Parties

Initiator: Bank B, Country S

Respondent: Bank A, Country A

Facts

1) On 30/04/98 the Respondent confirmed a documentary credit issued by Bank G, Country Y in favour of a client of the Initiator's, (hereinafter the beneficiary). On the same date the Respondent notified the credit and the confirmation to the Initiator. The credit would be available at the counters of the Respondent 60 days after the arrival of the shipment at Port P. The documents were to be presented within 21 days of the date of dispatch. After some amendments, the validity was set at 17/07/98, the date of dispatch was authorized up to 25/06/98, and the "date of N.O.R." of the vessel in Port P was to be considered as the date of arrival. Some other amendments were made in relation to the goods and the amount of the credit.

2) After the shipment of goods (16/06/98), the documents were sent on 07/07/98 by courier to the Respondent, which received them on 08/07/98, i.e. 22 days from the dispatch date.

3) Rejecting the documents, the Respondent informed the Initiator on 09/07/98 that the documents had been presented late and that the Initiator had presented the "invoice" instead of the "commercial invoice". Although the Respondent should have stated at this stage, as provided for in UCP sub-Article 14(d)(ii), that it would hold the documents at the disposal of the Initiator, or, alternatively, that it would return the documents to the Initiator, the Respondent declared that it would send the documents to the issuing bank and that it would revert to the subject upon receipt of reply of the issuing bank.

4) The same day the Initiator instructed the Respondent at once to advise the issuing bank of the discrepancies but to keep the original documents until receipt of issuing bank's authenticated confirmation stating that: "documents are accepted as presented". The Initiator also added that the documents could be dispatched to the issuing bank only upon the Respondent's authenticated payment undertaking for the amount of US$ 1,308,371.12.

5) Replying to a reminder of the Initiator, the Respondent stated on 20/07/98 that it had received no answer to the SWIFT message it had sent to Bank G on 10/07/98. The following day the Respondent faxed to the Initiator copies of the two messages it had sent to Bank G. In the first message the Respondent asked "to lift the reserve" on the documents. In the second message the Respondent declared that it "held the documents at the disposal of the issuing bank".

6) On 22/07/98 Bank G advised the Respondent that the applicant had refused the documents. The Respondent informed the Initiator accordingly, stating that it would return the documents to the Initiator

7) That same day the Initiator requested the Respondent to keep documents for its account and risk and to revert to the issuing bank for its acceptance despite the discrepancies. This was done by the Respondent on 29/07/98.

8) On 24/08/98 the Initiator repeated its instructions to the Respondent.

9) On 25/08/98 Bank G authorized the Respondent to take the documents despite the discrepancies on the condition that the beneficiary agreed to a new maturity date (02/11/98). It also stated that it would pay an additional amount of US$ 9,000.

10) On the same day the beneficiary accepted the extension of payment on condition that the Respondent engaged to defer payment.

11) On 27/08/98 the Initiator requested the Respondent to engage to make the payment of the stipulated amount plus US$ 9,000, on 02/11/98.

12) On 28/08/98 the issuing bank irrevocably confirmed to the Respondent that it would effect the payment plus US$ 9,000.

13) On 31/08/98 the Respondent informed both the Initiator and the issuing bank that it refused to engage itself for the payment.

14) Taking no obligation or responsibility, the Respondent sent the documents back to the Initiator on 08/09/98, stating that the settlement would be effected between the commercial parties.

Issue to be determined

Whether the Respondent is to be considered bound to its original undertaking as confirming bank, in view of the above circumstances.

Preliminary remarks

As it was not a party to the documentary credit, the Initiator acted as an agent on behalf of the beneficiary; that is to say the Initiator did not act as a holder of a right of its own. Any interest the Initiator may have derived, as for instance by granting an advance to the beneficiary, did not affect the Initiator's status as agent of the beneficiary in relation to the Respondent. In fact, this interest belonged exclusively to the Initiator's relationship with the beneficiary and did not involve either the Respondent or the issuing bank.

The relationship with the Respondent was established as a result of the original advising function and the subsequent commitment that was implicitly given by the beneficiary to the Initiator to follow up the operation (sending documents and messages, settlement). Consequently, we can assume that any action carried out by the Initiator had been duly authorized by the beneficiary.

Comments and conclusion

Relevant UCP Articles:

Sub-Article 14(e): "If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provision of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit."

Sub-Article 9(a) "An irrevocable Credit constitutes a definite undertaking of the Issuing Bank, provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank and that the terms and conditions of the Credit are complied with."

Sub-Article 9(b) "A confirmation of an irrevocable Credit by another bank (the Confirming Bank) upon the authorisation or request of the Issuing Bank constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank, provided that the stipulated documents are presented to the Confirming Bank or to any other Nominated Bank and that the terms and conditions of the Credit are complied with"

A) It is correct to state that the Respondent failed to comply with the UCP provision in sub-Article 14(e) which requires the refusal of documents to be accompanied by the declaration that the documents are either held at the disposal of the beneficiary or are going to be sent back (in the case in hand the Respondent stated it intended to send the documents to the issuing bank). As a result, the Respondent was responsible towards the beneficiary for no longer being entitled to "claiming that the documents are not in compliance with the terms and conditions of the Credit".

Although the Initiator could have exercised the right to be paid notwithstanding the discrepancies, it did not. On the contrary, in its message of 09/07/98, the Initiator accepted the discrepancies and asked the Respondent "to advise the opening bank of the discrepancies". In giving these instructions to the Respondent, the Initiator could be seen to renounce the possibility of objecting that the Respondent had not observed UCP sub-Article 14(e) because it meant that it fully accepted the non-complying documents and that it clearly intended to continue to deal with the Respondent, which was actually confirmed by several subsequent messages. As is widely accepted, the objection of non-compliance with the provision of UCP sub-Article 14(e) is a preliminary objection which can be raised regardless of discrepancies.

For the above reasons the Panel of Experts holds that the Initiator's later objection that the Respondent had not observed UCP sub-Article 14(e) is not acceptable, as it is in contradiction with the Initiator's intention to deal with non-complying documents, which was expressed when the Initiator answered the first message of rejection of documents notified by the Respondent and then acted upon it in all of its subsequent communications.

B) A documentary credit undertaking binds the issuing bank on the condition that the documents presented comply with the terms and conditions of the credit; the same applies to the undertaking of the confirming bank. The obligation of the issuing/confirming bank is undertaken when the credit is issued and the beneficiary needs no further engagement to be sure to be paid; he only needs the declaration of acceptance of the documents by the issuing/confirming bank, this being the sole condition allowing him to exercise his right to be paid.

In the case in hand, the Initiator and the Respondent continued through several messages to deal with requests of "engagement of payment", in an obvious attempt to match the value date of the expected deferred payment, but neither the confirming bank nor the issuing bank informed the Initiator (beneficiary) of their acceptance of the documents. The confirming bank rejected the documents and held its position. The issuing bank never examined the documents, as the Initiator instructed the Respondent to keep the documents at its counters and to ask the issuing bank's acceptance notwithstanding the discrepancies.

The issuing bank simply answered that the applicant did not accept documents. Subsequently, Bank G's SWIFT message to the Respondent dated 25/08/98, faxed to the Initiator by the beneficiary, does not state that the documents would be accepted despite the discrepancies on the condition that the beneficiary agreed to a new maturity date (02/11/98): it simply states: "We authorise you to take documents inspite discrepancies but only under condition that beneficiary agrees with new maturity date as November 2 1998." In its message to the Respondent dated 27/08/98 the Initiator "translated" these words as: "We understand that you received from Bank G its Swift authorisation to accept the documents presented despite the discrepancies pointed out," which is inaccurate. The wording given by the issuing bank was the best it could give, given that it had not seen the documents at the point the message was sent. The issuing bank was only liable for payment once it had reviewed the documents and accepted them.

If the issuing bank had found additional discrepancies, then it would have been entitled to rescind its approval to accept. Moreover, in its message to the Respondent dated 28/8/98 - which was sent to the Initiator by the beneficiary - the issuing bank stated: "We irrevocably confirm that we will credit your account with Bank Z for the value of the documents (US$ 1,308,371.12 plus US$ 9.000.000, being interest for period 23.09-02.11.1998)", but once again the issuing bank was silent about the acceptance of documents, which is the only binding condition to execute the payment under a documentary credit.

The investigation about the possibility of obtaining a court judgment concerning the damages suffered by parties following the non-fulfilment of the engagement undertaken by the issuing bank in its message to the Respondent dated 28/08/98, is out of the scope of this expertise.

For the above reasons the Panel of Experts holds that the Respondent was not bound to its undertaking as confirming bank of the documentary credit in its hands. The issuing bank and the Respondent never accepted the documents presented by the Initiator (beneficiary).

Additional comment

With reference to the ICC Banking Commission Opinion of 14 April 1978 - published as query no. 14 in the "ICC Banking Commission Opinions 1975-1979" and mentioned by the Initiator in the last page of its summary - and by the Respondent in the last but one page of its summary, the Panel of Experts wishes to point out that it fully agrees with the ICC Banking Commission Opinion, but it holds that the Opinion does not apply to the case in hand, as the issuing bank never accepted the documents.

Statement of the Chair

The Panel of Experts was unanimous in taking the decision and in the above comments.