Parties

Initiator: Bank B

Respondent: Bank N

Background

1. The Respondent issued two letters of credit (the "L/Cs") which are subject to UCP 500 and URR 525. Both L/Cs are available by negotiation with any bank.

2. The two L/Cs were amended twice. The third amendment dated 10 March 2005 ("Amendment No.3") relates to the following two issues:

a. deletion of the reimbursement authorization including the name of the reimbursing bank; and

b. deletion of a clause stipulated in the Additional Conditions (Field 47) of the L/Cs which states: "In the event original bills of lading are unavailable at the time of seller's negotiation, then payment will be effected against commercial invoice and letter of indemnity in beneficiary's format (telex invoice and telex letter of indemnity acceptable)" (the "Condition").

3. The beneficiary had no objection to the removal of the reimbursement instruction. However, the beneficiary expressly rejected the deletion of the Condition as evidenced in the correspondences between the Initiator and the Respondent.

4. Upon presentation of documents, the Respondent rejected the documents presented under both L/Cs based on the discrepancies set out below.

Initiator's claim

The Initiator claims that:

1. the Respondent is only entitled to remove the reimbursement instruction as per article 8 of URR 525 , but may not delete the Condition without the consent of the beneficiary;

2. the documents presented under the two L/Cs are compliant, and the Respondent is obliged to reimburse the Initiator who has negotiated the presented documents;

3. the Respondent is precluded under articles 13 and 14 of UCP 500 from rejecting the documents; and

4. the Initiator was entitled to negotiate the presented documents irrespective of the disagreement between the beneficiary and the Respondent about the deletion of the Condition, and the wording of the letter of indemnity ("LOI") did not indicate any fraudulent act of the parties.

Respondent's Answer

The Respondent did not submit an Answer (as defined in the ICC DOCDEX Rules) to the International Centre for Expertise by the deadline stipulated in Article 5.2 of the DOCDEX Rules.

Issues and decision

1. Amendment No.3

The Panel of Experts holds the view that the Respondent is entitled to remove the reimbursement instruction (as per Article 8 of URR 525) but not the Condition, since the beneficiary has expressly rejected Amendment No.3. The Condition is not considered as a bank-to-bank instruction but a term of the L/Cs that any amendment of such term must be subject to the consent of the beneficiary as per sub-article 9(d)(i) of UCP 500. Without the beneficiary's acceptance of the amendment, the terms of the original L/Cs, including the Condition, remain in force (sub-article 9(d)(iii) of UCP 500).

2. Discrepancies

The Respondent issued two rejection notices dated 28 March 2005 under the two L/Cs respectively. As a majority of the discrepancies alleged by the Respondent under the two L/Cs are substantially the same, the Panel of Experts will address them under the same headings below with an indication showing whether such discrepancy is identified in L/C No.1, L/C No.2 or both.

Discrepancy 1

"FULL SET OF ORIGINAL B/L NOT PRESENTED

- NO.10 CLAUSE IN 47A FIELD ALREADY DELETED (L/C NO.1)

- NO.6 CLAUSE IN 47A FIELD ALREADY DELETED" (L/C NO.2)

As analyzed above, since the beneficiary already rejected the deletion of the Condition, the Condition therefore still applies in both L/Cs. The relevant ground of rejection is therefore invalid.

Discrepancy 2

"TOTAL AMOUNT IS BASED ON B/L QUANTITY AND PRICE CLAUSE (NO.11 CLAUSE IN 47A FIELD), SO B/L IS ESSENTIAL FOR BANK'S NEGOTIATION" (L/C NO.1)

As the L/C expressly provides that in the event that original bills of lading are unavailable at the time of seller's negotiation, payment will be effected against the commercial invoice and letter of indemnity in beneficiary's format, the beneficiary is therefore entitled to submit an LOI in lieu of a bill of lading. In such circumstances, the calculation of the relevant quantity and price may therefore be based on the information stipulated in the invoice and/or the LOI. This alleged issue is not a discrepancy.

Discrepancy 3

"CERTIFICATION FOR CFR PRICE NOT PRESENTED (NO.1 PRICE CLAUSE IN 47A FIELD)" (L/C NO.1)

As the L/C does not require any certificate indicating the CFR price, this ground of rejection is not valid.

Discrepancy 4

"ORIGINAL DOCUMENT NOT PRESENTED - NO ORIGINAL MARK IN INVOICE AND LOI" (L/C NO.1 AND NO.2)

As the invoices and LOIs are printed on the original stationery of the beneficiary and were manually signed by the beneficiary, these documents are considered as original documents under the ICC Banking Commission Policy Statement, "The determination of an 'Original' document in the context of UCP 500 sub-Article 20(b)". It is therefore not necessary for the word "original" to be stamped on the documents. The alleged discrepancy is not valid.

Discrepancy 5

"DIFFERENT BENE'S ADDRESS ON COVERING FROM OTHER DOCUMENT'S (INVOICE)" (L/C NO.1 AND NO.2)

As the covering schedule prepared by the presenting bank is not a required document under the L/C, nor was it prepared by the beneficiary, the covering schedule does not form part of the documents to be examined by the Respondent. Since the Initiator's covering schedule clearly shows the credit number (for linkage purposes) and the beneficiary's information stipulated in the presented documents complies with the terms and conditions of the credit, the alleged issue does not form a ground of rejection of the presented documents.

Discrepancy 6

"SIGNATURE ON INVOICE DIFFER FROM LOI'S" (L/C NO.1 AND NO.2)

There is no requirement that the signatures indicated in the presented documents must be the same. So long as they appear on their face to be signed by the authorized signatory[ies] of the beneficiary, if such signatures are required the relevant documents are deemed to be compliant unless the L/C provides otherwise (article 21 of UCP 500 refers). Accordingly, this is not a discrepancy.

Discrepancy 7

"UNIT IN INVOICE DIFFER FROM L/C'S 45A FIELD - KLS I/O KL" (L/C NO.1)"

It appears on the documents that both "KLS" and "KL" refer to the abbreviation of kilolitres. Paragraph 6 of ISBP refers. This is not a discrepancy.

Discrepancy 8

"DOCUMENT PRESENTED IN ONE LOT I/O TWO LOTS REQUIRED IN 78 FIELD" (L/C NO.1 AND NO.2)

The Respondent is not entitled to reject the documents based on this ground so long as the documents are duly received by the Respondent. The result could be different if the Initiator failed to observe the mailing conditions stipulated in the credit and the documents were lost in transit. However, this does not apply to the present case, since the documents presented under the two L/Cs were duly received by the Respondent. This is, therefore, not a valid ground of rejection.

Discrepancy 9

"B/L CONSIGNED TO THE OTHER I/O N.A.C.F. - CONFIRMED FROM CARBON COPY B/L" (L/C NO.1 AND NO.2)

No carbon copy B/L was presented under the two L/Cs through the Initiator. Accordingly, the Respondent is not entitled to reject the documents based on documents it may have obtained outside the L/C channel. According to sub-articles 10(d), 13(a) and 14(a) of UCP 500, so long as the documents presented under a credit appear on their face to comply with the terms and conditions of the credit, the issuing bank is obliged to reimburse the negotiating bank. Accordingly, this is not a valid ground of rejection.

Discrepancy 10

"BILL OF EXCHANGE CLAUSE THAT IS ESSENTIAL TERM NOT WRITTEN IN DRAFT" (L/C NO.1 AND NO.2)

Both L/Cs do not require the term "Bill of Exchange" to appear on the face of a draft. Moreover, in accordance with paragraph 43 of ISBP, a document may be untitled or bear a similar title provided the content of a document appears to fulfil the function of the required document. The drafts presented apparently serve the function of demanding payment from the Respondent and have indicated the word "Exchange", which is a similar title acceptable under the ISBP. Moreover, the drafts contain all the information required in the L/Cs, such as tenor, dollar amount and drawee, etc. Accordingly, this is not a valid ground of rejection.

Discrepancy 11

"OVERDRAWN" (L/C NO.2)

Pursuant to condition 8 of Field 47A which states: ""L/C amount shall be automatically adjusted as per above price clause without amendment", it follows that so long as the quantity of the gas oil shipped falls within the limit stipulated in the credit (i.e., 5000 mt +/- 5%) while the unit price complies with the one stipulated in the credit, the L/C amount could be adjusted upward or downward without any amendment of the credit. As the quantity of goods shipped is 5,055.849 MT, which is within the +5% tolerance, while the unit price stated is exactly the same as that of the credit, i.e., USD 55.25 per barrel, there is no overdrawn issue. DOCDEX Decision 243 refers.

3. Preclusion

On 28 March 2005, the Respondent issued the respective rejection notices, i.e., five days after the date of receipt of the presented documents. The Initiator contends that since each set of documents presented under each credit consists of only three pages of original documents, the Respondent has failed to give the rejection notices within a reasonable time.

The Panel of Experts holds the view that whether an issuing bank has exceeded a reasonable time in examining and rejecting the presented documents is a question of fact. Since the experts do not have enough information to decide on this point without obtaining further evidence from the Respondent, e.g., the size and resources of the Respondent, the number of import payment transactions received by the Respondent during the relevant period and the number of staff available to process the import transaction, etc., the Panel is not in a position to decide whether the Respondent has spent more time than necessary/reasonable in examining and rejecting the documents. The Panel therefore expresses no opinion on this point.

4. Negotiation and Fraud Allegation

a. On 7 April 2005, ten days after the issuance of the two rejection notices, the Respondent issued a SWIFT message arguing that given the disagreement between the beneficiary and the Respondent about Amendment No.3, the Initiator should not have negotiated the documents. The Respondent also alleged that if the Initiator had exercised reasonable care it would have noticed that it was not normal to negotiate documents presented under 13 credits at one time.

b. On 8 April 2005, the Respondent issued another SWIFT to the Initiator, contending that the contents of the LOI (i.e., the beneficiary warranted title of the goods to the applicant, undertook to surrender the original bill of lading to the applicant and agreed to indemnify the applicant, etc.) were inconsistent with the bills of lading requirements (i.e., consigned or endorsed to the order of the Respondent). Accordingly, the Respondent alleged that the beneficiary was "presumed to have a fraudulent intention to hurt issuing bank's right, and it is clearly [a] deceptive action".

c. First, the Panel of Experts must emphasize that the Respondent is not entitled to raise any additional grounds of rejection after the issuance of the rejection notices dated 28 March 2005. Accordingly, so far as the UCP is concerned, the Initiator may disregard the Respondent's messages dated 7 April 2005 and 8 April 2005 respectively.

d. Second, so long as the terms and conditions of the L/Cs are clear and unequivocal as analyzed in the Amendment No.3 section above, it is perfectly legitimate for the Initiator to negotiate the presented documents. Otherwise, the irrevocability and negotiability of a credit will be undermined. Furthermore, there is nothing wrong in negotiating 13 sets of documents at the same time unless there is clear evidence to the negotiating bank that the relevant documents are forged or fraudulent.

e. Third, the two L/Cs do not stipulate the contents of the LOIs but expressly state that the LOIs are in the beneficiary's format. It follows that the relevant LOIs are deemed to be compliant so long as they do not contain any data content which is not inconsistent with other presented documents as per Article 21 of UCP 500. The Panel of Experts, therefore, fails to see on what ground that the Respondent may argue that the LOI contents are inconsistent with the bills of lading requirements, since the submission of bills of lading was substituted by the LOIs, not to mention that such ground of rejection was issued out of time. The Panel of Experts also holds the view that there is no evidence of fraud so far as the presented documents are concerned, and the relevant LOIs are deemed to be compliant under Article 21 of UCP 500.

Conclusion

The documents presented under the two L/Cs are compliant, and there is no valid ground of rejection of the presented documents. Accordingly, the Respondent is obliged to reimburse the Initiator (i.e., the negotiating bank) under the two L/Cs.

The above decision is a unanimous decision of the appointed Panel of Experts.