Article

Factual Summary: To assure payment for purchase of porcelain sanitary products, Buyer established a standby in Seller's favor. The standby provided two alternative methods of drawing: the situation where the Applicant accepted the goods and refused to pay for them (Payment Refused Claim described by the trial court as 'Route A') which required presentation of several documents: i) Beneficiary's statement to support demand amount, ii) draft, and iii) inspection certificate. The other drawing method (Goods Refused Claim described by the trial court as 'Route B') was intended to cover situations where Buyer refused to accept the goods, and required presentation of only a Beneficiary's certificate stating that tendered goods were rejected signed by two officers of Beneficiary and verified by the Correspondent Bank.

A local Hong Kong Correspondent Bank acting on Beneficiary's behalf presented documents to Issuer on the expiry date. Correspondent Bank included its own cover or transmittal letter that stated the demand amount as NLG1,667,225.50. The cover letter seemed to quote both a Payment Refused Claim (Route A) and a Goods Refused Claim (Route B) and named the four documents that constituted the presentation. [The LC, Correspondent Bank cover letter and three of the four documents submitted to Issuer as set forth in the opinion are reproduced in the appendix following this abstract.]

One unnamed document dated 29 October 1996 was written and signed by Beneficiary but the signature was not verified by Correspondent Bank. This document listed three separate amounts. The first two amounts, described as "due and unpaid," totaled NLG1,247,010.00 clearly related to a Payment Refused Claim (Route A). The third amount was stated to be "NLG 420,215.50 for the delivery of products". The following sentence stated "[Applicant/ Secured party in LC] has not taken those last products" which could suggest a Goods Refused Claim (Route B). Regardless of the type of claim to which the third amount referred, the total amount claimed in this document (NLG1,667,225.50) matched the figure in the Correspondent Bank's cover letter.

Further complicating matters, the third amount in the letter of 29 October 1996, (NLG 420,215.50) was said to "conform" to an "annexed invoice number 200820-31.05.95." Beneficiary, however, did not submit an invoice with this invoice number. In fact, the LC did not require an invoice under either drawing method. Nevertheless, a second document submitted was an invoice explicitly describing itself as a "pro forma invoice" with a stated total of NLG419,689.20. This was the only document in the presentation that resembled an "invoice".

A clause in the 29 October 1996 letter also stated, "[w]e also claim under the L/C the payment of goods not taken under the sales agreement as stated in the annexed certificate conform section 3(b) of the above L/C." This clause did three things: it cited LC section 3(b) which related to a Goods Refused (Route B) drawing, it tracked section 3(b) language ("goods not taken under the sales agreement"), and it referred Issuer to an "annexed certificate." The only certificates submitted, and the last two documents in the presentation, were an Inspection Certificate and an Officers Certificate.

The Officers Certificate, unlike the Beneficiary Statement, was signed by two officers of Beneficiary whose signatures were verified by Correspondent Bank as required for a Goods Refused (Route B) draw. In addition, the Officers Certificate cited LC sub-article 3(b) that related to a Goods Refused (Route B) draw and tracked its language. The Officers Certificate did not state an amount demanded but referred Issuer to an "amount as specified on annexed pro forma invoice."

Correspondent Bank presented these documents on Thursday, the expiry date. Issuer began checking documents on Friday and prepared a 'final' list of discrepancies on Monday for both the Payment Refused (Route A) and the Goods Refused Claim (Route B) presentations. On Monday, Issuer telephoned Correspondent bank about discrepancies. Sometime on Tuesday, after the credit had expired, Issuer received a letter from Beneficiary that was meant to cure the discrepancies. Issuer sent its notice of refusal on Wednesday at 16:23 hours.

Although Issuer rejected both documentary presentations, the Goods Refused Claim (Route B) presentation is at issue. The sole Goods Refused Claim rejection notice read:

BENEFICIARY'S CERTIFICATE DOES NOT STATE AMOUNT CLAIMED

Beneficiary sued Issuer for wrongful dishonor and the trial court ruled in favor of Beneficiary. It found that the documents were discrepant under UCP500 Article 13(a) but also ruled that Issuer had provided notice without delay and that Issuer's statement of the discrepancy in the notice of refusal was adequate. Beneficiary appealed all three rulings.

On appeal, the appellate court affirmed the trial court's decision that Issuer had provided notice without delay. Justice Woo concluded the documents were not discrepant, so that Issuer wrongfully dishonored. Justice Yuen and Justice Barma disagreed with the reasoning of Justice Woo because they perceived an inconsistency in the references to the amount drawn. However, they agreed with Justice Woo's ultimate judgment that Beneficiary should recover wrongful dishonor because, together with Justice Woo who had not addressed this issue in detail because he did not find a discrepancy, they concluded that Issuer's notice did not adequately state the discrepancy in amounts as the reason for dishonor.

Legal Analysis:

1. UCP500 Article 1; Incorporation; Subject to: Mr. Justice Woo characterized the effect of issuing the LC in this case subject to UCP500 as the rules being "incorporated into the LC as if they were contractual terms agreed by the parties."

2. Reasonable Time; UCP500 Article 13; UCP500 Article 14(d); UCP500 Article 14(e); Preclusion: Beneficiary asserted that the trial court's determination that Issuer gave notice of refusal without delay was contrary to the weight of the evidence. It cited a number of decisions regarding reasonable time and giving notice without delay.

Mr. Justice Woo indicated that he would defer to the factual findings of the trial court unless they were "plainly wrong" since the trial judge had the benefit of receiving the evidence first hand. Mr. Justice Woo recited the relevant factual findings of the trial court at considerable length.

Beneficiary argued that the trial judge had erred in failing to give sufficient attention to the point of time at which a decision was made to refuse the documents on Monday when a short list of discrepancies was made by the document examiner. Beneficiary urged that "it was the decision to reject the documents, and not the decision or instruction to send out a rejection notice, which triggered the contractual obligation to act without delay. ... [I]t was wholly artificial for the judge to conclude that, having produced his shortlist of discrepancies, [Issuer's Employee] 'began the process of deciding'. [Beneficiary's Counsel's] reasoning is that there was no such process, and the decision was made when the discrepancies were identified. [Beneficiary's Counsel] submitted that whether there was delay could only be determined by reference to the time which it should have taken the defendant to prepare and transmit a rejection notice, but no evidence was advanced by the defendant of factors which delayed that process, and therefore taking two days to perform the purely administrative act of preparing and transmitting a rejection notice could not be characterised as 'without delay'".

Issuer noted that after receiving a checklist of discrepancies from a subordinate, the document examiner who prepared the notice of refusal prepared a reduced or final list of discrepancies (late Friday or Monday), decided whether to dishonor on the basis of these discrepancies, and made a decision late on Tuesday.

Issuer also argued that the evidence revealed various factors that should be given weight in determining whether there was action within a reasonable time and without delay. These factors included: Issuer's small workforce (20 employees), document checkers were not native English speakers, Issuer's 5-level document review, complexity and lack of clarity in the documents, and Issuer's inexperience with claims under standby credits.

In considering the testimony of the Issuer's Supervisor, Mr. Justice Woo noted that at one point during cross examination the examiner stated that the decision to refuse had been made on Monday but emphatically stated later in the cross examination that the decision had been made late on Tuesday. Mr. Justice Woo noted that the trial judge's opinion indicated that he was "acutely aware" of this testimony in reaching the conclusion that the decision was reached late on Tuesday. The appellate judge described this as "a finding of primary fact" [P4] with which there was no apparent basis to interfere on appeal. Mr. Justice Woo also pointed out the trial court's recognition of the impact of the reception of a re-presentation attempting to cure alleged discrepancies "which must have delayed the sending of the rejection notice through SWIFT, albeit not for a substantial period of time."

On the question of reasonable time or delay, Mr. Justice Yuen noted that the question was one of the reliability of the memories of the witnesses than of their credibility. He noted that "there was contemporaneous documentary evidence that even in the afternoon of 5 November 1996 (one day before the Notice of Refusal was sent), [Issuer's Supervisor] was approving a draft SWIFT message to [Correspondent/Presenting Bank] seeking clarification of the routes under which the claims were being made. [Beneficiary's Counsel] attempted in cross-examining [Issuer's Supervisor] to paint the picture that he had approved the draft 'distractedly'. He did not meet with any success. Although the draft was not sent, it evidenced that even at that time, no final decision to refuse the documents had yet been made." Mr. Justice Yuen opined that the trial judge was justified in giving weight to this contemporaneous evidence, as was indicated by his explicit reference to it. As a result, he concluded that there was no basis for overturning the factual findings.

Mr. Justice Barma agreed that there was no basis for disturbing the findings of the trial judge.

3. Discrepancies; UCP500 Article 14(d)(ii); Statement of Discrepancies; Refusal; Inconsistencies; Notice of Refusal; Strict Compliance; UCP500 Article 13: Mr. Justice Woo concluded that the trial judge erred in his decision that Issuer had properly dishonored the presentation of documents under the "Goods Refused Claim" (Route B) drawing on the basis that the Beneficiary's Certificate was inconsistent.

He noted that the trial judge had found the following discrepancies:

1) Whereas the LC required presentation of a Beneficiary's Certificate, no such document was presented although there was a document entitled an "Officers Certificate".

2) This Officers Certificate did not contain an amount demanded but instead referred to a Pro Forma Invoice, a document not required by the credit, that was said to be annexed. Although there was a Pro Forma Invoice among the documents presented, it was loose and not annexed.

3) The 29 October 1996 statement issue by the Beneficiary, described by the trial judge as the Beneficiary's Statement, presented under the Payment Refused Claim (Route A) basis, "appeared to state.... a 'Route B' [Goods Refused] claim .... in the aggregate amount of Nlg 420,215.50" but referenced "a different amount, under a different invoice, which had not been included in the presentation at all." The only document presented that remotely resembled an invoice was the Pro Forma Invoice which stated a different amount of Nlg 419,689.20.

In addition, he noted that the trial judge mentioned two additional reasons for refusal raised by Issuer:

4) The Pro Forma Invoice was issued by a different entity than Beneficiary.

5) The Presenting Bank's cover letter, a document that was required under a Payment Refused Claim (Route B) claim, listed amounts claimed under the Goods Refused Claim (Route B) that did not include the amount stated as being due on the Pro Forma Invoice.

Mr. Justice Woo concluded "the [trial] judge's conclusion that the documentation presented for making the [Goods Refused Claim/Route B] was discrepant is plainly wrong because he had overlooked the evidence before him borne out by the undisputed documents."

Mr. Justice Woo rejected the notion that the title, "Officers Certificate" was a proper basis for dishonor, noting that "it is apparent from the content of the certificate that it was a certificate issued by two authorised officers of the [Beneficiary], who signed on behalf of the [Beneficiary], and their signatures were verified by [Correspondent/Presenting Bank]. That was well understood by the [Issuer] to be the 'beneficiary's certificate' as demonstrated in its notice of rejection that 'beneficiary's certificate does not state amount claimed'". He observed that "[w]hile there should be strict compliance with the LC conditions ..., that strictness 'does not extend to the dotting of the i's and the crossing of the t's or to the obvious typographical errors either in the credit or documents'".

As to the Pro Forma Invoice not being annexed as stated but being included as a "loose" document in the presentation, Mr. Justice Woo observed that "[t]he evidence revealed that there was only one 'invoice' included in the documents presented and that was the pro forma invoice. It would be crystal clear to anyone who checked the documents, and it was the duty of the [Issuer's] officers to do so, to appreciate that the pro forma invoice was stated to be 'pro forma invoice' on its face, and that apart from this invoice no other invoice was included in the presentation. Anybody reading and checking with any care all the documents presented would not have failed to appreciate this. ... In my view, there can be no justification for being confused as to which document the officers' certificate was referring to, whether 'annexed' as stated in the certificate or as a 'loose' document that was simply included in the documents presented."

As explained below in paragraph 6, Mr. Justice Yuen expressed the same opinion as Mr. Justice Woo, namely that the invoice was related to the Officers Certificate and was a Goods Refused Claim (Route B) and that the failure to clip the Pro Forma Invoice was not a basis for refusal or objection.

As to inconsistency between amounts due in the Goods Refused [Route B] Claim from Beneficiary's Statement and the invoice, Mr. Justice Woo noted that this invoice was described in the Statement as referring to "the goods that [one of Applicant's Customers] has not taken". He stated that "must have been apparent to any careful reader of the documents presented, that the alleged 'annexed invoice' bore a date, number and amount different from those shown in the pro forma invoice." Reiterating the distinction made in the LC between claims based on Goods Refused [Route B] as opposed to Payment Refused [Route A], and noting that the reference was to goods that had been delivered but not paid for, Mr. Justice Woo concluded "[o]nly a single beneficiary's certificate 'evidencing that the secured party fails to take delivery of the goods in accordance with the sales agreement' was required under Route B [Goods Refused]. There was no reason for mixing up the documents presented under Route B [Goods Refused] with the documents presented under Route A [Payment Refused]. A proper reading of the LC terms encumbers the [Issuer] to examine the officers' certificate which it understood to be the beneficiary's certificate under Route B [Goods Refused], to 'ascertain whether or not 'it' appears, on 'its' face, to be in compliance with the terms and conditions of the Credit' (in terms of article 13a. and article 14b. of the UCP 500)."

Mr. Justice Woo noted that Beneficiary's statement itself distinguished between claims under made for Payment Refused [Route A] and Goods Refused [Route B] and that the last paragraph was not expressly linked to a Goods Refused [Route B] claim. He also observed that "[i]nsofar as this last paragraph purported to be a claim for the price of goods of which the secured party had not taken delivery it was doomed to failure because of the lack of the beneficiary's certificate required by the LC under route B [Goods Refused]. Nor was the invoice for this larger sum claimed to be annexed in fact annexed or included in the presentation. ... One would not be able to mix up the two claims under route B [Goods Refused] unless one were trying to get reasons for rejecting the presentation. ... I am of the view that on any careful reading of the last paragraph of [Plaintiff's/Beneficiary's] letter of 29/ 10/96 on the one hand and the claim 'as stated in the annexed certificate', together with the officers' certificate and the pro forma invoice on the other hand, the documents do not appear on their face to be inconsistent with one another."

As to the objection that the Pro Forma Invoice was not issued by Beneficiary, Mr. Justice Woo noted that the notice of refusal did not state that objection and that there was no requirement in the LC for an invoice, only that the certificate must evidence that the claim was related to the failure to take delivery of the goods. He observed "[w]hether the pro forma invoice was issued by the [Beneficiary] or issued by anyone else was of no consequence, as the purpose of the pro forma invoice was to identify the goods and the price of the goods which the secured party had failed to take up."

As to the objection that the Presenting Bank's cover letter apparently did not include the sum claimed under the Pro Forma Invoice, Issuer had argued that it was required to examine all of the documents in considering each basis for a claim since the presentation was composite under the same LC "to see if there was any inconsistency". Mr. Justice Woo stated that:

In my judgment, the total sum stated in [Correspondent/Presenting Bank's] letter of 31/ 10/96 had little relevance to the [Beneficiary's] claim under route B as supported by the officers' certificate, on an examination of the documents presented with reasonable care, as required by article 13a. of the UCP 500. It is abundantly clear from the terms of the LC that only for a route A claim three items of documentation were required, including a demand through the [Beneficiary's] bank, but only a beneficiary's certificate was required for a route B [Goods Refused] claim. As [Plaintiff's/Beneficiary's] letter of 29/10/96 made reference to three monetary claims, one relating to the two sums each exceeding Nlg 600,000, another one supported by the officers' certificate and yet another one supported by a numbered and dated invoice which was not to be found in the presentation, there was no part of the [Issuer's] task under article 3a. of the UCP 500 to go beyond the officers' certificate to compare the amount stated in the pro forma invoice referred to in that certificate with the separate claim for Nlg 420,225.50, although this latter sum was also alleged to be for goods not taken by the secured party and purported to be another route B [Goods Refused] claim. A fortiori, it was no task of the [Issuer] to compare the sum of Nlg 419,689.20 with the demand through [Correspondent/ Presenting Bank] required only for a route A [Payment Refused] claim for discovering an inconsistency which did not appear on the face of the officers' certificate or the pro forma invoice. I am not persuaded that the fact that the claim for Nlg 420,225.50 which was stated to be for goods not taken was by mathematics found to be included in the demand letter would alter the position, for the proper thing to do is to treat Nlg 420,225.50 either as a route A [Payment Refused] claim and reject it for the same reasons used for rejection of all the route A [Payment Refused] claims as a whole, or as a route B [Goods Refused] claim which did not satisfy the LC requirement of being supported by a beneficiary's certificate. The documents presented being 'properly read and understood', ... I do not think it legitimate to rely on the demand for a sum total of Nlg 1,667,225.50 for identifying an inconsistency with the sum of Nlg 419,689.20 so as to reject the route B [Goods Refused] claim for the latter sum, which on the face of the officers' certificate and the pro forma invoice fully complied with the requirement under (b) of section or paragraph 3 of the LC. ... There was no valid inconsistency that appeared on the face of the documents if reasonable care was taken to read the documents properly, and the [Issuer] claimed in evidence to have taken extra care, when it would not be difficult to discern that the plaintiff was making totally separate claims pursuant to the LC. The inconsistencies could only relate to the sum of Nlg 420,225.50 that appeared to be a route B [Goods Refused] claim and yet was included in the sum total stated in [Correspondent/Presenting Bank's] letter of 31/ 10/96 as if it had been a route A [Payment Refused] claim. The [Beneficiary's] had satisfied the requirement of the LC in making the route B [Goods Refused] claim for Nlg 419,689.20, and it had to be paid accordingly. This is merely giving effect to the strict compliance with the terms of the LC."

Summarizing his conclusion, Mr. Justice Woo stated "the [trial] judge was wrong to compare the clear statement of the amount claimed for the goods as set out in the pro forma invoice which was certified not to have been taken up by the secured party to which the officers' certificate referred with 'other documents in the presentation' so as to find that there were inconsistencies on their face contrary to article 13a. of the UCP 500. The judge seemed to refer only to the 'inconsistency' between the amount stated in the pro forma invoice and that stated in the last paragraph of [Beneficiary's] letter of 29/10/96."

Mr. Justice Yuen disagreed with the conclusion of Mr. Justice Woo regarding whether Issuer was justified in dishonoring on the basis of inconsistency. He cautioned "[a]s the documents required under each Route were different, it would have been prudent for the beneficiary making this last-minute presentation to have presented the documents separately, or if there were to be a composite presentation as was done by [Presenting Bank] in this case, it should have been clearly indicated which documents were being presented under which Route." Had the beneficiary differentiated the presentations, he noted that "it would have avoided the confusion".

Mr. Justice Yuen concluded that "there was in my view, plainly an inconsistency on the face of the documents presented ... . Here, the documents presented were inconsistent in what was actually being claimed under Route B [Goods Refused Claim]. -

On the one hand, the [Correspondent/Presenting Bank] "Bill Amount" showed that only one amount (Nlg 420,215.50) was being claimed under Route B [Goods Refused Claim]. That amount was also referred to in the [Beneficiary's] letter, supposedly supported by an 'annexed invoice number 200820-31.05.95". Although that invoice was not in fact presented, the quantum of the Bill Amount on the face of the document of the presenting bank had the effect of disavowing the claim for Nlg 419,689.20 (which was a different claim from the claim for Nlg 420,215.50 as it was supported by a Beneficiary's Certificate referring not to the numbered invoice but to a Pro Forma Invoice).

-On the other hand, the [Beneficiary's] letter stated that two amounts were being claimed under Route B [Goods Refused Claim], albeit one supported by the necessary documents and the other not. But of course if both amounts were being claimed, that was contrary to the lower quantum of the 'Bill Amount'."

As discussed below, Mr. Justice Barma agreed with Mr. Justice Yuan that the documents contained an inconsistency. Accordingly, the majority of the appellate court concluded that there was an inconsistency in the documents presented that warranted dishonor.

4. UCP500 Article 13(a); Disregard; Extraneous Documents; Amount: Mr. Justice Woo recognized that his analysis assumed that the Pro Forma Invoice should have been examined. He noted an argument advanced by Beneficiary that the Pro Forma Invoice could have simply been ignored pursuant to UCP500 Article 13(a), thereby removing any basis for inconsistency. Mr. Justice Woo observed that the same argument could be applied to the Presenting Bank's letter and the Beneficiary's Statement, both of which related to a Payment Refused Claim (Route A) and not to a Goods Refused claim (Route B). He stated "[i]n my view, this is but another route of reaching the same conclusion that I stated above, which I prefer."

5. UCP500 Article 13(a): Mr. Justice Woo noted but did not rely on Beneficiaries' argument that Issuer should have ignored the pro forma invoice under Goods Refused Claim (Route B) because it was not required in the LC. Logically, the judge noted this argument could also apply to ignoring all documents other than the Officers Certificate for the Goods Refused Claim (Route B) presentation.

6. Refusal, notice of; Notice of Refusal, adequacy; Adequacy, Notice of Refusal; Inconsistency, Notice of; UCP500 Article 13(a); Shorthand Refusal Terms; Preclusion; UCP500 Article 14(e):

Although he was of the opinion that the demand under the Goods Refused Claim (Route B) was inconsistent, Mr. Justice Yuen, concluded that the statement of the discrepancy in the notice in the notice of refusal was inadequate, precluding Issuer from maintaining that the documents did not comply with the terms of the credit.

The ground for refusal stated in the notice was "Beneficiary's Certificate does not state amount claimed."

Mr. Justice Yuen notied that the initial document examined had listed the discrepancy on the check list as "PROFORMA INV ISSUED BY DEUTSCHE SYPHINX SANITAR GMBH FOR AMT NLG419,689.20 DIFFER FROM THE CLAIM AMT FOR NLG420,215.50", suggesting that this formulation would adequately communicate the discrepancy. He noted, however, that the supervisor did not use that formula.

In attempting to determine whether the statement actually used was adequate, Mr. Justice Yuan noted that "[b]efore considering [Supervisor's] Witness Statement and the pleadings, I had thought that perhaps straining the language of the Notice of Refusal, the ground given could have meant that the [Issuer] considered that the Beneficiary's Certificate did not state which amount was being claimed, which might perhaps have referred to the inconsistent amounts being claimed under [Goods Refused Claim] Route B."

Mr. Justice Yuen noted that it was "unnecessary" to pursue that possible meaning because "it was clear from [Supervisor's] Witness Statement (21 February 2001) that he had refused the documents because he did in fact consider that the Beneficiary's Certificate did not on its face state the amount claimed and he regarded the Pro Forma Invoice (which specified an amount) as not having been 'annexed' to the Beneficiary's Certificate. In para. 9 he said: 'The fourth document that was enclosed under the ABN AMRO Bank letter of 31 (st) October 1996 was an officer's certificate ...The amount however was not claimed on the officer's certificate, and the officer's certificate had specifically referred to an 'annexed proforma invoice', and no proforma invoice was annexed ' (emphasis added)." The judge added that Issuer's "position is made even clearer by its pleadings at Points of Defence para. 6(4), in which it was pleaded as a particular of discrepancy that 'a certificate presented by the Plaintiffs as required under the letter of credit ... did not state any amount claimed' (emphasis added)."

Mr. Justice Yuen concluded this was "an invalid ground of refusal. The Beneficiary's Certificate tracked the language of the L/C and evidenced that the [Applicant] has failed to take delivery of goods in accordance with the sale agreement 'in the aggregate amount as specified on annexed pro forma invoice'. That obviously incorporated the Pro Forma Invoice by reference, and that document specified an amount of Nlg 419,689.20." While recognizing that Issuer's Supervisors "may have mistakenly thought that the Pro Forma Invoice was not a pro forma invoice (i.e. a document prepared in anticipation of goods being delivered) but was an actual 'invoice'", he noted that "the Pro Forma Invoice (i) stated clearly on its face that it was a Pro Forma Invoice, (ii) it did not have a number and (iii) it was described as a pro forma invoice by the checkers in the DC Documents Check List. That was obviously the document that the Beneficiary's Certificate was referring to." Mr. Justice Yuen also rejected the argument that the Pro Forma Invoice was not "'annexed' because it had not been clipped together", noting that there was only one pro forma invoice presented "so there could have been no doubt that that was the document being referred to."

Mr. Justice Yuen concluded that Issuer "was not entitled in my view to refuse the documents on the ground which it advanced - that the Beneficiary's Certificate did not state the amount claimed." Mr. Justice Barma stated "I share Yuen JA's view that the presentation made in this case left a great deal to be desired. In my view, the documents presented appeared to suggest 3 possible scenarios in relation to the [Goods Refused] Route B claim:-

(1) A claim for Nlg 420,215.50 as suggested by the [Presenting Bank] Bill Amount (after deduction of the Route A claims) identified in the [Beneficiary's] letter of 29 October 1996 included with the presentation as the Beneficiary's Statement;

(2) A claim for Nlg 419,689.20 as suggested by the Officer's Certificate, read together with the pro forma invoice that was included in the presentation; or

(3) A claim for both these amounts, as suggested by the Plaintiff's letter of 29 October 1996.

In these circumstances, all the documents having been included in the same presentation, I think that it was clearly open to the [Issuer] to have regard to all of the documents, and that on doing so, it was entitled to conclude that there were inconsistencies which justified rejection of the documents."

Mr. Justice Woo concluded that there was no inconsistency which made it "unnecessary for me to deal with the interesting question whether the reason as stated in the notice of rejection of the route B [Goods Refused] claim could be read to include the alleged discrepancies relied on by the [Issuer] at the time of the trial but not at the time of rejection." However, he stated that "I agree with Yuen JA's judgment that the ground for rejecting the route B [Goods Refused] claim for Nlg 419,689.20 as stated in the [Issuer's] notification of rejection was invalid."

Accordingly, the appellate court unanimously concluded that the ground given in the notice of refusal was inadequate, thereby precluding Issuer from asserting that the documents were discrepant for the reason stated. Since no other reason for refusal of the documents presented under the Goods Refused Claim (Route B) was stated in the notice of refusal, the refusal was wrongful.

[JEB/ejh]

TEXTUAL APPENDIX

The following texts are taken from the appellate decision:

Court Document A:

Standby Letter of Credit

'TO: RABOBANK NEDERLAND, UTRECHT NEDERLAND (TLX NO. 40200)

FROM: RABOBANK NEDERLAND, HONG KONG BRANCH

DATE: FEB 08, 1995

SUBJECT: STANDBY LETTER OF CREDIT - N.V. KONINKLIJKE SPHINX GUSTAVBERG [ie, the plaintiff]

TEST 78/2656 ON NLG2,000,000.00 DATED 08 95 BETWEEN YOURGOODSELVES AND US IRREVOCABLE STANDY LETTER OF CREDIT NO. ILC00102 FOR NLG2,000,000.00 (SAY DUTCH GUILDERS TWO MILLION ONLY) AT THE REQUEST OF DUBOIS (HK) COMPANY LIMITED, ... HONG KONG IN CONSIDERATION OF THE BENEFICIARY GRANTING OF A DOCUMENT AGAINST ACCEPTANCE FACILITY TO SIN (sic) FUNG STRATEGY LIMITED (THE SECURED PARTY) UNDER A SALES AGREEMENT DATED OCT 14, 1994 (SALES AGREEMENT) ENTERED INTO BY THE SECURED PARTY AND THE BENEFICIARY, WE HEREBY ISSUE OUR IRREVOCABLE STANDBY LETTER OF CREDIT IN FAVOUR OF THE BENEFICIARY TO SECURE THE DUE FULFILMENT OF THE SECURED PARTY'S OBLIGATIONS UNDER THE SALES AGREEMENT.

THIS STANDBY LETTER OF CREDIT, IF EXERCISED, IS AVAILABLE UPON RECEIPT BY US OF EITHER (A) 1. THE BENEFICIARY'S FIRST DEMAND THROUGH ITS BANKER TO US ACCOMPANIED BY THE BENEFICIARY'S STATEMENT DECLARING THE AMOUNT DUE AND UNPAID BY THE SECURED PARTY UNDER THE SALES AGREEMENT. 2. THE BENEFICIARY'S DRAFT FOR THE UNPAID AMOUNT DULY ACCEPTED BY THE SECURED PARTY. AND 3. INSPECTION CERTIFICATE BY CERTIFIED PUBLIC SURVEYOR CERTIFYING THAT NO COLOUR DIFFERENCE OF WHOLE CONSIGNMENT OF GOODS UNDER THE SALES AGREEMENT BEEN OBSERVED OR (B) THE BENEFICIARY'S CERTIFICATE , AUTHORIZED SIGNATURE(S) ON WHICH HAS/HAVE DULY BEEN VERIFIED BY THE BENEFICIARY'S BANKER, EVIDENCING THAT THE SECURED PARTY FAILS TO TAKE DELIVERY OF GOODS IN ACCORDANCE WITH THE SALES AGREEMENT

THIS STANDBY LETTER OF CREDIT SHALL BE VALID FROM FEB 08, 1995 TO JAN 31, 1996 [amended by agreement to 31 October 1996], THIS STANDBY CREDIT WILL EXPIRE 30 DAYS AFTER TERMINATION OF THE SALES AGREEMENT AT THE COUNTER OF OUR PRINCIPAL OFFICE IN HONG KONG, BEING AT THE DATE HEREOF, AT ... HONG KONG. PARTIAL DRAWING IS NOT ALLOWED [this sentence was deleted by agreement].

ALL BANKING CHARGES OUTSIDE HONG KONG INCLUDING NEGOTIATION CHARGES ARE FOR THE ACCOUNT OF BENEFICIARY.

EXCEPT SO FAR AS EXPRESSLY STATED HEREIN, THIS STANDBY LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500 AND SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF HONG KONG. THIS TELEX IS THE OPERATIVE INSTRUMENT. NO MAIL CONFIRMATION WILL FOLLOW.'

Court Document B:

Correspondent Bank's Cover Letter

'BILL AMOUNT: NLG*****1,667,225.50

WITH REFERENCE TO THE ABOVE LETTER OF CREDIT, WE ENCLOSE HEREWITH THE FOLLOWING DOCUMENTS FOR PAYMENT / ACCEPTANCE AS THE CASE MAY BE:

----------------DOCUMENTS-----------*

1/1 INVOICE

1/1 BENEF STATEMENT

1/1 INSPECTION CERT

1/1 OFFICERS CERT

-------------INSTRUCTION/OBSERVATION-----*

-WE ENCLOSE THE ABOVE DOCUMENTS DRAWN UNDER YOUR STANDBY L/C FOR PAYMENT WITHOUT RECOURSE.

-IN CASE OF QUERIES, PLEASE CONTACT OUR MS FUNG AT TELEPHONE NO.: ...

-WE CERTIFY THAT THE AMOUNT DRAWN HAS BEEN ENDORSED ON THE REVERSE OF THE LETTER OF CREDIT.

-PLEASE NOTE THAT THE UNPAID BENEFICIARY'S DRAFT IS IN YOUR POSSESSION. ---------SETTLEMENT INSTRUCTIONS--------*

PLEASE REMIT NET PROCEEDS BY T/T TO THE CREDIT OF OUR NLG ACCOUNT WITH OUR AMSTERDAM OFFICE (A/C NO. 4363/522/73) UNDER THEIR TESTED TELEX/SWIFT ADVICE TO US QUOTING OUR REF.: LLC-CD614657 SUBJECT TO THE 'UNIFORM CUSTOMS & PRACTICE FOR DOCUMENTARY CREDITS INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500.'

Court Document C:

Beneficiary's letter of 29/10/96

'Re: Your Stand by letter of credit - NLG 2,000,000 from Dubois (HK) Company Limited dated Feb. 08, 1995

Dear Sirs,

With reference to the conditions of the above L/C we hereby declare that the secured party under the L/ C, Siu Fung Strategy, has failed to meet its payment and take obligations under the sales agreement, dated October 14, 1994 and signed on October 17, 1994.

We hereby claim, on behalf of ourselves and on behalf of Deutsche Sphinx Sanitar GmbH, on first demand the amounts mentioned hereunder which are due and unpaid by Siu Fung Strategy Limited.

1. Nlg 630.398,00, due and payable on 29/09/1996

2. Nlg 616.612,00, due and payable on 27/10/1996

We have received information from ABN AMRO Bank that the accepted drafts are in your possession. We also claim under the L/C the payment of goods not taken under the sales agreement as stated in the annexed certificate conform section 3(b) of the above L/C

An inspection certificate pursuant to section 3 of the L/C issued by TNO you find herewith.

Further we claim the aggregate amount of Nlg 420.215,50 for the delivery of products conform annexed invoice number 200820-31.05.95 , the payment of which products is due and payable at the date of the delivery of the last products to be delivered under the sales agreement. As Siu Fung Strategy has not taken those last products , the invoice has become due and payable on 31 (st) October 1996.

Sincerely yours, N.V. Koninklijke Sphinx Gustavsberg T.C.A. Visser (signed)

A.G.M.L. van der Kolk (signed)'

Court Document D:

Officers Certificate

'Officers Certificate

The undersigned, T.C.A. Visser and A.G.M.L. van der Kolk, authorized signatories of N.V. Koninklijke Sphinx Gustavsberg, hereby state, pursuant to section 3(b) of the stand by letter of credit, issued by Rabobank Nederland, Hong Kong branch, dated February 08, 1995 with Siu Fung Strategy Limited as secured party, that the secured party fails to take delivery of goods in accordance with the sales agreement in the aggregate amount as specified on annexed pro forma invoice.

Signed in Maastricht on 29 (th) October 1996 by

T.C.A. Visser (signed)

A.G.M.L. van der Kolk (signed)

The undersigned, ABN AMRO Bank N.V., Maastricht branch, hereby declare that T.C.A. Visser and A.G.M.L. van der Kolk are authorized to sign for N.V. Koninklijke Sphinx Gustavsberg.'

Maastricht, 29 October 1996 by

ABN AMRO Bank N.V. ... G.A.J.M. Vromen (signed) A.M.M. Elshoff (signed)'

COPYRIGHT OF THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE

The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.