Parties

Initiator: Bank F (confirming bank)

Respondent: Bank S (issuing bank)

Summary of representations

Based on a review of the documents and the representations of the Initiator and Respondent:

1. The issuing bank issued a standby letter of credit subject to UCP 500 which was amended three times.Two amendments were accepted by the beneficiary, one rejected.

2. Complying documents were presented to the confirming bank within the terms and conditions of the credit.

3. Following instructions in the credit, the confirming bank notified the issuing bank of complying documents and sent the same to the issuer.The credit required payment to be valued five days forward.

4. The issuing bank notified the applicant of the receipt of the demand.

5. The applicant obtained a court injunction prohibiting the issuing bank from paying the beneficiary.

6. The confirming bank paid the beneficiary under the terms of the credit and its confirmation.

7. The issuing bank has not reimbursed the confirming bank.

8. The applicant and the beneficiary appear to be involved in arbitration.

9. Many questions were raised by Initiator and Respondent of a legal nature which are not appropriate for DOCDEX comment and are therefore not addressed in this Decision.

Summary of issues and responses

1. What is the function of a standby letter of credit? Is it only appropriate in a default situation? Do banks deal solely with documents and not with the goods to which the documents may relate?

Response:All letters of credit are documentary in nature - i.e., compliance is determined by a review of the documents (article 4, UCP 500).Standby letters of credit may be used in a wide variety of transactions as agreed upon by the applicant and beneficiary and are not limited to default situations. Banks deal with documents, not with goods or services.

2. Was the letter of credit effectively amended to extend the expiry to 25.02.2005 as per the accepted amendment of16.02.2004, notwithstanding the refusal of the subsequent accepted amendment dated 17.02.2004?

Response:The issuing bank amended the credit three times. The issuing bank attempted to "recall"the amendment issued on 16 February 2004.This is not permitted by sub-article 9(d)(ii) of UCP 500. Two amendments were accepted, one was rejected. The credit was extended to 25.02.2005.

3. What is the liability of the issuing bank toward the confirming bank? Has the issuing bank an independent undertaking to reimburse the nominated and confirming bank? Is this undertaking independent from its obligation towards the beneficiary?

Response: sub-article 10(d) of UCP 500 is clear that the issuer is obligated to a nominated bank which acts within the scope of its nomination. The obligation to reimburse a nominated bank, acting within the scope of its nomination, is separate from the issuing bank's obligation to the beneficiary.

4. What is the obligation of the issuing bank under a "sight" letter of credit, available at the counters of the confirming bank by payment, requiring the confirming bank to advise the issuing bank "by tested telex/authenticated SWIFT of claims for payment received, certifying that all terms and conditions of the credit have been complied with and that the requested documents have been sent to us (issuing bank) in one air mail by special courier, your above mentioned telex/SWIFT must mention invoice date and number as well as bill of lading date and number. Upon receipt of said telex/SWIFT advice for claims of payment we shall cover you by telex/SWIFT through your correspondent's value five working days from the date of your above mentioned telex/SWIFT advice"?

Response:A confirming bank receiving complying documents within the terms and conditions of the credit is obligated to honour its confirmation of the credit according to its terms. The inclusion of a value date for the receipt of reimbursement does not authorize the issuing bank to delay or defer its obligation to reimburse the confirming bank and does not permit the issuing bank to delay reimbursement pending receipt and examination of the documents.

5. Is stating a number of value days are to apply when paying a justified reason to postpone the actual sight payment?

Response: no

6. Has the confirming bank its own and independent undertaking to pay the beneficiary upon a compliant presentation?

Response: Yes. The obligation of the confirming bank concerning a credit available at its counters by sight payment is to honour the obligation contained in its confirmation of the credit. The obligation of the confirming bank to the beneficiary is absolute, separate from, yet parallel to, the obligation of the issuing bank.

7. What are the consequences of fraud?

Response: Fraud is not mentioned in UCP 500 and is a matter for the courts.

Conclusion

The Decision by the Panel is unanimous.