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DOCDEX 390

The case involved three parties: The Claimant (guarantor), the Respondent (counter-guarantor), and the Beneficiary.

Sequence of events:

• The Claimant issued three Guarantees, backed by Counter-Guarantees from the Respondent.
• The Beneficiary made complying demands on the Claimant.
• The Claimant then made complying demands on the Respondent.
• The Respondent failed to pay within the timelines specified by URDG 458 / URDG 758, citing the need for copies of demands.
• The Respondent withheld payments due to:
  a) Injunction proceedings initiated by the Applicant
  b) Arbitration proceedings initiated by the Applicant and Beneficiary
• The Beneficiary initiated legal proceedings against the Claimant.
• Even after the injunction was dissolved, the Respondent refused to pay, citing ongoing court/arbitration proceedings and alleging wrongful demands.
• The Court ruled in favour of the Beneficiary.

Panel's Decision:

The panel unanimously ruled that the Respondent could not withhold payments:
a) Pending receipt of copies of demands
b) On any other pretext, due to the independence of Counter-Guarantees from the underlying relationship

The panel concluded that the Respondent is obligated to pay the Claimant the amount of the demands. This case highlights the principle of independence in guarantee transactions and the obligation to honour complying demands regardless of disputes in the underlying contract.

DOCDEX 391

Case Summary: Documentary credit for Basmati Rice purchase

Background:

• A documentary credit, subject to UCP 600, was issued for the purchase of Basmati Rice.
• Documents were presented covering three separate shipments.

Sequence of Events:

1. The negotiating bank presented documents to the issuing bank.
2. The issuing bank failed to provide either acceptance or refusal of the documents.
3. After a delay, the negotiating bank received a message stating:
   a) The cargo had been refused.
   b) Acceptance would only be provided at a reduced price.
4. The beneficiary agreed to the initial price reduction.
5. The issuing bank made a subsequent request for further deductions, which the beneficiary rejected.
6. It was discovered that the issuing bank had released the documents to the applicant without providing formal acceptance.

Conclusion:
The issuing bank was found to be in violation of UCP 600 provisions due to:

1. Failure to honour or reject the documents.
2. Releasing documents to the applicant without formal acceptance.
3. Attempting to negotiate price reductions after document presentation.

Final Ruling:
The issuing bank was deemed to have an obligation to honour the original presentations and effect payments as per the terms of the credit. This case underscores the importance of adhering to UCP 600 timelines and procedures, particularly regarding document examination, acceptance, and the principle of independence in letter of credit transactions.

DOCDEX 392

Case Summary: Documentary credit dispute under UCP 600

Parties Involved:

• Claimant: Beneficiary under the Credit
• Respondent 1: Issuing Bank
• Respondent 2: Confirming Bank

Background:
A Credit was issued by Respondent 1 and confirmed by Respondent 2, subject to UCP 600.

Claimant's Arguments:
The Claimant asserted that both Respondent 1 and Respondent 2 were obligated to honour the L/C presentation and pay the full amount, based on three main points:

1. Respondent 2's transmission of documents to Respondent 1 implied the presentation was complying.
2. The discrepancy raised by Respondent 1 was considered "minor."
3. The freezing of the Applicant's assets was not a valid reason to suspend payment under the credit.

Panel's Findings:

1. The documents presented by the Claimant did not constitute a complying presentation.
2. Neither Respondent 2 nor Respondent 1 issued a valid rejection notice as required by UCP 600.
3. A local judicial order freezing the Applicant's assets was not deemed a valid ground for refusing to honour the credit.

Conclusion:
Despite the non-complying presentation, the Panel ruled that both Respondent 2 (Confirming Bank) and Respondent 1 (Issuing Bank) are obligated to pay the credit amount to the Claimant. This decision was based on each banks' failure to issue proper rejection notices, emphasising the importance of strict adherence to UCP 600 procedures in document examination and communication of discrepancies. 

This case highlights the critical nature of timely and proper communication in documentary credit transactions, as well as the principle that external factors (such as asset freezing) do not typically affect the bank's obligation to honour complying presentations under a credit.

DOCDEX 393

Case Summary: Deferred payment documentary credit dispute under UCP 600

Parties Involved:

• Claimant: Issuing Bank
• Respondent: Confirming Bank
• Beneficiary: Seller
• Applicant: Buyer

Background:
A deferred payment Documentary Credit was issued under UCP 600, with the Claimant as the Issuing Bank and the Respondent as the Confirming Bank.

Sequence of Events:

1. As per credit terms, the Beneficiary presented to the Respondent:
   a) A provisional invoice for the full credit amount
   b) A letter of indemnity
2. This presentation was deemed compliant and accepted by both the Respondent and Claimant.
3. The Respondent prepaid the Beneficiary its 60-day deferred payment undertaking.
4. Before the expiry of the deferred payment period:
   a) The Applicant obtained a court stop payment injunction against the Claimant.
   b) Despite this, the Claimant reimbursed the Respondent and debited the Applicant.
5. In a subsequent lawsuit, the Claimant lost and was ordered to repay the entire credit amount to the Applicant.

The DOCDEX panel determined that both the Claimant and Respondent conducted the documentary credit operation in accordance with:

1. The credit terms
2. The UCP 600
3. The International Standard Banking Practice (ISBP)
4. International standard banking practices

Key Takeaways:

1. This case highlights the independence principle in documentary credits.
2. It demonstrates that banks must honour their obligations under a complying presentation, regardless of subsequent disputes between the applicant and beneficiary.
3. The decision underscores the importance of adhering to UCP 600 and ISBP guidelines in documentary credit transactions.
4. It illustrates the potential complexities that can arise in deferred payment credits, particularly when legal injunctions are involved.

This case serves as a reminder of the compliance principle in documentary credits and the banks' obligation to honour complying presentations, even in the face of legal challenges from the applicant.

DOCDEX 394

Case Summary: Documentary credit dispute involving "Soft Clauses" and Amendments

Background:
An issuing bank issued documentary credit subject to UCP 600 with the following characteristics:

1. Required two types of documents to be issued by the applicant
2. Issued on an unconfirmed basis
3. Did not condition the effectiveness of the credits

Sequence of Events:

1. The beneficiary requested amendments to:
   a) Remove "soft clauses" for one type of document
   b) Add confirmation authorisation
2. The issuing bank issued three amendments:
   a) Did not remove the soft clauses
   b) Maintained the unconfirmed status
3. The beneficiary's response:
   a) Partially accepted the amendments
   b) Conditioned their acceptance of other parts of the amendments
4. The beneficiary shipped goods under one credit:
   a) Before receiving the required changes
   b) Was unable to obtain the applicant-issued documents as per credit requirements

Conclusion:

1. The proposed requirement in the credits contradicts the guidance in ISBP.
2. The credits were deemed irrevocable and remained un-amended for the beneficiary.
3. No authorisation was given for any bank to add their confirmation.

Key Takeaways:

1. This case highlights the importance of clear and unambiguous credit terms.
2. It demonstrates the complexities that can arise when "soft clauses" are included in credits.
3. The case underscores the need for careful consideration of amendment requests and their implications.
4. It illustrates the potential risks for beneficiaries when shipping goods before credit terms are finalised.
5. The decision emphasises the importance of adhering to ISBP guidelines in credit transactions.

This case serves as a reminder of the need for precision in documentary credit drafting and the potential complications that can arise from ambiguous terms or incomplete amendments. It also highlights the importance of beneficiaries ensuring all credit terms are satisfactory before proceeding with shipment.

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