Parties to the query

Claimant: Negotiating Bank

Respondent: Issuing Bank

Detailed description

The Respondent issued a credit, subject to the UCP 600, advised through the Claimant as negotiating bank. The Claimant presented documents to the Respondent, including a draft drawn on the Respondent at 60 days from the date of the bill of lading. No subsequent notice of refusal was provided by the Respondent.

However, a number of weeks later, the Respondent informed the Claimant that a court order had been raised restraining payment. Whilst the Claimant stated that the Respondent must still honour, the Respondent argued that it was not in a position to violate a court order.

The Claimant claimed that the Respondent did not comply with certain articles of the UCP 600, specifically citing sub-articles 14 (b), 16 (f), 7 (a), and 7 (c).

Although the Respondent acknowledged its obligations under the UCP 600, it highlighted that it had requested the court to lift the restraining order but had been unsuccessful in doing so.

As such, it was unable to honour, and a copy of the related temporary restraining order and preliminary injunction order were submitted.

The issues to be decided were whether the Respondent was required to pay on maturity date, and whether the Respondent was liable to pay interest to the Claimant from maturity date until the date of settlement.

Analysis

The first issue addressed whether or not the Respondent failed to act in accordance with the UCP 600 sub-articles 14 (b) and 16 (f).

Under sub-article 14 (b) a bank, including an issuing bank, has a maximum of five banking days following the date of presentation to determine if a presentation is complying.

Under sub-article 16 (f), if an issuing bank fails to act in accordance with the provisions of article 16, it shall be precluded from claiming that the documents do not constitute a complying presentation.

Whilst the Respondent did not provide a notice of acceptance for the submitted documents, it also did not allege that the documents were discrepant. Instead, it stated that the reason for non-payment was due to the court injunction and not because of discrepant documents.

Accordingly, the panel did not consider that sub-articles 14 (b) and 16 (f) were applicable. Should the injunction have been lifted, the Respondent would then be precluded from claiming that documents were discrepant.

The second issue focused on whether there was non-compliance with the UCP 600 sub-articles 7 (a) and 7 (c). Under sub-article 7 (a), provided complying documents are presented to the issuing bank, it must honour and, under sub-article 7 (c), reimbursement for a credit available by acceptance is due at maturity.

However, it was highlighted that rules such as the UCP 600 cannot supersede applicable law. In this case, the court injunction specifically prohibited the Respondent from honouring the presentation. If they had honoured, they would have been in violation of the court order. With this in mind, it was considered that the Respondent was not in breach of its obligation under sub-articles 7 (a) and 7 (c).

Decision

The decision rendered by the experts stated that, under the provisions of the UCP 600, the Respondent had an obligation to reimburse the Claimant.

However, obligations would be suspended until the injunction was lifted or a court judgment was issued in favour of the Respondent.

The Respondent was only liable to pay interest for the period between the maturity date and the payment date as defined by the provisions of the applicable law. Responsibility for delayed interest was outside the scope of the UCP 600.