Legal Opinion on Export Bill under UCPDC 500 A/C. COMPANY 1.

Mr. Z

Address….

Re:      Legal Opinion on Export Bill under UCPDC 500 A/C. COMPANY 1.

Dear Sir,

Please refer to your letter on the above subject.

We have perused the papers/documents referred to us.

We understand that the Letter of Credit No. ……………. dated 03.08.2000 for US$ 47,764.04 (“L/C”) was opened by Banca Popolare Di Bergamo/C.V. Via Don Luigi Palazzolo, 71 24100 Bergamo, Italy (“Banca”). The L/C was subsequently transferred in favour of COMPANY 2 who in its turn transferred the L/C in favour of COMPANY 1.

The relevant clause of the L/C reads as follows:

“BANCA POPOLARE DI BERGAMO-CREDITO VARESINO SCARL/BERGAMO SHALL REIMBURSE THE PRESENTING BANK ACCORDING TO THEIR INSTRUCTIONS ONLY UPON RECEIPT OF PAYMENT FROM DC ISSUING BANK.”

The documents for US$ 15,665.20 under the L/C was negotiated by BANK 1. By letter dated 28.03.2001 BANK 1 informed Banca that the amount of draft negotiated by BANK 1has been endorsed on the reverse of the relative credit and requested to remit the proceeds to its account maintained with  “W “Bank .

In reply, on 03.04.2001 Banca informed BANK 1 that they have found the following discrepancies in the documents:

(i)                  Credit Expired

(ii)                Late Shipment

(iii)               Shipment effected by air instead of by vessel

(iv)              Form A not presented

(v)                Export Licence presented in photocopy

Banca further informed that they are contacting the 1st beneficiary for invoice substitution and onward forwarding of documents to issuing bank for payment.

By SWIFT dated 17.04.2001 BANK 1 again informed Banca that the documents under the L/C was negotiated and forwarded to Banca on 28.03.2001 but proceeds have not yet been received by BANK 1. Banca was also requested to investigate into the matter and effect payment as per the Bank’s document instruction urgently.

Subsequently, by SWIFT dated 15.05.2001, BANK 1again informed Banca as follows:

“THE DOCTS FOR USD 15665.20 UNDER ABOVE BILL AGAINST YR EXPORT L/C NO. GU/75600CR15TRAS WERE NEGOTIATED AND FORWARDED TO YOU ON 28 MARCH 2001 BUT SAME IS STILL UNPAID DESPITE OUR PAYMENT REMINDER MSG NO. 010417-1251 DATED 17 APRIL 2001. WE ARE INFORMED THAT GOODS ARE RELEASED ON 04.04.2001 AGAINST ENDORSEMENT OF OUR DOCTS FROM YR END….”

In reply by SWIFT dated 29.05.2001 Banca informed BANK 1as follows:

“THE JUDICIAL AUTHORITY OF THE COURTS IN SONDRIO, REGARDING L/C ISSUING BANK AND IN MILANO, AS CONCERNS US AS TRANSFERRING BANK UPON APPLICATION OF APPLICANT AND 1ST BENEFICIARY SERVED ISSUING BANK AND US WITH ORDERS DATED 17.05.2001 (FOR ISSUING BANK) AND DATED 23.05.2001 (FOR THEMSELVES) FORBIDDING TO PAY THE AMOUNT OF DOCUMENTS (YOUR REMITTANCE FOR USD 15,665.20) SUBJECT TO AND UNTIL FINAL JUDGEMENT, FOR GOODS OF BAD QUALITY. IN THIS CIRCUMSTANCES, WE ARE UNABLE TO EFFECT RELATIVE PAYMENT.”

Subsequently, by letter dated 04.08.2001 the freight forwarder, Homebound Packers & Shippers Ltd. informed that the consignment arrived at Milan, Italy by Gulf Air on 26.03.2001. The Italian counterpart of the freight forwarder COMPANY 3 on completion of the required local formalities and upon receipt of proper endorsement from the Bank, transported the consignment for delivery to the consignee M/s. Guy Sand on 05.04.2001.

During unloading from the truck, COMPANY 4 refused to accept the consignment due to “quality reasons”. COMPANY 4 immediately stopped unloading the consignment from the truck and instructed COMPANY 3 to take back the cargo.

Since COMPANY 4 refused to take delivery of the consignment, COMPANY 3had to bring back the cargo to their warehouse for safe storage. In the meantime, M/s. Guy Sand obtained an injunction from the court directing the issuing bank not to release payment. The consignment is lying under storage in the warehouse of COMPANY 3 in Milan, Italy since 05.04.2001.

In such a situation, you have sought our opinion on the following:

(i)                  Whether BANK 1 has rightful claim on the Transferring Bank/DC Issuing Bank against its Bill under UCPDC 500 and whether they are bound to pay despite the any Court Order.

(ii)                Whether the Bank has any claim on the basis of the fact that they issued release notification of the consignment.

(iii)               Whether the Bank may claim payment on the L/C Issuing Bank direct.

Our Opinion

It appears that after receipt of the documents Banca informed BANK 1 about certain discrepancies in the documents. However, since Banca subsequently endorsed the documents by which the goods were released by the applicant, it can be implied that the applicant has waived the discrepancies in the documents.

According to Article 4 of UCPDC, in credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate. Also as provided in Article 9 of UCPDC, an irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions of the credit are complied with. Hence, since the goods were released by the issuing bank’s endorsement, payment under the L/C cannot legally be stopped because of quality problems in the goods.

BANK 1 as negotiating bank therefore has rightful claim on the Transferring Bank/DC Issuing Bank against its Bill under UCPDC 500. BANK 1 can directly claim the amount from the Issuing Bank.

However, since there is an injunction of the Courts in Sondrio, Italy regarding payment under the L/C, the injunction has to be vacated first. Unless the order of injunction is vacated, the issuing bank cannot make payment under the L/C. The beneficiary of the L/C should appoint a lawyer in Sondrio, Italy, become a party to the suit and get the order of injunction vacated. It is however advisable that BANK 1 takes up the matter with the Central Bank of Italy so that necessary action is taken against the issuing bank.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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