Coastline newsletter / 2011 edition

ISSUE 41 Nov2011

Overview of the draft Opinions discussed at the October 2011 ICC Banking Commission

By Gary Collyer

The ICC Banking Commission met in Beijing on 26 and 27 October.

The draft Opinions for review were the first that had been concluded following the establishment of the inaugural Group of Experts. This Group were appointed for a one-year tenure to work on the draft opinions spanning 2 ICC Banking Commission meetings. Just prior to the Spring 2012 meeting, another group of 3 individuals will be appointed to this role and their names will be announced at that meeting. As usual, the topics covered in Beijing were quite varied with 6 of the 11 opinion requests being submitted by one ICC National Committee.

As usual, the topics covered in Beijing were quite varied with 6 of the 11 opinion requests being submitted by one ICC National Committee.

TA744rev - The first draft opinion related to a drawing that was initially discrepant but the discrepancies were, according to the nominated bank, subsequently corrected by way of the presentation of amended documents. Despite this act, it appears that the issuing bank maintained that the documents were discrepant (according to their initial refusal) and stated that the documents were being returned. It appears that the documents were not returned and the nominated bank had obtained evidence, by way of a photocopy of one of the original bills of lading, that the issuing bank had endorsed at least one of the originals in favour of the applicant with a view to the releasing of the cargo.

The issuing bank then intimated that payment was not being made due to an issue relating to the quality of the goods. The issuing bank also advised the nominated bank that under their law, a signal of commercial fraud by the beneficiary can stop the payment under the credit without there being a need for any court order to substantiate the allegation.

The analysis and conclusion focused on the fact that if an original bill of lading had been endorsed in favour of the applicant and then released to them, without the issuing bank effecting honour, the issuing bank would be incapable of returning the documents in the same form as they had received them. As such, the issuing bank will be precluded under UCP 600 sub-article 16 (f) from claiming that the documents were discrepant and would be obliged to honour.

The analysis also referred to the content of ICC Opinion R214 which states that an issuing bank is only obliged to return the documents in the same form and number as received i.e., they would be under no obligation to endorse bills of lading that had been issued to their order. In this opinion it was stated that if the issuing bank had returned all the documents and endorsed them in blank or to order of the shipper, this would also be acceptable and considered as returning in the same form.

Finally, it was stated that any issues of fraud are outside the scope of the UCP and are left for the applicable law to resolve.

See opinion TA744rev for the full transcript of the above opinion.

TA745 - This was a query relating to URDG 758 and the effect on guarantees that are subject to these rules but do not contain an expiry date or any requirement for a document to specify the expiry condition. Three clauses were quoted (1) This guarantee will expire upon final acceptance; (2) This guarantee is valid until completion of the contract; and (3) This guarantee is valid until released by the beneficiary.

The initiator enquired as to whether the "3 year rule" as described in URDG 758 sub-article 25 (c) would apply to a guarantee that contained any one of these requirements.

Whilst the analysis pointed out that the 3 clauses represented poor drafting and that guarantor's should avoid using such language, the conclusion was that each of the clauses should be considered as non-documentary and disregarded, and that guarantees incorporating such wording will terminate after the lapse of three years from the date of issuance, according to URDG 758 sub-article 25 (c).

See opinion TA745 for the full transcript of the above opinion.

TA746rev - This request referred to a credit that contained a requirement for the insurance document to show the appointed settling agent in Taiwan. The presented document evidenced "The appointed settling agent in Taiwan is shown below". No name was shown immediately below this statement, but under a heading appearing further down the document "In case of damage apply immediately for survey to:" there was a name "XX Marine Surveyors" and their contact details. The issuing bank had refused the documents on the basis that the insurance document did not indicate the name of an appointed settling agent.

The question before the ICC Banking Commission was whether one name that appeared on the document, under the details for any required survey, could also be applied to the statement "The appointed settling agent in Taiwan is shown below". The conclusion of the ICC Banking Commission was that based on the structure of the document, it could and the document was compliant.

See opinion TA746rev for the full transcript of the above opinion.

TA747rev - This request referred to a requirement in a credit for the presentation of a Certificate of Origin. The presented document had no letterhead, header or footer and only stated "We certify that the goods are of French origin." The document was signed by the beneficiary.

The issuing bank refused the presentation on the basis that the Certificate of Origin did not provide any details of the goods to which the certification was being made.

ISBP Publication 681, paragraph 183 states that a certificate of origin must appear to relate to the invoiced goods. However, there is no such rule in UCP 600 and the ISBP are not a set of rules. Some ICC National Committees questioned under which article of UCP 600 could a bank refuse a document issued in this manner.

The ICC Banking Commission concluded that the document did not fulfil its function, as required by UCP 600 sub-article 14 (f), as it did not refer to the goods to which the certification of origin applied. Such indication of a relationship with the goods could be made by a goods description being added to the document, that corresponds with that stated in the credit, or one that is given in general terms. It could also be through the addition of a reference to the invoice number, the number of the respective transport document or reference to data that is contained in any of those documents.

The conclusion stated that the discrepancy was valid.

See opinion TA747rev for the full transcript of the above opinion.

TA748 - This query was similar in nature to draft opinion TA750 in that it referred to a structure of a bill of lading where the signing party was described as a branch of the main company. For example, the bill of lading showed:

H-L Denmark

Branch of H-L AG, Germany

As Carrier

The initiator requested confirmation that the manner of signing was in accordance with UCP 600 sub-article 20 (a) (i).

The analysis stated "The bill of lading fulfils the requirements of sub-article 20 (a) (i) by indicating:

(a) the name of the carrier i.e., H-L AG

(b) that the signature is that of the carrier: "H-L Denmark, Branch of H-L AG, Germany As Carrier".

The conclusion stated that the document was deemed to have been signed in accordance with UCP 600 sub-article 20 (a) (i).

See opinion TA748 for the full transcript of the above opinion.

TA749 - This query referred to various shipping company certificates that were being issued with disclaimer clauses. The question was whether the clauses made the document discrepant, despite it otherwise complying with the terms and conditions of the credit.

The clauses in question read:

Example 1:

"This certificate does not form part of the contract of carriage and no reliance can be placed upon its contents in support of or as evidenced in the bill of lading no. xxxx. The ship owner's obligations are restricted to the duty to exercise due diligence at the beginning of the voyage to make the vessel seaworthy."

Example 2:

"This certificate does not form part of the contract of carriage and no reliance can be placed upon its contents in support of or as evidence in any dispute or claim under the terms of the contract of carriage as evidenced in the bill of lading no xxxx."

The disclaimer text was seen as separating the content of the certificate from the contract of carriage and that no conflict was created. The conclusion stated that a certificate would be compliant bearing such wording.

See opinion TA749 for the full transcript of the above opinion.

TA750rev - As mentioned under TA.748 this query also focuses on the signing capacity shown on a bill of lading.

A carrier had replaced its agency arrangement with the establishment of a registered office that would sign in the capacity of a branch of the carrier. The proposal was that the bill of lading would be signed as follows:

Signed as the Carrier [Name of Carrier] i.e., APM-M trading as M Line as carrier

[Signature of the branch]

[Name of Branch] (branch) i.e., M Line UK Branch

One bank had already refused a bill of lading issued in such a manner citing that it should be signed by the carrier, master or their agent and that the branch should sign as agent of the carrier and not in their own right.

In addition to asking whether such a bill of lading should be accepted under UCP 600 sub-article 20 (a) (i), the initiator also asked a more general question as to whether a bill of lading that was signed "as the carrier" complies with the relevant provisions of UCP 600 articles 19, 20, 21, 23 and 24.

Under the first issue, the conclusion stated that the document signed in the manner shown would be acceptable. Under the second issue, a transport document may be signed in such a manner and will be acceptable under the referenced articles.

See opinion TA750rev for the full transcript of the above opinion.

TA751rev - This query covered the unusual event of transhipment where a charter party shipment was involved. UCP 600 article 22 does not envisage transhipment occurring and therefore there are no rules to cover such an eventuality.

In this particular case, two full sets of charter party bills of lading had been presented. The first covering shipment from Ventspils to Antwerp or Rotterdam for transhipment on the vessel Chemical Star. The second covering shipment on the vessel Chemical Star from Rotterdam to Yalova. Each set of bills of lading fully complied with the credit and the data on each document was not conflicting.

The question was whether these charter party bills of lading could be acceptable and, if not, on what grounds could they be refused.

As mentioned above, UCP 600 article 22 does not contain any rules relating to transhipment. Whilst article 20 provides some basic rules, the issue was whether two separate sets of charter party bills of lading could be accepted.

Discussions were held with senior members of the ICC's Transport Commission and they could see no reason to refuse such a presentation. Given the absence of any transhipment rules in the UCP, it was the responsibility of the issuing bank to include in the credit any specific rules relating to transhipment. Absent such rules, there were no grounds for refusal in this case.

See opinion TA751rev for the full transcript of the above opinion.

TA752 - This issue related to a confirming bank that had declared that honour or negotiation would not occur due to the issuing bank appearing in an EU regulation. This opinion, whilst incorporating the views of the ICC's Anti-Money laundering Group (who drafted the Recommendation Paper on Sanctions Clauses), was withdrawn from the discussion pending further review by that group. The comments received from ICC National Committees, whilst in the vast majority supporting the conclusion that it is an issue subject to applicable law, ranged from a request for the deletion of the analysis and conclusion and to merely refer to the applicability of local law, to comments that were longer than the already extensive analysis and conclusion. The draft opinion will be re-submitted to the ICC Banking Commission once the review process has concluded.

TA753rev – This query related to a UCP 500 transaction and assurances were provided that there was no current or planned litigation in respect of the dispute. Given that the transaction dated back to 1995, the ICC had sought specific assurances in this respect.

The query related to a number of presentations that were found to be discrepant and a number of issues that arose from those presentations including whether the waiver of the applicant was required to be given within the expiry date of the credit, whether waiver can be sought after the expiry date of the credit, and whether acceptance by the applicant was binding on the issuing bank.

It should be noted that a number of these questions had been answered in previous ICC opinions.

There was also the question as to whether the issuing bank had refused 3 sets of documents within the maximum of 7 banking days following the date of presentation of the documents. Given that this transaction dated back to 1995 and the involved countries were not named, it was not possible to offer any definitive response in respect of this issue.

The answers to the 6 questions basically stated that a waiver may be sought at any time but the receipt of a waiver from the applicant does not bind the issuing bank to honour any of the presentations.

See opinion TA753rev for the full transcript of the above opinion.

TA754rev - The last draft opinion related to a presentation that had been refused by the issuing bank for two reasons (1) Invoice evidences multiplication of quantity 27181 pcs x 1,874 = 50937 instead of 50937.194 and (2) CMR does not evidence "Expeditor" as beneficiary, as required by the credit.

It would seem that for discrepancy (1), the beneficiary rounded down the amount of the invoice to EUR50937. In respect of the refusal, the EUR currency is only calculated to 2 decimal places and therefore the beneficiary would not issue their invoice for EUR50937.194. For discrepancy (2), the CMR showed the field tag "Sender" and the nominated bank had considered "Sender" to be the same as "Shipper", "Consignor" and, the credit requirement of "Expeditor" to be of the same meaning. In respect of discrepancy 2, the ICC Banking Commission agreed with the nominated bank.

For discrepancy 1, there were issues discussed relating to whether the calculation should have been made i.e., was it a detailed mathematical calculation and the effect of the rounding down of the amount. The analysis and conclusion reflected that the invoice was also compliant.

The initiator raised a further issue relating to whether the issuing bank should have honoured their claim for reimbursement. The credit allowed the nominated bank to claim reimbursement, by SWIFT, from the issuing bank. There was no indication in the credit of a notice period required by the issuing bank. The nominated bank provided 3 banking days notice, which is in line with the established standard under URR725. It should be noted that this reimbursement was not subject to URR725. On the day that the payment was due, the issuing bank received the documents but the examination process was not concluded until after that date and they refused for the two reasons quoted above without having honoured the claim. The initiator asked whether the issuing bank should have honoured in the first instance, and then, if necessary, requested a refund at a later date if the discrepancies were proven and not accepted by the applicant.

The conclusion stated that whilst the issuing bank was entitled to send a refusal notice after the completion of their examination of the documents, absent any indication in the credit as to a notice period they should have honoured the claim on the requested value date. The issuing bank bore the consequences of the ambiguity in their instructions.

See opinion TA754rev for the full transcript of the above opinion

This month brings an end to another highly eventful year in the area of Trade Finance. This year has seen the ICC Banking Commission spread its wings beyond the traditional trade products it serves so well, with the ongoing revision of the Forfaiting rules and the commencement of rules for the Bank Payment Obligation.

Surveys conducted by ICC have continued to benefit the industry as a whole and serve as a highly useful tool in demonstrating the low risk nature of trade finance to the global and regional regulatory bodies. Whilst I know that most people do not like completing surveys or often question their true value, I strongly believe the coverage that the ICC surveys have achieved in the last two years demonstrates that the efforts made by individuals and organisations in providing key data is starting to pay off. We can only hope that 2012 will mark an upturn in the global economy and that trade remains at the forefront of that process.

It leaves me to send all readers best wishes for the forthcoming holiday season and for a peaceful and prosperous 2012!

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