Parties to the query

Claimant: Negotiating Bank

Respondent: Issuing Bank

Detailed description

The Respondent issued two credits, both subject to the UCP 600, available with any bank by negotiation, with drafts drawn at 30 days from bill of lading date.

The Claimant, acting as a negotiating bank, made six presentations of complying documents under the credits, all of which were accepted to be paid at maturity by the Respondent.

At maturity, the Respondent did not pay stating three main reasons for suspending payment: that fraud existed based on misrepresentations on the presented bills of lading; that the Claimant did not negotiate the presentations made under the credit; and that there were legal proceedings in Hong Kong concerning the case in question.

The Claimant had sent the documents by mail rather than advising details of negotiation by SWIFT, and it was questioned as to whether this provided the Respondent with a reason to refuse payment.

The question was also raised as to whether the Respondent could withhold payment after having previously advised acceptance of all presentations.

Finally, it was queried if the Respondent could withhold payment to the Claimant even though the Claimant negotiated in good faith without notice of any suspected fraud.

Analysis

The UCP 600 article 5 states that banks deal with documents and not with goods, services or performance to which the documents may relate.

Additionally, the UCP 600 article 34 states: “A bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for the good faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee or the insurer of the goods or any other person.”

The UCP 600 sub-article 7 (a) states that, inter alia, provided the stipulated documents are presented to the nominated bank and that they constitute a complying presentation, the issuing bank must honour.

These UCP 600 extracts evidence the independent nature of a credit and lead to the conclusion that since a complying presentation was made, the Respondent was obligated to honour.

Despite the Respondent stating that there was clear evidence of fraud, this was a legal question, and not one for the Respondent to conclude upon. Such matters are left to courts of law. On this premise, it was considered that, unless local law so prevents, the Respondent was obligated to honour.

The UCP article 2 defines negotiation as the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

The Claimant did not negotiate at the time of presentation of documents but, instead, included specific wording in their forwarding schedules to the Respondent stating that upon receipt of an authenticated SWIFT from the Respondent, the Claimant would negotiate.

Decision

As complying presentations were made to the Respondent, it was obligated to honour unless prevented by local law.

Furthermore, the fact that the Respondent had accepted to pay at maturity also obligated it to honour, regardless of whether or not the Claimant had negotiated.

Whether or not there was fraud was stated to be a legal question, and not one for the Respondent to opine upon.