The UCP 600 applies to the following transaction.

The buyer, Atlantis Inc, has arranged with the Bank of Zara for the issue of a confirmed irrevocable letter of credit (also known as a documentary credit) in favour of Bells Inc (the seller). Atlantis and Bells entered into a contract for the sale of a specialist laser cutting machine.

The laser cutting machine require special handling and the buyer has arranged for shipment on the Ship 'HM Greenfield' as its master is well known for the careful handling of technical equipment.

Atlantis has requested amongst other things a clean 'on board' bill of lading, a commercial invoice and a certificate of pre-shipment inspection by Precision Inspections. Bells presents the relevant documents to the Bank of Zara with a request for payment against the letter of credit.

In the meantime, the goods have been received and Atlantis discovers that the laser has been damaged in transit. It has attempted to contact the shipowners, without success. Rumours are the master had been telling people he was ready for retirement and his last journey was his 'final hurrah', and there had been a lot of partying and drinking during the voyage which carried the laser cutting machine.

Atlantis wants to prevent payment for the laser cutting machine which, as a result of the damage, is no longer able to be used for precision cutting.

Atlantis contacts the Bank of Zara and advises the goods have been received in a damaged condition and payment should be withheld.

The Bank of Zara approach you for legal advice.

Confining your response to the law on documentary credits, advise the Bank what it should do in this situation.

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