UK: Letters Of Credit – Strict Compliance And The Use Of Banking "Shorthand"

Last Updated: 25 September 2013
Article by Stuart Shepherd and Carl Walker

Bulgrains & Co Limited v. Shinhan Bank [2013] EWHC 2498

A fundamental principle underlining the use of a letter of credit ("LC") as a means of payment security is that the documents presented under the LC must strictly comply with the requirements of the LC in order for the issuing bank to make payment. In this case, the Commercial Court considers the doctrine of strict compliance and the extent to which so called "trivial" discrepancies will justify a refusal to pay under the LC. The Court goes on to consider what is required under UCP 600 for a bank to give valid notification of a refusal to pay.

The background to the dispute

The Claimant sellers entered a contract to sell a cargo of wheat bran pellets to buyers in China. Pursuant to the contract, the buyers procured the issue of a LC by the Defendant, Shinhan Bank ("the Bank"), under which the Claimant was the beneficiary.

The LC provided for payment against the presentation of certain documents, including a signed commercial invoice. It named the beneficiary as "Bulgrains Co Limited" and the goods were described as follows:

"1. Wheat bran pellets in bulk. Moisture max 13.5PCT – Protein Min 12.0PCT – Ash Max 7.0PCT – Fiber Max 12.0PCT – Free from alive and dead insects – Pellet's diameter 6-12 mm – Pellet's length 20 –30MM. 2. Quantity: 3,000 M/T (10% M/L)".

The Bank rejected the presentation of documents made by the Claimant on the basis of two alleged discrepancies. The first discrepancy was that the name of the beneficiary in the commercial invoice submitted by the Claimant was stated as "Bulgrains & Co Limited", not "Bulgrains Co Limited". The second discrepancy was that the commercial invoice did not conform with the description in the LC, in that the commercial invoice described the goods as "Bulgarian wheat grain pellets".

The Bank notified the Claimant that the LC would not be honoured by two freeform SWIFT messages sent directly to the Claimant on 6 May 2013 and a third SWIFT message bearing the code "MT734" sent via a relaying bank on 7 May 2013. The initial notification of refusal was in the following terms:

"Pls regard this msg as MT734. 77J discrepancies: beneficiary's name on the document is different from LC. Description of goods on invoice is not correspond with the description in the credit. 77B disposal of documents notify/as per UCP 600 Article 16(c)(iii)(b)".

The Claimant contested that the rejection was invalid on the grounds that the addition of the ampersand between "Bulgrains" and "Co Ltd" was not a material discrepancy and, while it was accepted that the mis-description of the goods was a material discrepancy, the Bank was precluded from relying on it because the notification of refusal failed to conform with the requirements of UCP 600.

The issues

Accordingly, the Court had to determine the following issues:

  1. Whether the misspelling of the Claimant's name in the commercial invoice as "Bulgrains & Co Limited" rather than "Bulgrains Co Limited" was a material discrepancy;
  2. Whether the notification issued by the Defendant complied with article 16 of the UCP;

Was the invoice discrepant?

The Bank argued that the only exception to the doctrine of strict compliance may be where the discrepancy is insignificant or trivial such that it cannot be regarded as material. It was suggested that the test to be applied is best summarised in the textbook Jack: Documentary Credits which states the position thus:

"It is suggested that the correct approach is that a document containing an error with a name or similar should be rejected unless the nature of the error is such that it is unmistakably typographical and the document could not reasonably be referring to a person or organisation different from the ones specified in the credit. In assessing this, the bank should look only at the context in which the name appears in the document, but not judge it against the facts of the underlying transaction."

The Judge agreed and, following the approach adopted by the Singapore Courts in United Bank Ltd v. Banque National de Paris [1992] 2 SLR 64, concluded that any discrepancy other than obviously typographical errors will entitle the negotiating or issuing bank to reject the documents. When it comes to errors in the name of the beneficiary, the only way that a bank can be certain of the position is by making a search at the relevant company registry – which is plainly more than is required of a bank when reviewing the documents.

The Judge therefore concluded that the addition of the ampersand between "Bulgrains" and "Co Limited" was a material discrepancy, thus giving the Bank the right to reject the documents.

Did the Bank's notice of refusal comply with UCP 600?

Article 16 of UCP 600 provides, in relevant part, as follows:

"(c) When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.

The notice must state:

(i) That the bank is refusing to honour or negotiate; and

(ii) Each discrepancy in respect of which the bank refuses to honour or negotiate; and

(iii ) (a) that the bank is holding the documents pending further instructions from the presenter; or

(b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instruction from the presenter prior to agreeing to accept a waiver; or

(c) that the bank is returning the documents; or

(d) that the bank is acting in accordance with instructions previously received from the presenter.

(e) The notice required in sub-article 16(c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the 5th banking day following the day of presentation".

The Claimant's first argument was that the word "given" in article 16(d) means that the beneficiary must actually have received the notice. The Judge had little difficulty in rejecting this argument, holding that a complete answer is to be found in article 35 of UCP 600, which confirms that a bank assumes no liability or responsibility for loss in transit of messages or errors in their transmission.

The Claimant's second argument was that the Bank could rely only on the first notice of refusal it gives. The Judge held that that in circumstances where a bank's position and reasons remain unchanged, there is no reason in principle why it could not correct an earlier defective refusal by serving a later correct refusal, so long as it does so in time and adopts the same substantive reasons. In any event, the Judge decided that the first notice of refusal was sufficient, with the result that the Bank did not need to rely on the second and third messages.

As regards the contents of the notification of refusal, the Claimant raised three points. First, it was argued that the notification did not contain a separate specific statement that the Bank is refusing to honour or negotiate the documents, as required under article 16(c)(i). Again, this argument failed. The Judge accepted that it was implicit from the reference to SWIFT code "MT734" – an industry term of art that would be clearly understood by those receiving it - that the Bank was refusing to honour or negotiate the credit. There was no need to spell this out.

Secondly, the Claimant argued that the notices were defective on the basis that they did not explain how the beneficiary's name or the description of the goods differed between the commercial invoice and the LC. In this regard, the Judge noted that the purpose of setting out with clarity the alleged discrepancies is to provide the beneficiary with an opportunity to rectify them. In this case, however, there was only one document naming the beneficiary and only one document describing the goods (namely the commercial invoice) to compare with the LC. The Judge dismissed the Claimant's argument that the notices must tell the presenter what he has to do in order to rectify the discrepancies. In his view, the answer was simple; the names and the descriptions in the documents presented must conform with those in the LC.

The final argument with regard to the content of the notifications was that they failed expressly to state what the Bank was proposing to do with the documents, as required by article 16(c)(iii) of UCP 600. While the Bank's notice of refusal did not say in terms what was to be done with the documents, the Judge held that the use of the word "notify" was sufficient. This is an industry term of art clearly and unequivocally understood to mean that the Bank was holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instruction from the presenter prior to agreeing to accept a waiver, in accordance with article 16(c)(iii)(b).


This decision serves as a reminder to traders of the importance of ensuring that documents presented under a LC precisely conform with the requirements of the credit. Even minor discrepancies, which may seem to the presenter to be trivial or insignificant, may entitle the issuing or confirming bank to refuse to honour the presentation, potentially leaving the presenter with no payment security if he is unable to re-present conforming documents before the expiry of the credit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.