The Parties

Initiator: Bank B, Country R, negotiating bank

Respondent: Bank F, Country H, issuing bank

The case

The negotiating bank is alleging wrongful dishonour on the part of the issuing bank.

Decision

The negotiating bank is correct in its allegations. Therefore the issuing bank is obligated to pay the negotiating bank on the shipping documents presented under the credit.

This decision is a majority decision.

Details

On 18 January 2002, the Respondent, Bank F, issued a sight letter of credit in favour of a Country R beneficiary covering shipment of PVC Resin, Grade No. 7059M, 5,000MT (+/-10PCT), USD 404.00/MT DAF City M and/or City T, Country C, with country of origin Country R, in the amount of USD 2,020,000 (+/- 10%) for the account of a Country M applicant. The credit was to expire in Country R on 21 February 2002.

The credit was available with any bank by negotiation with draft at sight for full invoice value to be presented with the following required documents:

1. Signed commercial invoice in 1 original and 2 copies;

2. Photocopy of international railway bills with consignee (a company part of the applicant group of companies);

3. Certificate of quality in 1 original and 2 copies issued by manufacturer or beneficiary.

4. The transportation was to be effected from any Country R station to City M and/or City T, Country C with latest shipment date of 31 January 2002 with partial and transhipment both allowed.

In the additional conditions were the following clauses: [unimportant conditions omitted; the numbering of the points are the same as in the credit for reference purposes.]

5. All documents except invoices, drafts must not mention invoice no., this L/C no., bank's name, trade term, unit price and value of goods unless otherwise stipulated.

6. All documents must be dated, issued in Country E or Country R language acceptable, manually signed and bearing the company stamp of issuer.

7. Third party documents except invoice and draft acceptable unless otherwise stipulated.

8. Ten percent more or less both on quantity and credit amount acceptable.

9. Documents issued prior to L/C issuing date acceptable.

10. Extra copies of documents are required to be presented together with the documents for issuing bank's retention. USD 10.00 per copy will be deducted if such extra copies are not presented.

The payment by the issuing bank was to be effected in accordance with the instructions of the negotiating bank upon receipt of documents complying with the terms of the credit. The credit was subject to the Uniform Customs and Practice for Documentary Credits (UCP), 1993 Revision, Publication No. 500. All documents were to be dispatched to the issuing bank in one lot by courier service on the date of negotiation. On 21 January 2002, the issuing bank sent an amendment as follows:

1. Under field 45A, Price term now should read as "Price term: 404.00/MT DAF City M and/or CFR City T, Country C".

2. Under 46A, Item No. BBB should read as "Photocopy of international railway bills with consignee (a company part of the applicant group of companies - same as that in the original credit)".

3. Under 47A, insert: 12. Photocopy of international railway bills should not be manually signed by issuer.

Other terms and conditions remain unchanged.

On 21 January 2002, the beneficiary presented shipping documents with a draft for USD 2,216,243.00 to the negotiating bank (Initiator) and after negotiation sent the shipping documents to the issuing bank (Respondent).

On 5 February 2002, the issuing bank sent the following discrepancy notice via MT 799: "We have examined the documents and noticed the following discrepancies:

1. Original and manually signed railway bill presented.

2. Railway bill showing unauthenticated correction/insertion.

3. Railway bill showing bank's name under item 91 which is not allowed in D/C.

4. Railway bill showing destination differs from D/C stipulated.

5. Railway bill issued earlier than invoice date but indicating invoice enclosed.

6. Invoice showing incorrect total credit amount.

7. Invoice and certificate of quality stamped by (beneficiary name) Limited instead of (beneficiary name) Company K Ltd.

We refuse the documents due to the above discrepancies and hold them at your disposal. As stipulated in the L/C, the documents may be released to the applicant against their payment/acceptance prior to our receipt of disposal instruction from you despite the documents are being held at your disposal by virtue of sub-Article 14(d)(ii)." On 5 February 2002, the negotiating bank sent the following reply: "Re your MT 799 dated February 5, 2002 concerning documents for USD 2,216,243.00 under our above reference. Please note that we disagree with the mentioned discrepancies due to the following reasons:

1. The presentation of the original railway bill instead of photocopy does not constitute a discrepancy as it does not influence the consignee's ability to receive the goods. The presented railway bills are not signed by issuer (railway authority) but by Country R customs officer.

2. The railway bills are typed but not manually filled in, thus authentication of correction/insertion is not required.

3. In field 91 on the back of the railway bills showed a name of consignor's bank related to consignor's freight settlement with Country R railway, while the L/C terms prohibit mention 'bank name' in connection with the L/C deal, i.e., showing the issuing bank but not a third party's bank is prohibited.

4. Destination showed in railway bills is 'City T, Country C Railways', that complies with the option given in the L/C 'City M, and / or City T, Country C'.

5. Railway bills indicate enclosed invoice of the consignor but not the one of the beneficiary, the enclosed invoice bears no relations with the L/C.

6. Total credit amount showed in invoice is USD 2,020,000.00 which is in full compliance with the L/C amount.

7. The beneficiary's stamp on invoice and certificate of quality has a part of the beneficiary's name 'Company K' in the middle of the stamp. The word 'Limited' on the stamp expresses only the form of business under which the beneficiary incorporated in the country of registration, and it is equal in its meaning with the word 'Ltd.' in the L/C.

Therefore you are kindly requested to re-check the documents with our remarks and to execute payment in full amount according to our payment instructions." On 15 February 2002, the issuing bank sent the following reply to the negotiating bank: "Re your SWIFT dated February 5, 2002, we remain [maintain] the discrepancies that we have advised are valid based on the following:

1. As L/C calls for photocopy and not manually signed railway bills, the original might be required to be distributed to the applicant outside the L/C terms as pre-agreed between the beneficiary and the applicant. The presentation of original railway bill to us in violating the L/C's requirement.

2. A few columns (item 23, 28, 29, 30, 45) typed with different manner which did not bear any correction chop.

3. L/C does not allow to show bank's name without indicating for what connection.

4. Noted.

5. L/C does not call for any other invoice and we understand the practice that the shipper's invoice is always enclosed with the railway bill.

6. The total credit amount should include the 10 percent tolerance.

7. The 'Company K' in the middle of the stamp cannot be treated as the name of the company.

Documents still unpaid due to discrepancies. Please instruct." On 18 February 2002, the negotiating bank sent the following reply to the issuing bank: "Re your MT 799 dated February 15, 2002 concerning documents for USD 2,216,243.00 under our above reference. Please note that despite your reasons, we cannot agree with the mentioned discrepancies due to the following:

1. The presentation of the original railway bill instead photocopy does not violate the L/C's requirement, as even if the railway bill original should have been sent directly to the applicant, this would not influence the consignee's ability to receive the goods because a railway bill is not a document of title.

2. Items 23, 28, 29, 30, 45 in railway bill typed in different manner because these fields are filled in separately by a shipper (it is common practice regarding SMGS railway bills), and the information in these fields is in full conjunction [agreement] with the other data in railway bill.

3. While L/C does not allow to show bank's name, it is obvious from the context of point 5 of field 47A of the L/C that this prohibition concerns information relating to the L/C deal parties but not to the settlement bank of the Country R railway as the third party's bank.

4. As L/C practice calls for beneficiary's invoice, the beneficiary's invoice presented along with the other documents under the L/C. The invoice indicated in field 23 of the railway bill issued by shipper, not by a beneficiary. Therefore there is no discrepancy in the fact that the beneficiary's invoice dated later than railway bill.

5. The total credit amount is in full compliance with the amount stated in field 32B of the L/C. There is no requirement in the L/C that the total credit amount should include tolerance.

6. The name of issuer of invoice and certificate of quality is clearly stated on these documents as '(beneficiary name) Company K Ltd.'. The relevant company stamp includes the same information, and there is no reason in your statement that the 'Company K' in the middle of the stamp cannot be treated as the name of the company.

Therefore, taking into consideration our above objections, we ask you to reconsider your opinion and to fulfil your obligations under the L/C, i.e. to pay according to our payment instructions. We hope for your understanding that refusal of payment based on the discrepancies raised by you may respectively affect the reputation of Respondent. Please note that if the dispute is not resolved in the shortest period of time, we intend to apply for a third party's juristic decision on the matter. Awaiting for your reasonable decision."

Analysis

We will go over each discrepancy noted by the issuing bank and review the merits of the reasons for each discrepancy.

"Discrepancy (1) Original and manually signed railway bill presented"

The credit required the following railway bill: "Photocopy of international railway bills with consignee (a company part of the applicant group of companies)". The presented railway bill is a duplicate original and as such it is not a photocopy. If an original railway bill was required in the credit, a photocopy of the railway bill will not be sufficient. But a photocopy document requirement can easily be met with an original document.

Furthermore, it is international standard banking practice that where an original would not be accepted in lieu of a copy, the credit must prohibit an original. For example, "photocopy of railway bill - original document not acceptable in lieu of a photocopy" or the like.

The additional conditions in the credit state the following: "6. All documents must be dated, issued in Country E or Country R language acceptable, manually signed and bearing the stamp of the issuer." The amendment to the credit states the following: "12. Photocopy of international railway bills should not be manually signed by issuer."

There is a manual signature on the international railway bill but it is on the top right-hand corner of the railway bill and it is not the signature of the issuer. Therefore the amendment of the credit which allowed an international railway bill without an issuer's manual signature is fully satisfied.

"Discrepancy (2) Railway bill showing unauthenticated correction/insertion"

This discrepancy notice is not specific as to which part of the railway bill is an unauthenticated correction/insertion and therefore invalid. Although clarification on this point was made by the issuing bank later on, it does not make the unclear discrepancy notice which had been first sent a valid one.

Also, it is common practice that the railway bill will be duly completed by different type styles and handwriting. According to an ICC Opinion, the use of the multiple type style or font sizes in the same document and/or handwriting in a printed document does not by itself signify a correction and/or alteration.

"Discrepancy (3) Railway bill showing bank's name under item 91 which is not allowed in D/C"

The additional conditions in the credit state the following: "5. All documents except invoices, drafts must not mention invoice no., this L/C No., bank's name, trade term, unit price and value of goods unless otherwise stipulated."

The bank's name mentioned in the above clause refers to the name of the issuing bank. The name of the bank mentioned at the back of the railway bill is Bank S, Branch Z of Country R. This is the bank for the Country R railway for settlement of freight. Therefore the showing of the settlement bank for the Country R railway on the railway bill does not apply to the additional condition point 5 prohibiting the mention of bank's name on all documents.

"Discrepancy (4) Railway bill showing destination differ from D/C stated"

The credit states the destination point as follows: "City M, and/or City T, Country C". The international railway bill states the following as destination: "City T, Country C Railways". The destination point of City T, Country C is clearly shown in the international railway bill and therefore the international railway bill does not show a destination different from that stated in the credit. This discrepancy is not justified.

"Discrepancy (5) Railway bill issued earlier than invoice date but indicating invoice enclosed"

In the railway bill at item number 2, it is stated: "Contract No. 987/6543 dated 27. 12. 2001." In the railway bill at item 47, it is stated: " Calendar's stamp of departing station dated 8 Jan. 2002." In the commercial invoice at the top is stated the following:

"Invoice No. WM12-34-56

Contract No. 987/6543

L/C No. DC 10001"

The commercial invoice is issued on 21 January 2002. The commercial invoice does not state the date of the contract no. 987/6543. The railway bill indicates the date of the contract no. 987/6543 as 27. 12. 2001. This discrepancy stating that the railway bill is issued earlier than invoice date but indicating invoice enclosed is not clear as to what is being pointed out as a discrepancy. As such it is not valid. From the review of the railway bill and the commercial invoice, the contract was made on 27. 12. 2001, the shipment was made by rail on 2 Jan 2002 and invoice was issued on 21 January 2002. This sequence of events seems to be in order. Also, there was no requirement in the letter of credit that an invoice had to accompany the railway bill.

"Discrepancy (6) Invoice showing incorrect total credit amount"

The invoice states the following: "Total Credit Amount: USD 2,020,000". The amount of the credit is USD 2,020,000 with a credit amount tolerance of +/- 10%. The above discrepancy based on invoice showing incorrect total credit amount is not valid.

"Discrepancy (7) Invoice and certificate of quality stamped by (beneficiary name) Limited instead of (beneficiary name) Company K Ltd."

The stamp has the words '(beneficiary name) Limited' on the circumference of the stamp circle with the words 'Company K' in the middle of the stamp. This is not a valid discrepancy.