Article

Decision No. 249

UCP 500 sub-articles 9(d)(i), (ii), (iii) and (iv); article 48; ISBP 645 paragraph 28

Whether the presented documents failed to comply with the terms expressly stipulated in the L/C, which required that for certain documents it was prohibited to have any typing error

Parties

Initiator: Company B

Respondent: Bank H

Background

- Documentary credit subject to UCP 500 (SWIFT MT 700)

- Issuing bank: Respondent

- Applicant: Initiator

- Amount: USD 1,904,000.00 ±10% tolerance

- Validity: 04.07.15 (as amended)

- Availability: by negotiation with any bank - draft at sight.

- Form: irrevocable

- Confirmation: without n Description of goods (relevant only for the quantity): Iron Ore Fines 17,000 wet metric tons (±10%).

- Documents required (among others):

- Certificate of weight issued by S.G.S. Country I (then amended with the words "issued by [beneficiary' name]) in one original and 2 copies based on the draft survey indicating the wet weight of the material loaded on the vessel. Draft survey report to be submitted";

- Certificate of quality in one original and 2 copies issued by S.G.S. Country I or Italab (then amended with the words "issued by S.G.S. or [beneficiary' name]") at loading port showing actual results of the tests of the chemical composition and all other tests called for in L/C."

Summary of the case

1. On 22 March 2004, the Respondent issued the irrevocable documentary credit as above.

2. On 26 March 2004, the Respondent amended the credit in the additional conditions section as follows:

"Typographical and/or spelling errors, not be considered as discrepancies except in value, unit price, goods description and quantity. But for bills of lading, certificate of origin and all certificates issued by S.G.S. or [beneficiary's name] [it] is prohibited to show any typing error."

3. On 12 May 2004, the Respondent sent a rejection notice of the presented documents to the advising bank on the grounds of the following discrepancies:

a. "Cert. of quality issued by [beneficiary's name] and B/L showing typographical/ spelling errors (Cert. of quality showing "avarage" instead of "average", "ninty" instead of "ninety" and B/L showing "discharing" instead of "discharging"), which were prohibited by DC terms. (According to art. 9d iii, amendment n. 1, which stated typographical and/or spelling errors are strictly prohibited on the above documents, were accepted by beneficiary by the tender of documents complied with the other terms of the same amendment)."

b. "Draft survey report showing: quantity loaded/discharged 18700.070 M/Tons and also showing "rounded off 18700.000 M/Tons. Documents held at your disposal in accordance with art. 14 of UCP 500."

4. On 14 May 2004, the Respondent sent the documents back to the advising bank (evidence not submitted).

5. On 19 May 2004, the advising bank disagreed with the discrepancies raised by the Respondent and requested payment under the L/C (evidence not submitted).

6. On 25 May 2004, the Respondent sent a message to the advising bank stating that the discrepancies previously raised were to be considered invalid. The Respondent also requested the advising bank to represent the documents for payment.

7. On 28 May 2004, the Respondent effected payment under the L/C notwithstanding the opposition of the Initiator.

Issue to be determined (as requested by Initiator)

The issue is whether the presented documents fail to comply with the terms expressly stipulated in the L/C.

Determination of the issues and decisions taken.

1. Effects of the amendment

It is the unanimous decision of the Panel that the literal wording of the amendment under "Summary of the case" no. 2 - is fully legitimate, because the L/C's amendment is a procedure duly provided by UCP 500 sub-article 9 (d) - and implies a clear and legitimate derogation of the existing practices to be applied by banks in the document checking activity in this specific documentary credit. This amendment entails a precise condition for the document checking to be inserted into the credit, with the consequences that the documents - if the amendment is accepted by the beneficiary - are to be checked in strict compliance with the terms of the amendment, which becomes a formal and fully effective credit condition. The fact that the amendment actually overrides the general provision in ISBP paragraph 28, by expressly excluding acceptance of typographical/ spelling errors as such in some documents, is a mere consequence which cannot be derogated if the amendment is accepted by the beneficiary.

2. Acceptance of the amendment

It is the unanimous decision of the Panel that the amendment under "Summary of the case" no. 2 has been fully accepted by the parties (the issuing bank and the beneficiary), because they acted in line with the provisions of UCP 500 sub-articles 9 (d )(i), (ii), (iii) & (iv) ("Except as otherwise provided by Article 48, an irrevocable Credit can neither be amended nor cancelled without the agreement of the Issuing Bank, the Confirming Bank, if any, and the Beneficiary"), and therefore the amendment is to be considered fully inserted into the terms and conditions of the credit.

The issuing bank's forwarding of the amendment message entails its acceptance, because the issuing bank could deny its agreement to modify terms and conditions of the credit previously issued. Instead, it sent the amendment message to the advising bank.

The lack of an express communication on the part of the beneficiary means that it reserves the right to express its option - as to whether to accept the amendment or not - up to the moment of the presentation of the documents. For this reason the presentation of documents in line with "not yet accepted amendment( s) will be deemed to be notification of acceptance by the beneficiary of such amendment( s) and as of that moment the Credit will be amended" (UCP 500 sub-article 9 (d) (iii)). This event actually occurred in the case at hand, because the beneficiary presented documents in line with other terms of the same amendment.

3. Interpretation of the amendment On the grounds of what is stated above, it is the unanimous decision of the Panel that the discrepancies originally raised by the issuing bank under "Summary of case" paragraph 3 a) above are fully valid, because the strict and clear wording of the amendment does not leave room for any different interpretation and conduct by the issuing bank. The amendment is effective (see no. 1 in this section), has been accepted by the parties (issuing bank and beneficiary) (see no. 2 in this section) and therefore it binds the issuing bank. The Panel wishes also to underline that it is the responsibility of the issuing bank to carefully ascertain the consequences on its operational process of any amendment requested by the applicant. The issuing bank can avoid possible disagreeable consequences on its part by simply refusing its agreement to the amendment request, as UCP 500 sub-article 9 (d) (i) clearly states.

Moreover the Panel is fully aware that, in this specific case, the issuing bank is forced to reject documents for reasons not affecting any significant data in the credit: words differently typed are usually not to be considered discrepancies, because they do not change their meaning and become "discrepancies" due to the amendment in hand that was accepted by the issuing bank and the beneficiary.

The Panel expresses its strong disapproval of the effects of the amendment, which was handled in such a way as to damage the correct flow of the banking operation and as a specious attempt to prevent issuing banks from paying.

By asking to find that the documents have been presented in good order, the Respondent is requesting a departure from a fundamental principle of documentary credits and ignoring or misinterpreting a clear and precise instruction. However, the Panel does not have the authority to detract from the terms and conditions of the credit and the rules which govern documentary credits.

For these reasons, the Panel holds that the current conclusion of the case is the only possible decision. Although the Panel faced a dilemma, it was unable to act in any other way because of the strict terms of the amendment, which required the bank checking documents to act in a precise and unambiguous manner. However, the Panel is confident that its comments concerning the fact that the amendment could and probably should not have been issued by the issuing bank and could have been rejected by the beneficiary will discourage this kind of wording from being incorporated into letters of credit.

As to the second claimed discrepancy, it is the unanimous Decision of the Panel that the discrepancy originally raised by the issuing bank under "Summary of case" no. 3 b) above is groundless. The Panel notes that the official statement of the quantity shipped is shown in the upper part of the draft survey report under the section entitled "Place & Date of Survey"; this quantity is 18700.000 M/T. and is fully consistent with the quantity shown in the certificate of weight. The quantity shown in the last line of the draft survey - then "rounded off" - is the result of the calculation made for the survey, and the rounding off is not prohibited by the terms and conditions of the credit.

Conclusion

The Panel unanimously holds that the Respondent had to reject documents due to the discrepancies noted above in "Summary of the case section, paragraph 3 a), and consequently no payment had to be effected.

Statement of the chair

The Decision in DOCDEX/249 was unanimous.

DOCDEX is ICC's rapid dispute resolution service for disputes involving L/Cs and guarantees. For further information, go to http://www.iccwbo.org/court/docdex