Parties to the query

Claimant: Confirming Bank

Respondent: Issuing Bank

Detailed description

A credit was issued by the Respondent, subject to the UCP 600, made available with the Claimant by negotiation of drafts drawn on the Claimant, and payable in four progress payments. The Claimant confirmed the credit.

The third and fourth progress payments were made available against identical documents, with the third payment available at sight, and the fourth at usance. Whilst documents for the third progress payment were honoured, as were presentations for the first two progress payments, the Respondent refused to pay the fourth on the basis that no specific presentation had been made for this progress payment within the validity of the credit.

However, the Claimant claimed that both the third and fourth progress payments effectively represented a “mixed payment” and, as such, they were entitled to reimbursement for the third progress payment at sight and the fourth at usance, based upon sole presentation of documents under the third progress payment.

In the view of the Claimant, the terms of the credit were ambiguous in that double presentation of the same set of documents, particularly a full set of bills of lading, was impossible.

It was queried as to whether the credit was badly drafted, with the Respondent being responsible for such drafting, and that “mixed payment” for the third and fourth progress payments was acceptable. Furthermore, that documents were presented within the credit validity and, if so, whether the Respondent must provide reimbursement for the fourth progress payment.

Analysis

The only difference between the third and fourth progress payments was the fact that the third was payable at sight, and the fourth at usance.

The UCP 600 sub-article 7 (c) states that an issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank.

The UCP 600 sub-article 15 (b) states that when a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank.

The UCP 600 article 2 provides definitions of “complying presentation” and “negotiation”.

The ISBP 745 paragraph B10 states that when a credit is available by negotiation with a nominated bank or any bank, the draft is to be drawn on a bank other than the nominated bank.

The analysis noted that neither the UCP 600 nor international standard banking practice provided any guidance for negotiation of drafts by the drawee bank itself.

The ISBP 745 Preliminary Considerations (v) state that the applicant bears the risk of any ambiguity in its instructions to issue or amend a credit and that an issuing bank should ensure that any credit or amendment it issues is not ambiguous or conflicting in its terms and conditions.

For each drawing under the third and fourth progress payments, a separate set of drafts, one at sight and one at usance, were required to be presented. There was no indication in the documentation provided of presentation to the nominated bank of any usance draft drawn under the fourth progress payment. In such absence, it was considered that no drawing was made for the fourth progress payment and that the Respondent was not liable to reimburse the Claimant.

Decision

It was agreed that, despite the credit being ambiguous for which the Respondent was responsible, the credit was available by negotiation with separate sight and usance drafts required, and not by mixed payment.

There was no information or evidence of usance drafts being presented by the Claimant for the fourth progress payment within the validity of the credit, and of the Respondent being timely informed thereof.

The Respondent had no obligation to reimburse.