Article

Factual Summary: Bank issued a negotiable sight LC for US$150,000 in favor of Beneficiary to pay for frozen fish and seafood products. Required documents included: (1) the full set of clean bill of lading marked "fright prepaid" and "notifying the applicant"; (2) three copies of the signed commercial invoices; and (3) three copies of packing list.

Subsequently, the LC was amended to add 50 tons of frozen fish to clause 45A and the amount was increased to US$250,000. A second amendment extended the expiration date of the LC and the latest shipment date.

On 11 October 1999, Beneficiary presented the required documents to Issuer through Negotiating Bank. After receipt, Issuer informed Negotiating Bank that it would refuse payment because of the following discrepancies: (1) failure to present the originals of the documents (neither the invoices nor the packing list were marked as originals); (2) there is no date of shipment on the bill of lading; (3) the amendment of the bill of lading was not signed by the shipping agency; and (4) the bill of exchange was issued by two entities, Shanghai Suhao International Trade Co., Ltd. (Shanghai Suhao) and Jiangsu Silk Import and Export Group (Shanghai) Co., Ltd.

Negotiating Bank replied to Issuer that it did not agree with the asserted discrepancies. Simultaneously and before the latest shipment date, Beneficiary sent a replacement bill of exchange.

After the latest shipment date, Issuer again refused to effect payment under re-presentation on the basis: (1) there is no date of shipment in the bill of lading as required by UCP500 23(a) in the presented bill of lading (the dated marked at the bottom left corner was not the date of shipment); (2) the amendment that you made was not a authenticated signature while UCP500 provides that any modification shall be signed with authentication; and (3) the destination indicated in the replaced bill of exchange presented by you was not the same as the destination indicated in the LC.

Negotiating Bank responded that it would not accept such discrepancies and made the following points: (1) The date of October 9, 1999 was clearly indicated on the bottom left corner of the bill of lading and that below the date was the printed words "By...", which showed the definition of shipment. The date was obviously the date of shipment; (2) It was not necessary for the amendment of the LC to be signed because such amendment had already been certified by the modification department of shipping company; (3) The final port of destination and amount complied.

Negotiating Bank demanded that Issuer make payment. Subsequently, Zhonghai Shuanwu Shanghai Jinhui Shipping Agency (Shipping Agency) issued a certification testifying that bills of lading No.CSHBS320185 and No. CSHBS320186 were issued on 9 October 1999 and were clean bills of lading for shipment. It further certified that the date indicated on the bottom left corner of the bill of lading was the date of shipment and that it issued the above bills of lading strictly in accordance with UCP500 Article 23. The specimen of the seal for the shipment was attached to the certification.

Negotiating Bank then sent a letter to Issuer saying it had obtained the certification of the Shipping Agency that the date on the bottom left corner of the bill of lading was the date of shipment. Issuer returned the documents and the letter of credit to Negotiating Bank on 6 December 1999 because it could not accept these points.

Beneficiary and Negotiating Bank sued Issuer for wrongful dishonor. The trial court granted judgment to Beneficiary. On appeal, affirmed.

The trial court ruled that purported Negotiating Bank did not, in fact, have that status and that the drawing was proper.

Legal Analysis:

1. UCP500: The appellate court noted that the LC expressly provided that it was subject to the provisions of UCP500. Therefore, it concluded that the provisions of UCP500 have binding force on parties to the LC.

2. Qualified Negotiating Bank: The court concluded that the Intermediary Bank was only responsible for examination and transmission of documents and did not make payment to the Beneficiary. In accordance with UCP500 Article 10(b), "(m)ere examination of the documents without giving of value does not constitute a negotiation." Therefore, the appellate court concluded that the Beneficiary was a proper party to this action.

3. Discrepancies: Issuer contended that there was no on board date on the bill of lading. However, the Shipping Agency had informed the Appellant through the Respondent during the valid period of the LC that the disputed date in the left corner of the bill of lading was the date of shipment. In addition, the Issuer as a bank, assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect or any document(s). The contention, therefore, by the appellant that whether the date shall be printed in advance or signed shall not be the examining scope of the appellant is also hereby not supported by the court.

In accordance with UCP500 Article 20(d), unless otherwise stipulated in the LC, a condition under an LC calling for a document to be "authenticated, validated, legalised, visaed, certified or indicating a similar requirement, will be satisfied by any signature, mark, stamp or label on such document that on its face appears to satisfy the above condition."

The correction chop of the Shipping Agency on the disputed B/L clearly shows that the name of who made the correction had complied with the terms and conditions of those provisions. Therefore, the contention of the Appellant that "the correction chop did not contain an authenticated signature shall not be supported by the court.

Comments by Jin Saibo:

1. When considering whether documents are consistent with the terms and conditions of the LC, the issuing bank shall not rely on information from other documents not required by the LC. It is not right for the Issuing Bank to determine whether the documents are in compliance with the LC based on information that is not stated in delivered documents. The Issuing Bank, as the examiner, shall examine the documents according to the terms and conditions of the LC except in the case of material fraud.

2. When the beneficiary amends any document, a signature is required in addition to the company seal. So far as this case is concerned, the problem is whether a signature is required for the amendment of the bill of lading in addition to a seal certifying such amendments. Both UCP500 and the ICC Banking Commission's pronouncements make no specific provisions in this regard. In practice, however, a signature is required for certification. As required by the International Chamber of Commerce for example, a signature is needed for certifying statements in the bill of lading. A chop on the originals constitutes a signature under UCP500 Article 20(b). For a duplicate, a signature is necessary. The Banking Commission is not firm on this point, but the need for a signature is addressed by ISBP.

3. Another error in this ruling is that when determining the date of shipment, the court applied mistaken reasoning. Although it might be a correct result for this issue, the reason supporting the result in this ruling is wrong. UCP500 Article 23(a)ii, in part, expressly provides that:

"Loading on board or shipment on a named vessel may be indicated by pre-printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment.

In all other cases loading on a named vessel must be evidenced by a notation on the bill of lading which gives the date on which the goods have been loaded on board, in which case the date of the on board notation will be deemed to be the date of shipment."

In ICC Official Opinion R284 - 1997, the Banking Commission subsequently divided the circumstances into two scenarios:

The first scenario is "shipped on board B/L". Under such circumstances, if the pre-printed words "'shipped in apparent good order and condition' (or words of similar effect), the date of issuance is deemed to be the date of shipment. There is no need for the B/L to bear a separate on board notation, but should it do so, it must bear the same date as the date of issue" otherwise, the documents must be rejected due to an obvious discrepancy.

B) "Received Bill" - if the L/C has required an ocean bill of lading, it must bear a dated on board notation. It makes no difference whether or not the on board date is before, after or the same as the date of issue. It is our experience that the pre-printed clause on "received" bills of lading does not state, definitively or by implication, that the date of receipt equates to the date of issue. Even when an L/C calls for a multimodal transport document, sub-Article 26 (a)(ii) makes it clear that the issuance date is "deemed" to be the date of shipment unless the document states to the contrary "by stamp or otherwise", clearly an acknowledgement in UCP 500 that date of issue does not necessarily, in all cases, mean the same date of receipt.

The second scenario is received for shipment B/L.

"(I)f the LC has required an ocean bill of lading, it must bear a dated on board notation. It makes no difference whether or not the on board date is before, after or the same as the date of issue. It is (the ICC Banking Commission's) experience that the pre-printed clause on 'received' bills of lading does not state, definitively or by implication, that, the date of receipt equates to the date of issue. Even when an LC calls for a multimodal transport document ... ."

If, as this opinion of the ICC suggests, the B/L in this case has pre-printed notation of "shipped on board", the date of issue shall be deemed to be the date of shipment. The issuer of the B/L need not inform or explain to the issuing bank through the negotiating bank by additional information about the date of shipment.

The mistake in this decision is that it permits the Issuing Bank to use additional information which is not required by the LC to determine whether the documents are consistent with the terms and conditions of the LC.

[JS/csb]

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

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