European Asian Bank AG v Punjab and Sind Bank: CA 1983

The court heard a claim by the appellant bank against the issuing bank of a deferred payment letter of credit. The appellants had negotiated the credit by paying its discounted value to the Beneficiary. Between that date and the maturity date fraud, or alleged fraud, on the part of the Beneficiary was discovered and the issuing bank denied liability under the credit.
Held: There was no arguable defence and the court entered a summary judgment against the issuing bank. On the evidence the issuing bank had unequivocally represented to the appellants that they were entitled to act as negotiating bankers under the credit and that they would be paid as negotiating bankers on the maturity date.
The issuing bank submitted that the appellants were merely agents for collection for the beneficiary (and so fixed with its fraud). This was rejected: ‘Even if it were a fact that, as at August 13 (when the appellants had forwarded the documents to the issuing bank to enquire whether they would accept them) the appellants had been appointed agents for collection by (the Beneficiary) it is beyond question that by August 20 the appellants had negotiated the letter of credit, and there is no suggestion that they acted otherwise than in good faith in so doing. Thereafter, in February 1980, they claimed payment from the respondents; and this was refused. In our judgment it is not open to the respondents, on these facts, to say against the appellants that they were justified in refusing payment on the ground that the documents were fraudulent or even forged. In our judgment the relevant time for considering this question is the time when payment falls due and is claimed and refused. If, at that time, the party claiming payment had negotiated the relevant documents in good faith, the issuing bank cannot excuse his refusal to pay on the ground that at some earlier time the negotiating bank was a mere agent for collection on behalf of the seller and allege against him fraud or forgery (if that indeed be the case) on the part of the beneficiary of the letter of credit.’ and ‘After all it was obvious that the appellants as negotiating bankers, would be discounting the letter of credit and so paying out a very large sum of money on the faith of these messages (that is the messages which constituted the representation that the appellants were entitled to act as negotiating bankers under the letter of credit).’


Robert Goff LJ


[1983] 1 LL Rep 611


England and Wales

Cited by:

CitedBanco Santander Sa v Bayfern Ltd and Others ComC 29-Jun-1999
The court was asked whether the risk of fraud on the part of the beneficiary of a confirmed deferred payment letter of credit is to be borne by the issuing bank (and so possibly the applicant for the credit) or by the confirming bank where the . .
Lists of cited by and citing cases may be incomplete.


Updated: 31 July 2022; Ref: scu.244756