Article

DOCDEX Decision No. 276

UCP 600 sub-articles 14 (b), 16 (b), 16 (d), 16 (f) and 4 (a)

Did the Respondent fail to comply with the applicable provisions of UCP 600 sub-articles 14 (b), 16 (b) and 16 (d) concerning a reasonable time to refuse documents? Was the Respondent precluded from claiming that the documents do not constitute a complying presentation as per sub-article 16 (f)?

Parties

Initiator: Company C

Respondent: Company I (non-bank issuer)

Background and transaction

The Initiator received two irrevocable L/Cs on 11 October 2007 for USD 156,200.00 ("LC-1") and USD 67,907.10 ("LC-2") issued by the Respondent, a non-bank issuer. Both L/Cs were subject to UCP 600 and were relayed by Bank B through Bank D's Head Office via SWIFT MT710 messages. The expiration date of both L/Cs was 12 November 2007 at the counter of the Respondent. On 17 October 2007, the Initiator received amendments for the two L/Cs advised through the same channel. L/C-1 was amended to increase the amount to USD 163,339.30 and L/C-2 was amended to reduce the amount to USD 67,737.10.

Both MT710s referred to the L/Cs being issued by a non-bank issuer. They were subject to UCP 600. The Respondent would still be required to take on the responsibilities of an issuing bank as defined in UCP 600.

On 29 October 2007, the Initiator presented documents as required in the two L/Cs for USD 162,437.90 and USD 68,807.10 respectively to Bank M (the "presenting bank"). In its covering letter dated 1 November 2007, the presenting bank enclosed and forwarded the documents as presented by the Initiator to the Respondent.

The documents were received by the Respondent on 5 November 2007, Monday. The Respondent reviewed the documents on the following day. As the documents were found to be discrepant, the Respondent approached the applicant for a waiver of the discrepancies on 7 November, Wednesday. One week later, on 14 November, the Respondent sent an e-mail to the applicant seeking an immediate reply. As no reply was received by the Respondent, it sent another e-mail to the applicant on 19 November 2007, Monday, seeking immediate reply. The applicant responded that it would not waive the discrepancies. The Respondent indicated that there was a dispute between the Initiator and the applicant on S&H handling costs.

In its response, the Respondent stated that it had confirmed the applicant's request to refuse to honour the documents on 20 November 2007 and, on 21 November 2007, Wednesday, the Respondent advised the presenting bank by SWIFT that the documents presented under the two L/Cs were rejected due to the discrepancies noted by the Respondent, and the documents were held at the disposal of the presenting bank.

In response to the tracers sent by the presenting bank on 21 and 26 November 2007 respectively, the Respondent, sent another SWIFT message on 26 November 2007, stating that the documents were rejected due to the discrepancies noted by it and requested disposal instructions for the documents.

On 27 November 2007, the presenting bank sent a SWIFT message to the Respondent citing sub-article 14 (b) of UCP 600 that indicated the Respondent had a maximum of five banking days following the day of presentation to determine if a presentation was complying. The Respondent returned the documents to the presenting bank by courier service on 30 November 2007 and closed its files.

Issues

1. Has the Respondent failed to comply with the applicable provisions of UCP 600 sub-articles 14 (b), 16 (b) and 16 (d)?

2. Shall the Respondent be precluded from claiming that the documents do not constitute a complying presentation as per sub-article 16 (f)?

In its response, the Respondent claimed that the delay in refusal was due to the Initiator's conflicting correspondence with the applicant. As copies of the documents were not provided by the Initiator, the Panel is not able to make a comment on the validity of the discrepancies. They will not be examined as part of this decision.

Documents submitted by the parties

Documents submitted by the Initiator

(i) two SWIFT MT710s from Bank B (Advice of a Third Bank's or a Non-Bank's Documentary Credit) dated 10 October 2007;

(ii) two SWIFT amendments from Bank B advising amendments to the documentary credits issued by the Respondent on 16 October 2007;

(iii) three copies of e-mail message to the Initiator from the applicant;

(iv) two cover letters from the presenting bank addressed to the Respondent dated 1 November 2007;

(v) a SWIFT MT 799 message from Bank B relaying notice of refusal to the presenting bank from the Respondent dated 21 November 2007;

(vi) a SWIFT MT799 message from the presenting bank to Bank B requesting Bank B to relay a message to the Respondent citing UCP 600 sub-article 14 (b);

(vii) corresponding SWIFT messages between the presenting bank and the Respondent.

Documents submitted by the Respondent

(i) two copies of a SWIFT MT799 message (tracer) from the presenting bank dated 9 November 2007;

(ii) copy of the Master Contract dated 12 September 2007 between the Initiator and the applicant;

(iii) copy of an e-mail message from the Initiator to the applicant dated 18 December 2007;

(iv) two copies of a SWIFT MT799 message (tracer) from the presenting bank dated 21 November 2007;

(v) copy of SWIFT MT799 message from the presenting bank dated 26 November;

(vi) copy of SWIFT MT799 message (tracer) from the presenting bank dated 26 November 2007;

(vii) copy of SWIFT MT799 message from the Respondent to the presenting bank dated 26 November 2007;

(viii) two copies of a SWIFT MT799 message (tracer) from the presenting bank to the Respondent dated 30 November 2007;

(ix) copy of SWIFT MT799 message (tracer) from the presenting bank to the Respondent dated 6 December 2007;

(x) copy of SWIFT message MT799 from the Respondent to the presenting bank dated 10 December 2007;

(xi) copy of fax message from a Mr D to Bank B and the Respondent 14 December 2007;

(xii) copy of an e-mail message from a Mr D to the applicant dated 14 December 2007;

(xiii) copy of a SWIFT MT799 message from the Respondent to the presenting bank dated 18 December 2007;

(xiv) correspondence from Mr D and the Initiator.

Analysis

1. Has the Respondent failed to comply with the applicable provisions of UCP 600 sub-articles 14 (b), 16 (b) and 16 (d)?

The documents were received by the Respondent on 5 November 2007, Monday. They were reviewed by the Respondent on the following day and found to be discrepant. On 7 November 2007, Wednesday, the Respondent approached the applicant for a waiver of the discrepancies. Subarticle 16 (b) of UCP 600 states: "When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b)."

The Respondent may choose to approach the applicant for a waiver of the discrepancies. It must, however, observe the time period mentioned in sub-article 14 (b). Sub-article 14 (b) states: "A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation."

As the Respondent did not receive any reply from the applicant, on 14 November 2007, it sent an e-mail to the applicant seeking an immediate reply. Another e-mail was sent on 19 November 2007. The Respondent received confirmation that the applicant would not waive the discrepancies on 20 November 2007. On 21 November 2007, Wednesday, the Respondent sent a notice of refusal by SWIFT to the presenting bank via Bank B.

Sub-article 16 (d) of UCP 600 states: "The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation."

Though the Respondent had determined that the presentation did not comply on the day following the day of presentation, it chose to approach the applicant for a waiver of the discrepancies. It sent its notice of refusal to the presenting bank on the eleventh day following the day of presentation.

In our Opinion, the Respondent has failed to comply with the provisions of sub-articles 14 (b), 16 (b) and 16 (d).

2. Shall the Respondent be precluded from claiming that the documents do not constitute a complying presentation according to sub-article 16 (f)?

Sub-article 16 (f) states: "If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation."

As the Respondent has failed to act in accordance with the provisions of sub-articles 14 (b), 16 (b) and 16 (d), it shall be precluded from claiming that the documents do not constitute a complying presentation.

Conclusion

The Respondent claimed that the delay in sending the notice of refusal was due to the Initiator's conflicting correspondence with the applicant. Sub-article 4 (a) of UCP 600 states: "A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary."

The undertaking of the Respondent to honour or to fulfil any other obligation under the L/C is not subject to claims or defences by the applicant resulting from its relationship with the Initiator. Whether the Initiator has provided any conflicting correspondence or has any dispute with the applicant on the quality and compensation for any defects, the Respondent is in no way concerned with or bound by such correspondence. This correspondence cannot be used as an excuse for any delay in refusal of the presentation.

In conclusion, the Respondent has failed to comply with the applicable provisions of UCP 600 sub-articles 14 (b), 16 (b) and 16 (d). As the Respondent has failed to act in accordance with the provisions of article 16, it is precluded from claiming that the documents do not constitute a complying presentation.

The Decision is unanimous.