Parties

Initiator: Company I

Respondents: Bank B (First Respondent)

Bank C (Second Respondent)

Background and transaction

1. On 7 September 2009, Bank B issued an irrevocable documentary credit ref. C12345 for an amount of EUR 3,585,000 in favour of Company G (the "credit"). The credit was subsequently amended and made "transferable".

2. Bank C, acting as advising and confirming bank, transferred the credit for an amount of EUR 3,050,000 in favour of the Initiator through Bank K, acting as advising bank.

3. Relevant elements of this transfer, which were almost the same as the original credit, were:

• subject to UCP latest version (i.e., UCP 600)

• available with Bank C by payment

As per field 78 of the MT720, proceeds were stated to be remitted value 10 working days in Country A and Country G

• First beneficiary: Company G

• Second beneficiary: Company I

• Documents required:

+ Commercial invoice, which must mention conformity to the proforma invoice.

+ Complete set of clean on board bills of lading (hereafter B/L) to order of Bank B, marked freight prepaid and notify the applicant of the original credit: Company S

+ Packing list

+ Weight list

+ EUR 1 document addressee Company S

+ Certificate of origin

+ Quality control certificate issued by a competent organization, other than the beneficiary.

4. All the documents required under the credit and listed above were presented by Company I to Bank C, which found the presentation to be complying.

5. On 13 January 2011, Bank C sent the documents to Bank B. Payment was due value 26 January 2011 for an amount of EUR 3,263,250.

6. Bank B did not reject the presentation as per UCP 600 article 16.

7. The first beneficiary, Company G, contended that there was fraud in the transaction and sought an injunction from the Country G courts enjoining the payment of the credit.

8. On 19 January 2011, an interlocutory court injunction reportedly enjoined Bank C from making any payment to Company I under the credit.

9. On 9 November 2011, the injunction was reportedly lifted.

10. Bank C continues to refuse payment on the basis of fraud and/or forged documents.

Issues

The Initiator seeks a DOCDEX decision to decide on the Initiator's right to obtain payment under the credit whether from the First Respondent as issuing bank or the Second Respondent as confirming bank.

A. Initiator's Claim

In the Request dated 25 January 2012, the Initiator contends that:

1. Presentation of documents was considered as complying by both the issuing and confirming banks. Company G substituted its own invoice as per UCP 600 sub-article 38 (h). The invoice confirmed the conformity of the goods with their proforma invoice.

2. Shipping of goods failed, since Bank B and Company S did not sign the "lettre d'Engagement", which is reportedly a document required for hazardous goods to be discharged under local regulation.

3. The interlocutory injunction enjoining payment was lifted on 9 November 2011 by abandonment of the action by Company G. The first interlocutory injunction was based on declarations concerning the shipment of the goods, which were allegedly false.

4. Presenting bank, Bank K, supported the claim of Company I by insisting on payment on the basis of UCP 600 article 4.

5. Company I insisted on the respect of the payment commitment as stated in UCP 600.

B. First Respondent's Answers

1. In its Answer, Bank B refutes the facts as represented by Company I. In summary, it provides its own narrative presentation of the facts in relation to the commercial contract, the amendment of the credit to make it transferable, the transmission of the documents by Bank C, the instructions by Company S that no payment should be made because of non-conforming delivery and the judicial actions taken in Country G to prevent payment. In addition, Bank B represents that its investigation showed that no goods have been shipped on the vessel referred to in the documents, which leads it to infer that the B/L is untrue. According to Bank B, those facts led it to reject the claim for payment and to consider the file as closed.

2. In addition, Bank B notes that Company G and Company S are not parties to this DOCDEX proceeding and submits that both Company G and Company S should intervene in order for the DOCDEX decision to take into account their arguments. Referring to the underlying commercial contract and sub-contract, Bank B submits that Country A law and jurisdiction (country of Bank B) should apply.

3. Bank B further points out that it cannot effect payment because any such payment would be in breach of the Country A exchange and international trade regulations, which require that a customs certificate be provided to evidence the import of the goods. In the absence of such a document, Bank B cannot make any payment.

4. Bank B rejects the contention of Company I that it has aided Company S in preventing the shipment.

5. Furthermore, Bank B argues that Bank C did not inform Bank B, nor made any reservation as to the fact that the invoice was issued under the header of Company G, while it was Company I that shipped the goods and, accordingly, should have issued the invoice.

C. Second Respondent's Answers

1. Bank C challenges the competence of the appointed DOCDEX experts and submits that the dispute should be resolved by the courts applying Country G law (country of Bank C).

2. Bank C also represents that evidence shown in the legal proceedings indicate that the goods have never been shipped. This, according to Bank C, results in the bill of lading being false. Consequently, attempts to obtain payment under the credit are, according to Bank C, an abuse of rights or a fraud.

D. Voluntary submission by Bank K

1. On 14 January 2011, Bank C confirmed receipt of documents by MT 799 and promised to pay.

2. On 20 January 2011, Bank C informed Bank K about the interlocutory injunction preventing payment.

3. After the injunction was lifted, Bank K requested payment several times from Bank C to no avail up to 17 February 2012.

Documents submitted by the parties

A. Documents submitted by the Initiator (all of which are copies).

1. SWIFT MT 720 (date not specified), being the transfer of the documentary credit (C12345) by Bank C to Company I;

2. Commercial invoice of the first beneficiary, Company G, issued on 7 January 2011 to the applicant, Company S, containing the mention that goods are in conformity with the related proforma invoice;

3. Declaration under oath, date not legible, signed by Mr M as manager for Company S. The declaration is established in German and French and states that a shipment of goods has been received from Company I in Country A and that it is incomplete and does not match with the technical requirements;

4. Declaration under oath, dated 18 January 2011, signed by Mr C as manager for Company G. The declaration is established only in German. In essence, it indicates that Company G will be held responsible for the wrong delivery of the goods to Company S. It also contains a long explanation as to why Company I cannot deliver the goods on the agreed terms;

5. Letter of Company G dated 17 January 2011 towards Bank C in German (and French incomplete translation), wherein it is stated that there was a shipment not complying with the contractual conditions. Bank C is asked to block payment meanwhile;

6. SWIFT MT 999 dated 24 March 2011 from Bank K to Bank B, requesting immediate payment on the basis of UCP 600 article 4;

7. SWIFT MT 999 dated 12 April 2011 from Bank B to Bank K, stating that payment was not effected since Bank B and its customer were "subject to fraud case" and the falsification of the bill of lading;

8. SWIFT MT 999 dated 10 May 2011 from Bank K to Bank B, transmitting the position message of Company I claiming payment;

9. SWIFT MT 799 dated 25 November 2011 from Bank C to Bank K in German, stating that payment cannot be made due to presentation of a false B/L under the credit;

10. SWIFT MT 799 dated 5 December 2011 from Bank C to Bank K in German, from which it can be inferred that Company I is aware of the court decision since it took part in the proceedings;

11. Letter dated 11 January 2012 from Bank K to Company I, requesting that future contact be made directly to Bank C.

B. Documents submitted by the Respondents (all of which are copies).

1. Documents submitted by the First Respondent. This list is made on the basis of the actual presented enclosures, which in case (iii) and (iv) do not match with the description of the document given by Bank B. In such case, the actual presented enclosure is stated in "italics".

(i) Documentary credit issued on 7 September 2009 by Bank B through Bank C (as advising and confirming bank) by order of applicant Company S in favour of Company G. Relevant characteristics mainly as stated under II.2 here above.

(ii) Request of amendment dated 12 November 2009, by Company S to Bank B, for making the credit transferable;

(iii) SWIFT relating to amendment of the credit. This document was not presented, but another document seems to be the relevant one: SWIFT MT 720 with no specified date, being the transfer of the documentary credit by Bank C to Company I;

(iv) SWIFT of Bank C to Bank B, acknowledging receipt of the amendment. This document was not presented, but another document seems to be the relevant one: SWIFT MT 799 dated 19 January 2011, from Bank C to Bank B, whereby Bank C acknowledges receipt of a SWIFT of Bank B dated 18 January 2011 (unknown) and stating that it will contact the second beneficiary and will revert;

(v) SWIFT MT 754 dated 13 January 2011 from Bank C, asking for cover payment of EUR 3,263,250 to Bank B under value 26 January 2011;

(vi) Remittance letter (page 2 only) of presented documents dated 13 January 2011 from Bank C to Bank B;

(vii) Letter dated 9 January 2011 from Company G to Company S, informing about short shipment and asking to suspend payment until regularization of the situation;

(viii) Letter dated 12 January 2011 from Company S to Bank B, asking not to accept documents and opposing any payment for non-respect of the contractual obligations and because there is presentation of an invoice not corresponding to the shipped equipment;

(ix) Letter dated 17 January 2011 from Company G to Bank C in German with incomplete French translation informing that the delivered goods do not correspond to the agreed volume (shortage of approximately 40% of goods) and the contractual obligations, and asking to block payment;

(x) Letter dated 21 January 2011 from Company G to Company S, informing that it succeeded to stop payment under the credit by legal action, insisting to work together to find a solution to the issue "caused by the bank". Company G alleges that it seeks compensation from Company I for interest and damages;

(xi) SWIFT MT 799 dated 18 January 2011, from Bank B to Bank C, acknowledging receipt of the documents and asking to suspend the payment. As per Company S, the delivered goods are not as per contractual specifications. Reference is also made to letter quoted under (ix) here above;

(xii) Letter dated 1 February 2011, from Bank B to Bank C. Reference is also made to the injunction from the court of City K not to make payment and to the fact that shipping company affirms that B/L presented is not a regularly issued document;

(xiii) SWIFT MT 799 dated 4 April 2011, from Bank B to Bank C, confirming its position (document xi), stressing that Company I has admitted that no shipment has ever been effected and that the B/L is a forgery. Bank B considers the credit file as closed;

(xiv) Letter dated 26 January 2011 from Company S to the agent of the shipping Company N, asking to inform it about the accuracy of the shipment;

(xv) Letter dated 30 January 2011from shipping Company N to Company S, informing that B/L is not regular and that its agent at City A confirms that related goods have not been shipped on the alleged vessel;

(xvi) French translation of the injunction rendered in German by the High Court of City K on 19 January 2011;

(xvii) Judgement in German of the Commercial Court of City K dated 18 February 2011;

(xviii) Letter dated 10 March 2011, from Company I to Bank B, giving its overview of the facts and stating that Bank B has handled the case in breach of the UCP, since its non-payment is based on an incorrect allegation that goods are not conforming;

(xix) Letter dated 29 March 2011, from Company I to Bank B, referring to its previous letter, which remained without response and renewing its request for payment. Furthermore, Company I requests Bank B to cooperate by issuing the required "lettre d'engagement" by 5 April 2011;

(xx) E-mail dated 17 May 2011 from Bank B to Company I (once again through their lawyers) with following enclosure as attachment:

(xxi) Letter from Bank B to Company I (by mail), reiterating that the B/L is a forgery. The letter also contains allegations that other presented documents (such as the invoice) were not regular. Bank B further indicates that it considers the matter as closed;

(xxii) Decision issued by the accusation chamber of City O dated 8 January 2012 in Arabic;

(xxiii) Decision issued by the commercial/marine court of City O dated 5 October 2011 in Arabic;

(xxiv) Injunction issued by the court (summary procedure) of City O dated 18 January 2012 in Arabic;

(xxv) Judgement rendered by the commercial/marine court of City O dated 30 January 2012 in Arabic;

(xxvi) Article 21 of the commercial contract between Company S and Company G;

(xxvii) Country A regulations for current foreign transactions;

(xxviii) Article 15 of the commercial contract and methods of payment between Company S and Company G;

(xxix) Presented B/L.

(xxx) Presented commercial invoice issued by Company G;

(xxxi) E-mail response dated 20 January 2011 from Agent I to Company S. Agent I is the agent of the ship owner and states not to know the presented B/L;

(xxxii) SWIFT MT 799 apparently dated 25 November 2011 issued by Bank C to Bank K (in German with a free French translation), informing that payment cannot occur due to presentation of a B/L with false contents, notwithstanding that court did not pronounce on that case for procedural reasons.

2. No documents or enclosures were submitted by the Second Respondent.

Analysis

1. Article 1.1 of the DOCDEX Rules states that the rules are available in connection with any dispute related to a documentary credit incorporating UCP or URR, a collection incorporating URC or a demand guarantee incorporating URDG.

2. The same article provides that the Panel of Experts empowered under the DOCDEX Rules to resolve disputes does so on the basis of the terms and conditions of the relevant instrument and the applicable ICC rules.

3. UCP 600, applicable to the case, provides in article 5 that banks deal with documents and not with goods, services or performance to which the documents may relate. Furthermore, article 14 provides that a nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation. An issuing or confirming bank must determine within five banking days following the day of presentation if a presentation is complying. If it is, that bank must, according to article 15, honour (or negotiate). Failure to refuse a presentation within the period indicated in the UCP precludes an issuing or confirming bank from subsequently claiming that a presentation does not constitute a complying presentation (UCP 600 sub-article 16 (f)).

4. In the matter of a transferred credit, UCP 600 sub-article 38 (h) gives the right to the first beneficiary to substitute its own invoice and draft, if any, for those of the second beneficiary. In the matter of this case, the first beneficiary has used that right and its invoice can therefore not be rejected.

5. After examining the documents submitted in the case, the Panel of Experts determines that a complying presentation was made by the Initiator. No notice of refusal was issued by the confirming or issuing bank within the time limit set in the UCP. Accordingly, the First and Second Respondent are estopped from claiming discrepancies in the presentation and have the duty under UCP 600 to make payment under the credit.

6. However, in addition to having the duty to abide by the UCP which are incorporated in the credit, the banks are also under the obligation to abide by the mandatory laws applicable to them. Fraud, forgery and exchange regulation are generally considered as a matter of mandatory laws. Mandatory laws supersede the UCP, which are a set of contractual rules.

7. The Panel of Experts is not empowered under the DOCDEX Rules to decide on issues that relate, not to the UCP alone, but to the applicable law such as fraud or exchange regulation. This includes both deciding on facts and adjudicating claims in relation to such issues.

Conclusion

The Panel of Experts unanimously makes the following decision under the ICC DOCDEX Rules:

The First and Second Respondent have the duty under UCP 600 to pay the value of a complying presentation under the credit where no refusal of the presentation was made within the time limit indicated in UCP 600 sub-article 16 (d). The Panel of Experts does not have the power under the rules applicable to this proceeding to, and in effect does not, express any opinion on whether a fraud can be identified in the circumstances of the case or its possible impact on the payment duty herein ordered under UCP 600.