ISSUE 51 Oct2013 Overview of the draft Opinions and DOCDEX cases discussed at the October 2013 ICC Banking Commission. By Gary Collyer The ICC Banking Commission met in Vienna on 23 and 24 October. As usual, the issues discussed during the allotted session covering the Opinions and DOCDEX cases remained quite varied. This was the first session conducted by the three new Technical Advisers. DOCDEX Cases There had been 3 DOCDEX cases reviewed by the appointed experts in the period following the April 2013 ICC Banking Commission held in Lisbon. DOCDEX 326 10 Collections over a 7 month period subject to URC 522 totalling USD349,391.10 and only a small part payment had been made. Each collection followed the same format and contained the same instructions, including “deliver documents against acceptance of the draft and simultaneous guarantee for payment by you (aval)”. Collecting bank stated “the document [sic] were released on the acceptance of the draft by the drawee without any simultaneous guarantee. In other words, we have accepted drafts on file, but we do not have any simultaneous guarantee on file”. Despite several requests from the remitting bank, the original documents were never returned. The reason cited for non-return was “the illegality of the goods”. URC 522 sub-article 4 (a) (i) requires strict compliance with the collection instruction. In releasing the presented documents to the drawee, the collecting bank is deemed to have accepted the collection instruction in its entirety, including the simultaneous guarantee. The collecting bank should have refused to handle the collection instruction if it was not prepared to do so, as emphasized in sub-article 1 (c). Unanimous Decision: the exporter is entitled to payment of the outstanding amount of USD345,266.10”. DOCDEX 328 Credit subject to UCP 500 available with any bank by negotiation. Goods description: Iron Ore Fines originating from India. Credit called for FE content to be at 61 per cent basis, 60 per cent minimum. Additional Condition: Applicant shall have the option to reject the cargo if the FE content was below 60 per cent. Negotiating Bank forwarded documents to issuing Bank stating it had negotiated and requested payment. Issuing Bank refused the documents due to several discrepancies, including FE content appearing on the invoice was below 60 per cent. Issuing Bank further stated it was holding the documents at the disposal of the Negotiating Bank. Negotiating Bank sent a SWIFT message to the Issuing Bank requesting return of the documents so goods can be sold to another party. Negotiating Bank asked Issuing Bank to confirm return of the documents or release payment. Court in Issuing Bank country issued an order: 1) Approving the Applicant’s request for a Court Order; 2) Ordering a freeze of the Iron Ore Fines; 3) Ordered the Beneficiary to provide a guarantee of US$800,000 to the Applicant; 4) The Beneficiary may also negotiate with Applicant for the sum of the guarantee; 5) Applicant shall initiate litigation or arbitration within 15 days of the Court order. If not carried out within such time period the Court will release the freeze order on the goods. Issuing Bank sent a SWIFT message to the Negotiating Bank advising that it could not return the documents to the Negotiating Bank because the Court had frozen the documents after the Applicant impleaded the Beneficiary. The Issuing Bank added that it was holding the documents pending receipt of further instructions from the Court. Negotiating Bank sent a SWIFT message to the Issuing Bank stating they were dealing with documents only as per the UCP and that any disputes between the Applicant and the Beneficiary must be dealt with outside of the terms of the Credit. ISSUES: 1. Was the Negotiating Bank entitled to the return of the documents by the Issuing Bank? 2. Given the Court order was it justified for the Issuing Bank to withhold the documents and not to return them to the Negotiating Bank as requested? 3. Is the Issuing Bank obligated to pay the Negotiating Bank the drawing amount of the Credit? UCP 500 sub-article 14 (e) states the following: “If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/or the Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.” Since the Negotiating Bank had requested the return of the documents unless the Issuing Bank makes payment and the Issuing Bank did not pay, the Negotiating Bank was entitled to the return of the documents. Issuing Bank was not a party to the Court order, and was not mentioned anywhere in the Court order. Furthermore, the Court order did not place any restrictions on the documents and did not order the Issuing Bank to freeze the documents as advised by the Issuing Bank to the Negotiating Bank. Based on UCP 500 sub-article 14 (e), failure to return the documents to the Negotiating Bank precludes the Issuing Bank to claim that the documents are not in compliance with the terms and conditions of the Credit. Accordingly, the Issuing Bank is obligated to honour the relevant drawing plus any applicable delayed payment interest and costs. Unanimous Decision: Given that the Court order did not enforce the Issuing Bank to withhold the documents, the Issuing Bank was obliged to return the documents to the Negotiating Bank under the UCP, failing that, the Issuing Bank must honour the drawing. DOCDEX 329 2 Credits, subject to UCP 600, available with any bank by negotiation. Credit 1 required 7 separate sets of documents to be presented with the following documents for each set: Invoice 3 original + 2 copies, full set B/L + 3 copies, Packing list 3 original + 2 copies, two different beneficiary’s certificates. Credit 2 required 10 separate sets of documents to be presented with the following documents for each set: Invoice 3 original + 2 copies, full set B/L + 3 copies, Packing list 3 original + 2 copies, two different beneficiary’s certificates. Both credits 1 and 2 contain two specific stipulations: A) “All required documents must indicate our L/C number and date”. B) “Any minor typing mistake which will not affect quality, quantity, price, value and expiry date and shipment date shall be acceptable”. Credit 1: Issuing Bank refused the documents via MT734 stating: “INVOICE n. GJ13-57-V5 NOT INDICATE LC NUMBER AND DATE. HOLDING DOCS AS PER ART. 16C-III B OF UCP 600”. Negotiating Bank states: (a) missing L/C date and number is a typing error, while L/C number and date are correctly shown on other 6 invoices and 128 other documents (including copies) in the presentation, (b) the lack of credit number and date is covered by the special condition in the credit where “typing mistake which will not affect quality, quantity [...] shall be acceptable”, (c) ISBP Para 25 indicates a practice where misspelling or typing error does not make a document discrepant and (d) Banking Commission Opinions R289 and R635 state that a credit number on a document is only to assist in tracing documents should they go astray and even the misquoting of a credit number is not grounds for refusal of documents. Issuing Bank replied stating that the question is not related to a typing error but is a true discrepancy due to the failure of an explicit and specific requirement of the credit irrespective of the use of such data. On the same date the Issuing Bank returns the documents to the Negotiating Bank. Credit 2: Issuing Bank refused the documents via MT734 stating: “INVOICE N. GJ13-71A-7V INDICATED DIFFERENT NAME OF VESSEL FROM THAT OF BILL OF LADING (Shan Dong Da i/o Shan Dong Hai Da). HOLDING DOCS AS PER ART. 16C-III B OF UCP 600”. Negotiating Bank states: (a) the other documents in the same set of the invoice GJ13-71A-7V including B/L and shipping advice indicate the vessel correct name, (b) all other 9 sets of document (totalling 115 documents including copies) indicate the vessel name correctly, (c) the missing “Hai” is a typing error and ISBP paragraph 25A applies and also the specific stipulation in the credit which makes acceptable “typing mistake which will not affect quality, quantity [...]”, (d) the Banking Commission opinion R698 states that “a typographical error, when read in context with the other presented documents, does not create a discrepancy”. Issuing Bank replies stating that it is not possible to consider the failure of “Hai” as a typographical error because the “error” leads to another name, which may belong to another vessel. Issuing Bank returns the documents to the negotiating bank the same day. QUESTIONS ASKED 1. Is the missing L/C number and date on invoice no. GJ13-57-V5 - while it was correctly typed in all other documents of the same presentation - a discrepancy in terms of UCP 600 and International Standard Banking Practice? 2. In the circumstances outlined above, is the miss-typing “Hai” from the vessel name only in the invoice n. GJ13-71A-7V - while it was correctly typed in all other documents of the same presentation - considered a discrepancy under UCP 600 and International Standard Practice? ANALYSIS In both credits, certain data, as required by the credit, are not shown in the documents: L/C number and date in the first credit; a part of the vessel name in the second. Question 1: ICC Opinions R289, 578, 635 and TA 774 all address this situation and are consistent in their conclusion: A requirement for the insertion of a credit number on a document is only to assist in tracing documents should they go astray. Since the documents were received by the issuing bank and the issuing bank is applying the presented bill of lading under the correct credit number, it would seem to be an irrelevance, and not valid grounds for refusal, Opinion R289 also stated: “Regarding the L/C number, however, the ICC has on numerous occasion stated that it disapproves of the practice, especially where transport documents are concerned, and now again reiterates this view”. Based on the statements in the referenced opinions, the misquoting or absence of the L/C number and date are not grounds for discrepancy, even if required by the credit. Question 2: 10 sets of documents were presented, with 10 bills of lading, 10 invoices and 10 shipping advices: all of them showing the correct vessel name “MV Shan Dong Hai Da” apart from one invoice in which the word “Hai” is missing. The presentation of documents, collectively, refers to shipment on one vessel as indicated in the bills of lading. UCP 600 sub-article 14 (d) states: “Data in a document, when read in context with the credit, the document itself, and international standard practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.” The absence of the word “Hai” in one invoice is not considered to be a conflict. There is sufficient evidence in the documents as a whole to reflect compliance with the credit. VI CONCLUSION The discrepancies under questions 1 and 2 are not valid. The Issuing Bank must honour. Statement of the Chair This decision is rendered unanimously. Read the full transcripts of the referenced cases for the full particulars of each case. The Opinions discussed were in the sequence TA786 and 792 (TA786 had been held over from the Lisbon meeting following a re-drafting based on comments made at that meeting). TA.786rev2 – This draft opinion had been held over from the Lisbon meeting and re-drafted on the basis of comments made in the discussion session. The issue, which was heavily debated in both Lisbon and Vienna, centered on a credit that made reference to two types of goods with a unit price and quantity stated to be 500,000kgs – but without indicating the basis for the quantity. In normal circumstances, one would be looking at either a gross or net weight. In this case, whilst the bill of lading, certificate of origin and weight list, covering a partial shipment, showed a gross weight of 504,402kgs and net weight of 501,604.80kgs, the invoice (and therefore the basis upon which payment was to be made) showed a ‘commercial weight’ and this was stated to be 513,828kgs. The commercial weight was also shown on the weight list. The question asked was, absent any indication in the credit of the weight basis, was a commercial weight acceptable? It should be noted at this stage that the shipment covered Viscose Staple Fiber (see further comments below). The analysis made reference to UCP 600 sub-article 14 (d) and made the point that there was no conflict of data between the documents and the credit. It went on to say that the quantity of goods to be supplied was stated in kilograms without any additional qualification. The commercial invoice and the weight list both indicated a “commercial weight” whilst the weight list, bill of lading and certificate of origin also showed a gross and net weight which differed from the commercial weight. The analysis emphasises that when a drawing amount is to be based upon the weight of the goods that are shipped, multiplied by a unit price, it is the responsibility of the issuing bank to ensure that the credit indicates the basis under which that amount is to be determined i.e., the net, gross, commercial weight or other formula; absent which, any basis used to determine the drawing amount is acceptable. ‘Commercial weight’ is a recognized term in the fiber industry. In this respect, the answer given by the Banking Commission, that the invoice showing the commercial weight as the basis for determining payment was acceptable, was made subject to a specific clause added to the analysis. This reads “Commercial weight” is a term commonly used in the determination of weight for fibers, a process that also takes into consideration the impact of moisture regain on the weight of the fiber. The incorporation of moisture regain accounts for why a commercial weight will be greater than a net weight, i.e., the moisture being taken into consideration after establishment of the dry weight. In the fiber industry, commercial weight is an understood term. Whilst it would have been preferable for this to be stated in the credit, it does not detract from the fact that “commercial weight” is an acceptable term for the described goods. For other commodities, other practices exist. It must be said that the conclusion, whilst accepted by a clear majority of national committees, was still subject to some further deliberation, even after the meeting! See TA.786rev2 for the full transcript of the opinion. TA.787 – A credit contained a condition “B/L presented in incomplete number of page is not acceptable.” A presentation was made, including a full set of charter party bills of lading as permitted by the credit. The issuing bank refused the documents due to “bill of lading presented in incomplete number of pages.” The issuing bank based their refusal on the following: “Full set charter party bill of lading presented has indicated “Page 01” at the reverse side of the B/L but the front page did not indicate “Page 02” to declare it was the 2nd page of the B/L.” The nominated bank made various arguments to counter the refusal including “On the front page of the B/L, it did not indicate wording such as ‘continuation to page 2’ or ‘continue to next page’ or ‘page 1 of 2’ that could lead to an interpretation there would be a 2nd page or supplement/appendix attached to it.” and “There is no such requirement in the credit that front page of the document is to state the page no. and marking page 01 on the back page has no meaning at all so why the front page needs to declare itself as page 02?” The beneficiary eventually arranged for an agent to amend the document and the issuing bank honoured two weeks after the original date of negotiation. The analysis included “The requirement in the credit for ‘B/L presented in incomplete number of page is not acceptable’ is unclear as to the exact intention. There is no indication in the bill of lading that there are additional pages.” and the conclusion of the Banking Commission was that the document was compliant as originally presented. See TA.787 for the full transcript of the opinion. TA.788rev – This query focussed on an issue that is not that common. A bill of lading was issued bearing an on board notation showing “Clean on board 18 February 2013”. The bill of lading also bore a clause “Vessel under arrest 18 February 2013”. Documents were found to be otherwise compliant by the nominated bank and sent to the issuing bank as a complying presentation. The issuing bank refused the documents for three reasons (two of which were subsequently withdrawn). The remaining discrepancy was “Bill of lading is not clean. It bears the clause as follows: Vessel under arrest 18 February 2013.” The nominated bank refuted the discrepancy arguing that article 27 does not extend to such clauses. The analysis included “Arrest of a vessel, and any subsequent obligation or liability arising out of such arrest, is a matter of law and outside the remit of UCP 600.” and that article 27 does not apply. The document was not unclean and the issuing bank should have taken up the documents. See TA.788rev for the full transcript of the opinion. TA.789rev – A credit stated that documents must be presented not later than 10 calendar days after credit issuance date. Documents were presented within 10 calendar days after the credit issuance date, but the bill of lading showed an on board date of 6 months previous. The issuing bank refused the documents due to documents being presented later than 21 days after the date of shipment. The issuing bank argued that although the credit contained a condition requiring presentation within 10 calendar days after the credit issuance date, the default presentation period of 21 days after the date of shipment (in UCP 600 sub-article 14 (c)) would still prevail. Also, that the clause in the credit did not waive or exclude the content of sub-article 14 (c). The analysis quoted the content of a previous analysis given in ICC Opinion R716 (TA704rev). Making the point that if a rule in UCP 600 is to be excluded, there should be a specific statement to that effect. The conclusion stated that the reference to presentation within 10 calendar days modified the effect of sub-article 14 (c) and the documents were compliant. See TA.789rev for the full transcript of the opinion. TA.790rev - This query was in respect of a standby letter of credit that included a condition to the effect that if the documents show shipment effected by sea, a photocopy of an original bill of lading is to be presented. It was also stated that the document would be accepted as presented, subject to compliance with two sanctions driven requirements. The beneficiary presented a photocopy of a charter party bill of lading. The issuing bank refused for the presentation of such a document. The nominated bank referred the issuing bank to the clause in the credit that the document would be accepted as presented and to ISBP 745, paragraph A20 that copies of transport documents are not transport documents for the purpose of UCP 600 articles 19-25. The issuing bank refused to change their view. The analysis included “For a presentation of a photocopy of an original transport document UCP 600 sub-article 14 (f) applies (see also ISBP 745 paragraph A6 (a)) which determines the standard of examination of such photocopies. A photocopy of a transport document has no apparent function under a SBLC other than demonstrating that transport has taken place.” The conclusion stated that the discrepancy was not valid. This query demonstrates the need for a standby credit to be specific with regard to any documentary requirements, whether originals or copies, especially when supporting shipping documentation are required. See TA.790rev for the full transcript of the opinion. TA.791rev – A bill of lading had been signed “[Company M] Lines Ltd, as Carrier” (pre-printed text) and “By [Company A] Shipping Ukraine Ltd, as agents.” There was also the stamp and signature of Company A. The issuing bank had refused the bill of lading due to “The signature of agent on B/L not indicating on whose behalf it is signing.” The analysis referred to UCP 600 sub-article 20 (a) (i) and ISBP 745, paragraph E5 (c). It also emphasised that “In this particular example, the word “By” means “For and on behalf of the above.” The document was considered to be compliant. See TA.791rev for the full transcript of the opinion. TA.792rev – The final query that was discussed referred to two insurance documents and whether they could be considered as originals under UCP 600. The two documents had been presented in exclusively ‘black on white’ forms without, apparently, any additions being made. The two documents were made available as part of the query. It is difficult here to describe the documents that had been presented, as only photocopies had been provided and, as a result, the arguments that were made to accept them as originals. The conclusion stated that they should be treated as originals based on the text of the query and the information apparent from the copies that had been provided. See TA.792rev for the full transcript of the opinion.