'IV. Analysis

A. Issue[s] No[s] 1 & 2

1. Whether the Claimant has failed to carry out the amendments to the Letter of Credit and/or whether the Claimant has delayed in carrying out amendments in the Letter of Credit? If so, its effect?

2. Whether the failure to carry out the amendments to the Letter of Credit and/or delay in carrying out amendment in the Letter of Credit had any effect on the supply of cargo?

B. Date on which Letter of Credit had to be established

73. Claimant's position

74. In its Request for Arbitration, the Claimant has stated that it had established the Letter of Credit on 23rd June, 2006. According to the Claimant, on 9th June, 2006 the unsigned Contract was received from the 1st Respondent requesting the Claimant to sign and send the same back by fax.

75. The Contract was actually received by the Claimant after working hours on 9th June, 2006. As a result, the period for establishing the Letter of Credit starts commencing from 10th June, 2006. As per the calendar for June, 2006, there are 2 Saturdays and 2 Sundays that intervene between 10th June, 2006 and 23rd June, 2006. According to the Claimant, international banking days in [State Y] provide for Saturdays and Sundays as non-banking days.

76. 1st Respondent's position

77. Saturdays are not a holiday. Further, the Contract itself mentions Letter of Credit to be opened by 22nd June, 2006 and if 2 Sundays are excluded from 9th June, 2006, the 10 international banking days would fall on 22nd June, 2006 which is the date by which the Claimant had to establish the Letter of Credit.

78. If the Letter of Credit had not been established within 10 international banking days the 1st Respondent had an option to forfeit the Earnest Money Deposit which in the present case would mean that the Respondent could have encashed the Bank Guarantee submitted by the Claimant but it did not do so keeping in view the long business relationship between the Claimant and the 1st Respondent.

C. Reasoning for determining the date of establishing Letter of Credit and its consequences

79. I find that the Contract clearly mentions on the first page that the date for the Letter of Credit to be opened is 22nd June, 2006. Further, the Claimant has filed additional documents on 18/20th December, 2008. In e-mail sent by the Claimant to [its foreign buyer] on 22nd June, 2006, it was mentioned that:

……As you are aware we have contracted with [Respondent 1] for LC opening latest by today to be at their bank counter…..

Similarly, in an e-mail dated 23rd June, 2006 written to [its foreign buyer], the Claimant has written that:

We once again would like to bring your attention that we have crossed the LC establishment date with [Respondent 1] as per contract due to delay in your establishment of LC on us.

Both these documents were written by the Claimant contemporaneously and both these documents show that the Claimant understood the last date for establishing the Letter of Credit as 22nd June, 2006. Similarly, the Contract also mentions the last date for establishing the Letter of Credit as 22nd June, 2006. Thus, I have no doubt that the Letter of Credit had to be established latest by 22nd June, 2006. Admittedly, the Claimant had not established the same by 22nd June, 2006 and in fact, the date of the Letter of Credit is mentioned as 23rd June, 2006. A copy of the same was handed over to the bank of the 1st Respondent on 26th June, 2006. Thus, there was delay in establishing the Letter of Credit.

80. I find that the 1st Respondent vide e-mails dated 30th June, 2006, 4th July, 2006 and 8th July, 2006 requested the Claimant to carry out 21 amendments to the said Letter of Credit. This clearly shows that the 1st Respondent did not treat the failure of the Claimant to establish the Letter of Credit as a breach or default and the 1st Respondent by its aforesaid conduct had in fact condoned the said breach, if any. Further, the 1st Respondent by accepting the Letter of Credit furnished by the Claimant has extended the time limit to establish the Letter of Credit. The 1st Respondent further did not raise any dispute in respect thereof. In any event, the Parties had amended the Contract on 30th June, 2006 wherein the date for establishing the Letter of Credit was mentioned as 27th June, 2006.

D. Whether the amendments to the Letter of Credit was [sic] carried out in time

81. Claimant's position

82. The Claimant had carried out all the amendments on 18th July, 2006 as suggested by the 1st Respondent and after carrying out the said amendments, requested the 1st Respondent to confirm the cargo readiness. However, the 1st Respondent instead of responding to the request of the Claimant to confirm cargo readiness had by communications dated 24th July, 2006 asked the Claimant to carry out 4 additional amendments to the Letter of Credit and further, on 25th July, 2006 had confirmed that full cargo would be ready by 3rd August, 2006.

83. 1st Respondent's position

84. In spite of several reminders to the Claimant by the 1st Respondent, the Claimant had failed to carry out the amendments to the Letter of Credit and did not furnish a fully operable Letter of Credit till 24th July, 2006, when the Claimant had called upon to carry out 4 amendments. Thus, the amendments to the Letter of Credit were not carried out by the Claimant.

E. Analysis

85. In view of the above facts and as explained in paragraphs 86 to 101 below, I find that the Claimant does not dispute that the 4 additional amendments mentioned in the e-mail dated 24th July, 2006, issued by the 1st Respondent had not been carried out by the Claimant. Instead, the Claimant contended that the amendments requested were not necessary under the Contract. The only dispute is whether the Claimant is bound to carry out the amendments in the Letter of Credit which is dealt with in the subsequent paragraphs.

F. Consequences of not carrying out the amendments in the Letter of Credit

86. Claimant's position

87. The standard Letter of Credit format provided under the General Terms and Conditions of the 1st Respondent's Contract does not specify the amendment requests made by the 1st Respondent as mandatory fields. It has been further submitted by the Claimant that under the Free on Board Contract, the pending amendments do not pose any legal hurdle in the successful execution of the Contract.

88. Naming any Asian Port and not a specific discharge port by the Claimant in its Letter of Credit does not make the Letter of Credit inoperable. It is the buyer's prerogative to declare the discharge port at the time of opening of a letter of credit. Similarly, other amendments such as Bill of Lading to be consigned to the buyer's consignee to be changed to order, discrepancy fee and three sets of documents would hardly make the Letter of Credit inoperable.

89. 1st Respondent's position

90. The format of the Letter of Credit was appended to the tender document. As per Clause 6.1 of the Contract, the Claimant was to make financial arrangements in favour of the seller by means of a confirmed irrevocable without recourse to the drawer's Letter of Credit governed by Uniform Customs and Practices for Documentary Credits on a bank payable [in a city in State X].

91. Under the Uniform Customs and Practices for Documentary Credits of 1999 ("UCP") which was indicated in Clause 6.1 of the Contract, the requirement of the mention of the discharge port was a mandatory requirement and the fact that any Asian Port was indicated is clearly in contravention of the UCP requirements. Further, the bills of lading that Claimant furnished to show that when any port in Asia was indicated the Letter of Credit was operable and payment released is not established. The various letters of credit and bills of lading submitted by the Claimant during the oral hearing should not be given any weight as they were only handed over and not proven.

92. Further, as per Clause 5.1 of the Contract, unless financial arrangements (Letter of Credit) were made by the buyer (Claimant) as per Clause 6 of the Contract or otherwise as agreed by the buyer, the seller (1st Respondent) is not obliged to confirm delivery. In other words, if the amendments mentioned by the 1st Respondent are not carried out by the Claimant, the 1st Respondent is not obliged to confirm delivery.

93. In case the financial arrangements are not made by the Claimant within the agreed time, the 1st Respondent can forfeit the Earnest Money Deposit.

94. Claimant's position in its Rejoinder

95. By a communication dated 26th July, 2006, the 1st Respondent had agreed to cargo readiness offered by the 1st Respondent and it was implicit that the financial arrangements were already in place.

96. The 1st Respondent did not revert to the financial arrangements nor raise any question regarding operability of the Letter of Credit nor intimated that an operable Letter of Credit was a prerequisite for intimation of cargo readiness by 1st Respondent.

97. Therefore, it can be assumed that the 1st Respondent was satisfied with the financial arrangements raised by the Claimant which in any event could have been complied with by the Claimant 48 hours before the expected time of arrival of the vessel.

98. Thus, according to the Claimant, the reason why such amendments were sought by the 1st Respondent was primarily because the 1st Respondent did not have the requisite materials and was only trying to gain time by asking for such amendments.

G. Analysis

99. I have perused the documents including the amendments sought by the parties and find that the issue of discharge port had been raised earlier by the 1st Respondent in its e-mail dated 30th June, 2006 to the Claimant ... The Claimant had never stated that this issue was not in the mandatory field of General Terms and Conditions of the 1st Respondent's Contract. In fact, the Claimant has admitted that this amendment had been sought earlier. Further, the Claimant even after the receipt of communication dated 24th July, 2006 from the 1st Respondent did not state that it would not carry out the amendments or the amendments were of a nature which would not affect the operability of the Letter of Credit in any contemporaneous correspondence.

100. Clause 5.1 reads as under:

5.1 The SELLER shall deliver the Materials free in the holds of the vessel(s) nominated by BUYER and accepted by the SELLER as per these terms and conditions in one or more safe berths reachable on arrival always afloat at loading port which shall be [city in State X]. Unless financial arrangement is made by the BUYER as per clause 6, below or otherwise as agreed by SELLER, the SELLER is not obliged to confirm delivery.

Clause 6.1 of the Contract in turn reads as under:

6.1 Unless agreed otherwise, financial arrangements shall be made within six weeks of acceptance of offer by the SELLER or before nomination of the vessel whichever is earlier, in USD by the BUYER in irrevocable without recourse to the drawer's Letter of Credit (LC), governed by Uniform Customs and Practices for Documentary Credits (as applicable on date of opening of LC conforming to SELLER's standard format), representing the value of the contract quantity of the materials with positive tolerance, on the basis of FOBST, established through any first class international bank in favour of [Respondent]. The LC should be advised through [one of two named banks]

As per negotiating documents negotiable at the counters of any branch or any bank of [State X].

A perusal of Clause 6.1 would show that the Claimant had to establish an irrevocable Letter of Credit governed by the UCP as applicable on date of opening of Letter of Credit conforming to 1st Respondent's standard format. In other words, if the Letter of Credit was not in accordance with the UCP or the same did not conform to the 1st Respondent's standard format, the 1st Respondent could reject it or ask the Claimant to make necessary amendments. The 1st Respondent sought some amendments. However, at no stage did the Claimant state that the amendments sought by the 1st Respondent were not in accordance with the UCP or the 1st Respondent's standard format. In fact the Claimant led no evidence to prove that the Letter of Credit issued by the Claimant was in accordance with the UCP or the 1st Respondent's standard format. The only thing the Claimant did was to file some sample Letters of Credit (in which the beneficiary was the Claimant itself and the same were established after the commencement of the present arbitration) during the oral hearing to show that the absence of mention of loading port would not make the Letter of Credit inoperable. The filing of these documents after conclusion of the Witness Hearing cannot amount to proving that the Claimant made financial arrangements as contemplated under Clause 6.1 of the Contract. Having failed to comply with Clause 6.1 the claimant is in default of Clause 5.1 which clearly stipulates that unless financial arrangement (Letter of Credit) is made by the buyer (Claimant) as per Clause 6 or otherwise as agreed by the seller (1st Respondent), the seller is not obliged to confirm delivery.

101. Therefore, the 1st Respondent is not obliged to supply cargo in the event the Claimant failed to carry out amendments to the Letter of Credit inasmuch as the Claimant has failed to make financial arrangements as contemplated under Clause 6.1 of the contract.'