W J Alan & Co Ltd v El Nasr Export & Import Co

 

[1972] 2 All ER 127

Court of Appeal

 

W J Alan & Co Ltd sold two lots of 250 tons of coffee to El Nasr Export & Import Co at a price of 262 Kenyan shillings per hundredweight. Payment was to be made by a confirmed letter of credit and the currency to be used for payment was Kenyan shillings. The buyers opened a letter of credit in favour of the sellers but the currency was expressed in sterling not in Kenyan shillings. The sellers did not object to the discrepancy in the letter of credit because at the time it did not matter since one sterling shilling was equal to one Kenyan shilling. The first lot of coffee was shipped in September 1967 and the sellers claimed payment in sterling under the letter of credit. The second lot of coffee was shipped on 16 November and on the 18 November again the sellers claimed payment in sterling of £57,877 15s 9d under the letter of credit. However, earlier on the day of 18 November before the sellers claimed payment under the letter of credit sterling had been devalued against the Kenyan shilling. This meant that the £57,877 15s 9d was now only worth 987,734.50 Kenya shillings whereas the sellers had expected to receive 1,153,264.9 Kenya shillings. The sellers therefore claimed the difference of 165,530.45 Kenya shillings from the buyers. The buyers refused to pay the extra stating that they had paid for the coffee in full.

 

Clearly the sellers had been in breach of contract by opening the letter of credit in sterling rather than in Kenyan shillings but they claimed that the sellers by accepting payment under the letter of credit had waived their right as regards that breach.

 

Lord Denning MR

 

Variation or waiver

 

All that I have said so far relates to a 'conforming' letter of credit; that is, one which is in accordance with the stipulations in the contract of sale. But in many cases--and our present case is one--the letter of credit does not conform. Then negotiations may take place as a result of which the letter of credit is modified so as to be satisfactory to the seller. Alternatively, the seller may be content to accept the letter of credit as satisfactory, as it is, without modification. Once this happens, then the letter of credit is to be regarded as if it were a conforming letter of credit. It will rank accordingly as conditional payment.

 

There are two cases on this subject. One is Panoutsos v Raymond Hadley Corpn of New York... The other is Enrico Furst & Co v W E Fischer Ltd. In each of those cases the letter of credit did not conform to the contract of sale. In each case the non-conformity was in that it was not a confirmed credit. But the sellers took no objection to the letter of credit on that score. On the contrary, they asked for the letter of credit to be extended; and it was extended. In each case the sellers sought afterwards to cancel the contract on the ground that the letter of credit was not in conformity with the contract. In each case the court held that they could not do so.

 

What is the true basis of those decisions? Is it a variation of the original contract or a waiver of the strict rights thereunder or a promissory estoppel precluding the seller from insisting on his strict rights or what else? In Enrico Furst Diplock J said it was a 'classic case of waiver'. I agree with him. It is an instance of the general principle which was first enunciated by Lord Cairns LC in Hughes v Metropolitan Railway Co and rescued from oblivion by Central London Property Trust Ltd v High Trees House Ltd. The principle is much wider than waiver itself; but waiver is a good instance of its application. The principle of waiver is simply this: if one party, by his conduct, leads another to believe that the strict rights arising under the contract will not be insisted on, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict legal rights when it would be inequitable for him to do so: see Plasticmoda Societa Per Azioni v Davidsons (Manchester) Ltd per Denning LJ. There may be no consideration moving from him who benefits by the waiver. There may be no detriment to him by acting on it. There may be nothing in writing. Nevertheless, the one who waives his strict rights cannot afterwards insist on them. His strict rights are at any rate suspended so long as the waiver lasts. He may on occasion be able to revert to his strict legal rights for the future by giving reasonable notice in that behalf, or otherwise making it plain by his conduct that he will thereafter insist on them: see Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd. But there are cases where no withdrawal is possible. It may be too late to withdraw; or it cannot be done without injustice to the other party. In that event he is bound by his waiver. He will not be allowed to revert to his strict legal rights. He can only enforce them subject to the waiver he has made.

 

Instances of these principles are ready to hand in contracts for the sale of goods. A seller may, by his conduct, lead the buyer to believe that he is not insisting on the stipulated time for exercising an option: see Bruner v Moore. A buyer may, by requesting delivery, lead the seller to believe that he is not insisting on the contractual time for delivery: see Charles Rickards Ltd v Oppenheim. A seller may, by his conduct, lead the buyer to believe that he will not insist on a confirmed letter of credit: see Plasticmoda, but will accept an unconfirmed one instead: see Panoutsos v Raymond Hadley Corpn of New York and Enrico Furst v Fischer. A seller may accept a less sum for his goods than the contracted price, thus inducing him to believe that he will not enforce payment of the balance: see Central London Property Trust Ltd v High Trees House Ltd and D & C Builders Ltd v Rees. In none of these cases does the party who acts on the belief suffer any detriment. It is not a detriment, but a benefit to him, to have an extension of time or to pay less, or as the case may be. Nevertheless, he has conducted his affairs on the basis that he has that benefit and it would not be equitable now to deprive him of it.

 

The judge rejected this doctrine because, he said, 'there is no evidence of the [buyers] having acted to their detriment'. I know that it has been suggested in some quarters that there must be detriment. But I can find no support for it in the authorities cited by the judge. The nearest approach to it is the statement of Viscount Simonds in the Tool Metal case that the other must have been led 'to alter his position', which was adopted by Lord Hodson in Emmanuel Ayodeji Ajayi v R T Briscoe (Nigeria) Ltd. But that only means that he must have been led to act differently from what he otherwise would have done. And, if you study the cases in which the doctrine has been applied, you will see that all that is required is that the one should have 'acted on the belief induced by the other party'. That is how Lord Cohen put it in the Tool Metal case, and is how I would put it myself...

 

Applying the principle here, it seems to me that the sellers, by their conduct, waived the right to have payment by means of a letter of credit in Kenyan currency and accepted instead a letter of credit in sterling...

 

Megaw LJ

 

The offer made by the confirming bank... did not comply, in several respects, with what the sellers were entitled to require. However, the only non-conforming aspect of the offer which I regard as relevant for the purposes of this appeal is the term of the offer in respect of currency. That, in my view, is not only relevant, it is vital. The confirming bank's offer, made to the sellers with the knowledge of, and on the instructions of, the buyers, was an offer which involved sterling, not merely as the currency of payment, but as the currency of account, in respect of that transaction. The sellers accepted the confirming bank's offer, including its terms as to currency, by submitting invoices and drafts with the form and contents which I have already described.

 

As I see it, the necessary consequence of that offer and acceptance of a sterling credit is that the original term of the contract of sale as to the money of account was varied from Kenyan currency to sterling. The payment, and the sole payment, stipulated by the contract of sale was by the letter of credit. The buyers, through the confirming bank, had opened a letter of credit which did not conform, because it provided sterling as the money of account. The sellers accepted that offer by making use of the credit to receive payment for a part of the contractual goods. By that acceptance, as the sellers must be deemed to have known, not only did the confirming bank become irrevocably bound by the terms of the offer (and by no other terms), but so also did the buyers become bound. Not only did they incur legal obligations as a result of the sellers' acceptance--for example, an obligation to indemnify the bank--but also the buyers could not thereafter have turned round and said to the sellers (for example, if Kenyan currency had been devalued against sterling) that the bank would thereafter pay less for the contractual goods than the promised sterling payment of £262 per ton. If the buyers could not revert unilaterally to the original currency of account, once they had offered a variation which had been accepted by conduct, neither could the sellers so revert. The contract had been varied in that respect...

 

For the buyers it was submitted further that, if there were not here a variation of the contract, there was at least a waiver, which the sellers could not, or did not properly revoke. I do not propose to go into that submission at any length. On analysis, it covers much the same field as the question of variation. In my view, if there were no variation, the buyers would still be entitled to succeed on the ground of waiver. The relevant principle is, in my opinion, that which was stated by Lord Cairns LC in Hughes v Metropolitan Railway Co. The acceptance by the sellers of the sterling credit was, as I have said, a once-for-all acceptance. It was not a concession for a specified period of time or one which the sellers could operate as long as they chose and thereafter unilaterally abrogate; any more than the buyers would have been entitled to alter the terms of the credit or to have demanded a refund from the sellers if, after this credit had been partly used, the relative values of the currencies had changed in the opposite way.

 

Stephenson LJ

 

... I would leave open the question whether the action of the other party induced by the party who 'waives' his contractual rights can be any alteration of his position, as Lord Denning MR has said, or must, as the judge thought, be an alteration to his detriment, or for the worse, in some sense. In this case the buyers did, I think, contrary to the judge's view, act to their detriment on the sellers' waiver, if that is what it was, and the contract was varied for good consideration, which may be another way of saying the same thing; so that I need not, and do not, express a concluded opinion on that controversial question.