Article

Factual Summary: To pay for the sale of goods, two LCs were issued in favor of Beneficiary by Issuing Bank. In addition to other documents, the credits required presentation of a third party's invoice, annotated and signed by Beneficiary. The credits named Advising Bank and indicated that they expired at its counters.

Prior to expiration, Beneficiary presented documents under both LCs to Advising Bank. Neither presentation contained a copy of the third party invoice. Advising Bank forwarded the presentation to Issuer. Issuer noted that both presentations lacked a required document and sought Applicant's waiver. Issuer gave notice of refusal to Advising Bank on the seventh banking day, the day on which Applicant's refusal to waive discrepancies was received.

Claiming that the refusals were untimely and improper, Beneficiary sued Issuer for wrongful dishonor. On cross motions for summary judgment, the trial court granted Issuer's motion.

Legal Analysis:

1. Refusal, Timely; Reasonable Time; UCP500 Articles 13 and 14: Beneficiary alleged that Issuer "waived" any alleged deficiencies in the documents presented because of "[Issuer's] failure to timely reject [Beneficiary's] claim." Citing UCP Article 13(a), the court rejected this contention. The court stated that "'[t]he Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have ... not to exceed seven banking days following the day or receipt of the documents ... to take up or refuse the documents and to inform the party from which it received the documents accordingly.'" The court reasoned that:

[T]he language quoted above from Article 14(d)(I) of the UCP indicates that the deadline for the Advice of Rejection was measured by the "day of receipt of the documents" by an "Issuing Bank," "Confirming Bank," or "Nominated Bank." [Beneficiary] fails to submit any evidence indicating that [Advising Bank] was the a "Confirming Bank" or "Nominated Bank" within the meaning of the UCP and, in fact, it is undisputed that ... the letters of credit named [Advising Bank] as the "Advising Bank ... and the UCP clearly differentiates between "Advising Bank" on the one hand, and "Confirming Banks" and "Nominated Banks" on the other.

Since the issuer gave its notice of refusal on the seventh banking day after receipt of the documents, the court ruled that its refusal was timely.

2. Refusal; Timely Refusal; Reasonable Time; UCP500 Articles 13 and 14: Beneficiary claimed that "the timeliness of the [Issuer's] Advice of Rejection on [the first LC] should be measured by the date of its delivery of its claim and supporting documents to [Advising Bank], and not the date by which it was received by [Issuer]." Noting that UCP500 did not provide that the time for measuring a reasonable time began to run from presentation to the advising bank, the court rejected this argument.

3. Misdirected Notice of Refusal: Beneficiary contended that the notice of refusal was misdirected because Issuer sent its refusal to the advising bank and not the beneficiary. Citing UCP500 Article 14(d)(I), the court noted that it "indicates that [Issuer] was required to give notice of its rejection of [Beneficiary's] claim to the bank from which it received the documents supporting the claim (i.e. [Advising Bank]), and because it is undisputed that [Issuer's] [date] Advice of Rejection was sent to [Advising Bank] ... [Beneficiary] also fails to demonstrate that [Issuer's] Advice of Rejection was misdirected."

4. Without Delay; UCP500 Article 14: Beneficiary argued that "the 'without delay' language in Article 14(d)(I) of the UCP required [Issuer] to sen[d] notice of rejection of [Beneficiary's] claims on [each LC] as soon as [Issuer] identified such deficiencies." The court rejected this contention, noting that the "plain language" of this section provides "that notice of rejection be sent 'without delay' once [Issuer] 'decide[d] to refuse the [supporting] documents.'" Noting that Issuer sent the notice on the same day that it received the refusal to waive discrepancies from Applicant, the court ruled that it had given notice without delay once it had made a decision.

5. Strict Compliance: Beneficiary contended that Issuers's refusal was invalid because the documents that the beneficiary submitted strictly complied with the requirements of the LCs. Issuer had refused because the beneficiary "failed to submit document no. 5." In reply, Beneficiary "contend[ed] that [the bills of lading] 'doubled' as invoices." Rejecting this argument, the court stated that "[g]iven the doctrine of strict compliance applicable to the documents submitted in support of [Beneficiary's] claims ... [Beneficiary's] contention that the bills of lading served as effective substitutes for the [third party] invoice is unpersuasive."

6. Attorney's Fees; UCP 500; Commercial Code §5-111(e): Beneficiary claimed that Issuer was not entitled to recover attorney's fees under Revised UCC Section 5-111(e) because the court had applied the provisions of the UCP rather than the Commercial Code provisions in granting Issuer's motion for summary judgment. The court stated that "[t]his contention lacks merit because the attorney's fees provision in §5-111(e) provides for an award of attorney's fees 'in the action in which a remedy is sought under this article' [italics added in the opinion], not merely in an action in which the article is ultimately held to be applicable to a claim of relief." Attorney's fees of US$116,112.91 were awarded.

Comments:

1. This decision is interesting because of the novel claims made by the beneficiary.

2. The argument that the time under which to examine documents begins to run on presentation to an advisor nominated to receive a presentation is wrong. While the time for expiry is tolled on presentation, the time for examination begins on the banking day following the banking day of receipt of the documents. The wording on the decision, however is less than ideal on this point. It gives the impression that the time begins to run on the presentation to a confirmer, nominated bank, or advisor, whereas the time only begins to run as to that bank.

3. The decision clarified the question of whether consultation with the applicant regarding waiver is to be taken into account in determining what constitutes a reasonable time under UCP500 Article 13 and 14. A proper interpretation of the UCP allows banks time to consult if they elect to do so and provided that the time does not exceed seven banking days. The court also properly ruled that by giving notice on the day that it received the applicant's refusal to waive discrepancies, the issuer had given notice "without delay" under UCP Article 14.

4. This is an unpublished decision.

[JEB/fkd]

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