A case that discusses the suitability of the UCP600 for regions that do not have effective letters of credit laws.
Further, they communicated their acceptance of the nomination to the beneficiary Al Bakiri advising them that they will directly negotiate the value of the documents presented provided that such documents are compliant with the credit terms and conditions.
Al Bakiri, upon receipt of the letter of credit and the advice of BankAzaro, they shipped the oil cargo, procured the required documents and presented same to the negotiating BankAzaro.The customer service representative at the branch of BankAzaro with which Al Bakiri deals received the documents on the 20th of October08 and thereafter stamped the documents with the Date and Time Received Stamp and handed the receipt back to the customer’s representative.
After recording the documents in the outgoing mail register of the branches, the customer services representative negligently placed the documents in her full in-tray whilst she was talking to her colleague and without her noticing, the documents fell beneath her desk.
She then placed the content of her in-tray in the outgoing mail box without noticing the missing set of Al Bakiri documents. The second morning, the office boy whilst cleaning the office found the documents and delivered them back to the representative who in turn recorded the documents again in the day’s first next internal mail delivery and dispatched it to the intended destination.
The Trade Finance Center received the presentation together with another 87 sets of documents on of the 21st of October just before the working day ends. They checked the documents on the fifth banking day following the date of receipt and this was the 28th of October.
They found that the documents contained a short shipment discrepancy and as such they advised the beneficiary on this same day by: a. phone verbally, b. faxing the advice of discrepancies and c. by hand delivering the original faxed advice to the beneficiary’s offices. The advice of discrepancies stated that the nominated BankAzaro refuses to negotiate the presentation due to the discrepancy of “the beneficiary’s invoice indicates that the shipment is short” and is therefore returning the documents without any responsibility on their part.
The beneficiary Al Bakiri immediately called BankAzaro and advised that this discrepancy was a mistake made by their staff and they are ready to correct it immediately within hours. The manager of the export section of the trade finance center of BankAzaro accepted their suggestion provided that they will treat the cured documents as a new presentation.
AL Bakiri took the documents back, corrected the discrepancy and represented the documents again. On the fifth business day following the date of receipt of the cured documents, AzaroBank checked these documents and found another discrepancy i.e. “Goods Description in the Commercial Invoice Conflicts with the description on the Certificate of Origin”.
AzaroBank refused to take up the documents and issued another advice of discrepancies to that effect stating the discrepancy and informing the beneficiary that the documents are being held at their disposal pending receipt of further instruction. Here again the advice was verbally advised, faxed and then delivered by hand to them.
Al Bakiri once again issued its instructions to AzaroBank to dispatch the documents to the issuing bank without any responsibility on the bank’s behalf. At this stage, the oil prices fell sharply as a result of an increase in production by OPEC. AzaroBank sent the documents by courier to the issuing bank which in turn checked the documents and decided that they don’t comply with the credit terms and conditions as they found a “late presentation discrepancy”.
They advised AzaroBank that they refuse to honour because of this sole discrepancy of late presentation and that they will contact the applicant for a waiver of the discrepancy but if the applicant refuses to waive it they will return the documents back to BankAzaro.
The applicant refused to waive the discrepancy and as such the documents were dispatched back to BankAzaro.
The Court
Al Bakiri sued BankAzaro for the damages incurred. They claimed that although they eventually got the Oil shipment back, the cost of the carrier, loading on board and procuring the documents were considerably high, needless to mention the losses incurred as a result of the price fall. They said that if it wasn’t for the negligence of the negotiating bank’s staff who unjustifiably checked the documents twice, the documents would have been presented in time and the whole deal would have been completed successfully. They based their claim on the UCP600 Article 16 which compels banks to state each and every discrepancy in respect of which they refuse to honour or negotiate whenever they issue an advice of discrepancies for non complying documents. The beneficiary said that because the negotiating AzaroBank failed to act in accordance with the provisions of this Article then it must be precluded from claiming that the documents are not compliant and therefore they should bear the responsibility of compensating the beneficiary for the damages incurred as a result of their failure. In summary, had they were not negligent the beneficiary would have had enough time to cure the other discrepancy and present the compliant documents in good time to the issuing bank.
The Judgment
The court held that although the plaintiff are relying on the UCP600 as the governing rules in their claim for damages, these rules do not entitle them to any compensation. This is because Sub-Article 16 (f) has only precluded the issuing bank and the confirming bank, but not a nominated bank acting upon its nomination, from claiming that the documents are discrepant if they fail to act in accordance with the provisions of Article 16. Whilst the court realizes that this is a grave shortcoming in the drafting of the UCP600 provisions, the rules do not explicitly provide the intended protection for a the good beneficiary who righteously depended on the undertaking provided by a nominated bank acting upon the authorization of the issuing bank. Nevertheless, the exporter here can seek remedy under the law of negligence; it is apparent that the BankAzaro was negligent in handling the documents since the first day they received it. The bank was under a duty to exercise reasonable care to avoid omissions that lead to wasting valuable time in handling a large transaction of this type. The judge decided that a reasonable banker would have foreseen that failure to check documents correctly from the first time would probably jeopardize the interest of the beneficiary in receiving the value of the documents in good time. The court held that BankAzaro was negligent and therefore liable to compensate Al Bakiri for all losses incurred as a result of non payment by the issuing bank.
One interesting question that arose by the plaintiff’s lawyer is the following:- “what would a beneficiary who resides in a country that does not have any commercial law or “Law of Negligence” do if its transaction is governed by the UCP600 which is evidently an erroneous set of rules.
All rights reserved www.graincon.com
