Parties

Initiator: Company B

Respondent: Bank S

Background and transaction

The chronology of events as stated by the Initiator was as follows:

(a) Bank I ("issuing bank") issued a letter of credit no: 23456 ("theL/C") by way of a SWIFT communication on 29 April 2010. The Initiator was named as the beneficiary under the L/C and the applicable rules were stated to be "UCP LATEST VERSION" (which is currently UCP 600).

(b) In the L/C, the following were the original descriptions in the respective SWIFT fields:

1) "41A: AVAILABLE WITH ... BY BANK C (COUNTRY) H BY ACCEPTANCE"

2) "45A: DESCRIPTION OF GOODS AND/OR SERVICES 3500 MT PRIME ROLLED STEEL SHEET IN COIL GRADE: SS400 PRICE: USD 675.00 PER METRIC TONNE ..."

(c) Bank C advised the L/C to the Initiator. Bank C in its advice stated that the L/C "was advised without engagement" on its part.

(d) The L/C was then amended 6 times between 29 April 2010 and 25 May 2010. In amendment #3, SWIFT field 41A was amended to replace the existing nominated bank with the Respondent's name and address and for the L/C to be available with it by negotiation.

(e) Arising from amendment #3, Bank C was requested by the issuing bank to advise the L/C and all the amendments to the Respondent, which would add its confirmation and advise the beneficiary.

(f) On 29 April 2010, Bank C had advised the Initiator of amendment #7 which sought to reduce the price stated in SWIFT field 45A to "USD 668.00 per metric tonne". The Initiator states it informed Bank C that it rejected Amendment #7.

(g) On 26 May 2010, Bank C advised the Respondent as follows: "Enclosed herewith LC and all amendments for you to add your confirmation as per amendment no. 3 dated 15/05/2010. ..."

(h) On 14 June 2010, the Initiator states that the Respondent added its confirmation for the L/C. The documents submitted by the Initiator indicate an outward remittance advice in favour of the Respondent for confirmation charges.

(i) The Initiator states that on 25 June 2010 Bank C, on behalf of the Initiator, presented documents under the L/C to the Respondent. In the bill's presentation schedule of the same date, addressed to the Respondent, Bank C advised "beneficiary has rejected L/C amendment no.7 dated 8 June 2010".

(j) On 5 July 2010, the Respondent issued a notice of refusal to Bank C ("First Refusal Notice") due to the following discrepancies:

"1. Issuance of amendment 7 not advised to the confirming bank (Respondent) prior to presentation of documents as per art. 10 of UCP 600.

2. Rejection of amendment no. 7 by the beneficiary not communicated to confirming bank. The confirming bank is unaware whether the rejection of amendment 7 has been communicated to issuing bank and whether the issuing bank is treating the amendment 7 as cancelled.

3. Beneficiary's signature on invoice, packing list and beneficiary's certificate not consistent with that on draft.

4. Vessel name on invoice and certificate of origin not consistent with that on bills of lading."

(k) The Initiator states that both it (the Initiator) and Bank C did not agree with the discrepancies stated in the First Refusal Notice, but Bank C re-presented the documents under the L/C on 6 July 2010. Again, in the bill's presentation schedule of the same date addressed to the Respondent, Bank C advised "beneficiary has rejected L/C amendment no. 7 dated 8 June 2010". Bank C also sent a SWIFT message to the Respondent on 7 July 2010 to refute the purported discrepancies identified in the First Refusal Notice.

(l) The Respondent issued another notice of refusal to Bank C on 7 July 2010 ("Second Refusal Notice"). In the Second Refusal Notice, only two discrepancies were named, being the first and second discrepancies listed in the First Refusal Notice.

Issue

Whether the Respondent, as confirming bank, had a right to refuse documents for the reasons stated in the Second Refusal Notice.

Documents submitted by the parties

A. Documents submitted by the Initiator

• Request for a DOCDEX Decision (8 pages) dated 30 September 2010;

• Attachment #1 (5 pages) - copy of advice from Bank C to the Initiator advising issue of the L/C dated 29 April 2010;

• Attachment #2 (9 pages) - copies of L/C amendments #1, 2, 3, 4, 5 & 6;

• Attachment #3 (1 page) - copy of advice from Bank C requesting the Respondent to add its confirmation dated 26 May 2010;

• Attachment #4 (1 page) - copy of L/C amendment #7 issued by the issuing bank dated 8 June 2010;

• Attachment #5 (2 pages) - copies of Bank C's advice of the Respondent's confirmation of the L/C dated 31 May 2010 and payment of confirmation charges to it;

• Attachment #6 (5 pages) - copies of documents presented by Bank C to the Respondent on 25 June 2010;

• Attachment #7 (1 page) - copy of Bank C's bills presentation schedule dated 25 June 2010, addressed to the Respondent;

• Attachment #8 (1 page) - copy of the Respondent's First Refusal Notice;

• Attachment #9 (1 page) - copy of Bank C's bills presentation schedule dated 6 July 2010 addressed to the Respondent;

• Attachment #10 (2 pages) - copy of SWIFT message from Bank C to the Respondent dated 7 July 2010;

• Attachment #11 (1 page) - copy of the Respondent's Second Refusal Notice;

• Attachment #12 (2 pages) - copy of Bank C's advices dated 16 July 2010 informing issuing bank and the Respondent that the Initiator has rejected amendment #7;

• Attachment #13 (2 pages) - copy of Bank C advice to the Initiator of receipt of payment from the issuing bank and computation of interest loss.

B. Documents submitted by the Respondent

• Response to request for a DOCDEX Decision (3 pages) dated 15 October 2010.

Analysis

The L/C was issued subject to UCP 600 and was available by negotiation with the Respondent, which was the confirming bank (arising from the acceptance of amendment #3). On 25 June 2010, Bank C on behalf of the Initiator made a presentation of documents under the L/C to the Respondent. On 5 July 2010, the Respondent issued the First Refusal Notice listing four discrepancies. Bank C re-presented the documents under the L/C on 6 July 2010, and on 7 July 2010 the Respondent issued the Second Refusal Notice, repeating only the first and second discrepancies listed in the First Refusal Notice.

The issue is whether the two discrepancies justify the refusal to negotiate by the Respondent.

First Discrepancy

"The Respondent as confirming bank was not advised of issuance of amendment #7 prior to the presentation of documents."

Second Discrepancy

"Rejection of amendment #7 by beneficiary not communicated to the Respondent as confirming bank and the Respondent was unaware of whether rejection of amendment #7 was communicated to the issuing bank and whether the issuing bank treated amendment #7 as cancelled."

The Respondent asserts in the First Refusal Notice and Second Refusal Notice that it is entitled to be advised of the issuance of amendment #7 prior to the presentation of documents, referring to UCP 600 article 10.

In its answer to the Initiator's request dated 15 October 2010, the Respondent noted that amendment #7 was issued on 8 June 2010, and it had added its confirmation to the L/C and amendments #1-6 on 15 June 2010. The Respondent went on to assert in its reply that:

a. The fact that the documents were re-presented by the beneficiary (Initiator) through Bank C after the rectification of the third and fourth discrepancies mentioned under the First Refusal Notice establishes the fact that it had accepted the relevant discrepancies.

b. In accordance with amendment #3, the L/C and all amendments were to be advised to the Respondent as confirming bank. The Initiator and/or Bank C as the advising bank were duty-bound to advise amendment #7 (issued on 8 June 2010) to the Respondent before they added their confirmation on 15 June 2010.

c. Referring to UCP 600 sub-article 10(d), which states: "A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection", the Respondent asserts that Bank C as advising bank was obliged to advise the rejection of any amendment to the issuing bank and that advising rejection to the confirming bank does not satisfy that requirement. Bank C only advised the issuing bank about the rejection of amendment #7 on 16 July 2010 (after presentation of documents to the Respondent).

d. In the circumstances, documents presented without complying with amendment #7 cannot be treated as complying documents.

Our Decision as the appointed Experts is as follows:

1. We find nothing in the L/C nor UCP 600, in particular article 10, which requires that an amendment must be advised to the confirming bank by the beneficiary or the advising bank prior to the presentation of documents. However, as a general practice, it would be expected that an advising bank would either have forwarded a copy of amendment #7 to the Respondent and advised it of the rejection by the beneficiary, or that the advising bank would have made this statement at the time of sending a copy of the L/C and amendments #1-6 to the Respondent.

2. The governing principle as to amendments is stated in UCP 600 sub-article 10 (a), which provides that "... a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary."

3. Whether or not the Initiator had advised the Respondent of amendment #7 prior to the presentation of documents did not affect the Respondent's obligations as a confirming bank, as the amendment is considered rejected so long as the Initiator as the beneficiary has not accepted it.

4. Further, so long as the Initiator presented documents to the Respondent strictly in compliance with the L/C (including the accepted amendments #1-6), the Respondent as confirming bank was obligated to honour the drawing and, so long as the Respondent did not add its confirmation to amendment #7 (which it would not have done, not having known of its existence) and effected payment under the L/C (including the accepted amendments #1-6), the issuing bank was obligated to reimburse the Respondent. Even if the Respondent had added its confirmation to amendment #7, presentation of documents complying only with the L/C and amendments #1-6 would constitute sufficient documentary compliance by the beneficiary (which was entitled not to accept amendment #7). In any event, the bills presentation schedule of Bank C clearly indicated that amendment #7 had been rejected.

5. UCP 600 sub-article 10 (d) does not assist the Respondent as confirming bank. It clearly states that the advising bank's obligation to inform (with respect to the acceptance or rejection of amendments) is owed to the bank from which the advising bank received the amendment -- which was not the Respondent. In the circumstances, it is irrelevant to this Decision as to what timeframe (if any) is available to an advising bank to discharge its sub-article 10 (d) obligation. In any case, the Respondent itself was duly advised by Bank C of the Initiator's rejection of amendment #7 at the time of presentation and re-presentation of documents.

6. The mere re-presentation does not, of itself, amount to an acceptance by the Initiator of the discrepancies stated in the First Refusal Notice.

Conclusion

The two discrepancies raised by the Respondent do not justify its refusal to negotiate. The Respondent had no reason to refuse the documents and not to negotiate and should compensate the Initiator for its losses suffered.

The appointed Experts reached a unanimous Decision.