Conclusion
2.43 In disputes between the issuing/confirming bank and the seller, defences based on the absence of a contractual nexus are rarely raised.
As noted earlier, a recent exception is Taurus Petroleum,[251] where, for strategic reasons, it was argued that an issuer's promise pursuant to a letter of credit was unenforceable for want of consideration. The issue did not, ultimately, have to be decided but Lord Clarke endorsed Moore-Bick LJ's view in the Court of Appeal that he would be ‘loath to hold, particularly in a commercial context, that a promise which both parties intended should be relied on was unenforceable for want of consider- ation’.[252] Lord Mance, dissenting on the outcome, said it would be inconsistent with established principles to deny consideration or the binding nature of the promises between the three parties.[253] These dicta reinforce the unlikelihood of naysayers ever succeeding with an argument that the issuer's promise to pay in a letter of credit lacks contractual force, for to hold otherwise would be to destabilise international trading transactions. As an international instrument, developed from the custom of merchants from different parts of the world trading with each other, pragmatism rather than legal doctrine drove its development. It is unsurprising, therefore, that it transcends domestic legal doctrine.2.44 It has been argued here that while the relationship between the issuing/confirming bank and the seller of goods does not fit the orthodox mould for contract formation, it does so in an attenuated sense. Other features of the parties' relationship align strongly with it being a contract: the context is trade and commerce where relationships are primarily governed by contract, and the contractual mesh surrounding the letter of credit lends support to the contractual analysis: the buyer and seller of the goods contract for the seller to be paid by a letter of credit which indicates the seller's advance acceptance of/desire for that method of payment; the issuing bank and the buyer contract that the former will incur a payment obligation to the seller on particular terms; and while the seller may not provide consideration to the issuing bank, it does provide consideration to the buyer. Taken as a whole, the requisite elements of contract formation are present.
2.45 Although the doctrine of autonomy requires that the letter of credit be considered without regard to the underlying transaction, the purpose of the doctrine is to strengthen the seller's rights to payment and to leave disputes about the goods to be resolved later.
In other respects, however, the underlying transaction is key to the letter of credit and is surely able to plug doctrinal gaps.[254] Such a view is supported by statements in New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd,[255] albeit not a letter of credit case. Lord Wilberforce endorsed an approach that looks at the big picture when the contractual nature of an arrangement is in doubt. He said: ‘The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit.' In the same case, Lord Wilberforce reminded us that numerous commonplace arrangements struggle to fit into the orthodox contract mould: ‘sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers' guarantees; gratuitous bailments; bankers' commercial credits’.[256] In these situations, he pointed out, the orthodox requirements are implemented with some pragmatism.The subject of this chapter has been not so much whether letters of credit are enforceable by 2.46 a seller—their enforceability has never been in doubt as attested to by the longevity of the instrument. Rather the focus has been on whether the credit's enforceability is contractual in nature. The latest reference to that issue by the UK Supreme Court in Taurus Petroleum supports the view taken here that the promise contained in the latter of credit is indeed to be regarded as contractual, even if the elements for contract formation are met in an unorthodox way.