Parties

Initiator: Company G

Respondent: Bank H

Background and transaction

The Respondent issued an irrevocable documentary credit (subject to UCP 500) in favour of the Initiator covering shipment of gasoil. The credit stipulated that the quantity to be invoiced should be based on the quantity stated in the B/L, and it stated further that "documents presented later than 51 days after Bill of Lading date but within the validity of this credit are acceptable." The credit permitted the substitution of the B/L with a letter of indemnity (LOI).

Issue(s)

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

- Early presentation

- Price not based on the bill of lading quantity (B/L not presented)

- Receiver on the LOI differs from L/C terms (XX Co. i/o Respondent)

- Fraud by dual issuance of LOI

Initiator's claim

The Initiator claims the documents were compliant and that the Respondent had no reason for refusal of the documents. It says the Respondent has an obligation to take up the documents and to pay.

Respondent's reply

No reply was given by the Respondent.

Documents submitted by the parties

Documents submitted by the Initiator

- Request from the Initiator of 23 June 2004 to ICC International Centre for Expertise, Paris, requesting a DOCDEX Decision in accordance with ICC DOCDEX Rules, ICC Publication no. 811, stating inter alia

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

. the Initiator's Summary of the Dispute

- Copy of documentary credit No. M1234567 dated 15 September 2003 and four amendments

- Copy of beneficiary's invoice

- Copy of LOI issued by Company G in favour of Company P (applicant)

- Copy of SWIFT messages between the Respondent and the nominated bank regarding the refusal

Documents submitted by the Respondent

No documents were submitted

Analysis

The credit in question was issued subject to UCP 500 and was available by negotiation with any bank. On 17 October 2003, Initiator presented documents for negotiation to the nominated bank which found the documents in compliance with the credit. On 28 October 2003, Respondent sent a SWIFT message refusing the documents due to the discrepancies mentioned above.

Early presentation

The credit stipulated "documents presented later than 51 days after the B/L date but within the validity of the credit are acceptable." The LOI and invoice evidence that the goods were shipped on 17 September 2003 and the documents were presented to the negotiating bank on 17 October 2003.

Price not based on bills of lading quantity

The credit required that the quantity of the invoiced gasoil should be based on the quantity stated in the B/L. The credit further stipulated that it was acceptable to present a LOI instead of original bills of lading. The LOI stated the quantity of shipped gasoil and as a stipulated replacement for a bill of lading it provided adequate proof of the quantity shipped.

Receiver on LOI differs from L/C terms

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).

Fraud by dual issuance of LOI

As stated above, the LOI was addressed/issued in the name of the buyer (applicant), and the documents did not evidence the delivery of the gasoil to a third party as stated by the Respondent.

Conclusion

Early presentation

The wording "documents presented later than 51 days after Bill of Lading date but within the validity of this credit are acceptable" does not prohibit documents being presented at any time following the date of shipment until the 51st day or thereafter. If it was the intention that documents be presented not earlier than 51 days after the B/L date, but within the credit validity, the L/C should have contained wording to that effect.

Price not based on bills of lading quantity

Although a B/L is required by the credit, the credit also makes it clear that the same may NOT be presented for utilization if not available at time of presentation of documents (negotiation). In such case, a LOI is acceptable.

When the credit makes it possible to present either a B/L or a LOI, and the condition for the presentation of the LOI exists, and the quantity of gasoil was stated in the LOI, the stipulation in the credit of how to recognize the quantity was fulfilled.

Receiver on LOI differs from L/C terms

According to article 21 of UCP 500, 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 UCP 500 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 in circumstances where the original B/L is not available. The LOI was addressed/issued in the name of the buyer (applicant).

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

It is of no documentary value for the Respondent to raise an allegation that beneficiary "IS SAID TO HAVE ... " issued a duplicate LOI.

Fraud is not an issue covered under UCP 500 but one for the courts to consider, 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 UCP 500 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 UCP 500 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 documents presented were not discrepant and the Respondent had no reason to refuse the documents and not to pay

The appointed Experts reached a unanimous Decision.