Parties

Initiator: Company A

Respondents: Bank I and Bank P

Summary of representations

07.03.1999

Bank I issued a documentary credit for USD 1,795,314.70 in favour of Company A. The documentary credit was issued subject to UCP 500 (via SWIFT message MT700).

18.03.1999

Bank I sent a telex stating that the documents would be accepted as presented except for value, quantity, description of goods, validity, bill of lading and certificate of origin.

23.03.1999

Bank P (which is not nominated to act under the credit) forwarded the documents to Bank I for the value of USD 2,058,863.70.

The forwarding schedule, in addition to mentioning the amount of the drawing (USD 2,058,863.70), included the following statement: "We therefore ask you to make use of the documents only if you authorise us to avail ourselves of the documentary credit."

Enclosed together with the forwarding schedule was a letter from Company A to Bank I, which included the following:

"You are kindly requested to hand out these documents to the receiver [name of applicant], only against your [Bank I's] irrevocable written confirmation to [Bank P] to pay as follows:

1)

• [vessel name] USD 1,258,071.50

• [vessel name] USD 171,320.00

• Additional payment USD 263,549.00

Total amount maturity August 3rd 1999 USD 1,719,940.50

2)

• [vessel name] USD 169,478.40 at June 19, 1999

3)

• [vessel name] USD 169,444.40 at July 29, 1999

Documents to be hold [sic] as one set included all Original 3/3 Bill of Lading [sic] it can only be handed out against your payment confirmation to us."

01.04.1999

Bank I sent a telex to Bank P, informing Bank P that it had "handed the accepted discrepant docs for USD 1,795,314.70 to applicant". It further noted that "as for the excess amount viz USD 263,549.00 and as per applicant instructions and upon his agreement with beneficiary, this amount to be paid outside L/C by applicant to beneficiary without any responsibility on our part". The telex ends as follows: "AS PER APPLICANT REQUEST PLS CONFIRM TO US BENEF´S APPROVAL OF SAID ARRANGEMENT BY TESTED MSG. TO ENABLE THE APPLICANT TO MARK HIS FILE".

08.04.1999 - 12.02.2004

Various correspondence between Bank I and Bank P/Company A, in which:

• Bank P/Company A maintained the view that the documents were only to be delivered against the full invoice amount - or the presented documents should be returned.

• Bank I maintained the view that it was only obligated as far as the documentary credit amount, i.e., it was not responsible for the excess amount of USD 263,549.00, which was subject to the agreement between Company A and the applicant.

• It appears from the documentation evaluated by the Group of Experts that the goods may have been released to the applicant against a bank guarantee issued by Bank I even before the issuance of the credit. However, this is not confirmed by Bank I.

Issues to be decided

Main issue:

Does the fact that Bank I delivered the documents to the applicant make it liable to pay an amount in excess of the documentary credit value, where such excess amount was reflected in the forwarding schedule from the presenter?

Sub-issues:

Issue 1: Instruction given to Bank I

Can the instruction given to Bank I regarding delivery of the documents to the applicant be considered clear and precise?

Issue 2: The handling of discrepant documents by Bank I

The drawing under the credit was in excess of the amount permitted by the credit, and consequently the documents were discrepant. Did Bank I handle the discrepant documents correctly in accordance with the provisions of UCP 500?

Analysis and decision

Sub-issue 1: Instruction given to Bank I

The instruction to Bank I to only deliver documents against USD 2,058,863.70 is reflected in both the forwarding schedule from Bank P and the letter issued by Company A to Bank I.

The documents enclosed are specified as follows in Bank P's forwarding schedule:

• letter of [Company A] to you;

• 4 sets of docs as per separate specification of documents.

The Group of Experts holds the view that the letter of Company A forms part of the forwarding schedule issued by Bank P. The content of the letter of Company A, together with the content of the forwarding schedule from Bank P, clearly provided instructions that the documents were only to be delivered to the applicant against USD 2,058,863.70.

Conclusion to sub-issue 1: Bank I should have abided by the instructions in the forwarding schedule from Bank P and the letter from Company A in their handling of the documents.

Sub-issue 2: The handling of discrepant documents by Bank I

Bank I was not obligated to pay an amount in excess of the documentary credit amount and had the option to refuse the documents in accordance with UCP 500 article 14 and sub-article 13(b).

UCP 500 sub-article 14(d)(ii) specifically states: " ... 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".

Bank I did not refuse, but in fact did accept the documents on 1 April 1999. Having done so, Bank I was (according to UCP 500 sub-article 14(e)) precluded from claiming that the documents were not in compliance with the credit terms and conditions, and therefore was obligated to pay the full amount drawn at the respective maturity dates, i.e., USD 2,058,863.70 - including the excess amount of USD 263,549.00.

Conclusion to sub-issue 2: Since Bank I did not refuse the documents in accordance with UCP 500 article 14 and sub-article 13(b), it was obligated to pay the full amount drawn at maturity.

Final decision:

Based upon the documentary evidence provided and the above-mentioned analysis, the Group of Experts agrees that Bank I should have followed the instructions given in the forwarding schedule of Bank P and the accompanying letter from Company A. In this respect and in accordance with the provisions of UCP 500, Bank I should have either refused to accept the documents or agreed to accept them on the basis of effecting the full payment of USD 2,058,863.70 upon maturity of the drawings.

Having failed to act in accordance with the instructions of the presenting bank, Bank I was obligated to pay the full amount drawn, including the excess amount of USD 263,549.00.

The conclusion of the DOCDEX Panel is unanimous.