Parties

Initiator: Bank FB (Confirming and Negotiating Bank in Country B)

Respondent: Bank FCB (Issuing Bank in Country T)

Background

The Initiator advised an irrevocable documentary letter of credit (L/C) issued by the Respondent (L/C issuing bank) and added its confirmation thereto. TheL/Cwas available with any bank by negotiation at sight and confirmation instructions said "MAY ADD".

The Initiator negotiated documents presented under the L/C and sought reimbursement at sight, as the documents were found to be in compliance with the terms and conditions of the L/C.

The Respondent refused to take up the documents by sending a timely SWIFT MT 734, stating the following alleged discrepancies:

- Draft not dated

- Inv. shown beneficiary's address as '1/A' not as perL/C.

Issues to be determined

Is the Respondent correct in refusing the documents due to the following alleged discrepancies:

- Draft not dated?

- Inv. shows beneficiary’s address as ‘1/A’ not as per L/C?

Analysis of the issues

Discrepancy I. (Draft not dated)

UCP 500 is silent as to the format of a draft.

ISBP Paragraph 13 states: "Drafts, transport documents and insurance documents must be dated even if a credit does not expressly so require."

In our view, the date of a draft is only required in specific circumstances for determining the maturity date of the draft, e.g., if drawn "at sixty days date". This would never be the case for a draft drawn "at sight".

ICC has responded to a number of enquiries relating to the creation of a draft. In the unpublished Official Opinion TA 531, the ICC Commission on Banking Technique and Practice concluded: "The draft was drawn on the confirming bank at sight. This draft acts as the formal claim mechanism from the beneficiary to the drawee and as such would merely be placed in the file of the confirming bank with other correspondence. For a sight draft there would be no need for an endorsement by the beneficiary."

We need to make a clear distinction between drafts drawn on a bank involved in the handling of the documentary credit or the reimbursing bank and one drawn on the applicant.

A draft drawn on a bank must be considered an instrument solely requested by the issuing bank as a settlement instrument and to represent a formal claim by the beneficiary, i.e., an instrument that has not been called for by the applicant and that is therefore of no concern to it (even though it may appear on a pre-printed application form of the issuing bank).

In any event, a draft drawn on the applicant would be considered an additional document [UCP 500 sub-Article 9(a)(iv)] and would be examined in accordance with the provisions of Article 21 of UCP 500.

In ICC Opinion R.256, the ICC Commission on Banking Technique and Practice concluded that even the absence of a physical acceptance does not reduce the obligations of the issuing bank to pay [sic at maturity].

The draft required by the issuing bank under this documentary credit is sought solely for the purposes of being the formal claim, by the beneficiary, against the drawee. The obligation to pay against complying documents presented under the documentary credit according to sub-Article 9(a)(iv) of UCP 500 clearly exists. Even if the issuance date, which is not required to calculate a maturity date of the draft, is missing, the issuing bank is obligated to reimburse the confirming bank for its payment.

The Respondent indicates in his "Answer" that the Initiator requested them by SWIFT to add the date of 01.08.05 as the issuance date of the draft, which would be later than the latest presentation date (23.07.05). This statement is incorrect, as the Initiator asked for the insertion of the invoice date (21.06.05). Among banks it is standard practice to accommodate a correspondent bank with such a request, despite the fact that in this case the date is not needed for any further actions, as it is with a sight draft.

The Respondent indicates in his "Answer" that the Initiator is in no position to request payment on 22 and 28.07.05:

a) as the draft is made out to order of the beneficiary and endorsed by it in blank;

b) as it made payment to the beneficiary on 04.08.05.

Both these statements are incorrect. As long as the credit does not stipulate the form of the endorsement(s) required, the draft may be endorsed in any manner. The Initiator negotiated the documents on 22.07.05; it has given value for 04.08.05 and is thus entitled to be reimbursed.

Based on the analysis above, the experts came to the conclusion that the Respondent is incorrect in refusing to take up the documents based on the alleged Discrepancy I.

Discrepancy II. (Inv. shows beneficiary's address as 1/A not as per L/C)

The documentary credit, issued by a SWIFT message type MT700, showed the address of the beneficiary as follows:

59:DININNI PIOMBINO SPA
VIA FIORE, I/A
25128 Anatolia, ITALY
STABILIMENTO DI PIOMBINO

Whereas, the invoice presented shows the beneficiary's name and address as follows:

DININNIPIOMBINO
DiNinni Piombino S.p.A.
25128 Anatolia – Italia
Via Fiore, 1/a

The difference between "I" and "1" results from the use of different fonts (type faces) in printing the L/C and the invoice. Furthermore, it is a fact that one can write the number "1" in many different accepted ways. In certain countries, it is the letter "I" which is used instead of the number "1".

There is no discrepancy.

Other issues

1. The refusal notice of the Respondent indicates: "We'll refer the discr to applicant for consideration. Unless we receive your prior instructions to the contrary, docs will be released without further notice when they are paid/accepted."

Such a refusal notice is not in accordance with the requirements of UCP 500 sub-Article 14(d)(ii), which requires a statement that the documents are held at the disposal of, or being returned to, the presenter.

This was, however, not questioned by the Initiator.

2. The Respondent refers, in its submission [page 5 (5)] that the draft was made out to order of the beneficiary and endorsed by it in blank instead of having been made out to the order of the Initiator. UCP 500 is silent as to the format for any endorsement of drafts. A draft made out in the format described is in a negotiable form. An issuing bank cannot dictate a form of endorsement required or expected unless it forms part of the credit terms. Furthermore, it cannot be raised as a discrepancy subsequent to the original listing of claimed discrepancies.

Decision

Based on the analysis of the issues, the experts conclude that both alleged discrepancies pointed out by the Respondent are invalid and that the Respondent should reimburse the Initiator with good value.

This decision is unanimous.