England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		16th May 2002

Mr Justice David Steel :

Introduction

1. This action concerns a claim by Credit Industriel et Commercial (“CIC”), a French bank, for payment under an irrevocable documentary letter of credit (“the L/C”) issued by China Merchants Bank (“CMB”), a Chinese bank. The L/C covered a shipment of Okoume logs and African round logs from Owendo (Gabon) to Zhangjiagang (China) on board the vessel SANAGA under two bills of lading dated the 12^th September 1999. The total shipment value was US $1,134,956.63.
2. The underlying contract was between Societe J. Lalanne (“Lalanne”) as seller and Jiangsu Overseas Group Corporation (“Jiangsu”) as buyer. Thus, in relation to the L/C, Lalanne was the beneficiary and Jiangsu the applicant. The sale was on C&F terms. It appears that the vessel sank during the course of the voyage. By coincidence, at about the same time, CIC acquired the L/C from Lalanne by way of negotiation. CIC duly presented the documents to CMB on the 15^th October 1999 but, by a SWIFT message dated the 19^th October, CMB refused the documents.
3. The Court is concerned to determine three principal issues:

a) Whether the documents presented under the L/C were discrepant as alleged by CMB.

b) Whether CMB’s notice of rejection contained an unconditional statement that it was holding the documents at the disposal of CIC.

c) Whether CMB is precluded from claiming the documents as being discrepant by a refusal to hand over the documents to a M. Leon-Dufour on the 15^th June 2000.

Background

4. The underlying transaction is not directly pertinent to any issues arising under the L/C. However the details were put before the court so as to provide the full picture. The original sale contract between Lalanne and Jiangsu was dated the 16^th July 1999 and related to “about 10,000 cbm Okoume logs +/- 10%”. The specified grades were C1 40%, CE 50% and CS 10%, at a price of US $197 per cbm C & F free out Zhangjiagang. The terms of payment were per irrevocable letter of credit “issued by an international prime bank acceptable to seller’s bank payable 100% at 90 days from Bill of Lading date.” The contract was amended on the 13^th September to add a shipment of two parcels of African round logs totalling about 82 CBM +/- 10% on the same terms.
5. The L/C, expressly available at any bank in France, was advised to Lalanne through Credit Lyonnais in Paris. As finally amended it provided:

31F	New date of expiry	10th October 1999
39A	% tolerance	10
41D	Available	Any bank in France by negotiation
42C	Drafts	90 days from B/L date for 100% of invoice value showing this L/C and date of issue
42A	Drawee	- CMB
45A	Description goods	- Fresh cut Okoume logs … - Grade: C1 40%, CE 50%, CS 10%….. -….African round logs
46A	Documents required	- Manually signed Commercial invoice in 3 originals and 3 copies. - Full set (including 3 original and 3 non-negotiable copies) of clean on board ocean bills of lading… - Packing list in triplicate issued by beneficiary. - Certificate of quantity in three copies issued by beneficiary. - Certificate of origin in 1 copy. - Certificate of quality in 3 copies issued by beneficiary….
47A	Additional conditions	- All documents must be made in English. - Both credit amount and shipment quantity 10% more or less are allowed.
78A	Instructions to pay	- Documents should be sent by courier service… - Upon receipt of the documents in compliance with the terms and conditions of this credit, we will accept the draft and reimburse negotiation bank as per instructions.

6. The L/C and associated documents were presented to CIC for payment on 7^th October 1999. The documents were accepted and, under cover of a letter dated the 11th October, they were forwarded by courier to CMB. DHL delivered the documents to CMB on Friday, 15^th October, the last day of validity of the L/C. The bank was closed on the Saturday and Sunday. The documents were accordingly checked, by a Mr Fu Peng, on Monday 18^th October. He identified what he regarded as some discrepancies and duly reported to his superior Mr Jian Kang Liu (who gave oral evidence at the trial) the deputy manager of the International Business Department of CMB Nanjing branch.
7. In the result, CMB sent the following SWIFT message to CIC on Tuesday 19^th October:-

“Please be advised that the following discrepancies found:

+ Beneficiary’s draft not made in English

+ Irregular L/C No. shown on P/L.

+ Original of P/L Cert. of Quantity and Cert. of Quality not submitted.

+ Under invoice No. 1062 percentage of grade shown on invoice not complied with P/L.

We refuse the documents according to Art. 14 UCP no. 500. Should the disc. being accepted by the applicant, we shall release the docs to them without further notice to you unless yr instructions to the contrary received prior to our payment. Documents held at yr risk for yr disposal.”

8. The immediate response from CIC was that, as regards the drafts, the French language was “obligatory”; as regards the packing lists and other certificates, they were originals that had been signed “manually”; and, as regards the invoice, there was a 10% allowance. Vis a vis the incorrect L/C number in the packing list, the beneficiary was simply going to send a new version with the correct number. CMB were asked to review their rejection.
9. CMB were unmoved. In particular, the defendant insisted, in a message dated 21^st October, that:-

a) The documents required by the L/C to be in English included the drafts;

b) The certificates had to be treated as copies since they were not marked as originals;

c) The percentage grades in the invoice were described as 40: 50: 10 but the percentage grades calculated from the packing list were 38.64: 51.13: 10.23; and

d) The new packing list could not be presented late.

10. The arguments have continued in this vein ever since.
11. In the meantime, the vessel had sunk. Lloyd’s Maritime Information Service has provided a summary to the effect that SANAGA was reported to have been taking in water off Durban on 11^th October. In due course, the vessel was abandoned and left to drift. It reportedly sank on 18^th October. There was some suggestion from CIC that the cargo had not been insured by Jiangsu and that this had prompted them to persuade their bank to take all possible steps to avoid liability under the letter of credit, persuasion all the more likely, it was said, because Jiangsu was a major customer of the bank, with the deputy governor of Chung Sui province appointed to a non-executive role.
12. However there was no convincing evidence to support the idea that there was no insurance cover. Indeed, Jiangsu had written to Lalanne on the 18th November seeking documentation to present to underwriters. Furthermore, Lalanne appeared to have learned of the casualty only on 22^nd October, and there is no evidence that Jiangsu learned any earlier. Indeed, Mr Liu’s evidence was that he was told about it by Mr Ni Wein-Jun of Jiangsu on 10^th November. Any suspicion of an ulterior motive in rejecting the documents on 20^th October can be set aside.
13. The letter of credit matured on 13^th December. No payment having been made, CIC threatened legal action. This prompted CMB to seek, anonymously, advice on the discrepancies from the ICC Banking Commission in Paris. The questions posed were as follows:

Q1. Do all documents herein include or exclude drafts?

In spite of the fact that a draft is called a financial document in URC 522, it is only regarded as “additional” documents if drawn on applicant according to UCP 500, can it imply that drafts drawn on the issuing bank is one “required” or “general” documents?

Q2. If the beneficiary’s country stipulates the drafts must be drawn in its mother language, whether the issuing bank and the applicant are bound by such a foreign law according to Art. 18 (d) (The Applicant shall be bound by and liable to indemnify the banks against all obligations and responsibilities imposed by foreign laws and usages)?

Q3. Whether or not it is material for the discrepancy of a slightly different L/C no on the P/L?

Q4. If the requirement of Grade: CI 40 pct, Ce 50 pct, CS 10pct means percentage of each grade of goods, can such percentages of grade be also increased or decreased within the tolerance stipulated for quantity and amount?

14. Notably, no query was posed as to the issue of originality. The response from the ICC was as follows:

“Conclusion

Q1. In principle drafts are included in the documents to be checked. However, it should be noted that the ICC Banking Commission itself was of the opinion that (see TA267 / query 2) “ the requirement for the presentation of a draft is usually at the insistence / request of the issuing bank and not the applicant. Therefore, a discrepancy involving a draft drawn on the issuing bank is of no concern of the applicant nor one on which they should arbitrate as to whether to accept or not”.

Q2: Neither the issuing bank nor the applicant are bound by such law in the beneficiary’s country

Q3: This is not a material discrepancy

Q4: The percentage of each grade of goods is subject to a tolerance of + / - 10%.”

15. Surprisingly, this response appears to have fortified CMB’s view that they were entitled to reject the documents. The impasse thus created stretched on into the summer. On the 5^th June, CMB sent the following message:

“THOUGH WE HAVE DONE OUR BEST TO PERSUADE THE APPLICANT TO ACCEPT YOUR DISCREPANT DOCUMENTS, THEY INSIST ON THEIR POSITION OF REFUSING THE DOCS.

THE DOCS REMAIN UNPAID PENDING YR FURTHER INSTRUCTIONS.

PLS ADVISE US ASAP WHEN THE DOCS SHOULD BE RETURNED TO YOU FOR YR DISPOSAL.

BEST REGARDS.

INT’L DEPT.”

16. The reply from CIC dated the 8^th June was:

“WE CONFIRM THAT MR PHILIPPE LEON DUFOUR OF OUR FOREIGN DEPARTMENT WILL ATTEND YOUR OFFICES FOR A MEETING ON 15^TH / 16^TH JUNE IN ORDER TO DISCUSS THE CURRENT DISPUTE.

WE NOTE YOUR REQUESTS CONCERNING THE DOCUMENTS. IF, FOLLOWING OUR MEETING, WE ARE UNABLE TO RESOLVE THIS DISPUTE TO OUR SATISFACTION, MR PHILIPPE LEON DUFOUR WILL TAKE THE DOCUMENTS WITH HIM. PLEASE ENSURE THE DOCUMENTS ARE AVAILABLE. THE TAKING OF THESE DOCUMENTS IS STRICTLY WITHOUT PREJUDICE TO OUR POSITION THAT THE DOCUMENTS COMPLY WITH THE TERMS OF THE LETTER OF CREDIT.”

17. The meeting duly took place on the 15^th June. The CIC delegation included M. Philippe Leon-Dufour, Senior Vice President of the bank’s international division. He was accompanied by Miss Hu Shan, CIC’s representative in Shanghai, who acted as interpreter. They both gave oral evidence at the trial. The representatives from CMB included Mr Liu. There were minor disputes as to the form and content of the meeting. It was common ground that, despite the inability to reach agreement on the issue of discrepancy, CMB made it plain that they were not disposed to hand over the documents to M. Leon-Dufour. The expressed justification for this stance was that the documents should be returned by courier, being the manner in which they had arrived. In his oral evidence, Mr Liu further sought to justify the refusal to hand over the documents to M. Leon-Dufour by reference to the fact that the message detailed above was coded 999 and was thus not authenticated. Accordingly, it was asserted, he and his colleagues could not be satisfied that M. Leon-Dufour had authority to take the documents.
18. The day after the meeting, CIC sent a further message, which was also coded 999, as follows:

“WE REFER TO THE MEETING TODAY BETWEEN PHILIPPE LEON DUFOUR AND YOURSELVES IN WHICH YOU AGAIN REFUSED TO MAKE PAYMENT UNDER THE ABOVE LETTER OF CREDIT. YOU ALSO REFUSED TO RETURN THE DOCUMENTS TO MONSIEUR PHILLIPE LEON DUFOUR AS WE REQUESTED. IN SUCH CIRCUMSTANCES, PLEASE RETURN THE DOCUMENTS TO OUR OFFICES AS SOON AS POSSIBLE BY DHL. THIS REQUEST FOR THE RETURN OF THESE DOCUMENTS IS STRICTLY WITHOUT PREJUDICE BOTH TO OUR POSITION THAT THEY CONFIRM WITH THE LETTER OF CREDIT AND TO ALL OUR RIGHTS UNDER THIS LETTER OF CREDIT.”

19. To this, CMB immediately responded on 20^th June by returning the documents by courier.

The discrepancies.

20. One discrepancy at least, is no longer pursued. The packing list referred to L/C number 926400800215 when the true number was 9926400800215. Whilst there is “little scope for recognising the merits” in this field, there was some force in the claimant’s submission that the fact that such a minor typographical error was pursued as a justification for rejecting the documents evidenced an unduly technical approach by CMB.

Inconsistency

21. The defendant maintained that the commercial invoice and the packing list were mutually inconsistent. This reflected the outcome of a calculation made by CMB by reference to the packing list that the percentage of, for example, CI logs in the entire Okoume log parcel was 38.64 % whilst the commercial invoice, reciting the terms of the L/C, recorded a percentage of 40%.
22. Whilst I reject the submission that the objection was not put forward with sufficient clarity (indeed CIC’s immediate response demonstrates that it had hoisted in the point), I unhesitatingly hold that the documents were not thereby rendered discrepant.
23. The first point to be made is that I am not remotely persuaded that reasonable care on the part of CMB (or for that matter, CIC) required any such calculation to be made. The governing provision of UCP 500 is Article 13 (a):-

“Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face with being in compliance with the terms and conditions of the Credit… ”

24. This is supplemented by Article 21 which reads:

“When documents other than transport documents, insurance documents and commercial invoices are called for, the Credit should stipulate by whom such documents are to be issued and their wording or data content. If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented.”

25. Against that background, my approach is as follows:-

i) The obligation on the bank is to exercise reasonable care, as determined in accordance with international standard banking practice.

ii) The obligation is a passive one, in the sense of using reasonable care to assess the absence of any apparent inconsistency on the face of the documents as opposed to an active obligation to establish the existence of complete consistency on the basis of the material contained on the face of the document.

26. It follows in my judgment, that the checker of the documents was not required, in the exercise of reasonable care, to embark on the calculations relied upon. It is common ground that, absent those calculations, there was no inconsistency between the packing list, the commercial invoice and the L/C.
27. In any event, the commercial invoice complied with the terms of Article 37(c):-

“The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.”

28. This it did. The description in the commercial invoice expressly matched that in the letter of credit. The packing list set out the exact number and volume of logs shipped, matching the totals in the Bills of Lading. There was no percentage grade shown on the face of the packing list and no requirement that there should be. Absent further calculations, there was thus no inconsistency.
29. This conclusion is fortified by the opinion of the ICC dated 6^th September 1999 in response to a query from another Chinese bank relating to packing lists:

“In previous opinions the ICC Banking Commission has stated that banks do not have a duty to carry out mathematical calculations or compute lists of individual items, weights or measurements to ensure consistency with other documents. If totals are declared on documents, then these should be in agreement with those shown on other documents presented. If the Credit did not specify the manner in which packing details were to be expressed, the packing list may show the individual or collective information of the packages shipped, subject to any totals agreeing with those shown on other documents.”

30. The defendant sought to argue in accordance with the views of their expert, Mr Claude Mifsud, that CMB were nonetheless entitled to perform the calculations if such was their own practice and then to rely on any inconsistency thus unearthed. I reject this submission. The issue of discrepancy cannot depend upon the degree of inquisitiveness within the bank. The identification of any inconsistency must flow from a consistency of approach, i.e. steps that no reasonable bank would fail to take.
31. In any event, the outcome of the calculations does not establish any inconsistency. The description of the goods in the L/C specifies various percentages for each grade, subject to a tolerance of plus or minus 10%. It was common ground that this tolerance applied to each grade as well as to the total (not surprisingly, since the task of shipping the precise percentages can be treated as physically impossible). The calculations based on the packing list revealed that the number of logs in each grade was within the permitted 10% tolerance. Accordingly, the suggestion of inconsistency (even if reasonable care called for the calculations actually to be conducted) is, in my judgment, based upon a misconception.

The drafts

32. The objection taken to the drafts was that printed parts were in the French language contrary, it is contended, to the terms of the L/C. On the assumption that these documents were within the compass of field 47A in the L/C, I reject the claimant’s submission that they were nonetheless “in English”. The fact that the checkers at CMB were aware of the nature of the documents and able to comprehend the significance of the entries is not to the point.
33. The short answer to the point, in my judgment, is that on a proper construction of the L/C, the documents required to be in English by virtue of Field 47A are those documents required for negotiation by virtue of Field 46A. They do not include the drafts. This distinction is made clear by Field 78 whereby the bank undertook that, on receipt of the “documents”, it would accept the draft.
34. This approach reflects the function of the drafts. They were not part of the commercial documentation, which, following negotiation, was to be passed on to the applicant Jiangsu. They were simply part of the process whereby CMB’s obligations to pay could be put in a form in which they could be readily discounted. Non-acceptance of the draft would not relieve CMB of its obligation to pay at maturity. It merely deprived CIC of the opportunity of going into the market.
35. Indeed Mr Mifsud, the defendant’s expert, made it clear in his oral evidence that he would have adopted the same approach even if the requirement for English included the drafts:-

“Question:

If you had come to the view that there were no discrepancies in the commercial documents but that the draft itself might be discrepant, you would have accepted the commercial documents and passed them on to the applicant?

Answer:

Yes. I would not have accepted a draft. In other words, the presenter would not have had the benefit of the draft if he elected to place it on the market, for instance.

Question:

So you would not physically have committed your bank to the capacity of acceptor with the result that the presenter loses the benefit of the more readily realisable embodiment of the payment obligation?

Answer:

Indeed.

Question:

But at the maturity date you would have paid the presenter?

Answer:

I would have, yes.”

36. This strikes me as an entirely realistic concession. The drafts had no bearing on the quality or value of the logs. They were drawn on CMB as issuing bank but they were for the exclusive benefit of the negotiating bank. The negotiating bank was to be “any bank in France”. It is thus not surprising that the drafts were drawn on a standard French form. Rejection of those drafts for that reason could not have conceivably justified treating the commercial documents as discrepant.
37. I should add that I derive no assistance from The Lena [1981] 1 Lloyd’s Rep 68 to which CMB referred where the relevant drafts were to be drawn on the applicant. On the facts, the drafts had not been drawn on the applicant but on another party and that, accordingly, the documents were not compliant. This situation is now expressly covered by UCP 500 Article 9(b) (iv):-

(iv) ….. A Credit should not be issued available by Draft on the Applicant. If the Credit nevertheless calls for Drafts on the Applicant, banks will consider such Draft as an additional document(s).

38. CMB also relied upon The Messiniaki Tolmi [1986] 1 Lloyd’s Rep. 455 where, despite the terms of the credit requiring drafts to be drawn on the defendants, none were tendered. In that sense the requirements of the credit were held not to have been satisfied. However, this does not bear, in my judgment, on the issue of construction in the present case as to which of the documents were to be in English. The alleged discrepancy is not made out.

Originals

39. I turn now to the principal field of battle between the parties as regards discrepancy, namely the alleged failure to tender an original of the packing list, certificate of quantity and certificate of quality.
40. The basic rule is that at least one original is required. So far as UCP 500 is concerned, the only relevant article is Article 20(b):-

“Unless otherwise stipulated in the Credit, banks will also accept as an original document, a document produced or appearing to have been produced:

i. by reprographic, automated or computerised systems;

ii. as carbon copies;

provided that it is marked as original and, where necessary, appears to be signed. A document may be signed by handwriting, by facsimile signature, by perforated signature, by stamp, by symbol, or by any other mechanical or electronic method of authentication.”

41. The three documents in the present case had similar appearance, and, accordingly it is convenient to set out the format of one of them, namely the packing list:

JL Société J. LALANNE

PACKING LIST

CONTRACT	No CHI84799GA
L/C	No LC926400800215
VESSEL	SANAGA
BILL OF LADING	No 101 dated September 12th, 1999
LOADING PORT	OWENDO, GABON
DISCHARGING PORT	ZHANGJIAGANG, CHINA
ORIGIN OF GOODS	GABON
DESCRIPTION OF GOODS	FRESH CUT OKOUME LOGS CI 413 Logs = 2 166,4 CBM CE 655 Logs = 2 866,2 CBM CS 138 Logs = 573,5 CBM TOTAL 1206 Logs = 5606,1 CBM

BOULOGNE, September 12^TH, 1999

---

Société Anonyme a Directoire et Conseil de Surveillance au capital de 1.054.690 F Siege Social: 4, rue Danjou – Le Quintet – 92517 BOULOGNE Cedex-FRANCE Tel: (33) 01.46 94 85 55 – Fax: (33) 01 46 09 04 45 – Tlx: 633745 R.C.S. Nanterre B 712061191 – N° Identification T.V.A. FR18 712061191
42. Beneath the place and date, Lalanne’s name, address and telephone number had been apparently stamped and, thereunder, an ink signature applied. There was no evidence as to the manner in which the documents had in fact been prepared prior to stamping and signature. As regards appearances:-

a) The documents did not appear to have been produced on a conventional type writer,

b) The documents may have been photocopied or may have been produced by a computer controlled printer,

c) The documents may not have been wholly produced at one time: the body of the document may have been inserted on a document already containing the details of name, address and so on beneath the pecked line.

43. In short, the documents demonstrate all the difficulties of grappling with the definition and identification of original, as opposed to copy, documents in the modern era with its word processors, laser printers, colour printers, scanners and so on. So ubiquitous has this machinery become that it must be rare indeed that any document is produced by some process other than a form of “reprographic, automated or computerised” system.
44. It may well be uncontroversial to state that the governing law of the L/C is French law. However, not only is there no evidence of any difference between French Law and English Law, it also hardly needs saying that this field affords a paradigm example of the need for avoidance of any difference in approach to UCP 500 as between different jurisdictions. Accordingly it is immediately necessary to revisit the recent decisions of the Court of Appeal which have grappled with the issue of originality and the requirements of Article 20.
45. In Glencore v. Bank of China [1996] 1 Lloyd’s Rep, 135, the relevant letter of credit required the presentation of a “beneficiary’s certificate…. certifying that one full set of non-negotiable documents have been sent to the buyer”. The documents were rejected inter alia on the ground that the beneficiary’s certificates “were neither original documents nor marked as original.” Strikingly, there was before the Court detailed evidence from the claimant as to how the documents were in fact produced. A word processor would produce “the original” version which would then be photocopied many times. The eye could not distinguish between the original printed version and the photocopies. The document presented was probably a signed photocopy.
46. Sir Thomas Bingham, giving judgment to the Court, expressed his conclusion as follows:

“Article 20(b) is, as it seems to us, designed to circumvent this argument by providing a clear rule to apply in the case of documents produced by reprographic, automated or computerised systems. The sub-article requires documents produced in a certain way (whether “original” or not) to be treated in a certain way. It is understandable that those framing these rules should have wished to relieve issuing bankers of the need to make difficult and fallible judgements on the technical means by which documents were produced. The beneficiary’s certificates in this case may, in one sense, have been originals; but it is plain on the evidence that they were produced by one or the other of the listed means and so were subject to the rule.

Even if it is true that the certificates did not appear to have been produced by one or other of these means (which must, we think, be very doubtful) that makes no difference if in fact they were: the sub-article is clear in its reference to “document(s) produced or appearing to have been produced….”

The original signature was of course a means of authenticating the certificates, and they were not required to be signed. But a signature on a copy does not make an original, it makes an authenticated copy; and art 20 (b) does not treat a signature as a substitute for a marking as "original”, merely as an additional requirement in some cases. ”

47. Some three and a half years later, the issue of originality re-surfaced in the Court of Appeal in Kredietbank Antwerp v. Midland Bank Plc [1999] 1 Lloyd’s Rep Bank 219. Here the document concerned was an insurance policy. Once again, there was direct evidence as to how the relevant document had been produced, namely by feeding headed notepaper into a laser printer, the document thereafter being signed. The defendant submitted that Article 20 (b) as interpreted in Glencore required the document to be marked as original in order to conform. Lord Justice Evans concluded:

“38. In my view, the purpose of the rule introduced as Article 22( c ) in 1984 and amplified in 1993 is clear. Previously, banks were entitled to reject documents which were not originals. The practice was established and it is recognised inferentially by the UCP. Henceforth they would accept certain documents which would previously have been rejected as non-originals, provided that specified safeguards were observed. This applied expressly to photocopies (“reprographic systems”) and to carbon copies. These two are by their nature copies of some other document which is their original, although this does not prevent them from being the original contract or document required by the credit, for the reasons suggested above.

39. The question is whether the accompanying reference to documents produced “by (in UCP 400 ‘by, or as the result of’,) automated or computerised systems” applies to all documents of that kind, even when they are not copies of any other documents and they could not have been rejected as non-original under the existing rules. If that is the effect of these words in Article 20 (b) (i), then the rule permits the bank to refuse original documents which otherwise they are bound to accept; a strange and paradoxical result if the object was to widen the category of documents which could be tendered. If on the other hand “produced by automated or computerised systems” refers only to documents produced by such means which are copies of other documents that can be regarded as their originals, then this reference is consistent with “reprographic systems” and carbon copies and with the objects of the rule.

40. It is consistent also with the introduction of the word “also” in 1993; “banks will also accept”. This shows that the intention was to widen the category of acceptable documents, by including some non-original (copy) documents, and there is no qualification, certainly no express qualification, of the existing duty to accept documents which clearly are the originals required by the credit.

41. In my judgment, as a matter of construction, there is nothing in Article 20 (b) which entitles the bank to reject an original document which previously was a valid tender under the credit. A document which clearly is the original, in the sense that it contains the relevant contract, and which is not itself a copy of some other document, is certainly an original for the purposes of the underlying rule.”

48. So far as to the implications of Glencore were concerned, Evans LJ continued:

“51. If, contrary to my understanding of the court’s judgment in Glencore, the passage quoted above does mean or imply that a document produced by word-processor and laser printer, and which is clearly the original document required by the credit, may be rejected unless “marked as original” and where necessary signed, then it was obiter because in Glencore the document itself was a photocopy, and therefore a copy of some other document, and in my respectful view, Article 20 (b) does not entitle the bank to reject an original document (not being itself a copy document) which otherwise it is bound to accept.”

49. There is no dispute that these two decisions, both of which are binding on me, sent sequential ripples of unease through the banking community. Views were divided between those concerned that Glencore, in the interests of certainty, required an unduly inflexible routine against the background of modern printing techniques and those concerned that Kredietbank, in the interests of flexibility, established an unworkable distinction between documents produced by electronic means which were obviously original and those which were not.
50. Before turning to the reactions of the ICC, it is desirable to seek to apply the principles to be derived from these two cases to the present case. Notably, as already observed, there was evidence before the court in both those cases as to how the relevant documents had been produced. In the present case, there is no such evidence. Indeed it might be arguable that such evidence is inadmissible since the standard of care imposed on the bank is to exercise reasonable care to ascertain compliance “on the face” of the document. It would be a rare case where a checker will have knowledge as to how a document was prepared or any source for extracting information in that regard. Somewhat surprisingly, the relevance of evidence as to how the document was in fact created was not an issue in either decision.
51. The explanation may well be that Article 20 (b) refers to documents “produced or appearing to have been produced”. This appears to be a genuine alternative. Thus, as appears in the decision in Glencore, even if it reasonably appeared to a bank that a document had not been produced by a computerised system, this would make no difference if in fact it had been. However, in the present case, it is only appearances that are material. It was Mr Liu’s evidence that the documents were rejected because they were or appeared to be “copies of the originals” but not carrying the word “original”. Quite what he meant by the words “copies” in the context of this case was not investigated.
52. The fact remains that the decision in Glencore is rendered the more complicated by the fact that the document involved was found in fact to have been a photocopy. The photocopy was “indistinguishable from the original” which was produced by a laser printer. Does it follow that the decision would have been the same if it had been “an original” that had been countersigned? There is one indication that it would not necessarily have given rise to the same end result (cf. “but a signature on a copy does not make an original; it makes an authenticated copy”). However this was all in the context of a finding that “the sub-article requires documents produced in a certain way (whether original or not) to be treated in the same way”. Yet it was this passage which, if taken literally, was regarded as obiter in Kredietbank.
53. The uncomfortable but logical conclusion was that the effect of Glencore was that a document which appears to have been or was in fact produced by a typewriter but not stamped “original” must be accepted but such a document which appears to have been or was in fact produced by a computer must be rejected. The implications are all the greater given the almost total demise of the typewriter and the use of computers for all forms of printing. (As for carbon paper, this may possibly only now be found in a museum.)
54. It was these concerns, or some of them, which informed the decision in Kredietbank to the effect that a document, despite being produced in one of the specified modes and not being stamped as an original, would nonetheless be acceptable as an original if it clearly was an original and/or would have been accepted as such prior to UCP 500. (In fact Article 20 (b) of UCP 400 was in material respects the same, save that the word “also” was omitted). This was on the basis that the only commercially sensible construction of the Article is that the reference to “automatic or computerised systems” encompasses only those documents produced by such means which are in turn apparently (or in fact) copies of other documents which can be regarded as their originals.
55. CMB submitted that there was no distinction between the documents in the present case and the beneficiary’s certificate held to be discrepant in Glencore. They appeared to be produced by automated or computerised systems (albeit it was not said that they appeared to be produced reprographically). Despite being original in one sense, they nonetheless needed to be marked as such (albeit that, ironically, CMB did not reject the most closely analogous document to that considered in Glencore namely the “shipper’s certificate”).
56. CIC contended, as an alternative to their primary case on the ICC’s 1999 policy statement (for which see below), that the matter was determinable in their favour by virtue of Kreditbank in that the documents were not produced by a reprographic system nor were they in any other sense a copy. The originals, as thus defined, had been authenticated as such by stamp and signature so that they would have been accepted as original before UCP 500.
57. The position is scarcely clear cut. But it seems to me that, loyally trying to follow both these decisions, I am driven to the conclusion that the ratio in Glencore was directed to the treatment of documents appearing or known to be copies or, in some analogous respect, of a class not prior thereto treated as originals. It was common ground between the experts that the certificates in the present case would have been accepted as originals prior to the introduction of UCP 400 / 500. It follows that I accept the submission of CIC that the certificates were not discrepant in the light of the two decisions.
58. I now turn to the steps taken by the ICC in the wake of Glencore to embark on a world-wide consultation process on the issue of the original documents. The initiating document to this consultation was a paper prepared in October 1998 for distribution to all 160 national committees:-

“Original documents –

What are they?

What is meant by ‘Reprographic’ documents?

Since the judgment in the Glenmore/Bayerische Vereinsbank versus Bank of China court case, the issue of which is an original document; when does a document need to be marked as “original” and what form of document represents a “reprographic” document (in the context of UCP 500) have been uppermost in the thoughts of documentary credit specialists world-wide.

Whist ICC have tried to respond to the issues when raised, we have also received a number of queries from various parts of the world which have been asked to refrain from offering an official opinion on, due to pending litigation in other court cases. The number of questions in relation to this “original” issue are not diminishing and the Officers of the Banking Commission believe that this is an important topic which requires discussion and the development of a consensus. The outcome will, hopefully, provide a clear position of ICC. Such a viewpoint will be based on future transactions and will not necessarily be capable of being used retrospectively.

To compile a question and provide a suggested response (opinion) would not necessarily achieve the result that we wish. The Officers request that attendees at the October Banking Commission meeting consider the following issues and be prepared to voice their views and/or opinions in an open forum – following which an opinion will be produced which will represent the views of the meeting. In the discussion that will ensue, it must be remembered that we are unable to amend UCP 500 – therefore the wording in sub-Article 20b must remain as it is but we can provide an opinion that would reflect ‘international standard banking practice’ in its interpretation.”

59. This paper was discussed at a meeting of the ICC Commission on Banking Technique & Practice in Florida that same month. (Notably amongst the delegates was Mr Jungzhi Shi, the Assistant President of the International Department of CMB.) Further discussion took place in a meeting at the ICC’s Department of Policy and Business Practice in Paris in April 1999, during the course of which the Kredietbank decision was handed down. The paper under discussion included the following passage:-

“ORIGINAL DOCUMENTS – THE WAY FORWARD

Following the Glencore decision, some banks in a few locations may have changed their practices from those that were administered previously. Other banks have ignored Glencore as incorrect in its interpretation of the UCP or inapplicable in their countries. Many have worried that they may be caught in the middle of a dispute over the scope and meaning of sub-Article 20(b). At the Banking Commission meeting held in Florida during October 1998 it was decided that a draft paper would be submitted for discussion at the 28 – 29 April 1999 meeting.

In order that the full effect may be given to the final decision of the Banking Commission, it is proposed that the published document be issued as a “Decision” of the Banking Commission that reflects the international standard banking practice as intended by the drafters of UCP 500.”

60. The final outcome was the policy statement or decision issued on the 12^th July 1999:-

“This Decision emphasises the need to correctly interpret and apply sub-Article 20 (b) of UCP 500. Consequently, ICC national committees and associated organisations are strongly urged to distribute this decision as widely as possible to help ensure the correct interpretation in the evaluation of documents issued under letters of credit. This decision does not amend sub-Article 20 (b) of UCP 500 in any way, but merely indicates the correct interpretation thereof which has been adopted unanimously by the ICC Commission on Banking Technique and Practice on 12 July 1999.

Correct interpretation of sub-article 20(b)…..

General approach

Banks examine documents presented under a letter of credit to determine, among other things, whether on their face they appear to be original. Banks treat as original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not original. Accordingly, unless a document indicates otherwise, it is treated as original if it:

1. appears to be written, typed, perforated, or stamped by the document issuer’s hand; or

2. appears to be on the document issuer’s original stationery; or

3. states that it is original, unless the statement appears not to apply to the document presented (e.g. because it appears to be a photocopy of another document and the statement of originality appears to apply to that other document)

Hand signed documents.

Consistent with sub-paragraph (A) above, banks treat as original any document that appears to be hand signed by the issuer of the document. For example, a hand signed draft or commercial invoice is treated as an original document, whether or not some or all other constituents of the document are preprinted, carbon copied or produced by reprographic, automated or computerised systems. ….

4. What is not an “Original”?

A document indicates that it is not an original if it

1. appears to be produced on a telefax machine:

2. appears to be a photocopy of another document which has not otherwise been completed by hand marking the photocopy or by photocopying it on what appears to be original stationery; or

3. states in the document that it is a true copy of another document or that another document is the sole original.

5. Conclusion

Based upon the comments received from ICC national committees, members of the ICC Banking Commission and other interested parties, the statements in clauses 3 and 4 above reflect international standard banking practice in the correct interpretation of UCP 500 sub-article 20(b). ”

61. It is of course common ground that, if it is appropriate to apply this decision to the documents that are at issue in the present case, they were not discrepant on the ground of lack of originality. But it was the defendant’s submission that, despite the express recognition of the limitations of the consultation exercise, the decision did in fact purport to amend Article 20 or, in any event, the decision did not reflect existing standard banking practice, but merely sought to establish it for the future.
62. I am unable to accept the defendant’s submission:

a) UCP is a code produced and published by the ICC.

b) It is entirely legitimate for the ICC to seek to resolve any ambiguities in, or difficulties of interpretation of, the code.

c) The decision in 1999 involved discussion with local banking commissions throughout the world (to which all banks, including CIC and CMB were able to contribute).

d) When applied to the facts of the present case, the outcome of the consultation is not inconsistent with the decision on Glencore or Kredietbank, at least if my earlier analysis is correct.

e) The decision expressly states that it reflects international standard banking practice: at the least, no bank in following the decision could be said to be acting without reasonable care.

f) The consultation exercise began in earnest some 9 months prior to the presentation of the documents in the present case and the decision was promulgated some 2 months prior.

63. This conclusion is consistent with the commercially beneficial aim of reinforcing standard banking practice in regard to the “appearance” of documents and consequent reduction in the risk of inconsistent decisions, all in a field crying out for international consistency. Further, the conclusion I have reached receives some degree of support from the decision of United States District Court for the 5^th Circuit in Voest-Alpine Trading USA Corps v. Bank of China 167 F Supp 2^nd 940 (FD text 2000) where the ICC policy statement was accepted as determinative:-

“Third, the Bank of China claimed that the failure to stamp the packing list documents as an “original” was a discrepancy. Again, these documents are clearly originals on their face as they have three slightly differing signatures in blue ink. There was no requirement in the letter of credit or the UCP 500 that original documents be marked as such. The ICC’s policy statement on the issue provides that, “banks treat as original any document that appears to be hand signed by the issuer of the document….The failure to mark obvious originals is not a discrepancy.”

64. Whether or not there was any argument on the issue, it follows that the judge must have treated the decision as reflecting international standard banking practice. ”

The rejection issue

65. The governing Article in respect of this issue is Article 14:

“c. If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13 (b).

d.i. If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.

ii. Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.

iii. The Issuing Bank and / or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to the bank.

e. If the Issuing Bank and / or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and / or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and / or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.”

66. The procedure is accordingly as follows:-

i) The bank must examine the documents for compliance with reasonable care – Article 13 (a).

ii) The bank has a reasonable time to determine whether to take them up or refuse them, such time not to exceed seven days – Article 13 (b).

iii) Prior to deciding whether to accept or reject, it is permissible to approach the applicant for a waiver in the event of any discrepancies – Article 14 (c)

iv) If in the light of its own examination of the documents (and the outcome of any approach to the applicants) the bank decides to refuse, it must give immediate notice within the seven day period identifying the discrepancies and stating that the documents are being returned or held to order - Article 14 (d).

v) Failure to comply with Article 14 (d) precludes reliance on the discrepancies - Article 14 (e).

67. It follows inexorably, in my judgment, that the rejection notice in this case was not in accordance with Article 14 (d) and that CMB cannot rely on any discrepancies. The SWIFT message ended:-

“Should the disc. being accepted by the applicant, we shall release the docs to them without further notice to you unless yr instructions to the contrary received prior to our payment.”

68. It follows that the documents were not to be returned to CIC or held to their order. They were to be released to the applicant, within some indefinite period, in the event of the applicant accepting the discrepancies, without any notice to CIC. The conditional nature of this rejection is not saved by the potential for acceptance of contrary instructions prior to payment, particularly where no notice is to be given. In short, the message constitutes a continuing threat of conversion of CIC’s documents.
69. The defendants relied upon the decision in The Royan [1998] 2 Lloyd’s Rep 250, where the relevant comment from the bank read: “Please consider these documents at your disposal until we receive our principal’s instructions concerning the discrepancies mentioned in your schedules….”. The observations of Lloyd LJ on that telex were as follows:

“The effect of that telex …was that the documents were being held unconditionally at the disposal of the sellers. The reference to “until we receive our principal’s instructions” was no doubt reflecting the hope that the buyers and sellers might come to some agreement, either by amending the credit or by tendering fresh sanitary certificates. I cannot read that expression of hope as meaning that the documents were not at the disposal of the sellers.”

70. This to my mind is wholly different from the present case. It merely concludes that, where the contracting parties are in negotiation, a statement by the bank that it will hold the documents at the disposal of the sellers pending a resolution of the dispute is not a conditional rejection.
71. The claimant’s submission is further fortified in three ways. First, the ICC Commission on Banking Technique and Practice produced a paper in November 2000 which discussed the steps prescribed for examination, waiver and notice under UCP and contained this passage:

“Bank practices outside the scope of UCP

The process outlined above and on Attachment A outlines the specific steps prescribed under the UCP for examination, waiver and notice. Unfortunately various practices have been implemented which are not in full compliance with the requirements of UCP. Issuing banks should be cautioned that practices of refusing documents, stating that they are seeking waiver and that if that waiver is received they will release the documents unless they have received instructions to the contrary does not comply with the UCP. Once documents are presented to the bank, those documents belong to the presenter until the documents are taken up. Should the presenter choose to dispose of the documents through other means once refusal is received and the issuing bank releases the documents it may place itself at risk since the documents belong to the presenter. Issuing banks perform when documents are presented in numerous ways. First, in total compliance with the UCP and secondly, based on business decisions made by the issuing bank. When issuing (or confirming) banks make business decisions to deviate from the rules it should do so only understanding the risks that it may be assuming.”

72. Second, a similar notice was tendered in Voest-Alpine (supra). The Bank of China’s telex notifying the discrepancies concluded: “we are contacting the applicant of the relative discrepancies. Holding documents at your risks and disposal”. The claimant asserted that the notice was ineffective;

a) Because there was no clear statement of refusal; and

b) Because notification of intention to seek a waiver rendered the communication ambiguous.

73. The judge concluded:

“Here, the Bank of China’s notice is deficient because nowhere does it state that it is actually rejecting the documents or refusing to honour the letter of credit or any words to that effect. Whilst it is true that under UCP 500 the notice must contain a list of discrepancies and the disposition of the documents and the Bank of China’s telex of August 11, 1995 does indeed contain these elements, this only addresses the requirement of Article 14 (d) (ii). A notice of refusal, by its own terms, must actually convey refusal as defined in Article 14 (d) (i). This submission is only compounded by the statement that the Bank of China would contact the applicant to determine if it would waive the discrepancies. As the Plaintiff’s expert, Professor James Byrn,e testified, within the framework of Article 14, this additional piece of information holds open the possibility of acceptance upon waiver of the discrepancies by JFTC and indicates the Bank of China has not refused the documents.”

74. This view was endorsed by the Court of Appeals for the 5^th Circuit in an opinion handed down after the hearing before me :-

“We find ample evidence supporting the district court’s decision. The court’s determination that the August 11 telex did not reject the letter of credit is based primarily on the Bank of China’s offer to obtain waiver from JFTC. The offer to solicit waiver, the district court reasoned, suggests that the documents had not in fact been refused but might be accepted after consultation with JFTC. In reaching this conclusion, the district court relied heavily upon the testimony of Professor James Byrne (“Byrne”), Voest-Alpine’s expert witness on international standard banking practice and the UCP 500. Byrne testified that the bank’s telex would have given adequate notice had it not contained the waiver clause. The waiver clause, he explained, deviated from the norm and introduced an ambiguity that converted what might otherwise have been a notice of refusal into nothing more than a status report. Faced with this evidence, the district court correctly decided that the Bank of China noted discrepancies in the documents, and, instead of rejecting the letter ofr credit outright, contacted JFTC for waiver.

Byrne further explained that the Bank of China’s actions, viewed in light of standard banking practices, were ambiguous. The UCP 500 contemplates a three-step procedure for dishonouring letters of credit. First, the issuing bank reviews the documents presented for discrepancies. Second, if the bank finds problems, it contacts the purchaser for waiver. Finally, after conferring with the purchaser, the bank may issue its notice of refusal. This sequence ensures the issuing bank’s independence in making its decision while also giving the purchaser an opportunity to waive discrepancies, thus promoting efficiency in a field “where as many as half of the demands for payment under letters of credit are discrepant, yet, in the vast majority of cases, the account party waives the discrepancies and authorises payment.” Alaska Textile Co., Inc. v. Chase Manhattan Bank, NA., 982 F 2d 813, 824 (2d Cir. 1992). In light of the generally accepted procedure outlined by Byrne, we agree with the district court that the Bank of China’s notice of refusal was ambiguous and inadequate.”

75. Third, the claimant’s approach was endorsed by the defendant’s own expert in his oral evidence as follows:

“Question:

It must follow, must it not , that the disposal notice which says unequivocally, having refused the documents, should the applicant after the refusal waive the discrepancies, the document shall be released to the applicant, that cannot be in accordance with Article 14 d ii.

Answer:

Well, as I have said, it is not in accordance with the letter but it is in accordance with the spirit because it places the presenter in the same position. It safeguards his interests and that is what the Article has been designed to do.”

76. For my part, I am unable to accept the gloss put on Article 14 (d)(ii) by Mr Mifsud. His acceptance that the refusal was contrary to the letter of the article was in my view correct.

The refusal issue

77. The claimant had an alternative case arising out of the terms of Article 14 (e). Despite the SWIFT message sent on the 8^th June to return the documents to M. Leon-Dufour in the event that the dispute could not be resolved at the meeting arranged, CMB in fact refused to do so. The only explanation voiced was the claimed need to return the documents by the same method in which they had been delivered.
78. According to the oral evidence of Mr Liu, unexpressed justification for the refusal was that there was some uncertainty about M. Leon-Dufour’s authority in that the 8^th June message was a type 999 message, thus unauthenticated. It is clear that such is not a legitimate point. The later message of the 19^th June requiring the return of the documents to which CMB did at last respond was also a 999 type. Absent any justification, there is no issue between the experts that CMB are precluded by virtue of Article 14 e from relying upon any discrepancy.

Conclusion

79. For all these reasons, I conclude that there must be judgment for the claimant.