Parties to the query

Claimant: Beneficiary

Respondent 1: Applicant

Respondent 2: Issuing Bank

Respondent 3: Separate legal entity to Issuing Bank

Detailed description

Documents were presented to Respondent 2 under a credit subject to the UCP 600. The credit was payable at 150 days from the date of the transport document and Respondent 2 confirmed the relevant maturity date to the bank of the Claimant.

Prior to the maturity date, Respondent 1 obtained a court order which prevented Respondent 2 from paying at maturity. The Claimant advised that they had no advance notice of this action, although this was disputed by Respondent 1.

According to Respondent 1, they were concerned that this could be a fictitious deal and they only applied for a court order in order to avoid suspected money laundering and fraud. Based upon the court order, Respondent 2 were prohibited from making payment.

Although Respondents 2 and 3 were part of the same group, it was recommended that Respondent 3 be removed from the claim.

A number of issues were raised, including clarification as to whether Respondent 1 could cancel a credit without the consent of the Claimant. Furthermore, it was queried as to whether a local court in the country of Respondent 1 could prevent payment under documents that had been accepted for payment by Respondent 2. In addition, the question was asked as to whether or not Respondent 2 could stop payment based upon a court order without the Claimant having had any opportunity to respond.

Analysis

It was stated that, whilst the credit was subject to the UCP 600, the issues to be decided were outside the scope of the rules. Furthermore, it was highlighted that numerous inaccuracies and omissions were located in the submitted documentation, including a lack of clarity as to which credit the court order applied.

In general terms, and regarding cancellation of a credit by an applicant, reference was made to the UCP 600 sub-article 10 (a), wherein it is stated that a credit cannot be cancelled without the agreement of the beneficiary. It was mentioned that the UCP 600 article 2 contained the definitions of an advising bank, a confirming bank, and an issuing bank.

Although a last resort, it was possible for a court order to be raised preventing payment under a credit. It was confirmed that a court order would override the UCP 600 despite an issuing bank having accepted the submitted documents. As such, an issuing bank must abide by the decisions of a court under which jurisdiction it is subjected.

When an issuing bank has a court order (or injunction) placed upon it, such court order will generally preclude any honour of a payment obligation.

It was stated that a bank should always try to resist an injunction in order to preserve the integrity of its name and the credit, by referring the court to the appropriate articles of the UCP 600 and to the terms and conditions of the credit.

Although it was preferable for a beneficiary to receive advance notice of a court order, and have the opportunity to provide comment, this was dependent upon the relevant local law that pertained to the issue.

Decision

It was agreed that a credit cannot be cancelled without the beneficiary’s consent, although an issuing bank must comply with any court order in accordance with the applicable local law.

The raised issues were seen as outside the scope of the UCP 600.