#5188 - Bank Of Baroda V. Vysya Bank - Conflict of Laws BCL

Bank of Baroda v. Vysya Bank

Facts

Vysya was instructed by an Indian importer, Aditya Steel Industries ("Aditya"), to issue a letter of credit in favour of Granada Worldwide Industries Ltd. ("Granada") which is an Irish company with a London office, in respect of the purchase of some 16,092 tonnes of pig iron which Aditya had agreed to buy c.i.f. shipped from Ventspils in Latvia to Haldia in India under a written contract of sale made Sept. 24, 1992.

It remained necessary for the purposes of the sale to find a London confirming bank. Eventually, as a result of communications which it will be necessary to examine further and with the consent of the beneficiary Granada, Bank of Baroda's City of London office confirmed the credit. This was heralded or recorded by a telex from Vysya to National Westminster, London on Oct. 7, 1992 amending the letter of credit.

An initial presentation of documents by Granada through its London correspondent bank, Fidelity Bank plc, was apparently rejected for non-conformity on Oct. 9, 1992. However, Vysya agreed further to amend the credit in certain respects and the documents were, it seems, amended in another respect. The documents were then negotiated by Bank of Baroda by payment of $1,742,376.41 under the letter of credit on the same day. Bank of Baroda despatched the documents to Vysya in India on the next day, and, according to information supplied by the couriers DHL, the documents were delivered to Vysya on Oct. 16, 1992.

On Nov. 4, 1992 Vysya informed Bank of Baroda, City branch by telex that it had "already mailed reimbursement instructions" to Citibank, New York, and authorized Bank of Baroda to claim reimbursement on the due date, which was Feb. 10, 1993. However on Nov. 14, 1992 Vysya wrote through a firm of Indian lawyers withdrawing this authorization. The only reason given related to the underlying transaction, and was that the cargo had been the subject of two different sets of bills of lading, of which the second had been issued without authority, and that the English High Court had ordered the cargo's delivery up to the holders of the first set, Trans-Commodities Inc.

On Jan. 13, 1993 Vysya wrote to Bank of Baroda, City branch enclosing a long letter from Aditya which repeated the assertion that the whole transaction was "vitiated by fraud" and added for the first time a suggestion that the documents did not conform to the credit. The present writ makes a claim for damages for anticipatory and/or actual breach of the contract between Vysya as issuing bank and Bank of Baroda as confirming bank.

Holding

Characteristic performance – confirmation – London branch of Bank of Baroda

Both these accounts of the making of the contract between Vysya and Bank of Baroda identify the confirmation as the object or focus of the contract. They confirm the appropriateness of the general conclusion, at which I would anyway arrive, that under a contract between an issuing bank and a confirming bank the performance which is characteristic of the contract is the adding of its confirmation by the latter and its honouring of the obligations accepted thereby in relation to the beneficiary. The liability on the part of the issuing bank to reimburse or indemnify the confirming bank is consequential on the character of the contract; it does not itself characterize the contract.

The report points out that in bilateral or reciprocal contracts the counter-performance by one of the parties in a modern economy usually takes the form of money. It says:

This is not, of course, the characteristic performance of the contract. It is the performance for which the payment is due, i.e. depending on the type of contract, the delivery of goods, the granting of the right to make use of an item of property, the provision of a service, transport, insurance, banking operations, security, etc., which usually constitutes the centre of gravity and the socio-economic function of the contractual transaction.

In the present case, even if the contract was concluded in India its whole focus was upon Bank of Baroda's City of London branch acting as confirming banker under the credit advised to the beneficiary in London. The performance characteristic of a guarantee is always the guarantor's performance (i.e. the giving and honouring of the guarantee) whether one looks at his contract with the creditor or the debtor.

It follows in the present case, looking at the position of Bank of Baroda in relation to the confirmation given to Granada, that the performance characteristic of Bank of Baroda's contract with Vysya, however made, was the addition and honouring of its confirmation of the credit in favour of Granada. That performance was to be effected through Bank of Baroda's City of London office, viz "a place of business other than [its] principal place of business" and so by the express terms of art. 4(2) the presumption is that English law governs the contract between Vysya and Bank of Baroda.

Contract between Confirming bank (BoB) and Seller

Whether one looks at art. 4(2) or at art. 4(5) of the Rome Convention, the contract of confirmation between Bank of Baroda's City of London branch as confirming bank and Granada as beneficiary was clearly governed by English law. Even if one ignores the clear application of the presumption in art. 4(2) to that contract, the reasoning in such cases as European Bank v. Punjab Bank, [1981] 2 Lloyd's Rep. 651 at pp. 656-657 per Mr. Justice Robert Goff is as relevant when determining the closeness of connection with any country under art. 4(5) as it was for the purposes of the similar common law test. A suggestion that English law did not, as between beneficiary and confirming bank, govern a credit confirmed through the London branch of a foreign bank for payment in London would be wholly uncommercial.

Law applicable to the contract between Issuing bank (Vysya) and the seller (Grenada)

Vysya submits however that, although...