Factual Summary: To assure payment for sale of a gas processing plant, bank issued a standby. There was a partial transfer which was silently confirmed. When transferee beneficiary presented documents to adviser for review, approval, and transmittal, the adviser forwarded them to silent confirmer. The LCrequired presentation of a commercial invoice, bill of lading, and packing list but there was no requirement that the weight or volume be stated nor did the LC indicate what data must be inserted into the packing list. It was agreed that the documents themselves complied with the LC. Nevertheless, the confirmer dishonored on the basis of four discrepancies:

1. Gross weight of individual containers on bill of lading attachment differs from front page.

2. Measurement of individual items in packing list do not tally with total shown on front page.

3. Item no. 5 in packing list shows gross weight of 9 units LPG tank at 30,000 gallon as 209.97 MT [(metric ton)] [instead of] 206.73 MT (9 x 22.97 MT).

4. Listing of goods under item no. 8 in packing list did not include instruments and wiring.

Beneficiary brought an action for wrongful dishonor against issuer, confirmer, adviser, and applicant. In opposing the motion, confirmer relied only on the third objection which related to certain weight information contained on beneficiary's packing list. The trial court granted partial summary judgment for beneficiary against confirmer and summary judgment for adviser against beneficiary.

Legal Analysis:

1. Summary Disposition: The court noted that "actions on letters of credit are well-suited to determination on summary judgment because they normally present solely legal issues related to the exchange of documents."

2. Choice of Law: Applying governmental interest analysis under California choice of law rules, the court determined that the forum (California) had "little interest" in applying its law to an LC where none of the parties are from California whereas Singapore had a "strong interest" because both issuer and confirmer "conduct business there" and because the confirmer was in Singapore and applied the law of Singapore.

3. Choice of Law: Determination of Singapore Law: The court stated that expert testimony is admissible in the determination of foreign law although a judge "need not accept any particular expert's conclusions of foreign law". The court noted and apparently relied on the expert testimony of Professor Peter Ellinger regarding Singapore law.

4. Strict Compliance: The court concluded that, "the doctrine of strict compliance, as interpreted by Singapore courts" applied. In explaining this approach, the court quoted fromKumagai-Zenecon Constr. Pte Ltd. & Anor v. Arab Bank PLC & Anor,1997-3 S.L.R. 770 (Sing. Ct. App. Sept. 8, 1997) which states:

"[i]t is both common ground and common sense that in [a letter of credit] transaction the accepting bank can only claim indemnity

if the conditions on which it is authorised to accept are in the matter of the accompanying documents strictly observed. There is no room for documents which are almost the same, or which will do just as well. Business could not proceed securely on any other lines ... . However, '[v]ery minor and inconsequential discrepancies between the documents and the terms of the credit may be disregarded, but any discrepancy which calls for an inquiry or investigation or [is] 'such as to invite litigation' would render the tender of the documents bad or defective.'"

The court also stated that U.S. case law is "substantially in accord with the state of the doctrine in Singapore." To illustrate this proposition, quotedOcean Rig ASA v. Safra Nat'l Bank of New York,72 F. Supp. 2d 193 (S.D.N.Y. 1999):

"[t]he strict compliance standard means that the conditions of the letter of credit must be complied with precisely by all parties; documents that are 'nearly the same' will not suffice ... . [misspellings of names may justify dishonor] although nonmeaningful errors, such as obvious typographical errors ('Smithh' instead of 'Smith'), will not justify dishonor ... . Even under the strict compliance standard, '[e]rrors ... that do not call upon the reviewing bank officer to exercise discretion on a commercial matter, [but] only to exercise discretion as a banker,' or errors that 'did not compel an inquiry into the underlying commercial transaction ... [do] not justify dishonor ... .'"

5. Math Error: The court explained that the confirmer:

"does not dispute that the packing list's internal math error, in and of itself, would not have justified dishonor. In fact, one of the discrepancies originally identified by [confirmer], but which it no longer relies upon to justify its dishonor, related to another math error on the packing list. This error, like the error presently at issue, arose from the fact that the sum of certain items did not equal the total amount provided. Specifically, [confirmer's] second identified discrepancy was that, 'measurement of individual items in packinglist [sic] do [sic] not tally with total shown on front page.' (Eckhause Decl., Ex. 13.) Apparently, this refers to the fact that the total amount of cubic meters listed on the front page of the packing list does not accord with the sum of the cubic meters of all the individual items on the list. This discrepancy is nearly identical to the one herein. However, [confirmer's] own expert [Alan Bloodgood] (whose findings [confirmer] has adopted) concludes that this discrepancy was not a sufficient basis to justify dishonor. (Domb Decl., Ex. 16 (Bloodgood Rep., pp. 189-90) ('[t]his particular discrepancy relates to a measure, cubic meters, which does not appear on any other document required by the LC (such as a bill of lading or invoice). Therefore, the discrepancy regarding cubic meters did not result in an inconsistency between the packing list and any other such document.').) While Bloodgood admits that this discrepancy and the one [confirmer] is standing on are 'similar,' he attempts to differentiate the latter on the ground that, while the total weight on the packing list and bill of lading are the same, the fact that there is a math error on the packing list calls that total weight into question, thereby resulting in a discrepancy amongst documents.( p. 190.)"

6. Surplusage No Basis for Dishonor: Noting that the weight information was gratuitous, the court stated: "as we discuss in greater detail below, we conclude that this discrepancy did not justify [the confirmer's] dishonor because it did not relate to any requirement of the LC. First, we note that the LC did not require the weight of the items on the packing list to be enumerated, and thus a math error relating to a component's weight, in and of itself, would not render the packing list defective. Second, we note that the weight of the items on the packing list was not relevant to this transaction as the only requirement under the LC was that the requisite components for the gas plant be delivered. Accordingly, [the confirmer] had no reason to believe any litigation risk would be created if a storage tank, otherwise properly shipped, did not weigh what was stated on the packing list. Accordingly, under the above caselaw, as the discrepancy herein did not apply to anything related to the terms and conditions of the LC, but rather was mere surplusage, it did not create a proper basis for dishonor."

7. Compliance With Terms and Conditions of the Credit: Gratuitous Information: Although the confirmer's Notice of Refusal listed four discrepancies, it only contended that one was valid in opposing the motion for summary judgment, namely, "that the packing list contained the individual weight of certain gas tanks, and the gross weight of these tanks in an amount different from the sum of the nine tanks' individual weight." While noting that the error was "a relatively minor one", the court stated that "if this error related to anything required under the terms and conditions of the LC, then this discrepancy would have justified dishonoring the LC under the doctrine of strict compliance."

8. The Documents' Inconsistency with One Another: UCP500 Article 13(a): The confirmer alleged that any inconsistency as to weight on the packing list would justify dishonor because the inconsistency would call into question the packing list's overall total weight, thereby constituting an inconsistency between the packing list and the bill of lading. The court ruled that the alleged discrepancy did not relate to any data called for in the letter of credit. In the present case, the "bill of lading and the packing list contain the same total weight."

9. Notice of Refusal; UCP500 Article 14; Preclusion: The confirmer contended that, because the beneficiary's presentation documents were inconsistent with one another, the documents were discrepant with the LC. The court stated however, that, "[n]owhere does [confirmer] state that the reason for dishonor is that the overall weight on the packing list conflicts with the weight on the bill of lading because the weight on the packing list is called into question by the math error relating to the gas tanks." Relying on the preclusion rule of UCP500 Article 14, the court stated that "if a bank fails to list a certain discrepancy in its notice of refusal, it may not rely upon it later to justify the refusal." The court noted that the confirmer "was required to strictly comply" with UCP500 Article 14. Disregarding the confirmer's arguments that the objection to inconsistency is implied in its Notice, the court citedToyota Tsusho Corp. v. Comerica Bank,929 F. Supp. 1065, 1074 (E.D. Mich. 1996) for the proposition that these were sophisticated parties who were well aware of the strict compliance rules governing LCs, and should have been aware of the numerous court decisions requiring LC issuers to adhere to strict notice standards. As the confirmer did not communicate this discrepancy to the beneficiary in its Notice of Refusal, the court found that the confirmer could not rely upon this defense.

10. Consequential Damages; Liability of Advising Bank: The confirmer argued that U.S. U.C.C. Article 5 limits the liability of a confirmer to damages resulting from the breach. Noting that the confirmation was not authorized by the issuer and was, therefore, "silent", the court ruled that these limitations do not apply because a silent confirmation is not governed by UCC Article 5, following Dibrell Bros. Int'l S.A. v. Banca Nazionale Del Lavoro,39 F.3d 1571, 1580-82 (11 th Cir. 1994). Because the confirmer admitted that it was a silent confirmer, and the UCP does not address damages, the court stated that there was no reason to preclude the beneficiary from recovering the damages which would otherwise be available to it under the common law.

11. Liability of Advising Bank: The adviser contended that it did not act improperly in reviewing and forwarding the beneficiary's presentation. Agreeing, the court granted its motion for summary judgment.


1. Choice of Law: In applying the governmental interest analysis as California choice of law rules, the court apparently overlooks the choice of law rules in UCC Section 1-105 which would provide that the law of the forum would govern if the transaction bore an "appropriate relation" to California. It also ignored the choice of law principles applicable to LCs which provide that the confirmer's obligation to the beneficiary is governed by the law of the place of confirmation. The result in this case, application of the law of Singapore as a result of the use of interest analysis, caused no difficulty to the confirmer which confirmed in Singapore but may cause difficulty should the case proceed against the issuer which is situated in Indonesia. As to the issuer, its law should apply in disputes with the beneficiary. To prevent such confusion, LC choice of law rules should obtain not interest analysis. It may be recalled that when the interest analysis approach was formally suggested to the UNCITRAL Working Group preparing the UN Convention, it was rejected as inappropriate for LCs.

2. Strict Compliance; Not Inconsistent: What constitutes "strict compliance" is a constant problem for courts. This court has grasped that it is a banking and not a legal standard. It is quite correct in concluding that neither a math error nor an error predicated in "surplusage" (gratuitous data) justifies dishonor. It also properly diminishes the impact of the "not inconsistent" rule of UCP500 Article 13(a), sentence 4. The problem is that each case involving dishonor for such marginal reasons invites litigation and, while this court got things right, many courts do not.

3. "Strict" Construction of Notice of Refusal:The court has opted for a glib academic parallel in aligning the strict compliance doctrine regarding presentations with the standard to be applied to interpreting a notice of dishonor. It is not the same at all. The point is that the notice should unambiguously communicate the discrepancy in a manner that would be understood in letter of credit practice. Bankers use shorthand expressions. The business would be shut down if lawyers had to write notices of refusal (and there is no guarantee that anyone but another lawyer would understand them in any event). While this notice did not in fact raise the alleged discrepancy, the standard applied by the court went too far.

4. Silent Confirmers: It is unfortunate to see this court repeat the error of the 11 th Circuit inDibrell.While a silent confirmation may not be a confirmation, it is a letter of credit undertaking (i.e. an undertaking running to pay against the presentation of documents) and is governed by the UCC Article 5 and not the common law of contract.

The seriousness of this error is manifest in a case such as this one when the confirmer is exposed to consequential damages, something never contemplated. While contractual doctrines of foreseeability may eventually limit the damages awarded, this is territory that never should have been explored.



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.