Parties

1st Initiator: Bank B (Negotiating Bank)

2nd Initiator: Company C (Beneficiary)

1st Respondent: Bank A (Issuing Bank)

2nd Respondent: Bank M (Reimbursing Bank)

Issue

Whether the issuing bank (Respondent) had an obligation to take up documents and to pay subject to UCP 500 despite the fact that the negotiating bank used a cover letter also to be used for collection, by stating:

- the credit number of the issuing bank;

- that documents were negotiated;

- that the negotiation was marked on the reverse of the L/C.

The negotiating bank, when remitting the documents, requested the issuing bank to transfer the amount instead of either reimbursing itself according to the terms of the credit or sending the required tested telex to the "opening" bank.

Documentation

- Request from Bank B (Initiator) of 22.03.2001 to the ICC International Centre for Expertise, Paris, requesting a DOCDEX decision, stating inter alia:

1. that a copy of the request and all documentation was sent to the first and second Respondents, and

2. the Initiator's summary of the dispute;

- Copy of documentary credit no. ABC1234, dated 17.10.97 and amendments together with the advising bank (who was not the Initiator) letters to the beneficiary;

- Copy of cover letter dated 10 1 98 from Bank B Overseas Branch, forwarding documents negotiated to Bank A;

- Copy of Bank A's letter (unsigned) dated 13.1.1998 acknowledging the receipt of documents for collection (negotiating bank claims never to have received the original);

- Copy of printout of SWIFT message of 26.1.1998 from Bank A to Bank B Overseas Branch, asking for reduction of the amount to be paid;

- Copy of printout of SWIFT message of 9.2.1998 from Bank A to Bank B Overseas Branch, holding documents at the disposal of the presenting bank;

- Copy of printout of SWIFT message of 13 February 1998 from Bank M to Bank B, refusing the reimbursement claim;

- Copies of printouts of SWIFT messages regarding the dispute from Bank A to Bank B.

No comments to the request from the Initiators are given by the Respondents.

Arguments and analysis

The credit in question was issued subject to UCP 500 and was, after an amendment, available for negotiation by any bank in Country I. The initiator was therefore entitled to negotiate complying documents presented on or before the date of expiry. The issuing bank had an obligation to reimburse the bank, having negotiated documents (UCP 500 sub-Article 10(d)).

The credit included following reimbursement instruction: "Against strictly complying documents you are authorized to reimburse yourselves via teletransmission on our h/o Int. Div. acc. No ... with [name of 2nd Respondent] for your negotiation five days after your SWIFT advice to us and also to our Head Office quoting our L/C no ... ". It also stated "Payment upon receipt of Doc's with 5 Banking value days by TT to L/C opening Bank".

Documents were presented to the Initiator and forwarded on 10.1.1998 (the Initiator stated in its request for the DOCDEX decision that documents were forwarded by courier service to the issuing bank, and received by it 13.1.1998.)

The cover letter stipulated "WE ENCLOSE THE FOLLOWING BILL FOR COLLECTION / NEGOTIATED BY US ... " and stated under SPECIAL INSTRUCTIONS:

1. a request to transfer the amount to the account of their Head Office's account with (name of their US correspondent);

2. that the bill was negotiated under "your LC no. ABC1234 dt.17.10.97 complying all terms and conditions therein";

3. "we have marked the negotiation on the reverse of the L/C".

Neither UCP 500 nor the credit itself contains any stipulation as to how the covering letter must be worded or designed.

If documents presented are in compliance with the credit and the UCP 500 and are not inconsistent with each other, the issuing bank must pay (sub-Article 13(a), (sub-Article 9(a)).

Sub-Article 14(b) further underlines the obligation of the issuing bank to examine documents received under its documentary credit. This Article even covers a situation where documents are presented directly to the issuing bank, and even if documents are presented for "collection". This has been approved by ICC Banking Commission in several Opinions.

Reimbursement instructions are not part of the credit itself, and the issuing bank's payment obligation is not dependent on whether such instructions are fulfilled. The obligation to pay under a credit depends on the timely presentation of documents with the nominated bank.

Decision

Issuing bank's refusal to honour under the credit documents received "for collection"

When conforming documents are received by the issuing bank, the bank has an obligation to examine them and to decide whether they comply (sub-Article 13(a)). If documents are in compliance, the issuing bank must honour the documents according to sub-Article 14(b). In case documents are discrepant, it must send a notice of refusal in accordance with sub-Article 14(d).

Sub-Article 14(f) further underlines that any statement by the presenter as to the compliance of documents does not relieve the issuing bank from any of its obligations to act in accordance with Article 14.

The ICC Banking Commission has in several Opinions clearly stated that documents - even when presented "on collection" - by the issuing bank must be examined as a presentation under the credit. (TA. 77, November 1997, TA. 217 April 1999 and TA. 470 (R246), November 2000).

The issuing bank's argument that the information regarding the documentary credit is stated under "Special instructions" on a "cover letter for collection" has no bearing, as URC 522 (similar to the rules in URC 322) requires that a bank which is not prepared to "handle a collection or any related instructions received" must advise the party from whom it received the collection by telecommunication.

Furthermore, it is important to note that the wording of the remittance letter said: "We enclose the following Bill for Collection/negotiated by us." The letter made reference neither to the URC, nor to the UCP. Thus, the issuing bank was obliged to carefully assess whether the documents were sent for collection or remitted under its L/C after having been negotiated. It is obvious from the content of the remittance letter that the latter was the case. The remittance letter clearly stated the correct number of the documentary credit

Negotiating bank having not reimbursed itself

Sub-Article 19(a) stipulates that the issuing bank should inform the reimbursing bank in good time with the authorization. This also includes the obligation to inform the reimbursing bank of any amendment to the credit having influence on the reimbursement.

Sub-Article 19(c) states that an issuing bank is not relieved from its payment obligation under a credit if payment is not received by the claiming bank. The sub-Article does not state the reason payment by the reimbursement bank has not been made.

The inclusion of a reimbursement clause in a credit is a service to the beneficiary/nominated bank in order to get faster payment. It is up to the negotiating bank to decide whether it will use this advantage or not. If the possibility of a reimbursement is not used by the negotiating bank, the issuing bank has an obligation to make payment by itself on receipt of documents or on receipt of an advice of negotiation, whatever is received earliest.

Sub-Article 14(d)(i) requires the issuing bank to send its refusal at the latest on the seventh banking day following the date documents were received.

Documents were presented and negotiated by a nominated (negotiating) bank (Initiator). The negotiating bank stated that documents were in compliance. The issuing bank had no reason to refuse payment because the documents themselves complied with the documentary credit. The payment should have been effected on receipt of the documents, or on receipt of an advice of negotiation, whichever occurred first.

The reference to collection does not remove the issuing bank's responsibility to act in accordance with UCP 500 where documents are clearly presented under a documentary credit (by reference or by other means), and the issuing bank is required to act in accordance with Article 14 in the event of a refusal of those documents.

The appointed experts reached a majority decision.