United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord)
A bank must pay under a documentary credit against conforming documents unless the beneficiary was party to a fraud, and a fraud by a third party of which the beneficiary was unaware does not justify refusal.
Facts
United City Merchants sold glass fibre manufacturing equipment to buyers in Peru, to be paid by a confirmed letter of credit issued through the Royal Bank of Canada, which required shipment by a certain date. The goods were shipped one day late, but an employee of the loading brokers, without the sellers' knowledge, fraudulently altered the bill of lading to show shipment within time. The bank, discovering the fraud, refused to pay.
Legal principle
The House of Lords held that the bank was bound to pay. Lord Diplock said that the fraud exception, under which a bank may refuse to pay where the beneficiary has fraudulently presented documents that he knows contain material misrepresentations, applies only where the beneficiary himself was party to the fraud. The sellers had not known of the fraud, which was committed by a third party, so the bank had to pay. The principle of the autonomy of documentary credits required this result.
Related cases on international sales and documentary credits
- Arnhold Karberg & Co v Blythe, Green, Jourdain & Co [1916] 1 KB 495
- Biddell Brothers v E Clemens Horst Co [1912] AC 18
- Bunge Corp v Tradax Export SA [1981] 1 WLR 711
- Comptoir d'Achat et de Vente du Boerenbond Belge SA v Luis de Ridder Limitada (The Julia) [1949] AC 293
- Discount Records Ltd v Barclays Bank Ltd [1975] 1 WLR 315
- Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
- Equitable Trust Co of New York v Dawson Partners Ltd (1927) 27 Ll L Rep 49
- Gill & Duffus SA v Berger & Co Inc [1984] AC 382
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