Article

Factual Summary: Bank issued an irrevocable sight documentary LC No.EBXM2KOLC110142 on 3 November 2000 in favor of Beneficiary with an expiration date of 15 December 2000. It was also stated that the LC could be negotiated by any bank. Although transshipment was allowed, partial shipment was prohibited, and the last shipment date was 30 November 2000. Packing terms expressly provided that the goods should be packed in 25 kg (net weight) manufacturer's standard package and each 17 tons (680 packages) should be put in a 20-foot container. The LC stated that presentation should be within 15 days of the issuance of the transport documents.

Beneficiary submitted the following documents to Correspondent Bank which forwarded them to Issuer who received them on 20 November 2000: (1) a bill of lading numbered HXPX2038010 indicating in a separate line "680 BAGS/ 20'X 12" in the space below the columns of "Container No., Seal Sign and No." and "Number of Container or Package, Name of Cargo". Below the aforementioned line, there is an indication in relation to shipping mark, i.e., "the sign of the container is made according to the manufacturer's standard shipping mark". There is no indication of 8160 bags. The date of shipment on the bill of lading was November 14, 2000; (2) a commercial invoice numbered M802-2000 12-10 12- 01; (3) packing bill/weight bill; (4) certificate of country of origin; (5) certificate of beneficiary; and (6) certificate of quantity/weight. On both the packing bill/weight bill and certificate of quantity/weight, there are indications that the quantity is 8160 bags.

On 22 November 2000, Issuer informed Correspondent Bank of three discrepancies: (1) the bill of lading indicates that the quantity of cargo is 680 bags while other documents indicate the quantity is 8160 bags; (2) the name of the manufacturer on the packing bill/weight bill is not consistent with LC, which shall be "KOMHO CHEMICALS CO., LTD" instead of "KUMHO CHEMICALS, INC"; (3) the spelling of the name of the Issuer is wrong, which shall be "BANK" instead of "BNAK". Issuer then refused to take up the documents submitted and indicated that it was holding the documents for further instructions. Correspondent Bank subsequently forwarded a re-presentation of some of the documents with corrections, including commercial invoice, packing bill/weight bill and certificate of quantity/weight.

On 11 December, Correspondent Bank made yet another re-presentation of new documents, including a bill of exchange, commercial invoice, bill of lading, packing bill, certificate of beneficiary, certificate of quantity, certificate of country of origin, and insurance policy. Issuer, however, rejected the documents, asserting the following discrepancies: (1) late presentation of the documents; and (2) quantity of cargo indicated on bill of lading was still inconsistent with that on the other documents.

Beneficiary sued Issuer for wrongful dishonor. The trial court entered judgment for Issuer. On appeal, affirmed.

Legal Analysis:

1. UCP500: As the LC was opened by way of SWIFT and according to the stipulations of the SWIFT manual, UCP500 would be automatically applicable in this case.

2. Independence Principle: The trial court noted that a documentary LC is an obligation independent of any underlying trade or service contract. The obligation of the beneficiary is to submit documents in compliance with the LC. Accordingly, the issuing bank must examine, according to the applicant's instruction as reflected in the LC, the documents with reasonable care to see whether all documents comply with the LC and whether the documents are consistent with each other.

3. Typing Error: Issuer claimed that the term "BNAK" in referring to it was a discrepancy. The trial court stated that according to international standard banking practice, a typing error shall not be regarded as a discrepancy. In this case, "bank" is wrongly typed as "bnak" which is a typical typo. of the manufacturer is typed as "Inc", which may lead to another meaning. Therefore, the trial court regarded the latter difference as a discrepancy under UCP500 Article 13(a).

4. Quantity of Cargo Indicated on Bill of Lading Inconsistent: The Beneficiary had not revised the bill of lading during the amendments before 11 December 2000. The trial court noted that there was inconsistency between the bill of lading and other documents in relation to the quantity of cargo. Although it is easy to indicate the quantity as 680/ container times 12, it is still misleading whether 680 is the quantity of bags in one container or the aggregate of the bags in all 12 containers. Since there exist different meanings, Issuer shall be entitled to refuse to take up the documents.

5. Cure, Re-Presentation; Late Presentation; UCP500 Articles 42 and 43: On 11 December 2000, the bill of lading was revised by the Beneficiary which the trial court viewed as admittance of the discrepancy of the prior B/L. The Beneficiary then submitted the revised bill of lading on 14 December 2000 which was beyond the stipulated period for submission of documents, i.e., 30 November 2000 (within 15 days after the date of shipment, 15 November 2000) under UCP500 Articles 42(b) and 43 as noted in the second notice of refusal.

The appellate court noted that three discrepancies were raised by the Issuer in response to the initial presentation, i.e., mistake of the name of the manufacturer, typo of the name of the issuing bank, and the difference of the quantity between the bill of lading and other documents. The beneficiary objected at first, but later compromised by exchanging documents concerned. The appellate court decided that it was implied that the beneficiary, by changing documents, waived its right to claim that the documents initially presented were in compliance with the LC.

Comments by DCW:

1. Whether the documents were discrepant in the first presentation is debatable. The objection to the numeration is most troublesome and the problems with "BNAK" laughable. The difference between "Komho" and "Kumho" may be a discrepancy depending on the context of the entire document and the presentation, but this result seems unlikely. Therefore, it matters whether one can consider the first refusal.

2. The appeals court avoided this possibility on the theory that re-presentation of documents constitutes a waiver of any objections to them by Beneficiary. This theory has some basis in that it was the approach adopted by ISP98 Rule5.06(c)(i) (Issuer Request for Applicant Waiver Upon Request of Presenter) in a related setting in which the beneficiary seeks waiver. This rule needed to be expressly stated because it does not represent LC practice in general nor standby practice as it existed, but what was thought to be a more rational ordering of that practice with respect to standbys in order to force the beneficiary to take a position with respect to claimed discrepancies so that the issuer could make an informed decision about whether or not to waive alleged discrepancies. In addition, it was thought that where a waiver is sought, there is less likelihood that all of the discrepancies can be cured. Moreover, the beneficiary can always request waiver while reserving its right to claim that the prior presentation complies.

3. To imply such a result under UCP500 without any express rule is rather extreme, unsupported by any ICC decisions or anything in the literature, and not reflected in international practice. Re-presenting differs from seeking waiver in that beneficiaries can and do regularly re-present documents in order to correct simple alleged discrepancies in order to avoid a dispute. As such, an approach that implies consent to the claim that there is a discrepancy should not be implemented by courts but by applicable rules. Moreover, such a judicial rule fairly invites the question of whether it applies to all documents or only to those documents that are re-presented. Is it fair or reasonable to conclude that the correction of one alleged discrepancy constitutes agreement that an uncorrected discrepancy is correct? Such an approach will make beneficiaries reluctant to avoid disputes by curing readily corrected discrepancies, an unfortunate result.

4. Presumably the effect of this decision can be avoided in the context of re-presentation by expressly reserving the right to assert that the alleged discrepancies are valid. Prudent beneficiaries probably do so already and more are likely to do so in light of this decision, especially with respect to LCs with any connection to China.

[JS/YW/csb]

* JIN Saibo is a partner with Zhonglun Law Firm (Beijing office) and YANG Wantao is a partner with Zhonglun Law Firm (Shanghai office).

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