Banking law

Documentary credits

Crdit Industriel et Commercial v China Merchants Bank, 12 July 1999; [2002] EWHC 973, Mr Justice David Steel

In this case, Crdit Industriel et Commercial (CIC) brought a claim for payment under an irrevocable letter of credit issued by China Merchants Bank (CMB).

CIC presented the required documents to CMB.

CMB refused the documents and refused to make payment under the letter of credit.

There were three main issues for the court to consider.

The first issue, which will be the subject of this update, was whether the documents presented by CIC were discrepant.

Additionally, the court was required to deal with whether CMB's notice of rejection contained an unconditional statement that it was holding documents at the disposal of CIC and whether CMB was precluded from claiming the documents as being discrepant by a refusal to hand over the documents.

The main dispute between the parties in relation to the issue of discrepancy was the allegation raised by CMB that CIC failed to tender an original of the packing list, certificate of quantity and certificate of quality.

The documents tendered had the seller's name, address and telephone number stamped on the document and an ink signature applied to them.

The documents were not marked with the word 'original'.

There was no evidence before the court as to how the documents were generated.

The court found that the document, while not appearing to have been produced on a typewriter, could have been produced by a computer-controlled printer and also could have been a photocopy.

The letter of credit incorporated the provisions of UCP 500 (uniform customs and practices for documentary credits).

It was common ground that at least one original document was required for each of the three categories of disputed document.

The relevant sub-article of UCP 500 under consideration was sub-article 20(b), which provides that '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 ....

[or] by stamp ...'.

CMB relied upon Glencore v Bank of China [1996] 1 Lloyd's Rep 135 in support of their argument that the documents presented were discrepant.

In Glencore, the document presented was probably a signed photocopy which was not marked original.

The Court of Appeal held that the document was discrepant because it was produced by one of the listed means under sub-article 20(b) but was not marked as original as required under the sub-article.

CIC relied upon Kredietbank Antwerp v Midland Bank Plc [1999] 1 Lloyd's Rep Bank 219 in support of its argument that the documents presented were not discrepant.

In Kredietbank the document presented was created by headed notepaper being fed into a laser printer and signed.

The document was not marked original.

The Court of Appeal held that the document was not discrepant.

The court stated that the underlying rule was that banks have to accept original documents.

Sub-article 20(b) widened the categories of acceptable documents from original documents to include documents produced in the manner specified in the sub-article provided that such documents are marked original and signed.

The court held that there was no requirement that original documents, even if produced by the means specified in the sub-article, had to be marked original.

On the facts of the case, the court found that the document presented was clearly an original document, albeit generated by an automated or computerised system, and that there was no need for it to be marked original.

To decide the case before him, Mr Justice Steel had to synthesise and apply the principles of both Glencore and Kredietbank to the facts of the case.

The judge described the position as 'scarcely clear-cut'.

Nevertheless, he reached the conclusion that the ration 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'.

In reaching such a conclusion, the judge seemed to prefer the express reasoning contained in the Kredietbank decision.

The evidence before the court was that the documents in the present case would have been treated as originals prior to the introduction of UCP 500.

Therefore, the documents were not required to conform to the requirements of sub-article 20(b) and were not, therefore, discrepant.

The judge, having decided the case by resolving the tensions between two competing English Court of Appeal cases, moved on to consider the decision of the Banking Commission of the International Chamber of Commerce (ICC), dated 12th July 1999.

The published decision was intended to reflect international banking practice on the correct interpretation of sub-article 20(b).

The decision makes it clear when banks ought to treat documents as original and when they ought not to do so.

The decision fits hand in glove with the judge's conclusion on the law.

A complaint that could be made of Kredietbank was that it 'established an unworkable distinction between documents produced by electronic means which were obviously original and those which were not'.

The decision will assist banks to determine when a document produced by electronic means ought to be treated as original.

Furthermore, as indicated by the judge, if a bank follows the prescriptions of the decision it ought to avoid liability for acting without reasonable care.

This is a landmark case on documentary credits.

It resolves a serious tension between the competing Court of Appeal authorities of Glencore and Kredietbank.

In doing so, and in conjunction with the decision of the Banking Commission of the ICC, the case provides clear and unambiguous guidance to an issuing bank considering whether documents required under a letter of credit are discrepant for want of originality.

By Simon Sugar, barrister, 36 Bedford Row, London