Parties

Initiator: Company N (Beneficiary)

Respondent: Bank B (Issuing Bank)

Background and transaction

The Initiator was the beneficiary of an irrevocable standby letter of credit that was issued on 15 December 2011 by the Respondent.

The standby letter of credit was issued via SWIFT MT700 and made subject to UCP 600, incorporating the wording "UCP LATEST VERSION" in field 40E.

The credit was issued for maximum USD 200.000,00 and was available with the Respondent by payment. An advising bank was used to advise the standby letter of credit to the beneficiary.

As there was no response received from the Respondent, the background was based solely upon the dispute summary and documents provided by the Initiator.

On 15 December 2011, a credit for maximum USD 200.000,00 was issued covering the supply of live and frozen lobsters. [Note from the Appointed Experts: the goods description was stated in the standby letter of credit as "Bogavante Vivo - Partida Arancelaria 030000 - CIF Madrid".]

Mid-February 2012, the applicant advised the Initiator that it would be unable to make payments of outstanding invoices, covering consignments already received. The reason given was that the Spanish Tax Authorities had sequestered its receivables. Based on that information, the Initiator ceased sending additional consignments.

On 5 April 2013, the Initiator made a demand for payment to the Respondent under the standby letter of credit. The demand covered 11 consignments that had been sent between 22 December 2011 and 2 February 2012. The value of the demand was USD 193.809,37, which covered the combined value of live lobsters.

[Note from the Appointed Experts: The value of lobsters according to the invoices was USD 193.808,36. Further, the demand letter specifically stated: "Please undertake requirements described in the L/C to properly inform the issuing bank and retrieve the full $200,000." The schedule document detailing the invoices presented totalled USD 224.770.08 and was made up of USD 193,809.37 of lobster and USD 30,960.71 of scallop. The statement document was addressed to the advising bank and not to the Respondent.]

On 13 April 2013, the Respondent refused the demand, citing the following three discrepancies:
1: Invoice. Description of goods in invoice not as per L/C field 45A.
2: Invoice showing air waybill number 7283-2863 I/O 72831662.
3: AWB showing airports of departure in conflict with L/C field 44E.

Issues

1. On the general premise that documentary discrepancies were invalid once those discrepancies have presented no obstacle to successful performance of the beneficiary under the standby letter of credit.

2. That the discrepancies cited by the Respondent were invalid.

Documents submitted

A. Documents submitted by Initiator

1. The formal request for a DOCDEX Decision.

2. A cover letter to the Appointed Experts.

3. Dispute summary and Initiator's Claim.

4. Copy of standby letter of credit.

5. Copies of invoices.

6. Communication between Initiator and Respondent.

7. A document about multimodal / combined transport.t documents.

8. Copy of statement of claim from Initiator (plus invoice schedule) addressed to the advising bank.

B. Documents submitted by Respondent

The Respondent did not submit any documents.

Analysis

Issue 1

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.

Sub-article 14 (a)
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.

Sub-article 14 (d)
Data in a document, when 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 that document, any other stipulated document or the credit.

The Initiator argued that the standby letter of credit was created to ensure that it was paid for goods that were successfully delivered to the applicant. The purpose of the documents required by the standby letter of credit was to satisfy the requirements of government and commerce in the process of transferring control over, and ownership of, the goods from the Initiator to the applicant. Once control/ownership had been passed from the Initiator through the relevant regulatory controls, to the applicant, the documentary requirements attached to the transaction should no longer be relevant as to the validity of the obligation to pay under the standby letter of credit.

Based on the above (abstract), the Initiator requested the Appointed Experts to verify if the fact that the Initiator had successfully performed its obligation to convey title and possession of goods to the applicant meant that a refusal could not be made by the Respondent based on discrepancies between the transit documents and the standby letter of credit.

The standby letter of credit was issued subject to the UCP 600. It is a core principle that the obligation of an issuing bank relies on the documents presented. The examination of the documents presented is based on the documents alone, and whether or not the documents appear on their face to constitute a complying presentation. Further, banks deal with documents and not with goods, services or performance to which the documents may relate.Whether or not goods have been delivered or the like has no bearing on an issuing bank's decision to refuse a presentation. If the documents do not constitute a complying presentation as envisaged in the articles of UCP 600, the issuing bank may refuse to honour.

Issue 2

Discrepancy 1: Invoice. Description of goods not as per L/C field 45A

The requirement in the standby letter of credit for an invoice was: "Copy of the relevant invoice unpaid". The goods description in field 45A was as follows: "Bogavante Vivo - Partida Arancelaria 030000 - CIF Madrid". The invoices presented included both "Lobster" and "Scallops." The distribution of the "Lobster" and "Scallops" was as follows:

The invoices were presented citing the following discrepancy: "Invoice. Description of goods not as per L/C field 45A"

"Bogavante Vivo - Partida Arancelaria 030000" means, "Lobster live - tariff heading 030000." The standby letter of credit was issued partly in Spanish and partly in English languages. It should be noted that the words "lobster" and in some cases additionally "scallops" were the only elements of the goods description that were shown on the invoice.

The Initiator made reference to:

• DOCDEX Decision 304 regarding the language of the documents presented. The Appointed Experts did not find this Decision relevant, as there was no requirement for any language in the standby letter of credit.

• DOCDEX Decision 231 regarding the nature of the goods. The Appointed Experts did not find this Decision relevant, as there was no issue regarding the nature of the goods.

• ICC Opinion R456 regarding the nature of the goods. The Appointed Experts did not find this Opinion relevant, as there was no issue regarding the nature of the goods.

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

Furthermore, ISBP 745 paragraph C12 (b) states that an invoice is not to indicate goods, services or performance not called for in the credit.

For this case it was acceptable that, although being stated in Spanish in the credit, the language of the description of the goods was stated in English, provided UCP 600 sub-article 18 (c) has been complied with. This was not the case for the following reasons:

Firstly, the documentary credit called for "Bogavante Vivo - Partida Arancelaria 030000 - CIF Madrid " and the invoices indicated only "lobster."

Secondly, the invoices also made reference to "scallops" which was not called for by the credit.

Thirdly, the amounts reflected in the credit, compared to the invoices and the demand, were in conflict as follows:

• Amount of the documentary credit: USD 200.000,00

• The amount of the demand: USD 200.000,00

• The total amount of the invoices: USD 224.733,49

• The amount of the "lobster" according to the invoice: USD 193.808,36.

Although, according to UCP 600 sub-article 18 (b), the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, there was a conflict between the amount of the demand and the value of the shipped lobsters. The USD 200.000,00 as demanded clearly included a certain amount of "scallops" in addition to the "lobsters."

For the reasons stated above, this was a valid reason for refusal.

Discrepancy 2: Invoice. Invoice number 11012ECE1 showing air waybill number 7283-2863 I/O 72831662

The requirement in the standby letter of credit for an invoice was: "Copy of the air waybill"

Copies of transport documents are not transport documents for the purpose of UCP 600 articles 19-25. Refer to ISBP 745 paragraph A6. For that reason, the examination of the presented copy of transport document was to be based on UCP 600 sub-articles 14 (f) and 14 (d).

Each invoice indicated the number of the related air waybill number. The invoice indicated air waybill number: 7283-2863. The air waybill indicated number: 075JFK72832863.

Although not identical, this was not a conflict. For the reasons stated above, this was not a valid reason for refusal.

Discrepancy 3: Air waybill. AWB showing airports of departure in conflict with L/C field 44E

The transport route mentioned in field 44 in the standby letter of credit was as follows:

44A: Boston Massachussets - USA

44E: Boston Massachussets

44F: Madrid

44B: By airway

The "Airport of departure" mentioned in the air waybills included the following airports:

Washington - Dulles IN

J.F.K.

JFK Airport, New York

The Initiator argued that UCP 600 article 19 (Transport Document Covering at Least Two Different Modes of Transport) applied for the examination of the transport document.

As argued above, since the standby letter of credit required a copy of the air waybill, the UCP 600 transport articles did not apply. Consequently article 19 did not apply. Since both the standby letter of credit and the air waybill copies indicated an "airport of departure", these must be compared against UCP 600 sub-article 14 (d) and must not be in conflict.

For the documents presented, it appeared that they were. The goods were not dispatched from Boston, Massachusetts but rather from Washington and J.F.K.

For the reasons stated above, this was a valid reason for refusal.

Conclusion

1: Whether or not goods have been delivered or the like has no bearing on the issuing banks decision to refuse the presentation. If the documents did not constitute a complying presentation as envisaged in the articles of UCP 600, the issuing bank may refuse to honour.

This was a unanimous decision.

2: Discrepancy 1: "Invoice. Description of goods not as per L/C field 45A".The Appointed Experts did consider this to be a valid reason for refusal.

This was a majority decision.

3: Discrepancy 2: Invoice. Invoice showing air waybill number 7283-2863 I/O 72831662. The Appointed Experts did not consider this a valid reason for refusal.

This was a unanimous decision.

4: Discrepancy 3: AWB showing airports of departure in conflict with L/C field 44E. The Appointed Experts did consider this to be a valid reason for refusal.

This was a unanimous decision.

In conclusion, the issuing bank was right in refusing the presentation.