Parties

Initiator: Bank O (The issuing bank)

Respondents:

1) Company H (The applicant)

2) Company E (Joint obligor under credit application)

Summary of the case

(According to the statement of the Initiator)

The Initiator has submitted, enclosed with their application, documentation consisting of copies of the letter of credit no. ABC12345, one amendment, negotiated documents, the fax dated 25 September 2002 sent by the First Respondent to the Second Respondent and the Initiator's rejection notice dated 27 September 2002 sent to the negotiating bank.

The Initiator issued, on 30 August 2002, an irrevocable letter of credit for USD 1100000.00 (plus minus 10% tolerance) under L/C no. ABC12345 available with any bank by negotiation, subject to UCP 500 in favour of Company R.

The documents required under the subject L/C had been presented by the negotiating bank to the Initiator within the validity of the L/C. After having examined the documents, the Initiator had found two discrepancies and advised the Respondents of the same. These two discrepancies were:

a) B/L showing (goods) to be delivered at the port of any port in China instead of the designated port in China. (Note: The credit term in this respect was: 44B: For transportation to any port in China).

b) Invoice showing Contract no. XYZ-GHI/2002/001 instead of Agreement no. XYZ-GHI/2002/001.

The Respondents agreed that the documents contained the discrepancies mentioned by the Initiator and raised two further discrepancies as follows:

(aa) B/L issued by the beneficiary (who is not a shipping agent) not acceptable;

(bb) Description of goods under certificate of quality and certificate of quantity issued by SGS Country T: "Sovent" instead of "Solvent". (Note: From the copy of the fax dated 25 September 2002 sent by the First Respondent to the Second Respondent, it appears that the First Respondent asked the Second Respondent to advise the Initiator to send their advice of discrepancies inclusive of the above-mentioned discrepancies (aa) and (bb) to the beneficiary.)

The Initiator did not agree with these two further discrepancies raised by the Respondents. However, at this stage the Initiator considered that the documents were discrepant in another respect which was: "B/L did not indicate that it was subject to a charter party". From the submitted documentation it is not clear whether this discrepancy was advised to the Respondents. Later on, the Initiator sent its rejection notice dated 27 September 2002 to the negotiating bank, containing only the three discrepancies already indicated by the Initiator, namely:

a) B/L showing (goods) to be delivered at the port of any port in China instead of the designated port in China;

b) Invoice showing Contract no. XYZ-GHI/2002/001 instead of Agreement no. XYZ-GHI/2002/001;

c) B/L did not indicate that it is subject to a charter party.

The rejection notice also included the following statement: "We are holding documents at your disposal. However, without any prejudice or liability to us, we have notified the applicant of this transaction and payment/acceptance will be made to you forthwith if the applicant approves and subject to our agreement."

However, at a later stage the Initiator revised its initial findings and determined that all documents were, in fact, compliant and that none of the above mentioned discrepancies were valid.

The Initiator states that it has paid the negotiating bank the value of the documents (USD 992129.16) but that they have not been fully reimbursed by the Respondents. A sum of USD 215129.16 is still outstanding from the Respondents, who have refused to pay because of the discrepancies mentioned above, inclusive of those two raised by the Respondents but disregarded by the Initiator.

It has been noted that the Respondents have elected not to submit an answer to the Initiator's Request for a DOCDEX decision.

Issues to be determined

According to the Initiator's application for a DOCDEX decision, the issue is whether the above mentioned five discrepancies, consisting of the three raised by the Initiator initially (but later rescinded by them) and the two raised by the Respondents, but disregarded by the Initiator are justified or not.

Consequently, the DOCDEX decision is to deal only with the issues raised in the Request.

Analysis and decision

The five discrepancies in question have been examined below in two groups:

Group 1

This group covers the three discrepancies of the Initiator's own inital determination, included in their notice of rejection to the negotiating bank but later rescinded by its own decision.

a) B/L showing (goods) to be delivered at the port of any port in China instead of designated port in China

The credit term in this respect is: 44B - For transportation to any port in China. The credit allows presentation of a charter party B/L. The B/L presented is a charter party B/L as evidenced by the indication "Freight payable as per charter party". As such it is subject to article 25 of UCP 500 and satisfies the provisions of same. Paragraph 106 of the International Standard Banking Practice for the examination of documents under documentary credits (ISBP) states: "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." (emphasis added)

There is no discrepancy.

b) Invoice showing Contract no. XYZ-GHI/2002/001 instead of Agreement no. XYZ-GHI/2002/001

The credit term in this respect is "Signed commercial invoices in quadruplicate showing this L/C number and Agreement no. XYZ-GHI/2002/001". The presented invoice shows the word "Contract" instead of "Agreement", which is apparently a result of the fact that the beneficiary's invoice has been issued by using a pre-printed form containing the pre-printed word "Contract" against which the Agreement number has been filled in. However, since the reference details are correcty quoted, and since there is no real difference between the terms "Contract" and "Agreement", no incorrect description is involved.

There is no discrepancy.

c) B/L did not indicate that it was subject to a charter party

The credit allows presentation of a charter party B/L. There is no credit term stipulating that the B/L must show that it is subject to a charter party. The presented charter party B/L satisfies the credit term "marked freight payable as per charter party", which is a sufficient indication under the sub-article 25(a)(i), which states that "banks will, unless otherwise stipulated in the Credit, accept a document, however named, which contains any indication that it is subject to a charter party."

There is no discrepancy.

Group 2

This group covers two discrepancies raised by the Respondents but not accepted by the Initiator, who disregarded them and did not include them in the rejection notice to the Negotiating bank.

aa) B/L issued by the beneficiary (who is not a shipping agent) not acceptable

The presented B/L, which appears to have been produced on the headed paper of the beneficiary, is a charter party B/L and therefore subject to article 25 of UCP 500. The UCP is silent on the issue of types of stationery on which B/Ls must be produced. It neither contains any provision ruling that B/Ls should be produced on the headed paper of shipping companies nor their agent or owners in the case of charter party B/Ls. As such, a B/L can be produced on unheaded paper. On the other hand, if a B/L appears to have been produced on the headed paper of the beneficiary, it is not for the banks to seek to discover the reasons behind that.

The presented charter party B/L is acceptable under article 25 of UCP 500, since it indicates that the goods have been shipped on a named vessel and is signed by the master of that named vessel with additional means of authentication provided by the seal of the vessel and the name of the master. All other terms of the credit are satisfied.

There is no discrepancy.

bb) Description of goods under certificate of quality and certificate of quantity issued by SGS Country T: "Sovent" instead of "Solvent".

The credit term regarding description of goods is "5.000 metric tons of Solvent Oil Feedstock in bulk at USD 220.00 per metric ton. FOB Samutprakarn Thailand". Upon examination of the clearly produced photostats of both documents in question, it has been established that on both documents the subject goods are shown as Solvent Oil Feedstock in bulk.

There is no discrepancy.

Additional comments

The Panel of Experts wish to further state, solely for the purposes of observation, that by first sending a rejection notice to the negotiating bank, but then paying the value of the documents to that bank, the Initiator has waived its initial rejection of the documents. This is also evident from the statement of the Initiator that after further examination of the documents the Initiator had come to a conclusion that none of the three discrepancies mentioned in their rejection notice were, in fact, valid. The Initiator, in the capacity of the issuing bank, despite having first sent a rejection notice to the negotiating bank, appears to have discharged itself from its obligations under the credit by deciding to take up the documents and reimburse the negotiating bank. It must be noted that it is the issuing bank's decision as to whether the documents comply. Issuing banks cannot rely on the applicant to provide a list of discrepancies and, if they do, it is the issuing bank's review that should be considered final.

The relationship between the Initiator and the Respondents in regard to how and why the matter has given rise to a partly unsettled reimbursement of USD 215129.16, the circumstances under which partial reimbursement of USD 777000.00 was effected by or collected from the Respondents and consequences of the payment effected by the Initiator to the negotiating bank vis-a-vis the Initiator's statement (quoted above) in its rejection notice, all concern contractual reimbursement arrangements under the credit application.

Statement of the Chair

The appointed Experts have reached a unanimous decision.