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( Source of the document: ICC Digital Library )
An irrevocable letter of credit was issued by a Chinese bank for USDxxx in favour of Edward Trading LLC for the account of a Chinese company with a draft to be drawn at sight on the issuing bank. The L/C covered shipment of xxx tonnes of copper cathode LME standard 99.99% at USDxxx/MT FOB South American Port with shipment to be made from South American Port to China Port with the latest shipment date on or before 15 January 2012. The L/C expired on 30 January 2012 accompanied by the following documents:
- a signed invoice in duplicate indicating the details of the goods description as per the L/C;
- charter party bills of lading made out to the order of shipper and blank endorsed, notifying the applicant with the full address marked freight to collect;
- an inspection certificate in duplicate issued by an independent surveyor indicating the date of inspection and details of the inspection as per the L/C;
- a weight list;
- a pre-shipment authorization issued
Shipment was made and the documents were presented to the issuing bank through the negotiating bank as per the terms and conditions of the L/C.
After the issuing bank received the documents, it sent a SWIFT message to our bank, the negotiating bank, indicating that the documents were presented with discrepancies as follows:
- inspection certificate showed copper cathode grade standard at 99.9999% which is inconsistent with invoice and other documents;
- the issuance date on the inspection certificate was later than the bill of lading date.
We immediately rejected the claim of these so-called discrepancies.
UCP 600 sub-article 18 (c). states: "The description of goods, services, or performance in a commercial invoice must correspond with that appearing in the credit."
We issued the invoice with a goods description which was exactly the same as that appearing in the credit. However, the copper cathode content was the actual inspection result determined by the independent inspection company, which is more complete than that stipulated in the L/C. This should not be construed as a discrepancy. In our view, there was no inconsistency between the documents.
In addition, the inspection date on the inspection certificate was earlier than the shipment date, and the issuance date on the inspection certificate was later than the shipment date. In my view, neither should be regarded as legitimate discrepancies.
Due to the sharp rise in copper spot and forward prices early this year, the "discrepancies" were quickly accepted and payment was made. However, issues like these are constantly being raised by banks. These so-called discrepancies go beyond what the UCP 600 requires.
Simon Jian, Chairman, Edward Trading LLC, E-mail:email@example.com
In considering the revision of ISBP 681, ICC national committees were asked their opinion regarding additional topics and/ or changes in the existing wording that should be incorporated into a new version.
One of the changes suggested was to eliminate the word "Detailed" from the first sentence in paragraph 24 of the ISBP, which states: "Detailed mathematical calculations" in documents will not be checked by banks. Banks are only obliged to check total volumes against the credit and other required documents."
On reading the paragraph, we find that it is indeed unclear:
- what does “Detailed mathematical calculations” mean - three rows of calculations, or perhaps multiplication and addition together?
- if the calculation is not “Detailed”, does the document examiner have to examine the calculation?
- the second sentence of the paragraph instructs banks to examine the total amount of the invoice against the credit. Does this only apply to “Detailed mathematical calculations”?
It would be tempting to change the paragraph in line with the suggestions of these national committees, that is, to eliminate the word "Detailed", so that banks do not have to examine mathematical calculations at all, but must only examine the total sum of the invoice against the credit.
But life is not so simple, and the word "Detailed" was added to paragraph 24 for a good reason.
We must keep in mind the customers, importers and exporters who rely on experts in this matter to safeguard their interests and protect them to the greatest extent possible (especially as they are required to pay a substantial service charge). One of the protections an importer expects is that the documents related to shipment payments will be accurate and precise.
An obvious case can occur when a description of merchandise in the credit specifies the quantity and price per item. In many instances, especially in the textile industry, banks are required to cite various types of merchandise, describing the overall quantity as well as itemizing each type according to thickness, colour, length, width and price. Often, even if the bank explains to the importer that, according to UCP, he should not include excessive details, this does not always succeed. The importer is convinced that the more details he provides, the more likely it is that he will receive what he ordered.
Over a decade ago, an importer requested that ICC express its opinion on precisely this topic. The importer explained that his bank had debited his account an excess of US$8,186. He contended that had the bank examined the calculation, it would have found this error immediately. When the importer complained to his bank, he received the following answer: "The bank only takes the invoice total for debit purposes and will not check any mathematical calculations as shown on the commercial invoice. This was given on the basis of article 15 [of UCP 500] which rendered the bank totally not liable for the overpayment."
The importer asked ICC Banking Commission to consider the following example: what would have happened had the invoice shown 100 units of the product at a price of US$100 a piece, and had the total stated payment sum been US$100,000 instead of US$10,000? In this case, would the bank have also charged the importer for the TOTAL that was US$90,000 higher than the correct amount? Would the bank in such a case also have hidden behind article 15 of UCP 500?
That importer's piercing question to the Commission was: "Where is the point of control for payment?"
The Commission replied: "It is not the role of the banks to police the pricing of goods and the manner in which the charges or costings are levied. Where a credit incorporates such excessive detail, the negotiating bank or issuing bank is under no obligation to carry out detailed mathematical calculations to establish compliance. The total amounts that are shown or the totals of individuals breakdowns, i.e., the FOB, freight and insurance costs - where they are quoted separately at the credit - is the degree to which banks must or must not operate. Clearly where a credit has a one line goods description such as that quoted in the query, it would not be unreasonable to expect the negotiating bank or issuing bank to identify an error in the calculation [emphasis added]."
Clearly where a credit has a one line goods description such as that quoted in the query, it would not be unreasonable to expect the negotiating bank or issuing bank to identify an error in the calculation
So what should be changed in paragraph 24 of the ISBP? Eliminating the word "Detailed" has far-reaching consequences, and the case described in Opinion R319 is an excellent illustration of this. It is illogical for a bank to fail to point out a mistake in an invoice that the bank could rapidly discern.
In my opinion, the necessary option to be added to paragraph 24 of the ISBP, which has been formed through the daily reality of working with importers, would be an additional clarification precisely in the framework published in the conclusion of the Opinion above.
Sarah Younger, Head of International Trade and Payments, Bank Leumi Le-Israel and Chair of the ICC Israeli Banking Committee, E-mail: firstname.lastname@example.org