Parties

Initiator: Bank B

Respondent: Bank S

Issue

Whether the rejection of documents by the Respondent was justified or not.

Documentation

- Request from Bank B (Initiator) of 28 August 2003 to the ICC International Centre for Expertise, Paris requesting a DOCDEX Decision, stating inter alia that a copy of the Request and all documentation were sent to the Respondent;

- The Initiator's summary of the dispute accompanied by a copy of the credit No. ABC1234, four amendments thereto, copies of the documents taken up by the Initiator and copies of the correspondence conducted between the Initiator and the Respondent in regard to the latter's notice of rejection;

- The Respondent's answer of 18 September 2003 to the Request of the Initiator, accompanied by a copy of the credit No.ABC1234, four amendments thereto, copies of the documents received and refused by the Respondent, a copy of the respective notice of rejection and copies of the correspondence conducted between the Initiator and the Respondent with regard to the latter's notice of rejection.

Arguments

The credit in question was issued by the Respondent subject to UCP 500. The Initiator has acted as nominated bank, which also confirmed the credit and taken up the documents finding the same compliant.

The Respondent, upon receipt of documents, has sent its notice of rejection dated 4.5.03 to the Initiator raising three discrepancies which were contested by the Initiator. An exchange of correspondence ensued between the Initiator and the Respondent without any development.

The issue whether the three discrepancies raised by the Respondent are justifiable - in the light of the respective documents and the Respondent's original notice of rejection - is discussed below in the same order as mentioned in the said notice.

Discrepancy No. 1

- Subject document: certificate of origin

Original L/C term: "certificate of origin issued by the chamber of commerce in the exporting country and authenticated by the representative office A.B.C.D.E. or any Arab embassy in Country U and showing said applicant as consignor, also evidencing that the commodity is of Country U origin."

L/C term after amendment: "certificate of origin issued by chamber of commerce in the exporting country and authenticated by any Arab country's embassy in Country U evidencing that the commodity is of Country U and/or Country R origin."

The certificate of origin presented: the certificate of origin appears to be issued by a chamber of commerce in Country R and evidences that the commodity is of Country R origin.

The exporting country appears to be Country R. (No dispute)

The document appears to have been authenticated by an Arab country representation in Country R. (No dispute).

Discrepancy raised by the Respondent: Item 1: certificate of origin authenticated in Country R, not Country U as per L/C terms.

- The argument as to whether the document is discrepant

It appears that at the time of issuance of the credit, the origin of the commodity was foreseen/agreed upon as Country U, and therefore the requirement for the country of authentication was included in the original credit term as Country U only.

However, at the time of issuance of the Amendment No.1, which allows the commodity to be either Country U or Country R origin, the respective requirement for authentication appears to have been left as it was, instead of having been amended as to recognize both Country U and/or Country R as the country of authentication in line with the said acceptable countries of origin.

The issue here is to assess whether absolute reliance on the doctrine of strict compliance would suffice to reach a sound decision and, if relied on, whether it would prove to be working against the intended contribution of the documentary credit system and the UCP to the banking industry.

In this particular case, the beneficiary, who might or might not have asked for an amendment, should not have been expected to obtain the authentication of a certificate of origin issued in Country R from a body which has an office in another country, i.e., Country U (for a commodity of Country R origin exported from Country R, especially when the credit itself allows the commodity to be of Country U or Country R origin, and calls for documents evidencing shipment of the subject commodity from Country R to Country L).

An authentication is a simple certification affixed by the authenticating party that the subject document is authentic, and this act is best performed by a body having an office in the same country as the issuer of the document, i.e., Country R in this case. The purpose, due to the fact that the destination of the commodity was an Arab country, was to obtain an authentication from Arab country's representation, and the purpose appears to have been accomplished. This is supported by the simple fact that the underlying shipment, as evidenced by respective documentation, has no reference whatsoever to Country U. Consequently there seems nothing wrong, and it was only usual for the beneficiary to obtain the subject authentication from a body having an office in the country of origin. The issue raised by the Respondent as a discrepancy should not seek and find shelter under the doctrine of strict compliance and cannot be justified.

Discrepancy No. 2

- Subject document: bill of lading

Original L/C term: "Field 44A: Loading on board : Any Country U sea port".

L/C term after amendment: "From Black Sea port or Azov Port".

B/L presented: the B/L shows "City T" as the port of loading.

Discrepancy raised by the Respondent: Item 2: shipment port not mentioned clause "Black Sea" as per L/C terms.

- The argument as to whether the document is discrepant

The issue must solely be discussed in the light of the notice of rejection (MT799) dated 4.5.03 provided by the Respondent. Item 2 of the said notice is quoted above. Therefore, the comments provided by the Respondent's Answer under "Discrepancy (B)" of the Statement of the Respondent, including remarks on the Azov port and Azov Sea which were not mentioned in the original notice of rejection dated 4.5.03, and also referring to further correspondence, have not been taken into consideration. It is also observed that the Respondent refers to its message dated 11.5.03 as an advice of discrepancies, whereas the original notice of rejection is dated 4.5.03.

The B/L shows City T as the port of loading. City T is a Black Sea port because it is located in the northern extension of the Black Sea, which is also called Azov Sea. There is no credit term stipulating that the words "Black Sea" must appear next to the actual port of loading. This is similar to a case where a credit says, for example, "Mediterranean port" and the B/L shows "Marseille" as the port of loading.

On the other hand, the credit term "Black Sea port or Azov port" can be taken as referring to both seas, i.e., "Black Sea and Azov Sea". In either case, City T shown as the port of loading satisfies the credit term.

Therefore, the issue raised by the Respondent as a discrepancy is not justified.

Discrepancy No. 3

- Subject document: certificate

Original L/C term: "certificate indicating that wheat is as per Country L standards".

The certificate presented: the certificate issued by the beneficiary contains the following statement: "We hereby indicate you that feed barley is as per Country L standards."

Discrepancy raised by the Respondent: item 3: "Presented Benef's Cert. that feed barely brand new not wheat as per L/C terms doc. No.5". Argument as to whether the document is discrepant: for purposes of observation it must be stated that the words "brand new" appearing in the notice of refusal provided by the Respondent do not appear in the actual certificate.

The issue is whether appearance of the name of the actually shipped commodity (in short "feed barley") in the subject certificate instead of "wheat" constitutes a discrepancy.

Description of goods as per credit terms is "6000 MT sound loyal merchantable feed barley in bulk" (in short, "feed barley"), which is the actual commodity shipped to destination (Country L) as evidenced by all shipping documents taken up by the Initiator. The credit was issued for shipment of feed barley from Country R to Country L, and all shipping documents appear to have been issued accordingly. However, one of the documents (Document No.5) called for by the credit requires that the beneficiary is to certify that the commodity is wheat, as opposed to the actually shipped commodity, which is feed barley. Compliance with the said credit term would only lead to a false certification by the beneficiary as far as the respective certificate is concerned.

The subject credit, by virtue of Document No.5, appears to be calling for a document inconsistent with the other documents. This is not in line with the nature and spirit governing the documentary credit system and the UCP. The beneficiary who has shipped feed barley as required by the credit, and issued all documents to that effect, cannot be expected to provide a false certification as a result of a poorly constructed credit as far as the subject credit term is concerned. Again, the issue raised by the Respondent as a discrepancy should not seek and find shelter under the doctrine of strict compliance and cannot be justified.

The Appointed Experts reached a majority decision.