Article

Factual Summary: On 26 August 1999, at the request of Applicant/Buyer, Issuing Bank issued a commercial letter of credit in favor of Beneficiary/Importer that expired on 25 October 1999. Beneficiary/Importer shipped the goods on 8 September 1999 after pre-shipment inspection and approval by Applicant/Buyer. On 7 September 1999, Beneficiary/Importer presented documents to Negotiating Bank. On 21 September 1999, Issuing Bank dispatched a telex dated 19 September 1999 which notified Negotiating Bank of the following discrepancies:

(01) "ON BOARD" NOTATION ON B/L ABSENT (.)

(02) BENEFICIARY'S CERTIFICATE NOT SET AS PER CLAUSE NO.05 PAGE NO.02 OF THE CREDIT (.)

(03) DRAFT DRAWN ON AL-ARAFAH ISLAMI BANK LTD. ONLY AND "A/C APPLICANT" NOT MENTIONED (.)

(04) PACKING LIST SENT INSTEAD OF DETAILED PACKING LIST (.)

Issuing Bank further notified Negotiating Bank that it would hold the presented documents at the disposal of Beneficiary/Importer on a "collection basis". On 23 September 1999, Negotiating Bank responded to the Issuing Bank's telex, admitting the absence of an "On Board" notation on the bill of lading, but requesting payment under the letter of credit in any event. Subsequently, Issuing Bank dispatched a telex dated 9 October 1999 to Negotiating Bank, expressing its inability to pay without obtaining prior approval from its Central Bank which would permit payment only if Applicant/Buyer produced a bill of entry. On 27 November 1999, Applicant/ Buyer requested Issuing Bank to release payment and assured Issuing Bank that it would reimburse Issuing Bank and retrieve the presented documents from Issuing Bank by 30 December 1999. On 11 March 2000, after there was no action by Applicant/ Buyer, Issuing Bank informed Negotiating Bank that "simple acceptance is not enough to release payment" and that "THE APPLICANT IS NOT COMING FORWARD TO TAKE THE DOCS AGAINST PAYMENT AND WE ARE UNABLE TO HOLD THE DOCS FOR INDEFINITE PERIOD. HENCE, WE REQUEST YOU TO GIVE US YOUR DISPOSAL INSTRUCTIONS OF THE DOCS IMMEDIATELY".

Beneficiary/Importer sued Issuing Bank for wrongful dishonor. The court dismissed the suit against Issuing Bank.

Legal Analysis:

1. Timely Examination; Preclusion; UCP500 Article 13(b); UCP500 Article 16(d): Beneficiary/ Importer argued that it had not been given timely notice of the discrepancy in the presentation until the telexes were produced by Negotiating Bank upon subpoena. The Calcutta High Court stated that Beneficiary/Importer "failed to establish that [Issuing Bank] refused the said documents beyond the 7th banking day following receipt of the said documents." "The plaintiff is required to establish at trial that the issuing bank had allowed the stipulated period of 7 days to lapse and thereby forfeited its right to refuse the negotiation of the said documents. It has to be established that the issuing bank received negotiated documents and sat over the matter beyond 7 days and is thereby precluded from refusing to make payment under the Letter of Credit. The negotiating bank has not been made a party. A notice to produce was issued to the negotiating bank on the basis of which the negotiating bank had produced few documents. The said documents per se would not establish that the issuing bank had overstepped the period of 7 days from the date of receipt of such documents for negotiation and thereby precluded from refusing to make payment under the Letter of Credit in terms of Article 14(d) of UCP 500."

2. Waiver; UCP500 Article 14(b): Issuing Bank argued that even if Applicant/Buyer's request to Issuing Bank on 27 November 1999 constituted a waiver of discrepancy, pursuant to ICC Query No. 85, Reference No. 267, "the receipt of a waiver from the applicant, either direct or via the beneficiary, does not bind the issuing bank to accept the documents. The decision of whether or not to comply with the waiver is one for the issuing bank to decide in its sole judgment." The judge agreed.

3. Bill of Lading; "On Board" Notation; UCP500 Article 23(a)(ii): Issuing Bank argued that it was justified in refusing the presentation based on the discrepancy, "(01) 'ON BOARD' NOTATION ON B/L ABSENT (.)", because such a notation would "show that the goods were carried properly to the destination and in absence of such certification, the lawful entry of the goods in the country of import becomes questionable." The judge agreed.

Comments:

The Opinion states that the burden of proving that refusal was not timely was on the beneficiary. This statement is correct in a general sense. The beneficiary failed to establish the date on which the issuer had received the presentation. Usually that information is within the possession of the issuer. Once that date is established, calculations can be made to determine whether the refusal is timely or not. It seems somewhat arbitrary for the court not to require the issuer to reveal that information.

[PT]

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