1. Reading the Decision and Lunch in the Pub
My interest in Wiseheart J.’s decision in the now classic case of Masterman Bank v. Seddon arose shortly after I arrived in Oxford in 1959. My object was to write a doctoral thesis on a banking facility known as the ‘commercial letter of credit’, which features in the export and import business. It facilitates international transactions by obtaining a bank’s promise to pay the price of goods. The vendor relies on the bank’s undertaking. The buyer, in turn, knows that the price is to be paid by the bank only if the vendor tenders the prescribed documents. Usually these include a carriage document, such as a bill of lading, evidencing that the goods have been shipped.
Wiseheart J’s decision on the subject had been delivered in 1954. I read it in Oxford’s Bodleian Library. Usually, after a spell of three or four hours in the library, I had my midday repast in a small pub near New College, a few minutes walk from the Law Reading Rooms. I liked its informal atmosphere, the neatly polished oak tables and the old-fashioned chairs. The array of bottles, the draught beer taps and the friendly bar tender – the publican – gave the dimly lit place an ambience of comfort and relaxation.
The publican, addressed by his customers as ‘Jack’, came to know me well. Usually, he fixed me a shandy and watched approvingly as I dug into one of his excellent roasts. Occasionally, he treated me to a cup of coffee.
Jack’s mannerism and outlook were unmistakably British. Approachable and affable, he was, all the same, reserved. His pronounced paunch – a beer belly – and a slight limp evidenced that he was well into middle age.
Jack was even tempered, self-assured and cheerful. He was friendly with many of us and treated his regulars as buddies. Some confided in him. I, for instance, told him much about my slowly progressing research. In contrast, Jack kept his own counsel. He seldom spoke about himself.
Frequently Jack participated in a game of darts. He was an expert and, on many occasions, knocked a successful throw of another player out with his own dart. On such occasions, he smiled with satisfaction but did not sneer. Often he was the winner. His counterparties, though, were not the real losers. Usually, Jack treated us to a round of drinks to celebrate his victory.
2. Jack’s Stand on my Research
Jack showed his concern when I talked to him about the subject of my doctoral thesis. He took the view that both Oxford and its libraries were too remote from the real banking world. There was more to banking than could be discovered in books. With a twinkle in his eyes, he observed that the main difference between bankers and sharks was that the latter did not camouflage their fearsome teeth.
I remonstrated: “That’s a terrible thing to say, Jack. Where would our capitalist society be without the bankers’ financial skills?”
“I’ve no idea. But, Peter, banks are no altruists. Sometimes, you want them to carry out a simple instruction and they persuade you to enter into some complex scheme. In the end, they make their profit and you make a loss. I prefer not to use them.”
I thought it best to ignore Jack’s critical remarks. On one point, though, his view was unexceptional. To study the developments and the effect of letters of credit, I needed contacts in the London banking world. To this end, one of my professors introduced me to G & M, a firm of private bankers in the City. They had been in business for about two hundred years and had an outstanding reputation. More importantly, they had been in the forefront of the letters of credit business right from the start.
3. Meeting London Bankers and Their View About a Recent Decision
Some two weeks after my topic was approved by Oxford’s Board of Studies, I went down to London to call on the Head of G & M’s International Trade Department. Their imposing building, with its fine arched entrance gate and discreet ambience, appeared miles apart from the noisy premises of run of the mill London banks.
The officer I called on, Dennis Gray, was a sparse Englishman, whose reserved mannerism, observant and shrewd eyes and his cleanly shaved face commanded respect. He was a typical member of the upper strata of English bankers: discreet, observant, reliable and down to earth.
For a while we talked about my research project. Gray was familiar with the existing legal textbooks on letters of credit. He wondered what had induced me to tackle the subject. Was it not a dead-end topic? He nodded his approval when I observed that the existing books were out of date.
Gray mentioned that few cases came up for decision in recent years. These indicated that the developments in current practice obviated disputes but that, nevertheless, our era was the lull before the storm. Problems were bound to surface when new players got into the system.
“Have you read Wiseheart J’s decision in Masterman Bank v. Seddon?” he asked me.
“I spotted it after I came over to England, Mr Gray.”
“What do you think of the judgment?”
“A fine decision! How could Wiseheart have reached any other conclusion?”
For a moment, Gray looked away. “On the facts presented to him, he couldn’t. But many aspects of the case did not come to light.”
“Oh,” I said, startled.
“Well, Mr. Berger: the underlying contract was for ‘Grade A Yasmin Tea’. The price agreed upon was higher than the retail price of such tea in London shops. Isn’t it strange that Seddon agreed to pay the exporter such a high price?”
“It is. Actually, there is no reference to this point in the judgment. Was it raised before the judge?”
“No: it wasn’t. And the transaction strikes me as fishy,” Gray spoke firmly.
“I’ll try to dig into it,” I volunteered.
Before I left, Dennis Gray told me the Bank would help me in my research work. He, on his part, wanted to be kept informed about my insights on Seddon’s case. Although G & M were not involved in this matter, the case was of interest to them. They, too, had customers trading with Chinese counterparties via Hong Kong.
4. Jack’s View Respecting the Case
Shortly after I went back to Oxford, I discussed my visit with Jack, the publican. In accord with my training as a lawyer, I refrained from mentioning the names of the parties, describing them as Mr. X and the Z Bank, and, as a matter of extra caution, did not mention the nature of the goods involved in the transaction.
Initially, Jack looked startled but within a few second his expression cleared. Having listened attentively to my detailed account, he was pleased that I had managed to established contacts with the English banking world.
“One point puzzles me,” I told Jack. “Why should our Mr. X try to get his money back from the Z Bank? At his request, they opened the letter of credit. Didn’t he seek to bite the hand that fed him?”
After a short reflection, Jack summed up: “It all depends on what took place when he discussed his business with the Z Bank’s staff in charge. Suppose the use of a letter of credit was their idea? Banks like your G & M may explain all details to Mr. X. But did the Z Bank?”