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ASTRO EXITO NAVEGACION SA
SOUTHLAND ENTERPRISE CO LTD AND ANOTHER
(CHASE MANHATTAN BANK NA INTERVENING)
THE MESSINIAKI TOLMI
 2 ALL ER 725
HOUSE OF LORDS
23 JUNE 1983
LORD KEITH OF KINKEL,
LORD ROSKILL AND
LORD BRIDGE OF HARWICH
Execution – Instrument – Execution by person nominated by High Court – Jurisdiction – Contract – Contract for sale of vessel – Notice of readiness – Buyer refusing to countersign notice of readiness – Letter of credit in payment of purchase price – Bank refusing to release money secured by letter of credit because notice of readiness not countersigned as required by terms of letter of credit – Seller commencing proceedings for specific performance – Judge ordering buyer to sign notice of readiness by certain date failing which notice to be signed by master – Jurisdiction of court to make order – Whether notice of readiness executed by master binding on parties other than buyer and seller – Whether bank obliged to accept notice of readiness countersigned by master – Supreme Court of Judicature (Consolidation) Act 1925, s47.
The sellers, a Panamanian company, agreed to sell a vessel to the buyers, a Taiwanese company, in accordance with a memorandum of agreement dated 2 July 1980. The vessel was intended to be broken up by the buyers and the sellers agreed to deliver the vessel to a specified harbour in Taiwan with a valid gas-free certificate and a notice of readiness which was to be countersigned by the buyers. Under the terms of the contract, it was agreed that arbitration of any dispute arising out of the sale was to be in London in accordance with English law. Pursuant to the contract the buyers opened a letter of credit with a bank in Taiwan for payment of the purchase price. The letter of credit was confirmed by a London bank. The sellers duly delivered the vessel to the Taiwan harbour with a gas-free certificate and gave notice of readiness. The buyers refused to accept the notice on the ground that the gas-free certificate was not valid. They consequently refused to countersign the notice of readiness and purported to cancel the contract. The sellers commenced proceedings in the Commercial Court for specific performance of the contract. The buyers applied for a stay of proceedings pending the outcome of arbitration.
On 24 October 1980 the judge stayed the proceedings but on terms which included by way of interim relief granted to the sellers injunctions directing the buyers (i) to countersign the notice of readiness by 28 October 1980, failing which the notice was to be signed by a master of the Supreme Court for and on behalf of the buyers, and (ii) to instruct the Taiwan bank to authorise the London bank to release the moneys secured by the letter of credit, the moneys so released to be lodged in the joint names of the parties’ solicitors until agreement or further order. The buyers failed to comply with the order on the due date and the notice of readiness was signed by a Supreme Court master and presented to the London bank with the documents necessary to operate the letter of credit. The London bank refused to release the moneys and the letter of credit expired on 30 October. The buyers issued a notice of appeal against the order of 24 October and on 12 November the sellers commenced proceedings against the London bank in respect of its refusal to pay on the letter of credit. Subsequently the arbitrators awarded damages to the sellers for the buyers’ breach of contract. The sellers and the buyers then applied to the Court of Appeal to withdraw the appeal against the order of 24 October, since it had been overtaken by the arbitrators’ award. However, the sellers’ claim against the London bank remained alive and the London bank accordingly applied to intervene in the appeal in order to be joined as a defendant so that it could pursue the appeal. In the course of the hearing of the London bank’s application the bank was granted leave on 4 March 1982 to intervene as a defendant. On the hearing of the merits of the London bank’s claim that the judge had had no jurisdiction to make the order of 24 October, or if he had that he ought to have exercised his discretion by refusing to make the order, the Court of Appeal held that the judge had had jurisdiction to make the order under his power under s47a of the Supreme Court of Judicature (Consolidation) Act 1925 to order that a document be executed ‘Where any person neglects or refuses to comply with a judgment or order directing him to execute [the] document’, and further held that the judge had exercised his discretion correctly in making the order. The London bank appealed, contending, inter alia, (i) that the court’s power under s47 to order the execution of a document was limited to documents necessary to fulfil the requirements of a contract between the parties immediately before the court and did not extend to ordering a ‘substitute’ signature on a document (such as the notice of readiness) which affected the relationship between third parties (such as the two banks or the London bank and the sellers), (ii) that, if there was jurisdiction under s47 to order such a ‘substitute’ signature, the judge had exercised his discretion wrongly because that section was being used to alter the nature of the obligations assumed both by the London bank and by the Taiwan bank, since absolute compliance with the documentary requirements of the credits was essential, and (iii) that the Court of Appeal should not have affirmed the judge’s order because once the letter of credit had expired on 30 October 1980 the sellers had no longer had a claim for specific performance of the contract but only a claim against the buyers for unliquidated damages and in those circumstances an order in support of the claim for specific performance was only proper up to 30 October while the letter of credit was extant.
Held – On the true construction of s47 of the 1925 Act there was no limitation either on the class of document which the court could order to be executed or on the purpose for which a document so executed could be used. Since the court had had jurisdiction over the letter of credit because it was a contract governed by English law, the court had had jurisdiction to order that the notice of readiness required to operate the letter of credit be executed by a Supreme Court master. Furthermore, the exercise by the judge of the jurisdiction under s47 did not alter the respective obligations of the London bank and the Taiwan bank, since the order did not compel the London bank to do anything, and the fact that the buyers failed to comply with the order did not entitle the London bank, which was not a party to the contract in relation to which the order was made, to complain about its effect. If the London bank had wished to show that its rejection of the documents was justified the appropriate method of doing so was by way of a defence in the proceedings brought against it by the sellers. The appeal would accordingly be dismissed (see p727 g to j, p735 g to p736 e, post).
Decision of the Court of Appeal  3 All ER 335 affirmed.
Case referred to in opinions
United City Merchants (Investments) Ltd v Royal Bank of Canada  2 All ER 720,  AC 168,  2 WLR 1039, HL.
Chase Manhattan Bank NA appealed with leave of the Appeal Committee of the House of Lords granted on 29 July 1982 from an order of the Court of Appeal (Stephenson, Ackner and O’ConnorLJJ) ( 3 All ER 335,  QB 1248) dated 5 April 1982 dismissing an appeal by the bank from an interlocutory order of ParkerJ dated 27 October 1980 in proceedings between the respondents, Astro Exito Navegacion SA (the sellers), and Southland Enterprise Co Ltd and Nan Jong Iron and Steel Co Ltd (the buyers). The bank was not a party to the proceedings before ParkerJ but was given leave by the Court of Appeal to be joined as a defendant in the action for the purpose of enabling them to appeal and thus replace the buyers who withdrew their appeals against the order of ParkerJ. The facts are set out in the opinion of Lord Roskill.
Leonard HoffmannQC and Michael Tugendhat for the bank.
Nicholas PhillipsQC and Steven Gee for the sellers.
Their Lordships took time for consideration
23 June 1983. The following opinions were delivered.
LORD DIPLOCK. My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Roskill. I agree with it, and for the reasons he gives I would dismiss the appeal.
LORD KEITH OF KINKEL. My Lords, for the reasons given in the speech to be delivered by my noble and learned friend Lord Roskill, which I have had the benefit of reading in draft and with which I agree, I too would dismiss the appeal.
LORD SCARMAN. My Lords, I have had the advantage of reading in draft the speech to be delivered by my noble and learned friend Lord Roskill. I agree with it, and for the reasons which he gives I would dismiss the appeal with costs.
LORD ROSKILL. My Lords, the history of the dispute which gives rise to this appeal to your Lordships’ House by the Chase Manhattan Bank NA (the bank) is long and complex and must, I fear, be related in some detail in order that the matters for decision can be properly understood, though those matters themselves are not, as I understand all your Lordships to agree, difficult of decision. The appeal arises out of an action (the action) between the respondents, Astro Exito Navegacion SA, a Panamanian company, and Southland, Enterprise Co Ltd, a Taiwanese company. In the action the respondents (I shall call them ‘sellers’) were plaintiffs and the Taiwanese company (I shall call them ‘buyers’) were the first defendants. I can ignore the existence of the second defendants in the action. The bank, though now the appellants to your Lordships’ House, were not initially parties to the action; indeed it is of great importance to observe at the outset that they were not parties to the contract out of the clear and indeed deliberate breaches of which by the buyers the action arose. The bank applied for and were granted leave to be added as defendants in the action by the Court of Appeal (Stephenson, Ackner and O’ConnorLJJ) ( 3 All ER 335,  QB 1248) on 4 March 1982 after the action itself as between the sellers and the buyers had been stayed by ParkerJ on 24 October 1980. The purpose of that application by the bank was to enable the bank to appeal against other parts of that order which ParkerJ had then made, an order in which the bank claimed to be interested in circumstances still to be related. After that leave had been given and by the time the bank’s appeal was thereafter heard, the buyers, who had themselves on 10 November 1980 initially given notice of appeal against that order, withdrew from proceedings so that, unless the bank were allowed to be joined and to prosecute the appeal, no appeal would have been pursued against the judge’s order. Subsequently, on 5 April 1982, the Court of Appeal dismissed the bank’s appeal, the judgment of the court being given by AcknerLJ (see  3 All ER 335 at 344,  QB 1248 at 1264). Leave to appeal was refused, but such leave was later given by your Lordships’ House.
My Lords, with that brief introduction to explain how this appeal arises, I turn to consider the history of the dispute. The sellers owned a Greek motor vessel named Messiniaki Tolmi. She was some 51,400 grt, and was built in Norway in 1965. By a written agreement (the sale agreement) dated 2 July 1980, but not signed until 23 July 1980, the sellers agreed to sell and the buyers agreed to buy the vessel for breaking up at Taiwan at the price of $US4,241,575, which your Lordships were told represented a price of $US212.50 per lightweight ton. The sale agreement included the following provisions which it is necessary to set out in full:
‘(1) The vessel is now trading and is to be delivered to the Purchasers inside Kaohsiung Harbour under her own power “as is” safely afloat and substantially intact expected during 1st–30th September, 1980, with 30th September, 1980, cancelling (after discharge of inward cargo, if any) with all her outfit, materials, tackle, apparel and spare gear as on board but with the exception of private effects of Captain, Officers and crew and hired equipment, if any. Should the vessel not be ready for delivery within the 30th September, 1980 cancelling for any reason other than mentioned in Clause 3 hereof, the Purchasers have the option of maintaining or cancelling this Agreement, such option to be declared within 48 hours and in the event of cancellation or the Purchasers’ failure to exercise such option, the deposit and Letter of Credit shall be immediately released to the Purchasers in full and this Agreement shall be considered null and void.
(2) The Purchasers shall deposit with the Vendors’ Agents, Felicity Navigation Corp., a New Taiwan Dollar Cheque for the equivalent of 10% of the Purchase Price, such deposit to be lodged on signing this Agreement and to be returned to the Purchasers on opening the confirmed irrevocable Letter of Credit as detailed hereunder. The whole of the Purchase Price amounting to U.S.$4,241,575 (say four million, two hundred and forty-one thousand, five hundred and seventy-five United States dollars) shall be paid by a confirmed irrevocable Letter of Credit in terms acceptable to the Vendors and valid until 30th October, 1980, established by a full detailed cable or telex within 15 working days from signing this Agreement, such confirmed irrevocable Letter of Credit to be in favour of the Vendors for the account of Oceanic Finance Corporation Limited (for and on behalf of Astro Exito Navegacion S.A.) with the Royal Bank of Canada, 6 Lothbury Street, London, E.C.2. England, either established direct with the said Bank or through another first-class London Bank (hereinafter called the “Negotiating Bank”). Immediately upon receipt of the foregoing Letter of Credit and upon acceptance of its terms the Vendors shall forthwith deposit the undermentioned documents with the Negotiating Bank as stakeholders of the documents. (Unless the 10% deposit of this Purchase Price and the irrevocable Letter of Credit are confirmed established and within times herein stipulated, then cancelling time stipulated in Clause 1 to be extended accordingly at Vendors’ option. If Letter of Credit is not established with Memorandum of Agreement limits, Sellers option to cancel). 1. Legal Bill of Sale, duly attested by a Notary Public, specifying free from encumbrances, all debts, claims and maritime liens. 2. Signed Commercial Invoice in quadruplicate, setting out the vessel’s particulars. 3. The Vendors’ written undertaking to cable the Master or their representatives in Taiwan instructing them to physically deliver the vessel to the Purchasers immediately the Purchase Money has been received in full. 4. Certificate of Deletion of the vessel from the Greek Register or the Vendors’ written undertaking stating that deletion of registration will be effected as soon as possible but not later than two weeks after the vessel has been fully paid for. 5. Signed Suppliers’ Certificate.
Within three business days of the Vendors or their Agents in Taiwan giving notice to the Purchasers by letter or telegram of the vessel’s readiness for delivery in accordance with this Agreement and presenting the Gas Free Certificate as per Clause 17, the Negotiating Bank shall be instructed by the Purchasers to release the full Letter of Credit amount to the Vendors forthwith. Such notice of readiness must be countersigned by the Kaohsiung Harbour Master or Lloyd’s Agents in Taiwan, confirming safe arrival of the vessel. This document and Gas Free Certificate as per Clause 17 with documents 1–5 as mentioned above shall be sufficient evidence to permit the Negotiating Bank to release the Letter of Credit in full to the Vendors. When the full Purchase Price has been released the aforementioned documents shall be released to the Purchasers. In the event that the confirmed irrevocable Letter of Credit is not established as aforesaid, the 10% (ten per cent) deposit shall immediately be forfeited to the sole use of the Vendors. Any Taiwan legal consular or import fees or taxes or bank charges to be for the Purchasers’ account. All bank charges in London in connection with the Letter of Credit, except bank confirmation and opening charges, are for the account of the Vendors.
(3) Should the vessel be unable to enter Kaohsiung Harbour on arrival for any reason other than on account of the weather or for any reason under the Vendors’ control the Purchasers are to pay to the Vendors demurrage at U.S.$6,000.00(say six thousand United States Dollars) per day or pro rata commencing 48 hours after the vessel’s arrival off Kaohsiung. The Purchasers’ guarantee the availability of a suitable berth immediately upon arrival of the vessel at Kaohsiung outer anchorage, in order that the Vendors can complete necessary pre-hand over formalities. If Purchasers breaking-up berth is either not free or not accessible, then the vessel is to be delivered “as is where is” as near as she can reasonably get to Purchasers breaking-up berth in Master’s discretion, and the Purchasers shall arrange a berth, anchorage or buoy, able to accommodate the vessel and same to be available upon vessel’s arrival. Should the vessel still be unable to enter Kaohsiung Harbour within 7 business days after arrival then the Vendors shall have the right to cancel this Agreement and in such case the deposit referred to in Clause 2 hereof shall be forfeited to the sole use of the Vendors together with payment of the accrued demurrage or at their option the Vendors have the right to deliver the vessel at Kaohsiung anchorage safely afloat and in this case the full amount of the Letter of Credit will be released to the Vendors as per Clause 4 (subject to the logical amendment in the notice of readiness) and Vendors’ crew will be released immediately for repatriation (at Vendors’ cost). In addition Purchasers undertake if expired, to extend the validity of the Letter of Credit in order to cover the above period of time.
(4) It shall be a special instruction of the confirmed irrevocable Letter of Credit as referred to in Clause 2 hereof, that in the event that the Purchasers or the Purchasers’ Opening Bank in Taiwan fails to despatch a cable or telex to the Negotiating Bank releasing the full Letter of Credit amount to the Vendors within 3 (three) business days of the Vendors or their agents in Taiwan giving the countersigned notice of readiness aforesaid and the Gas-Free Certificate as per Clause 17, to the Purchasers (or their Agents or otherwise as may be stipulated in the Letter of Credit), then the Vendors have the right to negotiate the confirmed irrevocable Letter of Credit by presenting to the Negotiating Bank a copy of the aforesaid countersigned notice of readiness, together with the documents, 1, 2, 3, 4 and 5 as specified in Clause 2 hereof and presentation of such documents alone shall constitute sufficient evidence to permit the Negotiating Bank to release the Letter of Credit amount in full to the Vendors.
(5) The vessel is sold for the purpose of breaking-up only and the Purchasers hereby covenant that they will neither trade the vessel for their own account nor sell the vessel a third party for any purpose other than breaking-up. The Purchasers undertake to complete breaking-up within nine months from time of delivery to be proved by production of certificate issued by the appropriate Local Authority …
(14) Any dispute or difference arising under this Agreement shall be settled by arbitration in London each party choosing one Arbitrator who shall if necessary appoint an Umpire whose decision shall be accepted as final and may be made a Rule of Court. Arbitrators and Umpire are to be commercial men and not lawyers. Such arbitration to be in accordance with the provisions of the Arbitration Act of 1950 or any statutory modifications thereof.
(15) This Agreement is to be construed and take effect as a Contract made in England and in accordance with the Laws of England and shall not only in England but in other countries be interpreted and enforceable in all respects in accordance with the said laws …
(17) The vessel will be delivered to the Purchasers with a valid Gas-Free Certificate for hot work, which Certificate to be approved by the Taiwan Authorities. However, if the said Gas-Free Certificate is not approved by the Taiwan Authorities, gas clearance shall be carried out again by the Vendors or their Agents at Vendors expense unless the Vendors are able to deliver the vessel with the Gas-Free Certificate accepted by the Taiwan Authorities the Purchasers will not accept and sign the notice of readiness … ’
It was common ground that the last date for establishing and confirming the letter of credit was 13 August 1980, but when on that date a letter of credit was established by an issuing bank in Taiwan, it neither complied with the terms of the sale agreement nor was it confirmed by a London bank. However, amendments were made and on 3 September 1980 the bank duly confirmed the letter of credit. The important respect in which the letter of credit did not comply with the sale agreement was in regard to the notice of readiness.
The letter of credit provided:
‘… A copy of the valid gas-free certificate for hot work, which certificate to be approved by the Taiwan Authorities, together with a copy of the notice of readiness countersigned by the Kaohsiung harbour master or Lloyd’s agents in Taiwan (Jardine, Matheson and Co. Ltd., Taipei) confirming safe arrival of the vessel inside Kaohsiung harbour and accepted and signed by the purchasers (Nan Jong Iron and Steel Co. Ltd., Tainan Taiwan on behalf of Southland Enterprise Co. Ltd., Tainan, Taiwan) … ’
This provision contrasted sharply with the provision of the last paragraph of cl(2) of the sale agreement.
The ensuing events will be found detailed with care and clarity in the reasons annexed to an award dated 30 November 1981 by Mr Kazantzis and Mr Selwyn, the two commercial arbitrators respectively appointed in the arbitration between the sellers and the buyers which followed the stay of the action granted by ParkerJ on 24 October 1980. I gratefully refer to their narrative in order to avoid unnecessarily lengthening this speech. Suffice it to say that the vessel arrived at Kaohsiung at 0900 hrs on 22 September 1980. Notice of her arrival was telexed to the buyers. A formal notice of readiness was issued by the master at 1530 hrs on 22 September 1980 and indorsed by Lloyd’s agents on 25 September 1980. On that day the buyers rejected the notice on the ground that the gas-free certificate presented with the notice of readiness had not been approved by the Taiwan authorities; it followed that the requirement in the letter of credit to which I have just referred that the notice of readiness should be accepted and signed by the buyers was not complied with.
My Lords, the explanation of the buyers’ strenuous endeavours to find some excuse for avoiding their contractual obligations to the sellers is to be found in paras18 to 20 of the arbitrators’ reasons. By the end of September the market price of scrap had fallen to around $US190 per lightweight ton. As the autumn progressed so did the market fall, until by December 1980 the market price was $US150 per lightweight ton, at which price the sellers ultimately resold the vessel to Hong Kong.
Meanwhile, events had moved to London. On 9 October 1980 the sellers, doubtless appreciating that the buyers were determined not to fulfil their obligations if they could possibly find some excuse for avoiding them and anticipating the approach of the expiry date of the letter of credit, issued a specially indorsed writ against the buyers in the Commercial Court claiming specific performance of the sale agreement. The prayer in the statement of claim sought, inter alia, a mandatory order on the buyers requiring them to sign the notice of readiness and to cause the deletion of the condition in the letter of credit regarding signature of the notice of readiness to which I have already referred.
On 10 October 1980 the sellers issued a summons in the Commercial Court designed to secure this relief. This summons was heard by ParkerJ on 24 October 1980. At the same time, no doubt by consent, the judge heard a cross-summons (formally this still had to be issued) by the buyers seeking a stay of the action by reason of the presence of the arbitration clause in the sale agreement. By reason of s1 of the Arbitration Act 1975 the judge was bound to grant this stay. But he granted the buyers the mandatory relief sought in relation to the notice of readiness and ordered that notice duly signed by the buyers in accordance with his order to be returned to the sellers’ solicitors in London by noon of 28 October 1980. Failing compliance with this order, the judge appointed a master of the Supreme Court (by amendment made on 28 October 1980 the master was named as Master Bickford Smith) to sign that notice on behalf of the buyers. He further ordered the buyers to instruct the issuing bank in Taiwan to instruct the bank to release the full amount of the letter of credit, that instruction to be given not later than the same date and time.
Paragraphs 4 and 5 of the judge’s order read thus:
‘4. The Plaintiffs do direct the full amount received under the said Letter of Credit to be placed in an interest bearing account in the joint names of the Plaintiffs’ and Defendants’ Solicitors with Lloyds Bank at 72 Fenchurch Street, London. No sums whatsoever are to be paid out of the said account other than pursuant to an agreement in writing between the Plaintiffs and the Defendants or pursuant to a further Order of this Court.
Your Lordships have a brief note taken by counsel of the judge’s oral judgment. It is clear from that note and indeed from the terms of the order itself that the judge, having stayed the action, thought (in my view entirely correctly) that the sellers had a strong case for specific performance of the sale agreement and therefore for obtaining the benefit of the letter of credit but that any defence which the buyers might ultimately prove to have could be adequately safeguarded by the provisions of paras4 and 5 of his order which I have just set out, the proceeds of the letter of credit being meanwhile put into a joint account unless otherwise agreed between the sellers and the buyers or ordered by the court. To this end the judge exacted an undertaking from the sellers that the vessel should not be moved from her then anchorage save with the leave of the court. There is no doubt that in making this part of his order the judge, as indeed he stated, was using the powers given to the High Court by s12(6) of the Arbitration Act 1950 and in particular by paras(f) and (h) of that subsection in support of the sellers’ claim in the intended arbitration for specific performance. There is also no doubt that, in ordering the notice of readiness to be executed by the buyers or in default by Master Bickford Smith, the judge was purporting to exercise the powers given by ss45 and 47 of the Supreme Court of Judicature (Consolidation) Act 1925.
The buyers did not comply with the judge’s orders either as regards the notice of readiness or the letter of credit. Accordingly, in furtherance of para2 of the judge’s order, Master Bickford Smith executed the notice of readiness on behalf of the buyers. On 29 October 1980 the sellers presented all the documents to the bank including the notice of readiness as altered and signed by Master Bickford Smith, those being the documents said to be necessary to operate the letter of credit in favour of the sellers. The bank rejected the documents. On 30 October 1980 after an ex parte application to the Court of Appeal by the sellers to authorise a minor alteration by Master Bickford Smith to what he had previously written, the documents, including the reamended notice of readiness, were re-presented to the bank and were again rejected. On 30 October the bank had in fact sought authority to pay from the issuing bank in Taiwan but were instructed not to do so (see  3 All ER 335 at 339,  QB 1248 at 1254 per AcknerLJ). Thus the proceeds of the letter of credit were never paid into the joint account envisaged by ParkerJ in para4 of his order. On 30 October 1980 the validity of the letter of credit expired, the bank having by then twice rejected the documents tendered to them. Any hope of the sellers thereafter securing specific performance of the sale agreement vanished with the expiry of the letter of credit. Unless the buyers could justify their conduct, as they subsequently sought to do in the arbitration to which I have referred, the sellers were left with a clear claim for damages against them.
Clearly there was no future in the vessel remaining in Taiwan. Accordingly, on 31 October 1980 the sellers sought and obtained from MocattaJ release from the undertaking exacted by ParkerJ from the sellers on 24 October 1980 that the vessel should not move from her then anchorage. Thereafter the sellers became free to treat the buyers’ conduct as a repudiation of the sale agreement and to claim damages on that basis and also to sail the vessel away from Taiwan.
On 12 November 1980 the sellers issued a writ against the bank claiming, inter alia, $US4,241,575, being a sum equal to the purchase price of the vessel under the sale agreement, either as due under the letter of credit or as damages for the wrongful rejection by the bank of the documents. Pleadings in their original form were later exchanged, but those pleadings were subsequently extensively amended and reamended. I shall call this action against the bank ‘the bank action’. Subsequently the issuing bank in Taiwan were joined as second defendants in the bank action, the pleadings in which presently extend to almost fifty pages although it would seem that the issues in that action are comparatively simple.
As already stated, the buyers on 10 November 1980 gave notice of appeal to the Court of Appeal against the order of ParkerJ made on 24 October 1980. On 16 January 1981 the sellers moved the Court of Appeal for an order for security on the grounds that the buyers were in contempt of the order of ParkerJ by their disobedience to it and further contending that for that reason the buyers’ appeal ought not to be heard. This matter for some reason did not come before the Court of Appeal (Lawton, Brandon and TemplemanLJJ) until 17 September 1981. That court in reserved judgments delivered on 24 September 1981 dismissed the sellers’ appeal and refused the sellers leave to appeal to this House (see  2 Lloyd’s Rep595).
On 28 September 1981, four days after the sellers’ appeal had thus been dismissed, the arbitration proceedings between the sellers and the buyers began and continued until 7 October 1981. The sellers claimed $US1,501,524·99 as damages for the buyers’ wrongful refusal to accept delivery of the vessel and a further $US397,125·00 as demurrage under the sale agreement from 24 September until 29 November 1980. This last date was the date on which the vessel ultimately left Taiwan for Hong Kong. The buyers, one might have thought somewhat optimistically in the circumstances, counterclaimed $US483,912·40 as damages for the sellers’ alleged breach of the sale agreement in failing to deliver the vessel to the buyers. By their award dated 30 November 1981 the two arbitrators held the buyers to be in breach and dismissed their counterclaim. Questions of quantum were stood over in the hope of agreement being reached but, as no such agreement was reached, the two arbitrators by a further award dated 23 March 1982 awarded not only the two sums above mentioned to the sellers but also a further $US35,240 in respect of overheads and expenses. The total award was for $US1,933,889·99 together with interest at 16% from 1 December 1980 to 31 March 1982 and costs.
Between the dates of these two awards the bank on 12 January 1982 moved the Court of Appeal to be joined as defendants in the action, adopting the buyers’ notice of appeal to which I have already referred and adding some grounds of their own which included the contention that ParkerJ had no jurisdiction under s47 of the 1925 Act to make the order which he made on 24 October 1980 or alternatively that he exercised his discretion wrongly in making that order. It is to be observed that those grounds do not assert any special interest of the bank as distinct from the interest of the buyers in seeking to be joined as parties to the appeal against ParkerJ’s order.
The buyers having thus dropped out of the proceedings, the sellers not unnaturally resisted the bank’s attempt to come in effect in their own supposed right. But the bank relied on RSC Ord15, r6(2) and sought to meet the sellers’ contention that the right place to advance a challenge to the judge’s order was in the bank action and not in the present proceedings by saying that while they could advance the want of jurisdiction argument in the bank action they could not in the bank action advance the contention that if the judge contrary to their contention had jurisdiction he had exercised his discretion wrongly. It was, it seems, this last contention which persuaded the Court of Appeal to allow the bank to be joined (see  3 All ER 335 at 343,  QB 1248 at 1259 per AcknerLJ). The Court of Appeal subsequently heard the bank’s appeal and dismissed it for the reasons given in a reserved judgment delivered by AcknerLJ. In substance the reasons were first that the judge had jurisdiction under s47 to make the order and second that, for the reasons given by AcknerLJ, he had exercised his discretion correctly, especially in view of the remarkable fact, to quote the words of AcknerLJ, that ‘the operation of the letter of credit could depend on the will of the buyer’ (see  3 All ER 335 at 348,  QB 1248 at 1269).
My Lords, at the outset of his submissions to your Lordships’ House counsel for the bank accepted that so long as the sellers were seeking specific performance of the sale agreement, as they were at least until 30 October 1980, the judge had jurisdiction under s12(6)(h) of the 1950 Act and possibly also under para(f) of that subsection to make an order in aid of the sellers’ claim for specific performance in the arbitration. But he contended that once, as was inevitable after 30 October 1980, the sellers were restricted to a claim against the buyers for unliquidated damages, the judge’s order could not stand in order to support such a claim for, save only in a case appropriate for the issue of a Mareva injunction, a defendant or a respondent in arbitration could not be required to secure a plaintiff’s or a claimant’s claim for unliquidated damages. The judge had jurisdiction to make this order under the 1950 Act in support of the sellers’ primary right to claim specific performance but not in support of their secondary right to claim damages. The order was only proper so long as the letter of credit was extant, that is down to 30 October 1980, for the letter of credit was the means whereby the sellers would receive payment when the mutual obligations of the sellers of delivery and of the buyers of acceptance of the vessel were performed but was not the means whereby the sellers could enforce any claim for unliquidated damages for non-performance by the buyers of their obligations. Further, counsel for the bank contended that the order was defective because it made no alternative provision for the possibility that the sellers’ claim might subsequently become one for unliquidated damages only. In any event, he argued, the Court of Appeal was wrong to have affirmed the judge’s order because by the time of its decision the arbitration had been held and the award of damages made.
So far as the order empowering Master Bickford Smith to sign the notice of readiness was concerned, counsel for the bank contended that this part of the order was in any event wrong, because s47 on its true construction did not entitle the judge to order a ‘substitute’ signature of a document of this kind affecting the relationship between third parties, that is to say between the bank and the issuing bank and between the bank and the sellers. Any jurisdiction was limited to ordering a ‘substitute’ signature of a document effective only as between the parties to the proceedings before the court in which the order was made. It was not right, he contended, to order the ‘substitute’ signature of a document needed to satisfy the requirements of another contract. Alternatively, counsel for the bank contended that, if there were jurisdiction under s47 to order such a ‘substitute’ signature, the judge exercised his discretion wrongly because that section was being used to alter the nature of the obligations assumed both by the bank and by the issuing bank, since absolute compliance with the documentary requirements of the credits was essential. A ‘just as good’ document would not suffice. It must, he contended, be inherently wrong to use powers accorded by a United Kingdom statute in circumstances in which international letters of credit, by no means universally governed by English law, would or might be affected.
My Lords, at the outset of his reply to these submissions counsel for the sellers forcefully pointed out that the inability of the sellers to claim specific performance of the sale agreement arose directly from the bank’s refusal to accept the documents twice tendered to them so that the letter of credit expired without payment having been made. It was the bank alone who by their action obliged the sellers to seek damages rather than specific performance. Had the bank paid against documents the proceeds would under para4 of the order of ParkerJ have been paid into the joint account, title to the vessel would, conditionally at least, have passed to the buyers on transfer of the bill of sale, the issuing bank would have got their security for what it was worth and the bank would have been free of any further obligations to the sellers. If by any chance the proceeds in the joint account became repayable to the bank rather than to the buyers, any necessary application to that end could have been made to ParkerJ by the bank. But, instead of looking only to their obligations under the letter of credit, the bank had of their own motion involved themselves in a dispute under a contract the performance of which as between the sellers and the buyers was no concern of the bank. Counsel for the sellers reminded your Lordships of the recent restatement of the position by Lord Diplock in United City Merchants (Investments) Ltd v Royal Bank of Canada  2 All ER 720 at 725,  AC 168 at 183. I venture to quote the whole passage:
‘Again, it is trite law that … the seller and the confirming bank, “deal in documents and not in goods” … If, on their face, the documents presented to the confirming bank by the seller conform with the requirements of the credit as notified to him by the confirming bank, that bank is under a contractual obligation to the seller to honour the credit, notwithstanding that the bank has knowledge that the seller at the time of presentation of the conforming documents is alleged by the buyer to have, and in fact has already, committed a breach of his contract with the buyer for the sale of the goods to which the documents appear on their face to relate that would have entitled the buyer to treat the contract of sale as rescinded and to reject the goods and refuse to pay the seller the purchase price. The whole commercial purpose for which the system of confirmed irrevocable documentary credits has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods and that does not permit of any dispute with the buyer as to the performance of the contract of sale being used as a ground for non-payment or reduction or deferment of payment.’
Counsel for the sellers submitted that it was this basic principle of commercial law which the bank’s actions and indeed their present submissions infringed. The bank, he contended, had no legitimate interest in challenging the order of ParkerJ, which was made in proceedings between the sellers and the buyers under the sale agreement. They had no legitimate interest in the question whether an order of the specific performance should be made. But, having first rejected the documents and then sought to intervene in a dispute to which they were not parties, the bank took the risk of their rejection of the documents being wrong and were not entitled to seek to pre-empt the decision in the bank action by intervening in the action to disturb an order made some two and a half years ago in proceedings to which they were strangers.
My Lords, before considering these several submissions I will deal briefly with the submission for the bank on s47 of the Supreme Court of Judicature (Consolidation) Act 1925 on which your Lordships did not find it necessary to hear counsel for the sellers.
Section 47 reads:
‘Where any person neglects or refuses to comply with a judgment or order directing him to execute any conveyance, contract or other document, or to indorse any negotiable instrument, the High Court may, on such terms and conditions, if any, as may be just, order that the conveyance, contract or other document shall be executed or that the negotiable instrument shall be indorsed by such person as the court may nominate for that purpose, and a conveyance, contract, document or instrument so executed or indorsed shall operate and be for all purposes available as if it had been executed or indorsed by the person originally directed to execute or indorse it.’
Counsel for the bank sought to argue that on the true construction of this section there was no power to order the execution of a document such as the notice of readiness in order to fulfil the requirement of a contract other than the contract between the parties immediately before the court. The signing of the notice of readiness by Master Bickford Smith was not, he argued, the ‘execution’ of a document of the character referred to in the section. My Lords, with all respect this submission is untenable and I can see no justification for cutting down the plain and wide language of the section in the manner for which counsel for the bank contended. There is no limitation on the class of document in relation to which the powers accorded by s47 may be invoked. Nor is there any limitation on the purpose for which a document executed in accordance with the powers so accorded may be used. The letter of credit was a contract governed by English law. So, I apprehend, was the contract between the bank and the issuing bank. The English courts clearly had jurisdiction at least over the letter of credit which the bank confirmed and that jurisdiction included power to make an order under s47. I am of the clear opinion that ParkerJ had jurisdiction to make this order and, inasmuch as this was, as he rightly thought, a strong case for ordering specific performance in favour of the sellers, I think in his discretion he was entitled to make the order he did.
I have earlier used the phrase ‘substituted’ signature, a phrase I have borrowed from counsel for the bank. But I do not intend by my use of that phrase to imply that the document possesses any different characteristics from those it would have possessed had the buyers signed the notice of readiness as directed by ParkerJ. ‘Alternative’ signature might perhaps be a better phrase. Whether such a document so ‘alternatively’ signed was a good tender or whether the bank have any other defence in the bank action is not a matter on which it is necessary for your Lordships’ House to pronounce in this appeal.
My Lords, I am unable to see how the exercise by ParkerJ of the jurisdiction accorded by s47 in any way altered the obligations which had been assumed by the bank or by the issuing bank, as counsel for the bank sought to contend. The order which the judge made did not itself order the bank to do anything. Counsel for the bank accepted that had the buyers complied with the judge’s order no problems would have arisen for the bank. The requisite documents would have been presented in the ordinary course of events and the terms of the letter of credit complied with so as to enable the sellers to receive, subject to the terms of the order, the payment of the purchase price which the award of the arbitrators subsequently made plain that the buyers should have procured to be paid to the sellers. That being so, I have found some difficulty in seeing why the bank should be concerned to disturb this order at all, let alone at this very late stage. I am afraid I am unable to see why the buyers’ non-compliance with the order entitles the bank, not parties to the contract in relation to which the order was made, now to complain of its effect. Having adopted the stance they did on 29 and 30 October it is for them to show in their defence in the bank action, if they are able to do so, that their two-fold rejection of the documents was justified.
My Lords, it follows that I have no doubt not only that the order of ParkerJ was correct but that the Court of Appeal was also correct in dismissing the bank’s appeal. Though I readily understand why the Court of Appeal allowed the bank to be joined as defendants in the action, I cannot but wonder whether if it had had the benefit of the full argument to which your Lordships have listened it would have granted the bank’s application to be joined. I would dismiss this appeal with costs.
LORD BRIDGE OF HARWICH. My Lords, for the reasons given in the speech of my noble and learned friend Lord Roskill, with which I agree, I too would dismiss this appeal.
Solicitors: Allen AND Overy (for the bank); Holman Fenwick AND Willan (for the sellers).
Mary Rose PlummerBarrister.