Parties

Initiator: Bank M (advising, confirming and negotiating bank)

Respondent: Bank W (issuing bank)

Background

The Initiator (Bank M) is the advising, confirming and negotiating bank in respect to four letters of credit issued in August 2003 subject to UCP 500. The Respondent (Bank W) is the issuing bank of the subject letters of credit. All documents received and reviewed by the Experts were furnished by the Initiator as part of their Request. There has been no Answer from the Respondent. The Experts have not requested any supplemental documents.

The letters of credit contained substantially the same documentary requirements (sight draft, commercial invoice(s) and full set bills of lading), and the same additional conditions and the same special negotiation condition.

Annex A hereto is a chart summarizing the L/C documentary requirements and pertinent terms and conditions. Annex B hereto details the respective dates of party action pertinent to this dispute.

Issues to be determined

1. Whether the presented documents complied with the terms and conditions of the respective letters of credit;

2. Whether the Respondent failed to comply with UCP 500 Articles 13 and 14; and

3. Whether the cited "special negotiation clause" has any consequence for the Respondent's obligation to reimburse the Initiator.

Analysis of issues and decisions

Whether the presented documents complied with the terms and conditions of the respective letters of credit.

Each L/C will be addressed separately.

L/C No. ABC12345

The following discrepancies were stated in the notice of refusal:

1. Discrepancy: L/C no. is not indicated on the B/L

Analysis: UCP 500 does not require the L/C number to be indicated on the B/L. In addition, there was no such specified requirement in this L/C.

Decision: The absence of the L/C number on the B/L is not a discrepancy.

2. Discrepancy: different consignee

Analysis: The L/C in question requires that bills of lading be "made out or endorsed to the order of the Respondent ...". The bills of lading presented are made out to the order of the Initiator and are endorsed on the reverse by the Initiator to the order of the Respondent.

Decision: This requirement of the L/C is satisfied by endorsement of the B/L to the order of the Respondent and this is not a discrepancy.

3. Discrepancy: charter party, charterer and carrier are not indicated on B/L

Analysis: A charter party not indicated on B/L. The B/L presented indicates: "Pursuant and subject to all terms and conditions, Liberties and Exceptions as per voyage Charter Party indicated hereunder." Immediately below this statement is a field titled "Charter Party (Place and Date of Issue)", which is left blank. There is no UCP or L/C requirement for the charter party details to be indicated on the charter party B/L ("CP B/L"). In addition, the L/C contains an additional condition: "Charter Party contract undated on Chartered Party bill of lading acceptable."

Charterer not indicated on B/L. The B/L presented contains a field titled "Charterer", which is left blank. There is no UCP or L/C requirement that the name of the charterer be indicated on the CP B/L. In addition, there is no requirement in UCP or the L/C that every field on a presented document be completed. It is recognized international standard banking practice that even when a document contains a space for signature, a signature may not be required unless the document itself requires a signature for its validity. Consistent with this standard, it follows that a space for detail on a document need not be completed unless the document itself or international standard banking practice requires it.

Carrier not indicated on B/L. The B/L presented contains a field titled "Carrier", which is left blank. There is no UCP or L/C requirement that the name of the carrier be indicated on the CP B/L. In addition to the reasoning stated above that a space for detail on a document need not be completed except where the document itself or international standard banking practice requires it, UCP 500 sub-Article 25(a)(iii) provides that a CP B/L will be accepted whether it does or does not indicate the name of the carrier.

Decision: The document presented states (i) that it is subject to a charter party, (ii) is signed by an agent for and on behalf of a named master, and (iii) does not, but need not, indicate the name of the carrier. There is no L/C requirement that the charter party (Place and Date of Issue) or the charterer or the carrier be indicated on the CP B/L. Accordingly, the document complies with UCP and the L/C. There is no discrepancy.

4. Discrepancy: Tanker B/L is presented.

Analysis: The L/C does not prohibit presentation of a document titled "Tanker Bill of Lading." The L/C does permit presentation of a charter party bill of lading and UCP 500 sub-Article 25(a) reads: "If a credit calls for or permits a charter party bill of lading, banks will, unless otherwise stipulated in the Credit, accept a document, however named (emphasis added), which: i. contains any indication that it is subject to a charter party...".

Decision: The L/C permits presentation of a charter party B/L. The document presented titled "Tanker Bill of Lading" states that it is subject to charter party and therefore complies. This is not a discrepancy.

5. Discrepancy: actual discharging port is not indicated on B/L.

Analysis: The L/C requires shipment to "Any port(s) in Country S." The CP B/L presented indicates the discharging port as "Any port(s) in Country s." UCP 500 sub-Article 25(a)(v) reads: "indicates the port of loading and the port of discharge stipulated in the Credit". Given this L/C requirement, international standard banking practice (ISBP) treats as acceptable B/Ls stating an actual port provided that port is within the range indicated in the L/C. In addition, recognizing the unique contractual nature of charter party bills of lading, and absent L/C conditions to the contrary, ISBP also treats as acceptable a CP B/L indicating the geographical area or range of ports specified in the L/C.

Decision: The CP B/L presented, which indicates the port of discharge as the geographical area or range required by the L/C, is acceptable and is not a discrepancy.

6. Discrepancy: B/L does not contain the indication that it is subject to a charter party.

Analysis: The document presented contains several references to a charter party, namely "Pursuant and subject to all terms and conditions, liberties and exceptions as per voyage charter party indicated herein" and "Freight Payable as per Charter Party." UCP 500 sub-Article 25(a)(i) provides that any (emphasis added) indication that the B/L is subject to a charter party makes it acceptable as a CP B/L.

Decision: As the document contains an indication that it is subject to a charter party, this is not a discrepancy.

Summary: The Experts find that the documents presented under L/C No. ABC12345 comply with its terms and conditions.

L/C No. XYZ321

The following discrepancies were stated in the Notice of Refusal:

1. Discrepancy: L/C no. is not indicated on the B/L.

Analysis: UCP 500 does not require the L/C number to be indicated on the B/L. In addition, there was no such specified requirement in this L/C.

Decision: The absence of the L/C number on the B/L is not a discrepancy.

2. Discrepancy: tanker B/L is presented.

Analysis: The L/C does not prohibit presentation of a document titled "Tanker Bill of Lading." The L/C does permit presentation of a charter party bill of lading and UCP 500 sub-Article 25(a) reads: "If a Credit calls for or permits a Charter Party Bill of Lading, banks will, unless otherwise stipulated in the Credit, accept a document, however named (emphasis added), which: i. contains any indication that it is subject to a charter party ...".

Decision: The L/C permits presentation of a charter party B/L. The document presented titled "Tanker Bill of Lading" states that it is subject to charter party and therefore complies. This is not a discrepancy.

3. Discrepancy: documents are inconsistent with each other.

Analysis: Without further specificity, this statement fails to satisfy the UCP 500 Article 14(d)(ii) requirement to "state all discrepancies". The standard underlying this requirement is that the beneficiary/presenter is entitled to know the reason(s) for refusal in such a way that they may be able to identify and cure or correct the stated discrepancy. This statement alone is too general. It does not cite the documents that are purportedly inconsistent with each other nor does it cite the difference(s) which lead to this conclusion.

Decision: It is an insufficient citation to qualify as a proper and acceptable statement of discrepancy in accordance with sub-Article 14(d)(ii).

4. Discrepancy: issuance place of B/L is not indicated clearly.

Analysis: Notwithstanding that there is no requirement in UCP 500 or in this L/C for the B/L to indicate the place of issuance, we find that the CP B/L presented does indicate a place of issuance, i.e., "Dated at City S as at Ningbo, China, this 5th day of Sep 2003".

Decision: This is not a discrepancy.

Summary: The Experts find that the documents presented under L/C No. XYZ321 comply with its terms and conditions.

L/C No. DEF6789

The following discrepancies were stated in the notice of refusal:

5. Discrepancy: L/C no. is not indicated on the B/L.

Analysis: UCP 500 does not require the L/C number to be indicated on the B/L. In addition, there was no such specified requirement in this L/C.

Decision: The absence of the L/C number on the B/L is not a discrepancy.

6. Discrepancy: different consignee

Analysis: The L/C in question requires that bills of lading be "made out or endorsed to the order of the Respondent ...". The bills of lading presented are made out to the order of the Initiator and are endorsed on the reverse by the Initiator to the order of the Respondent.

Decision: This requirement of the L/C is satisfied by endorsement of the B/L to the order of the Respondent, and this is not a discrepancy.

7. Discrepancy: charter party, charter date, place and party of contract are not indicated on the B/L.

Analysis:

a. There is no requirement in the L/C or in UCP that the charter party, charter date, place and party of contract be indicated on the B/L. The document presented does contain the following indications that it is subject to a charter party: "Freight Payable as per Charter Party" and "This shipment is carried under and pursuant to the terms of the Charter" [emphasis added]. This is sufficient to satisfy UCP 500 sub-Article 25(a)(i).

b. Further, this L/C specifically anticipates that the CP B/L may not indicate the date of the charter party providing an additional condition: "Chartered Party Contract undated on Charter Party B/L is acceptable."

c. The B/L presented contains fields for date, place and parties to the charter contract, but there is no L/C or UCP requirement for those details to be on a charter party B/L. In addition, there is no requirement in UCP or the L/C that every field on a presented document be completed. It is recognized international standard banking practice that even where a document contains a space for signature, a signature may not be required unless the document itself requires a signature for its validity. Consistent with this standard, it follows that a space for detail on a document need not be completed unless the document itself or international standard banking practice requires it.

Decision: The document presented states (i) that it is subject to a charter party and (ii) is signed by the master. There is no L/C requirement that the charter party, date, place and party of contract be indicated on the CP B/L. The document complies with UCP and the L/C. There is no discrepancy.

4. Discrepancy: tanker B/L is presented.

Analysis: The L/C does not prohibit presentation of a document titled "Tanker Bill of Lading." The L/C does permit presentation of a charter party bill of lading and sub-Article 25(a) reads: "If a credit calls for or permits a charter party bill of lading, banks will, unless otherwise stipulated in the Credit, accept a document, however named (emphasis added), which: i. contains any indication that it is subject to a charter party ... ".

Decision: The L/C permits presentation of a charter party B/L. The document presented titled "Tanker Bill of Lading" states that it is subject to charter party and therefore complies. This is not a discrepancy.

5. Discrepancy: documents are inconsistent with each other.

Analysis: Without further specificity, this statement fails to satisfy the UCP 500 sub-Article 14(d)(ii) requirement to "state all discrepancies". The standard underlying this requirement is that the beneficiary/presenter is entitled to know the reason(s) for refusal in such a way that they may be able to identify and cure or correct the stated discrepancy. This statement alone is too general. It does not cite the documents that are purportedly inconsistent with each other nor does it cite the difference(s) which lead to this conclusion.

Decision: It is an insufficient citation to qualify as a proper and acceptable statement of discrepancy in accordance with sub-Article 14(d)(ii).

Summary: The Experts find that the documents presented under L/C No. L/C No. DEF6789 comply with its terms and conditions.

L/C No. JKL987

The following discrepancies were stated in the notice of refusal:

1. Discrepancy: L/C no. is not indicated on the B/L.

Analysis: UCP 500 does not require the L/C number to be indicated on the B/L. In addition, there was no such specified requirement in this L/C.

Decision: The absence of the L/C number on the B/L is not a discrepancy.

2. Discrepancy: tanker B/L is presented.

Analysis: The L/C does not prohibit presentation of a document titled "Tanker Bill of Lading." The L/C does permit presentation of a charter party bill of lading and UCP 500 sub-Article 25(a) reads: "If a credit calls for or permits a charter party bill of lading, banks will, unless otherwise stipulated in the Credit, accept a document, however named (emphasis added), which: i. contains any indication that it is subject to a charter party...".

Decision: The L/C permits presentation of a charter party B/L. The document presented titled "Tanker Bill of Lading" states that it is subject to charter party and therefore complies. This is not a discrepancy.

3. Discrepancy: Documents are inconsistent with each other.

Analysis: Without further specificity, this statement fails to satisfy the UCP 500 sub-Article 14(d)((ii) requirement to "state all discrepancies". The standard underlying this requirement is that the beneficiary/presenter is entitled to know the reason(s) for refusal in such a way that they may be able to identify and cure or correct the stated discrepancy. This statement alone is too general. It does not cite the documents that are purportedly inconsistent with each other nor does it cite the difference(s) which lead to this conclusion.

Decision: It is an insufficient citation to qualify as a proper and acceptable statement of discrepancy in accordance with sub-Article 14(d)(ii).

4. Discrepancy: Issuance place of B/L is not indicated clearly.

Analysis: Notwithstanding that there is no requirement in UCP 500 or in this L/C for the B/L to indicate the place of issuance, we find that the CP B/L presented does indicate a place of issuance, i.e., "Dated at City S as at Ningbo, China, this 5th day of Sep 2003."

Decision: This is not a discrepancy.

5. Discrepancy: Price condition on invoice is inconsistent with L/C terms.

Analysis:

a. Without further specificity, this statement fails to satisfy the UCP 500 sub-Article 14(d)(ii) requirement to "state all discrepancies". The standard underlying this requirement is that the beneficiary is entitled to know the reason(s) for refusal in such a way that it may be able to identify and cure or correct the stated discrepancy. While this statement of discrepancy does refer to a specific document and to a condition within that document, it is too general, given the confusion and complexity caused by several amendments to the price terms. That part of amendment 1 referring to "45A: Price" obviously incorrectly refers to field 45A instead of 47A. That being the case, the entire reference to fluctuating price is replaced by a fixed price. That part of amendment 4 purporting to change the fluctuating price condition cannot then apply, as the fluctuating condition was deleted in its entirety by amendment 1. Article 5 of UCP 500 requires instructions to issue or amend the L/C to be complete and precise. In this case, the Experts are of the opinion that these amendments were ambiguous and that the stated discrepancy was too general to properly identify the inconsistency and permit the beneficiary to cure within the period of validity of the L/C, and that the party issuing such unclear instructions both in the amendment and the notice of refusal should bear the consequences thereof.

b. In their deliberations the Experts were unclear as to what exactly in the "price condition on the invoice" the notice of refusal referred. The Initiator's position defended a fixed versus fluctuating price condition, whereas the Experts also considered that the cited discrepancy might refer to the specified time period (August instead of September) stated on the invoice. In considering the time period, the Experts note that this may be interpreted as a non-documentary condition, as there is no requirement in the L/C that the price formula be noted on the invoice. Absent such a requirement, if treated as a non-documentary condition it may be disregarded; alternatively, international standard banking practice requires that the invoice indicate the price and any qualifiers stated in the L/C, and the price term, if stated, with or in connection with the merchandise description. In both cases it does.

Decision: This is not a discrepancy.

Summary: The Experts find that the documents presented under L/C No. JKL987 comply with its terms and conditions.

Whether the Respondent failed to comply with UCP 500, Articles 13 and 14.

Whether notice of refusal was given in a reasonable time

The Experts considered Articles 13 and 14 of UCP 500 and ICC Document 470/952rev2 (9April2002). Annex B hereto lists the respective dates of party actions as reported by the Initiator and as supported by actual documents where indicated.

A notice of refusal under L/C ABC12345 was sent on the seventh banking day (Saturday and Sunday considered non-banking days in the country of Respondent) after receipt of documents.

A notice of refusal under other L/Cs were sent on the sixth banking day (Saturday and Sunday being considered non-banking days in the country of Respondent) after receipt of documents.

The ICC position:: "reasonable time not to exceed seven banking days". UCP 500 sub-Article 13(b) states that the issuing bank has a reasonable time not to exceed seven banking days following the day of receipt of the documents to examine and then determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly. Specifically this sub-Article establishes three standards: 1) documents must be examined within a reasonable time; 2) reasonable time may not exceed seven banking days; and 3) notice of refusal must be sent within that reasonable time. Reasonable time is a concept not specifically defined within the UCP other than the establishment of an outside limit by reference to "not to exceed seven banking days".

"Reasonable time" is not automatically the seven banking day outside limit provided by the UCP. Specific circumstances within an issuing bank or the number or the type of required documents presented may require that it takes the entire seven day period to examine the documents, make a decision whether to take up or refuse the documents and inform the presenter accordingly. This period is not automatically allowed for each presentation of documents, and the expectation is that in most cases the reasonable time will be less than seven banking days following the day of receipt of the documents. Additionally, in some jurisdictions legal decisions and/or practice have defined reasonable time as less than seven banking days.

In all cases, the notice of refusal was sent within the maximum time, i.e., "not to exceed seven banking days after receipt of the documents" permitted by UCP 500. However, the maximum time permitted by UCP, is not necessarily a "reasonable time".

What constitutes a "reasonable time" may be influenced by specific circumstances referred to above. These specific circumstances may include, but are not limited to, the number of documents to be examined, the volume of work to be processed, staffing, procedures, interruptions in business operations and whether the issuer seeks applicant approval.

In this case, the L/Cs required only three documents: draft, invoice and bill or lading. Based on the data presented by the Initiator, the Respondent examined these documents within one to three days after receipt, contacted the applicant for waiver and, upon receipt of the applicant's refusal, an additional four to five business days after referral to the applicant sent notices of refusal on the same day. (Annex B)

Given these timelines and absent any Answer by the Respondent as to the specific circumstances which might explain and allow the maximum time to give notice, the Experts are unable to conclusively determine whether the taking of six and seven days would constitute a "reasonable time" for these notices of refusal in these circumstances.

Such a determination of "reasonable time" may only be possible by discovery of additional details and by deference to local law.

The Experts also note that they determined that the documents presented complied with the terms and conditions of the respective L/Cs and therefore consider the question of "reasonable time" in these instances as mute.

Whether documents were returned in accordance with UCP 500 Article 14

Sub-Article 14(d)(ii) provides: "Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter." Neither UCP 500 nor the relative ICC paper provide a specific time (e.g., "no later than seven banking days after"), or qualify a time (e.g., "without delay" or "reasonable time") in which documents must be returned to the presenter once the issuer gives a notice of refusal stating that documents are being returned. By the same token, neither UCP nor the relative ICC paper specify a method of transmission (e.g., "by expeditious means" or "by same method as received") in which documents must be returned to the presenter once the issuer gives a notice of refusal stating that documents are being returned.

Notwithstanding the absence of a specific requirement or specific guidance in this regard, there is a market expectation that, consistent with the reading of Articles 13 and 14, international standard banking practice and the importance associated with possession of the documents, especially title documents, the timely return of dishonoured commercial documents requires priority processing, as delay in returning documents may prejudice the beneficiary's rights and security.

While the Experts do not have the authority to establish such a standard concerning an exact time period to return documents once notice is sent, the Experts agree that once notice is sent stating that documents are being returned, documents should be returned without delay and by expeditious means.

Accepting this minimal standard, the fact that documents were not returned until at the earliest 12 days after sending a notice of refusal stating that documents are being returned, and at the latest 26 days after sending a notice of refusal that documents are being returned, the Experts consider that the delay appears unreasonable and fails to comply with the spirit, if not the letter of UCP.

The Experts also note that they determined the documents presented complied with the terms and conditions of the respective L/Cs and therefore consider the question of "timely return of documents" in these instances as mute.

Whether the second notice of refusal was valid

In accordance with UCP Articles 13 and 14, the ICC Paper on Discrepant Documents, Waiver and Notice affirms the principle that "If the issuing bank decides to refuse the documents it must provide a notice in accordance with UCP 500 sub-Articles 14(d)(i) and (ii). This must be a single notice." This position is also consistent with a number of ICC Opinions, notably, R.196, R.271, and R.431.

As indicated in Annex B, the second notice of discrepancies sent on 22 March 2004 was sent at least 145 calendar days after receipt of documents by the issuing bank. The Initiator also comments that this second notice while sent by the Respondent mentions that those cited discrepancies were found by "the Respondent's advocates ... and therefore not the Respondent", contrary to UCP 500 sub-Articles 14(c) and (d).

This second notice fails in two respects: one: it is a second notice, which is not permitted by UCP 500, and two: it is sent well beyond the reasonable time permitted by UCP.

Whether the cited "special negotiation clause" has any consequence on the Respondent's obligation to reimburse the Initiator

In all four L/Cs, as issued or amended, the cited "special negotiation clause" reads: "Negotiation is only allowed on and after 51 days from the bill of lading date but within the validity of the letter of credit are acceptable." All four L/Cs were available with any bank by negotiation.

In all four L/Cs, the Initiator reports having received documents from the beneficiary prior to the 51st day from shipment and having advanced monies under a funding arrangement between the Initiator and the beneficiary. Such funding and financing arrangements are outside the scope of UCP and are independent of the L/C, as per UCP 500 Article 3. However, in all four L/Cs, the Initiator sent documents to the Respondent no earlier than 51 days after the date of shipment. In each of its initial notices of refusal, the Respondent notes the date of utilization as the same date as on the Initiator's cover letter remitting the documents, which is a minimum of 51 days after the date of shipment. Accordingly, the issuer received complying documents on or after 51 days from the date of shipment.

The ICC Banking Commission has stated in Opinion R. 257 and in an unpublished Opinion, TA.515: "early negotiation", that while a condition in the L/C specifying such a date for negotiation should be discouraged, it is enforceable. However, in explaining the word "enforceable", the Banking Commission maintained that the "issuing bank would be obliged to honour on the x day after the date of shipment" provided documents are otherwise in order.

The Experts agree that such a clause would bind the issuing bank to reimburse the negotiating bank on the designated earliest day (the "on or after day") if complying documents are received prior to that date and to reimburse at sight if complying documents are received after that date.

The Experts do not find that an independent funding arrangement between the beneficiary and the Initiator creates a discrepancy, nor does it relieve the Respondent of its L/C obligation as the issuing bank.

Conclusion

In the four L/Cs at issue, the Experts have determined that the documents presented comply with the terms and conditions of the respective L/Cs. It is the unanimous decision of the Experts that the Initiator is entitled to reimbursement by the Respondent.


1 ICC Publication No. 645 ISBP, 40) The fact that a document has a box or space for a signature does not necessarily mean that such box or space must be completed with a signature. For example, banks do not require a signature in the area titled “Signature of shipper or their agent”, or similar phrases, commonly found on transport documents such as air waybills or road transport documents. If a document on its face requires a signature for its validity (e.g. “This document is not valid unless signed”, or similar terms), it must be signed.

2 ICC Publication No. 645, 106) If a credit gives a geographical area or range of ports of loading and/or discharge (e.g. “Any European Port”), the charter party bill of lading must indicate the actual port(s) of loading, which must be within the geographical area or range indicated but may show the geographical area or range of ports as the port of discharge.

3 ICC Publication No. 645 ISBP, 40) The fact that a document has a box or space for a signature does not necessarily mean that such box or space must be completed with a signature. For example, banks do not require a signature in the area titled “Signature of shipper or their agent”, or similar phrases, commonly found on transport documents such as air waybills or road transport documents. If a document on its face requires a signature for its validity (e.g. “This document is not valid unless signed”, or similar terms), it must be signed.

4 ISBP, ICC Publication No. 645, paragraph 64.

5 ISBP, ICC Publication No. 645, paragraph 65.

6 ICC Document 470/952rev2 (9April2002), Discrepant Documents, Waiver and Notice.

7 ICC Document 470/952rev2 (9April2002), Discrepant Documents, Waiver and Notice.

8 ICC Document 470/952rev2 (9April2002), Discrepant Documents, Waiver and Notice.

9 ICC Document 470/952rev2 (9April2002), Discrepant Documents, Waiver and Notice.


Annex A: Documentary Requirements and Pertinent Additional Terms & Conditions in relation to DOCDEX 242

Four L/Cs issued by Respondent for account of same applicant in favor of same beneficiary covering the same merchandise (gasoil).

All L/Cs advised via MT700 through Initiator which Initiator confirmed as permitted by field 49.

All L/Cs are available BY negotiation WITH any bank.

All L/Cs require Sight drafts on the issuing bank.

Field 47A of all L/Cs contains the following clause:

Payable against presentation of the following documents: 1.Sellers commercial invoice. 2. Full set on board ocean bills of lading made out or endorsed to the order of issuing bank marked freight payable as per charter party and notify [named applicant].

Field 47A also contains the following additional conditions for all four L/Cs:

Charter Party Bills of Lading Acceptable.

Negotiation is only allowed on and after 51 days from bill of lading date but within validity of the letter of credit.1

1 L/C No. MD15Q308NS00040 amended to 51 days from date of shipment

2 Required documents are also stated in field 46A except as noted.

Annex B: Respective Dates of Party action in relation to DOCDEX 242