'21. In its brief dated October 13, 2006, Claimant stated that:

(i) the Contract did not provide a minimum price, therefore, the Invoice was not discrepant and the issuing bank was incorrect in refusing to accept the Invoice;

(ii) Claimant has performed all of its obligations under the Contract. The Letter of Credit was conditional payment only, and when this method failed, the primary obligation for Respondent to take delivery of and pay for the Goods remained;

(iii) even if the Invoice is found to be discrepant, such discrepancy does not entitle Respondent to reject or refuse to take delivery of the Goods because such a discrepancy does not amount to a "fundamental breach of contract" as defined in Article 25 of 1980 United Nations Convention on Contracts for the International Sale of Goods (the "Convention");

(iv) Article 7 of the Convention provides that when interpreting the Convention, one must consider the Convention's international character and the need to promote uniformity in its application and the observance of good faith in international trade.

(v) Claimant asserts that Respondent's reliance upon a miniscule discrepancy to avoid the contract is repugnant to the principle of good faith and the emphasis of the Convention on the preservation of the contract;

(vi) Claimant further notes that, as set forth in its Request for Arbitration, the Agreement [to cure discrepancies] constitutes an amendment or variation to the Contract, and Respondent is in breach of the Agreement and Contract in failing to instruct the bank to accept the Invoice;

(vii) absent waiver from the buyer to the bank, an irrevocable letter of credit is merely conditional payment for the goods, and if/when that source of payment fails, the seller may look to the buyer directly for payment;

(viii) Respondent failed to perform its contractual obligations. There was no act or omission of the Claimant which gave Respondent the right to refuse to take delivery of the Goods;

(ix) in circumstances where there was no minimum price in the Contract, nor a method by which to calculate a minimum price, the bank was not required to undertake the calculations which it did in relation to the price stated on the Invoice. There is no specific reference in Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce Publication No. 500 ("UCP500") to reject commercial invoices issued for an amount less than permitted by the credit. Article 37(b) of the UCP500 supports the view that the bank should not have rejected the Invoice for the reason that it was allegedly made out for a sum less than a minimum price. In sum, the bank was not entitled to reject the Invoice; and

(x) in accordance with Articles 62, 63 and 64 of the Convention, Claimant was entitled to require Respondent to take delivery of the Goods and pay the sales price, fix an additional period of time for Respondent to pay, and/or declare the Contract void failing Respondent's payment.

22. In its brief dated November 20, 2006, Respondent stated that:

(i) where an irrevocable letter of credit has been agreed as the payment method, the terms of the Letter of Credit, with application of the UCP500, become part of the Contract. Article 39(c) of UCP500 only allows a tolerance of 5% less in the amount of drawing. Item 39A of the Letter of Credit provides that "Percentage Credit Amount Tolerance" is "05/05". Therefore, there is a minimum price in the Contract and the Invoice is discrepant;

(ii) after the documents were rejected, Claimant did not present the documents to Respondent directly for payment. Thus, Respondent could not take delivery of the Goods, which means that there was no rejection or refusal to take delivery of goods on the part of Respondent. The prerequisite for Respondent's payment is that Claimant tender the documents to Respondent since the bank is not Respondent's agent;

(iii) by accepting the terms of the Letter of Credit, the seller is obligated to deliver goods and documents required by the Letter of Credit;

(iv) after discrepant documents were presented by the seller and rejected by the bank, the buyer is discharged and therefore is not obligated to take delivery of the goods. Respondent cited several cases to support this view, including Ficom S.A. v. Sociedad Cadex Limitada (C.A.) [1980] 2 Lloyd's Rep. 118, and Shamsher Jute Mills Ltd v. Sethia (London) [1987] 1 Lloyd's Rep. 388 ("Shamsher") which was decided by an English court;

(v) the Contract was not avoided by Respondent, but just not performed due to Claimant's own fault;

(vi) Respondent's action was not repugnant with the principle of good faith since both parties were well aware of the implications of presenting discrepant documents;

(vii) Respondent's obligation to pay was suspended after the Letter of Credit was duly opened, and would have been re-activated only under limited circumstances, such as insolvency of the opening bank;

(viii) the failure of Respondent to take delivery of the Goods resulted from Claimant's own fault, namely, presenting discrepant documents which were rejected by the bank. [The bank] was entitled to reject the documents; and

(ix) Claimant should have resold the Goods immediately after the documents were rejected in order to minimize its losses in such a falling market, as opposed to reselling them several months later. Such delay enlarged the losses.

23. On December 1, 2006, the Sole Arbitrator directed the parties to address the following issues:

(i) Whether the rule established in Shamsher is applicable in the current case given that the governing law in the current case, as the parties agreed in the Contract, is the Convention. If not, what should be the rule under the Convention regarding the recourse which the seller has in the case of rejection by the bank issuing a Letter of Credit?

(ii) The parties should provide an analysis of the relevance of the factors the judge considered in Shamsher as they relate to the current case, particularly the following issues under the Convention: (i) what is the relationship between the terms of the letter of credit and those of the underlying sales contract? What kind of factors (e.g. negotiations between the parties in the course of opening the letter of credit, shipment of goods, communications between the parties following issuing bank's dishonour of drafts, etc.) will affect such relationship? (ii) To what extent is the answer to the above question relevant to the recourse which the seller should have in case of rejection, rightful or wrongful, by the opening bank of the letter of credit?

24. Claimant submitted its responses to the above questions ... Claimant stated that:

(i) the rule established in Shamsher is not applicable because the rejection of the documents by [the bank] was not "rightful". Under Article 37(b) of the UCP500,1 [the bank] was not entitled to reject the Invoice;

(ii) Claimant did not re-sell the Goods because Claimant negotiated with Respondent after the rejection;

(iii) the sales contract and the letter of credit must be treated as separate, autonomous and unqualified by each other. Claimant's inability to recover under the documentary credit, due to a formality concerning the regularity of documents, does not necessarily bar Claimant from seeking damages against Respondent under the sales contract. One could view Respondent's breach of the Contract to arise from Respondent's refusal to instruct the bank to accept the documents and waive the discrepancies;

(iv) under the Convention, the rule established in Shamsher is not applicable because the Convention is concerned with the preservation of contract and the observance of good faith. A letter of credit is a form of collateral security only and when that form of security fails, and where Claimant has performed its obligations under the Contract, under the Convention, it is correct for Claimant to look directly to Respondent for payment under the Contract. The Contract did not name the opening bank, as such Claimant had not promised to look solely to a bank for payment;

(v) after the documents were rejected, Claimant and Respondent entered into negotiations. When no alternative mechanism for payment could be agreed upon, Claimant was under no obligation to deliver the documents;

(vi) Claimant instructed Respondent to open a letter of credit with a tolerance on price of +/-10% because the pricing structure in the Contract was capable of giving differing prices depending on the final amount of each of the three sizes of [goods] shipped. However, Respondent opened the Letter of Credit with a tolerance for the price of +/-5%. Mr … of Respondent told Mr … of Claimant that this was due to Respondent's cash flow problems. A letter of credit with a tolerance on price of +/-5% required a smaller deposit to be provided to the bank.

(vii) Nevertheless, Respondent had a duty to act in good faith and instruct the bank to accept the documents; and

(viii) Claimant amended its claims and sought damages in the total of … plus interest at 2% above the US Dollar Prime Lending Rate, compounded at three monthly intervals from the date when payment should have been made, until payment by Respondent, and all arbitral costs and Claimant's own legal costs.

25. … Respondent submitted its responses to the questions raised by the Sole Arbitrator. Respondent argued that:

(i) as can be inferred from Article 7(2) of the Convention, when the Convention is selected as the applicable law to be applied in arbitration, it is not exclusive of other authority. It is inaccurate to regard the Convention as the only law applicable to this case. To the contrary, the Convention merely prevails where there is a conflict between the Convention and the law applicable;

(ii) because both parties have invoked English case law to support their arguments, the parties have implicitly agreed to select English law as the controlling authority. As such, the rules established in Shamsher should be applied;

(iii) after the documents were rejected, Respondent was not obligated to pay for the Goods first. Instead, Claimant had the obligation to transfer the Goods first as required by the Convention (citing Articles 31(a), 33, and 58(1)). Claimant refused to deliver the Goods. Therefore, Claimant's violation of the Convention caused the non-performance of the Contract, and left Claimant without recourse against Respondent;

(iv) Respondent did all that was required by the Contract and Convention and had no obligation to instruct the bank to accept the documents and waive the discrepancies;

(v) factors considered in Shamsher are not different from the factors to be considered in the current case;

(vi) when the parties agreed on the letter of credit as payment method, the terms of the Letter of Credit became part of the Contract, supplementing the rights and obligations of the parties. The terms of the Letter of Credit, once accepted, should be considered binding upon the parties;

(vii) there is no need to discuss whether there was a fundamental breach because Respondent did not declare the contract void. The Contract was simply not performed and rendered void by Claimant's resale of the Goods;

(viii) there is no need to invoke Article 8 of the Convention since there are no ambiguous clauses in the Contract;

(ix) Respondent denies Claimant's allegation that it instructed Respondent to open a letter of credit with 10% tolerance. Further, after a 5% tolerance was accepted and became binding, whether there was such 10% instruction was irrelevant;

(x) after the documents were rejected, no new agreement was reached between the parties;

(xi) Respondent performed all of its obligations under the Contract and the Convention; it had not acted in violation of the principle of good faith; and

(xii) Respondent did not avoid the Contract, therefore, it made no sense for Claimant to rely on the principle of preservation of contract.

26. … the Sole Arbitrator requested the parties further address their views on the relationship between the terms of the letter of credit and the terms of the underlying sales contract in light of "the law applicable by virtue of the rules of private international law" and international usage.

27. … Respondent submitted its responses and stated that:

(i) Respondent denied the authenticity of the fax which, Claimant alleged, evidences Claimant's instructions to Respondent to open a letter of credit with a 10% tolerance on price;

(ii) English law should be the law applicable, because the arbitration language is English and both parties have invoked English law cases;

(iii) the rule established in Shamsher should be regarded as an international usage widely known to international trade participants.

28. … Claimant submitted its final arguments, stating:

(i) the Convention is the governing law of the Contract; the rule established in Shamsher is irrelevant to the case;

(ii) where matters are not expressly covered by the Convention, the rules of private international law and international usage apply. However, the Convention provisions relating to fundamental breach and duty to act in good faith are controlling in the current case;

(iii) the rule established in Shamsher has been widely criticized, for instance in Chitty on Contracts ("Chitty") and Benjamin's Sale of Goods ("Benjamin"). The decision made in Shamsher cannot be reconciled with the fact that the letter of credit and the sales contract are completely separate contracts;

(iv) since there was no fundamental breach by Claimant, Respondent cannot refuse to perform the Contract by failing to pay for the goods;

(v) the simplest solution would have been for Respondent to simply instruct its bank to pay. Contrary to the court's holding in Shamsher, Chitty and Benjamin suggest that Respondent was obliged to instruct the bank to waive the alleged discrepancies where the Goods were provided in accordance with the Contract;

(vi) Respondent argued that it was not obliged to make payment where the Goods or documents were not placed at Respondent's disposal. This point is simply countered by the fact that the documents were placed with Respondent's bank and were at Respondent's disposal. However, Respondent refused to instruct the bank to pay, breaching its obligation where the Goods had been provided in accordance with the Contract.

29. … Respondent submitted the following comments on Claimant's final arguments:

(i) the reasoning in Chitty on Contracts is not persuasive enough and the reasoning in Benjamin's Sale of Goods is neither persuasive nor sufficient. By contrast, the opinion in Gutteridge & Megrah's Law of Bankers' Commercial Credits is more persuasive and compatible with the current international trade system.

(ii) the author of Gutteridge & Megrah's Law of Bankers' Commercial Credits takes the following position: a seller who has contracted for payment by irrevocable credit must endeavour to obtain payment from the issuing or confirming bank and only if he fails to receive payment from that source for a reason other than that he does not and cannot present the documents required by the terms of the credit is he justified in applying directly to the buyer at whose request the credit was issued.

……..

35. It is undisputed that the Contract was valid and binding upon the parties. Who should be responsible for the non-performance of the Contract depends on the answers to the following questions:

(i) Whether [the amount of Claimant's Invoice] is below the minimum price in the Contract?

36. Based on the review of the Contract by the Sole Arbitrator, the 10% tolerance only applies to the quantity of each size of [goods] and the 5% tolerance only applies to the total quantity of the Goods. Neither the 10% tolerance nor 5% tolerance applies to the price of the Goods. The contract price … is only indicative in nature. It does not represent a fixed contract price. Rather, under the terms of the Contract, the price was dependent on the quantity of each of the three sizes of [goods] shipped and would be difficult, if not impossible, to establish prior to actual shipment. As such, the Sole Arbitrator finds that the Contract did not contemplate a minimum or fixed price term.

37. The Goods actually shipped by Claimant complied with the 10% and 5% tolerances. Therefore, it is inaccurate to allege, based on provisions of the Contract alone, that [the amount of Claimant's Invoice] is below the contractual minimum price in the Contract.

(ii) Whether the rejection of the Invoice is wrongful?

38. According to Item 32B of the Letter of Credit which was opened by Respondent and accepted by Claimant, the "Currency Code and Amount" is [contract price]. According to Item 39A of the Letter of Credit, the "Percentage Credit Amount Tolerance" is "05/05". In addition, according to Item 47A, one of the "Additional Conditions" is "+/-5 PCT IN TOTAL QUANTITY AND AMOUNT ARE ACCEPTABLE".

39. In the Sole Arbitrator's opinion, "amount" used in the "Currency Code and Amount" and "Additional Conditions" should mean the amount of the credit, i.e. [contract price]. The amount of the Invoice obviously fails to comply with Items 39A and 47A, constituting a discrepancy. Based on the principle of strict compliance,2 therefore, [the bank] was entitled to reject the Invoice presented by Claimant.

40. The Sole Arbitrator disagrees with Claimant that [the bank] incorrectly dishonoured the drawing under the Letter of Credit. However, this does not mean that the issuance of the Invoice breached the Contract or that Respondent is otherwise released from its obligations under the Contract, as discussed below.

(iii) What is the implication of the 5% tolerance of the credit amount?

41. Respondent argues that the terms of the Letter of Credit, after acceptance by Claimant, became part of the Contract. Respondent further argues that since the Letter of Credit provides for a 5% tolerance and Article 39(c) of UCP500 only allowed a tolerance of 5% less in the amount of drawing, there is a minimum price in the Contract. By contrast, Claimant argues that the Letter of Credit and the Contract are two independent transactions. The Contract and the Letter of Credit must be treated as separate, autonomous and unqualified by each other.

42. The Sole Arbitrator notes that the Contract is governed by the Convention as specified in Article 16 of the Contract and the parties have not otherwise selected other law as the governing law.

43. According to Article 29(1) of the Convention, a contract may be modified by agreement of the parties. However, no evidence submitted to the Sole Arbitrator shows that the parties reached agreement on revising the Contract and imposing a minimum price.

44. Claimant alleges that it instructed Respondent to open a letter of credit with a 10% tolerance in credit amount. Claimant claims that despite its instruction, Respondent opened the Letter of Credit with only 5% tolerance to avoid paying a larger deposit to the bank (i.e. the higher the tolerance, the higher the deposit). Respondent denies such allegation.

45. The only evidence submitted by the parties regarding the Letter of Credit negotiations is a copy of an undated fax, which purportedly supports the above allegation. Respondent denies the authenticity of this document.

46. Generally speaking, it is common practice to include a maximum amount of credit in a letter of credit to limit the amount of drawing. Further, it is customary to include a percentage amount tolerance (or deviation). A tolerance of 5% is within the range of customary choices.3 Where there is only one unit price for the goods, it is not necessary to distinguish between tolerance for the total quantity of goods and the tolerance for the price (i.e. the amount of credit), since generally they will be the same. However, in the present Contract, there are three types of [goods] each with a different unit price, and the quantity of each size of [goods] may vary within the specified tolerances. As such, the tolerance for the total quantity of the Goods and the tolerance for the total price of the Goods are not necessarily the same, which means that although the tolerance for the total quantity provided in the Contract and also in the Letter of Credit is 5%, the actual total price of the Goods may be well above 105% of [the contract price] or less than 95% of [the contract price]. As far as the Contract is concerned, it is enough for the parties to provide in the Contract: (i) the unit price for each size of [goods]; (ii) tolerance for the quantity of each size of [goods]; and (iii) the total quantity tolerance, without the need to limit the range of variations of the price, since the price can be determined based upon the quantity of the Goods actually shipped.

47. By contrast, if the Letter of Credit only provided for (i) the amount of credit; (ii) tolerance for each size of [goods]; and (iii) tolerance for the total quantity of the Goods, as discussed above, it would be difficult to calculate the minimum price or the maximum price for the Goods, and hence, there would be no express maximum amount of drawing under the Letter of Credit before the Goods were shipped.

48. The bank issuing the Letter of Credit had an interest in setting an absolute ceiling on the amount of credit to be extended under the Letter of Credit for the account of Respondent, based upon such bank's arrangements with Respondent for its reimbursement of drawings under the Letter of Credit and payment of fees relating to the Letter of Credit. Thus, the need, as between the bank and the Respondent, to include a maximum amount of drawing in the Letter of Credit resulted in the inclusion of a percentage credit amount tolerance in the Letter of Credit.

49. Article 8 of the Convention provides that:

(1) For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.

(2) If the preceding paragraph is not applicable, statements made by and other conduct of a party are to be interpreted according to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances.

50. In the Sole Arbitrator's opinion, even if Respondent intended the 5% credit amount tolerance to operate as a minimum price in the Contract, it is unreasonable to assert that Claimant knew, or ought to have known that.

51. The Sole Arbitrator finds instead, that the more reasonable conclusion is that the inclusion of the 5% credit amount tolerance in the Letter of Credit was largely for the purpose of facilitating the opening of the Letter of Credit. In other words, the inclusion of the 5% tolerance was merely a mechanism by which the bank set a maximum amount of credit to be extended for the account of Respondent under the Letter of Credit, rather than evidence of the parties' intention to revise the Contract and impose a minimum aggregate price for the Goods.

52. Moreover, the Sole Arbitrator agrees with Claimant that the Contract and the Letter of Credit must be treated as separate, autonomous and unqualified by each other. Thus, the 5% credit amount tolerance in the Letter of Credit should not be interpreted as imposing a minimum price for the Goods under the Contract. Therefore, Claimant did not breach the Contract by issuing the Invoice in [a lower amount].

53. Even if the Sole Arbitrator is wrong, and the parties indeed intended to amend the Contract and add a minimum price provision, it is certain that Claimant did not commit a fundamental breach of the Contract.

54. Article 25 of the Convention provides that:

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

55. The Claimant's shipment of the Goods was within the quantity tolerances specified for each type of [goods], and within the quantity tolerance specified for the entire shipment of the Goods. Respondent nevertheless contends that Claimant breached the Contract because the total purchase price - the amount to be paid by Respondent - was too low. It is obvious that the issuance of the Invoice in the amount of … is not a fundamental breach since (i) it did not result in such detriment as defined in Article 25 of the Convention for a fundamental breach, and (ii) Claimant could not, and a reasonable person in the same circumstances would not, have foreseen such detriment as so defined.

(iv) What is the recourse the seller may have against the buyer after rightful rejection?

56. Claimant argues that a letter of credit is only conditional payment and Claimant's inability to recover under the Letter of Credit, does not necessarily bar Claimant from seeking damages from Respondent arising from a breach of the underlying Contract. Even if the Invoice is discrepant, Claimant did not commit a fundamental breach as defined by the Convention. Therefore, Respondent was obliged to take delivery of, and pay for, the Goods.

57. Relying on Shamsher, Respondent argues that: (1) Respondent was discharged from its obligation to pay after discrepant documents were rejected by the bank; (2) the rightful rejection of the documents by the bank left the buyer with no recourse under the Contract; and (3) Claimant failed to present the documents to Respondent for payment which is a condition for Respondent's payment.

58. The Convention itself is silent on what recourse the seller may have against the buyer after the bank rejected discrepant documents. The Convention specifies that:

Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. (Art. 7.2)

and

The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned. (Art. 9.2)

59. The Sole Arbitrator asked both parties to address this issue of what recourse a seller may have against a buyer after the bank rejected discrepant documents in light of "the law applicable by virtue of the rules of private international law" and international usage.

60. Respondent argued that English law is the applicable law and the rule established in Shamsher could be regarded as an international usage widely known and regularly observed.

61. The Sole Arbitrator disagrees with Respondent. First, the governing law of the Contract is the Convention rather than English law as discussed above. Second, to the knowledge of the Sole Arbitrator, there is no prevailing international usage relating to a seller's recourse in the event a bank rejects a buyer's documents as discrepant. Moreover, courts of different jurisdictions have adopted different approaches towards this issue.

62. The conclusions reached by the court in Shamsher - namely that (i) the conditions to payment under the letter of credit become incorporated as sales terms in the sales contract, and (ii) if discrepant documents are presented by the seller and rejected by the issuing bank, then the buyer is discharged from the sale contract and is no longer obligated to take delivery of the goods - may be representative of the approach adopted by some jurisdictions, or may simply instead constitute a minority view. We note that there exist completely different views.

63. Article 3 of UCP500 codifies what is commonly referred to as the "independence principle" as between the sales contract and the documentary letters of credit used for payment of the purchase price (such letters of credit being referred to in UCP500 as "Credits"):

Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the Credit.

Case law in the United States, furthermore, confirms that the terms for payment under the letter of credit should not be interpreted as amending or supplementing the underlying sales contract, unless the parties expressly intended for that to occur. See, e.g., MYSGSA, S.A. de C.V. v. Howard Industries, Inc., 879 F. Supp. 624 (S.D. Miss. 1995).

64. In the United States, Section 2-325(2) of the Uniform Commercial Code provides that the delivery to the seller of a proper letter of credit suspends the buyer's obligation to pay the purchase price under the sales contract. However, if the letter of credit is later dishonoured, the seller may, on reasonable notification to the buyer, require payment under the sales contract directly from the buyer. In a case remarkably similar to the instant case, Samsung America, Inc. v. Yugoslav-Korean Consulting & Trading Co., Inc., 248 A.D.2d 290 (1st Dep't 1998), seller shipped goods conforming to the specifications required under the sales contract (or in any event, the purchasers did not allege nonconforming goods), but failed to present the necessary documents specified by the letter of credit for payment thereunder. The bank dishonoured the drawing. The Supreme Court of New York held that the seller had recourse against the purchasers for the sales price, based on the underlying sales contract, notwithstanding the seller's failure to present the required documents for payment under the letter of credit. See Samsung, 248 A.D.2d at 291 ("As long as the bank dishonoured the letters, the reason for dishonour is irrelevant to defendant's obligation to pay for the goods… At most, if they are able to establish that it was plaintiff's fault that the letters were dishonoured, [purchasers] may have a claim for damages related to the allegedly wrongful failure to present the documentation.") (citing UCC 2-325(2) and CT Chems. (USA) Inc. v. Vinmar Impex, Inc., 81 N.Y.2d 174, 181 (N.Y. 1993)).

65. The District Court of the Hong Kong Special Administrative Region, in the recent case of Great Trend Ltd v. M&M Footwear Ltd, [2005] HKEC 1068, analysed issues similar to those of the instant case, and cited English authority for the same proposition as contained in Section 2-325(2) of the UCC, namely that delivery of a letter of credit for the payment of goods suspends the buyer's obligation to pay, but does not discharge the buyer absolutely: "In Lord Denning's own words [in W.J. Alan & Co., v. El Nasr Export and Import Co., [1972] 2 QB 189, 212], 'when the letter of credit is issued and accepted by the seller, it operates as conditional payment of the price. It does not operate as absolute payment.'"

66. Finally, the court in M&M Footwear cited Chitty at length regarding seller's rights where the documents seller presented to the bank are found to be faulty. Questioning the conclusions reached in Shamsher, Chitty noted:

In Shamsher Jute Mills v. Sethia (London), Bingham, J., held that as the seller's inability to obtain the amount of the documentary credit was occasioned by his failure to tender a proper set of documents, he was unable to enforce the contract for sale. His Lordship, thus, treated the seller's failure to bring himself within the terms of the documentary credit as a breach of his duties under the contract of sale. But as the contract of sale and the documentary are deemed to be autonomous of, and unqualified by, each other, it is perhaps arguable that the seller's inability to recover under the documentary credit, due to a formality concerning the regularity of the documents, need not necessarily bar him from seeking a remedy under the contract of sale. The buyer's breach could, for instance, be seen in his refusal to instruct the bank to accept the documents despite the discrepancies. This argument, which would appear not to have been raised in the instant case, derives support from the fact that the opening of the documentary credit does not, in itself, constitute an unconditional discharge of the buyer's duty to pay the price.

67. Therefore, the Sole Arbitrator does not agree with the argument that the rule established in Shamsher is an international usage widely known and regularly observed.

68. As such, the Sole Arbitrator must look to the basic principles on which the Convention is based. The Sole Arbitrator agrees with Claimant that the basic principles of good faith and preservation of contract in the Convention should be controlling.

69. Claimant and Respondent should have continued to perform the Contract after the bank rejected the documents since Claimant did not breach the Contract (or if Claimant did breach, Claimant did not commit a fundamental breach; the Sole Arbitrator has deemed the Claimant not to have breached). Respondent should have taken delivery of and paid for the Goods when Claimant indicated its intention to continue to perform the Contract.

70. After the documents (including the Invoice) were rejected by the bank, both parties should have continued to perform the Contract. The principle of good faith required Respondent either to waive the discrepancy or amend the Letter of Credit since Claimant had duly performed all its obligations under the Contract and Respondent's acceptance of the Goods in the quantities set forth in the Invoice would have been entirely consistent with Respondent's reasonable expectations under the Contract. Respondent should have instructed the bank to accept the documents despite the discrepancy or to amend the Letter of Credit as requested by Claimant. Respondent's failure to do so violated the principle of good faith and constituted a breach of its obligation to purchase the Goods. Respondent's breach resulted in the Contract's non-performance and entitled Claimant to terminate the Contract, which Respondent could have foreseen from Claimant's fax [in which it offered a discount in return for Respondent's amendment of the letter of credit].

71. The Sole Arbitrator takes the position that: (i) the Contract and the Letter of Credit should be deemed to be autonomous of, and unqualified by, each other, and Claimant's inability to recover under the Letter of Credit, due to causes other than those entitling Respondent to terminate the Contract, need not necessarily bar Claimant from seeking a remedy under the Contract since Respondent is not unconditionally discharged from its obligation to pay simply by opening the Letter of Credit; and (ii) if Respondent is able to establish that it was Claimant's fault that the Letter of Credit was dishonoured, Respondent may have a claim for damages related to the wrongful failure to present the documentation. However, in the Sole Arbitrator's opinion, this claim is eliminated by the finding that Respondent had an obligation to act in good faith to either amend the Letter of Credit or waive the discrepancy but failed to perform this obligation.

72. Since Respondent had a good faith obligation to amend the Letter of Credit or waive the discrepancy, there is no need to discuss whether Claimant should have presented the documents directly to Respondent. Moreover, Article 58(2) of the Convention states that:

If the contract involves carriage of the goods, the seller may dispatch the goods on terms whereby the goods, or documents controlling their disposition, will not be handed over to the buyer except against payment of the price.

Based on Respondent's failure to amend the Letter of Credit or to waive the discrepancy, even after Claimant's offer … to decrease the Contract price for the Goods, the Sole Arbitrator finds that the Claimant had no obligation to present the documents directly to Respondent.'

1
Article 37(b) of the UCP500 provides that: "Unless otherwise stipulated in the Credit, banks may refuse commercial invoices issued or amounts in excess of the amount permitted by the Credit. Nevertheless, if a bank authorized to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate under a Credit accepts such invoices, its decision will be binding upon all parties, provided that such bank has not paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated for an amount in excess of that permitted by the Credit."

2
Article 13 (a) of UCP500 stipulates that: "Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit."

3
For example, a 5% tolerance is allowed under Article 39 of UCP500.