ISSUE 47 Dec2012 Overview of the draft Opinions and DOCDEX CASES discussed at the November 2012 ICC Banking Commission – PART 1 By Gary Collyer The ICC Banking Commission met in Mexico City on 13 and 14 November. The draft opinions for review, discussion and approval were the first that had been considered by the appointed group of experts. As usual, the issues remained varied. However, it should not go unnoticed that a number of the issues contained therein can be directly attributed to poor wording in the letter of credit. Before we look at the issues contained in those opinions, and the DOCDEX cases that were concluded since the last meeting, a further update on the work conducted for the ISBP revision. The ISBP Drafting Group met for a total of 6 days, spread either side of the Banking Commission meeting, to review ICC national committee comments submitted in respect of draft 4. In addition, the Group reviewed responses from national committees to a paper previously circulated by the Drafting Group highlighting where there had been differing views expressed by national committees, and where new topics had been suggested for inclusion. The Consulting Group also met in Mexico City with the aim of discussing and providing the Drafting Group with their collective input on the outcome of each identified topic, especially where the views of the national committees had offered no clear majority view. The intention of the Drafting Group is that draft 5 of the revised text will be distributed shortly to ICC National Committees, so that comments may be made by the end of January. Based on the feedback to this draft, a final draft will be prepared for voting upon by national committees at or prior to the next Banking Commission meeting in Lisbon on 16-17 April 2013. DOCDEX Cases There had been 6 DOCDEX cases reviewed by the experts in the period following the March 2012 ICC Banking Commission. Case 316 Documents were found to be compliant by the confirming bank and were sent to the issuing bank. Although payable at sight, payment was due 10 banking days in the country of the issuing bank and confirming bank. The issuing bank did not provide a notice of refusal. Prior to the date on which payment was due, an interlocutory court injunction enjoined the confirming bank from paying the beneficiary on the grounds of alleged fraud. The court order was reportedly lifted some 10 months later but the confirming bank refused to pay on the basis of fraud or forged documents. Issues relating to court orders are outside the scope of the present DOCDEX rules and the experts were unable to offer any view other than that the applicable law will apply. The conclusion stated that under the UCP the issuing bank and confirming bank had an obligation to pay complying documents but the matter of fraud or forged documents is outside the expert's scope of operation. Case 317 This is another example where the issuing bank accepted to pay an amount on a specific date but the applicant obtained a court order restraining the issuing bank from effecting payment. Once again, the experts stated that the issuing bank had an obligation to honour on the due date under UCP 600 article 7 but that it could not ignore the court order, and such matters are outside the scope of the panel of experts. Case 318 The credit covered the delivery of an aerostat system including installation, services and training. 20% of the value was payable against presentation of copies of commercial invoices, repayment guarantee and performance bond. 80% of the value was payable against presentation of site acceptance test (SAT) certificate, certificate of completion of training, commercial invoice and copies of bills of lading and/or air waybills; such amount being payable after completion of SAT. The 20% payment was effected but the second, for 80%, was refused due to two discrepancies: SAT incomplete and that the performance bond was not extended and was not presented. The experts found the first discrepancy to be correct in that the SAT was dated the same date as the bill of lading whereas the credit clearly stated that the drawing could only be made after the SAT had been completed and this could not occur until a time after the goods had been shipped, installed and training completed. For the second discrepancy, the experts found the discrepancy to be invalid. There was no requirement for the performance bond to be extended or presented in respect of the second drawing. Case 319 This case related to a standby letter of credit that provided for payment in the event of non-payment for an oil shipment. The credit mentioned that loading was to occur between 18-22 December 2011, both dates included. The unpaid commercial invoice of the beneficiary showed the B/L date as 23 December 2011. The issuing bank refused the claim due to late shipment based on the commercial invoice information. The beneficiary presented a revised invoice showing B/L date 23 December 2011 and loading date 22 December 2011. Again, the issuing bank refused the claim, this time for conflicting data. The experts decided that both presentations were compliant and that the issuing bank should have honoured. Case 321 This case involved one initiator and 4 respondents and involved three letters of credit. Each credit was available by deferred payment and one of the respondents, the nominated bank, refused to prepay. The documents were sent to the issuing bank who took up the documents and advised the due dates. On the due dates, the reimbursing bank (another of the respondents) refused to honour the claims of the nominated bank citing that the issuing bank had stopped payments under the reimbursement authorisations. The initiator stated that the issuing bank and reimbursing bank had acted together not to pay on the due dates. The experts decided that whilst the issuing bank had an obligation to pay on the due dates, the reimbursing bank did not as it had not issued any reimbursement undertaking. Case 322 TThis case referred to a standby letter of credit that required, amongst other documents, copies of CMR's covering the shipment of goods. The issuing bank refused the documents due to issues relating to the naming of the carrier on the CMR documents. The experts decided that the CMR's were not to be examined under article 24 and were only to be examined to the extent stated in the credit and sub-article 14 (f). The experts decided that the discrepancies were not valid and the issuing bank was required to honour the claim. OPINIONS The Opinions discussed were in the sequence TA759-774. Of these, TA771 had been withdrawn by the initiator prior to the meeting taking place TA.759 – The first draft opinion related to an insurance policy that showed two co-insurers, ABC and XYZ, who had taken 60% and 40% respectively. The document had only been signed by ABC. The issuing bank had refused the documents citing "Insurance policy is not also signed by the co-insurer, XYZ Insurance Ltd." The initiator asked two questions: (1) whether the insurance policy signed by ABC only is acceptable; and (2) if not acceptable, whether an indication of the signing party as "leading insurer" would make the document acceptable or that the document must indicate that the leading insurance company is acting for and on behalf of the co-insurers. The conclusion stated, in regard to these two questions, (1) the document is not acceptable, and (2) signing as "leading insurer" will not be sufficient to comply with sub-article 28 (a). The leading insurer must indicate that they are signing on behalf of any other co-insurer(s). See opinion TA.759 for the full transcript of the above opinion. TA.760rev – This query referred to a guarantee, which, in field 40E of the MT760, showed URDG, and in field 77C that the counter-guarantee and guarantee will be governed by a specific country law, and that the place of jurisdiction will be a city within that particular country. Questions were then asked as to the application of the governing law. The conclusion states that the counter-guarantee and guarantee are subject to URDG 758 and the applicable law. How far URDG 758 will prevail is a question that can only be answered under the applicable law. See opinion TA.760rev for the full transcript of the above opinion. TA.761 – Thi – This request focussed on the insertion of "NONE" in field 40C of an MT760 message when there is reference to a governing law in field 77C of the same message and the text of the required guarantee referred to it being subject to URDG 758. The question submitted was whether the counter-guarantee would be subject to URDG as well. This draft opinion was withdrawn by the submitting national committee and will be re-drafted before further submission to the Banking Commission. TA.762rev – A standby letter of credit that contained an evergreen clause and was confirmed, was the focus of the next draft opinion. The confirming bank added confirmation to the credit, which contained a 60-day notice period for the issuing bank to provide a notice of non-renewal. The confirming bank did not qualify their confirmation. The confirming bank wanted to terminate its confirmation by giving 60 days notice, even though the issuing bank had not issued a similar notice. The question was whether this was permissible. The conclusion states that a confirming bank that adds its confirmation to a credit, without expressing any conditions related to that confirmation, does so on the same terms and conditions as indicated in the credit. If the issuing bank sends a notice of non-renewal and the credit therefore expires, then the obligation of the confirming bank also expires. The confirming bank, absent any condition relating to its confirmation, is not permitted to provide a 60-day notice period absent a similar instruction from the issuing bank. See opinion TA.762rev for the full transcript of the above opinion. TA.763 – This query was also in respect of a standby letter of credit that covered the value of goods delivered and services rendered. It is also a query where the wording of the credit could have been better drafted. Any drawing under the credit was to consist of a draft, written declaration from the beneficiary, copy of beneficiary's unpaid invoice and a copy of the transport document representing value of the goods only. The credit was confirmed. A drawing was made under the credit in respect of services rendered but not paid for. The drawing did not include a copy of the transport document. The issuing bank refused the drawing due to the absence of a copy of the transport document. The confirming bank objected to the refusal stating that as only non-payment for services was being claimed, no copy of a transport document was necessary. The analysis to this query states "Collectively, the wording of the documentary requirements for the copy of the unpaid invoice and the copy of the transport document, lead to the conclusion that a copy of the transport document was only required in the event of any non-payment for deliveries made. In cases where only services have been rendered, a copy of the transport document would not be required as no transport document would have been issued." and the conclusion states that the refusal was not valid and the issuing bank is bound to reimburse the confirming bank. See opinion TA.763 for the full transcript of the above opinion. TA.764rev This query was one of the longest that was to be reviewed. This query highlights how following a few simple procedural issues could have resolved a problem before the escalation to a request for an ICC opinion. It is stated that the credit was to expire on 30 November 2011 in the country of the beneficiary. Documents, including an invoice and CMR, were sent by the beneficiary's bank to the issuing bank within the credit validity. The issuing bank refused the documents citing "Invoice: terms of delivery were not indicated". Within the credit validity, the beneficiary presented new invoices and the beneficiary's bank sent them to the issuing bank on 1 December, under SWIFT advice to the issuing bank. It would appear that there was no indication on the schedule or in the SWIFT message confirming that the documents had been received within the credit validity. The schedule also indicated that the documents were to be delivered to the applicant and "effect payment in case of acceptance". On 9 December, the issuing bank informed the beneficiary's bank "Applicant under a/m L/C refuse to accept the documents as they were presented after date of L/C expiry. Due to expiry of the credit we closed our files under the L/C and we return the documents by post to yr good bank." There then ensued arguments and counter-arguments between the two banks, during which time the issuing bank raised a further discrepancy. The Banking Commission was requested to respond to 6 questions, which included whether the additional discrepancy was valid, was the initial presentation discrepant and must the issuing bank honour the presentation. The analysis pointed out that the beneficiary's bank would have been well advised to have confirmed on their schedule that the new invoices were received within the credit validity. Such a simple action would have avoided the refusal a second time around and the ensuing correspondence between the banks, and the delay in payment. However, any subsequent confirmation from the beneficiary's bank as to the timing of receipt of the documents would also remove the discrepancy and oblige the issuing bank to honour. Clearly, the issuing bank is not in a position to raise a further discrepancy having already issued its refusal notice. The conclusion drawn was that the issuing bank was required to honour the drawing. See opinion TA.764rev for the full transcript of the above opinion. In the next newsletter we will conclude the review of the draft opinions TA765-774.