Stop Payment Orders at Common Law
The general rule at common law is that, in the absence of an express or implied choice of 7.12 law by the parties, the law applicable to a contract is the law of the country with which the contract has the closest and most real connection.[617] In determining that country, the court looks at connecting factors, such as the place of residence or business of the parties, the place where the contract was made, the place of contractual performance and the connection between the contract in question and other related contracts.
However, in financial transactions, where a place is chosen for performance, that is normally an important, often decisive, factor.[618] Little importance is attached to the place of residence of the party making the payment.[619] The discussion in this chapter shows that in the context of letters of credit, the place of contractual performance, and the connection between the contract in question and another contract in the chain of interconnected contracts in a letter of credit transaction, are the dominant factors. In determining the place of performance under an unconfirmed credit, it is helpful to distinguish between cases where under the credit documents are to be presented to the issuing bank in its home country (where payment is also to be made) and cases where under the credit documents are to be presented to, and payment made at, a nominated bank in a different country.A. Where Documents Are to Be Presented Directly to the Issuer
Where, under the credit, documents are to be presented directly to the issuing bank in exchange 7.13 for payment by the issuing bank, the place of performance is the country where the issuing bank is located, and the law of that country is the law governing the contract between the issuing bank and the beneficiary.[620] Consequently, a stop payment order made in that country will be effective to defeat a claim by the beneficiary against the issuing bank, as performance of the issuing bank's payment obligation will have become illegal under the law that governs the credit.
The position is similar in some other common law jurisdictions, such as Singapore[621] and Hong Kong.[622]B. Where Documents Are to Be Presented to Another Bank
7.14 However, where, under the credit, documents are to be presented to, and payment made at, another (nominated) bank, the place of performance of the contract is the country where the nominated bank is located. This is the case where the credit is available at the nominated bank by drafts drawn on the nominated bank,[623] or where the nominated bank is authorised to honour or negotiate a complying presentation.[624] Therefore, the law that governs the contract in such a case is the law of the nominated bank's country. Consequently, if performance is not unlawful in that country, a stop payment order made in the issuing bank's country is no defence to the beneficiary's claim in England. In the well-known case of Power Curber International Ltd v National Bank of Kuwait SAK (‘Power Curber),[625] a bank in Kuwait issued a credit to an exporter in the US, payable through an advising bank in North Carolina. At the request of the importer, a Kuwaiti court issued an injunction restraining the issuer from making payment under the credit. The beneficiary brought an action in England, where the bank had a branch, to enforce the bank's obligation to pay under the letter of credit. The Court of Appeal held that the credit was governed by the law of North Carolina, where payment was to be made against presentation of documents. Consequently, the illegality of performance in Kuwait, due to the injunction by the Kuwaiti court, did not affect the issuer's obligation under the credit.
7.15 Courts in some common law jurisdictions have also adopted the view that, in cases where documents are to be presented to and payment made at a nominated bank, the law that governs the contract is the law of the country where the nominated bank is located.[626] Accordingly, in such cases, courts in Singapore[627] and the US[628] have refused to give effect to stop payment orders made in the issuer's country.
7.16 It is perhaps worth observing that, at one point, some courts in the US adopted a different view.
They held that, where documents were to be presented to and payment made at a nominated bank (that did not confirm the credit or undertake to make payment to the beneficiary), the place of performance was still the country where the issuing bank was located and the law of that country governed the contract between the issuing bank and the beneficiary.[629] The consequence was that a stop payment order made in the issuer's country gave the issuer a good defence to a claim in the US.[630] This approach gave stop payment orders a much longer reach than under the English common law approach.The English approach restricted the reach of such orders even in cases where the nomin- 7.17
ated bank neither confirmed the credit nor undertook to make payment to the beneficiary, and was simply acting as an assistant or agent of the issuing bank. In Power Curber,[631] for example, the fact that the draft was to be drawn on the issuing bank in Kuwait and the nominated bank in North Carolina did not negotiate the credit,[632] but simply forwarded the documents it received in North Carolina to the issuing bank in Kuwait, did not alter the position. It was sufficient that, under the letter of credit, payment was to be made in North Carolina by the nominated bank on behalf of the issuing bank against presentation of documents.[633] Griffiths LJ stated that:
Under the letter of credit the [Kuwaiti] bank accepted the obligation of paying or arranging payment of the sums due in American dollars against presentation of documents at the [nominated] bank in North Carolina. The [issuing] bank could not have discharged its obligation by offering payment in Kuwait.[634]
Since, under most unconfirmed credits, documents are to be presented to, and payment 7.18 made at, a nominated bank in the beneficiary’s country, stop payment orders made in the issuer's country generally had very little effect at common law on claims against issuers.
III.