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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Relating to: UCP 500
Whether the presented documents complied with the terms and conditions of the respective letters of credit; whether the Respondent/issuing bank failed to comply with articles 13 and 14 re "reasonable time"; an automatic price fluctuation clause in field 47A
Articles
UCP 500 articles 13, 14 and 20; sub-articles 13(b), 13(c), and 14(d)(ii); URR 525 article 8
Parties
Initiator: Bank S
Respondent: Bank K
Background
The Initiator is the advising, confirming and negotiating bank in respect to three letters of credit issued by the Respondent in September and October 2003, transmitted via SWIFT MT700, and subject to UCP 500. The L/Cs nominated a second advising bank in the domicile of the beneficiary, but it is not a party to this dispute. The L/Cs also nominated a reimbursing bank that honoured reimbursement claims under L/Cs 1 and 2, but that rejected the claim under L/C 3, as the reimbursement authority had been cancelled. It is not a party to this dispute.
All of the documents received and reviewed by the Experts have been furnished by the Initiator as part of its Request. The Respondent has replied but has declined to furnish any answer stating that the case is in litigation. The Experts have not requested any supplemental documents.
Summary of representations
The letters of credit contained substantially the same documentary requirements: (1) sight draft drawn on the reimbursing bank, (2) seller's commercial invoice, (3) independent inspector's quantity report at loadport, (4) copy of seller's authorization for release of product to [applicant], and (4) photocopy of the B/L. In all cases, the L/Cs provided that telex, telefax and/or fax of these documents were acceptable. The L/Cs contained the same additional conditions regarding automatic price fluctuation and percentage quantifier.
Annex A hereto lists the additional conditions to these L/Cs. Annex B hereto details the respective dates of party action pertinent to this dispute. Annex C hereto details the discrepancies cited on the respective letters of credit.
Issues to be determined
1. Whether the presented documents complied with the terms and conditions of the respective letters of credit; and
2. Whether the Respondent/issuing bank failed to comply with UCP 500 articles 13 and 14, re "reasonable time" and should be precluded from claiming that the documents are not in compliance with the terms and conditions of the credit.
3. In addition, the Experts believe that the cited discrepancy [L/C amount] overdrawn caused by the automatic price fluctuation clause in field 47A, Additional Conditions, and the use of a per cent in field 39A, Percentage Credit Amount Tolerance, warrants a specific response, as this practice is a persistent, pervasive and problematic practice as evidenced by the dispute in this case.
Analysis of issues and decisions
1. Whether the presented documents complied with the terms and conditions of the respective letters of credit. Each L/C will be addressed separately.
A. L/C No. ABC123
The following discrepancies were stated in the notice of refusal:
(1) Discrepancy: Overdrawn
Analysis: This analysis and reasoning of the experts is detailed in Section III below.
Decision: This is not a discrepancy.
(2) Discrepancy: Quantity on invoice differ from quantity on seller's authorization for release of product differ
Analysis: The commercial invoice states the quantity as 26,277.770 BBLS/3,471.272 MTS. The seller's authorization states the quantity as 26,277.77 BBLS or 3,471.272 mts. The absence of a "0" (zero) as the hundredth place in the numerical value of the quantity in barrels stated in the seller's authorization does not indicate a different quantity of barrels. The quantity is also expressed in mts on both documents, and that value is the same on both documents.
Decision: Accordingly, this is not a discrepancy.
(3) Discrepancy: Beneficiary's address in seller's authorization for release of product differs from L/C
Analysis: There is no requirement in UCP 500 nor in this L/C for the seller's address to appear on the seller's authorization, much less be identical to the address in the L/C. The L/C simply requires a "seller's authorization". Accordingly, provided the document appears to be issued by the seller (beneficiary), and it does (the absence of a postal prefix in the seller's address does not convince us otherwise), and that it appears to fulfil the function of the required document, i.e., to authorize delivery/release of the product, and it does, and provided that it can be determined from the preponderance of data on the document that this document applies to this shipment and this presentation, and it does, it is deemed to comply.
(4) Discrepancy: Product description on seller's authorization for release of product differ from L/C and invoice.
Analysis: The cited discrepancy suggests (a) that the product description in the seller's authorization does not comply with the product description in the L/C and (b) that the product description in the seller's authorization is inconsistent with the product description in the commercial invoice.
First, the L/C product description as stated in field 45A, description of goods and or services, is composed of a number of elements indicating generic commodity (gasoil), quantity (26,000 BBL +/- 10% (quantity) and trade terms (CFR AYN [sic] port(s) in South Korea). We note that the merchandise is not expressed as "Taiwanese gasoil". We further note that the presence of the expression "Origin Taiwan" is a non-documentary condition.
Given these various elements of product description, the discrepancy statement is not complete and precise. Without further specificity, the 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 it may be able to identify and cure or correct the cited discrepancy. This statement alone is too general and does not cite the difference(s) which lead to this assertion. In this connection, use of the word "differ" to describe the discrepancy is itself ambiguous. In this context, is the claim that the data does not correspond, or that it is inconsistent, or that it is different, i.e., not the same?
The Experts also note that the 31 October SWIFT message from the Respondent attempting to explain this less than clear discrepancy is not convincing for the reasons stated below. In addition, this same message seeks to introduce a new discrepancy, i.e., that the trade terms in the invoice do not correspond to the trade terms in the L/C; the notice of this discrepancy comes too late to be effective.
Second, let us assume that the cited discrepancy is complete and precise. There is no requirement in UCP 500 or in this L/C that the product description be stated in the seller's authorization. Accordingly, a product description in general terms (sub-article 37(c)) or alternatively, that other data on the document which enables the examiner to determine that this document applies to this same shipment and presentation is sufficient to establish compliance. The Experts find that there is sufficient data content on the seller's authorization to link that document to the other documents presented under this L/C.
Third, there is no requirement in UCP 500 or in this L/C that the product description on the seller's authorization and commercial invoice be identical, correspond or be consistent. Accordingly, provided the data content which is required to be stated on the documents, either by the UCP or the L/C, is not inconsistent, the documents are to be deemed in compliance. The standard for this measure of compliance is that "the whole of the documents must obviously relate to the same transaction, that is to say, that each should bear a relation (link) with the others on its face ... 1." A subsequent ICC Official Opinion states: "The describing of goods in any document, whether in full or general terms, is merely for the benefit of the documents themselves. It can provide no real identification as to the goods actually shipped2."
Where there is data on a document that is not required by the UCP or the L/C to be on a document, then the bank need not examine that data for compliance or inconsistency. In this case, the L/C merchandise description merely states: "Origin Taiwan". There is no requirement for a certificate of origin or other document to attest to the origin of the merchandise. Accordingly, per ICC Position Paper Number 33, it may be concluded that absent the documentary requirement for a certificate of origin, this is a non-documentary condition and is to be disregarded. Notwithstanding that the invoice does cite this phrase, it is the Opinion of the Experts that the absence of this expression in the invoice would not constitute a discrepancy, provided the balance of the merchandise description corresponded with the goods description in the L/C to include the respective trade term. ISBP Publication No. 645 paragraph 65 refers to the presence of a trade term in the merchandise description and requires that if such trade term is present in the merchandise description, it must appear in the invoice. There is no similar requirement for the treatment of "origin".
In this case, there is no requirement in UCP 500 nor in the L/C for the "origin" to be stated in the seller's authorization. In fact, the reference to "Korean gasoil" in the seller's authorization is not necessarily associated with definingthe origin of the gasoil. It does not state "Origin Korea".It may simply refer to the gasoil as "Korean", as at this point in time the seller's authorization is addressed to Company T inKoreaor, becausethe gasoil is in Korea, or it may be simply a question of branding or a clerical error. If the applicant required "Taiwan gasoil", the L/C should have required a certificate of Taiwanese origin and/or the merchandise should have been described as "Taiwanese gasoil" in field 45A.
The "inconsistency test" is to ensure that the documents refer to the same transaction, shipmentandpresentation. This is accomplished by a preponderance of the data indicating a relationship to the transaction/shipment/presentation.In this case, based on examining all of the documents in context, the Experts agree that this seller's authorization applies to this shipment and presentation.
(5) Discrepancy: Independent inspector's quantity report not presented
Analysis: The Experts note that the Initiator's cover letter accompanying the documents cites the inclusion of a cert[ificate] of quantity. Also, among the documents submitted was a document issued by BSI Inspectorate, Taiwan, entitled "certificate of quantity" and clearly relating to this shipment/presentation. Article 20 of UCP 500 provides that "Terms such as 'independent' shall not be used to describe the issuers of any document(s). If such terms are incorporated ... banks will accept the relative document(s) as presented provided that it appears on its face to be in compliance with the terms and conditions of the Credit and not to have been issued by the Beneficiary." The referenced document was not issued by the beneficiary, so it is deemed to be independent. In addition, despite being entitled "certificate of quantity", this document clearly states "Total Quantity Delivered" and thus appears to fulfil the function of the required document, i.e., a report of the quantity shipped/delivered4.
(6) Discrepancy: Quantity's items on certificate of quantity and tanker bill of lading differ from each other
Analysis: There is no requirement in UCP 500 or in this L/C that the quantities on documents be identical in every respect. The test for compliance permits the product description in documents other than the commercial invoice to be in general terms not inconsistent with the description of goods in the Credit (sub-article 37(c)) and, in this presentation, this standard would apply equally to the quantities given that for this product, gasoil, where quantities are measured in a variety of ways - BBLS (barrels) metric tons (MT), Long tons (LT), kilolitres (kls), as well as by several standard temperatures, e.g., 15 degree C and 60 degrees F. Some or all of those measurements are present on different documents to describe and quantify the product shipped. Notwithstanding that there may be different measurements stated on different documents, or the measurements may be presented in a different order or identified by use of generally accepted abbreviations5, the Experts find sufficient linkage to determine that the documents are not inconsistent with each other.
Summary: The Experts find that the documents presented under L/C No. ABC123 comply with its terms and conditions.
B. L/C No. XYZ456
(7) Discrepancy: Overdrawn.
Analysis: The analysis and reasoning of the experts is detailed in Section III below.
(8) Discrepancy: Quantity on invoice differs from quantity on seller's authorization for release of product
Analysis: The commercial invoice states the quantity as 27,383.000 BBLS/ 3,613.058 MTS. The seller's authorization states the quantity as 27,383 BBLS or 3,613.058 mts. The absence of a "000" (zero) as the hundredths place in the numerical value of the quantity in barrels stated in the seller's authorization does not indicate a different quantity of barrels. The quantity is also expressed in mts on both documents, and that value is the same on both documents.
(9) Discrepancy: Beneficiary's address in seller's authorization for release of product differ from L/C.
Analysis: There is no requirement in UCP 500 or in this L/C for the seller's address to appear on the seller's authorization, much less be identical to the address in the L/C. The L/C simply requires a "seller's authorization". Accordingly, provided the document appears to be issued by the seller (beneficiary), and it does (the absence of a postal prefix in the seller's address does not convince us otherwise), and appears to fulfil the function of the required document, i.e., to authorize delivery/release of the product, and it does, and provided that it can be determined from the preponderance of data on the document that this document applies to this shipment and this presentation, and it does, it is deemed to comply.
(10) Discrepancy: Product description on seller's authorization for release of product differ from L/C and invoice
Third, there is no requirement in UCP 500 or in this L/C that the product description on the seller's authorization and commercial invoice be identical, correspond or be consistent. Accordingly, provided the data content which is required to be stated on the documents, either by the UCP or the L/C, is not inconsistent, the documents are to be deemed in compliance. The standard for this measure of compliance is that "the whole of the documents must obviously relate to the same transaction, that is to say, that each should bear a relation (link) with the others on its face ... 6." A subsequent ICC Official Opinion states: "The describing of goods in any document, whether in full or general terms, is merely for the benefit of the documents themselves. It can provide no real identification as to the goods actually shipped7."
Where there is data on a document that is not required by the UCP or the L/C to be on a document, then the bank need not examine that data for compliance or inconsistency. In this case, the L/C merchandise description merely states: "Origin Taiwan". There is no requirement for a certificate of origin or other document to attest to the origin of the merchandise. Accordingly, per ICC Position Paper Number 3, it may be concluded that absent the documentary requirement for a certificate of origin, this is a non-documentary condition and is to be disregarded. Notwithstanding that the invoice does cite this phrase, it is the Opinion of the Experts that the absence of this expression in the invoice would not constitute a discrepancy, provided the balance of the merchandise description corresponded with the goods description in the L/C to include the respective trade term. ISBP Publication No. 645 paragraph 65 refers to the presence of a trade term in the merchandise description and requires that if such trade term is present in the merchandise description, it must appear in the invoice. There is no similar requirement for the treatment of "origin".
(11) Discrepancy: Release date on seller's authorization for release of product is prior to L/C date
Analysis: UCP 5009 and this L/C10 permit presentation of documents issued prior to the issuance date of the L/C. There is no requirement in UCP 500 nor in this L/C for the release date on the seller's authorization to be dated after the issuance date of the L/C. Accordingly, this statement of discrepancy is unclear and invalid for that reason. However, the seller's release is issued after the issuance date of the L/C. Finally, the only reference in the L/C to the "Release Date" appears in Additional Condition H, which reads: "Release Date equates to the date in which L/C is fully accepted by the Seller." This expression has no generally accepted meaning and, absent a required document to evidence compliance with this condition, it is considered to be a non-documentary condition and, in accordance with sub-article 13(c) of UCP 500, is deemed to be not stated and is disregarded.
Decision: Accordingly; this is not a discrepancy.
(12) Discrepancy: Independent inspector's quantity report not presented
Analysis: The Experts note that the Initiator's cover letter accompanying the documents cites the inclusion of a cert[ificate] of quantity. Also, among the documents submitted was a document issued by BSI Inspectorate, Taiwan, entitled "Certificate of Quantity" and clearly relating to this shipment/presentation. Article 20 of UCP 500 provides that "Terms such as 'independent' shall not be used to describe the issuers of any document(s). If such terms are incorporated ... banks will accept the relative document(s) as presented provided that it appears on its face to be in compliance with the terms and conditions of the Credit and not to have been issued by the Beneficiary." The referenced document was not issued by the beneficiary so it is deemed to be independent. In addition, despite being titled "Certificate of Quantity", this document clearly states "Total Quantity Delivered" and thus appears to fulfil the function of the required document, i.e., a Report of the Quantity shipped/delivered11.
(13) Discrepancy: Quantity's items on certificate of quantity and tanker bill of lading differ from each other
Analysis: There is no requirement in UCP 500 nor in this L/C that the quantities on documents be identical in every respect. The test for compliance permits the product description in documents other than the commercial invoice to be in general terms not inconsistent with the description of goods in the Credit (sub-article 37(c)) and, in this presentation, this standard would apply equally to the quantities given that for this product, gasoil, where quantities are measured in a variety of ways - BBLS (barrels) metric tons (MT), Long tons (LT), kilolitres (kls), as well as by several standard temperatures, e.g., 15 degree C and 60 degrees F. Some or all of those measurements are present on different documents to describe and quantify the product shipped. Notwithstanding that there may be different measurements stated on different documents, or the measurements may be presented in a different order or identified by use of generally accepted abbreviations12, the Experts find sufficient linkage to determine that the documents are not inconsistent with each other.
Summary: The Experts find that the documents presented under L/C No. XYZ456 comply with its terms and conditions.
C. L/C No. DEF789
(14) Discrepancy: Overdrawn
(15) Discrepancy: Alterations on the photocopy of seller's authorization for release of product were made illegally by unknown person. In this regard, such release authorization does not meet the requirement of regularity in this document.
Analysis: The Respondent's allegation that the alterations "were made illegally by unknown person" is beyond the scope of this panel, as legality is a matter for the courts to decide. However, the panel will address the facial compliance of the document. In this regard, the panel notes that while UCP 500 does not address alterations and corrections in documents, international standard banking practice13 recognizes that alterations in beneficiary issued documents do not require the authorization or identification of the party making the alteration unless the document has been "legalized or visaed or the like", in which case the alteration must appear to be authenticated by the party who legalized or visaed the document. This document bears a notation titled "With confirmation by" and signed by the Initiator. The L/C does not require "confirmation" of this document. The panel does not recognize any generally accepted status equating the expression "With confirmation by" with "legalization" or "visaed" and therefore, by this standard, any alterations on the photocopy of the seller's authorization do not need to be authorized or signed by the party "confirming" the document. Further, this L/C contains a specific condition, "Documents showing alterations without approval stamp or initials are acceptable." As the L/C requires a copy of the seller's authorization and permits presentation of a telex or fax copy of documents, then alterations on the required or permitted document, i.e., a fax, are acceptable and do not, under the specific conditions of this L/C, require a stamp or initials.
(16) Discrepancy: Product description on seller's authorization for release of product differ from L/C and invoice
First, the L/C product description as stated in field 45A, description of goods and/or services, is composed of a number of elements indicating generic commodity (gasoil), quantity (26,000 BBL +/- 10% (quantity) and trade terms (CFR AYN [sic] port(s) in South Korea). We note that the merchandise is not expressed as "Taiwanese gasoil". We further note that the presence of the expression "Origin Taiwan" is a non-documentary condition.
Second, let us assume that the cited discrepancy is complete and precise. There is no requirement in UCP 500 nor in this L/C that the product description be stated in the seller's authorization. Accordingly, a product description in general terms (sub-article 37(c)) or alternatively, that other data on the document which enables the examiner to determine that this document applies to this same shipment and presentation is sufficient to establish compliance. The Experts find that there is sufficient data content on the seller's authorization to link that document to the other documents presented under this L/C.
Third, there is no requirement in UCP 500 nor in this L/C that the product description on the seller's authorization and commercial invoice be identical, correspond or be consistent. Accordingly, provided the data content which is required to be stated on the documents, either by the UCP or the L/C, is not inconsistent, the documents are to be deemed in compliance. The standard for this measure of compliance is that "the whole of the documents must obviously relate to the same transaction, that is to say, that each should bear a relation (link) with the others on its face ... 14." A subsequent ICC Official Opinion states: "The describing of goods in any document, whether in full or general terms, is merely for the benefit of the documents themselves. It can provide no real identification as to the goods actually shipped15."
Where there is data on a document that is not required by the UCP or the L/C to be on a document, then the bank need not examine that data for compliance or inconsistency. In this case, the L/C merchandise description merely states: "Origin Taiwan". There is no requirement for a certificate of origin or other document to attest to the origin of the merchandise. Accordingly, per ICC Position Paper Number 316, it may be concluded that absent the documentary requirement for a certificate of origin, this is a non-documentary condition and is to be disregarded. Notwithstanding that the invoice does cite this phrase, it is the Opinion of the Experts that the absence of this expression in the invoice would not constitute a discrepancy, provided the balance of the merchandise description corresponded with the goods description in the L/C to include the respective trade term. ISBP Publication No. 645 paragraph 65 refers to the presence of a trade term in the merchandise description and requires that if such trade term is present in the merchandise description, it must appear in the invoice. There is no similar requirement for the treatment of "origin".
(17) Discrepancy. Release date on seller's authorization for release of product is prior to your confirmation date.
Analysis. There is no requirement in UCP 500 nor in this L/C that the seller's authorization for release of product be dated prior to the confirmation of the L/C. Accordingly, this statement of discrepancy is unclear and invalid for that reason. The only reference in the L/C to the "Release Date" appears in Additional Condition H which reads: "Release Date equates to the date in which L/C is fully accepted by the Seller." This expression has no generally accepted meaning and, absent a required document to evidence compliance with this condition, it is considered to be a non-documentary condition and, in accordance with sub-article 13(c) of UCP 500 is deemed to be not stated and is disregarded.
Summary: The Experts find that the documents presented under L/C No. L/C No. DEF789 comply with its terms and conditions.
II. Whether the Respondent/Issuing Bank failed to comply with UCP 500 articles 13 and 14 re "reasonable time"
A. 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 (9 April 2002).
Annex B hereto lists the respective dates of party action as reported by the Initiator and as supported by actual documents except where indicated.
The respective notice of refusal under L/C ABC123 and L/C XYZ456 was sent on the seventh banking day after receipt of documents, Saturday and Sunday considered non-banking days in the country of the Respondent.
The notice of refusal under L/C DEF789 was sent on the sixth banking day after receipt of documents, Saturday and Sunday considered non-banking days in the country of the Respondent.
With regard to the ICC position17 "reasonable time not to exceed seven banking days", sub-article 13(b) of UCP 500 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 to 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, a concept that is 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 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 to 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.
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. Those 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 five documents: draft, invoice, bill of lading, seller's authorization to release of product and an independent inspector's quantity report at loadport.
Based on the data presented by the Initiator, there is no documented evidence of when the Respondent examined documents, found them discrepant and decided to dishonour. In addition, there is no evidence of whether the Respondent sought the applicant's waiver of the cited discrepancies. However, there is circumstantial evidence that the Respondent may have completed examination and/or at least sought and or unilaterally waived the "overdrawn" cited discrepancy within three business days of receipt of the documents presented under L/Cs 1 and 2.
The Initiator states that its claims for reimbursement under L/Cs 1 and 2 were first rejected by the reimbursing bank and then honoured on the Respondent's authority to honour despite the reimbursement authority being overdrawn. As indicated in Annex B, the Respondent had received the documents (October 14) and had authorized payment under the reimbursement authority on or before October 17. Further, there is no indication in the respective notices of refusal that the Respondent has or would contact the applicant for waiver and, in the case of L/C 3, it is clear in that "We [the Respondent] hold documents at your disposal [and] have closed our file accordingly."
Given these timelines and absent any Answer by the Respondent as to the specific circumstances which might allow the maximum time to give notice, the Experts are unable to conclusively determine whether the taking of seven and six days respectively would constitute a "reasonable time" for these notices of refusal.
Such a determination of "reasonable time" may only be possible by discovery of additional details and by deference to local law. However, it is the Opinion of the Experts that in the case of L/Cs 1 and 2, had the Respondent completed its examination of documents within three banking days, as might be concluded from the Respondent's approval to honour the respective overdrawn reimbursement authorities, then withholding or not sending the respective notice of refusal until the seventh banking day after receipt of documents would violate the UCP 500 provision for giving notice within a reasonable time and giving notice without delay.
The Experts also note that the giving of notice on October 23 coincidentally fell after the expiry date of the L/Cs and thus deprived the beneficiary of an opportunity to cure any cited discrepancy. In the case of L/C 3, the reimbursement authority was cancelled prior to the reimbursement claim, and there is no indication that the Respondent amended the L/C to so advise the nominated bank and the beneficiary. In fact, one would conclude that the Respondent did not amend the L/C nor provide alternate reimbursement instructions. If that is the case, the Respondent may have failed to comply with URR 525 article 8.
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 determination of "reasonable time" in these instances to be mute.
III. Whether the automatic price fluctuation clause in field 47A, Additional Conditions, and use of a percentage in field 39A, percentage credit amount tolerance, has any consequence on the amount available under the letter of credit
In all three L/Cs, field 47A, Additional Conditions, contains an automatic fluctuation clause reading: "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 price clause referred to reads in part:
a. for L/Cs 1 and 2: "The price in US dollars per barrel based on the quantity as stated in the invoice shall be on a CFR Pyungtaek, Korea basis shall be equal to the average of the mean quotations published in the Platt's Asia Pacific/Arabian Gulf Marketscan for Gasoil Reg 0.5 PCT quotations under the heading Singapore from 29th September to 3rd October plus a premium of US dollars 4.39 per US BBL."
b. For LC 3: "The price in US dollars per barrel based on the quantity as determined under clause 12 of the contract shall be on a EX TA NK price at Pyongtaek, Korea basis shall be equal to the average of the mean quotations published in the Platt's Asia Pacific/Arabian Gulf Marketscan for Gasoil Reg 0.5PCT quotations under the heading Singapore plus a premium of US dollars 3.38 per US BBL."
Notwithstanding the differences in the above price clauses, for purposes of this analysis, the Experts have considered them to be the same in principle, i.e., the price clause establishes a formula to determine the invoice price.
In all three L/Cs, field 39A, Percentage Credit Amount Tolerance, indicates: "10/10". In accordance with the SWIFT User Handbook language: "This field specifies the tolerance relative to the documentary credit amount as a percentage plus and/or minus that amount. The first subfield specifies a positive tolerance, the second subfield specifies a negative tolerance."
In all three L/Cs, field 32B, Currency Code Amount, indicates USD800000. Accordingly, applying field 39A to field 32B, the respective L/Cs are available for USD 800,000 plus or minus 10%.
The Experts have considered two approaches in analyzing this dilemma. First, the presence of these two clauses creates an ambiguity. If so and if the receiving parties, i.e., the nominated bank and the beneficiary, relied on a reasonable interpretation of these clauses, then any misinterpretation should be construed against the issuer of the wording, i.e., the Respondent. The Experts take this position based on article 5 of UCP 500, which states that "Instruction to issue and the L/C must be complete and precise." Consistent with this article, ISBP 645 paragraph 2 affirms that "the applicant bears the risk of any ambiguity." This position is also supported by legal decisions in jurisdictions throughout the world. The Experts find that the interpretation by the beneficiary and the nominated bank are reasonable and consistent with the market expectation of the beneficiary. See below.
Second, this is not ambiguous and the rules and/or practice provide a solution. The Experts conclude that there are no UCP or SWIFT rules or international standard banking practice which would apply to this condition and govern whether a "percentage credit amount tolerance" overrides any other L/C condition qualifying the amount available under the L/C.
Accordingly, the Experts maintain that had the Respondent intended that the "fluctuation clause" be limited to a range within the percentage credit amount of tolerance in field 39A, then the L/C should have clearly qualified that by express words to that effect, such as, but not limited to: "The amount of this letter of credit shall automatically fluctuate to cover any increase/decrease, but not to exceed 10% more or less of the credit amount, according to the price clause without further amendment to this credit" or the like. Further, the L/C "fluctuation clause" should not have used the word "any".
The Experts further note that there is a recognized and well-known market practice in the "oil business" wherein the beneficiary insists that the L/C contain an automatic and unlimited "fluctuation clause" and, in such cases, the beneficiary will not accept and ship based on a L/C without such a clause, or an L/C which otherwise limits the amount available under the L/C.
Whether right or wrong, or complying with local bank regulations regarding such practice, the Experts believe that the "fluctuation clause" used in these L/Cs left the amount available under these L/Cs to be automatically increased or decreased without amendment based on a specified formula.
The "fluctuation clause" was not ambiguous, and the addition of a percentage credit amount tolerance does not, under UCP, SWIFT rules or international standard banking practice, limit or override the fluctuation clause. On the contrary, the Experts find that the fluctuation clause clearly overrides the percentage credit amount tolerance clause.
Conclusion
In the three 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.
ANNEX A. ADDITIONAL CONDITIONS
ANNEX B. DATES OF PARTY ACTION
ANNEX C. DISCREPANCIES
1 International Chamber of Commerce Publication No. 371, Decisions (1975-1979) of the ICC Banking Commission R.12 (1980).
2 International Chamber of Commerce Publication No. 596, More Queries and Responses on UCP 500, Opinion of the ICC Banking Commission, R. 251 (1997).
3 ICC Position Paper No. 3, 1994.
4 ISBP, ICC Publication No. 645, paragraph 43.
5 ISBP, ICC Publication No. 645, paragraph 6.
6 International Chamber of Commerce Publication No. 371, Decisions (1975-1979) of the ICC Banking Commission R.12 (1980).
7 International Chamber of Commerce Publication No. 596, More Queries and Responses on UCP 500, Opinion of the ICC Banking Commission, R. 251 (1997).
8 ICC Position Paper No. 3, 1994.
9 UCP 500, article 22.
10 Annex A, Additional Condition G.
11 ISBP, ICC Publication No. 645, Practice 43.
12 ISBP, ICC Publication No. 645, paragraph 6.
13 ISBP, ICC Publication No. 645, paragraph 9, 10 and 12.
14 International Chamber of Commerce Publication No. 371, Decisions (1975-1979) of the ICC Banking Commission R.12 (1980).
15 International Chamber of Commerce Publication No. 596, More Queries and Responses on UCP 500, Opinion of the ICC Banking Commission, R. 251 (1997).
16 ICC Position Paper No. 3, 1994.
17 ICC Document 470/952rev2 (9 April 2002), "Discrepant Documents, Waiver and Notice".
18 L/C M42S6309NS08926 is 81 days form B/L date.