Parties

Initiator: Bank E

Respondent: Bank I

Summary of representations

1. The Respondent was the issuing bank of a documentary credit No. ABC1234 dated 9 September 2002 for the amount of USD 99,955.00. This credit was subject to the UCP 500. Reference in this Decision to the UCP 500 is a reference to the Uniform Customs and Practice for Documentary Credits, ICC publication no. 500, and reference to the ISBP 645 is a reference to the International Standard Banking Practice for the Examination of Documents under Documentary Credits, ICC publication no.645.

2. The credit was an irrevocable credit available for negotiation by any bank. The applicant was Company G of Country K, and the beneficiary was Company M with a P.O. box address in the Country V. The credit was to expire on 8 October 2002 in Country K.

3. Documents required were:

(i) "Signed commercial invoice in triplicate";

(ii) "Airway bills consigned to Bank I marked 'Freight Collect' and 'Notify Applicant'";

(iii) "Packing List in triplicate;"

(iv) A sight draft was to be drawn on the Bank I, Head Office. Documents were to be presented within 21 days of shipment.

4. The Initiator contends that it negotiated the documents and presented compliant documents to the Respondent on 11 September 2002 (two days after shipment). They exhibited a notice of negotiation dated 11 September 2002.

5. The Respondent sent a purported notice of discrepancy dated 25 September 2002 stating that "AA. COLLECTION INDICATED BY THE PERSON WHO NOT AUTHORITY ON THE AIRWAY BILL" [sic].

6. By a SWIFT message dated 26 September 2002, the Initiator requested clarification of the ground for rejection and received a message from the Respondent, similarly dated, stating that: "THE AWB IS CORRECTED BY THE PERSON WHO DOESN'T HAVE ANY AUTHORITY TO CORRECT", and that the rejection was within seven banking days. The Initiator contends, however, that this was not valid ground for rejecting the document and that the rejection was not done within seven banking days as required by Article 14 UCP 500.

7. The Respondent's summary of its position is that:

(i) The Initiator did not exercise reasonable care in its examination of the documents, as required under Articles 13 and 14 of UCP 500, quoting an ICC Opinion (470/371, 470/373, Opinions (1980-1981)).

(ii) There were "eleven corrections with white painted marks" on the "bill of lading [sic]", among them two hand-written corrections and the rest typewritten corrections. They allege that this indicates "forgery" on the face of the documents. They also allege that the "bill of lading should have been authenticated" and the Initiator "at least should have asked the ocean liner [sic] to confirm the authenticity of the bill of lading [sic] in writing or recording." This was, it contends, evidence of the lack of care.

(iii) Additionally, there was "complicated [sic] and ill-intended malice" in that the "correction signatures of the bill of lading presented to us are almost identical with those of the bill of lading presented to Bank K in Country K". A copy of the Bank K bill of lading (actually an airway bill (AWB) was also exhibited.

(iv) It sent the notice of discrepancy within seven banking days. The Respondent tendered no explanation of banking days in Country K except a cryptic message dated 18 December 2002 stating: "PLS BE INFORMED THAT THE MT734 WAS ADVISED WITHIN 7 BANKING DAYS DUE TO THE DOCS WERE RECEIVED ON SEP.13.2002. WE REMIND YOU THAT THE DOCS WERE PRESENTED WITH DISC AS MENTIONED ON SEP.25.2002 AND STILL UNPAID (20.21.22. OF COUNTRY K GIVEN DAY.)"

8. The experts have confirmed that banks in Country K close on Saturdays, Sundays and were closed from 20 September to 22 September 2002 (being their public holidays).

Analysis and decision

9. The Respondent refused the documents on one single discrepancy, that the air waybill (AWB) was corrected by a person without authority to correct. The initial message purportedly communicating this was dated 25 September 2002, but the Initiator sought a clarification which was issued on 26 September 2002. Under Article 14, a discrepancy occurs when a document is tendered does not conform with the terms and conditions of the credit. Here, the credit did not require "collection" by a person who was an "authority on the air waybill".

10. As for correction by a person authorized to do so: all the corrections on the AWB were authenticated by a stamp reading "ASE Company A (S) Ltd", which appears on the face of the document to be the party which signed the AWB and which was clearly identified as an agent of the carrier, Company S. This complies with Article 30 of UCP 500 which states: "Unless otherwise authorized in the Credit, banks will only accept a transport document issued by a freight forwarder if it appears on its face to indicate: the name of the carrier or multimodal transport operator and to have been signed or otherwise authenticated by the freight forwarder as named agent for or on behalf of the carrier or multimodal transport operator."

11. In addition, the ISBP in paragraph 164 clearly states: "Correction and alterations in air transport documents must be authenticated. Such authentication must appear to have been made by the carrier or any of its agents (who may be different from the agent that may have issued or signed it), provided it is identified as an agent of the carrier." In the present case, this was done.

12. Sub-Article 13(a) requires banks to examine documents with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the credit. The AWB complies with Article 27, as it appears on its face to indicate the name of the carrier and to be signed or otherwise authenticated by a named agent for the carrier. Reference to external information sources (such as communication with the issuer of the document, or comparison with documents tendered in other credits) is not required nor permitted. The negotiating bank is not required nor permitted to conduct a full-scale forensic investigation before it accepts a document as authentic, and the Respondent is not entitled to demand that. Even if the AWB were forged, the negotiating bank was protected by Article 9 as a bona fide holder and is entitled to payment, unless it was itself a party to the fraud, or it had knowledge of fraud prior to presentation of the document, or unless it had failed to exercise reasonable care: ICC Banking Commission Opinion (470/371, 470/373).

13. There was no evidence nor claim that the Initiator was party to the fraud or had prior knowledge of the fraud. Neither was forgery apparent on the face of the AWB. Corrections that appear to be properly authenticated by the agent of the carrier are not such evidence of forgery. ISBP paragraphs 164 and 165 envisage such corrections. In addition, paragraph 9 of ISBP 645 states: "Corrections and alterations of information or data in documents, other than documents created by the beneficiary, must appear to be authenticated by the party who issued the document or by a party authorised by the issuer to do so. The authentication must show by whom the authentication has been made and include that party's signature or initials" [emphasis added]. Additionally, it is not unusual that the initials on one document should bear similarity to that on another document, so accepting such a document cannot be evidence of lack of care.

14. Article 15 UCP 500 provides, inter alia, that: "Banks assume no liability for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s), or for the general and/or particular conditions stipulated in the document(s) or superimposed thereon ... ". Where documents are fraudulent, but the fraud is not committed by the beneficiary, the case of United City Merchants (Investments) Ltd v Royal Bank of Canada [1983] 1AC 168 lays down the rule that the issuing bank cannot refuse to pay. Even if the fraud is that of the beneficiary, it is clear law that the issuing bank is not justified in refusing to pay unless the fraud is clearly established and the bank has knowledge of that fraud (see, e.g., Hapgood et al, "Paget's Law of Banking", 12th ed., Butterworths 2002, p.734). Here there was no indication on the face of the documents that such fraud existed or that the Initiator had knowledge of such fraud. If the Respondent has evidence of such fraud, it will have to seek a court injunction; this is outside the jurisdiction of the Experts.

15. The documents were sent by the Initiator on 11 September 2002. The Respondent claims that it received the documents on 13 September 2002. No evidence was submitted to prove this. Nevertheless, even if this were, in fact, true, the documents were not properly rejected within seven banking days.

16. Article 14 requires the Respondent to give notice, by telecommunication, no later than the close of the seventh banking day following the day of receipt of the documents. The notice must be sent to the bank from which it received the documents, naming all discrepancies in respect of which the bank refuses documents. 13 September 2002 was a Friday; 14 September, 15 September, 21 September and 22 September were weekends. 20 September to 22 September were public holidays. The seventh banking day would thus have been 25 September 2002. On 25 September 2002, the Respondent sent a purported notice of discrepancy that did not name a discrepancy recognized by the UCP 500 or international standard banking practice. In fact, the notice of 25 September 2002 appeared to be meaningless and in gibberish English until this message was clarified on 26 September 2002 by the Respondent upon enquiry by the Initiator. It was thus of no effect. The clarification came on the eighth banking day, but although it was comprehensible, it still did not name a discrepancy recognized by the UCP 500. There was, therefore, no valid and proper notice of discrepancy before the end of the seventh banking day.

17. Above all, an allegation of forgery or fraud in the document is an indirect attempt to reject the documents on a new discrepancy not named in the original notice of discrepancy. Article 14 clearly requires all discrepancies to be named in the original notice.

18. We find, therefore, that the Initiator had performed its duties within Articles 13 and 15 of UCP 500 and that the air transport document complies with Articles 27 and 30 of UCP 500. Thus, payment should not have been refused by the Respondent. Furthermore, the Respondent's purported notice of discrepancy did not name a valid discrepancy and was not within the seven banking days stipulated by Article 14 of UCP 500. Finally, an attempt to allege forgery or fraud at this late stage is an attempt to refuse the documents on a new discrepancy and should not be allowed.

Statement of the Chairman

This decision was arrived at unanimously.