False Carriage Documents 

Carriers are often pressured to issue false documents. The document may be false with respect to its date, or with respect to the apparent order and condition of the cargo. Some carriers have, at their folly, issued such documents against letters of indemnity.  The case of Kuehne + Nagel Ltd. v. Agrimax Ltd., 2010 FC 1303 (CanLII) discussed the issue of the bill of lading which is a multi-faceted document. It is not the contract of carriage, but may, and usually does, evidence its terms. It may, or may not, be a negotiable instrument. It contains various representations on behalf of the carrier, such as the apparent order and condition of the goods, whether freight was pre-paid or is owing, and the date when the cargo was “received for shipment”, or “shipped” on board as the case may be. Under the Hague-Visby Rules, Schedule I to the Marine Liability Act, a shipper may simply demand a “received for shipment” bill of lading. However, and irrespective of whether or not it demanded a “received for shipment” bill of lading, it may also demand a “shipped” bill of lading once the cargo is loaded on board the carrying ship.  In United Baltic Corporation, Ltd. v. Dundee, Perth & London Shipping Company, Ltd. (1928), 32 Ll. L.R. 272 at page 272, the court held: “The practice of issuing clean bills of lading when goods are damaged is very reprehensible. It leads to trouble, and the people who do it ought to suffer trouble.”

Letters of Credit as Security

Where a statute permits an administrative official to determine what mode of security is acceptable, the official is entitled to refuse a letter of credit submitted as security. In the event the letter of credit is conditional and does not otherwise comply with the requirements of the statutory security, the court certainly will not issue a mandamus ordering the acceptance of the credit. In Tre Maiali Fashion Group Inc. v. Canada (Border Services Agency), 2010 FC 1261 (CanLII), in regard to the Customs Act, R.S.C. 1985, c. 1 (2^nd Supp.), the court found it was not the letter of credit that was excluded outright, at all, but the nature of its provisions. The deficiencies included:

(a) inadequate wording to protect the total amount owing, including interest;

(b) reference to an “agreement” between the CBSA and the customer (the Applicant), when no such agreement has been entered into or proposed by the Applicant;

(c) being time-limited, with an expiry date of March 31, 2010; and

(d) no right to call-in the credit in the event that TD Canada Trust declines to issue a new letter upon its expiry.

Introduction
A letter of credit is an undertaking by an issuer, usually a bank, to pay a beneficiary an amount of money, which is debited to the account of an applicant [the customer of the bank] upon the fulfillment of any documentary requirements set out in the letter of credit. If there are no documentary requirements, the letter of credit may be termed a standby credit.

Letters of credit are often stipulated to be subject to the Uniform Customs and Practice for Documentary Credits (UCP), 2007 Revision, I.C.C. Publication no. 600. In the United States of America, letters of credit are often stipulated to be governed by the Article 5 of the Uniform Commercial Code.

Judgments of the courts on letters of credit matters are instructive in their uses and interpretation.

Litigation
A letter of credit posted in place of a lien falls if the lien falls. John Barlot Architect Ltd. v. 413481 Alberta Ltd., 2010 ABCA 51 (CanLII)

Delivery of a certificate to the debtor company as a prerequisite to drawing on a letter of credit has been stayed as a proceeding against a CCAA debtor: Nortel Networks Corporation (Re), 2010 ONSC 1304 (CanLII)


Use in lease
Paragraph 27(c) of the Lease also has no application to what is requested by the Trustee. Under paragraph 27(c) of the Lease, the Tenant may, with prior notice to the Landlord, assign the Lease and be released from all of the terms, covenants and conditions of the Lease if the assignee covenants directly with the Landlord to be bound to all terms, covenants and conditions of the Lease in place of the Tenant and the assignee provides the Landlord with a unconditional and irrevocable letter of credit in the sum of $250,000.00, which shall be replaced on a yearly basis. Canadian Petcetera Limited Partnership v. 2876 R. Holdings Ltd., 2010 BCSC 98 (CanLII)


Certificate of authenticity
Such invoices as were disclosed were the subject of paper of Tlais Trading Company Limited shows the price due as $ 30 per case. That is the price used in the letter of credit for the relevant goods but the customer account statement refers to $ 60 as the price per case. Either the customer account statement the notice of challenge to which I referred in paragraph 586. One set of invoices on the is wrong or the price was not wholly paid by the letter of credit . In that event the certificate of authenticity stating that the amount invoiced is the full price is misleading. Gallagher International Ltd v. Tlais Enterprises Ltd [2008] EWHC 804 (Comm)

Timely provision of LC
If the test is whether an acceptable letter of credit was opened within such a time as would enable the vessel to load the contractual quantity within the shipment period, then, if one is to take the loading rate taken in the contract for the purpose of calculating laytime, there was plenty of time for loading if the relevant date is 21st September. If the relevant date is 26th September then there was just sufficient (17,500 m.v. @ 175 m.t. per hour = 100 hours = 4 days and 4 hours). AG v Traxpo Enterprises PVT Ltd [2010] EWHC 113 (Comm) (01 February 2010)

Fraud- Sham
An elaborate but simple scheme involves defrauding the confirming bank. An issuer issues a letter of credit for a sizeable and inflated amount to a purchaser of goods which is confirmed by a confirming bank. The purchaser pays for the goods in cash at a deep discount without advising the confirmer. The seller, who has now been paid, presents the required documents to the confirmer, which pays the face amount of the credit. When the confirmer seeks reimbursement from the issuer, it finds the issuer is in receivership. The scheme involves the premeditated conspiracy of the purchaser and the issuer, or a devious employee within the issuer’s credit department.

Wrongful Honour

A claim in damages against a bank for wrongful honour of a credit must be brought by the party who suffered the damages. In many jurisdictions, the rule in corporate law is that a shareholder cannot claim damages in his own right where the damages have been suffered by the corporation. Where, however, a separate and distinct claim (say, in tort) can be raised with respect to a wrong done to a shareholder qua individual, a personal action may well lie, assuming that all the requisite elements of a cause of action can be made out.

Security
While the Uniform Customs may not prohibit a non-bank entity from issuing letters of credit under its rules, acceptance by beneficiaries of non-bank credits is a matter of solvency of the issuer. One court has ordered security, requiring the defendant to deposit with the court an irrevocable letter of credit in place of the bank draft on file, provided the letter of credit is issued by a chartered bank: Kramer Ltd. v. R.M. of Invermay No. 305, 2009 SKQB 185 (CanLII); Fraser v. Morrison et al., 2009 MBQB 185 (CanLII)

Recourses

Where the letter of credit has been illegally obtained, or given to support an agreement which has not been signed, or issued on a condition which has not been fulfilled, the court may order the original of the letter of credit returned either to the plaintiff claiming recovery, or to the issuer for cancellation: Salman v. 1152030 Ontario Inc., 2009 CanLII 26360 (ON S.C.)