Article

UCP 600 sub-article 28 (e)

Whether an insurance document dated later than the date of shipment, but which clearly indicates on the document, by addition or note, "coverage effected on a warehouse- to-warehouse basis" or words of similar effect, is acceptable

Query [TA 709rev]

We would like to seek an official opinion from the Banking Commission on the acceptability of insurance documents with a date of issuance which is later than the date of shipment, that indicate cover "from warehouse to warehouse" and no further indication of a date as to when the cover is effective.

Within our National Group of Experts there is a difference of opinion whether such an insurance document is acceptable or not.

UCP 600 sub-article 28 (e) reads: "The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment."

Some believe that such an insurance document is acceptable, based on "unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment" of the afore-mentioned sub-article. Under a "warehouse to warehouse cover" the goods are covered from the time they leave the shipper's warehouse to the time of arrival at the warehouse of destination.

This opinion is also supported by Banking Commission Opinion R234 (issue 2), which states under its analysis: "The so-called 'Transit Clause' indeed covers the goods, uninterruptedly, from end-to-end until the final point of destination, not later than 60 days after being unloaded from the carrying ship. Therefore, it is only the date of the taking charge of risks that should be considered, and not the date of the cessation of risks at the place of destination." (emphasis added).

Others believe that such an insurance document is not acceptable based on the same UCP 600 sub-article: "The date of the insurance document must be no later than the date of shipment," and UCP 600 sub-article 14 (a), which reads that a presentation must be examined, on the basis of the documents alone, to determine whether or not the documents appear on their face to constitute a complying presentation. They take this to mean that a document checker is not expected to examine details of cover to ascertain the effective date of cover.

It is recognized that ICC Publication No. 680 (Commentary on UCP 600) is a publication not approved by the Banking Commission, but it seems that there was also a discussion about this topic within the Drafting Group, as evidenced by the text on page 132: "Some ICC national committees suggested that the date of an insurance document which is later than the date of shipment should be acceptable, since the Institute Cargo Clauses cover the 'Transit Clause' as indicated in the policy. The insurance attaches from the time the goods leave the warehouse or place of storage at the place named therein for the commencement of the transit. However, the principle of examining a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation, applies. In respect of sub-article (e), a document examiner is not expected to check details of the specific Institute Cargo Clauses to ascertain the effective date of cover."

Analysis

Sub-article 28 (e) contains a fundamental rule that is to be applied, amongst others, to the examination of an insurance document, i.e., that the date of the insurance document must be no later than the date of shipment. However, this rule is qualified to the extent that an insurance document dated later than the date of shipment is acceptable if it appears to indicate that cover was effective from a date no later than the date of shipment.

An insurance document dated after the date of shipment will be acceptable if the insurance document indicates that cover has been effected from warehouse-to-warehouse. For example, an insurance document indicating "from Warehouse London to Warehouse Hong Kong" or "insurance effected warehouse-to-warehouse" or similar wording, evidences that the goods have been insured from the moment that they were delivered into the stated warehouse. In these circumstances, it matters not when the insurance document was dated, as the coverage commenced prior to the date of shipment.

Document examiners are not required to know whether specific insurance risks, such as Institute Cargo Clauses (A), contain warehouse-to-warehouse provisions. An insurance document must clearly indicate that coverage has been made "warehouse- to-warehouse" to be compliant under sub-article 28 (e), when the date of the insurance document is later than the date of shipment.

It should also be noted that an insurance document can also appear to indicate that cover is effective from a date no later than the date of shipment by specific wording to this effect. For example, a bill of lading is dated 22 December 20xx and the insurance document is dated 23 December 20xx. However, the following data (or wording of similar effect) is indicated on the insurance document "Insurance effective as of 22 December 20xx".

Conclusion

An insurance document that is dated later than the date of shipment, but clearly indicates on the document, by addition or note, "coverage effected on a warehouse-to-warehouse basis" or words of similar effect, is acceptable.

UCP 600 article 20 and articles 19 and 21-25

Given the routing for a shipment shown in fields 44A, E, F and B, whether the credit should have requested the presentation of a multimodal or combined transport document or a bill of lading; had the required transport document in the L/C been a multimodal transport document, would the presented ocean B/L containing the shipment information be acceptable?

Query [TA 735rev]

Subject: Requirements in L/C versus presented shipping documents.

We would like to have an ICC opinion in respect of the following case which was raised at a letter of credit seminar.

Facts

1. L/C shows following information:

44A: South Korea

44E: Any port in Korea

44F: Peru Callao Port

44B: Lima

Required transport document: Clean on board ocean B/L

2. Presented transport document 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

Analysis

1. It seems that the L/C meant to cover a multimodal transport document. This is because Lima (non-port place) was shown as the final destination. The L/C, however, required an ocean B/L as the transport document.

2. Presented transport document was an ocean B/L covering shipment through to Lima (non-port place).

Questions:

1. Under the L/C terms, what transport document would be presented - a multimodal transport document or an ocean bill of lading?

2. Which article of UCP 600 should be applied in the examination of the B/L - article 19 or article 20?

3. If the required transport document in the L/C were a multimodal transport document, would the presented ocean B/L containing the above information be acceptable?

The above subject is controversial among bankers in our country, and therefore your guidance will be highly appreciated.

Analysis

Given the routing for the shipment as shown in fields 44A, E, F and B, the credit should have requested the presentation of a multimodal or combined transport document (which is designed for use when there are at least two modes of transport involved) and not a bill of lading (which is designed for use in port-to-port shipments).

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.

Conclusion

In response to the questions posed:

1. A document that met the conditions stated in the credit, however named, would be acceptable.

2. Article 20 would apply.

3. Yes, under the doctrine of a document "however named", as referred to in each of the transport articles (19-25) of UCP 600.

UCP 500 sub-article 9 (d) (i)

Where documents complied as of the date of their presentation and whether the issuing bank should approach the court that issued a court order to explain its responsibilities under the UCP, to state that the documents did comply and to urge that the order should be removed in order that proper and due settlement could be made

Query [TA 736rev]

We would like to seek an opinion from the experts of the ICC Banking Commission as to whether or not the nominated bank retains the right to claim reimbursement from the issuing bank in a specific situation as follows. The major events of the dispute can be summarized as follows:-

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Date - Event

Date: 13 September 2006
The L/C was available with any bank by negotiation, with a reimbursement clause stating "we shall arrange payment of the bill upon receipt of the documents at our counter strictly in conformity with credit terms" and is subject to UCP 500.

01 October 2006
An amendment was issued stating (1) pre-shipment inspection certificate required, issued by a person designated by the applicant, (2) the issuing bank shall arrange payment of the bill upon receiving payment from export proceeds against export L/C No. ABCD12345 instead of existing.

04 October 2006
The advising/nominated bank sent an MT799 to the issuing bank advising that the beneficiary refused the amendment dated 1 October 2006.

12 October 2006
Beneficiary presented documents to the advising/nominated bank, which negotiated and forwarded them to the issuing bank seeking reimbursement.

20 October 2006
Issuing bank sent an MT799 to the nominated bank advising that payment was refused due to non presentation of pre-shipment inspection certificate, as required by their amendment dated 1 October 2006.

23 October 2006
Nominated bank sent an MT799 to the issuing bank clarifying that the amendment dated 1 October 2006 was not valid because the beneficiary had refused it and the nominated bank advised the issuing bank of this fact on 4 October 2006.

06 November 2006
Issuing bank sent an MT799 to the nominated bank advising that the applicant was willing to accept the documents if the beneficiary accepts the payment clause in the amendment dated 1 October 2006.

14 November 2006
Nominated bank sent an MT799 to the issuing bank stating "the beneficiary refused to accept payment clause of the amendment dated 1 October 2006 and therefore [the nominated bank] would not accept [the issuing bank's] request dated November 6, 2006."

23 November 2006
The issuing bank sent an MT799 to the nominated bank advising that the applicant refused to accept the documents because the beneficiary shipped defective goods.

24 November 2006
The nominated bank sent an MT799 to the issuing bank reminding it that an L/C is a separate transaction from any underlying contract and that banks deal with documents only. The nominated bank urged payment by the issuing bank.

02 March 2007
The issuing bank sent an MT799 to the nominated bank stating "Further refer to our MT799 dtd 26-11-2006 please be informed that we have contacted with the applicant for several times but in no way they agreed to accept and release the documents from our counter. Since we held the documents as per instruction of our hon’ble high court, consequently we have no alternative but to return the documents as we are holding the same at your risk and disposal. We look forward for your disposal instruction since we are going to return the documents to your end and close our file within seven banking days."

02 March 2007
The nominated bank sent an MT799 to the issuing bank stating "re your MT799 dated 2007.03.02. pls return all documents to us by registered airmail."

04 March 2007

The issuing bank returned all documents to the nominated bank, stating "Refer to your SWIFT MT799 dtd 03-03-2007 and our SWIFT MT799 dtd 02.03.2007 we are forwarding herewith full set of documents (original + duplicate) for your necessary action and closing our file on this day of 4th march 2007."

26 March 2007
The beneficiary was informed by the Customs Authority in the country of import that the cargo had been auctioned on 21-03-2007, as consignee had not taken delivery within the stipulated time.

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About one year after receipt of all documents from the issuing bank, the nominated bank decided to claim reimbursement from the issuing bank, insisting that it negotiated the documents in compliance with the terms and conditions of the credit.

The key point in this debate is that the nominated bank allowed the issuing bank to return all documents to it in response to the issuing bank’s request for disposal instructions, and the issuing bank returned all documents to the presenter accordingly.

We would like to have an opinion from the experts of the ICC Banking Commission as to whether the nominated bank still retains the right to claim reimbursement of its negotiation from the issuing bank or not. We also wish to hear a brief comment about the background to your conclusion.

Your opinion will be a good guideline in the future for any similar cases and will encourage uniformity of practice where individual practitioners differ in the way of handling documents presented under L/C transactions worldwide.

Analysis

Sub-article 9 (d) (i) of UCP 500 states:

"[E] xcept as otherwise provided by Article 48, an irrevocable Credit can neither be amended nor cancelled without the agreement of the Issuing Bank, the Confirming Bank, if any, and the Beneficiary."

The amendment dated 1 October 2006 was rejected by the beneficiary, and therefore the terms and conditions that existed prior to the amendment will apply to the presentation.

The issuing bank refused the documents based on the terms and conditions of the credit that existed as a result of the amendment dated 1 October 2006. As the documents were only refused for the absence of the pre-shipment inspection certificate, i.e., the documentary requirement incorporated into the amendment of 1 October 2006, the documents complied as of 20 October 2006.It therefore follows that the issuing bank was obligated at that time to honour the drawing in accordance with the settlement terms stated in the credit. The subsequent messages from the issuing bank, conveying the views or instructions of the applicant, have no bearing, as the documents complied.

It was not until 2 March 2007 that the issuing bank indicated that a form of court order had been issued. The date, details and scope thereof were not declared but, for the purposes of this particular transaction, have no bearing on the determination of compliance of the documents, which happened some 4+ months previous to this date. However, as a court order was in place, as of at least 2 March, the issuing bank is now not able to ignore that fact, but should be cognizant that the documents did comply, did not require any further instructions from the applicant as to their settlement and that it should approach the court for the removal of that order. It is not clear why the nominated bank requested the return of the documents, even though the issuing bank had indicated that it was returning them within seven banking days, or why it took one year to decide to once again pursue payment with the issuing bank. Despite requesting the return of the documents, and the delay in re-addressing this issue, this does not detract from the fact that the documents complied at the time of presentation and the issuing bank is required to reimburse the nominated bank, subject to the above comments. A request for documents to be returned, or even the correction or alteration of documents deemed to be discrepant, does not imply that the discrepancy(ies) have been accepted as valid by the presenter. The presenter may do so out of necessity to expedite the transaction as opposed to an admission of default in the documents.

Conclusion

The documents complied as of the date of their presentation and the issuing bank should approach the court that issued the order to explain its responsibilities under the UCP, to state that the documents did comply and to urge that the order should be removed so that proper and due settlement can be made.

URC 522 sub-article 10 (a) and article 9

Whether a collecting bank, having issued a delivery order without taking an instruction from the buyer to honour the underlying collection instruction, could be liable under the applicable law

Query [TA 711rev]

We have an issue regarding non-payment against our export collection documents.

Export documents for USD 11,200.00 were sent for collection by one of our branches to Bank A in Country K. Documents were dispatched to the bank on 17 July 2009. Meanwhile, the buyer approached Bank A for issuance of a delivery order against a copy of an air waybill faxed to it by our client (exporter). The goods were consigned to Bank A. Bank A issued the delivery order and the goods were released.

Later, the original documents were returned by Bank A, unpaid, under instructions of its client/buyers. However, we are insisting that Bank A make payment against our documents on the plea that, as the buyer has received the goods, what is the justification for returning the documents? Since Bank A has been instrumental in releasing the goods to the drawee, we hold it responsible for making payment.

The actions of the bank in returning the documents are totally wrong, unjustified and against international banking rules. This is especially so when the buyers have taken delivery of the goods against a delivery order issued by Bank A. It is true that under URC 522 banks are not liable to make payment against collection documents, yet in this case Bank A has involved itself in the transaction by issuing the delivery order and has become directly responsible for making payment against the documents. We request that you examine this issue and tell us if our stance is correct. Bank A is not responding to any of our communications in this respect.

Analysis

Unless the consigning of the goods to the bank was agreed with Bank A, this should not occur (URC 522 sub-article 10 (a)).

The buyer approached Bank A for the issuance of a delivery order based on the fact that the goods were consigned to Bank A. Bank A was not in possession of the collection instruction at that time, but should have enquired as to the nature of the transaction before agreeing to the request for issuance of a delivery order. Bank A had the option of declining the request and awaiting the receipt of the collection instruction before proceeding further.

The URC do not include any rules relating to the release of cargo through a shipping guarantee, delivery order or the like. However, article 9 does require that the banks involved in the collection instruction act in good faith.

When issuing a delivery order or shipping guarantee and the like, the collecting bank should, as a matter of best practice, simultaneously take an instruction from the buyer to the effect that the collection will be honoured upon presentation, notwithstanding any errors or defects in the documents or contestation of the buyer.

Conclusion

The collecting bank, having issued a delivery order without taking an instruction from the buyer to honour the underlying collection instruction, may be liable under the applicable law.

UCP 600 sub-articles 14 (a), 28 (h) and 28 (i)

Whether various clauses on insurance documents referring to damage and loss; general and specific conditions; and ISM and classification certificates constituted discrepancies

Query [TA 731rev]
(replaces educational query of the same number)

We have seen the following clauses on insurance documents:

Clause 1 which is pre-printed on the insurance document as part of the signature area:

"This insurance does not cover any loss or damage to the property which at the time of happening of such loss or damage is insured by or would, but for the existence of this Policy, be insured by any fire or other insurance policy or policies, except in respect of any excess beyond the amount which would have been payable under the fire or other insurance policy or policies had this insurance not been effected."

Does the above clause create a discrepancy?

Clause 2 which is pre-printed on the insurance document:

"This policy is prepared according to the material facts disclosed by the proposer as is shown in the proposal form and is subject to the general and special conditions and clauses enclosed or attached herewith and the Company hereby agrees to indemnify the Assured, against payment of the premium due, in case of a marine peril as described above."

The document contains a heading "Clauses" and shows thereunder "[Country T] General Conditions" and a list of applicable clauses including ICC (A), War, Strikes Clauses, Institute Classification Clauses, etc.

Please advise how should "enclosed general and special conditions and clauses enclosed or attached herewith" be interpreted. Can we deem the indication of clauses i.e., ICC (A) as required by the credit and shown on the policy as being sufficient, or must we look for these general and special conditions to be physically attached to/ enclosed with the insurance policy itself due to the wording highlighted?

Clause 3 appears as part of the text inserted onto the insurance document:

"The cover will be valid, if and only if, the transporting vessel(s) have a valid ISM Certificate and Classification Certificate (according to Institute Classification Clause 01.01.2001) during the transport."

There is no data on any required document meeting the above-mentioned condition.

Please advise whether this creates a discrepancy.

Clause 4 appears as part of the text inserted onto the insurance document:

"CAUTION:
This policy is subject to the following mentioned conditions and warranties:

1. The vessel should be fully classed and class maintained with class society member of IACS (including Turk Lloyd) as per Institute Classification Clause 01.01.2001 as per attached wording. Therefore, the vessel being nominated should be complied with the stipulation stated thereof.

2. Vessel should also be a member of a respected P ' I (Protection ' Indemnity) club member of International Group.

3. Vessel should also be complied with the ISM requirements.

4. A vessel which does not have above mentioned qualifications and is aged over 35 and tankers aged over 15 will not be covered."

There is no data on any required document meeting the above-mentioned conditions. Please advise whether this creates a discrepancy.

Analysis and conclusion

Clause 1

Sub-article 14 (a) requires that a nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

Absent the presentation of another insurance document issued in the same context as the quoted clause, we can find no reason to refuse. Sub-articles 28 (h) and (i) also apply.

Clause 2

The insurance document refers to "enclosed" or "attached herewith". By its wording, the document is drawing a distinction between the terms by the separate reference to "attached herewith". In interpreting "enclosed" this can only mean the clauses that are stated on the document itself.

The insurance document refers to "[Country T] General Conditions" and states other applicable clauses. It therefore follows that the "general and specific conditions and clauses" are stated (enclosed) on the document. The wording on the document is sufficient, provided the stated clauses meet the requirements of the credit in respect of the insurance coverage.

Clauses 3 and 4

Sub-article 14 (a) states: "[A] nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation." Sub-article 14 (d) states: "[D] ata in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit." Sub-article 28 (i) states "[A] n insurance document may contain reference to any exclusion clause."

Absent any conflicting data on the other stipulated documents, the wording does not create any conflict and, on the basis of the documents alone, the insurance document will be considered compliant.

UCP 600 sub-article 14 (l) and articles 19-24

Whether several variations on the phrase "forwarders bill of lading not acceptable" had any meaning in terms of UCP 600

Query [TA 727rev]
(replaces educational query of the same number)

We have been seeing credits calling for bills of lading or multimodal transport documents and stating in the additional conditions field:

1) "Forwarders bill of lading is not acceptable", or

2) "Transport documents issued by freight forwarders not acceptable", or

3) "Transport documents issued or signed by freight forwarders not acceptable".
Under the foregoing conditions which of the following transport documents are acceptable?

Case A: Issued on the letterhead of the carrier reading in part: "DEF Shipping Line... " and signed by a forwarder "ABC Freight Line Co..." as agent for the carrier or for the master.

Case B: Issued on the letterhead of the carrier reading in part: "DEF Shipping Line..." and signed by the master.

Case C: Issued on the letterhead of a forwarder reading in part: "ABC Freight Line Co..." and signed by it as agent for a named carrier.

Case D: Issued on the letterhead of a forwarder reading in part: "ABC Freight Line Co...", indicating separately the name of the carrier, signed by the forwarder as agent for the master.

Analysis

In the context of UCP 600 and letters of credit, the term "freight forwarder bills of lading" has no meaning - whether in respect of them being allowed or not allowed.

Where freight forwarder transport documents are stated to be not acceptable, the term is ambiguous and does not clearly define the type of document that would be acceptable. For example, it is not clear whether such a credit is seeking to exclude the content of sub-article 14 (l) or whether it extends to the manner in which the bill of lading is to be signed. A document examiner will not be in a position to determine the status of the party signing when it signs as carrier.

None of the UCP 600 transport articles refer to the party that is to "issue" the respective transport document. The requirement is that the document must comply with the content of the applicable article and that the document may be "however named". In addition, subarticle 14 (l) states "[A] transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23 or 24 of these rules." It therefore follows that issuance of a transport document by a freight forwarder is an established and acceptable practice under the UCP. It should not be forgotten that irrespective of the issuer, one of the stated requirements in the referenced articles, with the exception of article 22, is that the document indicate the name of the carrier and be signed by the carrier, the master (in respect of articles 19, 20 and 21) or a named agent for or on behalf of the carrier or the master.

ISBP Publication 681, paragraphs 72 (Multimodal or Combined Transport Documents), 95 (Bills of Lading) and 138 (Air Waybills - additionally for reference to house air waybills) offer a deterrent to the usage of terms such as "Freight Forwarder Bills of Lading are acceptable", i.e., by stating that the transport document may be signed by the freight forwarder in the capacity of a freight forwarder, without the need to identify itself as carrier or agent for the named carrier. The document also need not show the name of the carrier.

Conclusion

Unless the text of a credit, incorporating one of the stated clauses, specifically states what form the transport document is expected to take or its signing requirements, each of the clauses referred to in the query has no meaning, and transport documents may be accepted on the basis that they comply with the requirements of articles 19 or 20. The same position would apply in respect of articles 21 and 23. If a company signs "as carrier", a document examiner is not required to determine the status of the signing company.