CASE OF FORTIS BANK VS INDIAN OVERSEAS BANK

Case of Fortis Bank Vs Indian Overseas Bank

Case of Fortis Bank Vs Indian Overseas Bank

Introduction

The Fortis bank as a confirming bank had made the presentation to the Indian Overseas Bank as the issuing bank. The Indian, overseas bank rejected the documents and gave notice under the article 16 of UCP stating that it is returning them. The Indian bank did not return the document until January 16 2009. Keeping in view this situation, Fortis sought judgement against the Indian Overseas Bank arguing that it precluded from relying on the discrepancies as it did not act in accordance with the notice (Fenwick, 2011, 2).

The issue

The issue in the case was whether an issuing bank that gave notice that it was returning the documents but failed to return promptly and timely precluded from relying on the discrepancies. The argument of Indian overseas Bank was that article 16 did not impose an unequivocal obligation to return the documents and, therefore, the sub article 16(f) did not apply (Stone, 2000, 72). The reliance was on the fact that while UCP 500 spelled out that preclusion was the result of failure to return the documents, UCP 600 contained no such precise wording. It relied on the messages sent by the Fortis requesting that the documents should not be returned. The four key issues arising were:

If the documents presented the discrepancies.

If Fortis was technically a confirming bank.

If the bill, of lading date was the issue date of the bill of lading or the date of shipment.

If the case, should be precluded under the article 16 UCP 600 claiming that the documents did not constitute a complying presentation.

Analysis of the Judgement

The court of appeal dismissed this appeal referring to it as a matter of construction where the sub article 16© requires that the issuing back to act in accordance with the option it has elected, when the bank declared to return ten document, it must do so promptly. In reaching this conclusion, the court took into account the evidence of both parties' expertise that it was the practice of banks on rejection to hold the document in accordance with the instruction of the presenter or to return them on time (Fruehwald, 2009, 489). The beneficiary can lose important time to deal with the documents before the expiry date of the letter of credit. It may also include the incurrence of demurrage or storage cost. The case was excessive as one can see that the issue may be less clear where the documents were not returned for a week or so and hence the lesson should be to make sure that such actions are taken as quick as possible. The court of appeal findings in relation to the preclusion under article 16 have far reaching consequences and serve as a warning issuing banks to act according to the notices they issue. The judgment imposed a strict obligation on issuing banks and, therefore, it is likely to have the implications with ...