WJ Alan & Co Ltd v El Nasr Export & Import Co
Court of Appeal
Citations:  2 QB 189;  2 WLR 800;  2 All ER 127;  1 Lloyd’s Rep 313; (1972) 116 SJ 139;  CLY 3138.
The sellers agreed to sell coffee to the buyer under f.o.b. terms for a price in Kenyan shillings. The buyer resold the coffee to sub-buyers. The sub-buyers opened up an irrevocable letter of credit to pay for the sale, which the buyer had transferred to the seller. The letter of credit was in the wrong currency: sterling instead of Kenyan shillings. Nevertheless, the sellers accepted the letter, drew on the credit and began performing the contract. The invoices they presented were calculated in Sterling.
Sterling later devalued compared to Kenyan shillings. The sellers claimed that the buyer should have paid in Kenyan shillings, and tried to claim the difference in value between those currencies. The buyer argued that the sellers had agreed to vary or waive that contractual obligation by performing once they received the letter of credit.
- Had the sellers agreed to vary or waive the requirement of payment in Kenyan shillings?
The Court of Appeal held in favour of the buyer. Lord Denning thought that by accepting Sterling payments under the letter of credit, the sellers had irrevocably waived their right to insist on payment in Kenyan shillings.
Megaw LJ and Stephenson LJ thought that the sellers had varied the contract, for the same reason. The buyers were therefore not in breach of contract and had discharged their obligations to pay. The letter of credit was an offer to pay in a different currency, which the sellers accepted by using the credit and performing accordingly.
This Case is Authority For…
Lord Denning noted that once a contracting party induces the other into believing that they will not insist on their strict contractual rights and the other changes their position in reliance on this, the first party cannot usually go back on their promise. Lord Denning referred to this a ‘waiver’ – in modern terminology this is known as promissory estoppel.
Lord Denning stated that there is no need for the other party to show that their change of position was detrimental for promissory estoppel to arise. This case also shows that conduct can lead to estoppel, not just words.
The judges also noted that the legal effect of a letter of credit depends on the terms of the contract. In this case, the contract stipulated for payment to be made by way of an irrevocable letter of credit. In the circumstances, the letter amounted to a conditional payment which became absolute once the credit was honoured. Lord Denning treated it as equivalent to a cheque or bill of exchange.