Parties

Initiator: Bank C

Respondent: Bank S

The Respondent communicates its intention not to take part in the expertise process.

Background and transaction

- Documentary credit subject to UCP 500 (issued via Swift MT 700)

- Issuing bank: Respondent

- Nominated bank: Initiator

- Amount: USD 471,573.--

- Availability: by payment with Initiator

- Form: irrevocable

- Confirmation: without

- Description of goods (Field 45A):

"HOT ROLLED EQUAL STEEL ANGLES.
SIZE MM: 100X100X10 MM; LENGTHS MM: 12,000; QTY MTS NET
(+0/-5PCT): 1041; U.PRICE USD/MT: 408; TOTAL AMT. USD:
FOB 424,728.00.
TOTAL FREIGHT CHARGES: USD 45/MT 46,845.00
TOTAL CFR FO: USD 453/MT 471,573.00
PACKING: IN BUNDLES OF 5 MT MAX.
LENGTH: AS MENTIONED (+/-100 MM)
QUALITY: 3 SP/PS ACCORDING TO GOST EQUIVALENT
ROLLING/DIMENTIONAL TOLERANCES: ACCORDING TO GOST 8509
GENERAL TECHNICAL CONDITIONS: ACCORDING TO GOST 535-88
MANUFACTURE: ALCHEVSK (AS AMENDED)
SHIPMENT BY: CLASSIFIED VESSEL AS PER BENEFICIARIES' PROFORMA NO. 1234 DD. 09/08/2004"

- Documents required (among others) (field 46A):

THE. ORIGINAL INSPEC. CERT. ISSUED NOT PRIOR TO OCEAN B/L DATE BY S.G.S OR ITS AUTHORIZED AGENT ON S.G.S LETTER HEAD CERTIFYING THAT THE GOODS SHIPPED/INSPECTED ARE IN CONFORMITY WITH THE QLTY, QTY, AND PACKING OF THE GOODS LOADED ARE STRICTLY COMPLYING WITH SPECIFICATIONS OF THE GOODS INDICATED IN THE RELATIVE P/I, THE TERMS OF THE L/C AND ALL SUBSEQUENT AMENDMENTS AS PRESENTED TO S.G.S BY THE BUYER. SUCH INSPECTION CERTIFICATE SHALL VERIFY THAT THE GOODS ARE IN CONFORMITY WITH STANDARD NO. GOST 535-88 AND SHOULD BE ATTESTED BY THE LOCAL CHAMBER OF COMMERCE, WHERE IT HAS BEEN ISSUED, INSPECC. CHARGES ARE FOR BENEF.'S ACC.

Issues

- On 10 January 2005 the Respondent sent the following SWIFT MT 799 message:

"DOCUMENTARY CREDIT NUMBER: 002/456789/6
NARRATIVE:
RE YR SCHEDULE REF NO. BAHA 411-033708 DD. 05/01/2005 WE ACCEPT DOCS. ON COLLECTION BASIS DUE TO THE FOLLOWING DISCREPANCIES:
STALE B/L
IN INSPECTION CERTIFICATE THE QLTY OF GOODS IS NOT IN COMPLIANCE WITH L/C TERMS AND THE CONDITION MENTIONED THERE, IS NOT ACCEPTABLE TO THE BUYER SO WE WILL RETURN DOCS. TO YOU AFTER GETTING YR RESPONSE. UNTIL HEARING FROM YOU DOCS. ARE HELD AT OUR COUNTER AT YOUR RISK AND DISPOSAL. REGARDS BAZAR BR."

- On 11 January 2005, the Initiator informed the Respondent that it omitted to mention in its remittance letter that documents have been presented within 21 days after the bill of lading date and requested clarity as to which condition is not acceptable to the buyer. The Initiator also outlined that banks deal with documents and not with goods and made reference to UCP 500 article 4.

- On 12 January 2005 the Initiator received a message from the reimbursing bank as follows: "WE ARE UNABLE TO HONOUR YOUR REIMBURSMENT CLAIM FOR USD 471,500.52 AS OUR RECORDS INDICATE THAT WE REQUIRE AUTHORITY TO PAY FROM THE ISSUING BANK. WE HAVE CONTACTED THE ISSUING BANK IN THIS RESPECT AND SHALL REVERT TO YOU UPON RECEIPT OF THEIR REPLY."

- On 15 January 2005 the Respondent informed the Initiator as follows: "RE YR MT 799 DD. 11/01/2005 AND FURTHER TO OUR MT 799 DD. 10/01/2005 PLS BE INFORMED THAT THE DISCREPANCY NO. 1 IS OBVIATED BUT THE 2ND DISCREPANCY WHICH RELATES TO QLTY: 3 SP/PS ACCORDING TO GOST 380-94 IS NOT IN ACCORDANCE WITH FIELD 45A AND ALSO THE CONDITION: MATERIAL WAS ATMOSPHERICALLY RUSTY WET BEFORE SHIPMENT WHICH IS MENTIONED IN INSPECTION CERT. IS NOT IN COMPLIANCE WITH L/C TERMS SO THE BUYER DOESN'T ACCEPT DOCS. AND HAS REQUESTED US TO RETURN DOCS. TO YOU. PLS INFORM US ABT. THE RESULT BY YR RETURN SWIFT ASAP. REGARDS, BAZAR BR."

- The Initiator and the Respondent exchanged several other messages arguing their own points.

- On 28 February 2005 the Respondent returned documents to the Initiator notwithstanding the fact that the Initiator had repeatedly instructed the Respondent to keep documents for its account.

Initiator's claim

Claim 1. Improper refusal notice

The refusal of documents with the wording "In inspection certificate the quality of goods is not in compliance with L/C terms and the condition mentioned there, is not acceptable to the buyer" does not qualify as a proper refusal in as much as the first part of the sentence does not indicate what condition is being referred to and the second part is inappropriate.

Claim 2. Validity of the discrepancies.

The inspection certificate is as called for under the documentary credit and appears to be consistent with the other presented documents. It contains all information required by the credit, especially in relation to the following statements.

1. "Based on the above findings we hereby certify that the goods shipped/inspected are in conformity with the qlty, qty, and packing of the goods loaded and are strictly complying with specifications of the goods indicated in the relative P/l, the terms of the L/C and all subsequent amendments as presented to us (S.G.S.) by the buyer."

2. "Based on the checking of mill's certificates data we verified that the goods are in conformity with standard no. GOST 535-88."

The Initiator also states that "There is no provision in the credit prohibiting specific remarks or notes in the inspection certificate. The document does confirm what is required and therefore, there is no discrepancy."

It is to be noted that the Initiator has made no claim with regard to the first discrepancy raised by the Respondent in its message dated 10th January ("stale documents"), presumably due to the answer of the Respondent who, in its subsequent message dated 15th January, stated that "Discrepancy no.1 is obviated" and dropped this issue as one of the reasons for refusal of documents. Therefore, this discrepancy does not need any further consideration.

Claim 3. Disposal of documents.

The Respondent had no authority to dispose of the documents without having received the Initiator's prior instructions.

Documents submitted by the parties

Documents submitted by the Initiator

1. SWIFT L/C issuance dated 25 October 2004

2. SWIFT amendment dated 7 November 2004

3. Invoice

4. Bill of lading

5. Certificate of origin

6. Packing list

7. Shipping company certificate

8. SGS Inspection certificate

9. 21 SWIFT messages exchanged between Initiator and Respondent concerning the dispute and the cover letter, accompanying the documents, addressed to the Respondent by the Initiator.

Analysis

Claim 1: Validity of the refusal notice

UCP 500 sub-article 14 (d) (i) states: "If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication ... ."

This Panel holds that the Respondent did not act in line with the above provision, as it did not give notice to the effect that the documents were refused. Documents presented under a documentary credit can only be accepted or refused; instead, the Respondent stated "we accept docs. on collection basis ... ."

UCP 500 sub-article 14 (b) states: "Upon receipt of the documents the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the credit ... ."

This Panel holds that the Respondent did not act in line with the above provision, as it only stated that the inspection certificate "is not acceptable to the buyer". (See also Opinion R 211 in "Collected Opinions 1995-2001", Page 123, ICC Publication No. 632, whose conclusion states "The issuing bank must determine on its own whether the documents presented under its credit are in compliance with the terms and conditions of the credit.")

UCP 500 sub-article 14 (d) (ii) states: "Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter."

This Panel holds that the Respondent did not act in line with the above provision, as it made two statements which are not allowed to be made simultaneously, i.e., a) "We will return docs. to you after getting yr response" and b) "Until hearing from you docs. are held at our counter at yr risk and disposal." Moreover, this Panel notices that the first statement is not in line with current banking practice.

Concerning this point, this is a majority statement.

For these reasons, this Panel states that the message dated 10 January 2005 was not a valid refusal notice, as the Respondent failed "to act in accordance with the provisions of this article", and therefore the Respondent was "precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit", as stated by UCP 500 sub-article 14 (e).

It must be noted that the Initiator did not raise this point as an issue. Instead, the Initiator requested the Respondent to be more detailed with regard to the discrepancies mentioned, implicitly accepting the refusal notice as a whole.

Claim 2

Validity of the discrepancies

It is the unanimous decision of the Panel that the presented inspection certificate conformed with the terms of the credit. An inspection certificate is a document that comes under the purview of UCP 500 article 21 which states: "When documents other than transport documents, insurance documents and commercial invoices are called for, the credit should stipulate by whom such documents are to be issued and their wording or data content: If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented."

In this case, the content of the document was stipulated by the credit, and this content appeared in wording on the document presented. This strict adherence is sufficient to consider the credit requirement fully complied with. The fact that a sentence was present in the inspection certificate stating: "Material was atmospherically rusty, wet before shipment" did not detract from the validity of the statement of conformity of the inspected goods, because in this context it is intended to be a notice concerning the condition of the commodity. Moreover, in this case, the credit did not prohibit the use of such words in the inspection certificate, and no other inconsistency between the inspection certificate and other stipulated documents presented appeared. Therefore, this discrepancy is groundless.

Again, based on the provisions of UCP article 21, the Panel has also come to the same conclusion for the discrepancy concerning the quality requirement in the credit (field 45A) ("3 SP/PS according to Gost equivalent") and the quality description in the inspection certificate ("3SP/PS according to GOST 380-94 equivalent"). The wording requested in the credit is fully present in the document presented, and consequently it is acceptable under the terms and conditions of the credit.

Moreover, even though the credit failed to stipulate a data content (i.e., the Gost number), the Panel is of the view that the inclusion of the number "380-94" in the inspection certificate is not a valid reason to raise a discrepancy, as it is not inconsistent with the other credit requirements and any other stipulated document presented.

Claim 3

Disposal of documents

The Panel is in agreement that, in principle, the issuing bank is free to return the non-conforming documents or to keep them at presenter's disposal and risk, because they belong to the presenter. Nevertheless, if it elects to keep the documents at the presenter's disposal, this choice binds the issuing bank to follow the presenter's instruction for any further disposal of the documents. Instead, in this case, the intention of returning the documents was duly advised to the presenter and made conditional on receiving the Initiator's reaction; in the meantime, the documents were held at the Initiator's disposal. As noted above, the Initiator failed to question the irregularity of the rejection notice received from the Respondent and merely sought further clarification, thus accepting it. In this situation, the behaviour of the Respondent in returning the documents to the Initiator after a period of time is considered to be correct, as it advised the Initiator in advance of its intention, which was implicitly accepted by the Initiator, who did not contest the rejection notice.

Conclusion

The Panel holds that:

- the rejection message was not a valid message under the provisions of UCP 500 sub-article 14 (d);

- the inspection certificate presented conformed to the terms and conditions of the credit, and therefore the discrepancies raised by the Respondent were groundless;

- in view of the advance notice of intent, the Respondent was entitled to return the documents to the Initiator;

- the Initiator is entitled to payment of the sum of USD 471,500.52 and for the loss of interest due to the delay in the reimbursement.

Statement of the Chair

The decision in DOCDEX 254 is unanimous.