Type of Lawsuit: Negotiating bank sued issuer for wrongful dishonor.

Parties: Plaintiff/Negotiating Bank- Choheung Bank (Korea) (Counsel: Kyung-Han Sohn, Min-Gee Jun, Chang-Yeon Weon) Defendant/Issuer- Bank of China (Counsel: Seog-Min Joo, Jin-Yeong Cheong, Seong-Ha Park, Cheol-Man Kim) Beneficiary/Seller- Hyundai Corporation Applicant/Buyer- Zhongyi Import & Export Enterprises

Underlying Transaction: Sale of newsprint paper.

LC: Commercial LC for US$ 1,137,500. Subject to UCP500.

Decision: The 12 th Civil Division of the Seoul High Court, Se-Bin Oh, C.J., reversed a decision by the Seoul District Court, entering judgment for the plaintiff.

Rationale: The description of the goods on a document other than the commercial invoice which contains a minor numerical difference does not justify dishonor where all the other documents, including the commercial invoice, contain an exact duplication of the description in the LC.

Where a bill of lading contains two dates, the latest will be taken to be the date of the B/L, especially where that is designated as the date of shipment.

The failure of copies of a packing list to contain the stamps and seals present on the original is not a discrepancy justifying dishonor.

Translation of full text provided by Yang-Kon Kim, Manager, Compliance Office, Korea Exchange Bank, Seoul, Korea (South).

Factual Summary: Bank issued LC to facilitate purchase of newsprint paper. The LC described the commodity as "Newsprinting Paper 48.8GSM etc.", called for a latest shipping date of July 10, 1998, and required copies of Weight and Packing Lists and copies of Certificates of Quality among the documents needed to draw on the LC. Seller/beneficiary presented documents to negotiating bank. The documents included a B/L indicating "SHIPPED on board the ship, the goods as indicated below ... 10 th JUL.1998" and a term "Date at 8 th JUL.1998". The Certificate of Quality described the goods as "48.8+/-2" Negotiating bank purchased the documents and forwarded them to the issuer which timely refused them for the following reasons: (1) two different dates on the B/L; (2) quality marks on the certificate of quality differed from those in the LC; and (3) absence of seals, stamps or reference numbers on the copies attached to the packing lists. Negotiating bank sued issuer for wrongful dishonor. The trial court entered judgment for the issuer. On appeal, reversed.

Legal Analysis:

1. Jurisdiction: The issuer alleged that the Republic of Korea had no jurisdiction over the case because the issuing bank was located in the People's Republic of China, and its Seoul branch had no involvement in the LC transaction. The court disagreed with this argument, noting that Seoul was an appropriate judicial forum because the issuing bank engaged in continuous and systematic business in the Republic of Korea. Therefore, even though the transaction at issue may not have involved the local branch office, the appellate court concluded it was reasonable to subject the bank to jurisdiction of the Republic of Korea.

2. Bill of Lading, Dates; UCP Article 23: The issuer alleged that the B/L did not comply with the LC because it contained conflicting dates. In the B/L form, the date "10 th JUL.1998" appeared next to the line "SHIPPED on board the ship, the goods as indicated below ... ". However, the date "8th JUL.1998" was next to the line "Date at". The issuer argued that this internal inconsistency was a discrepancy meriting dishonor. The appellate court disagreed, noting that UCP500 Article 23 (Marine/ Ocean Bill of Lading) does not necessarily prohibit a separate shipment date on the bill of lading, where there is a "preprinted phrase stating that the goods are on board or shipped on the named vessel". The appellate court noted that the date at "Date at" in the form was not accompanied by any explanation, and should therefore be treated as "mere surplusage" that should be disregarded.

3. Quality Certificate; Description of Goods;

UCP500 Article 37;

Compliance: Noting that the quality of the material was marked as "48.8+/-2" on the Certificate of Quality whereas the description of the goods in the LC was "48.8GSM", the issuer claimed its dishonor was valid. The appellate court disagreed, noting that UCP500 Articles 13 (Standard for Examination of Documents) & 37 (Commercial Invoices) did not necessarily require that "the terms and conditions of the credit and the description in the attached documents must be consistent precisely with the letter, but that the documents should be regarded as consistent with the letter of credit in the case where although there are slight differences in the wording, the bank can be aware on the face of the documents that the differences are so slight that they do not bring about a difference in the meaning of the words and that they do not at all harm the terms and conditions of the letter of credit."

The court continued: "Therefore considering that the descriptions in the commercial invoice, the most important document of all, are in full compliance with those of the letter of credit and other marks as to the goods in the shipping documents are all in compliance with the terms and conditions of the letter of credit, and since overall the description in the certificate of quality cannot easily be regarded as inconsistent with the descriptions of the letter of credit and that such differences in the description would not harm the interests of the parties, it can be seen as complying with the terms and conditions of the letter of credit on its face from the point of international standard banking practice. Accordingly, the allegations of the defendant cannot be considered as the discrepancies on which the payment of the letter of credit may be refused, and therefore are considered as unreasonable."

4. Copies: The issuer also alleged that it was justified in its dishonor because "the copies attached to the packing lists ... have no seals, stamps, signatures or. reference numbers on them", although the LC made no reference to such requirements. The appellate court disagreed and ruled that UCP500 does not require such formalities in documents attached to the LC and that there did not appear to be any inconsistencies in the contents of the documents.

5. Bills of Exchange: The issuer alleged that since the negotiating bank had paid the beneficiary on the bill of exchange, it lost its rights under the LC and cannot demand payment on the LC from the issuer even though it had negotiated documents under the LC. Relying on trial testimony, the appellate court ruled that the negotiating bank received the bill of exchange at the time of negotiation of shipping documents. "This was done in order to secure the payment of letter of credit proceeds. And, regardless of whether the bill of exchange was paid or not, the negotiating bank can be seen as maintaining its standing as the negotiating bank under the letter of credit. Consequently, the allegations of the issuer at this point do not constitute a justification for issuer's refusal to make payment under the letter of credit and is therefore found unreasonable."

Comment: 1. The court is correct in its interpretation of the B/L dates. Regardless of what the second (and earlier) date signifies, the later date should be taken as the date of shipment. The earlier date should be disregarded, whatever the reason. 2. On the issue of strict compliance, it is refreshing to read a decision that seriously reflects on LC policy without giving a knee-jerk response that the documents must mirror the terms and conditions of the LC. Unlike the other defenses raised by the issuer, this question merits serious consideration. The opinion implies that all the other documents contain the precise description indicated in the LC. If so, then the alleged discrepancy would be two-fold, namely that it was inconsistent and that it did not comply with the terms and conditions of the LC. The notice of refusal, however, did not raise this point which may have some significance. In any event, it is precluded under UCP500 Article 14. The threshold problem is how to classify the alleged discrepancy. Is it a problem with the statement of the quality of the goods or with their description. If it is a matter of quality, the opinion does not indicate who issued the certificate of quality. If it was a third party inspector, the difference would be of much more significance. If, as is likely, it was the beneficiary, then one must question the significance of the addition of "+/-2" to "48.8GSM". It could mean +/-2 to the eight tenths of a percent, which would be less significant, or it could mean +/- two percentage points, which would be more significant. Taken alone, a bank would not be in a position to make this determination and in the face of the LC terms, probably would be justified in refusing payment. Then, the question becomes whether the presence of other documents that contain a complying figure without the addition is of sufficient significance to change the result. The most reasonable conclusion that is possible is that the figure in the certificate of quality was a typographical error. If it is a matter of the description of the goods, then the analysis is different. Given the court's discussion and reference to Article 37, it would appear that the court regarded it as a question of merchandise description. Then it must be asked whether the numeration is part of the description of the goods. The parties seemed to think so, for that data appeared in the commercial invoice. This question therefore falls within the scope of UCP500 Article 37 and the standard is that the description must comply in general terms not inconsistent with that in the LC unless the term speaks to the quality. Since we are not given the text of the certificate of quality and not told the meaning of "GSM" for newsprint, one is left to wonder. Since the.2001 LC CASE SUMMARIES court indicates that the commercial invoice is correct and indicates that the invoice is "the most important document of all", it is reasonable to assume that the court treated the entire question as whether a variation in the description of the goods in a document other than the commercial invoice constituted a discrepancy where the description in all of the other documents was exact. Assuming that the term is merely the description, the decision has considerable merit. In addition, the fact that the issuer did not note any inconsistency with the other documents in the notice of refusal maybe a factor in concluding that it did not regard the difference as creating an inconsistency but based its refusal on the incorrect notion that what was mandated was literal exactitude. Others may differ in their opinion. What is most important for LC practice is that the dialogue is being conducted on a rational level as to the significance and role of the documents and terms under standard international letter of credit practice.


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.