Parties

Initiator: Bank F (confirming and negotiating bank)

Respondent: Bank H (issuing bank)

Dispute

Whether the issuing bank (Respondent) had a right to refuse documents for the following reasons:

1. Overdrawn

2. Early shipment prior to L/C issue date

3. Receiver on LOI differs from L/C terms (applicant i/o Respondent)

4. Fraud by dual issuance of LOI

Documents submitted by the parties

Request from the Initiator of 17 December 2003 to ICC International Centre for Expertise, Paris, requesting a DOCDEX Decision in accordance with ICC DOCDEX Rules, ICC publication no. 577, stating inter alia -

that the Respondent was invited to submit his comments;

- that the Respondent would not submit such answer;

- that a copy of the request and all documentation was sent to the Respondents;

- the Initiator's Summary of the Dispute;

- Copy of documentary credit No. ABC123 dated 18 July 2003 and 2 amendments;

- Copy of Initiator's notice that amendment regarding the cancellation of the credit was refused;

- Copy of schedule (telex) dated 24 Oct. 2003 from the Initiator, including quotation of telex-documents to the Respondent;

- Copy of SWIFT messages between the two banks regarding the refusal;

- Copy of messages regarding Respondent's cancellation of reimbursement instruction; and

- Copy of telex sent by Initiator to Respondent including a LOI issued in favour of the Respondent for substitution.

Arguments

The credit in question was issued subject to UCP 500 and was available by negotiation with the Initiator permitting it to add its confirmation. The initiator was therefore entitled to negotiate complying documents presented on or before the date of expiry.

The credit required the presentation of:

- One original and one copy of signed commercial invoice;

-Full set of 3/3 original plus 3 copies of bill of lading made out or endorsed to the order of (Respondent), marked freight payable as per charter party.

The credit further stated inter alia:

If any of the above documents are not available at payment due date, then seller shall present --

- Seller's commercial invoice;

-Seller's letter of indemnity.

and further --

-Telex invoice and LOI acceptable.

On 24 October 2003, the Initiator sent a telex message including the beneficiary's invoice and LOI issued in favour of the applicant.

In the telex message, the Initiator referred to its SWIFT message to the Respondent, in which it stated that it had negotiated credit-complying documents for USD 233.662,64 and that it had claimed the amount as per letter of credit terms.

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

The Respondent sent a notice of refusal in accordance with the stipulations of Article 14 stating discrepancies as quoted above.

Analysis

- Discrepancy 1. - Overdrawn

Beneficiary's claim under the credit (invoice amount) was USD 233.662,64, while the credit was issued for an amount of USD 200,000.00. The quantity of goods was stated in the credit to be 900 tons +/- 10%, and the invoice was for 990 tons, which was credit conforming. The tolerance of 10% (as allowed in the credit for both the amount and the quantity of goods) was used proportionally.

The credit stated further:

"The price per barrel on Bill of Lading quantity shall be the average of the mean of Platt's Asia Pacific/Arab Gulf Marketscan quotations for gasoil reg 0.5 pct appearing under the heading 'Singapore' during the period 01 - 31 July 2003 plus a premium of USD 2,25 per barrel."

and

"The amount of this Letter of Credit shall automatically fluctuate to cover any increase/decrease according to the price clause without further amendment to this credit."

- Discrepancy 2. - Early shipment prior to L/C issue date

The credit stipulated that shipment was to be effected not later than 18 August 2003 from Country T to Country K and contained no condition that shipment was not allowed before the issuance date of the credit.

Although no transport documents were presented, the date of shipment (16 July 2003) is possible to detect from the data appearing on the LOI. The credit did not state that the date of shipment should be detectable from the LOI.

- Discrepancy 3 - Receiver on LOI differ from L/C terms (Applicant i/o Respondent)

The credit did not stipulate any specific requirement for the LOI in the event that a full set of B/Ls was not available.

The LOI was addressed / issued in the name of the buyer (applicant).

- Discrepancy 4 - Fraud by dual issuance of LOI

As stated above, the LOI was addressed/issued in the name of the buyer (applicant), and only after the refusal of documents by the Respondent did the nominated bank submit a new LOI, in an altered version, in the name of the Respondent.

When the Initiator forwarded the amended LOI, it clearly stated that it was a substitution of the LOI presented in the first place. The substitution was sent before the credit had expired.

Decision

- Overdrawn

The credit stated three stipulations regarding calculation of the amount to be drawn by the beneficiary:

1. the amount of the credit: USD 200.000,00 +/- 10 pct. (field 32B + 39A);

2. the price clause (stated in field 47 A, point 2);

3. the clause relating to fluctuation of the credit amount without an amendment (stated in field 47A, point 6).

The tolerance of 10 pct more or less was stated to be valid for both the amount of the credit and the quantity of gasoil to be delivered, and the invoice reflected this proportionally.

It is obvious that the beneficiary, in his invoice, has made the calculation of the price according to the second clause, and it is not possible for the three experts in this DOCDEX case to read the third clause as anything other than a possibility to draw under the credit, even if the amount would exceed the credit amount plus 10 pct. There could not be any other reason for this clause.

- Early shipment prior to L/C issue date

The credit stated a date for the latest shipment, but did not state any date for the earliest shipment.

UCP 500 does not include any stipulation that forbids goods to be shipped before the issuance of the credit. UCP 500 states in Article 22 that documents bearing a date prior to that of the credit are acceptable, subject to the document(s) being presented within the time limits set out in the credit.

In this case, the only relevant time limit is the date of expiry, which date was observed. The time limit mentioned in Article 43 was not relevant for two reasons: (1) The Article is only relevant when transport documents are presented; and (2) the credit expressly stated that the negotiation was to be effected on or after 81 days from B/L date.

- Receiver on LOI differ from L/C terms (Applicant i/o Respondent)

According to Article 21, a document may be issued by any party if the credit or the Articles of UCP do not require otherwise. The credit did not state in whose favour the LOI was to be issued. In such a case, Article 21 of the UCP has to be taken into account. It is also worth noting that a LOI is not a transport document.

The Experts further find that it is international practice that LOIs issued in the oil trade are normally issued in favour of the buyer in order to accomplish a clear statement of title to the cargo, where the original B/L is not available.

The entire picture, based on the different terms and condition of the credit, could lead to the impression that the Respondent had either a detailed knowledge of the trade in question and the risk connected thereto, or that even not having that knowledge issued a credit with clauses it failed to recognize the consequences of.

- Fraud by dual issuance of LOI

Fraud is not an issue covered under UCP 500 but one for the courts to take action on, and only after the issuance of a court injunction may it prevent the issuing bank from fulfilling its obligation according to sub-Article 9(a) of UCP 500, which inter alia states: "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...".

It is also relevant to refer to Article 15:

"Banks assume no liability or responsibility 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; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any document(s), or for the good faith or acts and/or omissions, solvency, performance or standing of the consignors, the carriers, the forwarders, the consignees or the insurers of the goods, or any other person whomsoever."

The Experts further relied on sub-Article 13(a):

"Banks must examine all documents stipulated in the Credit 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...".

It is obvious from this Article that banks are solely obliged to examine documents required and presented under the credit.

Based on these Articles and the principles of UCP 500 that a documentary credit is an instrument for payment, the Experts agreed that the "claim of fraud" was not a valid discrepancy for an issuing bank to refuse payment.

The Respondent was required to review the documents based upon the information that appeared on their face and not to any information that was received from another source or document.

The Experts in this DOCDEX decision have nevertheless looked at the issue and could not recognize a fraud or fraud attempt.

It is obvious from the documents presented under the DOCDEX case that the LOI issued in favour of the buyer and the LOI issued in favour of the Respondent were both presented under the same credit to the issuing bank. There is no reason to believe, or evidenced by the documents, that the LOIs were telexed to the applicant or to the carrier.

The instruction from the Initiator to substitute the "second" LOI with the one first presented gave the Respondent the opportunity to ensure that only one of the LOIs was used.

(Based on an enquiry from the experts in this DOCDEX case, the Initiator has declared that the LOI and invoice were solely sent by telex through them to the Respondent. If the Respondent wanted to ascertain the value of the documents, it could have acquired the same information from the Respondent.)

Conclusion

The documents presented were not discrepant and the Respondent had no reason to refuse the documents and to withdraw its reimbursement.

The appointed Experts reached a unanimous Decision.