QUERY

QUOTE

A documentary credit, subject to UCP 600, was received and advised by our bank. It was, available with us by negotiation and our confirmation was added upon the issuing bank’s instructions.

Among the documents required to be presented, the credit stipulated “DRAFT SURVEY REPORT ISSUED BY INDEPENDENT SURVEYOR AT LOADING PORT IN ONE (1) ORIGINAL AND THREE (3) COPIES”.

Documents were presented to us, as confirming and negotiating bank. We considered them to be credit conforming, and negotiated. The Draft Survey Report document included in the presentation consisted of 2 pages bound together, where the 1st page under letterhead of the survey company, identified particulars of the survey, and certified the survey performed. This page was signed and stamped in original by the issuing independent surveyor. No page number was indicated.

Apart from the particulars identified on the signed page of the Draft Survey Report, appearing under the heading COMMODITY LOADED, VESSEL LOADED, CARGO HOLDS LOADED, PORT OF LOADING, LOADING DATES, QUANTITY LOADED, the document made reference to information appended, by stating “DETAILS OF SURVEY FINDING AND QUANTITY CALCULATIONS ARE APPENDED”. Footer of appended page identified the appended page as “Page 2/2”.

We treated the signed page as being an unmarked page 1 and the reference to page 2 of 2 on the attached page as being logical since the two pages were bound together and were marked with the same “Case number” reference.

After sending all required documents to the issuing bank, we received an MT799 message stating:

KINDLY TREAT IT AS MT734 UNDER OUR REF [XXXXXX]] FOR [AMOUNT]

FOR [ISSUING BANK CREDIT NO]

IMPORT ER: [APPLICANT NAME]

EXPORT ER: [BENEFICIARY NAME]

KINDLY FIND THE BELOW DISCREPANCY:

1) DRAFT SURVEY REPORT :

OMITS TO EVIDENCE THE PAGE NO. AS “PAGE 1 OF 2”

THANKS AND REGARDS

Upon receipt of this message, we replied with our objection insisting that all LC terms had been complied with, referring to ISBP 745 paragraph A24 in our argument: “…We strongly disagree with the discrepancy raised…Page one and page 2/2 of survey report is being bind together as individual set. Kindly refer to ISBP A24… “.

In reply, we received the following argument from the issuing bank:

“… WE ALSO CONSIDERED DRAFT SURVEY REPORT AS ONE DOCUMENT ALONG WITH THE ATT ACHMENT. HOWEVER, DRAFT SURVEY REPORT FRONT PAGE READS AS ‘DETAILS OF SURVEY FINDING AND QUANTITY CALCULATIONS ARE APPENDED’ BUT APPENDED ONLY PAGE 2 OF 2, PAGE 1 OF 2 IS MISSING, COMPLETE SET OF DRAFT SURVEY REPORT IS NOT PRESENTED…”. Please let us have your opinion on the case described, and the following questions.

1. Is the alleged discrepancy, as identified by the issuing bank in its refusal notice, “DRAFT SURVEY REPORT OMITS TO EVIDENCE PAGE 1 OF 2“, a valid discrepancy under the circumstances described?

2. The issuing bank’s refusal notice stated “DRAFT SURVEY REPORT OMITS TO STATE PAGE 1 OF 2”, but in the follow up message refers to their objections as “… PAGE 1 OF 2 IS MISSING AND COMPLETE SET OF DRAFT SURVEY REPORT IS NOT PRESENTED”. We consider that the follow up arguments refer to a discrepancy of a different nature than the one raised in the refusal notice. This added discrepancy should have been identified in the refusal notice in order for it to act as valid reason for dishonour. Do you agree?

3. As the refusal notice in itself does not fulfil any of the requirements stipulated under UCP 600 sub-article 16 (c) (iii), it is our understanding that according to sub-article 16 (f ) that the issuing bank would thereby be precluded from claiming that the documents do not constitute a complying presentation. Do you agree?

UNQUOTE

ANALYSIS

1) Documents, considered as compliant by the confirming bank, were presented to the issuing bank. The presentation included a Draft Survey Report, which comprised of two bound pages. The first page of this document included the letterhead of the survey company, identified particulars of the survey, and certified the survey performed. Furthermore, it was signed and stamped in original by the issuing independent surveyor. This page did not indicate a page number, but did include explicit reference to affixed information by stating that details of survey finding and quantity calculations were appended. The footer of the appended bound page identified such page as ‘Page 2/2’. Both bound pages were marked with the same ‘Case number’ reference.

Following examination of the documents, the issuing bank sent a notice of refusal stating a discrepancy that the Draft Survey Report omitted to evidence the page number as ‘page 1 of 2’. This was queried by the confirming bank, resulting in a further communication from the issuing bank stating that whilst they considered the Draft Survey Report as one document along with the attachment, the “front page reads as ‘details of survey finding and quantity calculations are appended’ but appended only page 2 of 2, page 1 of 2 is missing, complete set of draft survey report is not presented.”

The issuing bank’s concern appears to revolve around whether the unnumbered signed page should be deemed as page 1 of 2, or whether the signed page was actually meant to remain unnumbered and the beneficiary only presented page 2 of 2 as an attachment and neglected, for whatever reason, to present page 1 of 2. In any event, the responses from the issuing bank include a number of conflicts, not least the fact that it admits that the two bound pages do actually consist of one document. Furthermore, the issuing bank makes reference to a ‘front page’, which, by default, is naturally the first page, yet still insists that page 1 is missing. There is no consistency in this approach.

The fact remains that the two pages were bound. As clearly expressed in ISBP 745 paragraph A24, pages which are physically bound together, however named or titled, meet the requirement for determination of whether or not such presentation is to be considered as the same document. In addition, ISBP 745 paragraph A24 clearly infers that there is no need for such pages to be sequentially numbered or to contain internal cross-references provided that it is possible to determine that the pages are part of the same document. In this query, this is clearly achieved in a variety of ways:

• Both pages are bound together.

• The ‘front’ page explicitly refers to appended information, by stating “DETAILS OF SURVEY FINDING AND QUANTITY CALCULATIONS ARE APPENDED”.

• Both pages are marked with the same ‘Case number’ reference.

As a matter of additional interest, it is worth noting that it is not unusual in business for the first page of a multiple document to omit the page number. In cases such as this, wherein all of the necessary information was included, raising such an issue as a potential ‘discrepancy’ is considered to be very poor banking practice and should be avoided.

2) UCP 600 sub-article 16 (c) (ii) indicates that a notice of refusal must state each discrepancy in respect of which the bank refuses to honour or negotiate.

While there may, on occasion, be a need to qualify a stated discrepancy, such qualification must not change the nature of the originally quoted discrepancy. As mentioned above, in this case the “qualification” includes a number of conflicts, and it is entirely unclear as to how such information supports their attestation of a discrepancy.

3) UCP 600 sub-article 16 (c) indicates that a notice of refusal must indicate (i) that the bank is refusing to honour or negotiate; and (ii) each discrepancy in respect of which the bank refuses to honour or negotiate; and (iii)

a) that the bank is holding the documents pending further instructions from the presenter; or

b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

c) that the bank is returning the documents; or

d) that the bank is acting in accordance with instructions previously received from the presenter.

The notice of refusal was provided via SWIFT MT799, i.e., not via SWIFT MT734, which is the appropriate SWIFT message type for a refusal notice sent between banks. Although a refusal notice may be sent as an MT799 message, and even if it states “Kindly treat it as MT734”, this does not change the requirements for the refusal notice as stated in UCP 600 article 16. As a consequence, it should be noted that reference in an MT799 to treating the message as an MT734, noting that the MT734 is titled as an “Advice of Refusal”, does not allow for the MT799 message to not indicate that the sender is refusing the documents.

Therefore, the addition of wording, such as, “Kindly treat it as MT734” or similar, can be misleading and should not be used.

No reference to the bank refusing the documents and no inclusion of disposal instructions for the documents means that the bank has not acted in accordance with UCP 600 article 16 and, under sub-article 16 (f ), the bank is therefore precluded from claiming that the documents do not constitute a complying presentation.

CONCLUSION

1) No, the discrepancy is not valid.

2) Agreed. The content of the follow up message is inconsistent and confusing. It is not possible to definitively determine the exact intent from the text of this message, as it does not appear to support the original asserted discrepancy.

3) Agreed. The notice of refusal has not been issued in accordance with UCP 600 sub-article 16 (c) (iii), hence the issuing bank is precluded from claiming that the presentation is not complying and must honour.