The modern cases support the proposition that if the opening or confirming bank fails to pay against presentation of conforming documents under a letter of credit payable at sight, the beneficiary may sue in debt to recover the value of the credit, provided he is willing and able to transfer the documents to the bank against payment. That is consistent both with the essential nature of the undertaking contained in the letter of credit and with the expectation of those who make use of such instruments to finance international trade. It has been said on many occasions that letters of credit are the life-blood of international commerce and are intended by those who use them to be “as good as cash”.
In the words of Lord Diplock in United City Merchants v Royal Bank of Canada the whole commercial purpose for which the system of confirmed irrevocable documentary credits has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods. If the beneficiary is willing and able to transfer the documents to the bank, therefore, he is entitled to recover the face value of the credit as a debt. If he is not willing or able to hand over the documents, the position is different.
By accepting payment of the face value of the credit the beneficiary necessarily accepts that the bank is entitled to and has taken up the documents and all rights in the goods represented thereby including the rights of the holder of a bill of lading. If the bank declines to pay the beneficiary retains the documents and may sue the bank to recover damages for breach of contract in wrongfully rejecting the documents but it is then obliged to give credit for their value whatever that may be.
If the beneficiary chooses to procure the discharge of the cargo it should call for the return of the bill of lading from the bank, cancel the indorsement and present it to the vessel itself. It is then left with a claim for damages against the bank.
But the beneficiary cannot chose to leave the bill of lading with the bank and at the same time obtain delivery of the goods without the bill of lading under a letter of indemnity whilst all the while pressing the bank for payment.
If it adopts the beneficiary adopts this course of action it takes the very real risk that the bank will eventually accede to its demand, accept the documents and make payment and thus thereby acquire the right as holder of the bill of lading to demand delivery from the vessel’s owners. When that eventually occurs, the delivery of the goods to the beneficiary without the bill of lading (under the letter of indemnity issued by the beneficiary to the owner) constitutes a conversion of the goods by the ship as against the Bank.
In the present case SCB were presented by the beneficiary with documents. SCB declined initially to pay under the LC. It eventually relented under threat of suit but in the meantime the beneficiary had taken delivery itself of the goods under a letter of indemnity. Accordingly the owners were unable to deliver the goods against presentation of the bill of lading by SCB and were liable as such to it for wrongful delivery but the owners were entitled to be indemnified against such liability by the beneficiary under the letter of indemnity!