Parties

Initiator: Company J (Beneficiary)

Respondent: Bank O (Issuing Bank)

Background and transaction

On 26 June 2014, the Initiator acting under its trademark name, received a credit issued in its favour by the Respondent to secure payment for an order comprising supply of block doors and metal frames. The documentary credit was subject to UCP 600.

Amongst other documents the documentary credit required a presentation of "Certificate of conformity based on EN Standards, issued by authorised institution"

On 22 August 2014, the Initiator made a presentation under the credit to the Respondent through the advising bank. The cover letter sent by the advising bank to the Respondent indicated that 1 original and 2 copies of "Certificate of Conformity" were sent to the Respondent.

The relevant document presented by the Initiator was issued by Bureau Veritas and titled "Inspection Certificate". Under the section "Conclusions", the inspection certificate contained the following statement: "This certificate is a certificate of conformity." There was no reference within the certificate to 'EN Standards' as required by the credit.

On 1 September 2014, the Respondent sent a notice of refusal to the advising bank stating, "Instead the required certificate of conformity there is presented inspection certificate".

On 3 October 2014, the advising bank contested the discrepancy on the basis of ISBP paragraph A39, which states: "Documents may be titled as called for in the credit, bear a similar title or be untitled. The content of a document must appear to fulfil the function of the required document." The Initiator asserted that the document stated, "This is a certificate of conformity", hence it considered that the certificate of conformity had been presented.

On 6 October 2014, the Respondent sent a response to the contest message, stating the document presented did not appear to fulfil the function of the document since the inspection certificate did not show EN standards.

The Initiator claimed that the Respondent's clarification to the contest message indicated that the certificate of conformity had been presented but did not comply with the terms of the credit, which was a new discrepancy, hence was precluded from claiming that documents did not comply as per UCP 600 sub-article 14 (b) since the new discrepancy was asserted beyond 5 banking days after presentation date.

The Initiator also claimed that the Respondent was not in compliance with UCP 600 sub-article 16 (c), as it had not provided a single notice of refusal, as the Initiator considered the clarification to be assertion of a new discrepancy.

The Respondent disagreed with the Initiator's claim that the clarification to the contest message constituted a new discrepancy. The Respondent claimed that their notice of refusal clearly stated that an inspection certificate was presented instead of a certificate of conformity, which meant that the document presented as required certificate of conformity complied with paragraph A39 of ISBP and UCP 600 sub-articles 14 (d) & (f).

A. Non Compliance with UCP 600 sub-article 14 (b) & 16 (c):

The initial notice of refusal sent by the Respondent on 1 September 2014 stated that an inspection certificate was presented instead of a certificate of conformity. However upon contest of the discrepancy, the Respondent indicated that the inspection certificate did not show EN standards.

The Initiator considered the response to the contest message as recognition by the Respondent that the certificate of conformity had been presented but it did not comply with the terms of the credit. The Respondent claimed that this was a new discrepancy.

Initiator claimed that the Respondent failed to act in accordance with UCP 600 sub-article 14 (b) since the clarification comprising of the new discrepancy was sent on 06 October 2014, which was 45 days after the date of receipt of documents by the Respondent.

The Initiator claimed that the Respondent was not in compliance with UCP 600 sub-article 16 (c) since it had not provided a single notice of refusal and had asserted two different discrepancies, i.e., inspection certificate presented instead of certificate of conformity and inspection certificate did not show EN standards.

B. Non Compliance with UCP 600 sub-article 14 (d) & (f) and ISBP Paragraph A39

The documentary credit required a presentation of "Certificate of conformity based on EN Standards, issued by authorised institution". The document presented by the Initiator was issued by Bureau Veritas and titled "Inspection Certificate". Under the section "Conclusions", the inspection certificate contained the following statement "This certificate is a certificate of conformity." There was no reference in the certificate to EN Standards as required by the credit.

The Respondent claimed that the document presented did not show the data required in the credit and hence did not fulfil its function. Therefore the document was not in compliance with UCP 600 sub-articles 14 (d) & (f) and ISBP Paragraph A39.

The Initiator claimed that there were no authorised institutions capable of issuing a certificate of conformity based on EN standards for the goods covered under the credit. The Initiator also claimed that the document indicated that it was a certificate of conformity. Hence the document was compliant.

Issues

1. Was the Respondent precluded from claiming that the documents did not constitute a complying presentation, since they did not quote a valid discrepancy and provide a single notice of refusal in accordance with UCP 600 sub-article 14 (b) and 16 (c)?

2. Did the inspection certificate comply with sub-articles 14 (d) & (f) and ISBP Paragraph A39?

Analysis

A. Failure to act in accordance with UCP 600 sub-article 14 (b) & 16 (c):

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."

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 documentary credit required a presentation of "Certificate of conformity based on EN Standards, issued by an "authorised institution". The cover letter sent by the Initiator bank to Respondent indicated that 1 original and 2 copies of "Certificate of Conformity" were sent to the Respondent.

The Respondent initially refused the presentation on the basis that inspection certificate had been presented instead of certificate of conformity. When the discrepancy was contested on the basis that the inspection certificate also stated it was a certificate of conformity, the Respondent clarified that the inspection certificate did not show EN standards. The Respondent sent this clarification message 45 days after receipt of documents.

When an issuing bank determines that a presentation does not comply, it must provide a single notice of refusal unambiguously stating the discrepancy based on which the documents have been dishonoured. In this case the initial notice of refusal from the Respondent referred to non-presentation of the certificate of conformity instead of missing reference to EN standards.

Therefore the panel considered that the Respondent had not provided the correct reason for dishonour of documents in initial notice of refusal. The subsequent clarification referred to a separate discrepancy. Therefore the Respondent failed to act as per the provisions of UCP 600 sub-article 14 (b) & 16 (c).

B. Non Compliance with UCP 600 sub-article 14 (d) & (f) and ISBP Paragraph A39

UCP 600 sub-article 14 (d) states: "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."

UCP 600 sub-article 14 (f) states: "If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d)."

ISBP Paragraph A39 states: "Documents may be titled as called for in the credit, bear a similar title or be untitled. The content of a document must appear to fulfil the function of the required document."

Even though the document presented by the Initiator was titled "Inspection Certificate", under the section "Conclusions", it contained the following statement "This certificate is a certificate of conformity."

The document also certified: "Based on visual examination and information obtained during inspection, we certify that the quantity and the packing of the items seen at the place and date of inspection are complying with specification of goods indicated in the relative proforma invoice...."

Therefore the document must be examined as a certificate of conformity and it fulfils the function of a certificate of conformity.

The credit called for the document to be issued by an authorised institution: the document was issued by Bureau Veritas, who would be considered as an authorised institution as per UCP 600 Article 3.

The document however did not make reference in the certificate to EN Standards as required by the credit. Therefore the panel considered that the document did not meet the requirement of the credit.

Conclusion

The Respondent did not provide a valid reason for dishonour in their initial notice of refusal in accordance with UCP 600 sub-articles 14 (b) & 16 (c) and was therefore precluded from claiming the documents were discrepant as per UCP 600 sub-article 16 (f).

This decision was rendered unanimously.