AMBIGUITY IN DRAFTING DOCUMENTARY REQUIREMENTS IN A STANDBY LETTER OF CREDIT: WHEN SERVICES HAVE NO TRANSPORT DOCUMENT

This case delves into a complex dispute between an issuing bank and a confirming bank over a hybrid standby letter of credit (SBLC). This unique financial instrument serves to secure payment obligations that span both the delivery of physical goods and the completion of services, as stipulated in the contractual agreement between the applicant and the beneficiary. The conflict arose when the beneficiary initiated a drawing for services rendered, failing to provide a crucial transport document, bill of lading (BL) —a key document typically associated with the shipment of goods. Although the issuing bank has rejected the payment, citing the absence of a BL for services rendered, the confirming bank has raised a valid argument: for services, there is no possibility of issuing a BL, so rejecting the payment on this ground is not acceptable. Also, confirming bank suggested that asking for BL for services rendered is wrong on behalf of the issuing bank. This conflict between the issuing bank that has drafted the documentary requirements wrongly has raised significant questions about compliance with the SBLC terms and the responsibilities of both banks involved in the transaction.