## Facts

- A German seller agreed to sell frozen pork to a Russian buyer under a transaction financed through a documentary letter of credit.
- A London finance company arranged the financing but was not a party to the sale contract; it caused its bank to procure issuance of a letter of credit in favor of the seller.
- The credit was subject to UCP 500 and required, as a condition of payment, an inspection certificate “signed by” the finance company (a “locking clause”) intended to control release of funds.
- The seller presented documents that appeared on their face to comply with the credit, including an inspection certificate bearing a signature purporting to be that of the finance company.
- The finance company notified the issuing bank before payment that it had not signed or authorized the inspection certificate and requested nonpayment.
- The issuing bank nevertheless honored the credit based on facial compliance and paid the seller.
- The trial court granted summary relief upholding the seller’s entitlement to payment and the banks’ reimbursement chain, finding the certificate was signed without the finance company’s authority but that the seller was not fraudulent.
- The finance company appealed, arguing the issuing bank should have refused payment once alerted that the certificate signature lacked authority.

## Issues

1. Whether a required document under a documentary credit, signed without the named signatory’s authority, must be treated as a “nullity” or nonconforming presentation requiring the issuing bank to refuse payment.
2. Whether English law recognizes a general “nullity exception” to the autonomy principle, independent of fraud by the beneficiary.
3. Whether notice to the issuing bank, before honor, that a signature was unauthorized permits or compels dishonor absent beneficiary fraud.

## Decision

- The Court of Appeal dismissed the appeal and upheld the orders in favor of the seller and the banks.
- The inspection certificate, though unauthorized, was not treated as a nullity for purposes of the bank’s documentary obligations where the presentation was facially compliant.
- The issuing bank was entitled (and, on the court’s approach to the credit’s documentary nature, required) to honor a complying presentation absent fraud by the beneficiary.
- The reimbursement obligations were enforced: the issuing bank could recover from the intermediary bank, which could recover from the finance company.

## Legal Principles

- Documentary credits are autonomous from the underlying sale; banks deal with documents, not the underlying transaction or performance.
- Under UCP-based documentary practice, the bank’s examination is for apparent (face-value) compliance with the credit’s terms, not verification of underlying authority or truth, absent an applicable exception.
- The fraud exception is narrow and is generally limited to fraud by the beneficiary (or a party for whom the beneficiary is responsible); wrongdoing elsewhere in the chain does not, by itself, justify dishonor.
- English law does not recognize a broad “nullity exception” that compels dishonor whenever a document is later shown to be unauthorized or otherwise defective, if it appears compliant and the beneficiary is innocent.
- Risk of intermediary fraud in a structured finance arrangement may fall on the applicant seeking to control payment through credit terms, rather than on an innocent beneficiary or a bank honoring facially compliant documents.

## Conclusion

The Court of Appeal held that an issuing bank may honor a documentary credit upon a facially compliant presentation despite prior notice that a required certificate was signed without authority, because absent beneficiary fraud there is no general nullity exception displacing the autonomy principle and UCP-style document examination.


Montrod Ltd. v. Grunkötter Fleischvertriebs GmbH, [2002] 1 W.L.R. 1975 (Eng. Ct. App. 2001)