Parties

Initiator: Bank N

Respondent: Bank C

Background

The dispute between the Initiator and the Respondent relates to the following documentary credit (the "credit"):

• Issuing bank: Bank I

• First advising & confirming bank: Bank C

• Form of documentary credit: irrevocable, confirmed

• Date of issue: 080813

• Applicable rules: UCP, URR latest versions [i.e., UCP 600 and URR725] Date and place of Expiry: 080910, City M

• Credit currency & amount: USD29,999,998.09

• Available with/by: Bank N by negotiation

• Drafts at: 360 days after acceptance by Bank N, City M

• Additional conditions (Field 47A): (among others)

TO ADVISING BANK

.

"G/ADVISING BANK TO ADD ITS CONFIRMATION AND ON ADVISE THIS CREDIT TO BANK N, CITY M WHO MAY ADD ITS CONFIRMATION AT THE BENEFICIARY REQUEST AND COST."

"J/ ALL DOCUMENTS TO BE FORWARDED DIRECTLY BY BANK N, CITY M VIA COURIER EXPRESS TO BANK I."

"K/BANK N, CITY M TO SEND AN AUTHENTICATED SWIFT TO ISSUING BANK [BANK I] ADVISING COURIER DETAILS AND MATURITY DATE OF THE DOCUMENTS."

"L/BANK N, CITY M TO SEND AN AUTHENTICATED SWIFT TO BANK C CONFIRMING THAT THE DOCUMENTS PRESENTED IN CONFORMITY WITH LC TERMS AND ALSO ADVISE THE MATURITY DATE OF THE DOCUMENTS." ("Condition L")

Confirmation instructions: Confirm

Reimbursing bank: Bank A, Country U

1. The credit was advised by Bank C to Bank N on 14 August 2008 via an authenticated SWIFT message MT710: "Advice of a Third Bank's Doc. Credit". By this advice (MT710), Bank C communicated to Bank N the following:

"Field 72: "Sender to Receiver Information": THIS L/C BEARS OUR CONFIRMATION. PLESE REMIT USD.270,200.00 BEING OUR CONFIM CH[A]RGS AT 0.90PCT P.A. FOR 12 MONTHS TO OUR A/C.NO.12345 WITH BANK J, CITY N."

2. On 19 August 2008 Bank N received compliant documents from the beneficiary under the credit and accepted a draft for USD29,999,998.09 due on 14 August, 2009. On the same day, Bank N:

• dispatched the documents by DHL Courier to Bank I and informed the same by authenticated SWIFT message (MT799) the courier details and maturity date;

• discounted/purchased the draft accepted by Bank N and remitted a net proceed of USD28,644,045.16 (bill amount USD29,999,998.09 less Bank N's confirmation fee of USD137,249.99, handling fee of USD500.00, [discount] interest of USD948,002.94 and the first confirming bank fee of USD270,200.00) to the beneficiary; and

• remitted to Bank C, via SWIFT (MT103: "Customer Credit Transfer"), USD270,200.00 being Bank C's confirmation charges, in accordance with Bank C's instructions stipulated in Field 72 of the Credit.

3. Bank N did not send to Bank C the authenticated SWIFT message required by Condition L until 11 May 2009.

Issues

The Initiator (i.e., Bank N) seeks a DOCDEX decision as to whether Bank C can reject Bank N's demand for reimbursement based on the following ground:

Bank C's confirmation had been conditional upon receipt from Bank N within the expiry date of the credit of the authenticated SWIFT message required under Field 47A-L of the credit. As Bank N failed to comply with Condition L by the expiry date of the credit, Bank C's confirmation had fallen away on expiry of the credit i.e., 10 September 2008.

Initiator's claim

1. Neither the credit nor the terms of Bank C's confirmation required that the message in Condition L be sent within the expiry date. In fact, there is no requirement as regards when it should be sent, which would allow the sending to be made at any point up until the due date.

2. A complying presentation was made to the nominated bank (Bank N) and Bank C was therefore liable for their confirmation according to article 8 of UCP 600.

Respondent's reply

1. Having not been advised that the credit had been accepted and negotiated by Bank N with the beneficiary prior to expiry of the credit on 10 September 2008, Bank C considered the credit and its confirmation thereunder to have fallen away on expiry, in accordance with normal industry practice and international standard banking practice.

2. Bank N only sent the SWIFT message (required by Condition L) to Bank C eight months after the expiry date of the credit, which was in breach of the [implied] terms of the credit and had failed to comply with normal industry practice and international standard banking practice.

3. Bank C was under no obligation to contact Bank N after expiry of the credit to verify whether the credit had been negotiated.

4. Bank C would not have confirmed the credit if it were not implicitly understood that Bank N would provide the most basic information in relation to the credit (i.e., the compliant presentation under the credit and maturity date of the credit).

5. Bank N failed to inform Bank C that Bank N had acted as a second confirming bank under the credit and negotiated the documents without recourse. As a confirming bank (and with drafts drawn on itself), Bank N no longer has any recourse to Bank C under the credit and UCP 600. Under sub-article 8 (c) of UCP 600, a confirming bank only has a reimbursement obligation to the nominated bank. It does not have a reimbursement obligation where that negotiating/nominated bank has taken on full responsibility in relation to the credit amount as a second confirming bank.

Decision

1. Is Bank N a nominated bank under the credit? If yes, is Bank N a nominated accepting bank or a negotiating bank?

In Field 41A of the credit, it expressly states that the credit is available with Bank N. It follows that Bank N is a nominated bank under the credit.

In Fields 42A and 42C of the credit, it expressly states that the drawee of the draft is Bank N and the draft is at 360 days after acceptance by Bank N respectively. Accordingly, it is clear and unequivocal that Bank N has been nominated as an accepting bank under the credit.

Following the above terms, the credit should have been available by acceptance instead of by negotiation. However, the Experts Panel are of the view that this technical deficiency would not jeopardize the rights and obligations of Bank N under the credit in the capacity of a nominated bank which has purchased its acceptance pursuant to sub-article 12 (b) of UCP 600.

2. Would Bank N's second confirming bank status prejudice its right of reimbursement from Bank C?

First, Bank C had full knowledge that, in addition to its confirmation, the issuing bank had also authorized Bank N to confirm the credit upon the beneficiary’s request (See Field 47A - Condition G). It is well settled in practice that Bank C's confirmation covers the payment risk and country risk of the issuing bank. It follows that whether Bank N confirms the credit as second confirming bank has no bearing on the payment undertaking provided by Bank C under its confirmation.

Second, by collecting the US$270,200.00 confirmation charge from the beneficiary (See Field 72), Bank C irrevocably undertook to cover the payment and country risks of the issuing bank from 14 August 2008 (i.e., the date of confirmation) to 14 August 2009 (i.e., the maturity date). As the beneficiary did pay the US$270,200.00 confirmation charge to Bank C on 19 August 2008, Bank C is therefore bound to pay the beneficiary (upon presentation of a complying presentation), or reimburse the nominated bank (which purchased a draft accepted by it and paid the beneficiary) upon the maturity date, as the case may be. Note that the expiry date of a credit refers to the latest date that the beneficiary may present documents under the credit, which has no bearing on the instruction given by the confirming bank to the nominated bank unless the credit states otherwise.

Third, it is perfectly legitimate and in fact not uncommon that a bank may perform different roles in a documentary credit transaction, e.g., in the present case, Bank N acted as a nominated accepting bank as well as a second confirming bank. By acting as a second confirming bank, Bank N agreed to pay the beneficiary without recourse upon presentation of a complying presentation. The Panel Experts would like to emphasize that the without recourse arrangement between a nominated bank/confirming bank and the beneficiary is separate from and independent of the reimbursement obligation between Bank C, the first confirming bank, and Bank N, the nominated accepting bank.

To conclude, Bank N's second confirming bank status (which is additional to its nominated accepting bank status) would not prejudice its right of reimbursement from Bank C, the confirming bank. No documents are required to be sent to Bank C, as such condition has been expressly waived in Field 47A - Condition J to which Bank C gave its consent when it confirmed the credit on 14 August 2008.

3. Was Bank N in breach of the terms of the credit by advising Bank C that the documents presented were complying and the maturity date of payment on 11 May 2009 (i.e., eight months after expiry of the credit)?

Generally, once the beneficiary makes a complying presentation, both the issuing bank and/or confirming bank would be bound to pay the beneficiary or reimburse the nominated bank, which has negotiated the documents, purchased a draft accepted by it or prepaid a deferred payment undertaking incurred by it, as the case may be. Sub-article 8 (c) of UCP 600 was also drafted based on this understanding.

The Panel Experts agree that the credit provides an additional condition ("Condition L") that is solely to be met by Bank N, the nominated bank and second confirming bank (i.e., Bank N to send an authenticated SWIFT to Bank C confirming that the documents presented were complying and also advise Bank C of the maturity date of the documents). Such Condition has no bearing on the compliance of documents presented by the beneficiary.

However, it is clear and unequivocal that neither the issuing bank nor Bank C has imposed any time limit on the sending of such message. It follows that Bank N is entitled to issue such message any time before the maturity date. It is well settled in the UCP and international banking practice that should a party require a specific condition (including, within limitation, any time limit) to be complied with in a credit, it must expressly say so, failing which it must bear the consequences.

Article 14(f) of UCP 600 states: "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)."

In ICC Banking Commission Opinion (R 390), a credit called for a quality certificate without mentioning any specific wording on the certificate. The presented certificate stated that "the goods [i.e. meat products] are not fit for human consumption." It was held that the derogatory remark would not be a reason to reject the document, since the credit did not specify the contents of the certificate. The opinion further states: " ... If the applicant required the bank to ensure that a certain standard was shipped, the letter of credit should have included the actual item number rather than a statement that the invoice was to show the item number. A bank is merely required to ascertain compliance on the basis of the fact that the documents appear to comply, on their face, with the terms and conditions expressed in the letter of credit. A bank cannot act on information obtained from an authority, or the applicant which is, or may be in contradiction or additional to the requirements expressed in the letter of credit ... [emphasis added]."

As Condition L only requires Bank N to send the SWIFT message to Bank C without specifying a deadline, it is indisputable that the SWIFT message sent by Bank N to Bank C on 11 May 2009 satisfied Condition L. Nowhere does the credit specify that Bank C's confirmation would fall away if Bank N failed to send the SWIFT message stipulated in Condition L on or before the expiry of the credit, and Bank C is therefore obligated to reimburse Bank N pursuant to sub-article 8 (c) of UCP 600.

Moreover, it is well settled that any ambiguity is likely to be interpreted against the party who drafts the document. Accordingly, had it been critical for Band C to obtain the SWIFT message from Bank N on or before the expiry of the credit, Bank C should have imposed a time limit on Condition L or should have asked Bank N to advise it the information on or before the expiry of the credit, failing which Bank C must accept Bank N's message dated 11 May 2009.

Conclusion

1. Bank N is a nominated bank under the credit and its second confirming bank status would not prejudice its right of reimbursement from Bank C.

2. Bank N was not in breach of Condition L, as such condition did not specify any time limit, and as such Bank C is obligated to reimburse Bank N the drawing amount plus late payment interest.

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