Article

By Pavel Andrle

The revision of the ICC Banking Commission document "International Standard Banking Practice for the Examination of Documents under Documentary Credits under UCP 600" (ISBP) was finalized and approved by the Commission at its regular spring meeting held in April 2013 in Lisbon.

Most documentary practitioners already have the new ISBP 2013, ICC Publication 745E. It contains a number of positive improvements which have been welcomed by almost everyone: however, it also includes some provisions which might cause an unwary practitioner to raise his eyebrows. Consequently, they deserve our special attention.

One of these is the provision captured in paragraph D1(c): "When a credit requires the presentation of a transport document other than a multimodal or combined transport document, and it is clear from the routing of the goods stated in the credit that more than one mode of transport is to be utilized, for example, when an inland place of receipt or final destination is indicated, or the port of loading or discharge field is completed but with a place which is in fact an inland place and not a port, UCP 600 article 19 is to be applied in the examination of that document."

In line with this provision, there is also a corresponding provision in paragraph E1(a) related to that bill of lading: "A requirement in a credit for the presentation of a transport document, however named, only covering a port-to-port shipment, i.e., a credit that contains no reference to a place of receipt or taking in charge or place of final destination means that UCP 600 article 20 is to be applied in the examination of that document."

The practice has been that if the credit in its requirement for a transport document used language such as "ocean bill of lading", "marine bill of lading" or even only "bill of lading", then article 20 of UCP 600 was used in its examination, regardless of whether the credit (incorrectly) specified a place of receipt and/or a place of final destination as well.

If a credit requests presentation of an ocean bill of lading covering port-to-port shipment, it should obviously not specify a place of receipt or a place of destination. But what if it does? Can we override the express, arguably incorrect credit provision and say, based on our assumption, that what was actually meant was a requirement for a multimodal transport document, i.e., that the presented document would be examined as per article 19 instead of article 20?

Opinion R751

ICC Opinion R751 dealt with this issue. The credit showed the following information:

44A

Place of Taking in Charge/Dispatch from .../Place of Receipt: South Korea

44E

Port of Loading/Airport

of Departure: Any port in Korea

44F

Port of Discharge/Airport

of Destination: Peru Callao Port

44B

Place of Final Destination/

For Transportation to .../

Place of Delivery: Lima and required "Clean on board ocean B/L".

The document presented was an ocean B/L containing following information:

Place of Receipt: Blank

Port of Loading: Ulsan, Korea

Port of Discharge: Peru Callao Port

Final Destination: Lima

The Banking Commission Opinion stated that the credit should have requested the presentation of a multimodal transport document based on the specified routing

(i.e., as the credit specified also places of receipt and destination).

This is certainly true. Had the credit been issued correctly, no problem in this respect would have arisen. However, as it was not, can one assume that the credit actually requested the presentation of a multimodal transport document, and could one apply article 19 of UCP 600 in its examination?

The Opinion said: "Although the beneficiary presented a document titled 'Ocean Bill of Lading' it covered shipment from a South Korean port (Ulsan) to Lima. The transport document must be examined under the article that is applicable to the conditions stated in the credit i.e., article 20. As shipment was effected from a South Korean port, the absence of any data in the field titled 'place of receipt' would not be a reason for refusal."

In simple terms, the Opinion suggests that, as the ocean bill of lading was requested by the credit, the document presented would be examined as per article 20, designed for examination of port-to-port bills of lading. The document must show that goods were shipped on board a named vessel in the port of loading indicated in the credit. The bill of lading would not need to show any place of receipt and/or place of destination. If it does, my assumption is that in such a case the place of receipt and/or place of destination indicated in the bill of lading must not be in conflict with those stated in the credit. Generally speaking, these places stated in the credit would be deemed to be "non-documentary conditions".

This logic in Opinion R751 is now seemingly overridden by ISBP 745, paragraphs D1(c) and E1(a). The credit requirement for a "clean on board ocean bill of lading" would be read as a requirement for a "clean multimodal transport document".

I assume that the multimodal transport document would not need to show an "on board notation", either in relation to shipment from the place of receipt or the port of loading1. The document would have to show that the goods were taken in charge, dispatched from or received in the place of receipt and are to be delivered to the place of destination. The transport document would apparently have to cover the whole transport route. The transport document would have to show that goods are to go via the port of loading and the port of discharge as indicated in the credit.

This situation is related to the first example given in the paragraph D1(c) of ISBP 745E (i.e., when an inland place of receipt or final destination are indicated).

Problems in practice

It seems to me that the drafters of ISBP 745 were not pleased with the findings of Opinion R751. However, I personally see potential trouble in practice with application of the second example given in paragraph D1(c): " ... if the port of loading or discharge field is completed but with a place which is, in fact, an inland place and not a port".

This suggests that, for instance, if the credit calls for an ocean bill of lading and specifies:

44E

Port of Loading/

Airport of Departure: Prague

44F

Port of Discharge

Airport of Destination: Singapore

the multimodal transport document is to be presented and will be examined under article 19 of UCP 600, since there is no sea port in Prague. Prague would be deemed to be the place of receipt/taking in charge/dispatched from.

The second example seems to be at odds with the language in paragraph D1(c), which says: "and it is clear from the routing of the goods stated in the credit that more than one mode of transport is to be utilized". This goes beyond the issue addressed by the Opinion R751, which apparently was intended to be overridden. The argument may be made that it is not clear from the routing of the goods stated in the credit itself that more than one mode of transport is to be utilized! There is apparently a discrepancy between the notion and the second example of the application of the rule.

Unless one looks at a map or knows the geography, he/she would not figure out that the goods cannot go from the Prague on a sea vessel. Again, there is no seaport in Prague.

Nuances

No doubt there are many practices and new developments in sea and multimodal transport. Sea transport might also cover some leg of inland transport, and the same can be said of air transport, etc. What seems crucial to me is to know where the responsibility of the carrier starts and what that responsibility is.

There are and will be many nuances in documentary credit practice. No set of rules or practices can capture all of them in their complexity. But the parties to the credit transaction should try to discuss, understand and deal with their particular cases in sufficient detail.

I can only repeat that what is really crucial in practice is the proper issuance of credits in the first place. The ISBP can, to some limited extent, help; however, its mandate is not to rectify incorrect credit terms and conditions. Pavel Andrle, international trade finance trainer and consultant, can be contacted at andrle@icc-cr.cz

Pavel Andrle, international trade finance trainer and consultant, can be contacted at andrle@icc-cr.cz

1 But I can imagine an argument saying that the requirement for the transport document to show "on board" has not been dropped!