Parties

Initiator: Bank L

Respondent Bank T

Background

The Initiator submitted the following documents to the ICC International Centre for Expertise:

Procedural issues

Exhibit A Power of attorney by Initiator dated 15.04.2010

Exhibit B SWIFT message by Initiator to Respondent dated 20.01.2010

Exhibit C SWIFT message by Respondent to Initiator dated 01.02.2010

Exhibit D SWIFT message by Initiator to Respondent dated 16.02.2010

Exhibit E SWIFT message by Respondent to LBBW dated 24.02.2010

Material issues

Exhibit 1 E-mail message by Respondent dated 26.09.2008

Exhibit 2 E-mail message by Initiator dated 29.09.2008

Exhibit 3 E-mail message by Initiator dated 02.10.2008

Exhibit 4 Documentary credit no. 56789 dated 03.10.2008

Exhibit 5 SWIFT message by Initiator date 08.10.2008

Exhibit 6 SWIFT message by Respondent dated 13.10.2008

Exhibit 7 SWIFT message by Initiator dated 15.10.2008

Exhibit 8 SWIFT message by Respondent dated 17.10.2008

Exhibit 9 SWIFT message by Initiator dated 20.10.2008

Exhibit 10 Courier remittance letter by Initiator dated 19.11.2009

Exhibit 11 SWIFT message by Initiator to Respondent dated 08.12.2009

Exhibit 12 SWIFT message by Initiator to Bank W of 08.12.2009

Exhibit 13 Courier remittance letter of 08.12.2009

Exhibit 14 Courier remittance letter of 28.12.2009

Exhibit 15 SWIFT message by Respondent of 14.12.2009

Exhibit 16 SWIFT message by Initiator of 15.12.2009

Exhibit 17 SWIFT message by Respondent of 29.12.2009

Exhibit 18 SWIFT message by Initiator of 16.03.2010

Exhibit 19 Spreadsheet showing all utilizations and reimbursements under the documentary credit until today, as well as Initiator's calculation of the confirmation fee

Issues

On 3 October 2008, the Initiator received a letter of credit no. 56789 issued by the Respondent in the amount of EUR11,389,600.00, and was requested to add its confirmation. The Initiator advised and confirmed the letter of credit to the beneficiary and informed the Respondent. The date of confirmation is reported to be 8 October 2008.

The letter of credit contained the following payment conditions:

a) 40% of the invoice value will be paid upon presentation of required documents in strict conformity with L/C terms and conditions.

b) 55% of the invoice value will be paid upon the further instruction of the applicant, after acceptance of the goods.

c) 5% of the invoice value will be paid upon the further instructions of the applicant after completion of training as per the report.

On 8 October 2008, the Respondent sent an amendment increasing the letter of credit amount by EUR1,952,200.00 to EUR13,341,800.00. The Initiator is reported to have advised the amendment to the beneficiary on 15 October 2009, adding its confirmation.

Initiator is requesting a DOCDEX decision to the effect:

(1) The Initiator was entitled to confirm the letter of credit for its full amount (EUR11,389,600.00 and upon amendment EUR13,341,800.00);

(2) The Initiator was entitled to a confirmation fee of 1.5% p.a. p.r.t. to be paid by the Respondent and calculated on the basis of the full amount of the letter of credit, which had initially been EUR11,389,600.00 and, upon amendment, EUR13,341,800.00; and

(3) The Respondent is obligated to pay to the Initiator additional confirmation fees of (a) EUR148,752.98 for the period 8 October 2008 to 31 December 2009; (b) EUR22,347.52 for the period 1 January 2010 to 9 March 2010; and (c) 1.5% p.a. p.r.t of the unutilized amount of EUR1,334,180.00 for the period 10 March 2010 until further utilization or expiry of the letter of credit.

Analysis

The letter of credit has been issued for the full amount of the underlying contract and does not state that the issuing bank's obligation under it is limited to the 40% portion payable against presentation of documents, as prescribed in field 46A of the SWIFT MT700.The conditions of the letter of credit as to the payment of the remaining portions of 55% and 5% were upon additional instructions of the applicant.

Going by the wording in the L/C, although the applicant had full control of the timing of payment for these portions, the Experts are of the unanimous opinion that the letter of credit did not provide any option but for the issuing bank to pay when those instructions materialized. Similarly, having confirmed the credit for the full amount, the Initiator would be required to honour or negotiate if a complying instruction was received. However, the Experts are of the view that the Initiator should have asked for clarification regarding the availability of these portions prior to adding confirmation, as it does not conform to best letter of credit practice to confirm where the applicant controls the basis for payment under a letter of credit and for which the beneficiary has no control whatsoever.

According to the submission of the Respondent, it seems that it had taken for granted that its liability under the letter of credit was only to the extent of 40%. However, this intent is clearly not expressed in the letter of credit. The Experts, therefore, will base their decision purely on the language in the letter of credit.

If the Respondent intended that only 40% was payable under the letter of credit, it should have stated this clearly in the credit or should otherwise have issued the L/C only for the 40% portion, stating that the remaining balance of the invoice value would be paid outside the letter of credit.

Conclusion

Based on the structure and content of the letter of credit, the Initiator was entitled to confirm the letter of credit for its full amount of EUR11,389,600.00 (subsequently amended to EUR13,341,800.00) and is therefore also entitled to the confirmation commission as provided for in the mutual agreement between the Initiator and the Respondent.

It is the Experts' unanimous Decision that the answers to issues (1), (2) and (3) above are yes.