OF FERRIES AND LETTERS OF CREDIT

In the ongoing drama over what has popularly become known as 'Ferrygate' a question has arisen over whether or not a letter of credit was irrevocable or not and whether or not the taxpayers of this country have had to pay out some US$3 million for the infamous ferry called the "Cabo Star".


Spokesmen for the Government and the Port Authority of Trinidad and Tobago (PATT) have suggested in the newspapers that the letter of credit was revoked and therefore no money has been paid or will be paid to Bridgemans, the owners of the Cabo Star. But the various statements coming from these spokesmen have been obfuscatory at best or down right ignorant and dishonest at worst.


Let's start with the classic definition of a letter of credit: a letter of credit is a contract made between an issuing bank and a seller of goods or services being supplied to a buyer of those goods or services. A normal mercantile contract usually stipulates that the letter of credit is irrevocable, which means that the buyer cannot cancel it. You have only to look at it to understand why. The whole idea for a letter of credit is to ensure that the seller is paid no matter what. In other words, the buyer cannot come up with some later excuse and refuse to pay because he (the buyer) wants out of the deal that he has made with the seller.


It is trite law that the contract between the issuing bank and the seller (which contract is the letter of credit) is a separate contract and is independent of the original contract between the buyer and the seller. In other words, the bank is bound vis-a-vis the seller to pay upon presentation of the letter of credit and its accompanying documents once everything is in accordance with the terms and conditions under which the letter of credit was issued. The bank is bound to pay even where there may have been a breach by the seller under the original contract which would have enabled the buyer to reject the goods.


The only exception to this rule is where there has been a fraudulent presentation of documents to the bank which contain material misrepresentations of fact relating to the letter of credit which the seller knows to be inaccurate. But these fraudulent statements must relate to the contract between the bank and the seller. The contract between the buyer and the seller is a completely different matter.


Of course, apart from fraud, if any documents relating to the letter of credit are forged, that forgery could also void the letter of credit.


So, you can understand that the terms "irrevocable letter of credit" and "letter of credit" really are one and the same thing. All of which could help to explain why the "Cabo Star" turned up in Trinidad last week. It has been reported that the letter of credit becomes due on Thursday 28th September, 2017. It might have been a condition of the letter of credit that the vessel had to be in Trinidad waters by that date or the letter of credit would be null and void. If that was the case, then it looks like the letter of credit will have to be paid ... if it hasn't been already!


But it doesn't explain exactly what has happened in this whole "Ferrygate" fiasco or why we don't have all of the facts. Certainly, getting to the bottom of this has been more difficult than pulling the teeth out of a chicken ... and, yes, I am aware that chickens don't have teeth!