Article

Type of Lawsuit: Confirming bank sued issuer for reimbursement.

Parties: Plaintiff/Claimant/Confirming Bank- Credit Agricole Indosuez London Branch (Counsel: S. Males QC and S. Jones) Defendant/Issuer- Credit Suisse First Boston, Zurich (Counsel: D. Foxton) Applicant- A Cayman Islands company Beneficiary- Midland Resources Limited of Dublin

Underlying Transaction: Cargo of prime hot rolled steel plates.

LC: Commercial LC for US$ 275,851. Silent as to governing rules.

Decision: The Queen's Bench Division, J. Morrison, entered judgment for reimbursement for the confirming bank.

Rationale: Even where an LC indicates that a railway bill can be accepted as presented because it is written in a different language than the other required documents, a confirming bank would be expected to examine it for the date of shipment of the goods in order to determine whether the document was presented within the required number of days after shipment.

Factual Summary: The confirming bank confirmed an LC issued by the applicant's bank to assure payment for hot rolled steel plates. It required a "Railway Bill bearing the clause 'DDU Polish/ Ukraine Border Moscika'". Under Additional Conditions, it required that "all documents must be issued in English language" but also provided that "Railway Bill in English/Cyrillic language allowed and to be accepted as presented." Also, the LC required that the documents had to be presented "within 20 days after date of transport document(s)." The beneficiary presented documents to the confirming bank including 19 railway bills "principally completed in Cyrillic script on a form which contained boxes with headings in both Russian Cyrillic script and German language. In each case, in the middle of the page in box 9 were written 'DDU Polish/ Ukraine border Moscita.' The box is headed in German, as translated, 'signs marks numbers'. The dates on the various bills adjacent to this writing was either 18 or 19 June 1999. DDU is an INCOTERM whose meaning is 'Delivery Duty Unpaid.'" The confirming bank honored and sent a S.W.I.F.T. message claiming reimbursement and forwarded the documents. Upon receipt of the confirmer's request and documents, the issuer responded by S.W.I.F.T. message that the funds would be remitted and informed the applicant that its account would be debited accordingly. The applicant, however, contacted the issuer and informed it that the goods had arrived at the Polish German border 6 weeks earlier which suggested that the transport documents were stale, since "they must have been dated earlier than that". The issuer then revoked its reimbursement instruction and informed the confirmer that the S.W.I.F.T. payment order had been sent "by error ... since amount availed is not within specified L/C.23 2001 LC CASE SUMMARIES amount tolerances; we hold your claim unaccepted and unpaid pending. We shall contact applicant in this respect and shall revert in due course." The documents arrived after this message was sent and were examined by the issuer. "Subsequently, the issuer sent a telex message saying that the documents which the confirmer had sent to them were discrepant in a number of respects." The confirmer sued the issuer for reimbursement. Held: judgment for the issuer.

Legal Analysis:

1. Refusal, Notice of; Notice of Refusal: The confirmer argued that "when the issuer cancelled their Swift Telex they failed to indicate that the documents were being held to the confirmer's order or that they were being returned. This offended the provisions of [UCP500] art 14(d)(ii) of the UCP. It was, therefore, an invalid notice of refusal and was not validated by the later telex which indicated the discrepancies on which the defendants relied and which said that that the documents were being held to the confirmer's order." The court rejected this argument, noting that the documents had not arrived when this message was sent. "Had the documents arrived at the issuer's center and been inspected before the first message there would surely have been a reference to receipt and inspection of the documents in the first message, as there was, later, in the second. It seems to me that the defense based upon [UCP500] art 14d(iii) is without substance or merit. Even had the documents been available at the time, the notice of cancellation of the instructions to pay was obviously not an indication that the issuing bank 'decides to refuse the documents' within the meaning of [UCP500] art 14d. That Article is concerned with rejection of documents on the grounds of discrepancy, as its title makes clear. The first Swift message did not purport to be a refusal or rejection of the documents; it was not treated as such by the confirmer at the time." The confirmer pointed out that the LC did not require that the B/Ls should be stamped or dated.

2. Compliance UCP500 Article 14(a): The confirmer argued that when a confirming bank adds its confirmation to a letter of credit, the issuing bank authorizes the confirmer to pay against documents which appear on their face to comply with the credit. The court, however, noted that the erroneous dates were not in the proper place for dates of transport and that the document checker knew or should have known that the dates were not those required by the LC. Therefore, on its face, the documents did not appear to comply with the credit.

3. Reasonable Care; Compliance: The confirming bank argued that it reasonably relied on the dates in honoring the documents as if they had been presented within the 20-day period. Noting that UCP500 Article 13(a) required a confirming bank to exercise reasonable care when examining documents to determine whether they comply with the terms of the credit, the court rejected this argument. Due to the location of the date on the document, the court stated that "it would not be reasonable for a bank to consider the date...affixed below the delivery term...as being the date of dispatch of the goods."

4. Compliance; Latest Date for Shipment: The confirming bank argued that the LC provision "to be accepted as presented" permitted it to accept the documents regardless of whether they met the 20 day requirement in the LC, it suggesting that, in effect, this provision overrode the 20 day requirement. The court, however, rejected this argument, noting that the confirmer's examiner had checked for compliance with this requirement and had made the following formal certification to the issuer: "documents were presented within the specified number of days and the date of issuance of the transport documents or, (if no period was specified) within 21 days of the date of issuance of the transport documents." Moreover, the court found no conflict between the words "to be accepted as presented" and the stipulated period of presentation. The judge reasoned, "the words 'to be accepted as presented' cannot sensibly be regarded as making the fulfillment of the. time period otiose. It would make no commercial sense for that to be so [and] would render [UCP500] art. 28 of no effect." Further, the court explained "if a bank cannot be satisfied that the documents as tendered were in conformity without further inquiry then the tender is a bad one and the documents should be rejected." Accordingly, the court rejected "the contention that the issuer became obliged to pay the confirmer merely on the confirmer's say so that the documents were in conformity."

5. Railway Bills, Date of Shipment: The court noted, "the railway bills were in standard form for this type of rail journey and such documents will frequently have been in front of the confirmer's document checkers. As already noted, the box at the bottom left hand-side of the bill contains a place for a date stamp of the sending station. Expert for the confirmer disagreed. He had never seen a bill in this form which did not have the proper stamp indication the date when the goods were shipped. It is to be noted that the genuine bills in relation to this cargo all have the proper stamp upon them. I have been shown no bill which is improperly stamped. Having regard to the significance of the time of shipment, it is probable that such bills are invariably correctly stamped otherwise they would be rejected. I find as a fact that the manager knew or ought to have known that the bottom left hand box was the proper place for the indication of the date of the document. His explanation for why he completed the check sheet as he did was unconvincing and implausible. The only sensible inference to be drawn from the contemporary documents is that the confirmer believed that the 20 day requirement was met because of the two dates of 18/19 June. Further, when he was asked about the usual place for a date stamp indicating the date of the transport document he was evasive. In my view the expert for the issuer was obviously right when he said that: it would not be reasonable for a bank to consider the date of 18 June or 19 June affixed below the delivery term...as being the date of the dispatch of the goods. That is so, whether or not the confirmer's manager and his team could be expected to understand a limited amount of German. But I would have thought that the words 'bahnhofs' would be a part of the language known to document checkers."

6. Examination, Contact with Applicant: Although the confirmer urged that the issuer had improperly revoked its reimbursement order based on information that it had received from the applicant, the court, however, chose to disregard the source of the issuer's information because the confirmer had not included this point in its original claim and did so after having amended its case.

Comment:

1. This is one of the rare instances in which the language of documents becomes an issue. The court's conclusion is that, notwithstanding the language of the documents, the date of shipment on the form should have been examined. This position is correct.

2. More troublesome is the court's treatment of the telecommunication from the issuer to the confirmer. The court concluded that it could not have been a notice of refusal because the issuer did not receive the documents until shortly after it sent this message. While this point may shed light on the motive of the issuer, it is irrelevant as to the text of the message. The confirmer had no means of knowing whether the message was based on an examination of the documents or not and, since it was sent on the day that they were likely to have been delivered, it was entitled to assume that it was based on an examination of them. The question is whether the text of the message would have been understood as a notice of refusal. Had it, then the issuer would be precluded from asserting further reasons for dishonor. Moreover, it would have been inadequate since it does not contain required statements regarding the disposition of the documents. While the entire message and the references and Message Type are not indicated, it appears to refer to the reimbursement claim and not the documents. Moreover, the court noted that the confirmer had so understood it. The only data that might suggest that.25 2001 LC CASE SUMMARIES more was involved was the statement that the claim was "not within specified L/C amount tolerances" which might suggest that the presentation was being dishonored as being in excess of the amount available under the LC. It is on an analysis of these issues that the court should have based its decision and not on the subjective intent or circumstances of the issuer in sending the message.

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