Parties

Initiator: Company B (Beneficiary)

Respondent: Bank B (Issuing Bank)

NOTE

The Initiator was requested to provide a translated copy of the cover letter sent by the nominated bank to the Respondent. This information was received.

The Initiator was also requested to provide the date on which the Respondent received the documents. The Initiator was unable to provide this information.

Background and transaction

Respondent issued a documentary credit subject to UCP latest version, on 12 December 2007 in favour of the initiator.

• Date of expiry: 12 March 2008 (later amended to 30 November 2008).

• Place of expiry: Country of beneficiary.

• Available with nominated bank By Payment.

• Instructions to Paying/Accepting/Negotiating Bank: Clause E: This L/C is available by payment. After finding docs fully complying with the L/C terms and conditions, for pymt to the BNF as per field 47A point 1 pls claim reimbursement by means of an MT 742, which will cover you value spot (two working days following the receiving date of yr claim).

The nominated bank did not agree to act as per its nomination. Upon receipt of documents the nominated bank forwarded documents to the Respondent and noted to the Initiator that it would effect payment after receipt of cover from the Respondent. Upon presentation of documents, the Respondent refused to honour quoting discrepancies.

The Initiator claimed that the Respondent failed to act in accordance with UCP 600 sub-article 16 (c), hence was precluded from claiming that documents do not comply as per UCP 600 sub-article 16 (f).

On 7 November 2008, the nominated bank confirmed receipt of documents required in the credit and forwarded them to the Respondent.

On 13 November 2008, the Respondent, via a SWIFT MT734, refused documents quoting discrepancies found in the documents. Field 77B: Disposal of documents in the MT734 stated "Notify".

On 16 November 2008, the Respondent, via a further SWIFT MT799, informed the nominated bank that since the documents had been rejected, payment would only be effected after receipt of orderer's acceptance. To date, the Respondent had still not effected payment.

This dispute between the parties centred on the SWIFT messages sent on 13 and 16 November 2008, in particular whether they complied with the provisions of UCP 600 sub-article 16 (c). The Initiator claimed that the Respondent failed to act in accordance with the provisions of UCP 600 sub-articles 14 (b) and 16 (c) for the following reasons:

1. Failure to act in accordance with UCP 600 sub-article 14 (b):

Initiator claimed that the Respondent failed to act in accordance with UCP 600 sub-article 14 (b) on the following basis: the credit specifically stated that it is available for payment with the nominated bank and the nominated bank did not agree to honour.

The Initiator claimed that by not agreeing to act as per its nomination, the nominated bank acted as a paying bank and not as a nominated bank or a confirming bank.

As a paying bank, the nominated bank acted as representative of the Respondent and therefore acted on behalf of the Respondent.

Therefore, the presentation of documents to the nominated bank should be considered as a presentation to the issuing bank and hence, the time period for examination of documents should be the date of presentation to the nominated bank.

The Initiator claimed that UCP 600 sub-article 14 (b) did not provide that each nominated bank, the confirming bank and the issuing bank had a maximum of five banking days following the date of presentation.

The Initiator further claimed that the maximum period of five banking days applied only once and throughout the whole chain of banks. Therefore, as per the opinion of the Initiator, the period of five banking days ended on 12 November 2008, being 5 banking days following 7 November 2008 in the country of the issuing bank. (Saturday and Sunday were banking days in the country of the issuing bank).

2. Failure to act in accordance with UCP 600 sub-articles 16 (c) (i) & 16 (c) (iii):

The Initiator claimed that the first SWIFT message sent via MT734 did not comply with UCP 600 sub-article 16 (c) (i) as it did not unambiguously state that it was a refusal to honour. Instead this has to be derived from the title of the message, which stated "Advice of Refusal".

The Initiator also claimed that the message did not contain the statements regarding disposal of documents as set forth in UCP 600 sub-article 16 (c) (iii).

The Initiator claimed that this was clarified through the separate SWIFT sent on 16 November 2008.

Issues

Was the respondent precluded from claiming that the documents did not constitute a complying presentation in accordance with UCP 600 sub-article 16 (f)?

Analysis

1. Failure to act in accordance with UCP 600 sub-article 14 (b):

The nominated bank in this case did not agree to act as per its nomination; therefore its role in the transaction was limited to receiving and forwarding documents to the Respondent for payment. Under documentary credit practices and UCP 600, this action did not make the nominated bank an agent of the Respondent.

It should also be noted that the undertaking of an issuing bank under a credit is to honour a complying presentation. The only way the issuing bank is able to establish if a presentation is complying is by examination of documents. This is stipulated in UCP 600 sub-article 14 (a) which states: "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."

Under UCP 600, an issuing bank must examine documents to determine whether they comply with the terms of the credit. This is irrespective of whether a nominated bank acting on its nomination, a confirming or any other bank in the chain, did or did not examine documents.

UCP 600 sub-article 14 (b) states: "A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation."

In this case the nominated bank forwarded the documents on 7 November 2008. The nominated bank received an advice of refusal in the form of a SWIFT MT734 on 13 November 2008. The Initiator did not provide the date on which the Respondent received the documents. Hence there was insufficient information provided to verify if the Respondent acted within the time period prescribed in UCP 600 sub-article 14 (b). However, even under the unlikely scenario that the Respondent received the documents on the next day (8 November 2008), an advice of refusal sent on 13 November 2008 would comply with the requirements of UCP 600 sub-article 14 (b). It should also be noted that UCP 600 sub-article 14 (b) clearly allows each and every bank a maximum of five banking days following the day of presentation to determine if a presentation is complying.

It is not to be considered as a total period of time allotted to all the banks involved in a transaction, as this would be unworkable.

The panel considered that the Respondent acted as per the provisions of UCP 600 sub-article 14 (b).

2. Failure to act in accordance with UCP 600 sub-articles 16 (c) (i) & 16 (c) (iii):

UCP 600 sub-article 16 (c) states: "When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.

The notice must state:

i. that the bank is refusing to honour or negotiate; and

ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and

iii.

a) that the bank is holding the documents pending further instructions from the presenter; or

b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c) that the bank is returning the documents; or

d) that the bank is acting in accordance with instructions previously received from the presenter."

On 13 November 2008, the Respondent sent an advice of refusal quoting discrepancies via SWIFT MT734. SWIFT messages are an internationally accepted form of communication between banks participating in a documentary credit transaction. Various message types (MT) in SWIFT are designed to serve specific purposes. A MT734 is a message format designed to convey a sender's refusal to honour a presentation under a documentary credit. The MT734 complied with the requirement of UCP 600 sub-article 16 (c) (i).

The MT 734 sent by the Respondent stated: "Notify" in field 77B: Disposal of documents." Under SWIFT standards this means that the sender has notified the applicant of the discrepancies and is holding documents until it receives a waiver. Therefore the advice of refusal complied with UCP 600 sub-article 16 (c) (iii) (b). The SWIFT message sent by the respondent on 16 November 2008 was a further clarification of this position.

The panel considered that the MT734 sent by the respondent complied with UCP 600 sub-article 16 (c).

Conclusion

The Respondent acted in accordance with UCP sub-articles 14 (b), 16 (c) (i) and 16 (c) (iii) and therefore was not subject to the preclusion clause in UCP 600 sub-article 16 (f).

This decision was rendered unanimously.