Serving notice under art 16(c)(iii) of UCP 600: a rejection or preclusion?

Having found discrepancies in the documents presented, an issuing bank could take the view that merely serving a notice is sufficient for rejection, since art 16(c)(iii) of UCP 600 does not call for any further actions to be taken. However, in Fortis Bank SA/NV v Indian Overseas Bank [2010] EWHC 84 (Comm) the English court chose to imply a term requiring the banks to act in accordance with their documentary disposal statements, failing which they will be precluded from relying on the discrepancies. In so doing, the courts have made the draconian remedy of preclusion available in order to urge the banks to comply with ‘the best practice and reasonable expectations of experienced market practitioners’.

Melis Özdel, PhD candidate and part-time tutor, University of Southampton

Facts

The case involved five letters of credit which were opened by Indian Overseas Bank (‘IOB’) in respect of five contracts of sale entered into between the seller Stemcor and the buyer SESA International for the sale of containerised scrap. Each letter of credit named Stemcor as the beneficiary, and incorporated Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No 600 (‘UCP 600’). While three of the letters of credit were confirmed by Fortis Bank London branch, others were merely advised by the same, as the agent of the issuing bank.