Article

Note: as of the time of this issue, the Banking Commission had yet to consider queries on UCP 600.

UCP 500 article 27

When a letter of credit called for a "Master Air Waybill", did this permit the presentation of an air transport document signed by a freight forwarder subject to the content of article 27?

Query [TA 621]

We received a documentary credit "freely negotiable in Country I", with partial shipments allowed, subject to UCP 500, under which we acted as negotiating bank without adding our confirmation. The documentary credit required, among other documents, "master airway bill consigned to ...". The documentary credit has been utilized with separate presentation of two sets of documents found by ourselves to be in strict compliance.

The first drawing was honoured by the issuing bank against presentation, among others, of a transport document identical to the one presented under the second drawing. The second drawing was refused by issuing bank for the following reason: "Hawb i/o Master Airway bill".

We contested said refusal, as the air waybill presented, issued by an IATA agent and duly signed by the same "as agent for the carrier Airline A", was conforming to the documentary credit and UCP provisions. Notwithstanding this, the issuing bank did not honour the documents and returned them.

In view of the above, we would like to have the Opinion of the Banking Commission in connection with the legitimacy of the discrepancy raised.

We consider the document acceptable under point a) of article 27 of UCP 500, stating that an air transport document "however named" is acceptable, and especially in light of the Opinion R 157 released by the Banking Commission, published in "Collected Opinions 1995- 2001", ICC Publication 632, which declares as insignificant the indication of HAWB or MAWB under a requirement for an air transport document.

Analysis

Sub-article 27 (a) states: "If a Credit calls for an air transport document, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which ... ".

The underlying letter of credit called for a "Master Air Waybill". The intent behind such a condition is unknown, nor are the expectations of the issuing bank in relation to its issuance or signing. There appears to have been no statement in the credit that would not permit the presentation of an air transport document that was signed by a freight forwarder subject to the content of article 27. Article 27 does not stipulate who is to issue an air transport document, merely the requirements for its content.

ICC Opinion R 221 (not 157 as mentioned in the query) includes the following wording:

Conclusion

Whilst the air waybill contains reference to a HAWB number, the content of ICC Opinion R 221 is relevant to this query. The document would not be considered as discrepant for the reason stated.

UCP 500 sub-articles 39(b) and (c)

Whether field 39A of the SWIFT MT700 has an effect on the amount that can be drawn under the credit

Query [TA 618]

We, as the advising bank, received an L/C containing among others, the following terms:

- L/C available with the issuing bank by payment

- L/C amount: EUR 34,034.91

- percentage credit amount tolerance: 00/00 (field 39A)

- partial shipments: not allowed

- description of goods: "cunas de madera".

The beneficiary presented documents for EUR 33,589.71. Following receipt of the documents by the issuing bank, we received an MT734 with the following discrepancy: "PARTIAL SHIPMENT NOT ALLOWED". From additional information we learned that the discrepancy was based on the condition in field 39A of the L/C indicating percentage credit amount tolerance as 00/00.

Our question is: was the issuing bank justified in refusing documents or not?

Analysis

The credit to which you refer was issued via SWIFT. The SWIFT handbook, in relation to the completion of the MT700, provides the following definition and usage rules for the field 39A (Percentage Credit Amount Tolerance):

"DEFINITION
This field specifies the tolerance relative to the documentary credit amount as a percentage plus and/or minus that amount.
USAGE RULES
Tolerance 1 specifies a positive tolerance, the Tolerance 2 specifies a negative tolerance."

UCP 500 sub-article 39(b) states: "Unless a Credit stipulates that the quantity of the goods specified must not be exceeded or reduced, a tolerance of 5% more or 5% less will be permissible, always provided that the amount of the drawings does not exceed the amount of the Credit. This tolerance does not apply when the Credit stipulates the quantity in terms of a stated number of packing units or individual items."

UCP 500 sub-article 39(c) states: "Unless a Credit which prohibits partial shipments stipulates otherwise, or unless sub-Article (b) above is applicable, a tolerance of 5% less in the amount of the drawing will be permissible, provided that if the Credit stipulates the quantity of the goods, such quantity of goods is shipped in full, and if the Credit stipulates a unit price, such price is not reduced. This provision does not apply when expressions referred to in sub- Article (a) above are used in the Credit."

Conclusion

By the wording of the SWIFT handbook, the use of "00/00" in field 39A of the SWIFT MT700 has no effect on the amount that can be drawn under the credit. The completion of figures within this field are to denote the plus and/or minus percentage to be applied to the credit amount. Any drawing under the credit would still be subject to the allowances made in UCP 500 sub-article 39(b) or (c), depending on the terms of the credit and the underlying drawing. A drawing of up to 5% less in the credit amount would be allowed under the credit.

URC 522 sub-articles 4.1(i), 19(a), 19(b) and 26(c)(iii)

Whether a collecting bank acted according to banking practice concerning returning of documents by sending back only photocopies of the documents.

Query [TA 620]

Bank A Country S asked for our country's group of experts' opinion regarding a collection issued subject to ICC Uniform Rules for Collections, ICC publication 522, 1995 revision.

On November 23, 2004 a collection drawn on Company B Country E was sent to Bank C Country E for an amount of euros 489,461.51 with a maturity of December 4, 2004.

Facts:

A letter of instruction accompanied the following documents: a letter of exchange accepted by the drawee (Company B) for the above-mentioned amount, seven copies of a CMR transport document and a "Commitment" certificate.

Instructions in the letter, relevant to this case, are the following:

- Deliver documents against payment;

- Commissions and charges, including those of the collection, are for drawee's account;

Do not waive charges;

- Upon maturity, pay proceeds via EBA under direct advice to us by SWIFT.

As per information received by Bank A, the drawee paid directly to the drawer the amount of the collection, less euros 13,685,56, which were left due.

Bank C asked Bank A to contact the drawer to get an agreement to deliver documents free of payment and close its files (SWIFT message MT 499 dated Jan. 11, 05).

The drawer denied such authorization by letter addressed to Bank A dated Jan. 17, 05. Bank A informed Bank C the following day accordingly.

Bank A said it kept claiming the remaining funds during 2005.

On December 14, 2005, Bank C sent a SWIFT MT765 to Bank A, reporting that if the draft remained unpaid on January 19, 2006, it would return documents and close its files. In the same message, it asked to be paid its pending expenses and confirmed that documents were at Bank A's disposal.

Bank A said that on January 10, 2006 it paid the expenses asked for by Bank C, and, at the same time, it asked for the documents to be returned, free of charge. On January 18, 2006, Bank C reported to Bank A that payment of its expenses had been received and the same day documents were being returned via courier and its files are being closed. Nevertheless, Bank A only received copies of the documents.

Bank A said that, although it had demanded many times that Bank C send back the original documents, it had only received by DHL on January 19, 2006 photocopies of those documents.

In all the claims, Bank A informed Bank C that the drawer needed the original documents to execute legal actions against the drawee. Alternatively, Bank C would have to pay the pending amount, i.e., euros 13,685.56.

Finally, Bank A also presented copies of the messages exchanged between both IFI departments trying to amicably solve this problem, but with no success at all. Bank C expressed its inability to send back the original draft, as its processing system only kept a scanned copy of the draft, which was sent to the Country E's banking settlement system.

A copy of the last message received from Bank C, dated April 20, 2006 and presented by Bank A, said that Bank C was closing its files, and a copy of the draft was returned on January 19, 2006.

Reasons

When studying this case, our country's group of experts had in mind the last paragraphs of sub-article 4.1(i) and sub-article 19(a), subarticle 19(b) and sub-article 26(c)(iii) of URC 522, as well as banking practices regarding handling of documents.

Conclusion

Our country's group of experts unanimously declared that Bank C (collecting bank) had not acted according to the collection instructions sent with the documents when read in conjunction with the abovementioned articles and had disposed of the original documents without having previously received the full amount.

Also unanimously, our country's group of experts declared that Bank C had breached URC 522, to which this collection was subject, as far as custody of documents was concerned.

Our country's group of experts unanimously declared that Bank C had not fulfilled banking practices regarding returning of documents but sending back only photocopies of those documents.

Analysis and conclusion

The position of the group of experts is supported.