Parties

Initiator: Bank M

Respondent: Bank C

Background and transaction

Bank C issued its irrevocable documentary credit No 123456NS00057 on 14/08/03 in favour of Company N for USD 1,400,000 (+/-5%) and advised it through Bank M, available by negotiation and indicated that Bank M may add its confirmation, which the latter did.

The description of goods was H.S CODE 2710.00.3000 - GASOIL - 8,200KL+/-5PCT. Taiwan Origin. FOB.

The price was stated as - FOB Mailiao, Taiwan - price per barrel shall be the average of the mean of Platt's quotation for gasoil under the heading "Singapore" as published in Platt's AP/AG market scan during 1-31 August 2003 (both days inclusive) plus a fixed premium of USD 0.72 per barrel. Price shall be calculated/rounded to three decimal places.

Documents required:

- drafts at sight drawn on Bank C

- signed commercial invoice in triplicate.

Available: payable against presentation of the following documents:

- seller's commercial invoice,

- full set of clean on board ocean bills of lading made out to the order of Bank C, marked freight payable as per charter party and notify Company P

Charter party bills of lading are acceptable.

No other documents were called for in the credit.

The credit has TWO identical conditions under headings D and N, and each of these reads as follows: "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."

The credit was amended on 14/08/03 so that "negotiation is only allowed on and after 81 days from B/L date" and also to increase the premium to USD 0.87 per barrel. Documents for USD 1,715,669.15 were dispatched on 11/11/2003 by Bank M from Country S, and the courier receipt indicates that they were received by Bank C in Country K on 12/11/2003.

Bank C sent its advice of refusal by SWIFT MT 734 on 18/11/2003, indicating discrepancies as follows:

- Overdrawn,

- No on-board date on B/L

and that documents were held at the disposal of Bank M.

Issues

These are as shown in the Initiator's application of 19/05/2004 for a DOCDEX Decision and are:

(i) Are the discrepancies (a) overdrawn (b) no on board date on B/L valid?

(ii) Whether the Respondent, Bank C, failed to examine the required documents to determine whether to take up or refuse and to inform the Initiator, Bank M, of its decision to refuse the said documents within a reasonable time and/or failed to give the Initiator notice of its decision to refuse documents without delay as required by articles 13 and 14 of UCP 500.

Initiator's claim

(i) Discrepancy of the credit being overdrawn

Although the value of the drawing at USD 1,715,669.15 was USD 245669.15 over the value of the credit plus 5%, i.e., USD 1,470,000.00 (and exceeded the face amount of USD 1,400,000.00 by 22.55%), conditions D and N specifically allow for this contingency despite the upper limitation of +5% on the face amount. There is therefore no discrepancy.

(ii) No on-board date on B/L

Shipped on board B/L was presented; therefore on board date is not required. The bill of lading meets with the requirement as set out in the second paragraph of sub-article 25(a)(iv) of UCP 500.

(iii) Whether examination and refusal was within a reasonable time as required by articles 13 and 14 of UCP 500.

On the assumption that Saturday and Sunday are not banking days in Country K, the Respondent took four days to issue the refusal notice.

The letter of credit called for only seller's commercial invoices in triplicate, a full set of ocean bills of lading and drafts; in taking four banking days to reject documents, the Respondent has taken longer than was reasonable.

Respondent's reply

(i) We decline your invitation [for a DOCDEX Decision] at this time.

(ii) The Initiator and Bank C are currently involved in two court actions covering the same issues covered by the Request.

(iii) "Since the dispute has already been submitted to two courts, we would respectfully request that the ICC decline to proceed in this matter."

Documents submitted by the parties

Documents submitted by the Initiator:

(i) Letter dated 19 May 2004 from the Initiator covering the application for a DOCDEX Decision; the factual background; issues for DOCDEX Decision; alleged discrepancies and rebuttals;

(ii) Copy of SWIFT 700 from Respondent covering the issue of and the full text of LC No 123456NS00057 dated 14/08/2003;

(iii) Copy of SWIFT 707 from Respondent covering amendment dated 14/08/2003;

(iv) Copy of Initiator's covering letter dated 11 November 2003, evidencing the enclosing of two drafts, 3 commercial invoices, 3/3 B/L;

(v) Copy of original invoice from Company N for USD 1,715,669.15;

(vi) Copy of bill of lading -AB/CD - 09;

(vii) Copies of the first and second bills of exchange for USD 1,715,669.15;

(viii) Courier receipts re delivery of documents to Respondent;

(ix) Copy of SWIFT 734 advice of refusal from Respondent dated 18/11/03;

(x) Copy of SWIFT 799 from Initiator dated 18/11/03 to Respondent refuting discrepancies.

NOTE - In terms of Article 4: "Supplements" in ICC Rules for Documentary Instruments Dispute Resolution Expertise (ICC Publication No 811 - the Initiator was invited to submit:

(1) Platt's quotation for gasoil for the period 1-31 August as described on the credit in the paragraph PRICE;

(2) a fuller explanation of paragraph (f) on page 5 of its claim "that it is apparent from the invoice itself that price of the shipment is calculated in accordance with the PRICE" clause ... independently of the verbatim repetition of the price clause stated on the credit;

(3) Platt's quotation for gasoil similar to that in (1) above for 14 August 2003 - the date the credit was established.

No response has been received from the Initiator to submit this supplementary information within the period stipulated in the invitation.

Documents submitted by respondent

Telefax letter dated July 02, 2004 declining ICC invitation to respond to Initiator's request for a DOCDEX Decision and claim, indicating that the same issues are the subject of two court actions and respectfully requesting that ICC decline to proceed in this matter.

Analysis

The analysis follows the sequence of the section "Issues" above.

(i) Is the discrepancy of the credit being overdrawn valid ?

We make the following observations:-

(a) In the absence of the special clauses referred to in "Background and transaction", there is no doubt that the drawing of USD 1,715,669.15 against the face amount of the credit of USD1,400,000.00 +/- 5% would overdraw the maximum of USD 1,470,000.00 allowed.

(b) However, in this transaction and in the credit there is no fixed price or a price with percentage fluctuation shown against the price. Instead, the price is to be determined as an average of a mean of Platts quotation, which is seen quite often in this type of commodity transaction.

(c) Conditions D&N included in the credit both state without any ambiguity that "The amount of this letter of credit shall automatically fluctuate to cover any increase/decrease according to the price clause without further amendment."

(d) It should be noted that the SWIFT 734 advice of refusal from the Respondent, Bank C, dated 18/11/03 did not indicate a discrepancy relating to the price of goods as shown on the invoice.

(e) We also draw attention to articles 2, 3, and 4 in UCP 500.

(f) We also refer to the first sentence of paragraph 2 in International Standard Banking Practice (ICC Publication No. 645) under the heading "Preliminary Considerations - The Application and Issuance of the Credit", which states as follows: "The applicant bears the risk of any ambiguity in its instructions to issue or amend a credit ."

(i)(b) Is the discrepancy - "No on board date on B/L" valid?

We make the following observations:

(a) The bill of lading No. AB/CD - 09 clearly has a pre-printed clause stating "SHIPPED on board the cargo specified above ... ";

(b) There is only one vessel and one voyage, and the port of loading and port of discharge are as required by the credit; no transhipment is allowed in the credit, and no transhipment is indicated on the bill of lading;

(c) There is a pre-printed "Place and Date of issue" with an indication of a place and a date, and there is a signature box where there appears to be a manual signature for the named agent on behalf of a named master;

(d) "Freight payable as per Charter Party" is shown;

(e) There is a "clean on board" notation just above the freight notation in (d) above;

(f) There is no date against the clean on board notation in (e) above;

(g) Most of the queries and ICC Opinions relate to circumstances where there are two dates, two vessels, two ports, received for shipment bills of lading, all or some of which create an ambiguity;

(h) The "clean on board" notation which has been inserted as in (e) above, presumably to conform in mirror image of the credit requirement for "full set of clean on board ... ", has no date and does not need to have a date in view of the pre printed shipped on board wording and the date shown under place and date of issue.

(ii) Whether the Respondent Bank C failed to examine the documents within the time frames and requirements of articles 13 and 14 of UCP 500

We make the following observations:

(a) As the documents were received by Bank C on Wednesday, 12 November 2003, time begins to run in terms of UCP 500 sub-article 13(b) from the 13th, (Thursday);

(b) Notice of refusal was sent on Tuesday, 18 November;

(c) On the Initiator's assumption that Saturday the 15th and Sunday the 16th are not banking days in Country K (see paragraph 15 of page 6 of Initiator's application for DOCDEX decision), the notice of refusal was dispatched on the fourth banking day;

(d) Considering the circumstances of the transaction and the documentation, we are of the view that the dispatch of the refusal notice on the fourth banking day was reasonable.

Conclusions

Issue (i)(a) - Is the discrepancy of the credit being overdrawn valid?

In view of paragraphs (c), (d), (e) and (f) in "Analysis", the majority of the Experts consider that the discrepancy of the credit being overdrawn is not valid.

Issue (i)(b) - Is the discrepancy "No on board date on B/L" valid?

In view of paragraphs (a), (b), (c), (d), (e), (f), (g), and (h) in "Analysis", we consider that the discrepancy "No on board date on B/L" is not valid. This is the unanimous view of the Experts.

Issue (ii) Whether the Respondent Bank C failed to examine the documents within the time frame and requirements of articles 13 and 14 of UCP 500

In view of paragraphs (a), (b), (c), and (d), we consider that the refusal notice was dispatched within the timeframe and requirements of articles 13 and 14 of UCP 500. This is the unanimous view of the Experts.