Parties to the query

Claimant: Beneficiary

Respondent: Issuing Bank

Detailed description

Documents were presented by the Claimant to the Respondent under a credit subject to the UCP 600. A few days later, documents were re-submitted changing the name of the carrying vessel.

The Respondent sent a SWIFT message to the Claimant stating that the applicant had admitted to executing a fraudulent paper transaction leading to more than one set of bills of lading being in circulation, and to discharging the cargo without production of the bills of lading. As such the Respondent stated that they would not honour the credit and would hold the documents pending procurement of certain documents for verification by the Claimant.

As a result, based upon their apparent complying presentation, the Claimant demanded payment from the Respondent.

The Respondent argued that there was fraud on the part of the Claimant which made examination of witnesses necessary, and that initiating court proceedings before the Singapore High Court as well as requesting a DOCDEX Decision was an abuse of process. Finally, they argued that the dispute was outside the scope of the UCP 600 and hence outside the scope of the DOCDEX Rules.

It was questioned as to whether the Claimant made a complying presentation under the credit and whether the SWIFT message from the Respondent to the Claimant was a valid notice of refusal.

Furthermore, whether the Respondent was obligated to honour the presentation plus being responsible for interest up to the date of payment to the Claimant.

Analysis

It was decided that the issues to be decided did relate to the UCP 600 and that the query, under this specific aspect, was in scope of the DOCDEX rules.

The UCP 600 sub-article 4 (a) states that a credit is a separate transaction from the sale or other contract on which it may be based. A beneficiary can in no case avail itself of the contractual relationship existing between banks or between the applicant and the issuing bank.

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

However, it was highlighted that there was an exception to these provisions, namely abuse of rights, or fraud. In any case, the issue of fraud was outside the scope of the UCP 600 and one for the courts to opine upon.

Accordingly, the experts were not in a position to comment on the issue of fraud, and that particular issue would not be addressed in the decision.

In respect of the submitted documents, it was considered that the presentation was complying.

Regarding the format of the notice of refusal, the UCP 600 article 16 outlines the process for handling discrepant documents.

The UCP 600 sub-article 16 (a) points out that when an issuing bank determines a presentation is non-compliant, it may refuse to honour or negotiate. UCP 600 sub-article 16 (c) provides the requirements and format for such refusal notice.

The notice of refusal provided by the Respondent failed to comply with the UCP 600 sub-article 16 (c) (i), sub-article 16 (c) (ii), and sub-article 16 (c) (iii).

Decision

The decision was that the claim fell within the scope of the DOCDEX Rules, and that the Claimant did make a complying presentation.

As a consequence, the Respondent was obligated to honour the presentation made under the credit. Additionally, the Respondent was responsible for interest, although this was considered as outside the scope of the UCP 600.