Parties

Initiator: Bank B (Issuing Bank)

Respondent: Company S (Beneficiary)

Summary of representations

On December 15, 1999, Initiator issued an irrevocable documentary credit No. LCIW12345 ("Credit") in favour of Respondent for USD 135,000.00 (10% tolerance in amount and quantity is allowed) covering shipment of coke breeze from Country C to Country M.

The Credit was payable at sight, available with any bank in the beneficiary's country by negotiation and called for the following documents:

- Drafts at sight on Initiator;

- Signed invoice(s) in 4 copies and indicating vessel building year;

- - Full set (3/3) clean on board ocean bill of lading indicating on board date made out to order of Initiator, marked freight prepaid and notify applicant and indicating their telephone and fax numbers (actual numbers were quoted in the L/C text);

- Signed packing list in 3 copies;

- Certificate of quality and certificate of quantity/weight each in 3 copies issued by Country C's Commodity Inspection Bureau (CIB)

- Beneficiary's certificate certifying that 2 copies of each shipping document, such as non-negotiable bill of lading, invoice, packing list, inspection certificate and certificate of quality, certificate of quantity/weight, [had] been sent to the applicant by DHL immediately after shipment, and the DHL receipt must be accompanied for negotiation;

- Beneficiary's certificate certifying that one full set of shipping documents [had] been faxed to applicant within 3 days after shipment effected;

- Shipping company or shipping company's agent certificate certifying that the vessel carrier's age [was] not over 20 years from the vessel's building year and derrick capacity/sel not less than 15 tons;

- Copy of beneficiary's telefax together with transmission report despatched to applicant (fax No. was quoted in the L/C) advising the shipment details, including vessel's name, quantity, invoice amount, ETD, ETA Port K and shipping agent's name and telephone in Country H, and discharging port before merchandise loaded on board;

- Shipping company or shipping company's agent's certificate certifying that the applicant [was] allowed to switch the second set of original bills of lading in Country H under the surrendering of first set of original bills of lading or bank's shipping guarantee.

On January 4, 2000, Initiator issued an amendment as follows: "Under documents required Item No. 4 (Certificate of Quality and Certificate of Quantity/Weight) and No.7 (Shipping Company or Shipping Company's Agent Certificate), insert "Made out to whom it may concern".

On January 31, 2000, Respondent presented documents to Initiator through Bank A in the country of the beneficiary for payment.

On January 31, 2000, Bank A found the documents to be in order and forwarded the documents to Initiator for payment.

On February 12, 2000 Initiator found the documents to be discrepant and pronounced its refusal based on the following discrepancies:

a. B/L not indicating "on board date";

b. Beneficiary's telefax not showing exact quantity, invoice amount;

c. Shipping company's agent's certificate for Doc. No.7 and No.9 without showing any reference related for this shipment.

On February 14, 2000, Initiator advised Bank A the applicant refused to waive the discrepancies.

On February 16, 2000, Bank A disagreed with the discrepancies and demanded payment.

On February 17, 2000, Initiator returned the documents to Bank A and closed its file on the transaction

On March 14, 2000 the agent of the applicant reported that shipment was effected after January 27, 2000

Issues to be determined:

1. Are the discrepancies raised by the Initiator valid under the terms and conditions of the credit and the UCP 500?

2. Do the documents, in particular the bill of lading, have fraudulent representation based on the facts as supported by the documentary evidence?

3. Is Respondent, the shipper on the bill of lading, entitled to payment under the credit when the documents presented have fraudulent representation, particularly against an antedated bill of lading, which the beneficiary is either aware of or is otherwise giving its authorization or consent to the issuer for such fraudulent representation?

4. Is the "fraud exception" applicable to the issuing bank regarding payment under the credit when the fraudulent representation in the documents has been found and supported by documentary evidence, particularly for an antedated bill of lading?

Determination of issue No. 1:

Analysis of the discrepancies raised by Initiator:

(a) Bill of Lading not indicating "on board date"

The Credit called for a "on board ocean bill of lading indicating on board date". This requirement is governed by sub-Article 23(a)(ii) of UCP 500.

Sub-Article 23(a)(ii) states: "Loading on board or shipment on a named vessel may be indicated by pre-printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment ..." [emphasis added].

The bill of lading presented bears pre-printed wording "Shipped on board the vessel named above ... " and indicated the ocean vessel "J". In the box "Place and date of issue", City T, 20 January 2000 is indicated. As per sub-Article 23(a)(ii), the issue date of the bill of lading, i.e., January 20, 2000 is deemed to be the on board date and thus meets the requirement of the Credit and sub-Article 23(a)(ii).

The discrepancy raised by the Initiator is not valid.

(b) Beneficiary's telefax not showing exact quantity, invoice amount

The credit called for "Copy of beneficiary's telefax together with transmission report despatched to applicant (fax No. quoted in the L/C) advising the shipment details including vessel's name, quantity, invoice amount, ETD, ETA Port K and shipping agent's name and telephone in Country H and discharging port before merchandise loaded on board".

The invoice presented indicated a quantity of 2,199.68 MTS, 2155 BAGS with an invoice amount of USD 148,478.40.

The telefax included in the same presentation indicated a quantity of 2,000.00 MT (+/- 10%), About 2,000 bags with an invoice amount of USD 135,000 (+/-10%).

The quantity and invoice amount appearing on the telefax do not correspond with the quantity and invoice amount appearing on the invoice. This information provided on the telefax is not consistent with the information provided on the invoice and does not represent the actual quantity shipped and amount invoiced as indicated on the invoice.

As per sub-Article 13(a) of UCP 500, 'Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit ... ". Accordingly, the telefax presented by the beneficiary is not in compliance with the terms and conditions of the credit.

The discrepancy raised by the Initiator is valid.

(c) Shipping company's agent's certificate for Doc. No.7 and No.9 without showing any reference related for this shipment

The two certificates issued by the shipping company's agent gave the certification required in the credit. However, there is no reference whatsoever on these certificates that the certification relates to the shipment under the credit. As such, it is not possible to establish a consistency (a link) between these certificates and the rest of the documents presented under the credit.

As per sub-Article 13(a) of UCP 500, "Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit ... ".

The discrepancy raised by the initiator is valid.

Determination of issues No. 2, 3 & 4:

Analysis of the fraud allegation of the bill of lading:

In documentary credit operations, banks examine documents based on the terms and conditions of the letter of credit, the UCP and the documents presented to determine compliance or lack thereof. The issuing bank, confirming bank or nominated bank effects payment, acceptance or negotiation where the documents meet the terms and conditions of the credit on their face instead of relying on any knowledge beyond the documents presented. Where there is suspicion of fraud, notice and clear evidence of fraud must be presented to the issuing bank, confirming bank or nominated bank by way of a court or other official ruling to that effect before payment, negotiation or acceptance has been effected.

The bill of lading presented under the credit appeared on its face to be in compliance with the terms and conditions of the credit. The letter dated March 14, 2000, issued by the agent of the applicant and Ship Facts Inquiry was not part of the document presentation by Bank A on January 31, 2000.

In summary, banks are required to honour their obligations, as outlined in the UCP, based upon their review of the documents alone. Any written or oral fraud allegation given to the bank(s) will only be acted upon if such allegations are supported by a court order, or order of similar effect, which instructs the banks not to comply with their undertaking. Whether or not the respondent, the shipper on the bill of lading, is entitled to payment under the credit based on evidence presented by other parties is outside the scope of documentary credit operations and any DOCDEX decision.

Decision

The Respondent is not entitled to payment under the credit due to discrepancies (b) and (c) stated above.

This is a majority decision by the Panel of Experts.