Parties

Initiator: Bank H

Respondent: Bank U

Background and transaction

The Respondent has issued an irrevocable documentary credit (the "credit"), incorporating UCP 500, using the Initiator as advising bank. The credit calls for a number of documents, including the following:

- weight certificate issued by any first class independent surveyor,

- beneficiary's telex/fax to the applicant advising shipment details, and

- inspection certificate.

The credit was designated as transferable, available with any bank in Country C by negotiation. The credit was later amended by the Respondent to allow for its confirmation by the Initiator. The credit was transferred, but the transfer has no implication on the dispute between the Initiator and the Respondent.

The beneficiary presented to the Initiator the required documents in three sets, respectively for USD 171,782, USD 66,064 and USD 72,652. The Initiator examined the documents, decided that the first and the second sets were compliant and negotiated the same. Conversely, the Initiator rejected the third set as discrepant. The discrepancies identified in the third set are outside the scope of this dispute. The Initiator transmitted all three sets to the Respondent, including the discrepant set which was forwarded in trust.

The Respondent, having received all three sets of documents, sent three separate rejection notices to the Initiator raising the following discrepancies:

- weight certificate not issued by first class independent surveyor, container number/seal number does not tally with those mentioned in bill of lading;

- alteration in the telefax message addressed to credit opener is not authenticated;

- the signature on the inspection certificate is not genuine.

On 23 November 2004, the Initiator received a copy of an injunction order from the applicant's legal counsel. The injunction was granted by the court in Country S restraining the first beneficiary from receiving payment of any monies under the credit on the account of alleged fraud.

Issue(s)

The Initiator seeks a DOCDEX decision in respect of the following issues:

- the validity of the discrepancies raised by the issuing bank as to the first and the second set of presented documents in rejecting the reimbursement claim by the confirming bank;

- the cessation, if any, of the confirming bank's duty to negotiate the documents without recourse;

- the validity of the rejection notices by the issuing bank;

- the impact of the negotiation by the confirming bank five days after transmitting the documents to the issuing bank on the reimbursement claim.

Initiator's claim

The Initiator rejects the discrepancies identified in the Respondent's rejection notices and further contends that the Respondent's rejection notices were late and their wording was in breach of the UCP. The Initiator therefore claims that it is entitled to be reimbursed by the Respondent for the first and the second negotiated sets. The Initiator also contends that the injunction has no impact on its earlier negotiation of the documents.

Respondent's reply

In neither its answer nor its subsequent answer to the Initiator's reply does the Respondent discuss the discrepancies it had outlined in its rejection notices or the validity of such notices as challenged in the request. The Respondent's argument centres on the Initiator's alleged awareness that the documents were forged or invalid at the time of the negotiation or at the time of transmission of the documents to the Respondent.

Documents submitted by the parties

Documents submitted by the Initiator

- Initiator's Request dated 4 January 2006, received by ICC on 9 January 2006;

- Initiator's Answer dated 27 January 2006 to the Respondent's answer, received by ICC on 30 January 2006;

- copy of documentary credit and three amendments;

- copy of confirmation;

- copy of invoice, B/L, inspection certificate, weighting certificate (all x 2);

- rejection notices (x 3);

- copy of beneficiary's presenting schedules and payment advices (x 2);

- copy of package tracking result (x 2);

- copies of various SWIFTS exchanged regarding discrepancies and ICC Opinions;

- copy of Bank H affidavit 16th January 2006 and appendices.

Documents submitted by the Respondent

- Respondent's Answer dated 20 January 2006, received by ICC on 23 January 2006;

- Respondent's Answer to the reply dated 6 February 2006, received by ICC on the same date;

- copy of Writ of Summons (7 November 2004) and Defence (9 December 2005);

- Order of Court (22 November 2004) plus sworn affidavit and copies of shipping documents and ICC Opinion.

Analysis

The jurisdiction of the DOCDEX Panel of Experts

In its Request and its answer to the Respondent's reply, the Initiator has requested the Panel of Experts to determine a number of issues relating to its reimbursement claim vis-à-vis the Respondent, without considering the fraud allegation made by the Respondent. In its Answer, the Respondent has informed the Panel of court proceedings, currently pending, where the Respondent is contending that the Initiator was aware of the fraud made by the beneficiary of the credit at the time the Initiator presented the documents to the Respondent or when it negotiated the two sets of documents. The Respondent has therefore requested that the Panel not determine any of the issues raised in the Request pending the outcome of the proceedings.

Article 1.1 of ICC DOCDEX Rules provides in relevant parts: "DOCDEX (...) is available in connection with any dispute related to: A documentary credit incorporating the ICC Uniform Customs and Practice for Documentary Credits (UCP and the application of the UCP (...). Its objective is to provide an independent, impartial and prompt expert decision (DOCDEX Decision) on how the dispute should be resolved on the basis of the terms and conditions of the documentary credit (...) and the applicable ICC Rules (...)."

While the conformity of the documents presented under the credit and the reimbursement of the confirming bank are within the scope of the DOCDEX Rules, fraud is not. The Panel is of the opinion that it would exceed its mandate under the DOCDEX Rules if it were to ascertain the existence of fraud, its timeliness or assess its implications on the right of the confirming bank to seek reimbursement from the issuing bank under the credit.

The Panel considers that a confirming bank has the right to be reimbursed by the issuing bank if it has provided value under the documentary credit against the presentation of conforming documents. An exception to the above is where fraud is established before payment or negotiation is made under the credit. It is up to the competent court or arbitral tribunal to decide whether such a fraud is timely established. The Panel therefore asserts its jurisdiction within its mandate as conferred by the DOCDEX Rules and herein makes its decision as to the conformity of the documents and the reimbursement claim.

The conformity of the documents taken up by the confirming bank

In rejecting the first and the second sets of documents, the issuing bank has raised four discrepancies. The Panel deals with each of them in turn.

Absence of seal numbers in the weight certificates or inconsistency with the seal numbers mentioned in the bill of lading

The Panel notes that the credit did not require that the weight certificates indicate the seal numbers. UCP 500 article 21 provides that if banks require certain information to appear on documents they must so specify in the credit. While indeed the seal numbers may not be identical on the certificates and the bill of lading, this cannot amount to an inconsistency. On the basis of UCP article 21 and ICC Opinions TA 548 of 7 January 2004 and TA 595 of 20 July 2005, the Panel finds that there is no discrepancy.

The weight certificates are not issued by a first class independent surveyor

The Panel notes that the weight certificates appear on their face to have been issued by the shipping company therein named as independent surveyor and not by the beneficiary. The Panel finds that the weight certificates are in conformity with the terms of the credit and UCP sub-article 20(a). There is no discrepancy.

Signature on the inspection certificate not genuine

The Panel notes that the inspection certificate appears on its face to be in conformity with the terms and conditions of the credit. UCP 500 article 15 indicates that banks assume no liability for the falsification of documents. There is no discrepancy.

Alteration on beneficiary's fax not duly authenticated

The Initiator rightly points out ISBP 645 paragraph 10, which states that alterations of the type raised by the Respondent need not be authenticated. There is no discrepancy.

The duty of the confirming bank to negotiate the documents without recourse

In its notice of rejection of the third set of documents, the confirming bank indicated to the beneficiary that its confirmation has ceased. The issuing bank contends that, in doing so, the confirming bank has revoked its confirmation and therefore is not entitled to reimbursement.

The Panel considers that it is not open to the confirming bank to unilaterally revoke its confirmation. Whether the indication of the cessation of its confirmation is to be taken as applying to all three sets of documents or only to the third set, such a cessation does not affect the issuing bank's obligation to pay under their credit, is not effective and is no reason under the UCP for the issuing bank to reject the reimbursement claim.

The validity of the rejection notices by the issuing bank

After having taken up the first and the second set of documents, the confirming bank transmitted them to the issuing bank and claimed reimbursement. The confirming bank agreed with the beneficiary to transmit the third set as well, but only on an approval basis, that is without claiming reimbursement thereof, as the confirming bank made no payment under that set. This third set shall therefore not be referred to any more in this decision. The documents show that the issuing bank received the sets of documents on 8 November 2004, but only issued the notices of rejection on 22 November 2004. This makes the rejection untimely according to UCP sub-article 14(d)(i).

The belatedness of the rejection notices, by itself, bars the issuing bank from asserting any discrepancy to refuse the reimbursement of the confirming bank. Nonetheless, the Panel notes other deficiencies in the notices of rejection as well. While the notices indicate that the rejected documents are held at the disposal of the confirming bank, they also indicate that should the documents be acceptable to the applicant, the issuing bank will transmit them to the applicant. This, in effect, counters the prior assertion that the documents are held at the disposal of the confirming bank and breaches UCP sub-article 14(d)(i). Again, this deficiency bars the issuing bank from asserting any discrepancies. The indication in the rejection notices that the potential release of the documents is subject to any instructions to the contrary of the confirming bank does not cure its deficiency as regards UCP sub-article 14(d)(i). Further, the rejection notices do not include wording indicating that the issuing bank "rejects" the documents. They only indicate that the "discrepancies are not acceptable". This contradicts the strict formalism required in UCP sub-article 14(d)(i) and the ICC Banking Commission Recommendation on Discrepant Documents, Waiver and Notice (Document 470/952rev2 dated 9 April 2002).

The Panel of Experts wishes to stress that the authorities cited in the Request, regardless of their relevance, are outside normal DOCDEX proceedings, which require that the decision be made on the basis of the terms and conditions of the documentary credit and the UCP (DOCDEX Rules, Article 1.1).

The negotiation by the confirming bank five days after transmitting the documents to the issuing bank.

Although the Respondent appears to have raised this issue only in the Answer, the Panel of Experts decided to address it for sake of clarity.

UCP sub-article 10(d) provides that by allowing for negotiation by any bank, the issuing bank authorizes such bank to negotiate against documents which appear on their face to be in compliance with the terms and conditions of the credit, and undertakes to reimburse such bank in accordance with the UCP. The requirement for reimbursement is therefore twofold: (i) that negotiation be made (ii) against conforming documents. Regardless of the reasons, the making of payment five days after the transmittal of the documents to the issuing bank does not limit the reimbursement undertaking.

Conclusion

The Panel of Experts unanimously makes the following Decision under the ICC DOCDEX Rules:

1. The Panel is not empowered to take a decision on the alleged fraud or its implications on the right of the confirming bank to seek reimbursement from the issuing bank. Conversely, the Panel is empowered to decide on the conformity of the documents transmitted by the confirming bank to the issuing bank and the right of the confirming bank to seek reimbursement for payments made under the credit.

2. The first and the second sets of documents taken up by the Initiator and transmitted to the Respondent are in conformity with the terms and conditions of the credit and the UCP.

3. Whether or not the confirming bank is to be taken as having revoked its confirmation is, by itself, no reason for the issuing bank to refuse the reimbursement claim.

4. The rejection notices of the first and the second set of documents are untimely and breach UCP sub-article 14(d)(i). As such, the issuing bank is precluded from denying reimbursement to the confirming bank on the basis of any discrepancy listed in the defective notices.

5. The rejection of the first and the second set of documents by the issuing bank is therefore wrongful, and the issuing bank has the duty to reimburse the confirming bank for payments made under those two sets. The ICC DOCDEX Rules do not empower the Panel of Experts to decide on whether late payment interest is due.