Article

Factual Summary: To pay for a shipment of iron, bank issued a freely negotiable commercial LC payable by draft 90 days after sight. Draft was to be drawn on reimbursing bank. The LC provided "[u]pon receipt of complying presentation the issuing bank will send reimbursement authorization to [Reimbursement Bank] and authorize Accepting Bank to claim reimbursement from [Reimbursement Bank]."[Y1]

Beneficiary presented complying documents to Accepting Bank, claiming US$7,185,105, which mailed them to Issuer which received them on 6 August 2008.

Subsequently, on Monday, 11 August 2008, Issuer sent the following SWIFT MT 752 (Authorization to Pay, Accept or Negotiate) message to Accepting Bank: "PLS CLAIM REIMB. AT SIGHT BASIS FOR CREDIT TERMS. T/T REIMB. ALLOWED. PLS ADVISE THE DRAWEE BANK OF LC NO NAME OF COMMODITY, LOADING AND UNLOADING PORT AND DAT OF SHIPMENT." [Y2]

On Tuesday, 12 August 2008, Issuer sent a MT799 (Free Format Message) message to Accepting Bank , reading: "PLS DISREGARD OUR MT752 DD 080811 AND CONSIDER THE MT752 AS NULL. PLS DO NOT CLAIM THE REIMBURSEMENT FROM THE DRAWEE [REIMBURSEMENT BANK]. THANKS FOR YOUR KIND COOPERATION."

On Wednesday, 13 August 2008, Issuer sent a MT734 (Advice of Refusal) message to Accepting Bank, stating:

77J: 'Discrepancies

1. SHORT DRAWN

2. PARTIAL SHIPMENT

3. THE TOTAL CARGO VALUE OF THE BILLS IS LESS THAN THE TOLERANCE AMOUNT OF THE L/C

4. THE TOTAL CARGO VALUE OF THE BILLS BEFORE PRICE ADJUSTMENT, BONUS AND PENALTY IS LESS THAN THE TOLERANCE AMOUNT OF THE L/C.

77B: Disposal of Documents

HOLDING DOCUMENTS AT YOUR DISPOSAL PENDING INSTRUCTIONS

On Monday, 22 September 2008, Accepting Bank sent the following message to Issuer:

'WE RECEIVED INSTRUCTIONS FROM THE BENEFICIARY FOLLOWS:

QUOTE

THE VALUE OF THE BILL HAS BEEN REDUCED TO USD5,122,240.00 INSTEAD OF USD7, 185,105.43. KINDLY RELEASE THE DOCUMENTS TO THE APPLICANT . . . UPON RECEIPT OF USD5,122,240.00 ONLY.

UNQUOTE

UPON PAYMENT, PLEASE REMIT THE PROCEEDS TO OUR ACCOUNT WITH DEUTSCHE BANK TRUST COMPANY AMERICAS NEW YORK AS PER OUR COVERING SCHEDULE DATED AUGUST 4, 2008

REGARDS'

It appears that Issuer acknowledged an obligation of US$5,122,240 and paid this amount. Beneficiary sued Issuer for the remainder of the balance . The trial judge entered summary judgment for Beneficiary in the amount of US$2,062,865 with interest. On appeal, the appellate court allowed the appeal, set aside the judgment, and gave leave to Issuer to defend.

Legal Analysis:

1. Reimbursement; Revocation of Acceptance of Documentation: Beneficiary argued that the 11 August 2008 message was "an unequivocal representation that the defendant accepted the documents." Issuer countered that "the MT 752 message was not an acceptance of a presentation but it was a message to the Bangkok Bank authorising reimbursement."

The trial court ruled that Issuer had to honor the LC because "the MT734 could not be taken out of context and read in isolation. [The trial judge] held that it contradicted the MT752 and that [Issuer] was attempting to countermand the MT752 by issuing the MT799. Under Article 15a of UCP 600, once the bank had represented that it would honour the presentation as being compliant it was bound to do so. He held that MT752 was a 'binding outward manifestation by the bank that it has determined a presentation to be compliant.'"

On appeal, Rogers, VP, did not definitively rule on this issue, but did express "considerable doubts as to whether [Issuer] could avoid liability under theletter of credit following the issuance of the MT752 message".

2. Reliance: Issuer argued that "[it] was entitled to rely upon a valid variation of the contract between the [Beneficiary] and the [Issuer]. The case was put on the basis that, in reliance upon the [fourth] message, the [Issuer] had paid the sum of US$5,122,240, in circumstances where, due to the discrepancies in the documents, the [Issuer] claims it was not obliged to pay any sum. It was thus that the [Issuer] had released the documents to the [Applicant] as per the [Beneficiary's] request, thereby giving up its security interest in the documents."

3. Satisfaction; Settlement: The trial court found that "the [Issuer] paying a lower amount could not amount to any variation of the contract between the [Issuer] and the [Beneficiary] evidenced by the letter of credit. The Judge continued that he could not see that the message of 22 September 2008 was some sort of representation that the [Beneficiary] would not later sue the [Issuer] for failure to comply with its obligation under the letter of credit and UCP 600."

On appeal, Rogers, VP, disagreed and found for Issuer, declaring, "the message of 22 September would have conveyed to the [Issuer] that the [Beneficiary] was prepared to accept US $5,122,240 in satisfaction of its claim. I consider that the [Issuer] does have an argument that by making the payment and, at the [Beneficiary's] specific request, releasing the documents to the [Applicant], it had acted to its detriment and was entitled to rely upon those matters as discharging its liability."

Comment:

1. There is a significant difference between a revocable reimbursement authorization directed to a reimbursing bank and a waiver of discrepancies or an agreement to pay against discrepant documents. The reimbursement authorization authorizes a nominated bank to claim reimbursement for a complying presentation. Absent an express waiver of the discrepancies, Issuer remains entitled to insist on presentation of complying documents before reimbursement can properly be claimed.

[JEB/sws]

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.