Parties

Claimant: Company P (Beneficiary)

Respondent: Bank B (Issuing Bank)

Background and transaction

The Claimant claimed that the Respondent must honour a (14 September 2015) presentation under a Standby Letter of Credit ("Standby") for USD 16.144.372,19 plus interest.

The Respondent responded by submitting documentation relating to an equivalent case handled by a Court, these mainly relating to the fraud issue, and discouraging that the case should be handled as a DOCDEX case, as it had already been vetted and resolved in a Court in November 2015.

Issue 1:

9 July 2015: Standby letter of credit issued by the Respondent (and Amendment number 1) was advised to the Claimant by the advising bank, including the following information:

• Amount USD 45.000.000,00 for 700.000 US (+/-10%) BBLS of Crude oil as per contract dated 26/06/2015 (70 PCT of total quantity loaded on board).

• Expiry date: 30 November 2015 (at the counters of the Respondent).

• Documents required:

1. Copy of unpaid commercial invoice(s)

2. Statement signed by an authorized representative signatory of the Claimant

3. Copy of bill of lading or copy of Letter of Indemnity (text included into the Standby).

11 September 2015: the advising bank made a presentation (on behalf of the Claimant) to the Respondent including the documents required by the Standby.

• The presentation is for USD 44.978.417,50, which is indicated in the invoice dated 4 September 2015.

• The invoice covers 70 % of 695.304,40 BBLS (no unit price is mentioned).

• The presented LOI is dated 4 September 2015.

• The invoice indicates: B/L quantity (100%): 993.292,00 U.S. Barrels (Net) 70% of Total B/L Quantity: 695.304,40 U.S. Barrels (Net)

16 September 2015: the Respondent refused the presentation, via a SWIFT MT734, citing the following discrepancy: "Letter of Indemnity omits plus or minus 10 percent in second paragraph."

18 September 2015: the advising bank (on behalf of the Claimant) rejected the refusal based on the following argument: ".. the quantity shown in 2nd paragraph of the Letter of Indemnity is consistent, relevant and comparable with the invoiced quantity."

18 September 2015: the Respondent argued that: "The Letter of Indemnification is clearly indicated within the Credit within a quote unquote statement and therefore per the governing rules of the must read exactly as stated."

The first two paragraphs of the LOI text in the Standby read as follows:

"We refer to the contract dated 26/06/2015 between ourselves and yourselves in respect of your purchase from us of 1.000.000 US barrels of crude oil (the "Crude Oil") +/- 10 PCT on tankship M/T xxx pursuant to a 70 PCT of the quantity loaded (the "Agreement")."

The commercial invoice copy as indicated above mentions the actual quantity shipped as well as the invoiced amount.

Issue 2:

18 September 2015: the advising bank (on behalf of the Claimant) rejected the refusal, and informed the Respondent that a revised LOI was being presented.

22 September 2015: the advising bank forwarded the documents including the revised LOI to the Respondent. (The revised LOI was dated 4 September 2015).

29 September: the Respondent refused the revised presentation via an MT799 worded as follows:

"Treat as SWIFT 734

DISCREPANCIES

1) Quantity of Letter of Indemnity should read 700.000 Barrels rather than 695.304,40.

2) Drawing exceeds the value of the letter of credit as USD 37.670.201,78 was paid under this invoice on September 8th 2015 and the letter of credit has a pay down provision.

Please rescind your claim under this letter of credit as USD 37.670.201,78 was paid under the invoice associated with this drawing."

30 September: the advising bank (on behalf of the Claimant) rejected the refusal on the basis that the message of refusal was not made in accordance with UCP 600 article 16 and for that reason the Respondent was precluded from claiming that the presentation was not complying:

"Your MT799 [...] is ignored and rejected. It is to be considered as an inappropriate refusal notice and is therefore invalid. An express and single statement of refusal to honour is needed when a SWIFT message other than an MT734 is sent to a bank (i.e. a MT799). Although the MT799 indicates "treat as SWIFT 734", this mention is irrelevant since, in addition to your failure to express your refusal to honour, your message is not stating the disposal of the documents as per requirement of art. 16(c) of UCP 600." Consequently you have failed to act in accordance with the provisions of article 16. of UCP 600 and you are precluded from claiming that the documents do not constitute a complying presentation. Therefore you are obligated to honour immediately the claimed amount [...]."

30 September 2015: the Respondent sent another refusal message; wherein point 2 compared to the one dated 29 September 2015 was changed to read:

"Drawing exceeds the value of the letter of credit as USD 37.670.201,78 was paid under this invoice on September 8th, 2015 and the letter of credit has a pay down provision. Please rescind your claim under this letter of credit as USD 37.670.201,78 was paid under the invoice associated with this drawing. We are conveying these discrepancies to you in accordance with the International Chamber of Commerce publication no. 600, which governs and controls documentary letters of credit. Documents are being returned. Please immediately contact beneficiary as the applicant has spoken to them and they may have reached an agreement to rescind the claim under the above mentioned credit."

2 October 2015: the advising bank (on behalf of the Claimant) rejected the refusal arguing that a refusal under the UCP 600 must be a "single notice" i.e. that it was not within the scope to issue a second refusal on the same presentation.

2 October 2015: the Respondent confirmed that the documents had been returned.

The Standby included the following clause:

"The amount available for drawing under this standby letter of credit will be reduced by the amount of any payment made by [the Respondent] in favour of [the Claimant] referring to this standby letter of credit."

Together with the message of refusal, a copy of an MT103 printed 22 October was presented. This confirmed that payment of USD 37.670.201,78 was remitted from the Respondent to the Claimant. The MT103 message however did not include any information for the purpose of linking the payment to the Standby, the invoice or the commercial contract.

Issue 3:

13 October 2015: the Claimant made a new drawing under the Standby and presented the following documents to the advising bank who forwarded them to the Respondent on the same date:

• copy of unpaid invoice dated 13 October 2015 for USD 16.144.372,19 covering 70% of 695.304,40 barrels at USD 54.178 per unit. The invoice showed the amount of USD 37.670.201,78 and deducted USD 21.525.829,59 (Less partial payment effected on 08.09.2015).

• 3 LOIs - all dated 13 October 2015 showing 3 different figures of barrels quantity and stating payment of USD 16,144,372.19:

- for 700,000 US barrels +/- 10pct

- for 695,304.40 US barrels +/-10 pct.

- for 695,304.40 US barrels.

The forwarding schedule from the advising bank (on behalf of Claimant) included a letter from the Claimant, which included the following statement:

"Since we are still unable to understand what you consider as quantity to be shown on the Loi, and in order to avoid any further dispute, you must apply one of the three enclosed Loi's which you consider as the complying one."

19 October 2015: the Respondent sent a SWIFT message (MT799) to the advising bank confirming receipt of the documents, but also informing that the applicant of the Standby had commenced a lawsuit in the courts against the Respondent seeking to enjoin the Respondent from paying on any presentation under the Standby.

20 October 2015: the Respondent refused the presentation via SWIFT MT734 using the following wording:

"We refuse to honour this presentation for +16.144.372,19. The letter of credit exclusively secured payment of only 70+ of the total quantity of BBLS of crude oil shipment on board vessel and only such 70 PCT. The letter of credit has a reduction/pay down provision. The original +45.000.000 value of the letter of credit was reduced by +37.670.201,78 paid by wire on September 8, 2015 under invoice dated 17th July 2015 so this presentation results in an overdrawing. Moreover, because the beneficiary was already paid +37.670.201,78 for the full amount of invoice as aforesaid, there is no basis for drawing on the letter of credit and such drawing would facilitate a material fraud on the bank and/or the applicant. We are returning the documents. Please disregard field 77B (Field 77B reads "HOLD")."

22 October 2015: the advising bank (on behalf of the Claimant) rejected the refusal, on three basic arguments:

i. That the refusal message did not list a discrepancy

ii. That the argumentation in the refusal regarding an overdrawing was not correct

iii. That they took strong exception to the fraud allegation.

Issues

1. Whether or not the discrepancies raised by the Respondent were valid (according to the UCP 600).

2. Whether or not the refusal message was valid (according to UCP 600 article 16)

Documents submitted

4 December 2015: The Claimant's Claim

9 July 2015: Standby advice and one amendment

11 September 2015: The Claimant's letter remitting the required documents for USD 44.978.417,50 including photocopies of the original documents submitted, i.e.:

a. Commercial invoice (dated 4 September 2015)

b. Letter of Indemnity ("LOI") dated 4 September 2015

c. Statement dated 10 September 2015

22 September 2015: the advising bank letter to the Respondent with the revised LOI SWIFT communication regarding the dispute:

16 September 2015: MT734 from the Respondent to the advising bank refusing to honour

18 September 2015: MT799 from the advising bank (on behalf of the Claimant) to the Respondent rejecting the discrepancy

18 September 2015: MT707 (amendment number 2) from the Respondent to the advising bank

18 September 2015: MT799 from the Respondent to the Claimant maintaining the refusal

22 September 2015: MT799 from the advising bank (on behalf of the Claimant) maintaining the rejection of the refusal and advising the despatch of a revised LOI

23 September 2015: MT99 from the Respondent to the advising bank requesting acceptance of amendment number 2

24 September 2015: MT734 from the Respondent to the advising bank

28 September 2015: MT799 from the Respondent to the advising bank requesting acceptance of amendment number 2

28 September 2015: MT799 from the advising bank (on behalf of the Claimant) rejecting the cancellation of the Standby

29 September 2015: MT799 from the Respondent to the advising bank requesting acceptance of amendment number 2

29 September 2015: MT799 from the Respondent to the advising bank refusing the presentation of the revised LOI

30 September 2015: MT799 from the advising bank (on behalf of the Claimant) refusing to cancel or reducing the Standby letter of credit.

30 September 2015: MT799 from the advising bank (on behalf of the Claimant) rejecting the second refusal

30 September 2015: MT799 from the Respondent to the advising bank repeating the discrepancy, adding a second point

30 September 2015: MT799 from the Respondent to the advising bank partially repeating the subsequent MT799

2 October 2015: MT799 from the advising bank (on behalf of the Claimant) rejecting the MT799 dated 30 September 2015

2 October 2015: MT799 from the Respondent to the advising bank stating that the documents have been returned

6 October 2015: MT799 from the advising bank (on behalf of the Claimant) rejecting the MT799 dated 2 October 2015

Revised documents submitted:

13 October 2015: The letter from the Claimant remitting the revised documents for USD 16.144.372,19 including photocopies of the originals presented:

a. Commercial invoice dated 13 October 2015

b. 3 (three) LOI's

c. Statement dated 13 October 2015

SWIFT communication concerning the dispute of the new presentation:

19 October 2015: MT799 from the Respondent to the advising bank confirming receipt of the (revised) documents also informing of an on-going lawsuit regarding the case.

20 October 2015: MT734 from the Respondent to the advising bank refusing to honour the (new) presentation (amount overdrawn) (beneficiary already paid USD 37,670,201.78 for full amount of above invoice) as well as material fraud allegations.

20 October 2015: MT799 from the advising bank (on behalf of the Claimant) rejecting the refusal.

Analysis

Issue 1:

The question was if the omission of "+/- 10 PCT" in the LOI was a valid reason for refusal. UCP 600 sub-article 14 (d) reads: "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 LOI template text - in line with the Standby - allowed for a variation in quantity of +/- 10 per cent. However, it was written that way to accommodate the agreement and the Standby text. When a presentation is actually made, it is common practice to indicate what has actually been shipped, and in any case the +/- 10 per cent in the LOI had no material relevance.

It was not correct that any quote unquote statement in a Standby (subject to UCP 600) must be quoted exactly the same way in the documents. UCP 600 sub-article 14 (d) applied, and there was no requirement for a mirror image, merely that the data between the Standby and the document (LOI) did not conflict. For the specific case, this did not create a conflict when read in context; i.e. it did not change or question the shipped quantity.

This was not a valid discrepancy in respect of UCP 600.

Issue 2:

The issue was whether or not the refusal message had been issued in accordance with UCP 600 article 16. Sub-article 16 (c) thereof reads: "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."

Furthermore, UCP 600 sub-article 16 (f) reads: "If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation."

The above lays out the following requirements to the refusal message:

1: It must give a single notice to the presenter

2: the notice must state that the bank is refusing to honour or negotiate, and

3: It must state each discrepancy, and

4: It must include the disposal instructions.

For the case at hand the refusal message was made using SWIFT MT799 - rather than the (normal) MT734 message type, which is designed to refusals. The MT799 did mention that this message was to be regarded as "734."

UCP 600 article 16 is drafted in a somewhat rigorous manner, putting on banks to take special care and to bear responsibility when refusing documents. Failing to act in accordance with these requirements will, according to UCP 600 sub-article 16 (f), preclude a bank from claiming that a presentation is not complying.

For this case:

Single notice: 2 refusal messages were sent under the same (second revised) presentation. So technically the second refusal message was considered to be ineffective.

Refuse to honour or negotiate: The MT799 did mention "treat as 734" indicating that this was a refusal message and that the bank was refusing to honour or negotiate.

State each discrepancy: the MT799 did state each discrepancy.

Include the disposal instructions: The first refusal message did not indicate the disposal instructions. The second did, but this one was considered as ineffective on the basis that only one refusal message may be sent under one presentation.

On the basis of the fact that the first refusal message did not include the disposal instructions, the refusal message was considered not to have been provided in accordance with UCP 600 article 16 and the Respondent was precluded from claiming that it was not a complying presentation.

Issue 3:

As such, no question was raised by the Claimant regarding this issue. On that basis, as well as the fraud allegation and the mentioned lawsuit, the panel of Experts considered this to be out scope for the purpose of this DOCDEX Decision and left it to the Court to decide.

Additional comments from the panel of experts:

The above said, the case was unusual and could not be cut short by the Panel of Experts on the strength of ICC rules including UCP 600 for a number of reasons:

1. As such 3 different presentations were made for the one and same transaction; and presentations one and three were for different amounts; i.e. USD 44.978.417,50 and USD 16.144.372,19 respectively and for one and same quantity of US barrels (695,304.40). It was of course acceptable to make a new presentation by curing the quoted discrepancies. It was however common practice that the new presentation covered the same amount, except of course where the refusal was in respect of the amount, which was not the case in issue 1 above.

2. In presentation 3 (issue 3 above), 3 LOI's were presented with three different figures related to quantity (of barrels) and the issuing bank was asked to pick the one they deemed to be compliant. This was not in line with international standard banking practice where one (1) document is presented of each required documents. It was very unusual that the issuing bank was asked to choose between different versions of a document which would leave the matter to discretion and risk, while it was apparent that the whole matter - from the beginning- bore 2 amounts (USD44, 978,417.50 and USD 16,144,372.19 respectively on 11.09.2015 and 13.10.2015). Furthermore the Claimant made a recalculation of both amounts and barrels quantity as appearing from above advising bank presentations (one and third).

3. For this case 5 different LOI's were presented. Two of them (covered above under issue 1) and 2) were dated the same date, i.e. 4. September 2015. Following the initial presentation made by the advising bank (on behalf of Claimant) on 11.09.2015 for USD 44,978,417.50 for barrels 695,304.40, advising bank representation on 13.10.2015 (the third), bearing a revised invoice for USD 16,144,372.19 for barrels 695,304.40 and regarding in fact three different figures of barrels quantity, although one out of these three figures had already been quoted in the first and second advising bank (on behalf Claimant) presentations (respectively on 11.09.2015 and 22.09.2015 for USD 44,978,417.50) ought to have been related to a same invoice which should have reflected the exact situation at time of presentation of Claimant's documents for payment.

Conclusion

1. Whether or not the discrepancies raised by the Respondent were valid (according to the UCP 600): the fact that the quote unquote statement in the Standby omitted "+/- 10 per cent" in the LOI did not render the presentation discrepant, i.e. this discrepancy was not valid according to UCP 600.

2. Whether or not the refusal message was valid (according to UCP 600 article 16): the refusal message omitted to mention the disposal instructions, for which reason the refusal message was considered not to have been made in accordance with UCP 600 article 16 and the Respondent was precluded from claiming that it was not a complying presentation.

As mentioned above the initial presentation made under the Standby was compliant, for that reason the Respondent was initially bound to honour under the Standby. However, UCP 600 does not override local law and any obligation under UCP 600 may be prevented by a legal action in accordance with local law. A bank confronted with an effective court injunction would abide with the content.