Parties

Initiator: Bank C

Respondent 1: Bank V

Respondent 2: Bank R

Background and transaction

On 26 September 2008, the Initiator received a standby letter of credit ("SBLC") via SWIFT MT710 for an amount of USD735,997.00 and advised it to a beneficiary located in City W, Country U. The SBLC was issued by Respondent 2, confirmed by Respondent 1, and available at the counters of Respondent 1 by payment on or before 14 March 2009. The SBLC was subject to UCP 600. The following documents were required by the SBLC:

1. Beneficiary's duly signed statement confirming that the applicant failed to pay the claimed amount within the period of 90 calendar days from the date of commercial invoice issued by the beneficiary to the applicant - 1 original.

2. Commercial invoice issued by the beneficiary (seller) to the applicant (purchaser) - 1 copy.

3. Seller's (beneficiary's) loading form proving units' availability at the date of invoice (indicating the applicant's name, number and date of the contract) - 1copy.

Field 45A (description of goods) stated "case skid steer loaders supply contract No. SUPPLY CONTRACT NO 45678 dd 25.08.2008 agreement No. 2 dd 02.09.2008 EXW City K, Country U."

On 3 February 2009, the Initiator advised to the beneficiary an amendment received from Respondent 1 reducing the amount of the SBLC by USD17,962.00 to USD718,035.00 and extending the expiry date to 21 September 2009. The description of goods was also amended, so as to read "case skid steer loaders as per SUPPLY CONTRACT NO 45678 dd 25.08.08 amendment n 1 dd 28.11.08 to agreement n 2 dd 02.09.08 EXW City K, Country U".

On 14 September 2009, documents were presented to the Initiator by the beneficiary and the Initiator forwarded the documents to Respondent 1, without examination, on the same day. The documents were refused by Respondent 1 on 17 September 2009. In its notice of refusal, Respondent 1 stated the following discrepancies:

"1) INVOICE

MODEL 430 SSL NA:

17 ITEMS ARE INVOICED (SUB-TOTAL USD370,736.00) THOUGH 16 ITEMS ARE INDICATED (WOULD BE SUB-TOTAL USD348,928.00).

2) SELLER'S (BENEFICIARY'S) LOADING FORM

MODEL 430 SSL NA:

"ORDER NO. Z789 SERIAL NO. N8M488858" ARE INDICATED THOUGH NOT REFLECTED IN THE INVOICE."

The SBLC expired on 21 September 2009 at the counter of Respondent 1.

On 21 September 2009, the Initiator instructed Respondent 1, by SWIFT, to forward the documents to Respondent 2 for approval. On 25 September 2009, Respondent 1 notified the Initiator that it had received notice of refusal from Respondent 2 due to the following discrepancy:

"DESCRIPTION OF GOODS IN COMMERCIAL INVOICE DIFFERS FROM DESCRIPTION OF GOODS IN SELLER'S (BENEFICIARY'S) LOADING FORM (IN COMMERCIAL INVOICE NOT INDICATED ORDER NO. Z789 SERIAL NO. N8M488858 MODEL 430SSL NA)."

At beneficiary's request, the Initiator sent a corrected invoice to Respondent 1 on 28 September 2009.

On 30 September 2009, Respondent 1 asked the Initiator for instructions regarding the corrected invoice and reminded it that the SBLC had expired. The Initiator replied on 2 October 2009 instructing Respondent 1 to forward the corrected invoice to Respondent 2 for approval.

On 7 October 2009, Respondent 1 informed the Initiator that Respondent 2 had rejected the corrected invoice, as the SBLC had expired and it had closed its files.

After a series of communications exchanged between the banks, the Initiator sent a SWIFT MT799 dated 10 March 2010 on behalf of the beneficiary arguing against the validity of the alleged discrepancies.

The Initiator stated that the presentation satisfied UCP 600 article 18 and the express requirements of the SBLC. In regard to discrepancy no. 2, the Initiator argued that the seller's (beneficiary's) Loading Form ("Loading Form") complied with the SBLC in all respects, and the fact that it contained one additional item, not mentioned in the invoice in question ("invoice"), did not make the document discrepant.

On 31 March 2010, Respondent 1 replied, reiterating its original position and claiming an additional discrepancy under UCP 600 sub-article 14 (d), namely that missing data on the invoice constituted an inconsistency with the data on the Loading Form. It also contended that neither the Initiator nor the beneficiary raised any objections to the original discrepancies cited and that the Initiator instructed Respondent 1 to forward the documents to Respondent 2 for approval. Respondent 1 also stated that the beneficiary submitted corrected documents after the expiry date, which, it argued, indicated that the beneficiary had agreed with the noted discrepancies.

On 7 April 2010, the Initiator replied that there was no inconsistency based on the number of items described in the invoice as opposed to the Loading Form.

Issues

The Initiator submits that the documents were not discrepant. It claims that the presentation satisfied UCP 600 article 18 and complied with the SBLC in all respects.

Respondent 1 rejected the documents, as it claimed that the documents were discrepant and the missing data on the invoice constituted an inconsistency with the data on the Loading Form.

Question No. 1

Was it a discrepancy that the invoice showed "17" in the "quantity" column while the "Description of Goods" column set forth the order numbers and serial numbers for sixteen items?

Question No. 2

Was it a discrepancy that the Loading Form included the following item: "Order no. Z789 SERIAL NO. N8M488858 MODEL 430SSL NA)", but the invoice did not?

Question No. 3

Did the inclusion of "Order no. Z789 SERIAL NO. N8M488858" in the invoice coupled with the absence thereof in the Loading Form constitute a conflict within the meaning of UCP 600 sub-article 14 (d)?

Question No. 4

Was Respondent 1 precluded from raising, as discrepancies, the issues cited in its SWIFT messages of 31 March and 28 April 2010, namely that the documents were inconsistent and that the beneficiary had accepted Respondent 1's refusal by its conduct?

Question No. 5

Is the beneficiary precluded from refuting the original discrepancies cited by Respondent 1?

Documents submitted by the parties

A. Documents submitted by the Initiator:

(i) Photocopy of SWIFT MT710 SBLC from Respondent 1 dated 26September 2008;

(ii) Photocopy of SWIFT MT707 SBLC Amendment dated 3 February 2009;

(iii) Photocopy of letter for presentation of documents under the SBLC from the beneficiary dated 8 September 2009;

(iv) Photocopy of the commercial invoice;

(v) Photocopy of the beneficiary's statement;

(vi) Photocopy of the seller's (beneficiary's) Loading Form;

(vii) Photocopy of SWIFT MT734 notice of refusal from Respondent 1 dated 17 September 2009;

(viii) Photocopies of SWIFT MT799 exchanged between the Initiator and Respondent 1 dated 21, 22, 23, 24, 25, 28, 30 September and 2, 6, 7, 8, 9 and 20 October 2009;

(ix) Photocopy of letter dated 28 September 2009 from the Initiator to Respondent 1; and

(x) Photocopies of SWIFT MT799 exchanged between the Initiator and Respondent 1 dated 10, 31 March and 7 and 28 April 2010.

B. Documents submitted by the Respondent 1:

(i) Photocopy of letter from Respondent 1 to Respondent 2 dated 14February 2011.

Analysis

1. Was it a discrepancy that the invoice showed "17" in the "quantity" column while the "Description of Goods" column set forth the order numbers and serial numbers for sixteen items?

The SBLC dated 26 September 2008 required 1 copy of a commercial invoice issued by the beneficiary (seller) to the applicant (purchaser). In field 45A, description of goods, it was stated:

"CASE SKID STEER LOADERS
SUPPLY CONTRACT NO 45678 DD 25.08.2008
AGREEMENT NO 2 DD 02.09.2008
EXW CITY K, COUNTRY U"

The description of goods was amended by an amendment dated 3February2009 to read:

"CASE SKID STEER LOADERS AS PER SUPPLY CONTRACT 45678 DD 25.08.08 AMENDMENT N 1 DD 28.11.08 TO AGREEMENT N 2 DD 02.09.08. EXW CITY K, COUNTRY U".

The SBLC did not provide any other detailed descriptions of goods.

Copy of the commercial invoice presented by the beneficiary showed "CASE SKID STEER LOADERS AS PER SUPPLY CONTRACT 45678 DD 25.08.08 AMENDMENT N 1 DD 28.11.08 TO AGREEMENT N 2 DD 02.09.08. EXW CITY K, COUNTRY U", and this corresponded with the description of goods appearing in the amendment.

UCP 600 sub-article 18 (c) states: "The description of goods, services or performance in a commercial invoice must correspond with that appearing in the credit".

As the SBLC did not require or call for a more detailed description, must the bank examine the quantity and determine whether the quantity stated in the invoice is correctly calculated?

The invoice consisted of two pages with a long list of detailed descriptions not called for in the SBLC. It showed "17" in the "quantity" column of one of the items, but the "Description of Goods" column set forth the detailed order numbers and serial numbers which when counted came to sixteen. The difference could only be found if the examiner performed a detailed calculation in the document.

Banks are not required to count the number of units or items not stipulated or required in a SBLC.

The majority view is that it is not necessary for a document examiner to check and individually count the number of items or orders as to whether they tally with the figure shown in the invoice.

The discrepancy cited by Respondent 1 is not valid.

2. Was it a discrepancy that the Loading Form included the following item: "Order no. Z789 SERIAL NO. N8M488858", but the invoice did not? Did the inclusion of "ORDER NO. Z789 SERIAL NO. N8M488858" in the invoice coupled with the absence thereof in the Loading Form constitute a conflict within the meaning of UCP 600 sub-article14(d)?

As questions 2 and 3 are related, we have put them together under one question whether the Loading Form showing "ORDER NO. Z789 SERIAL NO. N8M488858" but not in the invoice constitutes a conflict within the meaning of UCP 600 sub-article 14 (d) and the document is discrepant.

UCP 600 sub-article 14 (d) states: "Data in a document, where read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in the document, any other stipulated document or the credit".

The data in question was not provided in the SBLC. "ORDER NO. Z789 SERIAL NO. N8M488858" was shown in the Loading Form but not in the invoice. The data in the Loading Form was not something differing from and, therefore, in conflict with that of the invoice, as the Loading Form did provide a description of goods as per the requirement of the SBLC. Even if it could be seen as an omission in the invoice, the details were not required by the SBLC. The data in the Loading Form was not in conflict with that in the invoice.

In our opinion, a Loading Form including "ORDER NO. Z789 SERIAL NO. N8M488858" in its description of goods but not in the invoice did not make the document discrepant. It does not constitute a conflict within the meaning of UCP600 sub-article 14 (d).

3. Was Respondent 1 precluded from raising, as discrepancies, the issues cited in its SWIFT messages of 31 March and 28 April 2010, namely that the documents were inconsistent and that the beneficiary had accepted Respondent 1's refusal by its conduct?

A notice of refusal, SWIFT MT734, was sent by Respondent 1 on 17 September 2009. Subsequent SWIFT messages of 31 March and 28 April 2010 from Respondent1 were responses to the Initiator's SWIFT messages of 10 March and 7 April 2010. In the two messages from Respondent 1, it did not raise any additional discrepancy, but only reiterated its position on the two discrepancies raised in its notice of refusal dated 17 September 2009.

However, in replying to the Initiator's messages, Respondent 1 drew the attention of the Initiator to the fact that neither the beneficiary nor the Initiator had raised any objections or comments regarding the stated discrepancies. As a sign of agreement with the discrepancies, Respondent 1 was instructed by the Initiator to forward the documents to Respondent 2 for approval, without delay. Respondent 1 subsequently received a corrected invoice from the Initiator, after the expiration of the SBLC, and it claimed that this further evidenced the fact that the documents were discrepant.

Whether or not the beneficiary had, by its conduct, accepted Respondent 1's refusal notice would not change the fact that the discrepancies raised by Respondent 1 were invalid. The beneficiary could still reserve its right to take action, under the applicable law, against the confirming bank or issuing bank if its documents under an L/C were wrongfully dishonoured.

4. Is the beneficiary precluded from refuting the original discrepancies cited by Respondent 1?

Although the beneficiary requested that the documents be forwarded to Respondent 2 for approval, and later submitted a corrected invoice after Respondent 1 had notified its refusal to the Initiator, this did not give any expression that it agreed with the discrepancies raised by Respondent 1. The majority view is that the beneficiary could still refute the original discrepancies cited by Respondent 1.

Decision

In conclusion, the discrepancies cited by Respondent 1 were not valid, and the beneficiary is not precluded from refuting the discrepancies cited by Respondent 1 at any later date.

This is a majority Decision.