Coastline newsletter / 2011 edition

ISSUE 37 Apr2011

Overview of the Opinions discussed at the March 2011 ICC Banking Commission (Part 1)

By Gary Collyer

The ICC Banking Commission met in Zurich on 22 and 23 March. Once again, the Opinions for review were quite varied in their topics and length of enquiry. Before we look at the issues involved, and the conclusions - a further update on the scope of the ISBP revision.

The ISBP Drafting Group met again to discuss the possible changes to the existing text of ISBP Publication 681. It is intended that a draft document will be released in early May for comments to be received from ICC national committees by the end of June.

As mentioned in the last newsletter, and given the voting that was in favour of an expanded version of the publication, it is now for the ICC national committees to provide their input to the Drafting Group as to what they expect to be covered in respect of practices relating to the handling of documentary credits. It is disappointing to note that despite the majority of countries voting for an extended version, only 5 have so far offered any comments as to what they would like to see included.

The Opinions discussed, and agreed, included a number (TA727-732 and TA734) that were originally submitted as educational queries. These were withdrawn at the Orlando meeting in September 2010 for consideration as official Opinions at the Zurich meeting.

TA727rev - This query focused on letters of credit that include terminology such as "Forwarders bill of lading is not acceptable", or "Transport documents issued by freight forwarders not acceptable", or "Transport documents issued or signed by freight forwarders not acceptable".

The initiator provided 4 case examples to highlight different forms of issuance ranging from signature of the forwarder on a bill of lading issued on the letterhead of the carrier; a bill of lading issued on the letterhead of the carrier and signed by the master; a bill of lading issued on the letterhead of the forwarder and signed by them as agent of a named carrier; and a bill of lading issued on the letterhead of the forwarder, naming the carrier separately and signed by the forwarder as agent of the master. The question was asked as to which, if any, would be acceptable under a credit containing the terminology stated above.

The analysis made it clear that in the context of UCP 600 and letters of credit, the term "freight forwarder bills of lading" has no meaning - whether in respect of them being allowed or not allowed. ISBP Publication 681, paragraphs 72 (Multimodal or Combined Transport Documents), 95 (Bills of Lading) and 138 (Air Waybills – additionally for reference to house air waybills) offer a deterrent to the usage of terms such as "Freight Forwarder Bills of Lading are acceptable", i.e., by stating that the transport document may be signed by the freight forwarder in the capacity of a freight forwarder, without the need to identify itself as carrier or agent for the named carrier. The document also need not show the name of the carrier.

Where freight forwarder transport documents are stated to be not acceptable, the term is ambiguous and does not clearly define the type of document that would be acceptable.

The conclusion that was given stated that unless the text of a credit, incorporating one of the stated clauses, specifically states what form the transport document is expected to take or its signing requirements, each of the clauses referred to in the query has no meaning, and transport documents may be accepted on the basis that they comply with the requirements of articles 19 or 20.

This Opinion sends a clear message to banks that the credit must expressly state what is expected to be presented and a clause stating “freight forwarder bills of lading are not acceptable” or similar, is not sufficient and will be disregarded.


See Opinion TA727rev for the full transcript of the above Opinion.

TA728rev - This query referred to a standby credit that required, in addition to a beneficiary certificate, a copy of an unpaid invoice. The presented invoice was issued for an amount that was greater than the amount of the credit. The initiator asked the question whether a nominated bank acting on its nomination, a confirming bank, if any, or an issuing bank must accept the invoice or whether they can decline under sub-article 18 (b).

The analysis made the point that this issue highlights one of the problems that can arise when a bank issues a standby credit subject to UCP 600, requiring presentation of a document such as a copy of an unpaid invoice without compensating for the fact that certain articles of UCP 600 will not apply in the examination of that document. When the invoice was originally issued, it was not subject to the content of article 18.

The conclusion stated that where a copy of an [unpaid] invoice is to be presented under a standby, it is not subject to examination under sub-article 18 (b) except to the extent required by the terms and conditions of the standby and must be accepted if it otherwise complies with the terms and conditions of the standby.

See Opinion TA728rev for the full transcript of the above Opinion.

TA729 - This query was withdrawn at the meeting as it was found to represent a hypothetical situation and should therefore be considered as an educational query.

TA730rev - This query referred to a number of clauses that appear on insurance documents that may cast doubt in the mind of the document examiner as to whether or not the insurance premium has been paid and whether the insurance document is therefore effective.

Clause 1 which is part of the insurance policy text that has been printed on to plain paper, included "Unless otherwise agreed, the insurer's obligation shall in no way commence unless the premium is paid or the down payment is made, regardless of whether the policy is delivered or not."

There is no marking of premium paid on the insurance policy.

Clause 2 which is pre-printed on the insurance document includes "We, ABC INSURANCE hereby agree, in consideration of the payment to us by or on behalf of the assured of the premium as arranged, to insure against loss, damage, liability or expense to the extent and in the manner herein provided."

There is no marking of premium paid on the policy.

Clause 3 the complete text of the insurance document that has been created and printed on plain headed paper of the insurance company and signed, includes "In case of any claim payment through this policy, the assured (insured party) agrees to pay the additional premium arising from the difference between the foreign exchange rates, on the claim payment day and on the policy issuance day." The terms of the credit are CIF.

The analysis states that article 28 makes no reference to the payment of insurance premium and that the position taken by the UCP is that the insurance document would not be available for use unless the premium had been paid or arrangements made with the insurance company, underwriter or their agent or proxy for the payment of the required fee.

The analysis goes on to say that it is not the responsibility of banks to review pre-printed text that may be considered to be terms and conditions. The referenced clauses are seen to be terms and conditions.

In each case, the Banking Commission determined that the documents would be acceptable.

See Opinion TA730rev for the full transcript of the above Opinion.

TA731rev - This query also covered clauses that had been seen on insurance documents and the question was whether the text would be acceptable or not.

Clause 1 which is pre-printed on the insurance document as part of the signature area:

"This insurance does not cover any loss or damage to the property which at the time of happening of such loss or damage is insured by or would, but for the existence of this Policy, be insured by any fire or other insurance policy or policies, except in respect of any excess beyond the amount which would have been payable under the fire or other insurance policy or policies had this insurance not been effected."

Clause 2 that is pre-printed on the insurance document:

"This policy is prepared according to the material facts disclosed by the proposer as is shown in the proposal form and is subject to the general and special conditions and clauses enclosed or attached herewith and the Company hereby agrees to indemnify the Assured, against payment of the premium due, in case of a marine peril as described above."

The document contains a heading "Clauses" and shows thereunder "[Country T] General Conditions" and a list of applicable clauses including ICC (A), War, Strikes Clauses, Institute Classification Clauses, etc.

Clause 3 appears as part of the text inserted onto the insurance document:

"The cover will be valid, if and only if, the transporting vessel(s) have a valid ISM Certificate and Classification Certificate (according to Institute Classification Clause 01.01.2001) during the transport."

There is no data on any required document meeting the above-mentioned condition.

Clause 4 appears as part of the text inserted onto the insurance document:

"CAUTION:

This policy is subject to the following mentioned conditions and warranties:

1. The vessel should be fully classed and class maintained with class society member of IACS (including Turk Lloyd) as per Institute Classification Clause 01.01.2001 as per attached wording. Therefore, the vessel being nominated should be complied with the stipulation stated thereof.

2. Vessel should also be a member of a respected P & I (Protection & Indemnity) club member of International Group.

3. Vessel should also be complied with the ISM requirements.

4. A vessel which does not have above mentioned qualifications and are aged over 35 and tankers aged over 15 will not be covered."

There is no data on any required document meeting the above-mentioned conditions.

In responding to the effect of these clauses, the content of sub-article 14 (a) should be remembered:

"[A] nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation."

The Banking Commission decided as follows:

In respect of Clause 1, unless another insurance document issued in the same context as the quoted clause was presented, there would be no grounds to refuse.

In respect of Clause 2, by use of "enclosed" or "attached herewith" the document draws a distinction between the terms by the separate reference to "attached herewith". In interpreting "enclosed" this can only mean the clauses that are stated on the document itself.

The insurance document refers to "[Country T] General Conditions" and states other applicable clauses. It therefore follows that the "general and specific conditions and clauses" are stated (enclosed) on the document. The document will be acceptable.

In respect of Clauses 3 and 4, absent any data on another stipulated document that conflicts with the wording in the clauses, the document will be acceptable.


See Opinion TA731rev for the full transcript of the above Opinion.

TA732 - Yet another query regarding insurance documents. This time whether the date stated as part of the countersignature data could be deemed to be the date of issuance of the insurance document or evidence of an effective date of insurance.

The insurance document showed "Countersigned at ….. (blank) Date: 13/10/2009" and was properly signed. However, there was no issuance date or evidence of an effective date for the insurance coverage. The shipment date was the same as the date appearing in the countersignature area.

Sub-article 28 (e) states that the date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.

The analysis stated that the date of the countersignature is the date that the insurance becomes valid (or effective) and can be taken into consideration by banks when determining compliance with the terms and conditions of the credit and UCP 600 article 28.

Absent any other date appearing in the document that could cast doubt as to the date of issuance or effective date of the insurance, the document would be acceptable.

See Opinion TA732 for the full transcript of the above Opinion.

TA733 - remained as an educational query with the response sent solely to the initiator.

TA734 - The last query to be covered in this newsletter referred to clauses that are often seen in credits:

"All documents except Bill of Lading must indicate this credit number and P.O. no. XXXXX"

and

"All documents except invoice and drafts must not show invoice number, invoice value, invoice date, unit price, contract number, name of applicant, trade term, L/C No., L/C issuing date and name of issuing bank."

The questions that were raised were in the context of how to interpret each of the clauses.

In respect of the first clause, the issue is how to interpret the word "except". The view of the initiator was that "except" means that the "excepted" document does not need to comply with the instruction that follows. Only the remainder of the documents must comply. The fact that the bill of lading may or may not quote the credit and P.O numbers is not a matter of concern, since the document is "excepted" by the clause.

In respect of the second clause, the initiator stated that the clause points the document checker, not in the direction of the invoice and drafts, since those documents have been "excepted", but to all the other documents to ensure that they do not quote any of the stated information. Therefore, the invoice and drafts may or may not quote any or all of this data.

The analysis and conclusion of the Banking Commission was as follows:

For the first clause, the emphasis is that all documents must indicate certain data except the bill of lading. This condition does not prohibit the bill of lading mentioning the stated data. If the intention is that the bill of lading is not to include such data, then the credit should be specific and so state.

For the second clause, the emphasis is that the described data must not appear on any document except for the invoice and drafts. This condition does not require the invoice and drafts to mention all or some of the prescribed data. Whether the data is to appear on the invoice and drafts will be subject to a specific condition in the credit, the requirements of article 18 and the applicable paragraphs of ISBP publication 681.

See Opinion TA734 for the full transcript of the above Opinion.

The next newsletter will contain the remaining Opinions that were discussed and approved at the March 2011 ICC Banking Commission meeting.

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