Parties

Initiator: Bank R (Confirming nominated Bank)

Respondent: Bank P (Issuing Bank)

Note

Only the Initiator had submitted documents related to this decision.

This decision was rendered without the participation of the Respondent.

Background and transaction

Documentary credit subject to the latest UCP Rules, i.e. UCP 600 issued by the Respondent using SWIFT MT700 on 11 February 2014 and notified to the Initiator.

• Amount: USD 1,609,289.50.

• Date and place of expiry: 28 August 2014 in the country of the Initiator.

• Goods: ANGLE SS400 (as subsequently amended to read, "Alloy Hot Rolled Prime Steel Angle SS 400B" by the Amendment no.2).

• Trade terms as stated in the credit: Total amount CIF (Incoterms 2010) Tanjung Priok Jakarta Port for USD 1,693,989.

• Partial shipments: Allowed.

• Documents: among other documents requested (field 46A):

- "Manually signed commercial invoice in 3 folds",

- "Packing list in 3 folds",

- "Full set insurance certificate, made out or endorsed to the order of [... (the Respondent) ] for to 110 pct of the CIF value. Insurance must include: Institute War Clauses, Institute Cargo Clauses (All Risks), Institute Strike, Riots and Civil Commotions Clauses, Claims (if any) are payable in Indonesia, in the currency of the drafts",

- "Beneficiary´s certificate certify that original mills test certificate and certificate of origin form E presented outside L/C via courier",

• Available with any bank in country of beneficiary by negotiation.

• Drafts at 150 days from B/L date.

• Latest date of shipment: 31 March 2014.

• Period for presentation: 21 days.

• The credit, among other additional conditions (field 47A), stipulated (condition 16):

• "Total amount CIF (Incoterm 2010) Tanjung Priok Jakarta Port for USD 1,693,989

- 5 pct (USD 84,699.50) paid by T/T separately from this L/C

- this credit only covers 95 pct (USD 1,609,289.50) against complying presentation of documents under field 46A".

• Confirmation instructions: without (amended as: "advising bank may add the confirmation"; the credit was then confirmed by the Initiator).

• Instructions to the Paying/Accepting/Negotiating Bank (field 78) included the following instruction (no. 2): "All documents accepted on first presentation which comply with L/C terms and conditions, we will remit the proceeds less USD 58.00 or equiv. being our reimbursement fee at maturity according to your instructions" (subject to Amendment no. 1 - see below).

The Respondent sent the Initiator an MT707 Amendment no. 1 dated 13 February 2014. Amendment no. 1, inter alia, allowed a tolerance 10 per cent more or zero per cent less in amount and quantity and authorised the advising bank to add its confirmation, and in the event of the credit being confirmed, stipulated corresponding reimbursement conditions by stating the name of the reimbursing bank with the reimbursement being subject to URR latest version.

Amendment no. 1 also stated a new condition 2 under field 78 (Instructions to the Paying/Accepting/Negotiating Bank) as: "All documents accepted on first presentation which comply with L/C terms and conditions, you may reimburse yourselves from our account with (the reimbursing bank) at maturity under advise to us".

The Initiator confirmed the credit, which was notified to the Respondent by SWIFT MT799, dated 3 March 2014.

The Respondent issued Amendment no. 2 on 18 March 2014. Amendment no. 2 concerned only the description of the goods.

Presentation of the documents valued USD 1,122,948.50

The beneficiary presented documents valued USD 1,122,948.50 under the credit, which were then forwarded by the Initiator with the remittance letter, dated 27 March 2014 to the Respondent for its "acceptance and payment on maturity".

The Respondent on the following date (28 March 2014) refused the presentation by a notice of refusal sent by MT 799, which stated the following discrepancies:

1. DRAFT SHOWING TENOR MATURITY DATE UNCLEAR

2. INVOICE SHOWING TERM OF DELIVERY CIF (INCOTERM 2010) TANJUNG PRIOK PORT FOR USD 1,693,989 INSTEAD OF FOR USD 1,122,948.50

3. INSURANCE CERTIFICATE NOT CLEARLY STATED SETTLING AGENT IN INDONESIA

The Initiator sent revised drafts (2/2) and insurance certificates (3+3 copies) with a remittance letter dated 3 April 2014. The letter also stated that: "The invoice presented shows exactly as per LC field 47A point (16). Thus discrepancy no. 2 is not valid."

The remittance of the revised documents and the repudiation of the discrepancy no. 2 were also notified by the Initiator to the Respondent by the SWIFT MT 799 dated 3 April 2014.

On 8 April 2014 the Respondent sent the Initiator a MT799 in reply stating that:

"Please be informed that our credit field 78 point 2 and the amendment no.01 dd140213 state ´on first presentation´, means the docs must complying on first presentation. Therefore the docs is still discrepancies althoughT the revised docs presented to us", and: "However we´ve contacted applicant and still awaiting their approval".

The Initiator refuted the claims of the non-complying presentation by a message MT 799 dated 10 April 2014. In the message the Initiator argued that the re-presented documents constitute a complying presentation as per article 2 of UCP 600 and that the beneficiary had the right to rectify documents within the time frame of the credit. It confirmed that the beneficiary re-presented the revised documents without delay and within validity and presentation period, which was in accordance with international banking practice.

In the following communication the Respondent maintained the view that: "OUR CREDIT REQUIRED THAT ´ON FIRST PRESENTATION´ MEANS THE DOCS MUST COMPLYING ON FIRT PRESENTATION [...] SO IN THIS CASE THE DOCS PRESENTED NOT PER CREDIT TERM. THIS IS ALSO IN LINE WITH UCP 600 ART. 1, WHERE THE RULES UCP ARE BINDING ON ALL PARTIES UNLESS EXPRESSLY MODIFIED OR EXCLUDED BY THE CREDIT. REFER TO THE ABOVE MENTIONED DISCREPANCY AS POINTED OUT BY US IS STILL VALID [...]"

The Respondent returned the refused documents to the Initiator.

The Initiator reiterated its view that the presentation was complying. Regarding the "on first presentation" term of the credit it stated: "THE PHRASE ´ON FIRST PRESENTATION´ IS FOUND UNDER FIELD 78 OF THE LC - ´INSTRUCTIONS TO THE PAYING/ACCEPTING/NEGOTIATING BANK´. THE PHRASE IS PART OF YOUR INSTRUCTIONS TO US AS NEGOTIATING BANK´TO REIMBURSE YOURSELVES FROM [...] ´. NOWHERE IN THE LC SAYS THAT DOCUMENTS MUST COMPLY ON FIRST PRESENTATION. IF IT WERE A CONDITION OF THE LC YOU SHOULD HAVE MADE THAT VERY CLEAR EITHER BY HIGHLIGHTING IT OR INCLUDING IT IN THE FIELD 47A ´ADDITIONAL CONDITIONS´."

The documents were re-sent by the Initiator to the Respondent for their acceptance with a remittance letter dated 12 May 2014.

After various SWIFT communications, both the Respondent and the Initiator confirmed agreement of the applicant and the beneficiary to the deduction of total USD 212,554 for both sets of documents (see also the summary regarding the presentation representing the second shipment below).

Therefore, the agreement was that documents valued USD 1,122,948.50 would be paid in the amount of USD 981,262.39 on 14 August 2014. The Respondent authorised the Initiator to claim the respective reimbursement.

Presentation of the documents valued USD 561,671.04

The beneficiary presented documents valued USD 561,671.04 for the second shipment. The documents were sent by the Initiator to the Respondent with the remittance letter dated 15 April 2014.

The Respondent refused the presentation by a notice of refusal sent by MT 799 on 21 April 2014, which stated the following discrepancies:

1. INVOICE SHOWING TOTAL AMOUNT TERM OF DELIVERY CIF (INCOTERM 2010) TANJUNG PRIOK PORT FOR USD 1,693,989 WHILST TOTAL AMOUNT INVOICE USD 561,671.04 ARE AMBIGUITY

2. PACKING LIST AND BENEFICIARY CERTIFICATE STATED TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK PORT FOR USD 1,693,989 WHILST THE GOODS OF SHIPPED IS PARTIAL SHIPMENT, ARE INCORRECT

3. INSURANCE CERTIFICATE IS NOT ENDORSED IN TERM OF THE DOCUMENTARY CREDIT

The Initiator explained its stance regarding the alleged discrepancies by the SWIFT MT799 on 22 April 2014 stating that:

1. THE INVOICE IS PRESENTED ACCORDING TO LC [...] THE INVOICE SHOWS CLEARLY USD 561,571.04 BEING VALUE OF THIS SHIPMENT. TOTAL AMOUNT [...] FOR USD 1,693,989 RELATES TO THE LC IN FIELD 46A [...]

2. PACKING LIST AND BENEFICIARY CERTIFICATE SHOWING´TOTAL AMOUNT [...] FOR USD 1,693,989 RELATES TO THE LC IN FIELD 46A AND THEY FULFILL THEIR FUNCTION AND ALSO RELATES TO THE LC AND THE OTHER DOCUMENTS.

3. INSURANCE PRESENTED IS MADE OUT TO THE ORDER OF [... BANK (THE RESPONDENT) AS PER L/C REQUIREMENT.

We advise discrepancies listed as per your swift [...] are not tenable [...].

In subsequent communication, the Initiator and the Respondent reiterated their conflicting positions.

After various SWIFT communications, both the Respondent and the Initiator confirmed agreement of the applicant and the beneficiary to the deduction of total USD 212,554 for both sets of documents (see also above).

Therefore, the agreement was that documents valued USD 561,671.04 would be paid in the amount of USD 490,803.15 on 28 August 2014. The Respondent authorised the Initiator to claim the respective reimbursement.

Issues

Were the discrepancies alleged by the Respondent for the 1st and 2nd sets of documents valid?

Analysis

First presentation of the documents valued USD 1,122,948.50

The Respondent raised 3 discrepancies for the first presentation dated 27 March 2014 regarding the 1st set of documents valued USD 1,122,948.50. The discrepancies no. 1 (regarding the tenor of the drafts) and no. 3 were not disputed by the Initiator. However, regarding the second discrepancy below, the Initiator insisted that it was valid.

"2. INVOICE SHOWING TERM OF DELIVERY CIF (INCOTERM 2010) TANJUNG PRIOK PORT FOR USD 1,693,989 INSTEAD OF FOR USD 1,122,948.50"

The presented commercial invoice showed the description of the goods in strict compliance with the credit as amended by the Amendment no. 2. Within the description of goods it included the phrase: "TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK JAKARTA PORT FOR USD 1,693,989", i.e. in the exact wording as the issued credit in the corresponding field 45A (Description of goods and/or Services).

The invoice also showed specific details regarding the goods, i.e. item numbers, sizes, length, number of bundles, weights, unit prices and amounts in USD for each item, as well as the total number of bundles, total weight and total amount of USD 1,122,948.50 being the specification of the goods shipped and herewith invoiced. The total amount of the goods shipped was also stated in words.

It should be noted that the credit also included a condition no. 16 (in the field 47A Additional conditions) which stated:

"TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK JAKARTA FOR USD 1,693,989

- 5 PCT (USD 84,699.50 PAID BY T/T SEPARATELY FROM THIS L/C

- THIS CREDIT ONLY COVERS 95 PCT (1,609,289.50) AGAINST COMPLYING PRESENTATION OF DOCUMENTS UNDER FIELD 46A"

The Experts considered this credit condition as being of "non-documentary" nature. However, it explained the reasoning behind the figure of the USD 1,693,989 (vis-à-vis credit amount USD 1,609,289.50).

ICC Publication ISBP 745 in its paragraph C8 states: "When a trade term is stated as part of the goods description in the credit, an invoice is to indicate that trade term, and when the source of the trade term is stated, the same source is to be indicated. For example, a trade term indicated in a credit as "CIF Singapore Incoterms 2010" is not to be indicated on an invoice as "CIF Singapore" or "CIF Singapore Incoterms".

There was no requirement in the credit to state the delivery term, i.e. "CIF (INCOTERM 2010) TANJUNG PRIOK", next to the invoiced amount for the goods shipped under this presentation. It was also not an international standard banking practice to require such a repetition of the delivery term if the delivery term was already stated, as per the credit, elsewhere in the commercial invoice.

In summary:

1) The commercial invoice showed the total amount and the delivery term in the description of goods exactly as per the credit. The beneficiary obviously endeavoured to strictly comply with the credit wording.

2) There was no requirement for the invoice to show the delivery term with the amount of the invoice for the particular partial shipment.

3) It is neither a requirement of UCP 600, nor that of international standard banking practice, to position the delivery term stated in the credit necessarily always exactly next to the invoiced amount.

4) As the requirements of the credit were met and as there were no conflicting data in the invoice, the discrepancy raised by the Respondent was not valid.

Re-presentation of the documents valued USD 1,122,948.50

After the documents (drafts and insurance certificates) were re-presented, the Respondent raised a new discrepancy, i.e.: "Please be informed that our credit field 78 point 2 and the amendment no.01 dd140213 state ´on first presentation´, means the docs must complying on first presentation. Therefore the docs is still discrepancies although the revised docs presented to us"

The phrase: "All documents accepted on first presentation which comply with L/C terms and conditions, we will remit the proceeds" (or: "you may reimburse yourselves" as per the Amendment no. 01) was stated as the instruction no. 2 in the field 78 of the MT 700 being designated for "Instructions to the Paying/Accepting/Negotiating Bank".

In the opinion of the Experts the clause itself was very poorly drafted and ambiguous, i.e. its exact meaning was very unclear.

Was the intention behind the clause to deprive the beneficiary of its fundamental and well-established right to make presentation of documents (on or before the expiry date and within the presentation period, if any) as many times as he wishes in order to achieve a complying presentation (i.e. the right to rectify discrepancies and represent corrected documents to constitute a complying presentation)? In other words was the underlying intent of the aforesaid clause to restrict the issuing bank's payment obligation towards the beneficiary or other presenter to a "single presentation" when the presentation was complying when first presented?

Or was the intention to fundamentally limit the obligation of the issuing bank to reimburse the nominated bank which honoured or negotiated complying presentation in accordance with UCP 600 and the international standard banking practice, only if the nominated bank acted on its nomination when the presentation was complying on so called "first presentation"?

ICC Banking Commission Opinion R715/TA677rev (hereinafter referred to as the "Opinion"), inter alia, touched on the impact of a very similar clause (no. 3) in a credit: "Provided documents on first presentation in strict conformity with the LC terms, you are authorized to reimburse yourselves with ..." The Opinion in the Analysis states: "It is not for an issuing bank to dictate what a beneficiary or other presenter may or may not do in order to achieve a complying presentation. In the normal course of events, it is within the rights of a presenter to request the return of discrepant documents and have them corrected, where possible. It is also their right to replace discrepant documents with corrected ones. Until the documents are honoured or negotiated they remain the property of the presenter."

The Conclusion of the Opinion regarding the impact of the above described clause stated: "The other clauses specified in the query represent bad practice and issuing banks should refrain from including such terms and conditions in their credit."

UCP 600 article 1 allows modification or exclusion of articles of UCP 600 when applied to the particular credit. Article 1 clearly states: "They [UCP 600] are binding on all parties thereto unless expressly modified or excluded by the credit."

Whatever was the true intention of the clause in the credit, the Experts believed that because such a clause was very unusual, it represented a very detrimental deviation from the principles of UCP 600 and international standard banking practice towards the beneficiary and/or the nominated bank, it would have to be very clearly and expressly stated in the credit to become possibly effective upon the beneficiary and/or the nominated bank.

However, the issuing bank chose to insert this condition in field 78 and in a vague and unclear manner, which was unusual in the context of the international standard banking practice. As such, the Experts did not consider such unclear clause in field 78 of the credit, as mentioned above, as constituting "an express modification of UCP 600 rules" as recognized by the article 1 of the said rules.

In summary:

1) The clause (the instruction no. 2 in field 78 of the credit, then amended by Amendment no. 1) was very ambiguous. Its exact meaning was arguable.

2) In the view of the Experts it, in any case, did not constitute an express modification of any rule of UCP 600.

3) The discrepancy raised by the Respondent was not valid.

4) The Experts were convinced that the issuing bank was, in any case, obliged to reimburse the nominated bank that had honoured or negotiated a complying presentation and forwarded the documents to the issuing bank as stipulated in UCP 600 sub-article 7 (c).

Presentation of the documents valued USD 561,671.04

The Respondent raised 3 discrepancies for the presentation regarding the 2nd set of documents valued USD 561,671.04. The discrepancies alleged by the Respondent were:

1. INVOICE SHOWING TOTAL AMOUNT TERM OF DELIVERY CIF (INCOTERM 2010) TANJUNG PRIOK PORT FOR USD 1,693,989 WHILST TOTAL AMOUNT INVOICE USD 561,671.04 ARE AMBIGUITY

2. PACKING LIST AND BENEFICIARY CERTIFICATE STATED TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK PORT FOR USD 1,693,989 WHILST THE GOODS OF SHIPPED IS PARTIAL SHIPMENT, ARE INCORRECT

3. INSURANCE CERTIFICATE IS NOT ENDORSED IN TERM OF THE DOCUMENTARY CREDIT

Discrepancy 1

The commercial invoice presented showed the description of the goods in strict compliance with the credit as amended by the Amendment no. 2. Within the description of goods it included the phrase: "TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK JAKARTA PORT FOR USD 1,693,989", i.e. in the exact wording as the issued credit in the corresponding field 45A (Description of goods and/or Services).

The invoice also showed specific details regarding the goods, i.e. item numbers, sizes, length, no. of bundles, weights, unit prices and amounts in USD for each item, as well as the total number of bundles, total weight and total amount of USD 561,671.04 being the specification of the goods shipped and invoiced. The total amount of the goods shipped was also stated in words.

The credit also stated a condition no. 16 (in field 47A 'Additional conditions') which stated:

"TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK JAKARTA FOR USD 1,693,989

- 5 PCT (USD 84,699.50 PAID BY T/T SEPARATELY FROM THIS L/C

- THIS CREDIT ONLY COVERS 95 PCT (1,609,289.50) AGAINST COMPLYING PRESENTATION OF DOCUMENTS UNDER FIELD 46A".

ICC Publication ISBP 745 paragraph C8 states: "When a trade term is stated as part of the goods description in the credit, an invoice is to indicate that trade term, and when the source of the trade term is stated, the same source is to be indicated. For example, a trade term indicated in a credit as "CIF Singapore Incoterms 2010" is not to be indicated on an invoice as "CIF Singapore" or "CIF Singapore Incoterms"".

In summary:

1) The commercial invoice showed the total amount and the delivery term in the description of goods exactly as the credit. The beneficiary obviously endeavoured to strictly comply with the credit wording.

2) Stating the delivery term next to the total (contract) CIF value of the goods as stated in the credit did not constitute any ambiguity or conflict with any other data in the credit or other presented document whatsoever.

3) There was no requirement for the invoice to show the delivery term directly linked with the amount of the invoice for the particular partial shipment.

4) It is neither a requirement of UCP 600, nor of international standard banking practice, to position the delivery term stated in the credit necessarily always exactly next to the invoiced amount.

5) As the requirements of the credit were met and there were no conflicting data in the invoice, the discrepancy raised by the Respondent was not valid.

Discrepancy 2

Both the packing list and beneficiary's certificate showed the description of the goods in strict compliance with the credit as amended by the Amendment no. 2. Within the description of goods they included the phrase: "TOTAL AMOUNT CIF (INCOTERM 2010) TANJUNG PRIOK JAKARTA PORT FOR USD 1,693,989", i.e. in the exact wording as the issued credit in the corresponding field 45A 'Description of goods and/or Services'.

The packing list also showed specific packing details regarding the goods, i.e. item numbers, sizes, length, quantities in pieces, number of bundles, net and gross weights, as well as the total number of pieces, number of bundles, total net and gross weights being the specification of the goods shipped under this presentation. Both the details and totals mentioned on the packing list fully complied with the data on the commercial invoice.

To state the delivery term in packing list or beneficiary's certificate next to the total (contract) amount as stated in the credit was not "incorrect", and did not create any conflict with any other data in the credit or any other document.

In summary:

The packing list and beneficiary´s certificates were not required to show a delivery term mentioned in the credit. Both documents, however, showed it in exact wording as the credit, which did not create any conflict with any other data in the credit or other documents, and it was fully acceptable.

The discrepancy raised by the Respondent was not valid.

Discrepancy 3

The credit requested: "Full set insurance certificate, made out or endorsed to the order of [... (the Respondent - the issuing bank)], marked [...]". The presented insurance document was made out to the order of the Respondent, as required by the credit. The document was also blank endorsed by the beneficiary. The insurance document did not mention the beneficiary in any other way, endorsement was superfluous, and it had no effect on the transfer (assignment) of the rights under the insurance document (as the document was already issued to the order of the Respondent).

In the view of the Experts, the blank endorsement by the beneficiary did not create any conflict with the credit terms and conditions, or any other data in the insurance document itself.

In summary:

The blank endorsement by the beneficiary was ineffective and did not create any conflict as the document was already made out to order of the Respondent (as required by the credit).

The discrepancy raised by the Respondent was not valid.

Conclusion

All the discrepancies raised by the Respondent were invalid.

This decision was rendered unanimously.