Parties

Initiator: Bank I

Respondent: Bank C

Background and transaction

Initiator's branch in Country I issued an irrevocable L/C on 14 October 2002 for USD735,602.00 (it was subsequently amended to USD775,602.00) in favour of Company A in the US covering shipment of "Ship's Spares/Stores for Rig Deepsea Matdrill Dubai Drydock, Dubai, U.A.E. as per P. Order No. 123456 dtd 28.06.2002 and P. Order No. 789 dtd 02.10.2002. FOB, Houma, LA, U.S.A." The L/C was available by negotiation upon presentation of drafts drawn at 180 days from the date of air waybill on issuing bank and documents. The L/C was subsequently amended, and the draft was to be drawn on the Respondent. At the request of the issuing bank, the Respondent also added its confirmation. The L/C provided for reimbursement by way of debit to the Initiator's account with the Respondent on the due date of the draft. Partial drawings were permitted.

Documents for USD621,530.00 for previous shipments had been presented with discrepancies, but had been accepted by the issuing bank and had been reimbursed in terms of the L/C.

On 16 January 2003, Respondent forwarded documents for USD154,072.00 to the issuing bank with its covering letter, stating that the documents were in compliance with the terms and conditions of the said L/C and confirmed the maturity date as 7 July 2003. The issuing bank received the documents on 21 January 2003, a Tuesday. The issuing bank noted three discrepancies in the documents and sent an advice of refusal by SWIFT MT734 to the Respondent on 29 January 2003 (Wednesday). The text of the advice of refusal is reproduced below:-

"FIELD 72: SENDER TO RECEIVER INFORMATION DOCS NOT ACCEPTABLE TO US DUE TO DISCREPANCIES. YOU ARE NOT AUTHORIZED TO DEBIT OUR ACCOUNT.

FIELD 77J: DISCREPANCIES

WE REFUSE THE ABOVE DOCS DUE TO THE FOLLOWING DISCREPANCIES:

1. CERTIFICATE FOR AMERICAN BUREAU OF SHIPPING IS NOT AS PER CLAUSE 3 OF OUR AMENDMENT NO. 1 DATED 021221;

2. DESCRIPTION OF GOODS IN COMEMRCIAL [SIC] INVOICE DIFERS [SIC];

3. AMOUNT OF COMEMRCIAL [SIC] INVOICE AND VALUE OF GOODS DECLARED IN AIRWAY BILL DIFFERS.

FIELD 77B: DISPOSAL OF DOCUMENTS: TAKEN UP WITH APPLICANT FOR APPROVAL. HOLDING DOCS AT YOUR RISK AND RESPONSIBILITY."

As the discrepancies were not acceptable to the applicant, the issuing bank advised the Respondent on 6 February 2003, by SWIFT, that it was returning the documents.

On 14 February 2003, the issuing bank received a SWIFT message from the Respondent requesting that it contact the applicant regarding the discrepancies.

The issuing bank held the documents until 29 March 2003. As the issuing bank was not able to obtain a waiver from the applicant, it returned the documents to the Respondent.

On 12 and 16 April 2003, the issuing bank received SWIFT messages from the Respondent stating inter alia that it was not in agreement with the returning of said documents and adding that the purported discrepancies were not material enough to cause refusal of payment and/or the return of the documents, since these documents contained similar content shown in other documents that the issuing bank had honoured without question. The Respondent further said that the documents truly complied in general with the L/C terms and conditions. It would reimburse itself by debiting the Initiator's account at maturity, 7 July 2003.

On 28 April 2003, the issuing bank replied by SWIFT that the applicant had refused to accept the documents in light of the discrepancies, and it had closed its file. On the same day, the documents were again sent back to the Respondent.

The Respondent sent the documents back to the issuing bank on 15 May 2003. The issuing bank again returned the documents to the Respondent on 30 June 2003, claiming that it was unable to honour the documents. The Respondent claimed reimbursement on the due date, 7 July 2003, by debiting the Initiator's account and returned all documents to the issuing bank on 31 July 2003. From the correspondence submitted, it is not clear when the Respondent received the documents returned by the issuing bank. Having reimbursed itself under the credit, it is expected that the Respondent would have returned the documents to the issuing bank without delay.

Issues

1. Is a Respondent within its rights to dispute discrepancies over two months after having, in the first instance, instructed the issuing bank to seek approval of the applicant for a waiver?

2. Is the Respondent right in debiting the Initiator's account in reimbursement despite the fact that the documents were rejected by the issuing bank with due notice of refusal and expressly withdrawing its reimbursement authority?

Initiator's claim:

i. Having given instructions to seek approval of the applicant to the discrepancies pointed out by the Initiator's branch office and apparently accepted by the Respondent, the Respondent is precluded from taking a stand subsequently that the discrepancies are not acceptable. The Respondent, if not in agreement, should make such a claim in the first instance after the receipt of notice of refusal and, in any case, not after giving instructions to seek approval of the applicant (thereby accepting discrepancies and taking control over the documents). The Initiator claimed that contesting discrepancies should be done within a reasonable time, which obviously cannot be as long as two months or more.

ii. The argument of the Respondent that discrepancies in earlier sets of documents were accepted does not stand, as each presentation is separate and acceptance in earlier cases is no ground for presuming acceptance in subsequent presentations.

iii. The contention that the documents relate to merchandise which is more than likely being used by the applicant in relation to the underlying transaction does not hold good under article 4 of UCP 500. Further, in this case, goods have neither been consigned to the Initiator nor has the Initiator released the goods [as the L/C required AWB/BL to show a third party as notify party without there being a named consignee].

iv. Respondent has claimed unauthorized reimbursement in respect of the documents refused by the Initiator with due notice of refusal and claims it is liable to refund the amount with interest as per sub-article 14 (d) (iii).

Respondent has not filed an answer in accordance with Article 3 of the DOCDEX rules, and therefore the Decision hereunder has been made solely upon the documentation submitted by the Initiator.

Documents submitted by the parties

1. Documents submitted by the Initiator

(i) "NAK" copy of SWIFT LC from the issuing bank dated 17 October 2002;

(ii) copy of SWIFT amendment from the issuing bank dated 6 November 2002;

(iii) copy of SWIFT amendment from the issuing bank dated 6 January 2003;

(iv) cover letter from the Respondent dated 16 January 2003 with the enclosed documents;

(v) two certificates of the American Bureau of Shipping;

(vi) commercial invoice;

(vii) air waybill;

(viii) SWIFT advice of refusal dated 28 January 2003;

(iv) SWIFT message MT799 from the issuing bank dated 5 February 2003;

(x) SWIFT message MT 799 from the Respondent dated 13 February 2003;

(xi) letter from the issuing bank to the Respondent dated 29 March 2003;

(xii) SWIFT message MT 799 from the Respondent dated 12 April 2003;

(xiii) SWIFT message MT 799 from the Respondent dated 15 April 2003;

(xiv) SWIFT message MT 799 from the issuing bank dated 28 April 2003;

(xv) letter dated 28 April 2003 from the issuing bank to the Respondent;

(xvi) letter dated 15 May 2003 from the Respondent to the issuing bank;

(xvii) letter dated 30 June from the issuing bank to the Respondent;

(xviii) letter dated 31 July 2003 from the Respondent to the issuing bank.

2. Documents submitted by the Respondent: NIL

Analysis

The documents for USD154,072.00 were presented by the Respondent and received by the issuing bank on 21 January 2003. After the examination of documents, the issuing bank cited three discrepancies in the documents. They are:

1. Certificate for American Bureau of Shipping is not as per clause 3 of our amendment No. 1 dated 021221;

2. Description of goods in commercial invoice differs;

3. Amount of commercial invoice and value of goods declared in air waybill differs.

An advice of refusal was sent by the issuing bank on 29 January 2003. Let us analyze the discrepancies, and the advice of refusal before the issues.

Discrepancy 1

Certificate for American Bureau of Shipping is not as per clause 3 of our amendment No. 1 dated 021221

We note that the amendment no. 1 was dated 021106 instead of 021221 as stated in the notice of refusal. The amendment called for Certificate for American Bureau of Shipping that the parts being shipped by Company S vide P. Order No. H-123456 dated 28.06.02 are of ABS-approved quality. The certificate presented shows that it is issued by American Bureau of Shipping and the parts being shipped by "S" (Company S) via P.O. # H-123456 dated 28.06.2002 are ABS approved quality.

The Initiator did not explain in which respect the certificate is not as per clause 3 of the amendment. However, on the face of the document, the certificate shows "S via P.O # H-789" instead of "[Company S] vide P. Order No. 789" as indicated in the amendment. It is obvious that "S" is an abbreviation of Company S, as the certificate shows that the complete name in its letterhead. "P.O. #" is also an abbreviation of "P. Order No." As stated in paragraph 6 of ISBP 645, the use of generally accepted abbreviations does not make a document discrepant. On its face, the certificate complies with the requirement in clause 3 of amendment No. 1.

Discrepancy 2

Description of goods in commercial invoice differs

The discrepancy listed by the Initiator is not specific. It simply states that the description of goods in commercial invoice differs. The claimed discrepancy does not state whether the description of goods in invoice differs from that of the LC or another document/s.

In field 45A of the SWIFT MT700, it states:

"SHIP'S SPARES/STORES FOR RIG DEEPSEA MATDRILL DUBAI DRYDOCK, DUBAI, U.A.E. AS PER P. ORDER NO. 123456 DTD 28.06.2002 AND P. ORDER NO. 789 DTD 02.10.2002. FOB, HOUMA, LA, U.S.A."

The commercial invoice shows in its "item description" as follows:

"Rack Pinion and Gear Structure Quantity: 2

SHIP SPARES/STORES FOR RIG DEEPSEA MATDRILL DUBAI DRY DOCK DUBAI, U.A.E. AS PER P. ORDER NO. 123456 DTD 28.06.2002 AND P. ORDER NO. 789 DTD 02.10.2002."

The invoice also indicates the terms of delivery and payment as FOB Houma, LA USA.

Paragraph 62 of ISBP 645 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."

The invoice has, in fact, shown the description of goods as well as FOB Houma, LA USA in accordance with that in the L/C. The invoice also shows in its description "rack pinion and gear structure". It is merely additional information or description to describe the items being shipped under the general description in this L/C.

Unless it is merchandise not called for in the L/C, additional detail of the goods shown in the invoice does not make the invoice discrepant. The additional information would not appear to be a description of merchandise not called for in the L/C. The invoice presented by the Respondent is acceptable.

Discrepancy 3

Amount of commercial invoice and value of goods declared in airway bill differs

The commercial invoice shows the value of the shipment as USD154,072.00 and the trade term as FOB Houma, LA, USA. The value declared for customs in the air waybill shows as USD153,632.00. There is no requirement in the L/C that the value declared for customs in the air waybill, if any, must be exactly the same as the amount shown in the commercial invoice, i.e., if the value in invoice shows as FOB, the declaration in airway bill must also be FOB. Moreover, the value declared for customs in the air waybill may be EXW, FCA or something else. There is no basis for comparison. In our view, the air waybill showing a different value declared for customs purpose does not make the document discrepant.

We observe that the L/C required shipment to be effected by air and the trade term as FOB Houma, LA. Obviously, the trade term was wrongly used, as FOB can only be used for sea or inland waterway transport.

General consideration: We agree with the Initiator's claim that the acceptance of the discrepancies in earlier sets of documents should not imply that any subsequent presentation with similar discrepancies would be accepted. The ICC Banking Commission has given its official Opinion on this subject in R 332, 1998/99. The Opinion states that the fact that a bank may have previously accepted discrepant documents, with or without an applicant waiver, does not bind that bank to accept a similar discrepancy(ies) on any future drawing(s) unless local law states otherwise.

Question 1

Is a Respondent within its rights to dispute discrepancies over two months after having in the first instance instructed the issuing bank to seek approval of the applicant for a waiver?

The Respondent may have been wrong in not disputing the discrepancies earlier. However, in its cover letter dated 16 January 2003, the Respondent stated that the documents were, in its opinion, in compliance with the terms and conditions of the said L/C. The Initiator claimed that the Respondent had "accepted" the discrepancies raised by its issuing branch. But we have only the Initiator's correspondence for this, and we do not have any response from the Respondent. The Initiator's claim that the Respondent accepted discrepancies is not matched by any documentary evidence to this effect.

Nevertheless, this should not preclude the Respondent from pursuing or re-addressing, at any future point in time, as there is no provision in UCP 500 requiring the presenting bank to respond to the issuing bank's notice of refusal immediately or within a timeframe, even if the presenting bank does not agree with the discrepancies raised by the issuing bank. When the presenting bank is silent on the advice given by the issuing bank, it does not mean that the presenting bank has no objection to the advice of refusal. The issuing bank may choose to return the documents to the presenting bank if it does not receive any instruction for the disposal of documents from the presenting bank.

Question 2

Is the Respondent right in debiting the Initiator's account for reimbursement despite the fact that the documents were rejected by the issuing bank with due notice of refusal and expressly withdrawing its reimbursement authority?

As a confirming bank as well as an accepting bank, the Respondent is right in debiting the Initiator's account for reimbursement of its acceptance, as the discrepancies raised by the Initiator are not valid.

Conclusion

As per article 9 of UCP 500, the issuing bank must honour its obligation to pay the beneficiary or to reimburse the nominated, confirming or negotiating bank if the terms and conditions of the L/C are complied with. As the documents presented by the Respondent have complied with the terms and conditions of the L/C issued by the issuing bank, as a confirming bank as well as an accepting bank, the Respondent has the right to debit the Initiator's account as originally authorized by the issuing bank in the L/C.

The decision is unanimous.