Parties

Initiator: Company T

Respondents

1. Bank C (second advising bank)

2. Bank N (advising and confirming bank)

3. Bank A (issuing bank)

Statement

Only Respondent 1 above filed an answer in accordance with article 3 of the DOCDEX Rules. This expertise is made accordingly. Upon the request of the ICC Centre for Expertise, the Initiator submitted a set of supplementary documents pursuant to sub-article 4.2 of the DOCDEX Rules.

Background and transaction

• Documentary credit subject to UCP 500, issued on 14 December 2006

• Issuing bank: Respondent 3

• Advising and confirming bank: Respondent 2

• Second advising bank: Respondent 1

• Availability: by negotiation at 75 days after B/L date.

• Partial shipment: allowed

• Transhipment: not allowed

• Amount: EUR 324,500.00 +/- 10 pct

• Place and date of expiry: the place of Respondent (2) on 12 March 07

• Form: irrevocable

• Confirmation: confirmed by Respondent (2).

• Documents required (SWIFT MT710, field 46A) (among others):

"1. FULL SET CLEAN ON BOARD BILL OF LADING MADE OUT TO THE ORDER OF [Respondent (3)] EVIDENCING FREIGHT PREPAID AND APPLICANT SHOULD BE NOTIFIED.

4. CERTIFICATE OF DIRECT CONSIGNMENT ISSUED BY THE COUNTRY S CUSTOMS INDICATING THAT THE GOODS FOR WHITE WOOD ARE OF NATIONAL ORIGIN OF AUSTRIA FOR PICH PINE U.S.A. AND FOR MAHOGANY WEST AFRICA AND SHOULD BE AUTHENTICATED BY THE CHAMBER OF COMMERCE IN COUNTRY S AND CERTIFIED BY THE COUNTRY L CONSULATE OR ANY ARAB CONSULATE. (Last 4 words added by an amendment).

7. DECLARATION ISSUED AND DULY SIGNED BY THE MASTER OF THE VESSEL OR ITS OWNER OR BY HIS AUTHORIZED AGENT EVIDENCING THE COMMODITY SHIPPED ON VESSEL ALLOWED TO CALL AT ANY PORT IN COUNTRY L."

Issues

• On 19 December 2006, the credit was advised to the Initiator through the second advising bank.

• On 19 January 2007, the Initiator made a partial shipment of the goods.

• On 23 January 2007, the issuing bank issued a marine guarantee in favour of the shipping company in order to allow the shipping company to deliver the goods to the applicant without surrendering the original B/L.

• On 2 February 2007, the Initiator sent the documents for presentation to the confirming bank through the second advising bank.

• On 9 February 2007, the second advising bank informed the Initiator that it had received from the confirming bank a refusal of the documents listing two discrepancies and that the confirming bank held the documents at the disposal of the presenter.

• On 13 February 2007, the shipping company informed the Initiator that the goods were to be delivered to the consignee under a valid delivery order due to the bank guarantee of the issuing bank.

On 28 February 2007, the second advising bank sent a message to the Initiator asking its agreement to send the following message to the confirming bank: "With reference to our documentary remittance dated 2 Feb. 2007 and your advice of refusal by MT734 on 2 Feb., we ask you to kindly transmit the following message to the issuing bank: 'We (second advising bank) understand from beneficiaries that the goods covered by this first partial drawing under your L/C have been delivered to applicants as per marine bank guarantee n. ... dated 23.01.2007 what [sic] means that you are now liable to effect payment immediately. As the 3/3 original B/L are still at our disposal at the counters of confirming bank - pending receipt of your authority to accept the documents despite the discrepancies noted and to negotiate the documents without reserves - please take note that we have instructed (the confirming bank) to remit the original documents including 3/3 original B/L to you only after receipt of your advice of acceptance of the documents as stated above. May we ask you to kindly confirm to us by return message SWIFT having transmitted the a.m. message to the issuing bank. Furthermore also confirm that you are still holding the documents at our exclusive disposal.'"

The Initiator states that the message, as above, was sent to the confirming bank. On 19 March 2007, the Initiator was informed by the second advising bank that the confirming bank had returned the documents unpaid. In the meantime, several messages were exchanged concerning a supposed violation of international rules and contract terms on one side and a supposed non- conformity of the goods to the quality agreed on the other side.

Statement

As per articles 1 and 7.2 of the ICC DOCDEX rules, this expertise relates only to documentary credits incorporating UCP, and therefore this decision is exclusively rendered on the basis of the Request, Answer(s) and supplement(s) thereto. This Panel is not concerned with nor competent to respond to, any issues concerning the quality of goods.

Analysis

The discrepancies raised by the confirming bank in its refusal of the presentation made by the Initiator, through the second advising bank, are as follows:

1. "DECLARATION REQUIRED UNDER ITEM 7 IS NOT ISSUED AND SIGNED AS PER L/C TERMS." 2. "CERTIFICATE OF DIRECT CONSIGNMENT SHOWS TWO DIFFERENT NAME [sic] OF MEANS OF TRANSPORT THEN THESE DOCUMENTS ARE NOT IN ACCORDANCE WITH B/L' AS PER ART. 13A OF UCP 500 OF ICC REV 93."

2. As far as the first discrepancy is concerned, it is to be noted that the credit specified two different requests in item 7 of field 46A. The first was that the declaration had to be "issued ... evidencing the commodity shipped on a vessel allowed to call at any Country L port", but the document presented states that "the commodity shipped on the above-mentioned vessel is allowed to call at any Country L port".

The second was that the declaration was to be "signed by the master of the vessel or its owner or by his authorized agent". The document presented is signed by a self-stated agent ("Company E" identified as "shipping agents"), but there is no indication that it is the agent of the owner of the vessel.

The Panel holds that this discrepancy is valid.

2. As far as the second discrepancy is concerned, the Panel notes that two certificates of direct consignment were presented. One certificate shows a quantity of goods which is strictly consistent with the quantity of the goods shown on the relevant B/L (two sets of full B/Ls were presented). It shows that goods were unloaded from one vessel (M/V VESSEL A) on 6 December 2006 and loaded on another vessel on 19 January 2007 (M/V VESSEL K - the vessel as per the B/L. The B/L shows the date of issuance and shipment being also 19 January 2007). This is again consistent.

The second certificate shows a quantity of goods which is strictly consistent with the quantity of the goods shown on the relevant B/L. It shows that goods were unloaded from one vessel (M/V VESSEL H) on 31 October 2006 and loaded on another vessel on 19 January 2007 (M/V VESSEL K - the vessel as per the B/L. The B/L shows a date of issuance and shipment being also 19 January 2007). This is again consistent.

The information regarding the pre-shipment details on the certificates of direct consignments are irrelevant for the purposes of examining documents in this particular case and, even if they were relevant, there is no inconsistency between their data and the related data on the B/Ls in question. The certificates of direct consignments were issued by the customs administration of Country S apparently relating to the situation existing before and/or on the time of shipment of the goods. The mention of the name of the vessel on which the goods arrived at the port from which the shipment covered by the L/C took place does not make the certificates discrepant.

For the above reason the Panel holds that the second discrepancy is not valid.

3. Due to the validity of the first discrepancy, the confirming bank acted correctly, in accordance with the requirements of article 14 of UCP 500, by refusing the documents and sending a refusal message to the presenter (second advising bank) within a reasonable time not exceeding seven banking days following the day of receipt of the documents as set forth in sub-article 13(a) of UCP 500. The second advising bank stated that it sent the documents to the confirming bank on 2 February 2007 and routed to the Initiator the refusal message received from the confirming bank on 9 February 2007.

4. As far as the relationship between the Initiator and the issuing bank is concerned, this Panel would like to point out that in this case, the issuing bank, which had requested in its credit that the B/L be issued to its order, acted in such a way as to allow its applicant to take possession of the goods, pending the receipt of the relevant documents under the credit. This was achieved by issuing a guarantee in favour of the shipping company, which enabled the delivery of the goods to the applicant, and guaranteeing the shipping company in the event that the original B/L - that had not yet arrived to the bank - was presented to the same shipping company by an eligible third party (good faith holder).

As a consequence, the issuing bank became liable for payment under the credit - regardless of any discrepancy found on the documents presented - because, by so issuing the guarantee, the issuing bank allowed the underlying transaction to reach its aim independent of the documentary process. Indeed it was the same issuing bank, on whose order the goods were shipped, whose actions allowed the applicant to take delivery of the goods without surrendering an original B/L. Therefore, the relevant documents lost any commercial significance or value.

The ordinary sequence of events expected by the Initiator, and according to international standard banking practice, was that the issuing bank would allow the shipping company to release the goods to the applicant (in this case by endorsing the B/L and delivering it to him) only if the documents presented were found to be in full compliance; consequently, the issuing bank was bound to honour its payment undertaking (in this case 75 days after the B/L date).

If the issuing bank had received the documents - even if they were non-compliant - it must honour its payment undertaking because, for the reasons stated above, it had nullified the documentary process. Under these circumstances, the non-compliance of the documents was not a valid reason for refusal.

The documents presented for this expertise indicate that the Initiator never gave instructions to the confirming bank - through the second advising bank acting as agent of the Initiator - to send the non-compliant documents to the issuing bank on an approval basis. Instead, the Initiator agreed with the second advising bank to keep the documents at the counters of the confirming bank, awaiting the authorization of the issuing bank "to accept the documents despite the discrepancies noted" which, apparently, was never given. As the issuing bank was not bound to give such authorization, it was bound to accept the documents and honour its undertaking by virtue of the issuance of the guarantee.

There is no evidence that the issuing bank acted in a manner to honour its obligation at the request of the confirming bank. Bearing in mind that the presentation of documents to the issuing bank would only have the residual purpose of allowing the issuing bank to ascertain that the transport documents related to the shipping guarantee had been issued, the issuing bank must then act accordingly by informing the confirming bank and thereafter the Initiator of its position. No such action appears to have been completed.

While it appears from the documents presented for this expertise, that the transport documents returned to the Initiator are not negotiable copies of the original B/L, the Panel underlines that the Initiator has the right to have returned to it the full set of the originals, as the credit was not paid.

Therefore the Initiator is eligible to claim the goods from the shipping company by surrendering the original B/L. Of course, because the goods were already delivered, the shipping company is bound to pay the exchange value of the goods and, in turn, will claim under the guarantee issued by the issuing bank.

The Panel wishes to make clear that, since no specific provision on the above issue 4 is present in UCP 500, the Panel's relevant expertise is rendered after considering an analysis of the relationships existing in documentary credit operations issued under UCP 500 and international standard banking practice under documentary credits.

The Panel is not competent to enquire whether or not the banks or their customers acted in good faith.

5. As far as the second advising bank's role is concerned, the Panel notes that this falls under UCP 500 article 7, which excludes any engagement on its part. In this case, while the credit was available at the counters of the confirming bank, it is inferred that the advising bank acted as presenter in the name and for the account of the Initiator, who bears the responsibility of any instruction.

Conclusion

The Panel holds that

• Due to the presence of the first valid discrepancy commented above under "Analysis" of no. 1, the confirming bank had no obligation to negotiate;

• According to international standard banking practice and based on the handling of documentary credits issued under UCP 500, the issuing bank is liable to the Initiator for the amount of the drawing, even if it had received non-compliant documents,due to the fact that it acted in such a way so as to allow the applicant totake possession of goodsconsigned to the order of the issuing bank.

Statement of the Chair

This is a unanimous Decision.