Parties

Initiator: Bank A

[Bank A in Country T (negotiating bank)]

Respondent 1: Bank B

[Bank B in Country U (advise through bank)]

Respondent 2: Bank C in Country S (issuing bank)]

Bank D in Country E (first advising bank)

Bank F in Country U (second advising bank)

Applicant: Company X in Country S

First beneficiary: Company Y in Country U

Second beneficiary: Company Z in Country T

Summary of representations

• On 26 November 2006, Bank C issued an irrevocable and transferable documentary credit (the "credit") in favor of Company Y. Bank C sent the credit to its correspondent Bank D via MT700 requesting that Bank D relay the credit to Bank B for advice to Company Y. On 29 November 2006, Bank D transmitted the credit, via MT710, to its correspondent Bank F which was located in Bank B's country and specifically requested Bank F to relay the credit to Bank B. Under field 57A of the MT700, Bank B was shown as the "ADVISE THROUGH BANK".

• The credit was issued subject to UCP 500 and was available with any bank by negotiation.

• Under field 78 of the MT700, the credit indicated the following information: "TRANSFERRING BANK IS THE ADVISING BANK, IF NEEDED." The credit called for the following documents:

- signed commercial invoice in English in triplicate;

- full set of air waybill made out to order of Bank C, marked "freight prepaid" and notify L/C applicant with full information of forwarder or shipping agent at destination, and mentioning the number of the credit;

- packing list certifying that merchandise shipped is strictly in accordance with pro forma invoice number.

• Under field 47A item 3 of the MT700, the credit indicated the following information: "OUR BANK RESERVES THE RIGHT TO FORWARD TRANSFEREE DOCUMENTS CONTAINING ANY DISCREPANCY(IES) ON APPROVAL BASIS TO THE ISSUING BANK WITHOUT NOTICE OR REFERRAL OF SUCH DISCREPPANCY(IES) [sic] TO THE TRANSFERER /REMITTING BANK UNLESS OTHERWISE REQUESTED BY THE TRANSFEREE/REMITTING BANK IN THEIR SCHEDULE LETTER."

• On 29 November 2006, Bank F advised the credit to Company Y without any engagement on its part.

• On 1 December 2006, Bank B effected a partial transfer of the credit to Company Z through its correspondent bank in country T and indicated in its MT720 the following information: "ALL DOCUMENTS AND DRAFTS MUST BE FORWARDED TO US (BANK B) IN ONE LOT. THERE WILL BE SUBSTITUTION OF DRAFTS AND INVOICE FROM THE FIRST BENEFICIARY. THIS LETTER OF CREDIT IS PAYABLE WITH THE ISSUING BANK. DOCUMENTS PRESENTED TO US WILL BE FORWARDED TO THEM (BANK C) AND PAYMENT WILL BE EFFECTED ONLY UPON RECEIPT OF GOOD FUNDS FROM THE ISSUING BANK. IF DOCUMENTS PRESENTED TO US WITH DISCREPANCIES, WE WILL SEND THEM TO THE ISSUING BANK FOR APPROVAL."

• On 26 December 2006, Bank A forwarded Company Z's documents to Bank B as per the terms of the transferred credit. Bank A's remittance letter indicated that it had negotiated drafts drawn by Company Z and attached the following documents:

- invoice 3

- AWB 1 + 1 copy

- packing/weight List 1

Bank A's remittance letter also certified that documents were in compliance with the terms and conditions of the credit.

• On 28 December 2006, Bank B received documents forwarded by Bank A and contacted Company Y for substitution of drafts and invoices.

• On 9 January 2007, and following substitution of documents, Bank B forwarded the following documents to Bank C for payment:

- draft 2

- invoice 3

- packing list 1

- AWB 1 + 1 copy

Bank B's remittance letter also indicated that the presentation was subject to UCP 500 and requested payment from Bank C.

• On 19 January 2007, Bank C sent an MT799 to Bank B through its correspondent Bank D with the following text: "PLS BE INFORMED THAT THE GOODS HAVE NOT ARRIVED TO HONG KONG. WE FIND OUT REASONS. WE HOLD DOCUMENTS AT YOUR RISKS AND DISPOSAL."

• On 20 January 2007, Bank C issued a letter to Bank B with the following text:"DOCUMENTS CAN NOT BE TAKEN UP DUE TO THE DISCREPANCIES MENTIONED HEREAFTER: INVOICE - NAME OF ISSUING BANK IS INCORRECT.PORT OF DISCHARGE/AIRPORT OF DESTINATION: HONG KONG IT IS NOT SPECIFIED IN DHL BILLS.WE HAVE RETURNED DOCUMENTS TO YOUR GOOD BANK ON THE BASIS OF ITEM 3 OF FIELD 47A.ALSO, PLS BE INFORMED THAT THE GOODS NOT DELIVERED. PLS CONTACT WITH US DIRECTLY CONCERNING OUR L/C. "

• On 9 March 2007, Bank B returned the documents received from Bank C to Bank A, advising Bank A that Bank C had refused to accept the discrepancies. On 10 April 2007, Bank B sent a SWIFT to Bank C through its correspondent stating the following: "THE ABOVE-MENTIONED DOCUMENTS WERE RETURNED TO US FOR THE REASON THAT APPLICANT DID NOT GET THE SHIPMENT. BUT THIS IS NOT A REASON OF DISCREPANCY. IN ACCORDANCE WITH UCP 500 ARTICLE 4 IN CREDIT OPERATIONS, ALL PARTIES CONCERNED DEAL WITH DOCUMENTS, AND NOT GOODS. YOU ARE OBLIGATED TO EFFECT PAYMENT IMMEDIATELY AND WE RESERVE THE RIGHT TO CLAIM INTEREST ARISING FROM ANY OF ITS DELAY."

• On 12 April 2007, Bank C re-sent the text of its letter dated January 20, 2007 to Bank B by SWIFT through Bank D.

Issues to be determined:

1. Did the credit authorize Bank B to be a transferring bank?

2. Did Bank B incur any liability in processing the presentation received from Bank A?

3. Did Bank C violate sub-article 14(d) of UCP 500?

4. Are the discrepancies raised by Bank C valid?

5. Does item 3 under field 47A of Bank C's credit exempt it from adhering to article 14 of UCP 500?

6. Are the documents presented by Company Z compliant with the terms of the transferred credit?

7. Is Bank C obligated to pay the drawing documents?

8. Does Bank A have a valid claim against Bank B or Bank C?

Determination of issues

Issue No. 1: Did the credit authorize Bank B to be a transferring bank?

Sub-article 48(a) of UCP 500 states as follows: "A transferable Credit is a Credit under which the Beneficiary (First Beneficiary) may request the bank authorized 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 authorized 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))."

Bank C issued an irrevocable transferable credit available with any bank by negotiation. Instead of naming the bank that was specifically authorized as a transferring bank, Bank C stated in the credit "Transferring Bank is the advising bank, if needed."

The SWIFT handbook defines an advising bank as the bank that has received the credit from the issuing bank. The SWIFT handbook defines field 57A as follows: "This field identifies the bank, if different from the receiver, through which the documentary credit is to be advised/confirmed to the beneficiary." The SWIFT handbook also defines Advising Bank under the Glossary of Terms section as "The bank requested to advise the documentary credit". Sub-article 7(a) of UCP 500 states "A Credit may be advised to a Beneficiary through another bank (the 'Advising Bank'").

Since Bank D is the bank that received the credit from Bank C, Bank D is the advising bank of the credit and is the only bank authorized to effect any transfer under the credit. Bank B was not authorized to effect any transfer under the credit.

Issue No. 2: Did Bank B incur any liability in processing the presentation received from Bank A?

Based on the conditions incorporated by Bank B in the transferred credit, namely: "THERE WILL BE SUBSTITUTION OF DRAFTS AND INVOICE FROM THE FIRST BENEFICIARY. THIS LETTER OF CREDIT IS PAYABLE WITH THE ISSUING BANK. DOCUMENTS PRESENTED TO US WILL BE FORWARDED TO THEM AND PAYMENT WILL BE EFFECTED ONLY UPON RECEIPT OF GOOD FUNDS FROM THE ISSUING BANK. IF DOCUMENTS PRESENTED TO US WITH DISCREPANCIES, WE WILL SEND THEM TO THE ISSUING BANK FOR APPROVAL", on 26 December 2006, Bank A forwarded Company Z's documents to Bank B for substitution of drafts and invoice by Company Y as per the terms of the transferred credit. Following substitution, Bank B forwarded documents to Bank C for payment on 9 January 2007. Given that 28 December 2006 was a Thursday and 1 January 2007 was a statutory holiday, the Panel of Experts concluded that Bank B handled the document substitution without unreasonable delay.

Bank A's claim that Bank B should have rejected Bank C's refusal of Bank B's presentation in the status of a nominated bank is unfounded, since Bank B had made it clear in the transferred credit that it would not assume the role of a nominated bank but would effect payment only upon receipt of funds from Bank C.

Issue No. 3: Did Bank C violate sub-article 14(d) of UCP 500?

Sub-article 14(d) states the following:

i. "If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.

ii. Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.

iii. The Issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank."

The MT799 issued by Bank C dated 19 January 2007 cannot be considered as a notice of refusal under sub-article 14(d) of UCP 500, because the message did not indicate the documents were refused and did not cite any discrepancies. With respect to the letter issued by Bank C to Bank B, dated 20 January 2007, the Panel of Experts is not able to determine if the letter was issued within seven banking days following Bank C's receipt of the documents from Bank B. The Panel of Experts sought additional information in this respect from Bank C, which chose not to respond. Bank C's letter dated 20 January 2007 cannot be treated as a valid refusal notice under sub-article 14(d)(i) as it was not sent by telecommunication or expeditious means.

Based on the above, Bank C violated sub-article 14(d)(i) of UCP 500.

Issue No. 4: Are the discrepancies raised by Bank C valid?

Discrepancy 1: Invoice - name of issuing bank is incorrect.

Although not a requirement of the transferred credit, Company Y indicated the name of Bank C on its invoice as the issuer. Bank C's name corresponded with that in the credit and the omission of the letters "EF" from the name of Bank C cannot be considered as a discrepancy. Consequently, discrepancy 1 raised by Bank C is not valid.

Discrepancy 2: Port of discharge/airport of destination Hong Kong. It is not specified in DHL bills.

As per the terms of the credit, Hong Kong is the airport of destination. The DHL air waybill shows shipment was effected to HKG which is the IATA code for Hong Kong. Paragraph 152 of ISBP, ICC Publication No. 645, states that "The identification of airports by the use of IATA codes instead of writing out the name in full (e.g., LHR instead of London Heathrow) is not a discrepancy." Hence, discrepancy 2 raised by Bank C is not valid.

Issue No. 5: Does item 3 under field 47A of Bank C's credit exempt it from adhering to article 14 of UCP 500?

Item 3 in field 47A reads as follows:

"Our bank reserves the right to forward transferee documents containing any discrepancy(ies) on approval basis to the issuing bank without notice or referral of such discrepancy(ies) to the transferer/remitting bank unless otherwise required by the transferee/remitting bank in their schedule letter."

The inclusion of the above clause in the credit by Bank C does not make sense given that Bank C was the issuing bank. In any event, such clause does not affect Bank C's obligation under article 14 of UCP 500. Bank C's claim that it was not obligated to provide a notice of refusal as per sub-article 14(d)(i) based on its incorporation of the above clause in the credit is not valid.

Issue No. 6: Are the documents presented by Company Z compliant with the terms of the transferred credit?

Based on copies of the documents provided by Bank A, the presentation submitted by Company Z contained the following discrepancies:

- invoice shows the credit was issued by Bank B whereas the credit was issued by Bank C. (The name of the credit issuer was indicated on the transferred credit.)

- air waybill does not show information of forwarder or shipping agent at destination as required by the transferred credit.

- air waybill shows notify party as L/C applicant instead of the actual name of the applicant.

- signing of the air waybill is not in accordance with sub-article 27(a)(i), i.e., it is not clear whether DHL Company T was acting as the carrier or agent for the carrier.

- packing list shows consignee as Bank B while air waybill shows consignee as Bank C.

- the presentation made by Company Z was discrepant and Bank A could not have negotiated Company Z's presentation as per the terms of the credit and the UCP.

Issue No. 7: Is Bank C obligated to pay the drawing documents?

The DHL waybill (as provided by Bank C in its submission of documents) does not appear to be a document presented by either Company Y or Company Z. The Panel of Experts sought Bank C's confirmation that this document was not part of Bank B's presentation, and Bank C chose not to respond.

While Bank A's presentation was not in compliance with the terms of the credit as indicated in Issue No. 6 above, Bank C did not raise those discrepancies. On the other hand, the discrepancies raised by Bank C in its letter dated 20 January 2007 were not valid; hence, Bank C is obligated to honour the presentation submitted by Bank B.

Issue No. 8: Does Bank A have a valid claim against Bank B or Bank C?

Bank A's claim that Bank B was not entitled to effect any transfer under the credit is valid. Bank A does not have a valid claim against Bank C as a negotiating bank, as Bank A could not have negotiated Company Z's documents as per the terms of the transferred credit. However, the Panel of Experts has concluded that Bank C is liable to pay both Company Y and Company Z, as the discrepancies raised by Bank C in its refusal notice of 20 January 2007 were not valid discrepancies under UCP 500 and that the refusal notice was not issued as per sub-article 14(d)(i) of UCP 500.

DOCDEX Decision rendered by the Panel of Experts

Bank B was not authorized to effect any transfer under the credit. However, this does not stop Bank C from honouring a complying presentation made under its credit. Bank C is liable to pay Company Y and Company Z through Bank B.

This Decision is a unanimous Decision by the Panel of Experts.