QUERY

QUOTE

One of our export customers received a LC issued by a bank in Country B for USD327,000. The exporter submitted documents under the LC in six tranches, between 29 March 2022 and 16 May 2022.

All the presentations were made within the LC validity and the documents were issued in a similar manner. Out of the six presentations, the first four were honoured by the issuing bank without comment. The fifth presentation was refused for the same reason as indicated below but the refusal notice was sent later than 5 banking days after the day of presentation. We contested the validity of the late refusal notice, and the presentation was honoured 4 months later.

For the sixth presentation, the issuing bank quoted the discrepancy “Trade term not found in invoice. We are holding the documents as per UCP 600 Article 16(iii)b”.

Subsequently, the issuing bank sent a SWIFT message stating that the applicant refused to waive the discrepancy and that the original documents have been returned to us. On taking up the matter with the issuing bank, we were informed that they had quoted the discrepancy in line with ISBP 745 paragraph C8.

The description of the goods in the credit indicated xxx CFR [Port C] with no indication of the application to an Incoterms publication. The presented invoice showed C & F under the unit price and amount, with Port C mentioned as the port of discharge and final destination elsewhere in the invoice.

We have refuted the discrepancy noted by the issuing bank, quoting the following:

  • Trade Terms C&F were prevailing in the Incoterms 1980 publication. Subsequently, the same term was modified to CFR, maintaining the same obligations and responsibilities for the seller and buyer.
  • From the specific reference to freight charges, it is evident that the invoice was drawn for C&F only. The freight charges paid by the seller, at the loading port, were evident in the bill of lading itself.
  • The trade term specified in the credit did not indicate the relevant publication (1980/1990/2000/2010 or 2020) to be applied in this transaction. Hence, the beneficiary chose the equivalent trade term from the 1980 publication. As an issuing bank, they should have ensured that the credit avoided any ambiguity (about the applicable Incoterms publication). We also referred to ISBP 745 preliminary consideration (v).
  • The trade term C&F was converted to CFR to avoid the special character “&” in a SWIFT message.
  • Acceptance by the issuing bank of the same data (C&F), without raising any rejection of the earlier drawings under the same credit, indicated that the issuing bank had accepted this trade term previously.
  • Contention from the issuing bank regarding the invoice not having the trade term cannot be accepted. It states “C&F”.
  • We have defended our position, since the issuing bank has honoured the earlier drawings that were presented in a similar manner and they cannot suddenly change their stance in this transaction.

We have taken cognizance of the following clause in ISBP 745 paragraph C3 which reads as follows:

“The description of the goods, services or performance shown on the invoice is to correspond with the description shown in the credit. There is no requirement for a mirror image. For example, details of the goods may be stated in a number of areas within the invoice which, when read together, represent a description of the goods corresponding to that in the credit.”

Hence, the discrepancy noted by the issuing bank “Trade term not found in invoice” cannot be treated as a discrepancy.

As the issuing bank had honoured and made payment for the earlier drawings, without conveying any discrepancies, it is understood that the issuing bank was well aware of the content of paragraph C3.

ISBP 745 paragraphs C3 to C14 provide clarity concerning “Description of the goods, services or performance and other general issues related to invoices”. In the present case, the trade term was mentioned as part of the description of the goods and, if read together, it corresponds with the description in the credit. Hence, paragraph C3 very much applies here.

We are continuously following up with the issuing bank for payment by quoting the above points. However, the issuing bank has refused to make payment.

Our Bank’s stance: We are of the opinion that the issuing bank is not correct by quoting the said discrepancy.

We seek an ICC opinion as to whether our above stance is correct.

UNQUOTE

ANALYSIS

As stated in the query, 4 presentations under a documentary credit subject to UCP 600 were received and honoured by the issuing bank. In each presentation, the beneficiary’s invoice indicated “C & F” whereas the credit stated “CFR” (no reference to Incoterms was mentioned).

The fifth presentation was refused by the issuing bank due to: “Trade term not found in invoice”. It can be construed that the presenting bank refuted this discrepancy by informing the issuing bank that the invoice did include the trade term C & F, noting that C & F is the same as CFR and further indicating that the issuing bank’s refusal notice was not valid as it was sent later than the close of the fifth banking day following the day of presentation (UCP 600 sub-article 16 (d)). The presentation was eventually honoured four months after the objection to the refusal notice, which is not in line with international standard banking practice.

The sixth presentation was also refused by the issuing bank, citing the same discrepancy noted above i.e., “Trade term not found in invoice”. The presenting bank again challenged the validity of the discrepancy, for a variety of reasons, including a statement that acceptance by the issuing bank of the same data (C & F), without raising a similar refusal notice for the first four presentations, indicated that the issuing bank had accepted this trade term.

It should be noted that the matter of setting a “precedent” has been raised in previous ICC Opinions.

For example, as noted in Opinion R556 (TA525): “The UCP is silent with regard to documents that have previously been accepted and a subsequent presentation has been rejected, irrespective of whether the documents were found to comply with the credit or were acceptable by virtue of an acceptable waiver being issued by the applicant. As was expressed in opinion R.270 (Issue 2), this matter concerns the question of creation of a precedent. The usual attitude of banks is that such precedents cannot be created, because while circumstances may be superficially the same on the documentation level, each transaction (i.e., each credit or drawing thereunder) is separate from each of its predecessors and is considered independent. Other factors, outside the credit, however, need to be taken into consideration in the event of such a dispute being referred to a court of law.”. As such, all presentations must be treated on a stand-alone basis with no reference to precedent caused by earlier presentations.

However, with regards to the invoice, the presenting bank is correct in highlighting that “CFR” did replace the term “C & F” in the Incoterms publications because the ampersand sign caused issues with SWIFT/Telex messages. Whilst they are, in essence, the same term, certain industries such as GAFTA still use C & F for grain shipments.

In any event, the invoice complied with ISBP 745 paragraph C3. The presenting bank could have also referred to UCP 600 sub-article 18 (c) i.e., “The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit”. As noted above, the presented invoice showed C & F under the unit price and amount, with Port C mentioned as the port of discharge and final destination elsewhere in the invoice. This corresponds to the credit requirements.

Banks should take note of ISBP 821 preliminary consideration (iv) wherein it is stated that the applicant and beneficiary should carefully consider the data content of documents required for presentation.

CONCLUSION

There is no discrepancy.

The opinion(s) rendered on this query reflect the opinion of the ICC Banking Commission based on the facts under “QUOTE” above.

The reply given is not to be construed as being other than solely for the benefit of guidance and there should be no legal imputation associated with the reply offered.

If this query relates to a matter currently under consideration by the courts, the ICC Banking Commission will refrain from considering it for adoption as an opinion.

Neither the ICC nor any of its employees, nor any member of the Banking Commission, including the Chairman, Vice-Chairmen or Technical Advisers shall be liable to any person for any loss or damage arising out of any act or omission in connection with the rendered opinion(s).