Checking Documents

The object of the issuing bank in examining the documents forwarded to it is to check that the documents presented by the beneficiary to the confirming bank are in order and compliant. This is clear from the structure of UCP 600 and the nature of the relationship between the issuing and the confirming bank. The reimbursement obligation under a credit is not subject to the receiving of documents by the issuing bank but only to a compliant presentation being made to the nominated bank: Societe Generale SA v Saad Trading & Anor [2011] EWHC 2424 (Comm) (05 October 2011)

Letters of Credit

Drafts as Required Documents

Where the drafts are included in the letter of credit in the list of documents to be presented by the beneficiary to the confirming bank and are so presented, the duty of the confirming bank on the true construction of UCP 600, and in particular of Article 7(c), is to forward them to the issuing bank. The language of Article 7(c) does not permit any exception. Further, to permit the nominated bank a discretion to decide not to forward a listed document because it would appear to serve no useful purpose is contrary to the principle of strict compliance which permeates the law of documentary letters of credit; see, for illustrations of the doctrine of strict compliance concerning drafts ( The Lena [1981] 1 Lloyd's Reports 68 at p.75 and The Messiniaki Tolmi [1986] 1 Lloyd's Reports 455 at p.457).

False Carriage Documents 

Carriers are often pressured to issue false documents. The document may be false with respect to its date, or with respect to the apparent order and condition of the cargo. Some carriers have, at their folly, issued such documents against letters of indemnity.  The case of Kuehne + Nagel Ltd. v. Agrimax Ltd., 2010 FC 1303 (CanLII) discussed the issue of the bill of lading which is a multi-faceted document. It is not the contract of carriage, but may, and usually does, evidence its terms. It may, or may not, be a negotiable instrument. It contains various representations on behalf of the carrier, such as the apparent order and condition of the goods, whether freight was pre-paid or is owing, and the date when the cargo was “received for shipment”, or “shipped” on board as the case may be. Under the Hague-Visby Rules, Schedule I to the Marine Liability Act, a shipper may simply demand a “received for shipment” bill of lading. However, and irrespective of whether or not it demanded a “received for shipment” bill of lading, it may also demand a “shipped” bill of lading once the cargo is loaded on board the carrying ship.  In United Baltic Corporation, Ltd. v. Dundee, Perth & London Shipping Company, Ltd. (1928), 32 Ll. L.R. 272 at page 272, the court held: “The practice of issuing clean bills of lading when goods are damaged is very reprehensible. It leads to trouble, and the people who do it ought to suffer trouble.”

Letters of Credit as Security

Where a statute permits an administrative official to determine what mode of security is acceptable, the official is entitled to refuse a letter of credit submitted as security. In the event the letter of credit is conditional and does not otherwise comply with the requirements of the statutory security, the court certainly will not issue a mandamus ordering the acceptance of the credit. In Tre Maiali Fashion Group Inc. v. Canada (Border Services Agency), 2010 FC 1261 (CanLII), in regard to the Customs Act, R.S.C. 1985, c. 1 (2^nd Supp.), the court found it was not the letter of credit that was excluded outright, at all, but the nature of its provisions. The deficiencies included:

(a) inadequate wording to protect the total amount owing, including interest;

(b) reference to an “agreement” between the CBSA and the customer (the Applicant), when no such agreement has been entered into or proposed by the Applicant;

(c) being time-limited, with an expiry date of March 31, 2010; and

(d) no right to call-in the credit in the event that TD Canada Trust declines to issue a new letter upon its expiry.