Parties

Initiator: Company P - second beneficiary (beneficiary of two transferred letters of credit)

Respondent 1: Bank S - transferring bank

Respondent 2: Bank C - issuing bank

Respondent 3: Bank S - advising bank of the transferred credits, recipient of documents from Initiator and presenter of documents to transferring bank (Respondent 1)

Issues determined - dispute

Initiator (second beneficiary) submitted documents to Respondent No. 3 under two transferred credits for presentation to Respondent 1 (transferring bank). Respondent 1 substituted documents of the first beneficiary and submitted documents to Respondent 2 (issuing bank). Initiator alleges Respondent 1 (transferring bank) and Respondent 2 (issuing bank) failed to act in accordance with UCP 500 and questioned whether the banks were entitled to their fees.

Documents submitted

1. Statement of Initiator

2. Answer of Respondents 1, 2 and 3

3. Copy of each of two original letters of credit and amendments thereto, subject to UCP 500

4. Copy of each transferred letter of credit and amendments thereto, subject to UCP 500

5. Copy of each transmittal letter (covering schedule) from Respondent 3 (presenting bank) addressed to Respondent 1 (transferring bank) sending the beneficiary's documents to Respondent 1, dated 12 April, stating "We enclose our collection No. ..."; "Drawn under L/C No. ..."; "Documents to be delivered against payment."; "(This collection is subject to UCPDC 1993, Revision, ICC Publication No.500)".

6. Copies of SWIFT MT799 from Respondent 1 (transferring bank) to Respondent 3 (presenting bank) acknowledging receipt of documents and sending of documents (incorporating the substituted documents) to Respondent 2 (issuing bank)

7. Copy of courier receipt transmitting documents from Respondent 1 (transferring bank) to Respondent 2 (issuing bank), receipt acknowledged on 21st April

8. Copies of documents received by Respondent 2 (issuing bank)

9. 29 April - SWIFT MT734 Advices of Refusal from Respondent 2 (issuing bank) sent to Respondent 1 (transferring bank) stating discrepancies and that documents were held at its disposal

10. Copy of signed "Private Agreement" between first beneficiary, second beneficiary (Initiator), applicant, and end user of the goods, dated 29 April, reducing the price of the goods.

11. 29 April - SWIFT messages from Respondent 3 (presenting bank) to Respondent 1 (transferring bank) authorizing payment of a reduced amount.

12. 3 May - SWIFT MT799 from transferring bank (Respondent 1) to presenting bank (Respondent 3) relaying discrepancies noted by issuing bank and referencing transferring bank's 4 April SWIFT to issuing bank that first beneficiary has accepted the deduction in the bill amount according to their MT 799 of 29 April for that set of documents.

13. 3 May - SWIFT MT799s from Respondent 1 (transferring bank) to Respondent 3 (presenting bank) advising discrepancies noted by Respondent 2 (issuing bank), advising that the first beneficiary has accepted the reduced amount, that Respondent 2 (issuing bank) has been notified by SWIFT on 30 April, and that they were awaiting applicant's acceptance on that set of documents.

14. 17 May - SWIFT MT799 messages from transferring bank (Respondent 1) to presenting bank (Respondent 3), relaying a message from issuing bank that the applicant has agreed to the deduction and that the applicant has informed the issuing bank that an agreement has been reached with the beneficiary in which the beneficiary has agreed to the release of the documents against a reduced amount and agreed to the issuing bank's closing of their files. Issuing bank further noted it was holding the documents at the disposal of the transferring bank (Respondent 1).

15. 22 May - SWIFT MT 799 messages from Respondent 3 (presenting bank) acknowledging receipt of 17 May message and stating that Initiator (second beneficiary) will accept part payment now; however, documents should be released on D/P basis after receiving the balance amount.

16. 25 May - SWIFT MT 799 from transferring bank (Respondent 1) to presenting bank (Respondent 3), relaying message from issuing bank that it was informed by the applicant of agreement with beneficiary of payment of reduced amounts directly, with the balance to "be paid at the following payment term: D/A 120 days", further stating documents were being held at the disposal of the transferring bank. Transferring bank specifically requested presenting bank to advise by return authenticated SWIFT if the payment term D/A 120 days was accepted and requesting revised drafts drawn on the first beneficiary.

17. 27 May - SWIFT MT 799 from transferring bank (Respondent 1) to presenting bank (Respondent 3), relaying message from issuing bank that it is informed by the applicant that the payment details of the discrepant documents were not in agreement and the applicant continued to refuse the documents. Issuing bank further stated that while the documents were still being held at the disposal of the transferring bank pending instructions and that the issuing bank will return the discrepant documents if no further instructions were received within five working days. Transferring bank requested presenting bank to urgently advise the Initiator (second beneficiary) and requested instructions by return authenticated SWIFT.

18. 29 May - presenting bank SWIFT MT799 message to transferring bank (Respondent 1) stating the Initiator (second beneficiary) accepts a reduction in the amounts and authorized delivery of the documents only after payment of a stated amount together with acceptance of a bill of exchange in a stated amount at 120 days from B/L date drawn on the first beneficiary.

19. 31 May - SWIFT MT799 from transferring bank (Respondent 1) to presenting bank (Respondent 3) relaying request from the first beneficiary that the draft at 120 Days B/L date be drawn on the ultimate buyer.

20. 1 June (or 3 or 4 June - date can not be read from copy of message) SWIFT MT799 from presenting bank to transferring bank (Respondent 1) advising that presenting bank (Respondent 3) has couriered to transferring bank a revised bill of exchange drawn at 120 days from B/L date on the ultimate buyer and stating "documents to be delivered only after effecting the payment of (amount) to us and after obtaining the acceptance of this bill of exchange".

21. 3 June - SWIFT MT799 from issuing bank to transferring bank (Respondent 1) stating it is advised by the applicant that applicant would accept the two sets of discrepant documents under following conditions: release of documents against payment of (amount) for issuing bank to close the files, and balance (amount) paid against acceptance with tenor 120 days (D/A 120 days). The message states holding documents at your disposal pending your instructions.

22. 3 June - SWIFT MT799 from transferring bank (Respondent 1) to presenting bank acknowledging receipt of draft from presenting bank and in accordance with request from the first beneficiary relaying a message from the issuing bank that the applicant would accept the discrepant documents against payment of (amount), issuing bank to close its files, balance of (amount) to be paid against applicant's acceptance with tenor 120 days (D/A 120 days), and request for agreement within three working days. Issuing bank notes that it continues to hold the documents at the disposal of the transferring bank pending its instructions.

23. 3 June - Revised draft drawn by Initiator (second beneficiary) at 120 days from date of bill of lading, drawn on applicant.

24. 4 June - SWIFT MT799 from presenting bank to transferring bank (Respondent 1) stating as per the request of the beneficiary (Initiator) the transferring bank is "authorized to release the documents to the applicant under payment of (amount) and against acceptance of Bill of Exchange for (amount) with tenor 120 days from date of bill of lading (D/A 120 days fm the dt of B/L)".

25. 4 June - SWIFT MT799 from transferring bank (Respondent 1) to presenting bank advising that first beneficiary has agreed to the payment terms, and it has conveyed the presenting bank's message to the issuing bank.

26. 4 June - SWIFT MT799 From transferring bank (Respondent 1) to issuing bank relaying that "beneficiary agrees to the payment term that documents be released to applicant against immediate payment of (amount) and applicant's acceptance of a draft drawn at 120 days from B/L date, due 4 Aug for balance payment of (amount). Once we receive the revised draft we will courier to you immediately. Please urgently confirm payment by return SWIFT."

27. 4 June - letter from presenting bank to transferring bank (Respondent 1) enclosing a bill of exchange drawn 120 days B/L date.

28. 7 June - Remittance letter from transferring bank (Respondent 1) to issuing bank transmitting the 120 day B/L date draft, subject to URC 522.

29. 7 June - SWIFT MT799 from presenting bank to transferring bank (Respondent 1) stating in continuation of their MT 799 of 4 June the beneficiary has requested it to reiterate release of the documents is authorized only upon fulfilling two conditions: payment of (amount) and acceptance of B/E for (amount) tenor 120 days date of D/L drawn on the applicant. Please note the beneficiary (Initiator) has accepted the payment terms set out in your message dated 3 June.

30. 9 June - SWIFT MT202 payments of reduced amounts.

31. 16 June - SWIFT MT799 from transferring bank (Respondent 1) to presenting bank stating that it has not received applicants acceptance of the draft (amount) at 120 days B/L date, and advising that as instructed by the transferor (first beneficiary) the transferring bank's charges are for account of the transferee (second beneficiary - Initiator) and giving details of the charges.

32. 16 June - Message from issuing bank to transferring bank that the documents for (amount) on collection basis (D/A 120 days) have been accepted by the applicant and fall due on 4 August. The issuing bank has released the documents accordingly and closed its files.

33. 24 June - SWIFT MT799 from transferring bank to presenting bank relaying message from the issuing bank that the draft for (amount) on collection basis (D/A 120 days from B/L date) has been accepted by the applicant and is due 4 August and documents have been released accordingly. Transferring bank asks presenting bank if it has other collection instructions such as charges, if any, to please advise us accordingly.

34. 6 August - SWIFT MT799 from presenting bank to transferring bank stating it does not appear to have received the proceeds from the accepted draft that was to mature 4 August.

35. 10 August - SWIFT MT799 from transferring bank to presenting bank relaying message it is informed by issuing bank that the payment was not made by the drawee on the due date. Transferring bank will follow up with issuing bank and keep presenting bank advised.

36. 20 August - SWIFT MT799 from presenting bank to transferring bank requesting transferring bank to contact issuing bank for a copy of the accepted bill of exchange due 4 August to be faxed to presenting bank and stating it presumes issuing bank presented to drawee on the due date.

37. 30 August - SWIFT MT799 from transferring bank to presenting bank stating it sent copy of the accepted bill of exchange by courier, as it was not able to fax to the provided number and stating it has requested issuing bank to confirm whether it presented the bill of exchange to the drawee for payment on the due date.

38. 2 September - SWIFT MT799 from presenting bank to transferring bank requesting whether payment has been made by drawee and stating drawer (Initiator - second beneficiary) is not agreeable to any further extension of payment.

39. 2 September - letter from presenting bank to transferring bank stating the Initiator contends that the presenting bank and transferring bank had negotiated the documents "on clean and absolute terms" without raising any discrepancies, so much so that the negotiation has become absolute and claiming for the L/C balance.

40. 7 September - SWIFT MT799 from transferring bank to presenting bank responding to fax from presenting bank dated 2 September, stating transferring bank had no engagement nor undertaking and the L/C carried only the issuing bank's payment obligation to honour complying documents, and this information has been stated in the advice of L/C transfer together with explicit clause that payment would only be made upon transferring bank's receipt of same from L/C issuing bank.

41. Multiple additional SWIFT messages between presenting bank and transferring bank and issuing bank explaining their positions and responsibilities under the UCP 500.

42. 10 September - Copy of fax from presenting bank to transferring bank requesting payment, alleging various responsibilities to the transferring bank and requesting payment of the L/Cs less the payment already received, as the original bills under the L/C were payable at sight.

43. 23 May 2005 - Legal notice from Initiator's attorney to Respondents 1, 2 and 3.

44. 13 June 2005 - Response from Respondent 2 (transferring bank) attorneys to 23 May letter.

Summary of representations

- Initiator represents that payment is due from Respondent 1 due to its role as transferring bank.

- Respondent 1 represents that it acted properly in all instances and points to the language of the transferred credits.

- Respondent 2 represents that it acted properly as its obligation is to honour complying documents, and the documents presented to it were discrepant. It further represents that it acted in accordance with UCP 500.

- Respondent 3 says that it negotiated documents under the credits issued by Respondent 2 as transferred by Respondent 1, and it gave clear instructions to Respondent 1 to release the documents only after receipt of the entire payment.

Determination of the issues

From the documents presented by the Initiator, Respondent 1 and Respondent 2, it appears clear that the Initiator (beneficiary of the transferred credits) knowingly presented discrepant documents to Respondent 3.

Respondent 3 sent the documents to Respondent 1 (transferring bank) with a covering schedule that used both "collection" terminology and also referenced the letters of credit numbers and stated "This collection is subject to UCPDC 1993, Revision, ICC Publication No.500." This document does not state that the documents have been negotiated.

Respondent 1 substituted the documents in accordance with the terms and conditions of the transferred credits and sent the documents (incorporating the substituted documents) to Respondent 2 (issuing bank).

Respondent 2 (issuing bank) advised discrepancies in the documents within the time permitted by UCP 500. From the SWIFT messages submitted it appears there were discrepancies on the documents presented by the Initiator (second beneficiary); for example, there were differences between the bill of lading numbers on the certificate of weight and Draft Survey Report issued by SGS and those on the invoice and bills of lading, as well as a difference in weight on the SGS certificate and other documents.

From the documents submitted for DOCDEX review, and especially from a SWIFT message from Respondent 3 addressed to Respondent 1 dated 29 May, it is clear the Initiator (second beneficiary) and the first beneficiary had agreed with the applicant to a reduction in the price of the goods AND a change in the terms of payment from sight letters of credit to a partial payment at sight and acceptance of a bill of exchange drawn on the applicant at 120 days from the bill of lading date. Further communications clearly demonstrate the documents were to be released to the applicant against partial payment and his acceptance of the bill of exchange drawn on him.

No document has been submitted that shows Respondent 2 (issuing bank) or Respondent 1 (transferring bank) has agreed to become responsible for the honour of the bill of exchange at maturity.

Regretfully it appears the bill of exchange was not honoured at maturity.

Decisions on the issues

Respondent 1 transferred the letters of credit within the parameters of UCP 500 and clearly stated in the advice of transfer:

1. Although the issuing bank's credit was available with any bank by negotiation, Respondent 1 made no commitment to negotiate and stated payment would only be made upon Respondent 1's receipt of payment from Respondent 2, the issuing bank.

2. The advice of transfer conveyed no obligation on the part of the transferring bank, Respondent 1.

Respondent 1 received documents from Respondent 3, substituted the documents of the first beneficiary and presented them to the issuing bank, Respondent 2. Respondent 1 then acted in the role of a message relay point between Respondent 2 and Respondent 3.

3. Respondent 2 examined the documents, determined they did not comply with the terms and conditions of the credit and gave proper notice of discrepancies and disposition of documents as required by UCP 500.

Respondent 3 received documents from the Initiator (second beneficiary) and transmitted them to Respondent 1.

The Initiator, first beneficiary and applicant altered the terms of payment to a reduced amount, permitting the documents to be released to the applicant against a partial payment and applicant's acceptance of a bill of exchange drawn D/A 120 days bill of lading date, drawn on the applicant, as clearly demonstrated by documents described above (numbered 10 and 20-26), with particular reference to documents 10 and 24.

Conclusion

In order to benefit from the irrevocable undertaking of a letter of credit issued subject to UCP 500, a beneficiary must present documents that conform to the terms and conditions of the letter of credit. In this case, the Initiator (second beneficiary) failed to meet its responsibilities under the letter of credit by presenting discrepant documents to Respondent 3, who presented the documents to Respondent 1. Respondent 1 substituted documents supplied by the first beneficiary and sent the complete set to Respondent 2. Respondent 2 properly refused the documents.

The actions of the Initiator, first beneficiary and applicant removed the transaction from an irrevocable letter of credit payment mechanism and moved the documents from the letter of credit through a "Private Agreement" executed between the Initiator (second beneficiary), the first beneficiary, the applicant and the ultimate buyer of the goods, and converted the presentation from a letter of credit presentation into documentary collection.

While the Respondents relayed messages between the Initiator, first beneficiary and applicant, no document has been presented to this Panel that demonstrates any undertaking or responsibility of the banks under the new payment terms. Transmission of these messages does not obligate the banks to honour either discrepant letter of credit documents or the dishonoured documentary collection bill of exchange.

Respondents 1, 2, 3 appear to have acted properly. In the matter of fees, it appears from the documents presented to the Panel that Respondents 1 and 2 are clearly entitled to their fees. We are unable to comment on the fees of Respondent 3 based on the documentation presented to the panel.

The decision is unanimous.