Article

Factual Summary: To pay for the purchase and sale of wheat bran pellets, Korean Buyer obtained a commercial letter of credit issued by Korean Bank (Issuer) in Seoul in the amount of USD 825,000 subject to UCP600 in favor of Bulgarian Seller whose legal name in Bulgarian contained the Cyrillic character "и" which is translated as “and” and is represented as an ampersand and could be transliterated as “Bulgrains & Co. Limited”.

The LC named the beneficiary as "Bulgrains Co Limited, Sofia, Bulgaria 9 Pozitano Str represented by M Nikolov Executive Director". [¶6] It also described the goods as "Wheat bran pellets in bulk" accompanied by detailed figures regarding moisture, ash, iber, presence of insects, and figures regarding the size of the pellets. [¶6] It also required presentation of 9 different types of documents including a "signed commercial invoice".

On 29 April 2013, Issuer received documents presented by Seller/Beneficiary. The commercial invoice presented named the Seller/Beneficiary as "Bulgrains & Co Limited" [¶14] and described the goods as "Bulgarian wheat grain pellets". It was "signed on behalf of the seller 'M Nikolov - Executive Director'". [¶14]

On 6 May 2013, Issuer sent a message via SWIFT MT 799 Free Format Message) and a second substantively identical" [¶10] one on 6 May 20131 via MT 799 to ING in Sofia. On 7 May 2013, Issuer sent a MT 734 (Advice of Refusal) message.2

The first message read:

Pls regard this msg as MT734. 77J discrepancies: [1] beneficiary's name on the document is different from LC. [2] Description of goods on invoice is not correspond with the description in the credit. 77B disposal of documents notify/as per UCP 600 article 16(c)(iii)(b). [¶35]

The opinion does not indicate the content of the other two messages other than to suggest that they were substantially the same. [¶10] Nor does the opinion reveal that 1 May 2013 was a banking holiday in South Korea for Labor Day or in other parts of the world, May Day.

On presentation, Buyer/Applicant sought an injunction against honor and the matter was settled pending a determination of their respective right by payment of the proceeds into Seller/Beneficiary's escrow account. Seller/Beneficiary then claimed that Issuer had wrongfully dishonored the presentation. After an expedited trial, the trial judge entered judgment for the Issuer, dismissing the action and refused permission to appeal.

Legal Analysis:

1. Description of Goods in Invoice. The Judge observed that "[t]here is no dispute" that the description of the goods in the invoice did not comply with the terms and conditions of the credit. [¶15]

2. Name of the Beneficiary. Issuer argued that the presence of an ampersand ("&") between the words "Bulgrains" and "Co" in the name of the Seller/Beneficiary in the invoice and the name in the LC which did not contain an "&" but was simply "Bulgrains Co Ltd" constituted a discrepancy justifying refusal of the documents. Issuer contended that this conclusion was mandated by application of what it called the "concept of strict compliance" which was "the foundation stone of the approach of the English courts". [¶16] Issuer suggested that the only exception to this rule is "where the discrepancy is insignificant or trivial such that it cannot be regarded as material" having regard to the LC terms alone. [¶17] Issuer cited a number of court decisions including Beyene v. Irving Trust Co., 763 F 2d 4 (2nd Cir. 1985) [USA]. The Judge stated that "[t]his approach, that a typographical error is a discrepancy, but that anything that might be anything other than an inadvertent misspelling is not,3 is exemplified in the decision in Singapore in United Bank Limited v. Banque National de Paris [1992 2 SLR 64..." where the difference was between "Pan Associated Ltd" and "Pan Associated Pte Ltd". [¶20] The Judge observed that the Singapore court concluded that the documents did not comply despite the identity of addresses and that no companies could have such similar names under Singaporean law.

Seller/Applicant argued that the problem arose because ampersands cannot be transmitted in a SWIFT message and contended that the identity of the addresses and of the signature of the director made the difference immaterial.

The Judge disagreed, concluding that the difference in the names "was not clearly and demonstrably simply a typographical error and was material.... Even if there was no facility to insert an ampersand in SWIFT, the word "and" could have been used, and , in my judgment, it also should have been used because the name of the company in the Cyrillic alphabet, included the single letter the translation of which means "and" which word therefore should have been used." [¶24]

3. Does UCP600 Article 16(c) & (d) refer to the time of receipt of a notice of refusal? Seller/Beneficiary argued that the third message was not received and that the "natural meaning" of the term "given" in UCP600 Article 16(d) was "receipt". The Judge disagreed, noting that it could mean "present" or "receive". The Judge concluded that "on a balance of probabilities the message was received." [¶31] Moreover, the Judge took notice of UCP600 Article 35 (Disclaimer on Transmission and Translation), ruling that even if the message was not received, the bank has no liability or responsibility for such a loss.

4. Refusal, use of the term. Seller/Beneficiary argued that the first and second notices of refusal were inadequate because they did not "state ... that the bank is refusing to honour or negotiate..." as required by UCP600 Article 16(c)(i). As indicated, the first two messages were sent via SWIFT MT 799 and not MT 734. Seller/Beneficiary argued that an express statement of refusal is required for any message other than MT 734, relying on DOCDEX decision 303. In interpreting UCP600 Article 16(c) (i), the panel had stated that "the notice should contain a separate specific statement of refusal and that, at least, the onus relies on the refusing bank to communicate its intention to refuse in unambiguous terms." [¶36]. Issuer argued that DOCDEX decision 303 "recognises the potential validity of implicit, as opposed to explicit, refusal precisely because the standard message MT734 is universally accepted as so notifying, even if the text of the message does not say so in terms." [¶39] The Judge agreed, concluding that since an MT734 message "is an industry term of art, the meaning of which is clear, though implicit, to bankers who can therefore be excused spelling that out verbatim, as between the same class of persons, there is no meaningful difference in a freeform message saying, as this message did, 'Please regard this message as MT734.'." [¶42]

5. More than One Notice of Refusal. Having argued that the first and second notice of refusal were inadequate due to the failure to use the term "refuse", Seller/Beneficiary argued that only the first message could be considered. Having concluded that the third message did not need to have been received, the Judge not only concluded that it was timely but that reliance could be placed on the third message. He stated "I do not accept, as a matter of principle, that where the position and reasons remain unchanged, the receiver4 cannot correct an earlier and defective refusal, as long as it does so in time and adopting the same substantive reasons." [¶33] However, as would be apparent from the preceding analysis, the Judge also observed that "the first message sufficed." [¶35]

6. Adequacy of the Explanation of the Discrepancies. Seller/ Beneficiary argued that the notices of refusal were inadequate with respect to the description of the goods and the name of the beneficiary because they "do not provide the detail required." [¶43] It was contended that the messages did not explain how the names differed or "list how and to what degree the description of the goods in the letter of credit does not correspond with that in the invoice." [¶43] The Judge stated that "the purpose of setting out with clarity the alleged non-conformities is to provide the beneficiary with the opportunity to rectify such matters." [¶46] The Judge stated that Issuer's counsel "asks, in effect, 'What else is needed than to say that the names are not the same?'" [¶46]

7. Disposition of the Documents. Seller/ Beneficiary argued that the notices failed to specify how it would dispose of the documents other than to refer to UCP600 Article 16(c)(iii)(d). The Judge agreed with Issuer's argument that the decision in Fortis Bank where the terms "return" and "hold" were taken to be 'conventional terms in article 16 that should be accepted to mean what was accepted industry-wide...." The Judge also stated that ""in communication between banks, which this was, even if the language used might appear to the lay person to be code, if, as between bankers, the meaning is plain and universally-understood, that suffices." [¶51]

8. Negotiation, effect on right of Beneficiary to sue. Issuer argued that Seller/ Beneficiary had sold its rights under LC. The Judge rejected this claim due to "unsatisfactory" evidence on the point.

9. LC Fraud. Issuer asserted that the Seller/ Beneficiary had committed LC fraud. The Judge dismissed this defense for lack of proof.

[JEB/pt]

1. The opinion gives the date of the second message as 7 May 2013 in ¶10 and as 6 May 2013 in ¶27. Since the parties agreed that the messages were timely [¶10], that is, within 5 banking days from the day of receipt under UCP600 Article 16(d) (Discrepant Documents, Waiver and Notice), they could only have been timely if both had been sent on 6 May 2013. Therefore, the date given in ¶10 of the opinion must be an error.

2. The opinion refers to a "NT734 SWIFT message" [¶28] but this reference is surely an error since there is no such thing.

3. This statement is confusing and probably a typographical error. Since there was no disagreement that an immaterial typographical error was not a basis for refusal, the sentence would make much more sense if it was worded: "that a typographical error is not a discrepancy but that anything other than an inadvertent misspelling is not". This observation is reinforced by the quotation in the preceding paragraph from Bayene where that court was quoted as stating "this is not a case where the name intended if unmistakably clear despite what is obviously a typographical error, as might be the case if, for example, 'Smith' were misspelled 'Smithh'."

4. Presumably, the court means the sender of the message and not its receiver, although it is possible that the word "receiver" was used to refer to the issuing bank that received the presentation. The use of receiver here is odd since the court has been discussing the need for receipt of the messages.

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