Parties

Initiator: Company T

Respondent: Company K (export insurance corporation)

Background and transaction

1. On 21 December 2005, Bank H (the "issuing bank"), issued an irrevocable documentary credit (the "credit") subject to UCP 500, expiring on 5 February 2006 in Country S. The credit was available with any bank by (sight) negotiation and transferable only by the advising bank (Bank U in Country S), in which case negotiation was restricted to the transferring bank.

2. On 30 December 2005, Bank U transferred the credit through Bank K (acting as advising bank of the transferred credit) to Company X Ltd, in Country K (the "second beneficiary"). Upon transfer, the expiry date and place were changed to 25 January 2006 at Bank U in Country S, and the presentation period was shortened from 21 days to ten days. The transferred credit was available with Bank U by (sight) negotiation.

3. On 18 January 2006, Company X presented documents through Bank Y in Country K. Bank U indicated that the first beneficiary did not substitute its invoice and draft and returned the presented documents, indicating that they should be presented directly to Bank H.

4. Under a letter bearing the original presentation date of 18 January 2006, Bank Y made a presentation (the "first presentation") to Bank H. The presentation was received by Bank H on 1 February 2006. On 3 February 2006, Bank H refused the presentation, due to discrepancies listed in the notice of refusal.

5. Under a letter bearing the original presentation date of 18 January 2006, Bank Y made a new presentation to Bank H. The presentation was received by Bank H on 8 February 2006. On 8 February 2006, Bank H advised Bank Y that the credit had expired.

6. On 16 February 2006, Bank H informed Bank Y that it was served with a court injunction prohibiting it from making payment under the credit. The injunction was purportedly granted due to an alleged forgery of the SGS certificates presented under the transferred credit.

7. On 24 March 2006, Bank Y informed Bank H that it had "assigned the right to claim the payment" of the documents to the Respondent.

Issue(s)

The Initiator seeks a DOCDEX decision to decide:

• When and where did the transferred credit expire?

• Was the first presentation complying?

• Was Bank Y authorized to negotiate the transferred credit?

• Was the Respondent obligated to indemnify Bank Y?

• Was Bank H obligated to reimburse the Respondent, the assignee of the L/C proceeds?

Initiator's claim

In the Request dated 4 December 2007, the Initiator contends that:

1. the transferred credit expired on 25 January 2006 at the counters of Bank H. Accordingly, presentations made after that date were untimely and should be refused. The Initiator also asserts that the second beneficiary and its assignees are bound by the terms stated in the transferred credit;

2. the refusal of the first presentation was justified by the discrepancies listed by Bank H;

3. Bank Y was not a nominated bank. Accordingly, the Initiator contends that it is not entitled to reimbursement absent authorization to negotiate the credit;

4. Bank H has no obligation to reimburse the Respondent because (i) both the first and the second presentations were discrepant and, as the Initiator contends, made after the expiry of the transferred credit, and (ii) the Respondent cannot claim more than what its assignor, Bank Y, would have been entitled to.

Respondent's reply

In a letter dated 26 December 2007 addressed to the ICC International Centre for Expertise, the Respondent declined to take part in the DOCDEX proceedings.

Documents submitted by the parties

Documents submitted by the Initiator (all of which are copies):

(i) credit and amendment No 1;

(ii) advice of the transferred credit, which is dated 20051230;

(iii) Advice of amendment No 1 of the transferred credit;

(iv) presentation letter accompanying the documents sent by Bank Y to Bank U;

(v) SWIFT MT799 from Bank U to Bank Y, indicating the return of the documents and requesting to send them directly to Bank H;

(vi) SWIFT MT799 from Bank Y to Bank H indicating that documents have been returned by Bank U and are then resent directly to Bank H;

(vii) presentation letter accompanying the documents sent by Bank Y to Bank H. The dates of sending and receipt were not clearly defined, but can be inferred from the SWIFT message advising the same;

(viii) SWIFT MT 734 by Bank H to Bank Y, refusing the discrepant presentation. Copies of the presented documents were attached;

(ix) SWIFT MT 799 from Bank H to Bank Y indicating that the applicant did not accept the discrepancies and that the documents are returned;

(x) SWIFT MT 799 from Bank Y to Bank H advising it of its presentation of a new set of documents and claiming payment;

(xi) new presentation of the documents by Bank Y to Bank H. The dates cannot be determined, but can be inferred from the SWIFT message advising the same;

(xii) Swift MT 799 from Bank H to Bank Y advising that the presentation is considered as a late presentation and that the credit has expired. The message specified that the documents should not be resent;

(xiii) SWIFT MT 799 from Bank Y to Bank H contesting the refusal of the documents on the basis that the expiry date should be considered as extended as per sub-article 44(a) of UCP 500, since the initial expiry date was a Sunday. Note that the expiry date claimed by Bank Y is the one stated in the original credit and not the expiry date of the transferred credit;

(xiv) (date manually added on document) - SWIFY MT 799 from Bank H to Bank Y informing it of the court injunction;

(xv) statement by SGS Country K that it had not issued the certificates. Attached also is a notarial certificate dated 20060605, indicating that related SGS certificates are untrue, not authentic and forged;

(xvi) SWIFT MT 799 from Bank Y to Bank H with an indication of the assignment to Company K;

(xvii) e-mail from Company K to Bank H asking for payment;

(xviii) Copies of legal authorities.

No documents were submitted by the Respondent

Analysis

UCP 500 Article 48 - Transferable credit, provides:

"a. A transferable Credit is a credit under which the Beneficiary (First Beneficiary) may request the bank authorised to pay, incur a deferred payment undertaking, accept or negotiate (the "Transferring Bank"), or in the case of a freely negotiable Credit, the bank specifically authorised in the Credit as a Transferring Bank, to make the Credit available in whole or in part to one or more other Beneficiary(ies) (Second Beneficiary(ies)).

b. A Credit can be transferred only if it is expressly designated as "transferable" by the Issuing Bank. Terms such as "divisible", "fractionable", "assignable", and "transmissible" do not render the Credit transferable. If such terms are used they shall be disregarded.

c. The Transferring Bank shall be under no obligation to effect such transfer except to the extent and in the manner expressly consented to by such bank.

d. At the time of making a request for transfer and prior to transfer of the Credit, the First Beneficiary must irrevocably instruct the Transferring Bank whether or not he retains the right to refuse to allow the Transferring Bank to advise amendments to the Second Beneficiary(ies). If the Transferring Bank consents to the transfer under these conditions, it must, at the time of transfer, advise the Second Beneficiary(ies) of the First Beneficiary's instructions regarding amendments.

e. If a Credit is transferred to more than one Second Beneficiary(ies), refusal of an amendment by one or more Second Beneficiary(ies) does not invalidate the acceptance(s) by the other Second Beneficiary(ies) with respect to whom the Credit will be amended accordingly. With respect to the Second Beneficiary(ies) who rejected the amendment, the Credit will remain unamended.

f. Transferring Bank charges in respect of transfers including commissions, fees, costs or expenses are payable by the First Beneficiary, unless otherwise agreed. If the Transferring Bank agrees to transfer the Credit it shall be under no obligation to effect the transfer until such charges are paid.

g. Unless otherwise stated in the Credit, a transferable Credit can be transferred once only. Consequently, the Credit cannot be transferred at the request of the Second Beneficiary to any subsequent Third Beneficiary. For the purpose of this Article, a retransfer to the First Beneficiary does not constitute a prohibited transfer. Fractions of a transferable Credit (not exceeding in the aggregate the amount of the Credit) can be transferred separately, provided partial shipments/drawings are not prohibited, and the aggregate of such transfers will be considered as constituting only one transfer of the Credit.

h. The Credit can be transferred only on the terms and conditions specified in the original Credit, with the exception of:

- the amount of the Credit,

- any unit price stated therein,

- the expiry date,

- the last date for presentation of documents in accordance with Article 43,

- the period for shipment,

any or all of which may be reduced or curtailed.

The percentage for which insurance cover must be effected may be increased in such a way as to provide the amount of cover stipulated in the original Credit, or these Articles.

In addition, the name of the First Beneficiary can be substituted for that of the Applicant, but if the name of the Applicant is specifically required by the original Credit to appear in any document(s) other than the invoice, such requirement must be fulfilled.

i. The First Beneficiary has the right to substitute his own invoice(s) (and Draft(s)) for those of the Second Beneficiary(ies), for amounts not in excess of the original amount stipulated in the Credit and for the original unit prices if stipulated in the Credit, and upon such substitution of invoice(s) (and Draft(s)) the First Beneficiary can draw under the Credit for the difference, if any, between his invoice(s) and the Second Beneficiary's(ies') invoice(s).

When a Credit has been transferred and the First Beneficiary is to supply his own invoice(s) (and Draft(s)) in exchange for the Second Beneficiary's(ies') invoice(s) (and Draft(s)) but fails to do so on first demand, the Transferring Bank has the right to deliver to the Issuing Bank the documents received under the transferred Credit, including the Second Beneficiary's(ies') invoice(s) (and Draft(s)) without further responsibility to the First Beneficiary.

j. The First Beneficiary may request that payment or negotiation be effected to the Second Beneficiary(ies) at the place to which the Credit has been transferred up to and including the expiry date of the Credit, unless the original Credit expressly states that it may not be made available for payment or negotiation at a place other than that stipulated in the Credit. This is without prejudice to the First Beneficiary's right to substitute subsequently his own invoice(s) (and Draft(s)) for those of the Second Beneficiary(ies) and to claim any difference due to him."

ICC's DOCDEX Rules (as revised on 15 March 2002) Article 1 provide:

"These Rules concern a service called Documentary Instruments Dispute Resolution Expertise (DOCDEX) which 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, be it the UCP, ( ... ) (ICC Rules)."

1. When and where did the transferred credit expire?

The originally issued credit states that it shall expire on 6 February 2005 in Country S. The transferred credit is stated to expire on 25 January 2006 in Country S. This change to the terms of the original credit, upon transfer, is authorized by UCP 500 sub-article 48(h). The second beneficiary can only avail itself of the terms of the transferred credit, which it did when presenting the documents through Bank Y.

Accordingly, the DOCDEX Panel is of the Opinion that only the terms of the transferred credit are effective visà vis the second beneficiary.

2. Was the first presentation complying?

Bank Y presented the documents to Bank H under a covering schedule dated 18 January 2006. The documents were received by Bank H on 1 February 2006. On 3 February 2006, Bank H refused the documents and listed in the notice of refusal the following discrepancies:

(i) the vessel name and voyage number shown on the invoice and the packing list were different from those shown on the bill of lading;

(ii) the port of shipment shown on the invoice and the packing list was different from that shown on the bill of lading;

(iii) the quality certificate and the quantity certificate showed an inspection date later than the shipment date, a buyer name different from that shown on other documents and a difference in the packing conditions;

(iv) there was a discrepant labeling on the accompanying draft.

The DOCDEX Panel agrees with the discrepancies listed above. Any of these discrepancies, when timely notified (which the issuing bank did), suffices to refuse the presentation. In addition, the Panel considers that late presentation is also a valid reason for refusal, albeit not asserted by the issuing bank, which was not a party to the transfer. As indicated in our finding under paragraph (1) of the above Analysis, the transferred credit expired on 25 January 2006. A presentation made on behalf of the second beneficiary is necessarily made under the transferred credit, albeit to the issuing bank, of the original credit. When occurring on 1 February 2006, that presentation should be considered as being untimely and therefore be refused.

Allegations of fraud are outside the scope of the terms of reference given to DOCDEX Panels and, as such, should be disregarded. The Panel notes, however, that fraud, even if it were to be established, would have no bearing on the finding above, as the presentation was bound to be refused anyway on the ground of discrepancies.

The Panel also notes in passing that the presenting bank did not change the presentation date (18 January 2006) on the covering schedule when presenting the documents to Bank H. This is so although the presentation occurred necessarily after an earlier presentation, bearing the same date, was made to Bank U, and the subsequent advice by the latter that the documents ought to be presented directly to Bank H.

3. Was Bank Y authorized to negotiate the transferred credit?

The transferred credit restricted its negotiation to the transferring bank, Bank U in Country S. Bank Y was not a nominated bank and had no authorization to negotiate under the credit. When presenting the documents under the transferred credit, first to Bank U, then to Bank H, Bank Y has simply acted on behalf of the second beneficiary - Company X. Any payment it might have disbursed to the second beneficiary is a facility outside of and separate from the credit, not a negotiation under the credit.

4. Was the Respondent obligated to indemnify Bank Y?

Article 1 of the DOCDEX Rules limits the terms of reference of DOCDEX Panels to providing a decision on a dispute relating to a documentary credit on the basis of the terms and conditions of that credit and the UCP. A DOCDEX Panel is not empowered to adjudicate disputes under an agreement of the type entered into between the Respondent and Bank Y, as that agreement is outside the credit and not governed by the UCP.

5. Was Bank H obligated to reimburse the Respondent, the assignee of the L/C proceeds?

The Respondent, acting as assignee of the proceeds of the credit, had no more rights than the assignor, Bank Y, which the DOCDEX Panel, assumes in the absence of corroborating documents, acted itself as an assignee of the rights of the second beneficiary to the proceeds of the transferred credit. As indicated in paragraphs (1) and (2) of the above Analysis, the DOCDEX Panel has found the presentation to be discrepant and made after the expiry of the transferred credit. Accordingly, neither the second beneficiary nor its assignees are entitled to the payment of the proceeds of the transferred credit.

Conclusion

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

1. The transferred credit expired on 25 January 2006 in Country S.

2. The first presentation was discrepant. Accordingly, it did not comply with the terms of the credit and was rightly refused.

3. Bank Y had no authorization to negotiate under the credit. Accordingly, the issuing bank has no obligation to reimburse it under the UCP.

4. The DOCDEX Panel is not empowered to adjudicate disputes under an agreement of the type entered into between the Respondent and Bank Y, as that agreement is outside the credit and not governed by the UCP.

5. The issuing bank had no obligation to make any payment or reimbursement under the credit, either to the second beneficiary or to its assignee, as no conforming presentation was made under the transferred credit before its expiry.