Article

Factual Summary: Bank issued a commercial LC. A multimodal transportation or port-to-port bill of lading was issued to Beneficiary which issued a commercial invoice in an amount of US$933,688 for 116,711 yards of linen cloth. Beneficiary also prepared a "Memo/shipment sheet of the weight of linen cloth in containers" referring to 116,711 yards of linen cloth.

Negotiating Bank forwarded its payment request to Issuer which sent a telex noting alleged discrepancies concerning the quantity of the goods under the LC. Applicant refused to accept the documents. Negotiating Bank disputed the alleged discrepancies, but Issuer reaffirmed that Applicant refused to accept the documents due to the discrepancies.

Negotiating Bank then brought action against Issuer. The trial court entered judgment for Negotiating Bank. On appeal, affirmed.

Legal Analysis of Fuzhou Intermediate People's Court Decision:

1. Extraneous Documents; UCP500 Article 13: As there is no stipulation in the LC that a bill of lading with the quantity of the goods 116,711 yards shall be submitted, the bill of lading provided by Negotiating Bank met all terms and conditions of the LC. In accordance with UCP500 Article 13, documents not stipulated in the credit will not be examined by banks. If a credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them.

2. Conversion of Measurements: Although different units are used in different documents when referring to the quantity of goods, there is also a conversion ratio stipulated in the shipment sheet. The documents are linked to one another and in compliance with international trade practice. The trial court ruled that the documents provided by Negotiating Bank complied with the terms and conditions of the credit. The trial court found that the goods were described as 116,711 yards in the bill of lading and commercial invoice while the stated quantity in the credit was 120,000 yards. The 2.74% difference satisfies the requirements of UCP500 Article 39.

Legal Analysis of Fujian High People's Court Decision:

1. UCP 500: Although the LC did not expressly provide that it was subject to UCP500, neither party objected to the application of UCP500 during the trial. Therefore, it can be concluded that both parties agreed to abide by UCP500.

2. Cause of Action: Negotiating Bank submitted evidence before the appellate court suggesting that it had made payment under the LC. The appellate court, therefore, rejected the challenge that Negotiating Bank was not a qualified plaintiff.

3. Strict Compliance: The appellate court noted that under UCP500 Article 13, banks must examine documents with reasonable care to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit. However, there is no specific standard for the examination of documents in UCP500. Strict compliance does not mean slavish conformity to the terms of the letter of credit. The appellate court noted that an LC is the means to make the payment rather than a means to refuse payment.

4. Consistency between Documents; Tolerance: LC stipulated that the quantity of goods was "120,000 yards". According to UCP500 Article 39(b), a tolerance of 5% more or 5% less will be permissible. The quantity of goods stipulated in the commercial invoice "116,711 yards" compared to "120,000 yards" stipulated in the LC was within this range. Therefore, it can be concluded that the commercial invoice is in compliance with the terms and conditions of LC.

[JS/csb]

* Jin Saibo's email address is jinsaibo@zhonglun.com.

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