Harbour Life and Reinsurance Company Ltd v Barclays Bank Plc

JurisdictionBahamas
CourtSupreme Court
JudgeOsadebay, Sr. J.
Judgment Date22 June 1999
Date22 June 1999
Docket NumberNo. 1991 of 1996

Supreme Court

Osadebay, J.

No. 1991 of 1996

Harbour Life and Reinsurance Company Limited
and
Barclays Bank Plc
Appearances:

Ms. Cherise Cox for the plaintiff.

Mr. John Wilson for the defendants.

Letters of Credit - Collateral security — Whether plaintiff entitled to return of collateral security with interest

Defendant had agreed to issue irrevocable standby Letters of Credit on behalf of the plaintiff. Plaintiff deposited $40,000 with the defendant as collateral security. Plaintiff subsequently served the defendant with notice in accordance with the terms of the Letters of Credit that id did not which them to be extended beyond 31.12.92. Issue whether plaintiff entitled to a return of his collateral security with interest.

This is not a case of “cancellation” of a Letter of Credit before its expiry date. The contract between the plaintiff and the defendant under which the latter agreed to issue the credit either itself or through a confirming bank to notify the credit to the beneficiary and to make payments to the beneficiary was an autonomous contract different from the contract between the defendant and the co-respondent bank and the beneficiary. Accordingly, judgment for the plaintiff with accumulated interest at the rate of 10% per annum from 1.1.93, continuing to judgment or sooner payment until the said debt has been extinguished or discharged.

Osadebay, Sr. J.
1

The question in this action is really whether the plaintiff (i.e. “the Customer”) is entitled to the return of the sum of $40,000.00, together with interest, which sum represents a collateral security held by the defendant for the issuance of letters of credit (Irrevocable Standby Letters of Credit) opened by the defendant (i.e. the “Issuing Bank”) on the instructions of the plaintiff (i.e. “the Customer”).

2

Background Facts:

3

By an application by the plaintiff and pursuant to an agreement between the plaintiff and the defendant dated 13th December, 1990, the defendant agreed to issue and did issue two (2) irrevocable Standby letters of credit on the 8th January, 1991, on behalf of the plaintiff as follows:–

  • “1. SB2/91 in favour of Custom Security Mutual Life Insurance Company (First Beneficiary) for a sum not exceeding U.S. $5,000.00 available by drafts, drawn on Barclays Bank plc at sight presented for acceptance;

  • 2. SB3/91 in favour of Inter American Insurance Co. of Illinois (Second Beneficiary) for a sum not exceeding U.S. $35,000.00 available by drafts drawn on Barclays Bank plc at sight presented for acceptance.”

4

It is not disputed that it was an express term of the Agreements for the issue of those Irrevocable Standby letters of credit that the letters of credit would expire on 31st December, 1991, (referred to as “the original expiration date”) but would automatically extend for One (1) year from that date (31st December, 1991) to any future expiration date unless on at least sixty (60) days prior to the original expiration date the defendant notified the beneficiaries by registered mail that the letters of credit would not be renewed.

5

On 2nd of January, 1991, as collateral security for the issuance of the said letters of credit a sum of $40,000.00 was deposited with the defendant in a fixed deposit account which said deposit was to mature and be rolled over every 30 days unless the defendant received instructions from the plaintiff to the contrary. The said deposit was made subject to a lien “executed in favour of the defendants by the plaintiff in the following terms:

“Barclays Bank PLC

Letter of Lien

I/We request you to continue and/or grant banking facilities and/or accommodation to HARBOUR LIFE & REINSURANCE CO. as you from time to time may determine and in consideration of your so doing I/we hereby agree that you may hold any moneys from time to time standing to my/our credit at any time at any of your offices or with any of your Agents on any account or in any manner whatsoever as security for and I/We hereby charge such moneys with the repayment of any indebtedness or ascertained or contingent liability whatsoever which have been or may be incurred by HARBOUR LIFE & REINSURANCE CO to you.

Further I/we agree that you may at any time without further order from or notice to me/us apply such moneys (with the right, if necessary, to convert any currencies held for my/our account at such rate or rates and at such time or times as you shall think fit) in or towards satisfaction of such indebtedness or liabilities and that in so doing you may refuse payment of cheques or other orders upon any account wheresoever kept unless after such application you hold on any account funds sufficient to meet any cheques or orders drawn on such account. This security is to be a continuing one until the expiration of three calendar months after receipt by you from me/us of notice in writing of my/our desire to discontinue.

I/We undertake to maintain at all times a credit balance at your BAY ST. Branch in sterling and/or other approved currency or currencies of or equivalent to £ U.S.$55,000 (FIFTY FIVE THOUSAND DOLLARS pounds) at least and authorise you to refuse payment of any cheque or other order the payment of which would reduce such balance below that amount and I/we agree that I/we shall not be released from this obligation nor shall your rights hereunder be affected by the granting of time in complying with this condition or by any other indulgence on your part.

Dated this 2nd day of JANUARY 1991

x Judy A. Higgs

Witness Dorothy Smith”

(Exhibit S.J.L. 3

6

(Emphasis — Provided).

7

Pursuant to the above-stated agreement and with security in place, the defendant proceeded to instruct Barclays Bank Plc., New York, New York — “under our risk and responsibility, kindly advise adding your confirmation to the following, clean, irrevocable, and unconditional letter of Credit….” (see Exhibits S.J.L. 2).

8

The defendant did not notify the beneficiaries or either of them at least 60 days prior to the original expiration date that the letters of credit would not be renewed. Accordingly on 31st December, 1991 and pursuant to the terms of agreements establishing the letters of credit the said letters of credit were automatically extended for another one (1) year from the original expiration date (i.e. 31st December, 1991).

9

By a letter dated 5th April, 1992, the plaintiff wrote to the defendant seeking confirmation as to the length of notice required by the defendant from the plaintiff in order to bring the said Letters of Credit to an end.

10

The defendant replied as follows:–

11

Exhibit S.J.L. 4

“BARCLAYS BANK PLC

Bay Street Branch

P. 0. Box N-8350, Nassau, Bahamas

13th April, 1992 Telephone: 1(809) 322-4921

Fax: 1 (809) 328-7979

Ms. Judy Higgs

Harbour Life & Reinsurance Company Ltd.

c/o British American Management Ltd.

P. 0. Box N3005

Nassau, Bahamas.

Dear Judy:

RE: US$55,000 LETTER OF CREDIT FACILITY

Further to your letter of April 5th, 1992, please be advised that the respective beneficiaries are as follows:

SB 1/91 for $15,000

Benef: Investment Life Insurance Co. of Dover.

SB 2/91 for $5,000

Benef: Customs Security Mutual Life Insurance Company.

SB 3/91 for $35,000

Benef: Interamerican Insurance Co. of Illinois.

All Letters of Credit provide for 60 days cancellation notice, however, I suggest you provide us with 90 days notice to enable us to instruct Barclays, New York before the 60 days expiry.

Sincerely yours,

Sgd. ___________________

EZZARD C. ROLLE

CORPORATE SERVICES MANAGER.

ECR/vm”

12

(Emphasis — Provided

13

In accordance with the reply Exhibit S.J.L. 4 received from the defendant, the plaintiff by a letter dated 9th September, 1992, gave notice and instructed the defendant (which notice and Instruction was received by the defendant on the 16th September, 1992) that the plaintiff would not wish the letters of credit to be renewed when they came to an end on the second expiry date — 31st. December, 1992. That notice and instruction (Exhibit S.J.L. 5) stated as follows: –

“September 9, 1992

RECEIVED

Sept/16/92

Mr. Ezzard Rolle

Corporate Services Manager

Barclays Bank PLC

Bay Street

Nassau, Bahamas

Dear Mr. Rolle,

Re: US$55,000 Letter of Credit Facility

Applicant; Harbour Life & Reinsurance Co., Ltd.

We hereby give notice of cancellation of the above Letter of Credit facility.

The beneficiaries of the facility are: –

SB1/91 for $15,000

Benef: Investment Life Insurance Co. of Dover

SB2/91 for $5,000

Benef: Customs Security Mutual Life Insurance Company

SB3/91 for $35,000

Benef: Interamerican Insurance Co. of Illinois

Please confirm receipt of these instructions by signing and returning the enclosed copy of this letter.

Thank you for your attention to this matter.

Sincerely,

________________ _________________

Judy A. Higgs Carmen Moxey

British-American Management Limited

Managers”

14

It is to be noted that the said notice and instruction was received more than three (3) months prior to the second expiry date of 31st December, 1992.

15

By a letter dated 12th. March, 1993, the defendant advised the plaintiff as follows: –

“BARCLAYS BANK PLC

Bay Street Branch

P. 0. Box N-8350, Nassau, Bahamas

Telephone: 1(809) 322-4921

Fax: 1(809) 328-7979

12th March, 1993 RECEIVED

MAR 17th 1993

Mrs. Judy Higgs

British American Management Ltd.

P. 0. Box N3005

...

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