Article

UCP 500 Article 25

Whether a charter party bill of lading containing an indication of the quantity and/or weight and/or measurement of goods, but bearing a statement (usually pre-printed on the charter party bill of lading) "Quality, Quantity, Measurements unknown" or similar, was discrepant

Query [TA 617rev]

Our national committee has received the below member inquiry and submits same to the ICC Banking Commission as a request for an Opinion under UCP 500. Please advise if our drafted "Analysis and Conclusion" are affirmed as an ICC Opinion. To our knowledge, this query does not relate to a matter currently under consideration by the courts:

Query

We have been receiving charter party B/Ls containing the following type of statements:

"Quality, Quantity, Measurements, etc. unknown". We are refusing due to B/L inconsistency, i.e., the B/L shows a gross weight and measurements, then states they are unknown.

Is it a discrepancy if the carriers list a gross weight of XX, measurements of yy, charge a fee based on these weights/ measurements and then on the same document state: "weight, measure, quality, quantity, condition, contents, and value unknown" as indicated in the last paragraph of the below extract?

If they state "shipper load count and stow", we accept because there is no contradiction. In this case we are not so sure. A clarification and an ICC Opinion would be welcome.

Our Analysis

The following is an extract from a paper provided by Company T. It is our understanding the Company T is a leading provider of insurance and related risk management services to the international transport and logistics industry. The full text follows:

"What is 'apparent good order and condition'? In a previous edition of the [Company T] newsletter, a [spokesman] for the Hong Kong office stressed how disadvantageous it can be to carriers if the shipment details entered on bills of lading do not correspond to the actual state of the goods received. On the other hand, most bills of lading or transport documents for international sale and carriage are subject to the Hague or Hague-Visby Rules. Article III Rule 3 of the rules stipulates that carriers must at least state on the bill of lading the 'apparent order and condition' of the goods shipped if the shippers so demand. In this article, the spokesman discusses how members can balance their duty to customers and their right to protect themselves from cargo claims.

'Apparent order and condition' refers to the condition of the goods as would be apparent on reasonable examination, and not the internal condition of the goods on shipment or their quality. If you receive consignments in irregular or doubtful condition, the Company recommends the following guidelines:

- First, you should note that when a shipment is stated to be in 'apparent good order and condition', it is also taken to mean it is properly packed and in such condition as to withstand the ordinary incidents of the voyage. If you receive a consignment which is obviously insufficiently packed, you must not issue a bill of lading without reservation.

- Second, the terms of reservation must be as clear as desirable. If they are too general or ambiguous, the courts may presume that the goods are represented to be in apparent good order and condition. For example, in the 1946 case of Potts (AE) v Union Steamship Company of New Zealand, the packages of a shipment were damaged and it was subject to pilferage. The carriers had only claused the bill of lading 'packages insufficient', and this was held to be an ineffective qualification of apparent good order and condition. The Company recommends that clausing or reservation be as specific as possible (say, '58 cartons crushed'), though sometimes it is necessary to give fair estimates (for example 'about 20% torn').

Moreover, any reservations or clauses must be placed on the front of the bill of lading, and not elsewhere. In an old 1935 case, The Skarp, the carriers received a shipment of damaged timber and entered a correct qualification but only on the reverse of the bill of lading. This was held not enough to contradict the status of the document as a 'clean' bill. A member recently advised us that it recorded the damaged condition of the goods only on their warehouse receipts, believing that the documents could be used to defend any subsequent cargo claims. This approach clearly would not help! Neither should you follow the example of another member who entered reservations about the state of the cargo on the bill, and then stamped it 'CLEAN ON BOARD'.

In a nutshell, the whole requirement is an 'accurate statement of fact' by exercising judgement on the appearance of the cargo so as give the shipper, the consignee and anyone else who becomes a holder of the bill reasonable notice that there is some defect or shortage in the goods.

Finally, most bills of lading contain a printed clause such as 'all particulars as furnished by the shippers but unknown to the carrier'; or 'weight, measure, quality, quantity, condition, contents, and value unknown' (see the Company's 100 series model B/L). These statements are helpful to protect the carriers when the cargo details cannot be verified by reasonable shipping practices, and members should make sure that their standard transport documents do contain such clauses.

Of course, if you are unhappy about the state of cargo received in your warehouse for shipment, it is probably better to discuss your concerns with the shipper at that stage, rather than stuff the items into a container and give the shipper a claused bill."

Our Conclusion

This has been the case for many years, and banks do not refuse them on the grounds that there is a weight shown plus the clause referred to, thus making the document inconsistent. One must look at this in the context of the people who invariably sign charter party bills of lading (i.e., master, owner, etc.), who would not normally witness the actual loading of the goods and would be reliant on other information such as, for oil, that obtained from the shore tank facility. The CPBL could not use the terminology "shipper's load and count", as it is not the shipper that would necessarily manage the loading of the vessel.

Such language would not be a discrepancy.

Analysis and conclusion

We agree that a charter party bill of lading containing an indication of the quantity and/or weight and/or measurement of goods, but bearing a statement (usually pre-printed on the charter party bill of lading) "Quality, Quantity, Measurements unknown" or similar, is not inconsistent and therefore not discrepant for that reason.

UCP 500 sub-article 25(a)(iv)

When a bill of lading shows "loading on board" by pre-printed wording without an on board date, and the bill of lading issuing date is after the date the period of loading is completed, is there a discrepancy?

Query [TA 622rev]

We received the following query from a bank in country N: "As the negotiating bank we receive on a regular basis documents showing a difference between the on board date on the bill of lading and the 'period of loading' as stated in other documents. For instance, an inspection certificate states: 'Loading period 27th January till 28th January 2007', and the 'bill of lading on board notation' states 'shipped on board 29th January 2007'. We consider such documents to be discrepant on this point.

When a bill of lading shows 'loading on board' by pre-printed wording without an on board date, and the bill of lading issuing date is after the date that the period of loading is finished, we consider such documents not to be discrepant on this point. However, most of the time the relative beneficiary opposes our point of view.

Do you endorse our opinion?"

Our analysis

We discussed this item and concluded that sub-article 13(a) of UCP 500 states, amongst others, " ... documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit."

Our conclusion

First, in case an "on board date" is stated in the B/L: on its face the loading period, being 27 January-28 January 2007, as stated in the inspection certificate, is inconsistent with the "on board date" as stated in the B/L, being 29 January 2007. The documents are indeed discrepant on this point.

Second, in case an "issuing date" is mentioned in the B/L: a document may be issued after the loading is completed, even if such issuing date is deemed to be the date of loading on board and the date of shipment.

Before replying to the bank in Country N, please let us know if you endorse our opinion and if you also agree with the conclusion of the second item. We ask whether there should be a time limit (after the loading period) for such an issuing date, or do you believe that "any date" thereafter is acceptable?

Analysis

Given the context in which the query is stated, i.e., completion of loading of the required goods, it is likely that we are talking of charter party bills of lading. For the purposes of response to this enquiry, we will refer to the provisions of article 25 of UCP 500, although the same response would apply to a shipment by sea subject to articles 23, 24 and 26.

Sub-article 25(a)(iv) states: "Loading on board or shipment on a named vessel may be indicated by pre-printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment. In all other cases loading on board a named vessel must be evidenced by a notation on the bill of lading which gives the date on which the goods have been loaded on board, in which case the date of the on board notation will be deemed to be the date of shipment."

There is no difference in position whether the charter party bill of lading bears a preprinted wording evidencing that the goods are on board or there is an on board notation.

Conclusion

Using the dates mentioned in the query, a charter party bill of lading that bears a preprinted wording to the effect that the goods are on board the vessel on 29 January 2007, or bears an on board notation that is dated 29 January 2007, is not inconsistent with an inspection certificate stating that the loading period was 27-28 January 2007. The period of loading should not be later than the on board date. Whilst it is expected that goods will be shipped as soon as loading has been completed, there is no requirement in this respect in the UCP nor, it would seem, in the terms of the credit in question.

UCP 500 sub-articles 39(a) and 14(d)(i)and (ii); ISBP paragraph 4

Is the allowance in the overall amount and total quantity also applicable to partial quantities? Should payment under a credit be r estricted to the presentation of documents from the applicant or include blocking clauses?

Query [TA 619]

I write to forward to the ICC Banking Commission two queries from our country's group of experts on documentary credits. After long discussion, they have considered that the queries received require a final clarifying decision by the Commission in Paris. They are the following:

Query 1 Description

In a documentary credit issued by Bank E in field 39A (Tolerance: 10/10 and a field 45A, the description of goods was as follows:

PREPAINTED GALVANIZED COILS EN
10169, DX 51 D ACC.EN 10142,Z275
0,60 X 1250 125 TM PW 1006
0,60 X 1250 100 TM TR 7001
0,60 X 1250 25 TM NG 3000
UNIT PRICE: 655 EUR/TM CIF FO
QUANTITY: 250 MT (+/-10PCT)

Bank D handed the documents to Bank E, which rejected them, mentioning that the allowance had been exceeded in some items. Bank D reverted back to Bank E disagreeing, since "the credit allows a 10% tolerance in the overall amount and does not mention that it has to be considered by item."

Question: Can it be understood that the allowance in the overall amount and total quantity is also applicable to partial amounts? On the contrary, can partial amounts be applied to any amount if it does not exceed 275 MT?

Our Analysis

Sub-article 39(a) of UCP 500 says that "the words 'about', 'approximately', 'circa' or simiar expressions used in connection with the amount of the Credit or the quantity or the unit price stated in the Credit are to be construed as allowing a difference not to exceed 10% more or 10% less than the amount or the quantity or the unit price to which they refer."

Our country's group of experts understands that the 10% allowance can only be interpreted as affecting both the total quantity and partial quantities of each item. If the contrary is acceptable, it may lead to illogical conclusions. For instance, a shipment of 112.5 TM PW, 90 TM TR and 72.5 TM NG does not exceed a plus 10% tolerance (which would be 275 TM in this case) and would be acceptable even though the last quantity is 290% of the amount required in the credit. Also, if no allowance of the total amount is expressed, no allowance of the partial quantity would have been admitted. Thus, should there be an allowance for the total quantity, that allowance must also be applicable to partial quantities. In case it is not applicable to partial quantities, what sense would it be to mention that it referred to the maximum quantity? In order to reinforce this approach, a reference is made to Opinion R 238 of the ICC Banking Commission.

Our Answer

The majority of our country's group of experts consider that the discrepancy alleged by the issuing bank is admissible. Nevertheless, the group also recommends that the issuing bank, on future occasions, make clear the allowance is applicable to each one of the partial quantities, and not just only for the overall one.

Queries for ICC Banking Commission

In the case above, there were two different points of view in our country's group of experts. The first one was that described in our analysis and was finally adopted by all members of the group. So it became the answer to the question. The other point of view applied to sub-article 39(a) and admitted that the parties will, when fixing the conditions of the credit, accept the one expressed above. Its reasoning was as follows:

In sub-article 39(a) we can read that allowance will be permitted on "the amount or the quantity or the unit price to which they refer". In this case, it refers to 250 MT and does not refer to partial amounts. It is true that the credit does not mention "about", but an allowance of +/- 10% must lead us to that subarticle's conclusion.

If the intention is that the allowance is applied to partial quantities, it does not seem to have much sense to mention it just for the total. The addition of allowances in partial quantities would leave us with an allowance over the maximum amount. In this case, 137.5 + 110 + 27.5 would equal 275. It seems that a different way to express it would be more adequate, so that the authorized allowance should also go with each partial quantity, rather than the allowance referring to the maximum quantity.

There is nothing written anywhere that the allowance expressed on a total amount should also be applied in the same proportion to the different items that make up that total amount.

Opinion R 238 does not seem to be applicable. That Opinion says that allowance will be also applied to partial amounts if that allowance "is not restricted to a specific amount". In this case, it appears next to a very concrete quantity.

This is why our country's group of experts agrees to forward this case to the ICC Banking Commission asking for a final decision.

Our group of experts is quite aware that probably in the seller's and in the buyer's minds the 10% allowance could only be understood as being applicable to the total amount and partial amounts of each item. Thus, it believes that we are faced with a biased interpretation of UCP 500 sub-article 39(a), done "a posteriori" by the seller and Bank D. That interpretation is possible, even though not commercially logical.

Query 2, Case 106, Description:

Savings Bank XYZ is faced quite frequently with documentary credits, especially in cases involving perishable goods, with the following clauses:

The applicant states that the documentary credit would only be payable on condition that the nominated bank presents a certificate issued by the applicant itself for the goods received.

In case this certificate is not presented, the applicant bank is exempted from the obligation to pay and assumes no engagement to return, to the presenting bank, the documents required by the credit terms.

The beneficiary of the documentary credit accepts all the previous conditions.

Question: What is the Opinion of our country's group of experts concerning these clauses?

Our analysis

A similar case was analyzed by the group not too long ago. In the analysis of that case, it was mentioned that "Issuing documentary credits is a definite and irrevocable undertaking to pay, when the terms of the credits clauses are fulfilled. Any clause being added to restrict the payment of the credit to the will of one of the parties alters the credit itself and should be rejected."

On the other hand, paragraph 4 of International Standard Banking Practice (ISBP), Publication 645, says: "A credit should not require presentation of documents that are to be issued and/or countersigned by the applicant. If a credit is issued including such terms, the beneficiary must either seek amendment or comply with them and bear the risk of failure to do so."

According to UCP 500 sub-articles 14(d)(i) and (ii), if the issuing bank decides to refuse the documents, it must hold them at the disposal of presenter or return them.

Our answer

As the documentary credit is a means of payment in favour of the beneficiary, its payment should not be restricted to the presentation of documents from the applicant nor include blocking clauses like those expressed above, as they affect the credit's main function as a means of payment. In case like this one, the group insists on referring to the previous case 72, which stated: "In these sort of operations, where goods under the contract are subject to public control bodies, clauses stopping payment should be only adopted with a text that makes the documentary credit applicant need to hand in a document that reflects that the goods have been refused by sanitary authorities as not fitting European Union requirements, in concrete terms that should be stated in the clause included in the credit."

Our group of experts considers that it cannot be good banking practice to accept that the applicant, just by silence or doing nothing, can leave without any effect on the fulfilment by the beneficiary of the terms and conditions of the documentary credit.

When faced with a documentary credit including such clauses, it is the beneficiary who should decide whether to ask for an amendment, which is highly recommended, or whether it accepts them and takes the risk. To this end, clause (c) adds nothing to the credit, because if the beneficiary hands in the documents it is implicitly accepting such clauses, and if the beneficiary asks for an amendment, clause (c) would be able to obstruct it.

Finally, concerning free disposal of documents, which clause (b) is referring to, our group of experts considers that, under such clauses, the issuing bank could give the applicant the documents received and later consider that the credit conditions have not been fulfilled and so deny its payment.

Notwithstanding the previous point, our group of experts considers that acting in this way the essential function of the documentary credit is impaired, because if documents are handed out to the applicant, payment should be due in favour of the beneficiary."

Analysis and conclusion

Query 1 - Case 95

Although the letter of credit states that the total quantity of pre-painted galvanized coils is 250MT (+/-10PCT), it does provide evidence of a base quantity for each of the three individual specifications within that stated description of goods. Based on the information provided, the tolerance of +/-10% is to be applied against the individual quantities. As indicated within the analysis made by the group of experts above, the issuing bank should have been more specific as to the application of the tolerance of +/-10% in relation to the stated goods. The position of the majority of the group of experts is supported.

Query 2 - Case 106

It is recognized that for certain types of perishable goods, there is a need for destination inspection and compliance with local regulatory conditions/ requirements. Where this is the case, and in order for this to be achieved, the letter of credit should clearly indicate:

- the point at which the issuing bank undertaking will come into force;

- the process of delivery of the shipping documents to the applicant for goods clearance/inspection;

- the process for advising discrepancies in the underlying documentation and/or indication of rejection of the consignment.

Any rejection of the consignment should be upon the receipt of a notice from a recognized body within the importing country, although this is a matter for agreement between the beneficiary and the applicant.

As indicated by the group of experts, the beneficiary has a choice of whether or not it will perform under the credit. The presentation of the documents would indicate its agreement to the underlying terms of the credit and the actions that may follow such presentation.

The advice of the group of experts reflects good documentary credit practice.