WJ Alan & Company Ltd v El Nasr Export & Import Co [1972] EWCA Civ 12 (03 February 1972)

Kenyan coffee sellers contracted with Tanzanian buyers for payment in Kenyan shillings. A letter of credit was issued in sterling, which the sellers accepted and used for payment. After sterling devaluation, sellers claimed the difference. The Court held that by accepting the sterling credit, sellers had waived their right to payment in Kenyan currency.

Facts

W.J. Alan & Company Ltd, coffee producers in Kenya, entered into two contracts in July 1967 with El Nasr Export & Import Co, an Egyptian state trading company operating through their Dar-es-Salaam branch, for the sale of 500 tons of coffee (250 tons per contract) at a price of Shs. 262/- per cwt FOB Mombasa. Payment was to be by confirmed irrevocable letter of credit.

The letter of credit established did not conform to the contracts in several respects, notably being expressed in sterling (£262 per long ton) rather than Kenyan shillings. At the time, Kenyan shillings and sterling shillings were of equal value. The sellers accepted the non-conforming credit without objection and used it to obtain payment for the first shipment.

On 16th November 1967, the second shipment of 221 tons was made. Before the sellers presented documents for payment, sterling was devalued on 18th November 1967. Kenyan currency was not devalued. The sellers received payment in sterling under the credit but claimed an additional Shs. 165,530.45 from the buyers, representing the difference caused by devaluation.

Issues

Currency of Account

Whether the money of account under the original contract was Kenyan shillings or sterling.

Variation or Waiver

Whether, by accepting and using the sterling letter of credit without objection, the sellers had varied the contract or waived their right to payment in Kenyan currency.

Effect of Letter of Credit

Whether an irrevocable confirmed letter of credit constitutes absolute or conditional payment of the price.

Judgment

The Court of Appeal allowed the appeal and entered judgment for the defendants (buyers).

Currency of Account

The Court unanimously held that the original currency of account was Kenyan shillings. Lord Denning MR stated that the use of ‘Shs. 262/-‘ was the clearest indication that the money of account was Kenyan currency. Megaw LJ agreed, noting that the form used was appropriate for Kenyan currency and not for sterling.

Variation and Waiver

The Court held that by accepting and operating on the sterling letter of credit without objection, the sellers had waived their right to payment in Kenyan currency. Lord Denning MR applied the principle from Hughes v Metropolitan Railway Co, explaining that if one party leads another to believe that strict contractual rights will not be insisted upon, and the other acts on that belief, the first party cannot afterwards insist on those rights when it would be inequitable to do so.

Megaw LJ held that there was a variation of the contract. The acceptance of the sterling credit by the sellers was a once-for-all acceptance relating to the totality of the letter of credit transaction, which was the sole contractual provision for payment.

Effect of Letter of Credit

Lord Denning MR expressed the view that in the ordinary way, a confirmed irrevocable letter of credit operates as conditional payment, not absolute payment. If honoured by the bank, the debt is discharged; if not honoured, the seller has remedies against both banker and buyer. He analogised it to payment by bill of exchange or cheque.

Implications

This case is significant for establishing important principles regarding:

• The interpretation of currency clauses in international sale contracts
• The doctrine of waiver in contract law, particularly that waiver does not necessarily require detriment to the party relying on it
• The effect of accepting a non-conforming letter of credit
• The nature of payment by letter of credit as conditional rather than absolute payment

The decision demonstrates that parties who accept non-conforming performance without objection may be held to have waived their strict contractual rights, particularly where the other party has acted upon that acceptance. It reinforces the commercial importance of raising objections to non-conforming credits promptly.

Verdict: Appeal allowed. Judgment entered for the defendant buyers. The sellers' claim for additional payment following devaluation was dismissed on the ground that they had waived their right to payment in Kenyan currency by accepting and operating on the sterling letter of credit.

Source: WJ Alan & Company Ltd v El Nasr Export & Import Co [1972] EWCA Civ 12 (03 February 1972)