Article

Factual Summary: To facilitate the purchase of sugar, Buyer (Applicant) obtained a commercial LC in favor of Seller (Beneficiary) payable "against presentation of [the] commercial invoice and [the] bill of lading ... ."

The bill of lading presented described the goods as "Refined White Crystal Coarse Grain" in the bill of lading. Applicant refused to accept any goods other than "White Crystal Sugar AKS Coarse Grain." Issuer also had claimed that the vessel number was discrepant. When Issuer notified Negotiating Bank of these discrepancies, Negotiating Bank refused to agree that the documents were noncompliant.

Applicant then sued Beneficiary and Negotiating Bank for a "declaration that the Letter of Credit ... [was] null and void" and for an "injunction restraining any sums receivable under the said Letter of Credit ... ." The trial court ruled that "the [Applicant] is entitled to an order of status quo in respect of the Letter of Credit ... . In the event sums have been disbursed, the said sums be kept in a separate account ... ." At a subsequent hearing, the court extended an interim order for the parties "to maintain status quo in respect of [the] letter of credit" for six weeks and ruled that the Beneficiary made a non-complying presentation and that there was no waiver of discrepancies by the Applicant.

Legal Analysis:

1. Typographical Error; ISBP ¶28: Negotiating Bank claimed that the alleged discrepancies "with regard to the vessel number which has been admitted as typographical error in the communication of its bankers to the banker of the petitioner." The Judge stated that "[Negotiating Bank] has sought to rely on the International Standard of Banking Practice and has alleged a typographical error. While the explanation given in respect of the typographical error can be accepted, the reasoning given for the applicability of the International Standard of Banking Practice cannot be accepted." It is not clear, however, from the opinion whether this comment related to the vessel number or the description of the goods.

2. Description of the Goods; UCP600 Article 18(c); UCP600 Article 14(d): Negotiating Bank claimed that "per [the] Prevention of Food and Adulteration Rules, there is no difference between 'White Crystal Sugar AKS Coarse Grain' and 'Refined White Crystal Sugar Coarse Grain'". It also cited UCP600 Article 14(d) which states that "the description of the goods does not have to be a mirror image". The Negotiating Bank also alleged that the Applicant had previously waived the discrepancies through electronic mail before this action. The Judge relied on UCP600 Article 18(c) in finding that "the description of the goods in the commercial invoice and in the credit [were] at variance." The Judge stated that White Crystal Sugar AKS Coarse Grain, the product agreed to in the contract, and Refined White Crystal Sugar, the product delivered, "cannot be construed as the same goods ... [because] 'coarse grain' will consist of unprocessed granules while 'refined' [grain] will [consist of] refined granules and there is no mention of 'coarse grains' in the commercial invoice."

3. Waiver; UCP600 Article 16: Negotiating Bank argued that "by an electronic mail dated 30th March, 2010, the [Applicant] has acknowledged the discrepancies and agreed to waive them. As waiver is an intentional relinquishment of a known right, therefore the discrepancy no longer exists." The Judge noted that Issuer had refused to honor the documents "from the time of receipt". The Judge stated that "if there was such waiver it would have been communicated to the issuing bankers and the negotiating bank would also have informed the issuing bank of such waiver on receipt of its communication dated 7th April, 2010." In rejecting the theory of waiver, the Judge noted "without any intimation to the bankers with regard to waiver and specially in view of such discrepancies being brought to the notice of the negotiating bank it cannot be presumed that the discrepancies were waived."

Comments:

While the decision is correct on both grounds, it should have been put more forcefully regarding waiver. Waiver by the applicant cannot bind the issuer. Only the issuer can effectively waive discrepancies and, as a result, only a waiver by the issuer would have been relevant. In this case, no such action or communication by the issuer was alleged. On the other hand, a typographical error in the vessel number, (i.e. one that is apparent on its face) is not a basis for refusal. The goods description, however, was not a typographical error.

[JEB/sws]

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