Article

Factual Summary: To pay for scrap metal, Issuer issued five commercial LCs in favor of Beneficiary that were expressly made subject to the law of England and UCP600. Confirming Bank confirmed three of the LCs and, on presentation of documents, paid Beneficiary. When Confirming Bank forwarded the documents under the three confirmed LCs to Issuer for reimbursement and forwarded the documents under the additional two LCs, Issuer dishonored presentations under all five LCs. Issuer sent notices of refusal to Confirming Bank stating that there were discrepancies in the presentation and, as to some of the presentations that it was returning the documents. In turn, Confirming Bank sent messages to Issuer asking it to hold these documents and honor. As to later presentations, Issuer stated that it was holding the documents at Confirmer's disposal. Issuer held onto the documents but refused to honor. Later Confirming Bank asked Issuer to return all presented documents, but Issuer delayed returning the documents for a considerable time. Confirming Bank and Beneficiary then sued Issuer for reimbursement and wrongful dishonor.

The trial court's ruled that although one of the discrepancies stated in the notice of refusal was valid, namely that Beneficiary's consolidated certificate was discrepant, Issuer was precluded from relying on discrepancies under UCP600 Article 16(f) because of its delay in returning the documents. Issuer appealed with respect to the trial court's conclusion regarding whether the alleged discrepancy in a Bill of Lading was valid and whether the preclusion rule was properly applied. Confirming Bank and Beneficiary cross appealed on the issue of whether a discrepancy existed in Beneficiary's consolidated certificate. The appellate court dismissed all appeals and affirmed the decisions of the trial court.

Legal Analysis:

1. Compliance of Beneficiary's Consolidated Certificate:

The LCs required a statement ". . . D) THAT THE NEGOTIATING BANK HAS BEEN ADVISED TO DESPATCH ORIGINAL SHIPPING DOCUMENTS ONLY BY AIR COURIER SERVICE TO THE LC OPENING BANK AT OUR COST. . . ." [Y1, page 5]

The documents presented stated ". . . D) THAT THE NEGOTIATING BANK HAS BEEN ADVISED TO DESPATCH ORIGINAL SHIPPING DOCUMENTS ONLY BY AIR COURIER SERVICE TO THE LC OPENING BANK AT ISSUING BANK'S COST". [Y2, page 5]

The Beneficiary and Confirming Bank argued that the provision in the LC was ambiguous, thereby excusing any discrepancy. Thomas, L.J., rejected this contention, concluding that ". . . it is not necessary to consider the extent of any ambiguity or the consequences of any such ambiguity as, in my view there was none. I cannot see how 'our' can be read as referring to the issuing bank."[Y3, page 5]

Confirmer and Beneficiary also argued that "trivial discrepancies could be ignored", [Y4, page 5] particularly since the issuer was not charged. They urged that the exercise of judgment would have revealed the insignificance of the discrepancy. Thomas, L.J., affirming the trial court decision, stated:

I cannot accept that the discrepancy can be regarded as trivial or that a banker in the exercise of judgment would regard the documents as in conformity . . . [Y5, page 5] in the present case, there was no mistake of name or obvious error discernable from the document; the certificate certified that the charges were to be paid by the issuing bank. It appears that in fact the charges were paid by the beneficiary; it was therefore submitted that this must have been known by [Issuer] as [Issuer] had not engaged the courier and had not paid a charge on delivery. Even if this were known to someone in [Issuer], those checking the documents (including management supervising them) would not have known this; they could not have discerned this from the documents and they were under no obligation to make enquiries of others within [Issuer] as to whether [Issuer] had engaged the courier or paid the courier. [Y6, page 5]

2. Bill of Lading Date; Late Presentation; UCP600 Article 14(c); UCP600 Article 20(a)(ii):

Regarding the date of the Bill of Lading, the LC provided,

"Period for presentation: within 21 days from B/L Date but within validity of L/C."

The Bill of Lading in question stated both a date of issuance, 14 November 2008, and a shipped on board date, 31 October 2008. The document was initially presented on 18 November 2008, but due to a problem with another document, actual presentation occurred on 25 November 2008. UCP600 Article 14(c) provides:

A presentation including one or more original transport documents must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

UCP600 Article 20(a)(ii) provides:

The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

The appellate court affirmed the trial court's finding that because the LC specified the Bill of Lading date rather than the shipment date, the presentation was timely.

3. Preclusion; Notice of Refusal; UCP600 Article 16(c)-(f); UCP500 Article 14(d) & (e)

The appellate court also affirmed the trial court's decision regarding the preclusion of Issuer from reliance on discrepancies given its failure to return documents to Confirming Bank in a timely manner. Under UCP600 Article 16(c)(iii)(c), the appellate court found that Issuer had an obligation to return the documents "without delay". The appellate court interpreted the UCP as an international and universal document with underlying aims and purposes reflecting the standard practice and the expectations of international bankers and traders. This expected practice was embodied in UCP500 Article 14(d) and (e) (which corresponds to UCP600 Article 16(c)-(f)) and stated that if Issuer fails to return the documents to presenter, the Issuer shall be precluded from claiming that the documents are not in compliance.

The appellate court ruled that the obligation also arose under UCP600 Article 16, despite the fact that it was not explicit about this obligation of following through with the action specified by the notice. Issuer's obligation to act in accordance with the notice is required by standard practice, and the obligation is contained in UCP600 Article 16(e) because Article 16(e) is only necessary if an obligation to act in accordance with the notice is imposed by Article 16(c).

Comments:

1. It is doubtful that the issuer or applicant intended the 21 day provision in the LC to be linked to the date that the bill of lading was issued but to the date of shipment. The decision implicitly assumes that the provision in the LC linked to the date of the bill of lading displaces the UCP600 default rule. If nothing else, this decision demonstrates the danger of rewriting the UCP in credits.

2. Both the appellate and trial courts saved the LC community from a disastrous result which would cause unhappy beneficiaries to turn to principles of law sounding in the wrongful exercise of dominion over documents. Based solely on principles of drafting interpretation, the deletion of the reference to holding the documents in UCP600 Article 16(f) from its predecessor, UCP500 Article 14(e) strongly suggests that this problem is outside the scope of the UCP. Happily, the courts did not apply a strict construction rule and one hopes that the drafters of UCP700 will remedy this regrettable omission.

3. It appears from the recital of facts that Fortis had silently confirmed the credit and not at the request of the issuer. However since LC fraud or abuse was not alleged and since Fortis had been nominated to negotiate, there was no difference since, in any event, it was a nominated bank acting pursuant to its nomination. Because the opinion uses the title "confirmer" for Fortis, it is retained in this abstract.

[JEB/mcp/ahg/vjm]

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