Parties

Initiator: Company P (Beneficiary Bank)

Respondent: Bank R (Issuing Bank)

Background and transaction

The Initiator was the beneficiary of a Standby Letter of Credit (SBLC) issued by the Respondent in their favour. The SBLC was issued by SWIFT MT 760, subject to UCP 600.

As required by article 6 of UCP 600, a credit must state the bank with which it is available, whether it is available by sight payment, deferred payment, acceptance or negotiation and must state an expiry date for presentation. The SBLC in question included the following statement: "THIS STANDBY LETTER OF CREDIT SHALL EFFECTIVE ON JULY 30, 2012 AND EXPIRY ON OCTOBER 10, 2013 AT THE COUNTER OF THE ISSUING BANK."

It also included the following statement: "OUR LIABILITY UNDER THIS SBLC SHALL BE EFFECTIVE ON AND AS OF THE DATE HEREOF AND SHALL REMAIN VALID AND IN FULL FORCE UNTIL THE FOLLOWING OCCURS:

I) THE DUE DATE OF CREDIT AGREEMENT, OR

II) DATE ON WHICH HAS BEEN ACKNOWLEDGED THAT THE MAXIMUM AMOUNT HAS BEEN REDUCED TO ZERO"

According to the Initiator, "the due date of credit agreement" (which is not stated in the SBLC) was 10 September 2013. It should be noted that the due date of credit agreement was stated by the Initiator in their claim.

The Issuing Bank engaged that a demand for payment via authenticated SWIFT: "SHALL BE HONORED ON DUE PRESENTATION TO US WITHIN 5 BANKING DAYS SINCE YOUR FIRST DEMAND WITHOUT ASKING FOR PROOF OF THE EXISTENCE OF BREACH AND/OR NEGLIGENCE EVENT AGAINST THE CONTRACT OR AGREEMENT, BUT WE REQUIRE YOU TO ENCLOSE THE ABOVE DOCUMENTS, NEVERTHELESS WE SHALL NOT SITUATE THIS AS YOUR OBLIGATION TO US TO DISBURSE THIS SBLC."

The Issuing Bank rejected the claim for two reasons:

i. The required supporting documents were not presented;

ii. SBLC expired.

Issues

The question was whether the Issuing Bank was correct in rejecting the claim of the beneficiary due to the SBLC having expired.

Documents submitted

1. Request for a DOCDEX Decision submitted by the Initiator dated 25 March 2015;

2. Answer submitted by the Respondent dated 20 May 2015 in accordance with Article 3 of the DOCDEX rules;

3. Copy of Standby LC issued by the Respondent;

4. Various Swift 'claim and response' messages exchanged between the Respondent and Initiator.

Analysis

The SBLC was issued by the Respondent in favour of the Initiator as security for the Initiators loan to a debtor covering two conditions:

1) that the Debtor failed to perform his obligations to the Beneficiary Bank, and,

2) that the Debtor performed his obligation under the contract.

The SBLC required presentation of various documents, which would demonstrate that condition 2 above, was fulfilled. Somewhat confusingly however, while it was requested that these documents be presented, the SBLC stated that:

"BUT WE REQUIRE YOU TO ENCLOSE THE ABOVE DOCUMENTS, NEVERTHELESS WE SHALL NOT SITUATE THIS AS YOUR OBLIGATION TO US TO DISBURSE THIS SBLC."

This clause made it clear that payment would therefore not be refused even if these documents were not presented.

With regard to the second alleged discrepancy, although the claim under the SBLC was not made until 3 December 2013, the Initiator contended that the SBLC has been expressly modified, (referring to UCP Article 1 and the Preliminary Considerations of ISBP), and that as a result the expiry date of the SBLC was overridden. It also argued that the Respondent was responsible for any ambiguity in the SBLC. The relevant clause in the SBLC, as mentioned earlier was:

"OUR LIABILITY UNDER THIS SBLC SHALL BE EFFECTIVE ON AND AS OF THE DATE HEREOF AND SHALL REMAIN VALID AND IN FULL FORCE UNTIL THE FOLLOWING OCCURS:

I) THE DUE DATE OF CREDIT AGREEMENT, OR

II) DATE ON WHICH HAS BEEN ACKNOWLEDGED THAT THE MAXIMUM AMOUNT HAS BEEN REDUCED TO ZERO".

The experts however considered that the wording of the expiry event did not sufficiently suggest that it overrode the expiry date (so modifying UCP Article 1), to allow a valid claim to be made after the said expiry date.

The Initiator knew that the due date of the credit agreement was 10 September 2013 (this would not have been known or determinable by the Respondent).

The SBLC clearly stated that the expiry date was 10 October 2013. As the SBLC was security for the Initiator's loan, this should have been clarified if there was any doubt when the SBLC was received.

Conclusion

The wording of the SBLC in respect of its expiry provisions, as well as the documents required to claim under the SBLC, was badly expressed. Presentation of the claim after the stated expiry date of the SBLC was not valid. In consequence the issuer received the claim under the SBLC too late. We believe that the clause concerning the presentation of the additional documents meant that the absence of these documents was not a discrepancy.

Accordingly we consider that:

i. Respondent's discrepancy "Required supporting documents not presented", was not valid.

ii. Initiator raised the claim under the SBLC after the expiry date thereof, therefore the discrepancy SBLC expired was valid.

This was a unanimous decision.