Parties to the query

Claimant: Beneficiary

Respondent: Issuing Bank

Detailed description

A credit was issued by the Respondent in favour of the Claimant, subject to the UCP 600, which allowed presentation of an invoice and a letter of Indemnity (LOI) instead of a number of documents including bills of lading.

The Claimant submitted documents, via a presenting bank, to the Respondent comprising an invoice and an LOI. Within the time period allowed for examining documents, the Respondent informed the presenting bank that no honour had been effected and that the documents were held by the Respondent pending some clarifications. No formal notice of refusal was provided.

At a later date, the Respondent made allegations of "material misrepresentations". The Claimant insisted that the submitted documents were compliant and that there was no indication of fraud.

It was questioned as to whether the Claimant made a complying presentation under the Credit, and whether or not the SWIFT message from the Respondent represented a valid refusal notice in accordance with the UCP 600 sub-article 1 6(c). Furthermore, whether the Respondent was bound to honour the presentation from the Claimant, and whether they were liable for late payment interest.

A reservation was also expressed by the Respondent as to whether the DOCDEX procedure was suitable to address the issues raised by the Claimant and how the issue of "fraud exception" may be addressed.

Analysis

Taking into account the DOCDEX articles 1, 2 and 8, it was considered appropriate for this query to be addressed by the DOCDEX procedure.

The UCP 600 sub-article 14 (a) states that an issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

A full examination of the presentation was carried out and it was determined that the documents were compliant.

The UCP 600 article 2 states that a complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of UCP 600, and international standard banking practice. Since a presentation solely comprising an invoice and an LOI was allowed under this specific credit, the documents were seen to represent a complying presentation.

The UCP 600 sub-article 16 (c) states that when an issuing bank decides to refuse to honour, it must give a single notice to that effect to the presenter, providing certain assertions.

The relevant message from the Respondent merely indicated that no honour had been effected and did not mention any refusal to honour due to stated discrepancies. As such, it did not represent a valid notice of refusal.

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

Furthermore, the UCP 600 sub-article 7 (c) provides 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 16 (f) states that if an issuing bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.

The Respondent, in this respect, failed to provide a valid notice of refusal. Accordingly, under the UCP 600 article 7, it was bound to honour the presenter.

The UCP 600 only defines the issuing bank undertaking to honour the principal amount and any issues related to remedies or compensations for failure to timely honour (or reimburse) are outside the scope of the UCP 600. Any potential remedy should be sought under applicable law.

The DOCDEX panel did not discover any substantiation of fraud. Furthermore, they found no evidence of “material misrepresentation”.

Decision

It was agreed that the case was appropriate for DOCDEX despite court action.

The presentation was considered as compliant and, in any event, the Respondent failed to present a valid notice of refusal.

Accordingly, the Respondent was bound to honour.

The issue of late payment interest lay outside the scope of the UCP 600 and was left to applicable law.