Parties

Initiator: Company C (hereafter "beneficiary" or the "Initiator")

Respondent : Bank B (hereafter "issuing bank" or the "Respondent")

and

Third party Mr J (hereafter "applicant" or the "third party")

Background and transaction

1. The Initiator is the beneficiary of irrevocable documentary credit number CIL56789R issued on 12 December 2008 by the Respondent. The applicant is Mr J.

2. The credit was issued via SWIFT MT700 and made subject to UCP 600 by reference to "UCP LATEST VERSION" in field 40E.

3. The credit was issued for USD 31,950.00 and was available with any bank in Country C by deferred payment (90 days from bill of lading date). The credit was advised to the beneficiary through Bank C (advising bank).

4. The credit amount was subsequently increased by USD 47,240.00 to a total of USD 79,190.00.

Issues

The summary below is based upon the request from the Initiator (dated 18 December 2010) as well as documents pertaining to the case (see "Documents submitted by the parties"). There was no submission by the Respondent.

• On 27 November 2008, the Initiator and third party signed contract of sales No. HM-12345 for USD 31,950.00.

• On 12 December 2008, the Respondent issued documentary credit number CIL56789R for USD 31,950.00.

• On 16 December 2008, the Initiator and Third Party signed contract of sales No. HM-34567 for USD 47,240.00.

• On 29 December 2008, the credit was amended. The amount of the credit was increased by USD 47,240.00, making a total credit amount of USD 79,190.00.

• Contract HM-34567 was cancelled. It is not clear from the documents at hand when this contract was cancelled.

• A presentation under the documentary credit was made to the Respondent (through the advising bank). On 10 February 2009, the Respondent accepted to pay USD 49,359.37 on the maturity date i.e., 20 April 2009.

• From the case it is stated that in March 2009 the third party brought an action against the Initiator. It held that the goods delivered in another transaction between the commercial parties (in November 2008) did not conform to the quality standard stipulated in the contract, and applied (at a Country P court) for freezing the amount due under documentary credit number CIL56789R.

• On 6 April 2009, the Respondent informed the advising bank that it had received an injunction issued by a Country P court. The injunction ruled (according to the Respondent) that the Respondent must not proceed with the payment of USD 49,359.37 due in respect of documents presented under documentary credit number CIL56789R, and that such amount is to be arrested and held to the order of the court. Consequently, the Respondent stated it is prevented from settling the amount at maturity despite its prior engagement.

• On 10 October 2009, the advising bank pressed the Respondent for payment under the documentary credit.

• On 12 October 2009, the Respondent replied to the advising bank, informing it that there was no new notice from the court and therefore they still could not pay the amount.

The Initiator requests the International Centre for Expertise to declare, pursuant to the ICC DOCDEX Rules, that the Country P court, besides violating UCP regulations, violated the justice and fairness principle:

1. The Initiator was not notified by the Country P, court thereby being denied its counterplead rights.

2. The Initiator disputes that there is a quality problem with the goods delivered, and even if there had been it should be solved under the conditions that both parties are present and a third party is commissioned to carry out verification.

3. The Respondent is a large-scale operation that has the ability to undertake the responsibility for compensation caused from possible causes.

Based on the above, the Initiator requires that the Respondent pay USD 49,359.37 under documentary credit CIL56789R plus USD 3,000.00 in attorney's fees.

Documents submitted by the parties

Documents submitted by the Initiator

(xxxiii) A copy of Contract for sale No. HM-12345;

(xxxiv) A copy of Contract for sale No. HM-34567;

(xxxv) Documentary credit number CIL56789R for USD 31.950,00;

(xxxvi) Amendment to the documentary credit dated 29 December 2008;

(xxxvii) Amendment to the documentary credit dated 19 January 2009;

(xxxviii) Acceptance document from the Respondent confirming acceptance of the documents;

(xxxviii) The notice concerning the injunction received from the Respondent;

(xxxix) Message from the advising bank pressing the Respondent for payment under the documentary credit;

(xl) A copy of the bill of lading presented under the documentary credit;

(xli) A copy of the certificate of origin presented under the documentary credit;

(xlii) A copy of the packing list presented under the documentary credit;

(xliii) A copy of the invoice (for USD 49.359,37) presented under the documentary credit;

(xliv) Verdict concerning the injunction of the Country P court.

Analysis

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. Under all circumstances the court has notably prohibited payment under the documentary credit with reference to a different transaction and a different documentary credit, but presumably without any reference to an irregularity or unlawfulness regarding the transaction concerned.

• 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. It must be added that it would at least be expected that any freezing order of the funds payable under a documentary credit is related to the transaction covered by that documentary credit. A freezing order of a payment under one documentary credit based on a delivery of goods under another documentary credit is highly unusual.

• 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):

1. The handling of stop-payment orders by local courts is a matter of local law and consequently a matter outside UCP and outside the scope of consideration of the DOCDEX process and the Panel of Experts.

2. The issue of whether or not there is a quality problem with the goods and how such should be solved is a matter outside UCP and outside the scope of consideration of the DOCDEX Panel of Experts.

3. The issue of the size of the parties and their ability to undertake their responsibility for compensation caused from possible causes is a matter outside UCP and outside the scope of consideration of the DOCDEX panel of experts.

Conclusion

In conclusion, 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. Likewise, the payment of attorney fees would be for a court to decide.

[This is a unanimous Decision.]