Bank Of Baroda V. Vysya Bank Notes

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...

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