(a) The contract for sale which Macbeth had entered with Weetocrunch Ltd is a separate contract with that of the contract entered with the banks with regards to the documentary credits. For the purposes of this question, we are only dealing with the contract of the documents between Macbeth and the confirming bank, Noddy Bank. Noddy bank had been authorized in this case by the issuing bank, Toytown Bank to pay the beneficiary, also known as the seller, Macbeth for the goods he had shipped to Weetocrunch.
It is only upon presentation by Macbeth of valid documents that complies with the terms and requirements stated in the Letter of credit that had been opened by Toytown Bank on behalf of Weetocrunch, that he can receive his payment.
As it is the letter of credit acts as some form of safeguard for seller that he will receive his payment as once the bank opens the letter of credit, they are under a contractual obligation to pay the seller upon presentation of complying documents. In this case, it can be seen that the documents presented by Macbeth had been rejected twice by the bank, first on the grounds that the documents are not original and secondly where the description of the goods in the bill of lading differs. For that we refer to the body known as Uniform Customs and Practice for Documentary Credits (UCP) which governs the practice of documentary credit.
It should be noted that the law construed by UCP must be incorporated into the contract by the parties for it to have legal effect. However, even if it is not incorporated, the courts are likely to view it as impliedly incorporated as it has gained high level of acceptance among international bankers. Therefore, assuming that UCP applies in this case, the documents involved are bound by the UCP articles.
Under UCP 600, article 15, the bank that is presented with documents have to ensure that they comply with the terms of the credit and if the document complies, they have to pay and under UCP 500 article 13(a), the bank is to examine the documents with reasonable care to ascertain whether they appear on the face to be in compliance with the requirement of the credit. If the documents are however not in compliance, the bank under UCP 600 article 14(b) reserves the right to reject them.
It is therefore establish here that the bank do have a right to reject documents. In this case then, the two issues to be dealt with are (1) whether the bank had the right to reject the photocopied custom certificate and (2)whether the bank had the right to reject the bill of lading because of the description error.
UCP 600, Article 17(b) states that there should at least be one original of each stipulated document be tendered to the bank and it shall be treated as original if it bore an original signature, mark, stamp or label of the issuer of the document unless the document indicates it is not original and under 17(c), a bank shall also accept a document as original if it appears so be written, typed or stamped by the document issuer’s hand, or by the document issuer’s original stationary or states that it is original.
In this case, it is not stated whether the document had any kind of markings of whether it was indicated as original on it, it was merely stated that it was a photocopied version that was rejected. Assuming that there were no markings as such, then It could be inferred that the rejection was justified following the case of Glencore International AG v Bank of China where the documents were rejected because the photocopies were not marked as original.
In that case, it was also stated that a signature on photocopied piece does not make it an original but merely an authenticated copy. However, following the case of Credit Industriel et Commercial v China Merchants Bank, it was held that for obvious original documents, they need not be marked and for photocopied documents where there is a stamp of the supplier’s name, address and telephone no. with an ink signature, the court accepted it as original even though it was not stamped ‘original‘. Therefore if there were such markings found on the photocopied custom certificate and the bank had rejected it, the bank may be liable for wrongly rejecting the documents.
As mentioned earlier, the bank have to put up with strict compliance when handling documents presented by the beneficiaries. They have to ensure that the documents meets the necessary terms and conditions stated in the letter of credit and as once remarked by Viscount Sumner in Equitable Trust Co of New York v Dawson Partners Ltd, ‘there is no room for documents which are almost the same, or which will do just as well.’
In Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran, the letter of credit stipulated that all the documents presented must bear LC number and the buyer’s name. When one of the document failed to have the LC no. on it, the bank rejected it and the court found that its action was justified. Similarly, in JH Rayner & Co Ltd, Hambro’s Bank Ltd, the credit stipulated “Coromandel Groundnuts” but the seller presented a bill of lading that states “Machine-shelled groundnuts.”
Though it had been known for these terms to be used interchangeable, the court found that the bank had the right to reject the documents. By following this case itself, we might be able to infer that the bank was right in rejecting the documents when the bill of lading states ‘Eastern Wheat’ instead of ‘Ruritanian wheat’and that fact that it is well known in the wheat trade that the wheat are identical will not matter.
However, Macbeth may still have a chance if they are able to prove that the error was one of trivial discrepancy. As stated under UCP 600 article 30(b), the UCP do allow certain discrepancies. However, what is meant by trivial is unclear. In Glencore International AG v Bank of China, the word branch which was used instead of brand was found to be merely an error whereas the court was not as generous in Beyene v Irving Trust Co., where the bill of lading which had misspelled Mohammed Soran instead of Mohammed Sofan was rejected. It is therefore not certain whether Macbeth will be able to reply on this but chances are it appears to be very slim.
(b) As explained in question (a), the bank will have to put up with strict compliance when handling with the documents presented by the beneficiaries and they reserve the right to reject the documents when following their own judgment and feels that it does not comply with the terms and conditions of the letter of credit. In this second situation, it not much about an accepting or rejecting documents matter but one which involves fraud.
An amendment has been made to the bill of lading by someone to change the date of shipment from 2 February to 31 January and although it has been clearly stated that Macbeth was not responsible for this amendment, he may still be liable for fraud under misrepresentation if he carries on to seek for payment as he was aware of the alteration. In the case Standard Chartered Bank v Pakistan National Shipping Corpn, it was held that there will be fraud if the beneficiary or their agent presents documents knowing they contain untrue statements and intending they should be acted on by the person receiving the documents and it will not matter whatever their motive was.
It will be a totally different issue however where the beneficiary or the agent was not aware of the untruth and had acted in good faith. In this case however it appears unlikely to be so as Macbeth had made a discovery. Therefore, if Macbeth continues to tender the shipping documents to the Noddy bank, Noddy bank will reserve the right to refuse payment if the bank is able to rely on the alteration of the dates on the bill of lading as compelling evidence of fraudulent presentation by Macbeth. What Macbeth will have to do now after rejection is to after the original company where he had bought the wheat from.