The implementation of UCP 600 helps to address a number of issues thatarise in international trade and gives significant guidance on the Standardsfor Examination of Documents11.UCP 600 applies a more relaxed approach to the strict compliance rule. Article 14.d provides that data in documents need not be identical however it must notconflict:-“data in a document, when read incontext with the credit, the document itself and international standard bankingpractice, need not be identical to, but must not conflict with, data in thatdocument, any other stipulated document or the credit”Article 30.
b provides forcertain discrepancies in credit amount, weight and value of the goods:- “a tolerance not to exceed 5% more or 5% lessthan the quantity of the goods is allowed …”Article 14.
e12 andArticle 14.f13provide that the description of the goods, services or performance in otherdocuments may in general terms, be not conflicting with their description inthe credit and that banks will accept the document as presented if its contentappears to fulfil the function of the required document. It should be notedthat both these articles do not apply to “commercial invoice”. The reference to the “commercial invoice” in Article 14.e& 18.c14combined highlight a critical difference in the type of document that therelaxation in the doctrine of strict compliance applies to.
Itclearly indicates that strict compliance applies to the “commercial invoice”. Gore J explored this in Bulgrains & Co Limited v Shinhan Bank.15 One of the issues was if the addition of the ampersand between “Bulgrains” and “Co Limited” onthe commercial invoice which did not appear on the letter of credit, was amaterial discrepancy.Gore J16 stated:- “…that there was a discrepancy as to name that was not clearly anddemonstrably simply a typographical error and was material, ……… gave theDefendant the right to reject the documents.”What is of particular interest in this case was that Gore J considered the fact thatthe letter of credit was transmitted by SWIFT and due to the limits oftechnology the ampersands cannot be transmitted by theSWIFT system17. To support this statement Gore J made reference to UnitedBank Ltd v Banque National de Paris18 wherethe court held that the difference between the names “Pan Associated Ltd” and “Pan Associated Pte Ltd” was grounds toreject the documents.
Gore J went on to state:-“…was whether the discrepancy as to description of the goods in theinvoice was cured by the fact that a compliant description was given in anotherpresented document, namely the quality and quantity certificate ….. I amsatisfied that that is not sufficient, because art 18(c) of the UCP is clearand unequivocal and states in terms “The description of the goods, services orperformance in a commercial invoice must correspond with that appearing in thecredit.”It is clear for this recent case that the courts are happy to implementthe doctrine of strict compliance to certain specifieddocuments in UCP 600, while allowing banks to exercise judgement as to whether otherdocuments comply in commercial terms. Question 2 Part (i) Fili Shipping vNafta relates to a charterparty containing a “Law and Litigation”clause which provided that “any dispute arising under this charter shall bedecided by the English courts”, and “either party may….
.elect to have any suchdispute referred…..to arbitration in London.”19The claimants wished to rescind the contract on the basis that it had beenobtained by bribery. The case was argued on two key points.1. “whether, as a matter of construction, thearbitration clause is apt to cover the question of whether the contract wasprocured by bribery”202.
“whether it is possible for a party to be boundby submission to arbitration when he alleges that, but for the bribery, hewould never have entered into the contract containing the arbitration clause”21Morison J took atraditional approach during the initial case22quoting the grammatical approach of Nourse LJ in Fillite Runcorn v Aqua Lift,23that disputes arising “out of” a contract were to be referred to arbitrationwas regarded as a wider agreement than those disputes which merely arose”under” a contract. Morison J held as a matter of construction of thearbitration clause that the word “under” was not wide enough to arbitrate thebribery claims brought by the charterers. Morison J went on to state in ahighly criticised dicta:-“Although the modern trend is totreat the arbitrators as having power to decide for themselves their ownjurisdiction (Kompetenz-Kompetenz) English Law gives the Courts the ultimateright to determine such issues.”24In the subsequentappeals Longmore LJ25disapproved of this dicta in the strongest possible terms and was supported by LordHoffmann.26 The case of Fili Shippingv Nafta27fundamentally changed the application of case law as it applied to the law ofarbitration. The Lordships were referred to cases in which various constructionsof arbitration clauses were considered. LordHoffmann28stated:”I do not propose toanalyse these and other such cases any further because in my opinion thedistinctions which they make reflect no credit upon English commercial law.”Lord Hoffmann applauded Longmore LJ29view on arbitration clauses stating:”….
that the time has come to drawa line under the authorities to date and make a fresh start. I think that afresh start is justified by the developments which have occurred in this branchof the law in recent years” 30 Construction of an Arbitration ClauseThis “fresh start” asoutlined by Longmore LJ is evident in Lord Hoffmannapproach to the question of construction. He was in “no doubt” that the purposeof the arbitration clause, is to have all relateddisputes decided by the same tribunal whichthe parties have chosen and not, unless clear wording showed otherwise, to excludedsome types of disputes from the arbitrator’sjurisdiction.31Lord Hope fully embraced this position stating that:-“the proposition that any jurisdiction or arbitration clause…. shouldbe liberally construed promotes legal certainty”32and “This approach to the issue of construction is now firmly embedded as partof the law of international commerce”33Lord Hope also made an interesting point relating to howbusinessmen would view an arbitration clause:-“It is the kind of clause to which ordinary businessmen readily givetheir agreement so long as its general meaning is clear. They are unlikely totrouble themselves too much about its precise language”The abundance of caselaw on the distinction between “under” and “out of” prior to the Fili Shipping v Nafta casecan lead to confusion.What is clear is that this issue has been resolved, and jurisdiction or arbitration clauses should be liberally construed.
Separability Morison J held that noarbitration could be commenced under the arbitration agreement if the principalor “matrix” contract was found to have been procured by bribery.34He used Logicrose v Southend United FC,35in which it was held that a transaction as a result of bribery could berescinded by the innocent party, as the authority for his decision. Longmore LJ expresslyrejected Morison J’s reliance on the Logicrose case in the context of anarbitration agreement stating:-“that is no argument for sayingthat a separable arbitration clause cannot be invoked for the purpose ofresolving the issue whether bribery occurred. In this connection an allegationof bribery is (and should be) no different from the allegation of initialillegality in Harbour v Kansa”36he went on to state:-“if arbitrators can decide whethera contract is void for initial illegality, there is no reason why they shouldnot decide whether a contract has been procured by bribery…” 37Lord Hoffmann38held that this had been “put beyond doubt” by the principle of separability intheArbitration Act 1996.39Lord Hoffmann made it very clear that the arbitration agreement must be treatedas a “distinct agreement” and can be void only on grounds whichrelate directly to the arbitration agreement. It is possible that the reasonwhy the main agreement is invalid is identical to reason why the arbitrationagreement is invalid,40such as:-a) The signature was forged on the same documentcontaining both agreements.b) The signatory was not authorised to sign thedocument.In these examples itis the validity of the arbitration agreement that is at question in addition tothe validity of the main agreement for exactly the same reasons.
Lord Hope agreed with Lord Hoffmann and added”Issues as to whether the entireagreement was procured by impersonation or by forgery, for example, areunlikely to be severable from the arbitration clause.”41and later “The doctrine of separability requires directimpeachment of the arbitration agreement before it can be set aside.”42Part (ii) (a). The construction of the arbitration clauseand the issues surrounding bribery in this question are similar to the issues inFili Shipping v Nafta discussedabove. The first hurdle is to establish if there is a validarbitration agreement. The arbitration clause was part of the agreement. Itdoes not appear it was incorporated as a result of bribery, which would begrounds to rescind the agreement as in Logicrose v SouthendUnited FC.
43 Thebribery relates solely to the main contract. Also not at issue are any claimsthat the agreement was forged or the signatory was not authorised to sign thedocument which were specifically highlighted in Fili Shipping v Nafta44 by Lord Hoffmann and Lord Hope, as grounds to voidthe arbitration agreement. Separability45of arbitration agreement from any other agreement was “put beyond doubt” by LordHoffmann46therefore there is a valid arbitration agreement. The second hurdle is, can the arbitrator claim jurisdiction in casesrelating to bribery. This subject was dealt with in FionaTrust v Privalov where Longmore LJ held thatthere was no reason that an arbitration cannot resolve whether bribery occurred.47He went on to clarify that if arbitrators can decide whether a contract is voidfor initial illegality, there is no reason why they should not decide whether acontract has been procured by bribery.48Lord Hoffmann49fully supported this view on appeal. Therefore an arbitration tribunal will hear this case.
(b). As outline in Part (ii) (a), if the arbitration clause wasincorporated as a direct result of bribery, this is grounds to rescind thearbitration agreement. As Lord Hope indicated in Fili Shipping v Nafta,50 toset aside separability requires direct impeachment of the arbitration agreementwhich would be the case here. Therefore In this example the court would hear the case.1 Equitable Trust Co of New York v DawsonPartners Ltd (1926) 27 Ll LR 49 wherein his Lordship stated at page 52:2 Ibid3 Moralice (London) Ltdv. E.D.
and F Man 1954 2 Lloyd’s Rep 5264 Gian Singh & Co Ltd vBanque De L’Indochine 1974 2All ER 754 at 7585 JH Rayner& Co Ltd v Hambro’s Bank Ltd 1943 1 KB 37 (CA).” It would be quite impossible forbusiness to be carried on, and for bankers to be in any way protected in suchmatters, if it were said that they must be affected by a knowledge of all thedetails of the way in which particular traders carry on their business.”6 Midland Bank Ltd v Seymour 1955 2 Lloyd’sRep. 147 at 1517 Soproma S.p.a. v.
Marine and Animal By-ProductsCorporation 1966 1 Lloyd’s Rep. 367, 3908 Bridge M, “The Sale of Goods”, 1998 Oxford UniversityPress, page 2439 GianSingh & Co Ltd v Banque De L’Indochine 1974 2 All ER 754 at 75910 Banker’s Trust v State Bank of India 19912 Lloyd’s Rep 443. In this case there were over 900 documents presented againsta letter of credit.11 UCP 600 Article 14.12 UCP 600Article 14.
e: ” in documents other than the commercial invoice, the descriptionof the goods, services or performance, if stated, may be in genera l terms notconflicting with their description in the credit “13 UCP 600Article 14.f: “If a credit requires presentation of a document other than atransport document, insurance document or commercial invoice, withoutstipulating by whom the document is to be issued or its data content, bankswill accept the document as presented if its content appears to fulfil thefunction of the required document and otherwise complies with sub-article 14(d).”14 UCP 600Article 18.
c ” the description of the goods, services or performance in acommercial invoice must correspond with that appearing in the credit “15 Bulgrains & Co Limited v. Shinhan Bank2013 EWHC 249816 Ibid at 2417 Ibid at 2218 United Bank Ltd v Banque National de Paris1992 2 SLR 6419 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 4020 Ibid at 221 Ibid at 222 Fiona Trust & Holding Corporation vPrivalov2006 EWHC 2583, 2007 1 All ER (Comm) 89123 FilliteRuncorn Ltd v Aqua Lift (1989) 26 Con LR 66, 79; 2006 EWHC 2583 at14, 2007 1 All ER (Comm) 81, 8724 Fiona Trust & Holding Corporation vPrivalov2006 EWHC 2583 at 2625 Fiona Trust & Holding Corporation vPrivalov2007 EWCA Civ 20 at 1726 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 40 at 1227 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 4028 Ibid at 1229 Fiona Trust & Holding Corporation vPrivalov2007 EWCA Civ 20 at 1730 Ibid at 1231 Ibid at 1332 Ibid at 2633 Ibid at 3134 Fiona Trust & Holding Corporation vPrivalov2006 EWHC 2583 at 3735 Logicrose Ltd v Southend United FootballClub Ltd 1988 1 WLR 125636 Fiona Trust & Holding Corporation vPrivalov2007 EWCA Civ 20 at 2637 Ibid, at 2938 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 40 at 939 Arbitration Act 1996, Section 740 Ibid at 1741 Ibid at 3442 Ibid at 3543 Logicrose Ltd v Southend United FootballClub Ltd 1988 1 WLR 125644 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 40 at17, 34, 3545 Arbitration Act 1996, Section 746 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 40 at 1347 Fiona Trust & Holding Corporation vPrivalov2007 EWCA Civ 20 at 2648 Ibid, at 2949 Fili Shipping Co Ltd v Premium NaftaProducts Ltd (on appeal from Fiona Trust & Holding Corporation v Privalov)2007 UKHL 40 at 950 Ibid at 35