Article

DOCDEX Decision No. 288

UCP 600 Miscellaneous

Whether a bill of lading issued to the order of a party can only be endorsed by the party stated in the "consignee" field of the bill of lading; when an issuing bank issued a credit with a irregularity that required an endorsement that could only be made by the issuing bank, did the issuing bank have an obligation to withdraw its refusal and to pay immediately the credit amount and demurrage?

Parties

Initiator: Company E

Respondents: Bank T (Repondent 1) Bank V (Respondent 2)

Background and transaction

The Initiator presented documents for negotiation through its bank (Respondent 1) in the amount of USD 93,960.00. The presentation included a full set (3/3) shipped on board ocean bills of lading issued to the order of Bank V marked "freight prepaid" and notify the applicant. These were issued precisely as stated in the credit.

The credit further stated that the B/L was to be "blank endorsed", which has not been completed.

Issue(s)

The issuing bank (Respondent 2) refused the presentation, stating a "discrepancy" that the B/L was not blank endorsed as requested in the credit.

Initiator's claim

The Initiator claimed, based on the terms of the credit, that there was no reason for a refusal by Respondent 2 and claimed payment of the invoice amount (USD 93,960.00) plus an amount for demurrage and the fee paid to ICC for the DOCDEX decision (USD 5,000.00)

Respondents' reply

No reply was given by the Respondent's regarding the issue or claim.

Documents submitted by the parties

Documents submitted by the Initiator

- Request from the Initiator of 30 December 2008 to ICC International Centre for Expertise, Paris, requesting a DOCDEX Decision in accordance with ICC DOCDEX Rules, ICC Publication no. 811, stating inter alia

- that a copy of the request and all documentation was sent to the Respondents and

- the Initiator's Summary of the Dispute; Copy of the documentary credit no. ABC123 issued by Bank V (Respondent 2) under UCP 600 and letter of advice from Bank T (Respondent 1); Copies of several sets of documents (including the B/L in question) forwarded to Bank T (Respondent 1) including the relevant cover letter; and Copies of correspondence between Respondent 2 and Respondent 1 regarding the refusal.

Documents submitted by the Respondents

No comments or documents were received from the Respondents.

Analysis

The Initiator had entrusted Respondent 1 to negotiate the presentation under the stated credit. Documents were refused by Respondent 2 on the grounds that the bill of lading, issued to the order of the issuing bank, was not blank endorsed (as required in the credit). Respondent 1 strongly disagreed in a SWIFT message.

The Initiator claimed it had contacted Respondent 1, which suggested that the Initiator give a discount of 5-10%, which the Initiator accepted. Later, the request for the discount was increased to 30%, which not was acceptable to the Initiator.

A bill of lading issued to the order of a party can only be endorsed by the party stated in the "consignee" field of the bill of lading. Only when the B/L is made out to order of the shipper is the shipper able to endorse in blank before presentation under the credit.

By stating in the credit that the B/L is to be made out to order of the issuing bank and to be endorsed in blank by the beneficiary, Respondent 2 violated the principle that the issuing bank is responsible for the wording and contents of the credit and that all details must be precise so that the credit may be deemed workable. It is important to underline that a documentary credit is a payment instrument and not an instrument to refuse payment. This responsibility of the issuing bank prevails whether an inaccuracy is made deliberately or by mistake. It must be added that given the content of the bill of lading, only the issuing bank could endorse the B/L in blank.

It is evident from the letter of advice from Bank T (Respondent 1) that the beneficiary was requested to check the terms and conditions carefully; however, an "oversight" of a detail, especially one which is not logical to act upon, is fully understandable and the beneficiary should not be blamed.

Conclusion

By issuing a credit with an encapsulated irregularity that required an endorsement that can only be made by the issuing bank, the issuing bank (Respondent 2) has an obligation to withdraw the refusal and to pay immediately the credit amount and demurrage.

Respondent 2 has no reason to refuse the documents and must pay the claimed amounts.

The appointed Experts reached a unanimous Decision.