Commercial Bank of Ceylon Ltd, v. Salahudeen
COMMERCIAL BANK OF CEYLON LTD.
COURT OF APPEALEDUSSURIYA, J..
A. NO. 400/94(F).
C. COLOMBO NO. 11653/MR.
JUNE 26, 1998.
FEBRUARY 02, 1999.
Letter of Credit – Honoured – Bank not reimbursed – Defence that the goodshave been shipped after the expiry date of the letter of credit – Liability to pay- Unified Customs and Practice for Documentary Credit (U.C.P.D.C).
Article 46 (a) U.C.P.D.C. stipulates that all credits miust stipulate an expirydate for presentation of documents for payment acceptance or negotiation.Article 46 (b) provides that except as provided in Article 48 (a) documentsmust be presented on or before such expiry date.
The expiry date, therefore, is significant and, once it expires it can onlybe revived at the request of the importer or where the importer acceptsthe document, notwithstanding the lapse.
APPEAL from the District Court of Colombo.
Ajantha Cooray with C. J. Ladduwahetty for the plaintiff-appellant.
Nigel Hatch for the defendant-respondent.
Cur. adv. vult.
Sri Lanka Law Reports
 3 Sri LR.
April 29, 1999.
The plaintiff filed action in the District Court of Colombo for therecovery of a sum of Rs. 71,903.37 together with legal interest thereonbeing the rupee value paid by the plaintiff upon a letter of creditfavouring China National Metal and Minerals Import and ExportCorporation of China. By P4 of 02.01.1989 the defendant requestedthe plaintiff to open on account of the defendant an irrevocabledocumentary credit for US$ 1,625 in favour of China National Metaland Mineral Import and Export of China; that by advice of 22.06.1989P2 the plaintiff informed the defendant that the documents under thesaid letter of credit had been received by the plaintiff and requiredthe defendant to examine the said documents and to pay the plaintiffthe value of the said letter of credit together with the bank charges,etc. The plaintiff in the ordinary course of business paid US$ 1,660.10being the value of the said letter of credit or Rs. 67,146.38; thatnotwithstanding several requests and letter of demand the defendanthas wrongfully and unlawfully failed and neglected to pay the plaintiffan aggregated sum of Rs. 71,903.37. The deferidant's position wasthat on the said letter of credit the goods were required to be shippedon or before 28.02.1989 and that the letter of credit marked P3 expiredon 15.03.1989; that the goods have been shipped after the expiryof the letter of credit and that since the plaintiff satisfied a third partywithout notice and approval of the defendant he denied liability. Thedefendant also made a claim in recovention which he abandoned atthe argument stage.
The main contention of the appellant was that there was unrea-sonable delay by the defendant in rejecting the letter of credit whichdelay caused the plaintiff Bank to pay the amount reflected in thesaid letter of credit. The counsel for the plaintiff submitted that in theevent of a discrepancy in the letter of credit the importer was requiredto reject the letter of credit without delay. He submitted that the 9
CA Commercial Bank of Ceylon Ltd, v. Salahudeen (Jayasinghe, J.)189
days which the defendant took to reject the documents were excessive.Mr. Cooray conceded that once the letter of credit lapses the importeris not bound by the letter of credit but stressed that the importer mustreject the letter of credit within a reasonable time. Counsel for thedefendant contended that if the goods have been shipped after theexpiry of the letter of credit the importer is not obliged to accept thedocuments. He classified a letter of credit that expired as a dead letterof credit. The counsel for the defendant also submitted that thequestion of reasonable time does not arise because the letter of creditwas not discrepant but non-existent as far as the importer wasconcerned as the goods were shipped after the expiry date. Sucha letter of credit he submitted can be revived only at the request ofthe importer or if the importer accepts the documents notwithstandingthe lapse. He did not contest the plaintiffs submission that all paymentsduly made on a letter of credit, the importer was obliged to pay theissuing Bank but submitted that these payments were not duly paidbecause on the face of the document the letter of credit had expired.He submitted that according to P3 the documents are required to bepresented within 15 days after shipment but within the validity ofthe credit. Therefore, the payments were not duly made.
It must be said that the issuing Bank has its own responsibilities.Article 15 of the Unified Customs and Practice for Documentary Credits(U.C.P.D.C.) mandates that the Banks must examine all documentswith reasonable care to ascertain that they appear on their face tobe in accordance with the terms and conditions of the credit. It seems,therefore, that, is a duty cast on the issuing Bank primarily to examinethe accuracy of the documents.
Mr. Cooray referred Court to Article 16 (d) and sought to bringP3 within the said Article on the basis that P3 is discrepant. However,it would seem that Article 16 (d) cast on the issuing Bank certainobligations. If the issuing Bank refuses documents it must give noticeto the Bank from which it received documents or to the beneficiary.Such notice must state the discrepancies in respect of which the
Sri Lanka Law Reports
 3 Sri L ft
issuing Bank refuses the documents. Therefore, it seems that thereis a duty cast on the issuing Bank to refuse documents in the eventof a discrepancy. The question is whether P3 is discrepant asMr. Cooray contended or dead as submitted by Mr. Hatch. Mr. Hatchreferred us to Article 46 (a) which stipulates that all credits muststipulate an expiry date for presentation of documents for paymentacceptance or negotiation and 46 (to) provides that except asprovided in Article 48 (a) documents must be presented on or beforesuch expiry date and 48 (a) provides that if the expiry date falls ona day on which the Bank to which the presentation has to be madeis closed … the last day … for presentation shall be extendedto the. first following business day on which such bank is open.Therefore, it appears that the expiry date is significant and thereforeonce it expires it can only be revived at the request of the importeror where the importer accepts the document notwithstanding thelapse. Counsel for the defendant also submitted that the discrepanciesreferred to in Article 16 refers to discrepancies in the body of theletter of credit and not to situations where it has expired. For thereasons stated above, the appeal is dismissed with costs fixed atRs. 2,100.
EDUSSURIYA, J. – I agree.
COMMERCIAL BANK OF CEYLON LTD. v. SALAHUDEEN