Parties

Initiator: Bank H

Respondent: Bank P

Background and transaction

Bank H (The Initiator) is the presenter of documents for USD 8,891,478.90 under a documentary credit issued by Bank P (The Respondent).

The documentary credit was transmitted via SWIFT MT700 and subject to UCP 600 (issued 17.07.2008 and includes the wording "UCP LATEST VERSION" in SWIFT field 40E).

The documentary credit was amended four times respectively (1) 26.07.2008, (2) 11.08.2008, (3) 12.09.2008 and (4) 13.10.2008.

It is not clear to the Panel of Experts if the beneficiary has communicated its acceptance of the amendments. However, since the presentation in question complies with the documentary credit and to the amendments, all four amendments are deemed to have been accepted.

The presentation was refused by the Respondent.

In the case it is noted that a "Stay order" was received from a court of law. This will not be taken into account in this Decision.

The Respondent has not replied to the request. The Experts have not requested any supplemental documents.

Summary of representations

17 August 2008

Respondent issued a documentary credit for USD 11,440,000.00 plus/minus 10%. This was subsequently amended to read USD 9,300,000.00 plus 0% minus 10%. After an amendment (no. 4) the documentary credit was available with the Initiator with drafts drawn on the Initiator 180 days from date of negotiation.

21 October 2008

This was the date of the forwarding schedule from the Initiator to the Respondent. The Respondent refused the documents stating seven discrepancies (see below).

2 November 2008:

The Initiator responded to the Respondent indicating that it did not agree to the stated discrepancies.

7 November 2008:

The Respondent sent a SWIFT MT799 message to the Initiator:

• accepting their arguments concerning discrepancy 2;

• in respect of discrepancy 1 the Respondent stated: "There was no mention in your covering schedule that this is a partial shipment." Although the Respondent took this as an indication that the Initiator accepted the arguments that this was not a valid discrepancy (SWIFT MT799 dated 12.11.2009), the actual intention of this statement is not clear to the Panel of Experts.

The remaining discrepancies are maintained by the Respondent.

12 November 2008:

The Initiator urged the Respondent's confirmation of reimbursement at maturity using the same arguments and informed the issuing bank of its intention to take legal steps, unless the reimbursement was confirmed.

22 November 2008:

The Respondent returned the documents to the Initiator, informing it by SWIFT and also stating that it received a "stay order" issued by the court.

Issues to be determined

a. Did the presentation made by the Initiator, with respect to the alleged discrepancies as stated in the issuing bank's notice of refusal, and as intended to be clarified in subsequent correspondence, constitute a complying presentation?

b. Did the issuing bank's notice of refusal represent a valid notice?

Analysis

The notice of refusal

The notice of refusal sent by the Respondent was made by means of SWIFT type MT734 (Advice of Refusal) and is structured in the following manner:

"77J: We find the following discrepancies in the A/M documents sent by you which are not as per L/C terms

1. Short quantity supplied in the size 2.00X1230MM which is less than 10PCT which is not as per clause no 45A of the L/C terms.

2. Commercial invoice does not marked 'original' and 'copy', which is not as per clause no 2 of field 46A of the L/C terms.

3. Grade of steel mentioned in mills test certificate is not as per clause no. 4 of field 46A of the L/C.

4. The content mentioned as 'CU-0.08 PCT MAX', which is not as per clause no. 4 of field 46A.

5. Grade of steel mentioned in detailed packing list is not as per clause no. 7 of field 46A of the L/C.

6. The certificate of origin does not mention the name of consignee as [the Respondent], which is not as per clause no. 6 of field 46A.

7. Beneficiary's declaration required as per clause no. 5 of field 46A is not submitted along with original documents.
77B:/ We refuse to accept the documents
//Documents are pending at your //risk and responsibility."

When refusing documents received under a documentary credit, the issuing bank must act in accordance with UCP 600 article 16 that includes the following principles:

• It must give a "single notice" (UCP 600 sub-article 16 (c)), meaning that there is only one chance to refuse - and to do so correctly.

• The notice must state clearly that the bank is refusing to honour or negotiate.

• The notice must state each discrepancy in respect of which the bank is refusing. It follows that each discrepancy must be stated, and must be complete and specific.

• The notice must state the disposal of the documents, i.e., what the issuing bank is doing with the documents. For an issuing bank there are four options all reflected in UCP 600 sub-article 16(c)(iii) i.e.:
a) that the bank is holding the documents pending further instructions from the presenter; or
b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or
c) that the bank is returning the documents; or
d) that the bank is acting in accordance with instructions previously received from the presenter.

The consequences for an issuing (or confirming) bank failing to act in accordance with the provisions of UCP 600 article 16 is that such bank shall be precluded from claiming that it is not a complying presentation and would be obligated to honour, notwithstanding the fact that the documents may contain discrepancies (refer to UCP 600 sub-article 16 (f)).

For this Decision, the notice of refusal fails to comply with the above provisions on two grounds:

1) It does not state the disposal of the documents. It merely indicates that "We refuse to accept the documents. Documents are pending at your risk and responsibility." This is not one of the four options mentioned above (it is unclear whether option a) or b) applies in this case.)

2) Discrepancies number 3, 4, 5 and 6 are worded in a manner not consistent with the requirements of the credit. The refusal notice states the detail, which is allegedly discrepant, stating that it is not as per the related clause of field 46A ("documents required") of the credit. The related paragraphs of field 46A, however, do not contain any requirement with respect to the data, which are deemed to constitute a discrepancy (e.g., the alleged discrepancy no. 4 with respect to the Mill's Test Certificate states grade of steel not to be "as per clause no. 4 of field 46A of the L/C", whereas the clause 4 of field 46A merely states "Mill's Test Certificate in two original and two copy"). In addition, discrepancies 3, 4 and 5 are worded in a general manner, not complete and specific, and it is unclear from the refusal notice where the issuing bank finds any conflict with the credit. (This is specified further below under the analysis of each discrepancy.)

Based on the above, the notice of refusal is defective, i.e., not valid under UCP 600 article 16. Consequently, under sub-article 16 (f), the issuing bank is precluded from claiming that the documents are discrepant and is obligated to honour accordingly.

The discrepancies quoted:

Discrepancy No. 1:

"Short quantity supplied in the size 2.00X1230MM which is less than 10PCT which is not as per clause no 45A of the L/C terms."

For size 2.00X1230MM the documentary credit called for 500 MT to be shipped. What was shipped (according to the invoice) was 405.06 MT. The documentary credit further allowed a tolerance in the quantity plus 0% minus 10%. The documentary credit allowed for partial shipments. By allowing for partial shipments - partial shipment within one size would also be acceptable. For that reason this is not a valid discrepancy.

Discrepancy No. 2:

"Commercial invoice [does] not marked 'original' and 'copy' which is not as per clause no 2 of field 46A of the L/C terms."

The Respondent subsequently accepted the arguments from the Initiator, accepting that this is not a valid discrepancy. For the sake of good order however it is analyzed below:

The documentary credit called for "Signed commercial invoice in 2 original and 3 three copies ... ". According to UCP 600 sub-article 17 (c), a document required by a documentary credit will be accepted as original if it:

i. appears to be written, typed, perforated or stamped by the document issuer's hand; or

ii. appears to be on the document issuer's original stationery; or

iii. states that it is original, unless the statement appears not to apply to the document presented.

The invoice presented was issued on the stationery of the beneficiary and signed by the beneficiary - i.e., fulfilling the requirements for the document to be accepted as original. With respect to copies, there is no requirement in UCP 600 or international standard banking practice that copies be so expressly marked. Banks deem as copies such documents which are not original. Even if the credit requires copies, originals may be presented instead, unless the credit so expressly prohibits (sub-article 17 (d) of UCP 600). The credit did not expressly modify application of UCP 600 article 17. For that reason this is not a valid discrepancy.

Discrepancy No. 3:

"Grade of steel mentioned in mills test certificate is not as per clause no. 4 of field 46A of the L/C."

Clause no. 4 of field 46A reads: "Mill's test certificate in two original and two copy". There is no mention of a certain "grade of steel" to appear on the Mill's test certificate. The goods description in the documentary credit includes the following: "Grade of steel- SAE 1006 acc to ASTM A 568/1998". The certificate includes the following: "Grade of steel SAE 1006". The goods description in documents other than the invoice may be in general terms not conflicting with the description in the credit (UCP 600 sub-article 14 (e)). Omitting "acc to ASTM A 568/1998" does not constitute a conflict between the goods description in the documentary credit and in the Mill's test certificate. Further, the discrepancy is not worded in a complete and specific manner, i.e., not valid according to sub-article 16 (c). For those reasons this is not a valid discrepancy.

Discrepancy No. 4:

"The content mentioned as "CU-0.08 PCT MAX", which is not as per clause no. 4 of field 46A."

The refusal notice fails to indicate to which document this discrepancy relates. Further, the discrepancy is not worded in a complete and specific manner. The exact intention of the discrepancy is unclear. Clause no. 4 of field 46A reads: "Mill's test certificate in two original and two copy". There is no requirement that the CU percentage appear on the Mill's test certificate. The CU percentage is part of the chemical compositions being part of the goods description in field 45A of the documentary credit.

The Chemical Compositions in the documentary credit are worded as follows:

C- 0.06 PCT MAX, CU PLUS CR PLUS NI MAX 0.20 PCT. AL-0.02-0.07 PCT MN-0.30 PCT MAX., SI-0.03PCT MAX. P-0.025PCT MAX.S-0.025 PCT MAX. CU-0.08 PCT N-70 PPM MAX.

1 SET OF SAMPLES FOR TEST TO BE TAKEN
FROM EACH BATCH AS PER GOST 7566-94, THICKNESS IS NOMINAL.
DIMENSION TOLERANCE SPEC. ASTM A 568/1998. EDGE CONDITION
UNTRIMMED (MILLEEDGE) COIL WEIGHT 11-19 MT MAX

The Chemical Compositions in the Mill's Test Certificate are worded as follows:

C- 0.06 % MAX,
CU + CR + NI MAX - 0.20 %,
AL-0.02-0.07 %
MN-0.30 % MAX,
SI-0.03 % MAX,
P-0.025 % MAX,
S-0.025 % MAX.
CU-0.08 % MAX,
N-70 PPM MAX.
1 SET OF SAMPLES FOR TEST TAKEN FROM EACH BATCH AS PER GOST 7566-94

As it appears from the above for "CU-0.08%". the word "max" has been added on the Mill's Test Certificate compared to the documentary credit. As mentioned above, the discrepancy is worded in such a manner that the intention is unclear. However, assuming that the issuing bank (following its SWIFT MT799 from November 7, 2008) is trying to state that there is a conflict between the "Chemical Compositions" mentioned in the credit and invoice, compared to the Mill's Test Certificate, the evaluation of this discrepancy by the Panel of Experts is as follows:

UCP 600 sub-article 14 (e) reads: "In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit."

In this case the description of goods is mentioned in the Mill's Test Certificate. The Chemical Compositions mentioned in the documentary credit are very detailed, and the word "max" is used a number of times after a chemical item. It is concluded that for the document checker, without specific commodity knowledge, the addition of the word "max" in this case will be regarded as being conflicting with the description of goods in the documentary credit and invoice.

The above, however, does not change the fact that the refusal notice is not specific enough. It fails to state the document to which the discrepancy relates - and is not worded in a complete and specific manner. Hence, the discrepancy is not valid according to sub-article 16 (c).

For those reasons this is not a valid discrepancy.

Discrepancy No. 5:

"Grade of steel mentioned in detailed packing list is not as per clause no. 7 of field 46A of the L/C."

Clause no. 7 of field 46A reads: "Detailed coilwise packing list showing no. of coils nett/gross weight in two original and two copies". There is no mention of a certain "grade of steel" to appear on the packing list. The goods description in the documentary credit includes the following: "Grade of steel- SAE 1006 acc to ASTM A 568/1998". The packing list itself includes the following: "Grade of steel SAE 1006". The goods description in documents other than the invoice may be in general terms not conflicting with the description in the credit (UCP 600 sub-article 14 (e)). Omitting "acc to ASTM A 568/1998" does not constitute a conflict between the goods description in the documentary credit and in the packing list. Further, the discrepancy is not worded in a complete and specific manner, i.e., not valid according to sub-article 16 (c).

For those reasons this is not a valid discrepancy.

Discrepancy No. 6:

"The certificate of origin does not mention the name of consignee as [the Respondent], which is not as per clause no. 6 of field 46A."

Clause no. 6 of field 46A reads: "Certificate of origin issued by chamber of commerce showing Ukraine origin in one original and two copies". It was subsequently amended to read: "Certificate of origin issued by mill showing Kazakhstan origin in one original and two copies."

The consignee in the certificate of origin is mentioned as "To whom it may concern". There is no mention in the documentary credit that the consignee field of the certificate of origin must include a certain party. UCP 600 sub-article 14 (f) reads: "If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d)."

Consequently, since there was no indication in the documentary credit regarding the consignee field of the certificate of origin, it cannot be required that a certain party is mentioned as consignee.

The Panel of Experts note that the bill of lading shows the Respondent as consignee, and it may have been the intention of the Respondent to try to establish a conflict between the consignee in the bill of lading versus the consignee in the certificate of origin (although this is not clearly spelled out in the wording of the discrepancy). In that respect, it should be noted that there is no conflict between "to whom it may concern" and the name of a specific party (the Respondent in this case). The certificate of origin also complies with the requirements of international standard banking practice as stated in ICC Document No. 681, paragraph 184.

For this reason this is not a valid discrepancy.

Discrepancy No. 7:

"Beneficiary's declaration required as per clause no. 5 of field 46A is not submitted along with original documents."

Clause no. 5 of field 46A reads: "Beneficiaries declaration stating that the quality, quantity and packing of goods are according to the letter of credit and strictly comply with the sales contract [number and date of contract] and customer reference [number and date of customer reference]."

In accordance with the representations by the Initiator and the copies of documents enclosed with the Request for a DOCDEX Decision, Initiators forwarded a "Beneficiary Certificate". The document contained the following statement: "We hereby state that the quality, quantity and packing of goods are according to the letter of credit and strictly comply with the sales contract [number and date of contract], proforma invoice [number and date of pro-forma invoice] and customer reference [number and date of customer reference]."

The covering schedule from the Initiator included: "Bene Cert 02". When returning the documents, the letter from the Respondent included "Bene Cert 02".

Based on this, it must be concluded that the beneficiary's certificate was received by the Respondent as part of the presentation.

According to ISBP (International Standard Banking Practice for the Examination of Documents under Documentary Credits, ICC publication No. 681) paragraph 41: "Documents may be titled as called for in the credit, bear a similar title or be untitled. For example, a credit requirement for a 'Packing List' may also be satisfied by a document containing packing details whether titled 'Packing Note', 'Packing and Weight List', etc., or an untitled document. The content of a document must appear to fulfil the function of the required document."

Further, UCP 600 sub-article 14 (f) reads: "If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d)."

Based on the above provisions, it must be concluded that the title "Beneficiary Certificate" is similar to "Beneficiaries declaration". Since the "Beneficiary Certificate" was presented fulfilling the function required by the documentary credit, the "Beneficiary Certificate" must be accepted as fulfilling the requirement of a "Beneficiaries declaration"

For this reason this is not a valid discrepancy.

Decision

Based on the above analysis it is concluded that:

a. The documents in respect of the alleged discrepancies, as stated by the issuing bank in its refusal notice, and as intended to be clarified by its subsequent correspondence, comply with the terms and conditions of the credit with exception of the details of CU content ("CU-0.08 % max.") stated on the Mill's Test Certificate (see the analysis of discrepancy number 4). However, it must be noted that the issuing bank's clarification, upon which the experts based this conclusion, was provided by the issuing bank additionally and must therefore be disregarded in considering the validity of the issuing bank's refusal notice

b. The refusal notice of the Respondent is invalid for both formal and factual reasons:

i. It fails to indicate the disposal of the documents in accordance with UCP 600 sub-article 16 (c) (iii).

ii. Further, discrepancies 3, 4 and 5 are not worded in a clear and specific manner, i.e., they fail to comply with UCP 600 sub-article 16 (c) (ii).

The Respondent is therefore, under UCP 600 sub-article 16 (f), precluded from claiming that the documents do not constitute a complying presentation. Consequently, the Respondent is obligated to reimburse the Initiator accordingly.

This is a unanimous Decision.