Coastline newsletter / 2009 edition

ISSUE 30 Dec2009

Overview of the DOCDEX issues and Opinions discussed at the November 2009 ICC Banking Commission (Part 1)

By Gary Collyer

The ICC Banking Commission met in Brussels on 23 and 24 November. Once again, the opinions for review were quite varied in topic. Before looking at the main points of the opinions that were discussed, and their conclusions, the first item for discussion was the number and type of questions that were being presented to the Commission for adoption as an official opinion.

The point was made that a large number of the questions being posed could easily have been made under UCP 500, 400, 290 etc. and were, therefore, not UCP 600 specific. Over the last few years, the Banking Commission has looked to broaden its trade finance discussions beyond just documentary credits and to continue to do so in an already congested agenda would require some changes to the way in which requests for opinions are handled, considering that the opinions session usually takes around 3 hours to complete.

Following a short discussion, it was agreed that requests for opinions will be split into two categories - those that are considered for official opinion status and those that will be answered by the Officers of the Banking Commission and classified as educational in nature. The ICC National Committees will continue to receive copies of all the documents but only the official opinions will be discussed at the meeting. In order to determine whether the question is to be official or educational, the National Committees have been requested to indicate the status in their request. However, if the National Committee indicates that they require an official opinion and the Officers disagree, further communication will ensue to determine the final status. This process will be adopted with immediate effect.

There had been six DOCDEX cases heard and decided upon since the last meeting, all related to disputes in documents. One additional case had been withdrawn before the experts had decided the case and a further two cases closed due to the initiators objecting to the fees to be charged for the service.

There were 19 draft opinions tabled for discussion at the meeting. During the course of the discussion, one of the requests (TA706) was withdrawn so that the facts can be more clearly stated. It is expected that this query will be re-submitted for the Banking Commission meeting in April 2010. Another (TA690) is to be re-drafted and submitted for approval of the National Committees. This opinion covered issues relating to deferred payment undertakings and the prepayment thereof where the undertaking has been given by a bank other than the one that is prepaying. Of the 19 opinions, 13 emanated from 5 ICC National Committees. It is fair to say that these were the longest set of opinions (by pages per opinion) that the Banking Commission had seen in some time.

The first opinion to be discussed focussed on the requirements for insurance documents to be endorsed. Six examples of how an insurance document was issued were provided for comment:

1. "To Bearer"      where the LC required a blank endorsed insurance document

2. "ABC Exporting Co. Ltd, To Bearer"           where the LC required a blank endorsed insurance document

3. "To Order"        where the LC required a blank endorsed insurance document

4. "ABC Exporting Co. Ltd To Order"            where the LC required a blank endorsed insurance document

5. "To Order of XYZ Bank Ltd"     where the LC required an insurance document                                                     to be issued to order of XYZ Bank Ltd

6. "ABC Exporting Co. Ltd
To Order of XYZ Bank Ltd"       where the LC required an insurance document issued                                                 to order of XYZ Bank Ltd

In conclusion, the opinion states:

1. Structure is acceptable without endorsement
2. The insurance document requires endorsement by ABC Exporting Co. Ltd
3. Structure is acceptable without endorsement
4. The insurance document requires endorsement by ABC Exporting Co. Ltd
5. Structure is acceptable without endorsement
6. The insurance document requires endorsement by ABC Exporting Co. Ltd

Clearly, to avoid issues relating to the determination of compliance, an insurance document should not show the assured party as "Bearer" or "To Order" and neither should a credit request that an insurance document be issued in a manner similar to that of a bill of lading i.e., to order and blank endorsed.

The next opinion covered a shipment of fresh ginger. The nominated bank had negotiated documents on the basis that they were compliant. The issuing bank received the documents on 13 December 2008. On 27 December, some 14 days after the receipt of the documents, the issuing bank sent a refusal notice. The refusal notice referred to two alleged discrepancies: (1) that a non-documentary condition in the credit had not been complied with, and (2) that the goods had not been shipped in the correct form of container (although the credit was silent in respect of the type of container or packaging to be used). Towards the end of January 2009, the issuing bank further informed the nominated bank that an injunction had been issued to stop payment as half the consignment had now been destroyed due to it being considered unfit for human consumption.

Clearly, the refusal notice was sent beyond the five banking days allowed for in sub-article 16 (d) and the issuing bank is therefore precluded from claiming that the documents were discrepant under sub-article 16 (f). The conclusion to the opinion states that the documents were compliant at the time of presentation of the documents and that the issuing bank must reimburse the nominated bank. The issuing bank was recommended to approach the court and explain their responsibilities under the credit and the UCP with a view to the lifting of the injunction.

See Opinion TA689 for the full transcript of the above opinion.

** Opinion TA690 is the subject of a re-writing of the analysis and conclusion. The outcome of this opinion will be reported in a future newsletter.

The next opinion focussed on the situation where a stamp is used for the purpose of a signature on an invoice and as an endorsement on a bill of lading. See the examples below.

Front of the presented bill of lading

Back of the presented bill of lading

In each case, the stamp identified the name of the beneficiary (and shipper) and contained Chinese characters which the Banking Commission was advised represented the beneficiary's name in Chinese.

The decision of the Banking Commission, in each of these cases, was that the documents were acceptable and that the stamp would meet the requirements of article 3 in respect of a signature of the beneficiary (shipper) for the purpose of signing the invoice and endorsing the bill of lading.

See Opinion TA691(rev) for the full transcript of the above opinion.

The next opinion focussed on two discrepancies in respect of a protocol certificate that was to be signed by the applicant and the beneficiary. Both the nominated bank and the issuing bank identified the same discrepancies i.e., that the protocol certificate did not contain the stamp of the applicant and the name of the applicant differs in the same document. It transpired that the difference in name was in the way in which the legal composition of the company was described and not its actual name i.e., OOO Denmark and Denmark Ltd. It would appear from the initiator that OOO and Ltd are interchangeable in the respective country. With regard to the first discrepancy, the credit did not require the stamp of the applicant to appear on the document.

Based on the facts provided, the Banking Commission agreed that the documents comply and that the issuing bank must honour the presentation. The Commission recognised that this may not be the situation in all cases and will depend on the legal constitution of the respective country.

See Opinion TA692(rev) for the full transcript of the above opinion.

Should the carriers name be expressed in both fields 16 and 23 of a CMR? This was the question posed in the next opinion for discussion. An issuing bank had refused documents citing that the name of the carrier did not appear in field 16, which is designated as the field for the details of the carrier, even though the carrier was named in the signature box (field 23). The initiator asserted that the Banking Commission should insist that field 16 is completed, in addition to field 23. The Banking Commission decided otherwise and agreed that the document was compliant if the carrier was identified in field 23 only.

See Opinion TA693 for the full transcript of the above opinion.

A bank sent multiple sets of documents under the cover of one schedule. The presentations were all available by deferred payment due xx days after each shipment. The schedule clearly indicated the amount that was due on each maturity date. The issuing bank reverted to the nominated bank informing them that in their view one schedule = one maturity date and that they would use the last date shown on the transport documents for the determination of the due date in accordance with ISBP paragraph 43 (f). Despite the nominated bank contesting this position, the issuing bank maintained their stance. The applicant, however, agreed to pay on the respective due dates. The nominated bank sought an opinion from the Banking Commission as to whether their stance was correct or not.

The analysis and conclusion to this opinion stated that paragraph 43 (f) would not apply to this situation. There were complete multiple presentations made by the nominated bank, each subject to their own due date. The due dates were shown on the schedule. The issuing bank was required to effect payment on the due dates as shown.

The conclusion to the opinion pointed out that banks should adopt a practice of one presentation per schedule in order to avoid this kind of situation arising.

See Opinion TA694(rev) for the full transcript of the above opinion.

The next opinion referred to an example of a bill of lading and the question of whether or not it can be considered that the signing party is properly identified and that the carrier has also been identified. The bill of lading contained a box that was headed "Name of Carrier", in that box was the name and address of a company. The bill of lading, at the signature box, bore the name and address of the company named in the "Name of Carrier" box and a signature. The carrier was clearly identified in the respective box on the bill of lading and the same company signed the document, albeit without any mention of "for the carrier" or "as carrier" etc. The Banking Commission decided that the document complied with sub-article 20 (a) (i) in respect of the questions that were posed.

See Opinion TA695(rev) for the full transcript of the above opinion.

A credit stated the name and address of the applicant and requested the bills of lading to be marked notify the applicant, with the same address as quoted in the applicant details. The bills of lading that were presented indicated the name of the applicant and the address stated in the credit but with the addition of "Newtown" between the street name and the city name. The National Committee who submitted the question were split as to whether the documents complied or not.

The response from the Banking Commission was that the documents complied. Sub-article 14 (j) required that the address be the one stated in the credit. This did not necessarily mean the address must be shown exactly as stated in the credit. The address shown in the notify party field contained all the requirements of the credit with the addition of 'Newtown'. The requirement of sub-article 14 (j) is that no different address appears in the notify party field and this is not the case here. The address is seen as being the same as that in the credit albeit with a further piece of data added.

See Opinion TA696 for the full transcript of the above opinion.

The last opinion to be covered in this newsletter refers to a dispute between two banks. Documents were presented to the confirming bank and were found to be compliant. The issuing bank came to the same conclusion and gave their authority for the confirming bank to debit their account on 18 May 2009. The confirming bank prepaid under their deferred payment undertakings.

One month prior to the maturity date, the issuing bank contacted the confirming bank stating that as house bills of lading had been presented the goods remained uncleared at the port and were incurring demurrage. They sought the confirming bank's assistance in obtaining the original master bills of lading. The issuing bank stated that if the master bills of lading were not made available they would repudiate any liability. On the due date, the issuing bank did not reimburse the confirming bank.

The Banking Commission determined that the documents had been found compliant by both the confirming bank and the issuing bank. The issuing bank had issued their undertaking to pay on the due date and that they were required to make funds available to the confirming bank on that day. The bills of lading that were originally presented would appear to have complied with the terms and conditions of the credit and article 20 of UCP 600. Issues relating to the delivery of the cargo are outside the scope of the UCP and are to be resolved between the carrier and the party signing/issuing the bills of lading.

See Opinion TA697(rev) for the full transcript of the above opinion.

The next newsletter will contain the remaining opinions that were discussed and approved at the November 2009 ICC Banking Commission meeting.

Trainees who complete ISP Master qualify for 12 PDUs towards recertification for the Certified Documentary Credit Specialist (CDCS) accreditation offered by BAFT-IFSA and IFS.

ISP Master is an advanced online training service in ISP98 and Standby Credits.

The course content is written Professor James Byrne of The Institute of International Banking Law & Practice in association with Gary Collyer, Technical Adviser to the ICC Banking Commission.

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