The Role of Choice of Law Rules
7.06 A beneficiary or a claiming bank faced with an issuer's refusal to honour the credit because of a stop payment order made in the issuer's country may consider a number of options.
First, where the credit is subject to the ICC Uniform Customs and Practice for Documentary Credits, 2007 Revision (UCP 600), the beneficiary or the claiming bank may argue that, by virtue of the principle of independence of letters of credit enshrined in the UCP 600,[604] the issuer should nevertheless honour the credit.[605] However, that argument is unlikely to persuade the issuer to make payment, since it cannot ignore the stop payment order.7.07 The alternative response is to persuade the issuer to make an application to the local court for the order to be discharged. However, whilst in some cases the issuer may be willing to do so, this may not always be the case. Moreover, even if the issuer intervenes to request that the order be set aside, success is not guaranteed.[606]
A further option is for the claimant itself to petition the court in the issuer's country for the order to be discharged and for summary judgment to be entered against the issuer. However, whilst such a claim may be successful in some countries,[607] in other jurisdictions the prospects of success may be negligible.
7.08
7.09
Therefore, in many cases, the claimant is left with no option but to institute legal proceedings against the issuing bank in the claimant's own country (or in a third country).
In those proceedings, the issuing bank would raise the stop payment order as a defence and the court would have to decide whether or not to give effect to that order. Whilst, in raising that defence, the issuing bank could potentially rely on the rules for the recognition of foreign judgments, in practice that option is normally eschewed. A number of factors account for this. First, in some cases the stop payment order is issued by the government or an administrative (as opposed to a judicial) authority and therefore it cannot be recognised as a judgment. Secondly, even where the order is made by a court, if the issuing bank seeks to rely on the rules for the recognition of foreign judgments, it would encounter a number of formidable obstacles where recognition is sought under the common law rules.[608] The first difficulty is the requirement that for the English court to recognise a foreign judgment, it must be final and conclusive on the merits.[609] In the case of stop payment orders, this requirement will not be satisfied in most cases because the orders are normally only provisional (interim), pending trial of the underlying dispute. The second difficulty is that recognition of a foreign judgment for purposes of a defence or estoppel is based on the principle of discouraging re-litigation of matters already judicially decided as between the same parties.[610] Where, as in many cases, the claiming bank is not a party to the foreign proceedings between the importer and the issuing bank or the underlying proceedings initiated by the importer against the exporter, it is doubtful whether the foreign order, issued in the course of those proceedings, can be recognised as having already determined the matter in the forum as between the issuing bank and the claiming bank.Roman">stop payment order obtained by the confirming bank in the issuing bank's country (Bahrain), restraining the confirming bank from making payment under the credit, was later set aside by the court.
7.10 'Thirdly, even in the case where the matter in the foreign court is deemed to be one between the same parties as involved in the English proceedings, there is a further obstacle. At common law, the English courts will not recognise a foreign judgment unless, in the eyes of English law, the foreign court had jurisdiction over the defendant in the foreign proceedings (the claimant in the English proceedings).[611] In the case of a judgment in personam, at common law, the English courts would recognise a foreign court as having jurisdiction only where according to English law the defendant was present in the foreign country at the time the foreign proceedings were instituted; prior to the commencement of the proceedings in the foreign country, the defendant had agreed to submit to the foreign court's jurisdiction in respect of the subject matter of those proceedings; the defendant submitted to that foreign court's jurisdiction by voluntarily appearing in the proceedings; or the defendant claimed or counterclaimed in the foreign proceedings.[612] In the context of stop payment orders, even if the English court considers the underlying claim by the importer in the issuing bank's country against the beneficiary/exporter (rather than the claim for a stop payment order between the importer and the issuing bank), it is unlikely that any of these bases ofjurisdic- tion would be satisfied in most cases.
7.11 Confronted with these difficult, if not insuperable, hurdles, issuing banks seeking to rely on foreign stop payment orders as a defence normally choose the alternative route.
This is to request the court to give effect to the order simply as a prohibition under the law of the issuer's country that has rendered further performance of the issuer's obligation under the credit illegal and, therefore, unenforceable. This is based on the principle that the English court will not compel performance of a contract where performance is unlawful under the law that governs the contract,[613] or where performance is unlawful under the law of the country where the obligation is to be performed.[614] Thus, where the law of the issuing bank's country is the law that governs its undertaking under the letter of credit, or where the issuing bank's payment obligation is to be performed in its home country, the English court will give effect to a stop payment order made in that country and the claim against the issuing bank will be defeated. However, such an order affords the issuing bank no defence against a claim in England where the governing law is not that of the issuing bank's country, the credit is valid and enforceable under its governing law, and performance of the bank's payment obligation is not illegal in the country of performance.[615] Of course, the answer to the question whether the law that governs the issuer's undertaking under the credit is the law of the issuer's home country, or the law of a different country, depends on the choice of law rules of the forum where the dispute is being heard.[616] In England, these have evolved from common law rules, through the rules of the Convention to the current regime in the Regulation. It is, therefore, helpful to start with the position at common law.III.