Parties

Initiator Bank C

Respondent Bank N

Background and transaction

- Documentary credit subject to UCP 500 (SWIFT MT 700)

- Issuing bank: Respondent

- Advising bank: Initiator

- Availability: by payment with Respondent

- Place and date of expiry: the place of the Initiator on 29 June 2006

- Form: irrevocable, transferable

- Confirmation: without

- Documents required (SWIFT MT700, field 46A) (among others):

"3. CARGO RECEIPT, SHOWING LOCAL DELIVERY WITHIN HONG KONG.

4. COPY OF SHIPPING PRE-ADVICE, WHICH HAS BEEN GIVEN TO [APPLICANT], VIA L/C OPENING BANK LATEST SEVEN DAYS BEFORE CARGO RECEIPT DATE."

Issue(s)

1. On 2 June 2006, the Initiator forwarded documents with a document remittance on the same date containing, among others, the cargo receipt (dated 1 June 2006) and the copy of the shipping pre-advice (dated 24 May 2006). The documents were received by the Respondent on 6 June 2006. On 8 June 2006, the Respondent refused the documents with the following reason stated in its SWIFT message MT734: "SHIPPING ADVICE WAS NOT SENT TO US 7 DAYS BEFORE DATE OF CARGO RECEIPT". After some reminders exchanged between both the banks, the unpaid documents were returned to the Initiator on 1 August 2006.

2. On 11 August 2006, the Initiator sent back documents to the Respondent and disputed, for the first time, the discrepancy raised by the Respondent by stating that:

- the shipping pre-advice fell under the provision of UCP 500 article 21, as the request in the credit did not specify its content;

- as per UCP 500 article 15, banks do not assume any liability for the failure, on the part of the beneficiary, of not having sent the pre-advice to the applicant seven days before the cargo receipt date;

- the shipping pre-advice fell under the provision of UCP 500 sub-article 13(c), because the request in the credit did not specify how the condition "which has been given to [applicant] via L/C opening Bank latest seven days before cargo receipt date" was to be shown in the document.

3. On 28 August 2006, the Respondent replied, in its turn, to the reasons given by the Initiator by stating that:

- it was clear that the shipping pre-advice had to contain a confirmation/evidence "showing that it has been delivered seven days before cargo receipt date to [applicant], via [Respondent] as L/C opening bank";

- given the late answer of the Initiator, the documents were not acceptable;

- UCP 500 article 21 was not applicable, because the L/C named the document and specified its content " ... that it has been given to [applicant] via [Respondent] latest 7 days before cargo receipt date".;

- as a consequence both article 15 and sub-article 13(c) were not applicable;

- the same document had been requested in several L/Cs issued in the past in favour of the same customer with exactly the same content expressed in the same wording: "If such requirements/wordings were not acceptable to you, you would have refused such requirements/wording already in the past."

4. On 4, 11, 19 and 21 September 2006, the parties exchanged other SWIFT messages confirming their own positions on the issue at hand. The documents remain unpaid. The Initiator mentioned DOCDEX Decision No. 232 in ICC Publication No. 665 as a case supporting its reasons.

Initiator's claim

The Initiator holds that the reasons for which the Respondent rejected documents ("Shipping advice was not sent to us 7 days before date of cargo receipt") were groundless. The document requested by the L/C: "Copy of shipping pre-advice which has been given to [applicant] via L/C opening bank latest seven days before cargo receipt date" did not state how the condition "which has been given to [applicant] via L/C opening bank latest seven days before cargo receipt date" was to be shown; therefore, that condition could be disregarded as per UCP 500 sub-article 13(c). Moreover, also UCP article 21 applied, because the document requested was not a transport document and the said condition was not stated as a content to be shown in the document, but as an action to be taken with no indication as to how this action was to be shown. Therefore, the document had to be accepted "as presented". The discrepancy was not valid, the documents are to be considered as complying with the terms and conditions of the credit and the Respondent had to fulfil its own obligation and pay the amount of the credit.

Respondent's reply

The Respondent holds that the condition "which has been given to [applicant] via L/C opening bank latest seven days before cargo receipt date" meant clearly that the shipping pre-advice had to bear a confirmation/evidence "showing that it has been delivered seven days before cargo receipt date to [applicant] via [Respondent] as L/C opening bank". Therefore, there was no room for the application of UCP sub-article 13(c) and/or article 21. Moreover DOCDEX Decision No. 232 in ICC Publication No. 665 supported its position. The discrepancy was validly stated and documents were lawfully not paid.

Documents submitted by the parties

Documents submitted by the Initiator

A letter dated 23 October 2006 addressed to the ICC, Paris requesting a DOCDEX Decision gave a summary of the dispute with 19 enclosures as follows:

Documents submitted by the Respondent

A letter dated 16 November 2006 gave the Respondent's answer and a summary of the dispute with 16 enclosures as follows:

Analysis

1. The credit requires presentation of: "COPY OF SHIPPING PRE-ADVICE, WHICH HAS BEEN GIVEN TO [APPLICANT], VIA L/C OPENING BANK LATEST SEVEN DAYS BEFORE CARGO RECEIPT DATE". The presentation was rejected on 20 June 06 by SWIFT MT 734 with the reason: "SHIPPING ADVICE WAS NOT SENT TO US 7 DAYS BEFORE DATE OF CARGO RECEIPT". As a point of reference, the "Shipping Pre-Advice" presented was dated 24 May 06 and referred to a "Delivery Date: June 1, 2006". This data was supported by the simultaneously presented "Cargo Receipt", appearing to be issued by the applicant dated 1 June 06 and confirming that the delivery date was also 1 June 2006.

The document called for by the L/C can first be usefully examined in detail, as it falls into four parts:

- "Copy of Shipping Pre-Advice ... ". This is not a document specifically covered by UCP 500 and thus falls under the aegis of article 21 in case the conditions for its applicability do occur.

- " ... which has been given to [applicant] ... ". The L/C provides no information on how the pre-advice is to be "given" or what documentary evidence the beneficiary is to present besides the mere copy of the document itself, to show that the document has been given or whether the word "given" is to be taken to mean "sent" or "received".

- " ... via l/c opening bank ....". As with the second point above, there is no instruction given as to the mechanism or the nature of the evidence required.

- "latest seven days before Cargo Receipt date." It is unclear as to whether this means the issuing date of the document called "Cargo Receipt" or the date when the cargo was actually received, which is not necessarily the same thing.

2. In connection with the remarks above, the Panel underlines that the issuing bank has disregarded sub-article 5(a) of UCP 500, which states that "instructions for the issuance of a Credit, the Credit itself ... must be complete and precise." These instructions are lacking in differentiating delivery versus transmission and evidence of delivery of the document (whatever "given" and "via L/C opening bank" might mean). It is not up to the beneficiary and the advising bank to determine what evidence is needed and to come up with something for a presentation under the credit in order to meet what "given" and "via" means in a way that coincides with what the issuing bank thinks it means.

The penalty for failure on this point is defined in UCP 500 sub-article 13(c), stating: "If a Credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them." There is no literal and specific indication of how the condition "has been given to [applicant], via L/C opening bank "... " is to be ascertained, and therefore the beneficiary (and the advising bank) correctly applied UCP 500 sub-article 13(c) disregarding that condition.

3. Furthermore, UCP 500 article 21 states that "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 ... ". In this case, the wording and the data content of the requested "copy of shipping pre-advice" were not stated, because the condition " ... which has been given to [applicant] via L/C opening bank ... " does not mean that the original of the pre-advice had to be sent to the applicant via the L/C opening bank and that a specific statement to that effect had to appear in the shipping pre-advice in order to certify this event.

The issuing bank wrongly assumes to have meant that all of these statements should appear in the document when sending its message of rejection of documents (item no. 4 of the Initiator's documentation where it is stated: "Shipping advice was not sent to us 7 days before ... ", and more clearly in its SWIFT message to the Respondent dated 28 August 2006 (item no. 14 of the Initiator's documentation where it is stated in point no. 1: "As a consequence in order to fulfil the requirements, a confirmation/evidence within the copy of the shipping pre-advice itself is required showing that it has been delivered in due time - seven days before cargo receipt date at the latest - to [applicant] via [Respondent] as L/C opening bank". The difference between what is worded in the credit and what the Respondent intended to be done by the beneficiary is also clear in the Respondent's Answer - Summary of the dispute, Sections 2 and 12a. Therefore, it is clear that the condition worded in the credit has nothing to do with what the issuing bank had in mind in terms of fulfilment of the correct presentation of the shipping pre-advice.

4. In addition, the wording of the rejection message demonstrates that the issuing bank meant something that was not stated in the credit. It seems that the meaning of the word "given" was (for the Respondent) to be interpreted as "sent". The Respondent also stated that the problem was that the pre-advice was not "sent" to it seven days before the date of the cargo receipt. But the L/C required that the advice be given (apparently "sent" in the Respondent's interpretation) to the applicant via the Respondent (which is not necessarily the same as "given" to the applicant via the Respondent). Moreover, the L/C did not say that the advice had to be sent "7 days before" (as stated in the rejection message), but "latest seven days before". It is possible to argue that the original intention was to give instructions in the L/C to the effect that the beneficiary had to transmit the information (the "Shipping Pre-Advice") in some form or another (the L/C is silent) to the Respondent and then to somehow ensure that the Respondent in turn delivered it to the applicant at least seven days prior to the cargo receipt. Facing this conflict between the wording of the condition stated in the required documents section of the credit and the wording in the documents' rejection message, the Panel concludes that this credit on this point is vague, and the ambiguous instructions and the ensuing conflict is proof of this. For the reasons above, this Panel holds that UCP 500 article 21 applies, and therefore that the presentation of the shipping pre-advice in question is to be considered complying with the terms and conditions of the credit.

5. In the summary of the dispute, at point 12-f), the Respondent states: "L/Cs in the same form as the one in dispute - with exactly the same wording regarding the documentation requirements - had been issued several times in the past in favour of the Initiator's customer and so far the Initiator as advising bank has never opposed to such requirements and the wording thereof. If such requirement/wording had not been acceptable to the Initiator or the beneficiary each of them should have refused such requirements/wording beforehand."

This statement is groundless and misleading. The fact that in the past the Initiator never reacted to the unclear wording used by the Respondent for the condition in hand, and that probably the beneficiary presented documents in line with the implicit and not expressed intention of the Respondent, does not affect the responsibility of the issuing bank, which has to bear the consequences of an L/C issued with vague and ambiguous conditions. The beneficiary retains the right to fully apply UCP 500 to any subsequent L/C, while the previous L/Cs, even if "interpreted" in their conditions, did not create a precedent binding the beneficiary. It is outside the competence of this Panel to state whether or not the beneficiary, in this last case, acted in good faith. In any event, the UCP 500 have been applied correctly.

Concerning this point, the Panel wishes to underline that the professional behaviour of banks requires that they react when incomplete or unclear instructions are received, as per UCP 500 article 12. However, according to the wording of this article, the action of requiring the necessary information from the issuing bank is not an obligation but a mere possibility. Concerning this matter, the Panel points out that the Initiator did not act in a professional manner when it received the ambiguous wording concerning the presentation of the shipping pre-advice and decided not to ask for the necessary information.

The fact that the Initiator opposed the discrepancy raised by the Respondent two months after the documents' rejection message does not detract from the Initiator's right to have a lawful claim (see "Summary of the Respondent's refusal of the alleged Initiator's claim"). There is no expiry date to apply one's rights, even if a late claim may clearly lead to difficulties. This Panel agrees that the Initiator did not act in an appropriate and professional manner.

7. DOCDEX Decision no. 232 in ICC Publication no. 665 has no relation to this case (. One of the issues that Decision relates to is whether or not an understandable discrepancy raised by the issuing bank is still valid if the latter answers the nominated bank's request of clarification later than the seventh banking day after it received documents (see point 16 of Analysis and decision section of Decision 232). This is not the case at hand, because the Initiator never requested clarification of the Respondent.

Conclusion

With reference to the reasons above, the Panel holds that:

- the document presented, named "Copy of shipping pre-advice", complies with terms and conditions of the credit;

- the discrepancy raised by the Respondent is groundless;

- the Respondent has to pay the amount of the credit.

Statement of the Chair

The Decision in DOCDEX case no. 263 is unanimous.