The full version of this article can be found in the March 2011 edition of Maritime Risk International.
The Court of Appeal held that once the issuing bank has rejected the documents, it must act in accordance with its chosen option.
Earlier this year the Court of Appeal passed judgment in Fortis Bank S.A./N.V. and Stemcor UK Limited v Indian Overseas Bank providing a cautionary lesson to banks who consider that they have received discrepant documents under the UCP 600.
The relationship between the parties is best illustrated by the following diagram:
MSTC requested that IOB issue five letters of credit, incorporating the UCP 600, in favour of Stemcor. In due course, Fortis presented the documents under the letters of credit for payment and IOB rejected them on the basis of discrepancies. IOB gave notice under sub-article 16(c)(iii) of UCP 600 that it was both returning and holding certain documents in respect of the presentations. Where a return notice was given IOB did not return the documents with reasonable promptness.
Stemcor and Fortis commenced proceedings arguing that, if IOB gave notice that it would return documents, the UCP should be interpreted so as to oblige it to return them promptly. Should the Court find that these obligations were not complied with, Stemcor and Fortis invited the Court to conclude that IOB was precluded from relying on any discrepancies under Article 16(f). IOB argued that it was only under an obligation to provide the required notice and any obligation to return the documents was outside the scope of the UCP.
The Court heard expert evidence to the effect that it was normal and expected international banking practice for documents to be returned and document disposal instructions to be complied with promptly. The Court of Appeal said that once the issuing bank has rejected the documents it must act in accordance with its chosen option. This, the Court said, was implicit in Article 16. This analysis is also in accordance with the standard international banking and trading practices.
This judgment provides a cautionary lesson to banks who consider that they have received discrepant documents. If a bank states that it will return documents it must do so promptly. Otherwise, even if the documents are discrepant, banks will find that they have to honour the presentation due to the preclusion in Article 16(f).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
