Parties

Initiator: Bank S

Respondent: Bank K

Applicant: Company P

Beneficiary: Company T

Summary of representations

Bank K issued two letters of credit (L/Cs) with the following details:

L/C#1

- Available with any bank by negotiation

- L/C expires on December 30, 2003

- Draft at sight drawn on Bank K

- Subject to UCP 500

Value of L/C is USD 800,000 with a tolerance of +/- 10%

Goods are described as:

ORIGIN: JAPAN

GAS OIL 26,000 BBL +/- 10 PCT

The unit price of the GAS OIL per barrel is the average of the mean quotations published in the Platt's Asia Pacific/Arabian Gulf Marketscan for GAS OIL REG 0.5 PCT quotations under the heading Singapore plus a premium of USD 3.38 per US BBL.

As stated under additional conditions, the amount of the L/C shall automatically fluctuate to cover any increase/decrease according to the price clause without further amendment to the L/C.

As stated under additional conditions, 10 PCT more or less in quantity and amount is acceptable.

The L/C calls for various documents including the following:

- Seller's commercial invoice (telex/telefax acceptable)

- Copy of seller's authorization for release of product to Company P (telex/fax copy acceptable)

L/C#2

Details of L/C#2 are identical to L/C#1 save for the following:

Goods are described as:

ORIGIN: JAPAN

GAS OIL 27,000 BBL +/- 10 PCT

Bank S added its confirmation to the LC# 1 and LC#2.

On December 15, 2003, Bank S negotiated documents which it considered to be compliant under LC# 1 and L/C# 2 as follows:

L/C#1: USD 939,789.01 representing 26,611.61 BBLs/3,534.400 mts @USD 35.315 per BBL

L/C#2: USD 1,021,641.66 representing 27,758.23 BBLs/3,686.689 mts @USD 36.805 per BBL

Both sets of documents were delivered and Bank K acknowledged receipt on December 16, 2003.

On December 26, 2003, Bank K sent two MT734s to Bank S advising refusal of documents presented under L/C#1 and L/C#2 based on the following discrepancies:

- Amount overdrawn

- Product description on seller's authorization for release of product differs from L/C, i.e., Gasoil instead of Origin Japan Gasoil

- Product descriptions on invoice differ from L/C.

Bank S disagreed with the discrepancies and advised Bank K accordingly. However, since Bank K did not change its position on the discrepancies, Bank S re-presented two complete sets of documents under L/C#1 and LC#2 to Bank K on December 29, 2003, one day before the L/C expiry date. Bank K acknowledged receipt of both sets of documents on December 29, 2003, but has never responded to Bank S regarding its acceptance or refusal of the re-presentations before the L/C expiry.

Issues to be determined

1. Are the discrepancies raised by Bank K valid?

2. Did Bank K refuse the first presentation within the timeframe permitted under UCP?

3. Is Bank K precluded from claiming the re-presentations were discrepant due to its failure to advise Bank S of its refusal?

Determination of issues

1. Are the discrepancies raised by Bank K valid?

Discrepancy#1: Amount Overdrawn

Both L/Cs permit a tolerance of 10% on shipment quantity. L/C#1: Quantity shipped under L/C#1 is 26,611.61 BBL, which is within 10% of 26,000 BBL as stated in the L/C. L/C#2: Quantity shipped under L/C#2 is 27,758.23 BBL which is within 10% of 27,000 BBL as stated in the L/C.

Since the unit price is not fixed but is equal to the average of the mean quotations published in the Platt's Asia Pacific/Arabian Gulf Marketscan for GAS OIL REG 0.5 PCT quotations under the heading Singapore plus a premium of USD 3.38 per US BBL, and both L/Cs contain a special condition that their amounts shall automatically fluctuate to cover any increase/decrease according to the price clause without further amendment to the L/C, the drawings did not overdraw the L/C amount and there is no discrepancy.

Discrepancy#2: Product description on seller's authorization for release of product differs from L/C, i.e., Gasoil instead of Origin Japan Gasoil

Sub-article 37(c) of UCP 500 states: "The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit."

Article 21 of UCP 500 states: "When documents other than transport documents, insurance documents and commercial invoices are called for, the Credit should stipulate by whom such documents are to be issued and their wording or data content. If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented."

Based on the above UCP articles, the words "Origin Japan" are not required to be shown on the seller's authorization for release of product and there is no discrepancy.

Discrepancy#3: Product descriptions on invoice differ from L/C

L/C#1 described goods in field 45A of the MT700 as follows:

Origin: Japan

Gas Oil 26,000 BBL +/- 10 PCT

Price term: CFR any port(s) in South Korea

The commercial invoice presented under L/C#1 shows:

- price term: CFR one or more safe port(s) in Pyongtaek, Korea

- gas oil

- origin: Japan

- quantity: 26,611.61 bbls/3,534.400 mts

L/C#2 described goods in field 45A of the MT700 as follows:

Origin: Japan

Gas Oil 27,000 BBL +/- 10 PCT

Price term: CFR any port(s) in South Korea

The commercial invoice presented under L/C#2 shows:

- gas oil

- origin: Japan

- CFR one or more safe port(s) in Pyongtaek, Korea

- quantity: 27,758.23 bbls/3,686.689 mts

Sub-article 37(c) of UCP 500 states: "The description of the goods in the commercial invoice must correspond with the description in the Credit."

ISBP 645 paragraph 62 states: "The description of the goods in the invoice must correspond with the description in the credit. There is no requirement for a mirror image. For example, details of the goods may be stated in a number of areas within the invoice which, when collated together, represents a description of the goods corresponding to that in the credit."

Pyongtaek is a port in South Korea.

Based on the product description stated in the L/Cs and guidelines in the UCP 500 and ISBP 645, the product description on the invoices does not differ from that on the L/Cs and there is no discrepancy.

2. Did Bank K refuse the first presentation within the timeframe permitted under UCP?

Sub-article 13(b) of UCP 500 states: "The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly."

Sub-article 14(d)(i) of UCP 500 states: "If the issuing bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents ... ".

Sub-article 14(e) of UCP 500 states: "If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to, the presenter, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit."

Bank K received the first presentation on December 16, 2003 and sent its refusal notice to Bank S on December 26, 2003. In view of bank closure during Christmas, Bank K's refusal was sent within a reasonable time and within the seven banking days permitted under the above noted UCP sub-articles.

3. Is Bank K precluded from claiming the re-presentations are discrepant due to its failure to advise Bank S of its refusal?

Bank K received the re-presentations on December 29, 2003. Bank S's letters dated December 29, 2003 clearly indicated the documents were re-presentations under L/C#1 and L/C#2. Since Bank K did not refuse the re-presentations as per sub-articles 13(b) and 14 (d)(i) of UCP 500, it is precluded from claiming the re-presentations are not in compliance with the terms and conditions of the L/Cs as per sub-article 14(e).

Conclusion

There are no discrepancies on the initial presentations by Bank S under L/C#1 and L/C#2, and Bank K is liable for payment against these presentations. The re-presentations by Bank S under L/C#1 and L/C#2 are to be considered to be compliant, as Bank K did not refuse them within the time frame prescribed in UCP 500.

This decision is a unanimous decision by the Panel of Experts.