Factual Summary: Applicant obtained an LC available through negotiation with any bank in Malaysia subject to UCP600. Field 46A of the LC required the presentation of three documents: signed commercial invoices in quadruplicate; the full set of clean on board shipping company's bills of lading issued to order of the Issuing Bank and marked "Freight Paid" and to notify Applicant; and packing lists in triplicate. Additional Condition No. 1 in Field 47A also required an original clean inspection certificate issued and manually signed by all authorised signatory(ies) of the applicant and required Beneficiary to send one set of non negotiable documents by DHL courier to the credit opener within 10 days after shipment. Original DHL receipt and Beneficiary's certificate to this effect to accompany the documents for negotiation.

On or about 25 January 2012, Beneficiary presented the three required documents to Negotiating Bank for payment. Negotiating Bank rejected the documents due to discrepancies. On 27 January 2012, Beneficiary made another attempt and Negotiating Bank treated these documents as complying with the presentation requirements and negotiated them, making payment to Beneficiary. Beneficiary forwarded the DHL receipt and Beneficiary's Inspection Certificate to Negotiating Bank. Negotiating Bank then forwarded all of the documents to Issuing Bank for reimbursement.

Issuing Bank sent a Notice of Refusal to negotiate noting six discrepancies regarding the Inspection Certificate. Namely: 1) a corporate seal was on the Inspection Certificate although Applicant was not a corporation; 2) Applicant advised the Issuing Bank that it had not issued the Inspection Certificate and the signature was not that of the authorized signatory of Applicant's; 3) Applicant had stated that the contact information was incorrect; 4) Issuing Bank's official signature appeared to be forged; 5) Issuing Bank's stamp was different from Issuing Bank's stamp and seemed fake; 6) The stamp denoting the code number of the Issuing Bank's official who had signed the Inspection Certificate was different.

Following the Notice of Refusal Negotiating Bank sued Issuing Bank claiming reimbursement. Issuing Bank served a Third Party Notice on Applicant seeking, among other things, an indemnity if it was found liable. The trial court granted judgment to Negotiating Bank.

Legal Analysis:

1. Non-Documentary Condition: Negotiating Bank argued that Additional Condition No. 1, Field 47A was non-documentary under UCP600 Article 14(h) because it did not state which document would show the Inspection Certificate had been signed by all authorized signatory(ies) of the Applicant. Negotiating Bank further argued that this position was supported by two additional factors. First, that the Inspection Certificate was not included in Field 46A which contained the heading "Documents Required." Second, Additional Condition No. 1 in Field 47A did not specifically call for the presentation of the Inspection Certificate.

Negotiating Bank argued that it could ignore the non-documentary condition and further argued that since the Inspection Certificate was not required, any discrepancies in the Notice of Refusal that pertained to the Inspection Certificate were not valid discrepancies.

The Judge agreed with Negotiating Bank and ruled that the LC did not require presentation of the Inspection Certificate.

2. No Clear Evidence of Fraud: Negotiating Bank also argued that even if the Inspection Certificate was a documentary condition under the LC, the Inspection Certificate presented appeared on its face to comply with the LC. Issuing Bank replied by stating that Negotiating Bank should have been on notice that the Inspection Certificate was forged at the time the document were presented. Issuing Bank made three arguments.

First, it argued that Issuing Bank's verification on the Inspection Certificate was in the form of a certificate, whereas no bank would issue a certificate when none was expressly called for. Negotiating Bank responded that under Article 3 paragraph 4 of UCP600 any signature, mark, stamp or label on the Inspection Certificate which appeared to satisfy the requirement of verification would also satisfy Additional Condition No. 1 in Field 47A.

Second, Issuing Bank argued that the Inspection Certificate was an integrated certificate: as its verification was within the same certificate as the Inspection Certificate. Issuing Bank alleged, no bank would issue such a certification, which formed part of the very document which the bank was to verify. Negotiating Bank responded by stating that Issuing Bank had not produced any evidence of this banking practice.

Finally, Issuing Bank argued that the Inspection Certificate pre-dated the Bills of Lading but contained information about the value and quantity of the goods shipped, insinuating that they were inaccurate. Negotiating Bank argued that discrepancy only demonstrated that there were inconsistencies between the Inspection Certificate and the Bills of Lading and that inconsistency was not cited in Negotiating Bank's Notice of Refusal and thus, Issuing Bank was precluded under UCP600 Article 16(f) from belatedly raising that argument as a reason to refuse reimbursement.

The Judge ruled that the unusual features in the Inspection Certificate to which the Issuing Bank pointed were not such as to constitute non-compliance with the terms and conditions of the LC.

3. The Effect of the Negotiating Bank's Characterization of the Documents It Had Negotiated: Issuing Bank also claimed that Negotiating Bank omitted the required Inspection Certificate in an affidavit describing the required documents. However, the earlier ruling that the LC did not require presentation of the Inspection Certificate made this claim moot and the Judge ruled that [Negotiating Bank's] (ex post facto) characterisation, on affidavit, of which documents it had negotiated did not affect the Negotiating Bank's entitlement to reimbursement at the time it had presented the documents to the Issuing Bank.



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.