Article

Factual Summary:

On presentation by the beneficiary, the silent confirmer (who was a nominated negotiating bank) negotiated the documents presented and paid the proceeds to an assignee pursuant to an acknowledged assignment. Amongst the LC's requirements was presentation of an "original insurance policy or certificate in negotiable blank form ..." and a draft survey report and certificate of quality "issued by Griffith Inspectorate ...". The documents were forwarded to the issuer who dishonored, citing two discrepancies in the presentation, and refused to indemnify the silent confirmer. The first discrepancy cited was that the presented insurance certificate was not marked as "original" pursuant to UCP500 Art. 20(b). The second was that the required draft survey report and certificate of quality presented were "issued by Daniel C. Griffith (Holland) BV not as per L/C."

In the lawsuit, two more discrepancies were raised by the applicant (although disputed by the issuer), namely that the report presented was not a "Draft Survey Report" as required under the LC because it did not state the draft measurements of the vessel, and that the insurance policy presented was not in negotiable form as required by the LC because the name of the original insured was not listed.

With respect to the suit by the silent confirmer against the issuer, the trial court entered its judgment in favor of the silent confirmer on the grounds that the insurance policy was an original and, so, need not be marked "original", and that the draft survey report and certificate of quality were not discrepant.

With respect to the suit by the applicant against the issuer, the trial court entered its judgment in favor of the issuer, rejecting the applicant's argument that the report presented was not a "Draft Survey Report" as required by the LC. The trial court did not consider the applicant's argument regarding the insurance policy.

On appeal, the judgments against the issuer in the first case and against the applicant in the second case were affirmed, though on different grounds.

Legal Analysis:

1. Original Documents: The issuer contended that the insurance policy, whether an original or not, had to be marked "original" pursuant to UCP500 Art. 20(b) because it was produced by a computerized system (i.e., a word processor and a printer). The appellate court accepted the trial court's conclusion that the document was produced by a word processor and that such a document "is a document produced by a computerized system and therefore is governed by the requirements of Art. 20(b)." The trial court's decision was based on the ruling in Glencore International AG v. Bank of China [1996] 1 Lloyd's Rep. 135 (reprinted in 1996 Annual Survey of Letter of Credit Law & Practice 561). However, the appellate court stated that the Glencore decision did not mean that "Art. 20(b) entitles banks to reject documents which clearly are originals, which apart from [Art. 20(b)] they would be obliged to accept", because it did not contain the word "original". It noted that the insurance policy complied with UCP500 Art. 34 and that a copy of the policy would not be acceptable pursuant to that article. The appellate court ruled that Art. 20(b) "does not apply to an original document which the bank must accept under [Art.] 34, unless it either is or ... may be the kind of document which is a copy of another document, such as a photocopy ... or carbon copy (Art. 20(b)(iii))."

Though not basing its ruling on the issue, the appellate court agreed with the trial court's ruling that the word "original" did not have to appear on the document to be marked as an original. Quoting the trial court's opinion, it stated that there were "markings on the document and its terms are such as to leave 'no doubt about it being the original'." The markings to which the trial court referred were a blue colored logo and a watermark on company stationary, a clause in the text stating "This policy is issued in original and duplicate, one of which to be accomplished, the other to stand void", and that two were indeed issued, one which was a photocopy stamped "duplicate". The appellate court noted that it was not dealing with a photocopy with a handwritten signature on it, and a signature by itself would not necessarily comply with Art. 20(b), but would only authenticate the document.

2. Compliance: The LC required a draft survey report and certificate of quality "issued by Griffith Inspectorate. The issuer listed as a discrepancy that the required draft survey report and certificate of quality presented were "issued by Daniel C. Griffith (Holland) BV not as per L/C." The appellate court ruled that the draft survey report issued was not discrepant. It upheld the trial court's rejection of the issuer's contention that strict compliance was required in this instance. The trail court had stated that "a bank on reasonable examination would form the view that what the letter of credit called for was a document issued by a Griffith company, a member of the Inspectorate Group." The appellate court noted that the document was signed on behalf of "Daniel C. Griffith (Holland) BV, was on that company's letter-head paper, and had a logo marked 'INSPECTORATE'". Also, below the logo were the printed words: "MEMBER OF THE WORLDWIDE INSPECTORATE GROUP. DEDICATED TO THE ELIMINATION OF RISK."

3. Draft Survey Report: The applicant argued that the report presented was not the required "Draft Survey Report" because the term "draft" meant the displacement of the vessel, and no displacement was shown in the Surveyor's Report. The trial court had concluded that "draft" could not mean a preliminary report because they "are required only in specialised situations, and when they are called for, any bank would expect to see far more detailed and explicit requirements" and that the word was meaningless.

The appellate court disagreed with the trial court's conclusion that this requirement was meaningless and agreed with the applicant as to the meaning of the term "draft". However, the appellate court noted that the requirement was satisfied by an inclusion of the weight of the cargo actually shipped. It stated that the certificate of quantity (weight) "was the draft surveyor's measurement of the weight of cargo loaded, and it was described as such." It also noted that neither bank that was presented the document considered it discrepant.

4. Insurance Policy Not "in negotiable form": The appellate court rejected the applicant's claim that the insurance policy was not in negotiable form because the name of the insured was not stated. It noted that the documents were blank endorsed by the beneficiary, but there was no indication on the policy that the beneficiary was the original insured. However, the appellate court would not allow the applicant "to introduce a requirement that was not stated in the credit; namely, that the assured should be named in the policy." It stated also that "[t]here is no authority in law and no support in practice for any suggestion that its failure to name the assured rendered the policy invalid or unenforceable against the insurers" and the applicant should made such a safeguard a requirement of the LC.

Comment:

1. This decision adds another twist to the saga of Glencore. Reading between the lines (a dangerous and difficult task), it would seem that the learned judge is not altogether comfortable with the conclusions of his colleague in the Glencore decision. While purporting to follow it (as would appear to be required under UK practice), he in effect distinguishes it based on a distinction which is difficult to explain much less defend. It is a pity that he is so constrained because, however useful the decision may be to the parties to the case, it still leaves UK jurisprudence out of touch with a considerable portion of LC practice on the issue of originals.

2. The distinction appears to be that the document in Glencore was a photocopy whereas the document in Kredietbank was an original even though produced by computerized means. The Kredietbank court reaches this conclusion by reasoning that a document can be an original if produced by a computer, that the insurance policy in this case was an original notwithstanding how it was produced, and that Article 20(b) does not apply to an obvious original. It applies only to a copy. In addition, the Kredietbank court indicates that the factual situation in Glencore (a wet ink signature applied to a photocopy) would not create an original.

3. The fundamental trouble with this approach is that the analysis presumes a conclusion based on a factual inquiry itself as to how the document was in fact produced without apparently realizing that such information could not possibly be available to a document examiner and must necessarily be irrelevant in deciding whether or not a document is an original. All that can possibly matter for LC is how a document appears on its face. Unless a document obviously appears to be a photocopy, it must (and will) be deemed to be an original. Where it is wet signed, it is regarded as an original. These rules are captured in ISP98 Rule 4.15 (Original, Copy, and Multiple Documents). In this regard, the opinion merely continues the ill-conceived approach of Glencore. It is to be hoped that the ICC Decision on the Determination of an "Original" Document (12 July 1999) will be persuasive to the UK courts should the issue arise again.

© 2000 INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.