Articles 1, 2 and 13; sub-Article 13(b); Articles 21 and 4

Can a standby letter of credit subject to UCP 500 also be the subject of a DOCDEX case? Is a copy of a CMR compliant if any discrepancy therein cannot be ascertained from the terms and conditions of the standby and the documents alone? Is a copy of a compensation invoice concerning costs of return of goods compliant if it appears to be signed by the beneficiary? DOCDEX Decision No. 201 Parties Initiator: Bank R and Bank K Respondent: Bank B Summary of case as stated by the Initiators The Respondent issued two standby letters of credit by order of the same applicant which are expressly subject to UCP 500 and available by payment at sight at the counters of the Respondent, in favour of different beneficiaries. Each of the two Initiators, upon request of the Respondent, advised one of the standby letters of credit to the respective beneficiary. Each of the beneficiaries presented, through the Initiators, several demands under their respective standby letter of credit. Since the Respondent rejected such demands as non-compliant, each of the beneficiaries requested the respective Initiator to trace the payment and to respond to the objections made by the Respondent. The Initiators claim that, after discussing the discrepancies and sending additional and corrected documents by order of the beneficiaries, the Respondent still maintains the following discrepancies: 1. Copy of CMR: For the CMR, it is indicated in the standby letter of credit, among other things, that the CMR must be signed by the addressee indicated in the purchase order. Consequently, it is necessary to obtain the purchase order and verify the name of the addressee on the purchase order. 2. Copy of compensation invoice: 2.1 One of the copies of the compensation invoices concerns cost of the return of goods; consequently, it is necessary to furnish the compensation invoice issued by the applicant concerning the said goods. 2.2. The copy of the compensation invoice is not correct. The amount must be zero. Otherwise, in case its amount is identical to the amount of the copy of the commercial invoice and of the drawing, the buyer would owe nothing. The Initiators regard these discrepancies as ill-founded, due to the fact that (1) these standby letters of credit, being subject to UCP 500, are separate transactions from the sales or other contracts on which they may be based, and banks are in no way concerned with or bound by such contracts, even if any reference whatsoever to such contracts is included in the credit; (2) the purchase order was not an integral part of either of the standby letters of credit; and (3) the standbys did not call for special requirements concerning "la facture de compensation", which therefore should be accepted as presented.

Summary of case as stated by Respondent: The Respondent refused to request, or submit to a DOCDEX Decision, with the argument that disputes concerning standby letters of credit lie outside the DOCDEX Rules. From the copies of the additional documents submitted by the Initiators with the request for a DOCDEX Decision there are reflected the three aforementioned discrepancies and as further reasons advanced by the Respondent: (1) that the purchase order in possession of the Respondent shows an addressee different from any signor of the CMR; and (2) that compensation means extinction of two reciprocal obligations related to a sum of money. Determination of the issues and reasons Before the issues under dispute can be examined, the question has to be decided whether or not DOCDEX is available in connection with any dispute related to standby letters of credit. According to Article 1.1 of the DOCDEX Rules, DOCDEX is available in connection with any dispute related to a documentary credit incorporating the Uniform Customs and Practice for Documentary Credits (UCP). The two standbys in question are expressly subject to UCP 500. Article 1 of UCP 500 refers to "all Documentary Credits (including to the extent to which they may be applicable, Standby Letter(s) of Credit) where they are incorporated into the text of the Credit". Article 2 of UCP 500 defines the expressions "Documentary Credit(s)" and "Standby Letter(s) of Credit" (hereinafter referred to as "Credit(s)")" and throughout the rest of the UCP 500 the term "Credit" is used. Thus, Article 1 describes Standby Letters of Credit as one form of documentary credit, while Article 2 differentiates again between documentary credits and standby letters of credit in order to define them for the purposes of UCP 500 as "Credits". Article 1 of UCP 500 is substantially identical to Article 1 of UCP 400, which reflects a decision taken by the Banking Commission on March 14, 1977 that a particular standby credit "fell within the definition of a documentary credit given by paragraph (b) of the General Provisions and Definitions contained in Uniform Customs and Practice" (then UCP 290; see ICC publication no. 411, p. 10, and ICC publication no. 371, p. 11). This well-established understanding is not negated by the aforementioned quotation from Article 2 of UCP 500, but the repetition of standby letters of credit therein cannot be construed otherwise than as a mere clarification, Thus, the reference to "a documentary credit" in Article 1.1 of the DOCDEX Rules includes a reference to standby letters of credit. The DOCDEX Rules do not use the term "Credit" as used in UCP 500, because the DOCDEX Rules are separate from UCP 500, and therefore would have had to repeat Articles 1 and 2 in order to define in this respect completely and precisely the scope of the DOCDEX Rules and to avoid any misunderstandings that the very general term "Credit" might otherwise cause. The issues requested to be determined by the Initiators are now dealt with by the Panel of Experts after having stressed separately that it was unwise to issue, advise and accept such standby letters of credit, which, inter alia, were not as complete and precise as the Respondent would like in view of the documents presented thereunder. 1. The standby letters of credit in question required inter alia: "UNE COPIE DU DOCUMENT DE PRISE EN CHARGE (CMR') ADRESSE AU DEMANDEUR, PRCISANT LE NUMRO DU CAMION, SIGN PAR LE DESTINATAIRE INDIQU LA COMMANDE". None of the standbys indicates that the "COMMANDE" (purchase order) is attached thereto or requires the presentation of a purchase order. With respect to the copies of CMRs presented under these standbys, the Initiators and the Respondent do not seem to

disagree that the addressee designated in the purchase order(s) does not appear to have signed the CMRs. Pursuant to Article 13 of UCP 500, the Respondent has to examine all documents stipulated in the standby letter of 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 standby letter of credit, and has to deem such (non-documentary) conditions which do not state the document(s) to be presented in compliance therewith as not stated and to disregard them. Because the addressee indicated in the purchase order was not named in each standby and the respective purchase order(s) were neither attached thereto nor required to be presented thereunder, this condition lies outside the terms and conditions of the two standbys, and the applicable rules of UCP 500 regarding documentary conditions. Banks are in no way concerned with or bound by sales or other contracts on which standbys may be based (Article 3 of UCP 500). Therefore, on the basis of UCP 500, the Respondent may not step outside the terms and conditions of these standbys, but must determine, on the basis of the documents stipulated therein alone, whether or not they appear on their face to be in compliance with such terms and conditions (sub-Article 14(b) of UCP 500) and, thus, may take up such copies of CMRs. 2. These standby letters of credit required inter alia: "UNE COPIE DE LA (DES) FACTURE(S) IMPAYE(S) ... UNE COPIE DE LA (DES) FACTURE(S) DE COMPENSATION COMMERCIALE IMPAYE(S) CORRESPONDANTE(S) LA MARCHANDISE DE LA (DES) FACTURE(S) RECLAME(S)". In addition to any copy of unpaid (commercial) invoice(s), copy(ies) of unpaid invoice(s) of commercial compensation relating to them and the goods of the commercial invoice(s) to which the drawing relates, were to be presented. The standbys provided no further specifications as to their required data content, issuer or signatories. Since copies of one or more commercial invoices which have not been paid must be presented under the first quoted item, the compensation invoice(s) to be presented at the same time must be distinct from the commercial invoice(s), and therefore be documents that will be reviewed under Article 21 of UCP 500. That is why such compensation invoices must be accepted by the respondent as presented, provided they appear to relate to the goods of the respective commercial invoice(s), and that their data content is not inconsistent with any other stipulated document presented. 2.1 Several copies of the compensation invoices presented concern "frais de repatriement de marchandise" (costs of return of goods) and appear to be signed by the respective beneficiary. In standby letter of credit operations, banks deal with documents and not with goods, services and/or other performances to which the documents may relate (Article 4 of UCP 500). These standbys do not stipulate that the invoices (copies of which are to be presented together with any drawings) need to be issued or signed by or for and on behalf of any specific person or entity. Therefore, copies of compensation invoice(s) appearing to be signed by the beneficiary comply with the terms and conditions of these standbys. 2.2 With respect to the stipulation quoted under no. 2 supra in such standbys, copies of compensation invoices were presented showing a certain figure opposite "valeur de la facture pro forma" and the same figure opposite "valeur de la facture". After deducting the latter from the former figure, there is a "difference" of "0". According to Article 21 of UCP 500, the data content of such compensation invoices must not be inconsistent with any other stipulated document presented. If the sum shown in such compensation invoice is zero, and if the drawing is for the amount of the copy of the commercial invoice presented in connection therewith, then there is no inconsistency

between the data content of the compensation invoice and the copies of the commercial invoice(s) or with the drawing. Decision Under the terms and conditions of the standby letters of credit and UCP 500 to which they are subject: 1. A copy of a CMR is compliant if any discrepancy therein cannot be ascertained from the terms and conditions of the standby letter of credit and the documents alone. 2. A copy of a compensation invoice concerning costs of return of goods is compliant if it appears to be signed by the beneficiary, and 3. A copy of a compensation invoice showing as the resulting amount "0" is not inconsistent with a drawing in an amount identical to the amount shown in the copy of the respective commercial invoice presented therewith.