Article

UCP 600 article 3; sub-article 18 (a) (i)

When the credit requirement was for a "signed commercial invoice"; whether, in terms of article 3, a stamp can act as a form of signature; when the credit required the bill of lading to be blank endorsed [by the shipper]; whether any form of signature, with the identification of the company on whose behalf the endorsement is being made appearing on the front or back of a "To Order" bill of lading, was acceptable

Query [TA 691rev]

We are writing to request your official opinion. The details were as follows:

Beneficiary: ABC Co Ltd

Credit amount: USD90,000.00

Required documents:

- signed commercial invoice

- bills of lading consigned to order and blank endorsed

- three sets of invoices (#101, 102 and #103) presented as follows:

Front of the presented bill of lading:

Back of the bill of lading

The stamps above show the name of the beneficiary in English and Chinese. The Chinese enterprises use the above stamps quite frequently as their signatures. The banks in mainland China consider that the above stamps fulfil the third paragraph of UCP 600 article 3. However, the banks outside main land China may think otherwise. Please provide your comments whether the above stamps would be acceptable as duly signed and endorsed by the beneficiary and the shipper respectively. Our comments are as follows.

(1) Invoice #101 was signed properly, because the invoice contains the letterhead of the beneficiary. The stamp on the invoice serves as the signature only.

(2) Invoice #103 was also signed properly, because the invoice shows the name of the beneficiary beneath the stamp. The stamp on the invoice serves as the signature only.

(3) Invoice #102 and the bill of lading may not be properly signed or endorsed due to the absence of the name of the beneficiary and the shipper.

Analysis

UCP 600 article 3 includes the following language: "[A] document may be signed by handwriting, facsimile signature, perforated signature, stamp, symbol or any other mechanical or electronic method of authentication."

Sub-article 18 (a) (i) states: "[A commercial invoice] must appear to have been issued by the beneficiary (except as provided in article 38)."

Let us take each issue separately.

1. The credit requirement is for a "signed commercial invoice"

In terms of article 3, a stamp can act as a form of signature, and its use would not in itself be a reason for refusal. However, the context of the use of the stamp is context of the use of the stamp is important and, in certain instances, the stamp may not qualify as representing a signature of the issuer. If an issuing bank requires a "manually" signed commercial invoice, then that qualification must be inserted into the credit. Otherwise, a stamp may be valid.

For the case in question, both examples 1 and 3 show the name of the company in English and Chinese, and the stamp is clearly affixed so as to represent a "signature" of the issuer. Example 2 has no company name indicated on the invoice, but the stamp fulfils this requirement by evidencing the name of the company together with Chinese characters that can be considered to represent the signature of the named company.

(2) The credit requirement was for the bill of lading to be blank endorsed [by the shipper]

Any form of signature, with the identification of the company on whose behalf the endorsement is being made, appearing on the front or back of a "To Order" bill of lading, would be acceptable. In the example shown, the endorsement would be acceptable.

Conclusion

Reviewing the examples provided, in accordance with the requirements of article 3, each of them would be considered to be compliant. In respect of the endorsement of the bill of lading, it too would be compliant.

UCP 600 article 16; sub-articles 16 (f), (c) and (d)

Were charges deducted by the issuing bank acceptable when the credit stated all charges outside its country are for account of the beneficiary?

Query [TA 700rev]

We would like to seek an official opinion of the ICC Banking Commission on the following matters regarding charges frequently deducted by issuing banks from their reimbursements/settlements under documentary credits issued subject to UCP 600.

We have frequently faced the following situations:

Situation A

A documentary credit issued subject to UCP 600 stated merely: "all charges outside Country X are for account of beneficiary" ("Country X" being the country of the issuing bank) without reference to any other charges for the account of the beneficiary. We forwarded the documents with discrepancies to the issuing bank. We received a timely refusal notice. The drawing amount was then paid by the issuing bank, subject to deduction of a discrepancy fee. We objected to the deduction, stating that nowhere did the credit state any discrepancy fee was to be for the account of the beneficiary.

The issuing bank replied, referring to its "standard terms and conditions for correspondent banks". We argued that the credit was issued subject to UCP 600 and not subject to its "standard terms and conditions for correspondent banks", and that it could base any deduction solely on the stipulations of UCP 600 and the credit itself.

Is our understanding correct? Would there be any difference if the issuing bank claimed the deduction of a discrepancy fee to be "standard practice"?

Situation B

A documentary credit issued subject to UCP 600 stated merely: "all charges outside Country X are for the account of beneficiary" ("Country X" being the country of the issuing bank) without reference to any other charges to be for the account of the beneficiary.

We forwarded credit-conforming documents to the issuing bank. We received a settlement, subject to a deduction of "telex/SWIFT" and "reimbursement comm". We objected, stating that its "telex/SWIFT" and "reimbursement comm" charges were apparently charges within its country and that its credit only stated charges outside its country to be for the beneficiary's account, and there was no stipulation in the credit or UCP that would allow it to deduct any charges from the settlement. The issuing bank replied that it was a "standard practice to deduct telex/SWIFT and reimbursement charges from the settlement". We replied that in our knowledge there was no such "standard practice" that would authorize such a deduction. Is our interpretation correct?

Situation C

A documentary credit issued subject to UCP 600 and available with the issuing bank by deferred payment stated merely: "all charges outside Country X are for account of beneficiary" ("Country X" being the country of the issuing bank) without reference to any other charges to be for the account of the beneficiary. We for warded credit-conforming documents to the issuing bank and, in our covering letter, we stated: "please confirm that you incur your undertaking to pay stating maturity date by authenticated SWIFT." We received the requested SWIFT confirmation, and at maturity we received settlement, subject to a deduction of "telex/SWIFT" costs. We objected, stating that its "telex/SWIFT" charges were apparently charges within its country, its credit only stated charges outside its country to be for the beneficiary's account, and there was no stipulation in the credit or UCP that would allow it to deduct any charges from the settlement. The issuing bank replied that its requirement was that payment at maturity be confirmed by authenticated SWIFT. We responded that we requested nothing beyond usual practice and that we must deem it good conduct for an issuing bank to confirm its undertaking and payment at maturity.

Is our reasoning correct? Would there be any difference if the credit was payable at sight and mere advice of payment was requested?

Situation D

A documentary credit issued subject to UCP 600 stated: "all charges outside Country X are for account of beneficiary" ("Country X" being the country of the issuing bank). It also stated: "for documents presented with discrepancies, issuing bank's discrepancy fee of USD50 shall be deducted from remittance."

We forwarded the documents to the issuing bank (no discrepancies were expressly stated in our covering letter) and received remittance, subject to deduction of a USD50, discrepancy fee. We received no refusal advice. We did receive the issuing bank's payment advice showing deduction of its "discrepancy fee". This advice did not state the discrepancy(ies) upon which deduction of that discrepancy fee was based. We objected, stating that in failing to act in accordance with UCP 600 article 16, the issuing bank was precluded from claiming that there were any discrepancies in the documents (sub-article 16 (f)), and consequently also from attaching any claim for a discrepancy fee.

The issuing bank replied that it was not its intention to refuse documents in the first place and that it paid in due time based upon the applicant's waiver of discrepancies. In this message (sent long after the five-day period for examination and giving notice), the issuing bank also numbered the discrepancies, which it claimed to be "obvious". We responded that although the discrepancies may have been obvious, it did not relieve the issuing bank from its obligations under UCP 600 article 16. We also stated that in referring to UCP 600 sub-article 16 (f) we did not imply that a refusal notice should, under all circum stances, be sent, but that we at least expected the payment advice to list the discrepancies upon which the deduction of the discrepancy fee was based (N.B. in some cases the discrepancies may be far from obvious and the presenter may wish to dispute them.)

Is our understanding correct? Would there be any difference if our covering letter expressly stated discrepancies? Had the issuing bank stated the discrepancies in its payment advice, would it have been relieved from the consequences of UCP 600 sub-article 16 (f), or can it base any deduction of its discrepancy fee only upon previous timely sending of a refusal notice?

Analysis

The subject of charges levied by issuing banks, in the absence of a specific reference in the credit, has been covered by previous ICC Opinions R 380 and TA 659.

The message in both Opinions was quite clear: "If the issuing bank wishes to make a deduction from the proceeds in respect of this [a] fee, then the credit should clearly indicate the amount or percentage of charges that will be deducted." In this way, the beneficiary and the nominated bank will be aware of the level of deductions that may be made from the proceeds of a presentation.

In assessing what additional charges may be due to an issuing bank, where the credit states "all charges outside Country X are for account of beneficiary", a line needs to be drawn between those charges that are known or distinct possibilities, i.e., a discrepancy charge, and those charges that materialize through requests of the nominated bank, i.e., a request for an authenticated message confirming the due date, that payment has been effected, etc.

As stated in ICC Opinion R 380, when the issuing bank is responsible for the payment to the presenter or nominated bank (i.e., when there is no reimbursing bank or authority to debit an account stated), such payment should be made without deduction of a transmission or payment fee from the drawing amount. The remittance of funds is merely the discharging of the issuing bank's liability. If a fee is due, it should be paid by the applicant.

Where a nominated bank requests the issuing bank to provide a SWIFT or tested telex message confirming an action, i.e., to confirm the due date of a draft or deferred payment undertaking, it would not be unreasonable to expect that the issuing bank will make a charge for this service. This message was not something that could be contemplated at the time of issuance with a reference made in the credit to the levying of a fee.

When an issuing bank finds discrepancies in documents, it has two options available to it under article 16: to provide a refusal message to the presenter in terms of sub-articles 16 (c) and (d), or to approach the applicant for a waiver without first providing a notice of refusal (sub-article 16 (b)). When the option of approaching the applicant for a waiver is chosen, and such waiver is given and accepted by the issuing bank, the practice is for the issuing bank to honour, and such honour will be less any discrepancy fee that was stated in the credit. When this course of action is taken, the issuing bank should provide the presenter, as part of their payment message or in a separate communication, details of the discrepancies that were observed. The presenter can then choose to dispute the discrepancies, therefore questioning the relevance of the deduction representing the discrepancy fee. If the issuing bank does not provide such an indication, the presenter may seek, and the issuing bank must provide, such details. The actions of the issuing bank, as described in situation D, do not represent preclusion under sub-article 16 (f ).

Conclusion

Situation A Your understanding is correct. Although it is common for banks to deduct a discrepancy fee, it is not an international standard banking practice to do so. The issuing bank refers to charging in accordance with its "standard terms and conditions for correspondent banks". These terms and conditions have nothing to do with the handling of documents under the credit or UCP 600. If an issuing bank wishes to deduct a discrepancy fee, then details of its intent to deduct a fee and the amount thereof should be stated in the credit.

Situation B Your interpretation is correct. As stated under "Analysis", charges in respect of making the payment under the credit should not be for the account of the beneficiary. If a fee is to be levied, it should be charged to the applicant.

Situation C Your reasoning is not correct, and there would be no difference of opinion between different types of availability. Charges incurred in respect of actions taken by the issuing bank, at the request of the presenter, are for the account of the requesting party, i.e., the presenter. These charges need not necessarily be expressly referred to in the credit as being for account of the beneficiary.

Situation D Your understanding is partially correct. The issuing bank is entitled to a discrepancy fee as outlined in the credit, but it should inform the presenter of the discrepancies that were found, either in the advice of payment or in a separate communication. The issuing bank is not required to send a notice of refusal to the presenter if it elects to contact the applicant for a waiver and to receive a waiver acceptable to it. Sub-article 16 (f ) does not apply in these circumstances. If the covering schedule listed the discrepancies that the presenter had found, the issuing bank should either advise the presenter that the documents were taken up despite the discrepancies that had been identified by the presenter, or list the discrepancies for which the issuing bank had sought a waiver from the applicant.

UCP 600 sub-articles 16 (d) and (f); 14 (h) and (a); 7 (c); article 5

When a refusal notice was sent 14 days following the day of presentation, was the issuing bank precluded under sub-article 16 (f) from claiming the documents did not constitute a complying presentation? Was there a non-documentary condition under sub-article 14 (f)? What are the consequences when a court injunction was issued at some point after the refusal message was sent?

Query [TA 689]

Relevant information

- Exporter (beneficiary): Company H (Country V)

- Importer (applicant): Company R (Country B)

- Issuing bank: Bank I, Country B

- Negotiating bank: Bank V, Country V

- Goods: fresh ginger

- Payment terms: irrevocable letter of credit at sight, unconfirmed, available with any bank in Country V by negotiation

Details

10 December 2008: the exporter presented shipping documents under the above-mentioned credit at our counters. We negotiated and sent the documents to the issuing bank;

13 December 2008: the date the documents were received by the issuing bank. According to UCP 600, the final date for examination should have been 20 December 2008. Up until now, there has been no information from the issuing bank about the status of payment despite our numerous tracers;

27 December 2008 (14 days after receipt of documents): the issuing bank sent us a SWIFT FIN999 message stating "Please treat the message as MT734" with the following con tents, which are so-called "discrepancies":

"+ SWIFT field 47A, clause no.2, not comply as per L/C [note: Field 47A point no. 2 stated 'Goods must be shipped in export standard packing and clearly marked country of origin and shipping marks in each and every package/ carton/bag/container']

+ Ginger is perishable goods but beneficiary has shipped the goods by dry container"; 29

December 2008: we sent a SWIFT message to the issuing bank saying that we did not agree with its opinion concerning the discrepancies in the documents, because:

(a) the issuing bank did not send the refusal message within the maximum time of five banking days after receipt of documents, as per UCP 600; and

(b) the so-called "discrepancies" in their message are all invalid. Field 47A, clause 2 is a non-documentary condition which is disregarded by banks when examining the documents. Also, banks deal with documents and not with goods, services or performance to which the documents may relate (article 5, UCP 600). Therefore, the documents comply with the credit terms. We then continuously requested the issuing bank to make payment;

26 January 2009: the issuing bank informed us that the applicant could not release the consignment; the government authority had destroyed the consignment, which was not considered fit for human consumption ("ginger is half rotten"), and it is unable to make payment because it is now in receipt of an ad-terim injunction from the 3rd assistant judge in City D, Country B;

11 May 2009: the issuing bank sent us a copy of the High Court notice via courier with the content almost all in the local language. It would appear that the court injunction was issued at some point after the refusal message was sent. At the time the documents were originally refused, there were no discrepancies and therefore the bank should have paid. The status of the documents being compliant was evident prior to the injunction date.

Could you please give us your opinion on this case? What are the responsibilities of the banks (ours and that of the issuing bank)?

Analysis

The refusal notice was sent 14 days following the day of presentation. Sub-article 16 (d) requires that a refusal notice be sent no later than the fifth banking day following the day of presentation. By not complying with the provisions of article 16, the issuing bank is precluded under sub-article 16 (f ) from claiming that the documents did not constitute a complying presentation.

In any event, the discrepancies were not valid. The condition "Goods must be shipped in export standard packing and clearly marked [with] country of origin and shipping marks in each and every package/carton/bag/container'' is non-documentary according to sub-article 14 (h). Provided the beneficiary did not insert data on one or more of the stipulated documents that conflicted with this requirement, the documents would be compliant in this respect. See ICC Opinion TA 644.

There would appear to have been no specific requirement in the credit as to how the goods were to be packaged other than that indicated in the non-documentary condition. Absent a specific requirement reflecting the perishable nature of the goods being shipped, the documents comply on their face in accordance with sub-article 14 (a).

It would appear that the court injunction was issued at some point after the refusal message was sent. At the time the documents were originally refused, there were no discrepancies (subject to the point made above), and therefore the bank should have paid.

As an injunction is now in place, the issuing bank cannot ignore this order of the court. The issuing bank should now reconsider its position vis-à-vis the status of the presentation and approach the court for the order to be removed, thereby upholding the principles of the letter of credit product and the UCP, in particular article 5 and sub-articles 14 (a) and (h).

Conclusion

Subject to the comment made in the analysis, the documents were compliant at the time of presentation to the issuing bank, and the issuing bank was required to reimburse the nominated bank in accordance with UCP 600 sub-article 7 (c).

Note: In the January-April issue of DCInsight, we inadvertently included two Opinions, 701rev and 704rev, that had appeared in a previous issue. We apologize for the error.