Note: Century Pulp & Paper (Buyer/Applicant), a manufacturer of paper products located in Mumbai, India, contracted to purchase 500 tons of softwood pulp from Certifibre LLC (Seller/Beneficiary), an Illinois-based dealer in wood products. Payment was to be by commercial LC issued by the State Bank of India (Issuer). MSC Mediterranean Shipping Co., S.A. acted as carrier, but loaded only four percent of the goods aboard the MSC Damla in Charleston (Carrier). Carrier however listed the cargo weight as if all the contracted goods were covered by the B/L.

Seller/Beneficiary then drew on a commercial LC, presenting the B/L with other documents, and was paid USD 325,000. Since Seller/Beneficiary, which had short loaded the containers, was defunct and without assets, Buyer/Applicant sued Carrier for damages. Buyer/Applicant and Carrier each moved for summary judgment. The U.S. District Court for the Southern District of New York, Schofield J., denied both Applicant's and Carrier's motions for summary judgment, finding that a material factual dispute existed as to the Applicant's reliance on the B/L: namely whether Applicant ever saw the B/L or received merely a list of discrepancies from Issuer.

Seeking to estop Carrier from presenting evidence to rebut its prima facie case for recovery under the Carriage of Goods by Sea Act, Applicant had argued that it received a copy of the B/L before beneficiary drew on the LC, relied on the accuracy of that copy, and would have attempted to enjoin payment had it known of the weight discrepancy. Applicant also contended that if the B/L had listed the actual weight of the shipment, Issuer could not have tendered payment under the LC, which referred to the terms of the purchase order and the weight of shipment.

The Judge disagreed, noting that the LC did not require Issuer to examine the weight in the PO and compare it with the B/L. The Judge stated that "the obligation of the issuing bank to honour a draft . . . accompanied by documents which appear on their face to be in accordance with the terms and conditions of the credit is independent of the performance of the underlying contract". The Judge therefore concluded that "it would have been required to do so even if the weight of the wood pulp listed on the bill of lading differed form the amount ordered by [Buyer/ Applicant] in the purchase order." However, "[t] here was no requirement in the letter of credit that the [Issuer] look at the weight stated in the purchase order and confirm it against the bill of lading, and the references to the purchase order agreed to between [Buyer/Applicant] and [Seller/Beneficiary] are not incorporated merely by reference to the purchase order [Buyer/Applicant], as a matter of law, could have drawn on the letter of credit even if the weights on the bill of lading had not been stated as required by the purchase order. [Buyer/Applicant] therefore could not have relied on [Carrier's] statements in the bill of lading when the [Issuer] made payment on the letter of credit."



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.