Parties

Initiator (beneficiary): Company H

Respondent 1 (applicant): Company I

and

Respondent 2 (issuing bank): Bank V

Background and transaction

The Initiator is the beneficiary of irrevocable documentary credit number 12345 that was issued on 26 February 2010 by Respondent 2. The applicant is Respondent 1.

The credit was issued via SWIFT MT700 and made subject to UCP 600, as it included the wording "UCP LATEST VERSION" in field 40E.

The credit was issued for USD 1,232,397 and was available with any bank by negotiation six months from the date of the bill of lading, pertaining to the last shipment.

The amount of the credit represents 90 per cent of the contract amount. Ten per cent was settled outside the credit.

The credit was amended twice, extending the latest date of shipment to 30 April 2010, and then 21 May 2010.

Issues

The summary below is based upon the request from the Initiator (dated 26 July 2011) as well as responses from Respondent 2 dated 29 August 2011 and 22 September 2011.

• On or before 28 May 2010, the documents were presented to a nominated bank and forwarded to the issuing bank under a covering letter dated 28 May 2010.

• On 18 June 2010, the issuing bank accepted to pay USD 1,232,397 at the maturity date (12 November 2010) and informed the nominated bank accordingly.

• On 1 November 2010, the issuing bank informed the nominated bank that in its covering letter, which the issuing bank acted upon, the nominated bank misrepresented the tenor and miscalculated the maturity date (calculated 180 days from the date of bill of lading, where it should be - according to the credit terms - six months from the date of bill of lading). Thus, the issuing bank corrected the maturity date to be 17 November 2010.

• On 9 November 2010, the court in City H issued a decision on the application of provisional emergency measures according to which the amount payable under the credit was frozen at the issuing bank in order to ensure the enforcement of the arbitral award was of Country X International Arbitration Centre at the Country X Chamber of Commerce and Industry (the "Court Decision").

• On 15 November 2010, the issuing bank informed the beneficiary about the Court Decision and the instruction of the court not to effect payment under the credit.

• The beneficiary protested against the court decision to the issuing bank and appealed to the court. The response from the court was to request the beneficiary to supplement additional documents in order for the court to address the appeal.

• On 16 August 2011, the issuing bank requested the court to consider the removal of the court decision by stating the following: "Therefore, we [Respondent 2] would request you The Court to consider removing the Decision ... so that we can perform the engaged payment obligations towards the beneficiary in the spirit of UCP 600."

The Initiator requests the International Centre for Expertise to declare, pursuant to the ICC DOCDEX Rules, that:

1. The conditions for making the payment of USD 1,232,397 under credit number 12345 were fulfilled.

2. Payment of such credit cannot be barred by any claim or defence of the applicant resulting from the contract and raised in front of the Country X International Arbitration Centre.

3. The issuing bank should have sought lifting of the decision rendered by the court on 9 November 2010 on the basis of the principles of the UCP 600.

The Respondent 2 confirms that it:

1. formally requests a DOCDEX Decision pursuant to Article 3.2.2. of the DOCDEX rules;

2. wishes to participate in the proceeding of DOCDEX/314;

3. requests the Centre to submit their answer dated 29 August to the Expert Panel.

Respondent 2 underlines that the above request does not mean their agreement to be bound by the DOCDEX Decision.

Documents submitted by the Parties

Documents submitted by the Initiator

1. Sale Contract dated 31 January 2010 (including addendum 1 to 3 and Annex 1);

2. Documentary credit for the first purchase order for an amount of USD 1,232,397;

3. Amendment to the documentary credit dated 15 April 2010;

4. Amendment to the documentary credit dated 29 April 2010;

5. Inward cable notification of the bank dated 21 June 2010 confirming acceptance of the documents;

6. Amendment to the documentary credit dated 1 November 2010;

7. Test report of the sample dated 27 April 2010;

8. Inspection report dated 27 April 2010;

9. Decision of the court on 9 November 2010;

10. Inward cable notification of the bank dated 15 November 2010;

11. Inward cable notification of the bank dated 17 December 2010;

12. Letter from the beneficiary to the bank on 31 December 2010;

13. Letter of Appeal dated 13 December 2010;

14. Notice dated 21 December 2010 received from the chief justice of City H People's Court;

15. Notice dated 15 February 2011 received from the chief justice of the court;

16. Submitted documentary credit documents to the bank for shipment dated 15 May 2010;

17. Submitted documentary credit documents to the bank for shipment dated 15 May 2010.

Documents submitted by Respondent 2

1. The Answer to DOCDEX/314;

2. Sale contract dated 31 January 2010 (including addendum 1 to 3);

3. Documentary credit for an amount of USD 1,232,397;

4. Amendment to the documentary credit dated 15 April 2010;

5. Amendment to the documentary credit dated 29 April 2010;

6. Covering schedule from the Bank for USD 1,232,397 dated 28 May 2010;

7. Covering schedule from the bank for USD 1,232,397 dated 11 June 2010 for additional documents;

8. Submitted documents for shipment of 15 May 2010 and for shipment 17 May 2010;

9. SWIFT message of acceptance dated 18 June 2010 from the issuing bank;

10. SWIFT message dated 29 October 2010 from the issuing bank for amendment of maturity date;

11. The Decision for Temporary Emergency Measure Application of City H People's Court;

12. SWIFT message dated 12 November 2010 from the issuing bank informing the bank about the court's decision;

13. SWIFT message dated 15 November 2010 from the issuing bank providing the bank the content of the court's decision;

14. Written proposal from the issuing bank to the court for the removal of the court's decision

Respondent 1 did not submit any documents.

Analysis and conclusion

UCP 600 includes the following provisions:

Article 4

"Credits v. Contracts

a. A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary.

A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the applicant and the issuing bank.

b. An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like."

Article 5

"Documents v. Goods, Services or Performance

Banks deal with documents and not with goods, services or performance to which the documents may relate."

Article 7

Issuing Bank Undertaking

"a. Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honour if the credit is available by:

i. sight payment, deferred payment or acceptance with the issuing bank;

ii. sight payment with a nominated bank and that nominated bank does not pay;

iii. deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;

iv. acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;

v. negotiation with a nominated bank and that nominated bank does not negotiate.

b. An issuing bank is irrevocably bound to honour as of the time it issues the credit.

c. An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank's undertaking to the beneficiary."

The ICC DOCDEX Rules, in effect from 15 March 2002, include the following provision:

Article 1

"(DOCDEX) [...] is available in connection with any dispute related to [...] a documentary credit incorporating the ICC Uniform Customs and Practice for Documentary Credits (UCP), and the application of the UCP [...] Its objective is to provide an independent, impartial and prompt expert decision (DOCDEX Decision) on how the dispute should be resolved on the basis of the terms and conditions of the documentary credit [...] and the applicable ICC Rules...".

In general it should be noted that:

• The issue of provisional emergency measures resulting in a freeze of issuing bank assets, freeze payment orders, stop payment orders, injunctions (or comparable court measures) is not covered by UCP 600, but is for the courts to consider.

• The independence principle of documentary credits (as reflected in UCP 600 articles 4 and 5) should be upheld to the fullest extent possible, i.e., any interference by a court that prevents a bank from fulfilling its obligation under a credit should be based on very strong arguments, for example, proof of beneficiary fraud.

• An issuing bank that is presented with a decision from a court freezing the amount payable under a credit at the issuing bank cannot ignore such freezing order. This applies even if the issuing bank's obligation has been established due to a complying presentation being made and regardless of whether the issuing bank has previously accepted its obligation to pay.

• Local law and its application by the local courts is superior to UCP 600. The question of whether an issuing bank is required to fulfil its payment obligation under a credit, where a court decision according to which the amount payable under the credit is frozen at the issuing bank, is not a matter covered by UCP 600 and has to be determined by a court of law.

As for the requests from the Initiator (see above):

The issuing bank has accepted to pay at maturity. Therefore, according to UCP 600 article 7 its obligation under the credit to honour, is clearly established. The issuing bank has not disputed this, but rather acknowledged its payment obligation. However, as noted, the issuing bank cannot ignore the court decision.

The issuing bank is liable to honour a complying presentation as from the time of issuance of the credit. The mere existence of a dispute between the applicant and the beneficiary, including any court or arbitration hearing that is in place, does not, by itself, constitute a reason for not honouring under the credit. The issuing bank, however, cannot ignore the court decision prohibiting it from paying or reimbursing. Therefore, the question here is not whether the payment can be barred by any defence raised in front of an arbitration body, but rather whether, with respect to the issuing bank's obligation, the payment may be barred by a court order, injunction or similar court action.

As previously stated, the actions of a court are not covered in the UCP. Accordingly, the possible claims or defences of the applicant and the liability of the issuing bank for having complied with the court decision is an issue outside the UCP and has to be determined by a court of law. Therefore, this Panel rejects the Initiator's Request No. 2 as the issues identified in Request No. 2 are outside the scope of the ICC DOCDEX Rules (refer to article 1).

According to the issuing bank's response to the Request for a DOCDEX Decision provided on 29 August 2011, the bank requested the court to consider removal of the court decision on 16 August 2011. However, whether and at what stage an issuing bank of a credit is required to seek lifting of any court order that prevents it from effecting payment is a matter outside UCP and outside the scope of consideration of the DOCDEX Panel of Experts.

This is a unanimous Decision.