Parties

Initiator: Bank T

Respondent: Bank P

Background

1. The Initiator issued two letters of credit (the "L/Cs") of US$830,000 (+/- 5%) for the purchase of 500 MT (+/- 5%) Secondary Aluminium Alloy Ingot ADC12 (the "goods") under each L/C. Both L/Cs were subject to UCP 500 and were available by negotiation with any bank.

2. The two L/Cs both required, among others, "[F]ull set of clean on board bills of lading made out to order of shipper and blank endorsed marked freight prepaid notify as per undermentioned". Drawings made under the two L/Cs are summarized as follows:

3. The beneficiary made the 1st drawing of US$244,639.18 through Bank J, and the Initiator honoured the relevant drawing. Bank J stipulated in its covering letter that it had duly endorsed the negotiated amount on the reverse of the original credit so Bank P should have had notice of the 1st drawing when Bank P negotiated the documents presented under the 2nd drawing.

4. Upon presentation of documents under the 2nd to 5th drawings, the Initiator refused all of the four drawings based on the following grounds:

An additional discrepancy was claimed with respect to the 5th drawing, namely: "Seal No. of container No. FCIU123456 of lot No. 789-2-231 inconsistent with the others in Assay Cert." This discrepancy, however, was duly corrected and replacement documents were presented. There is no indication in the application for a DOCDEX Decision that the replacement documents were refused; therefore this matter is not dealt with in this Decision.

Initiator's claim

The Initiator claims that all the 2nd, 3rd, 4th and 5th drawings were discrepant due to the discrepancies listed in Section 4 above, and the Initiator was therefore entitled to refuse all such drawings under L/C # 1 and L/C #2.

Respondent's Answer

1. The Respondent disagrees that the 2nd to 5th drawings were discrepant with respect to discrepancies stated in the notices of refusal sent by the Initiator and outlined above.

2. Moreover, the Respondent contends that the fact that the original bill of lading presented through Bank J under the 1st drawing shows "Non-Negotiable" and consigned "To the order of shipper" constitutes an apparent defect or inconsistency which is a sufficient ground for claiming that such bill of lading was a forged document and that the Initiator was in breach of its duty in examining the shipping documents when such defect was overlooked by the Initiator.

Issues and Decision

1. Can the Initiator refuse the 2nd drawing due to L/C overdrawn and over-shipment? (Discrepancies 1 & 2)

The Panel of Experts holds the view that after the Initiator honoured the 1st drawing of US$244,639.18 presented by Bank J, the maximum available L/C amount was reduced from US$871,500 to US$626,860.82 (covering 352.627 MT of the goods). Accordingly, the Initiator was entitled to refuse the 2nd drawing of US$750,789.78 (covering 452.283 MT of the goods) that exceeded the remaining L/C amount and quantity of the goods by US$123,928.96 and 99.656 MT respectively. The issue whether the bill of lading presented under the 1st drawing amounted to L/C fraud will be addressed in the last section of this Decision.

2. Can the Initiator refuse the 3rd drawing due to L/C overdrawn and over-shipment? (Discrepancies 1 & 2)

Once the 2nd drawing was refused by the Initiator, the remaining L/C amount was US$626,860.82 (covering 352.627 MT of the goods), which was more than enough to honour the 3rd drawing of US$108,019.52 (covering 65.072 MT of the goods). It follows that the Initiator was not entitled to refuse the 3rd drawing on the ground of L/C overdrawn or over-shipment. The other discrepancies alleged by the Initiator under the 2nd to 5th drawings will be examined below.

3. Are the following discrepancies alleged by the Initiator considered to be valid grounds of refusal?

Discrepancy 3 - vessel name on B/L inconsistent with invoice and packing list

The B/L shows the vessel name as "H-A MANILA 542S". The invoice and packing list show vessel name as "H-A MANILA V-542S"

There is no inconsistency between the relevant documents. The vessel name and voyage number are duly shown. The missing of the letter "V" meaning "voyage" does not render the documents discrepant.

Discrepancy 4 - L/C issue date on invoice and packing list differ

Both the invoice and the packing list show the L/C date as "Sep. 02, 2005". Accordingly, there is no inconsistency and the alleged discrepancy is invalid. If the Initiator intended to say that the L/C issue date on the invoice and the packing list differ from that of L/C #1, the wording of the alleged discrepancy failed to express such meaning.

Discrepancy 5 - Weight unit of B/L differ from other documents

The B/Ls show the quantity of goods in KG. Other presented documents show the quantity of goods in MT. As the corresponding quantity of the goods stipulated in the relevant documents is exactly the same, the alleged discrepancy on the difference in weight unit adopted (i.e., KG and MT) is wholly unfounded and groundless.

Discrepancy 6 - On board notation not signed

Although the relevant bills of lading provide a box for a signature next to the on board date, there is no requirement in UCP 500 that an on board notation must be signed unless the L/C provides otherwise. As neither L/C# 1 nor L/C# 2 has such a signature requirement, the absence of a signature adjacent to the on board notation is not a discrepancy. ICC Opinion R 341 refers to this point.

Discrepancy 7 - Goods description not according to UCP 500 sub-article 37(c)

The alleged discrepancy is neither specific, clear nor unequivocal. It fails to specify the exact documents for which the goods description was not in line with sub-article 37(c), nor does it describe how such goods description was not in line with sub-article 37(c). Accordingly, this is not considered to be a valid ground for refusal.

Moreover, the invoices appear to satisfy the requirement of sub-article 37(c) to show the description of goods that "corresponds with the description in the Credit". Other documents also appear to contain a goods description that is in accordance with sub-article 37(c) in being "not inconsistent with the description of the goods in the Credit".

Discrepancy 8 - One of packing list not signed

The L/C called for "Packing list in 2". Since neither UCP 500 nor L/C #2 requires the packing lists to be signed, this is not a valid ground for refusal.

Discrepancy 9 - Although B/L showing container no. "TTNU2345678" other documents indicate "TTNU2335678"

The presented invoice, packing list and assay certificate all show the following information:

Given the fact that the seal numbers and the quantity of the goods shown in all the relevant documents are identical, it is clear that the alleged discrepancy is a typing error and is therefore not a valid ground for refusal.

4. L/C fraud allegation

The Respondent contends that the fact that the original bill of lading presented through Bank J under the 1st drawing showing "Non-Negotiable" and consigned "To the order of shipper" this constitutes an apparent defect or inconsistency which was sufficient ground for claiming that such bill of lading was a forged document in that the Initiator was in breach of its duty in examining the shipping documents by overlooking the defect. An English translation of an extract of a judgment delivered by the Korean First Instance Court was attached to the Respondent's Answer.

The view of the Panel of Experts can be summarized as follows:

a. UCP 500 only prescribes how a bill of lading is to be signed or authenticated and the information required to be shown on it. There are no UCP articles that address the title of goods nor the negotiability or the endorsement of a bill of lading. The negotiability and endorsement issues are usually provided in the terms of an L/C. L/C # 1 states: "Full set of clean on board bills of lading made out to order of shipper and blank endorsed marked freight prepaid notify as per undermentioned". Strictly speaking, whether the holder of such bill of lading can take delivery of the goods from the carrier relates to the carriage contract between the carrier and the holder of the bill of lading. The question is outside of the UCP provisions. However, one of the terms stipulated on the face of the bill of lading shows: "One of the original Bills of Lading must be surrendered duly endorsed in exchange for the Goods or Delivery Order."

b. As the L/C does not expressly require a "negotiable" bill of lading and a bank is only obligated to examine the document on its face in accordance with the terms and conditions of the L/C, the Panel of Experts holds the view that the wording, "Non-Negotiable" shown at the upper right hand corner of the bill of lading and the phrase, "Buyer/Consignee To order of shipper" shown at the upper left-hand corner of the bill of lading do not amount to a notice of fraud to the Initiator.

c. The Panel of Experts notes with interest the findings of the court in Country K, but does not consider that it can take any account of the court's findings for the purpose of this DOCDEX Decision. The DOCDEX process is not designed to deal with allegations of fraud, and such issues are to be dealt with in a national court or other appropriate tribunal. In any event, for the purpose of its decision and as explained above, the Panel of Experts does not accept that the matters alleged to constitute fraud are capable of amounting to fraud.

Conclusion

1. There is no notice of fraud to the Initiator so far as the 1st drawing is concerned. Accordingly, the Initiator was entitled to honour the 1st drawing and reduce the maximum available L/C amount of L/C#1 accordingly.

2. Following the honour of the 1st drawing, the Initiator was entitled to refuse the 2nd drawing on the grounds of overdrawing and over-shipment.

3. Following the refusal of the 2nd drawing, there was no overdrawing or over-shipment in respect of the 3rd drawing, and the other discrepancies alleged by the Initiator were not valid grounds for refusal. Accordingly, the Initiator was obligated to honour the 3rd drawing.

4. The discrepancies alleged by the Initiator under the 4th and 5th drawings were not valid grounds for refusal. Accordingly, the Initiator was obligated to honour the 4th and 5th drawings under L/C#2.

The above is a unanimous decision of the appointed Panel of Experts.