Article

UCP 600 article 3

When the credit required a commercial invoice to be signed, sworn and detailed, and the invoice was signed and detailed but not sworn

Query [TA 769rev]

The L/C requirement was as follows: COMMERCIAL INVOICE SIGNED, SWORN AND DETAILED. The L/C did not stipulate how the requirement "SWORN" should be satisfied. The presented invoice was stamped and signed by the beneficiary but not sworn.

The issuing bank raised the discrepancy "COMMERCIAL INVOICE NOT SWORN". We disagreed, citing UCP 600 article 3, paragraph 4. The issuing bank insisted on the discrepancy and deducted a discrepancy fee anyway.

Please provide us with your official opinion as to whether the discrepancy is valid or not.

Analysis

The credit required presentation of a commercial invoice signed, sworn and detailed.

The expression "Sworn" is not defined in UCP or ISBP. When such expressions are used, the credit should provide further detail on how it is to be understood and applied. In this case, the credit did not provide such further detail.

The credit required the invoice to be signed, sworn and detailed. From the text of the discrepancy it can be assumed that the invoice was signed and detailed, but not sworn (although the credit did not specify the wording for such requirement).

Conclusion

Even though the credit did not indicate the manner in which the invoice was to be sworn, the absence of such an indication is a valid reason for refusal.

UCP 600 sub-articles 14 (f) and 14 (d); ISBP 681 paragraph 181

Does a certificate fulfil the function of a certificate of origin if it is signed by a chamber of commerce and has the words "see below" in the certificate of origin field that refer to a box "Observations" containing information as to where the goods were produced?

Query [TA 772]

A letter of credit required the presentation of a "certificate of origin issued by a chamber of commerce" and the beneficiary, Company ABC, presented a certificate of origin as follows: The certificate is signed by the chamber of commerce. The field titled "Country of origin" is, however, filled in with the words "see below". In the field immediately below, titled "Observations", the following statement is inserted: "PRODUCED BY COMPANY ABC, SWITZERLAND"

We are of the opinion that the presented certificate of origin is discrepant. Since the most important field, the "country of origin" is left blank, the document does not, in our opinion, fulfil its function. Even though the field country of origin states "see below", we do not consider the statement "Produced by Company ABC, Switzerland" sufficient to certify the origin of the goods. This statement merely confirms who produced the goods; it does not indicate the country of origin, which, in our opinion, is the essential information to be shown in a certificate of origin.

- The beneficiary does not agree with this assessment. According to it, the certificate is acceptable for the following reasons:

- It is clearly stated that the goods were produced by Company ABC. This statement is sufficient evidence of the origin of the goods.

- The certificate of origin is issued in accordance with the "Ordinance on the Certification of the Non- Preferential Origin of Goods" as per Swiss legislation.

- The fact that the chamber of commerce stamped and signed the certificate of origin supports the view that the certificate of origin is a valid document that fulfils its function.

It is important to note that the letter of credit does not prescribe the country of origin of the goods, but it often requires that the certificate of origin bear a certification that "the machines are produced by Company ABC". This, however, does not, in our opinion, automatically cancel the need for the country of origin to also be indicated in the document.

In the future, the beneficiary will issue more of these certificates of origin. For this reason we would appreciate receiving your official opinion whether such a certificate of origin is acceptable under UCP 600 or not.

Analysis

UCP 600 sub-article 14 (f) states: "If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d)."

ISBP Publication 681, paragraph 181 states: "A requirement for a certificate of origin will be satisfied by the presentation of a signed, dated document that certifies to the origin of the goods."

The certificate of origin presented states "see below" in the box titled "country of origin". In a box titled "Observations", the following statement is made: "Produced by Company ABC Switzerland".

There appears to be an intention of the issuer of the certificate to refer to the information in the box titled "Observations" as an indication of the origin of the goods. However, this box merely refers to the entity that has produced the goods. While the country of the producer may be a criterion in establishing the origin of the goods, it does not necessarily equate to the country of origin.

Conclusion

There is no clear indication of the country of origin in the certificate and, therefore, it fails to fulfil its function. The certificate is not acceptable as a certificate of origin.

UCP 600 sub-article 15 (b); article 8

Can a confirming bank decline to honour or negotiate under its undertaking when economic sanctions that are applicable to it by law or regulation specifically prohibit it from doing so? Does adding a "sanction clause" to the confirmation relieve the confirming bank of its obligation under UCP 600 sub-article 15 (b) and article 8?

Query [TA 752rev3]

Background in connection with first query:

1. We ("the beneficiary") are the beneficiaries under a confirmed documentary credit "subject to the Uniform Customs and Practices for Documentary Credits (2007 revision) International Chamber of Commerce Brochure no. 600 (UCP 600)". We kindly request an official opinion of the ICC Banking Commission on the following facts and questions.

2. The irrevocable documentary credit was issued on 8 October 2010 by a bank in Country L ("the L/C"). As quoted above, the L/C is subject to UCP 600.

3. That same day, 8 October 2010, a Western European bank ("the confirming bank") added its confirmation to the L/C.

4. On 17 March 2011 (within the validity period of the L/C), the beneficiary presented documents complying with the L/C.

5. On 21 March 2011, the Council of the European Union issued Council Implementing Regulation no. xxx/2011, which added, among others, the issuing bank to a list of persons and entities subject to restrictive measures under Council Regulation no. xxx/2011 ("the Sanction List").

6. Article 5 of the Council Regulation applies certain sanctions to those on its Sanction List, namely the freezing of their funds within the EU (Section 5 (1)) and prohibiting the making available of funds for their benefit (Section 5 (2)). Article 9 of this Regulation explicitly allows financial institutions in the European Union to credit frozen accounts, pay interest on those accounts and make payments to those accounts under obligations which arose before the date on which the person or entity has been included on the Sanction List.

7. On 3 May 2011, the confirming bank informed the beneficiary that because the issuing bank was subject to EU sanctions the confirming bank did not feel obligated to effect payment under its confirmation of the L/C. The confirming bank thus refused to honour or even negotiate and forward the presented documents to the issuing bank and instead returned them to us.

8. Query 1: Does the mere fact that the issuing bank was added to the EU Sanction List after presentation of the documents excuse the confirming bank from its obligations under UCP 600 sub-article 15 (b) and article 8?

8.1 The beneficiary notes that neither of the Council Regulations appears to prohibit receipt of funds from any person or entity on the Sanctions List (under preexisting obligation such as L/C or otherwise) or seeking reimbursement from anyone on the Sanction List.

8.2 The beneficiary further notes that just because a confirming bank may have practical difficulty obtaining reimbursement from an issuing bank should not be any justification for a confirming bank not to perform its independent and direct obligations to a beneficiary.

Additional background in connection with a further query.

9. On 26 March 2010, well prior to the confirming bank's confirmation, the ICC Banking Commission issued a "Guidance Paper on the Use of Sanctions Clauses for Trade Related Products ... subject to ICC Rules (Doc. no. 470/1129)". Among other things, this Guidance Paper:

(a) notes that so-called sanctions clauses, purportedly giving the confirming/ issuing banks discretion whether or not to honour, undermine the independent nature of L/Cs and their irrevocability (Sections 2.4 and 2.6); and

(b) condemned the use of sanction clauses (Sections 4.1 - 4.3).

10. Contrary to that ICC Banking Commission Guideline, the confirming bank added a clause to its confirmation mentioned in paragraph 3 above, using a translated text identical to that given as an example in Section 3.3 of the ICC Banking Commission Guidance Paper (with the addition of Country N in the last sentence). At the same time, under the UCP the confirming bank was, among other things, undertaking to be "irrevocably bound to honour" the credit.

11. In its refusal to honour the presented documents, the confirming bank also referred to this "sanctions clause".

12. QUERY 2: Does adding such a "sanction clause" to the confirmation relieve the confirming bank of its obligation under UCP 600 sub-article 15 (b) and article 8?

We kindly ask your opinion regarding the above stated matter.

Analysis

Mandatory laws to which an issuing or confirming bank is subject whether by virtue of, inter alia, its country of operation, its home country or the currency of the transaction override the UCP and any undertaking contractually issued by that issuing or confirming bank. Directly applicable economic sanction laws are generally considered as being mandatory.

Regardless of the UCP and any obligation that it may have incurred in the ordinary course of its letter of credit business, a confirming bank has a legal duty to abide by mandatory economic sanctions that are applicable to it by law or regulation. Any disputes on the application of the particular sanctions by the confirming bank or its relevant activity should be submitted to the competent court.

Conclusion

Query 1

A confirming bank may decline to honour or negotiate under its undertaking when economic sanctions that are applicable to it by law or regulation specifically prohibit it from doing so.

Query 2

The query indicates that the confirming bank was still using terminology in 2011 that the ICC Banking Commission had indicated in its recommendation paper (470/129rev dated 19 February 2010) was not appropriate (see the text quoted in section 3.3 of the referenced paper). It is for the beneficiary to question the confirming bank as to the scope of a sanctions clause appearing in a confirmation advice and, where the beneficiary deems appropriate, to seek legal advice as to whether such a clause is enforceable.

UCP 600 sub-articles 20 (a) (ii) and 14 (c); ISBP 681 paragraph 96

Whether a date inserted in a box designated "Shipped on Board Date" on a shipped on board bill of lading can be taken as the shipped on board date and whether no additional stamp or notation is required in this case

Query [TA 773]

An ocean carrier has a box designated "Shipped on Board Date" on its shipped on board bill of lading. When issuing a shipped on board bill of lading, the date when the entire shipment is loaded on board the named vessel is inserted in this box. For information, the bill of lading also includes the following pre-printed wording: "SHIPPED, as far as ascertained by reasonable means of checking, in apparent good order and condition unless otherwise stated herein".

At the same time, the bill of lading has a box designated "Date of Issue", where the date of issuance of the transport document is inserted.

When presented with this bill of lading, a bank refused the document, referring to the second paragraph of UCP 600 sub-article 20 (a) (ii), requiring that an additional stamp or notation of the shipped on board date be made. Otherwise, it would consider the date of issuance as the shipped on board date, which in turn led to the transport document not being compliant with UCP 600 sub-article 14 (c), i.e., that documents were presented later than 21 days from bill of lading date.

UCP 600 sub-article 20 (a) (ii) reads: "The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment." [emphasis added]

In light of the above, you are kindly requested to assist in the interpretation of UCP 600 subarticle 20 (a) (ii) as to whether a date inserted in a box designated "Shipped on Board Date" on a shipped on board bill of lading can be taken as the shipped on board date and whether no additional stamp or notation is required in this case.

Analysis

UCP 600 sub-article 20 (a) (ii) clearly indicates that the date stated in an on board notation will be deemed to be the date of shipment.

ISBP Publication 681 paragraph 96 elaborates on this by adding that this position will apply whether or not the on board notation date is before or after the issuance date of the bill of lading.

A dated on board notation may be in the form of a stamp appended to the bill of lading, text added to the document at the time of its signing, or by way of insertion of a date in a field or box that is designated to indicate the date the goods were shipped on board.

The ICC Banking Commission recommendation paper in respect of on board notations refers, in the flow chart shown at section 6, to the circumstances in which a bill of lading is preprinted "shipped on board" with an additional on board notation or completion of a box labelled "shipped on board date". The paper indicates that where no means of pre-carriage is shown, and with or without an indication of a place of receipt, the date of the on board notation is considered to be the date of shipment - whether this is evidenced by a separate notation or a date shown in a box labelled "shipped on board date".

In the referenced case, the format of the bill of lading allows for the carrier to insert an on board date in a preprinted box designated "Shipped on board date". There is no need to add a separate on board notation. Therefore, the date in the box designated "Shipped on board date" will be considered to be the date of shipment.

Conclusion

The bank was not entitled to refuse the bill of lading.

UCP 600 sub-article 28 (a); ISBP 681 paragraph 174

When there was a co-insurer on an insurance policy; whether the insurance policy signed only by one company was acceptable; whether an indication that the signer of the document was "leading insurer" would make the insurance policy acceptable, or whether it must be indicated on the document clearly that the leading insurance company was acting for and on behalf of the co-insurers

Query [TA 759]

An insurance policy with the following information was presented under a documentary credit:

Sum insured: USD 284,311.79 (110pct of the invoice value)

The insurance policy was signed by ABC Insurance Ltd without any other indication. The issuing bank refused the documents by raising the following discrepancy: "Insurance policy is not also signed by the co-insurer, XYZ Insurance Ltd."

ISBP Publication 681 paragraph 174 indicates that insurance covering the same risk for the same shipment may be issued in more than one document for partial cover provided that each document clearly reflects, by percentage or otherwise, the value of each insurer's cover and that each insurer will bear its share of the liability severally and without preconditions relating to any other insurance. But there is no explanation for an insurance document when it is covered under one document in case of co-insurance. Therefore, we would like to have an official opinion of the ICC Banking Commission as to:

a. whether the insurance policy signed only by ABC Insurance Ltd is acceptable or not, and

b. if it is not acceptable, whether an indication that the signer of the document is "leading insurer" makes the document acceptable, or it must be indicated on the document clearly that the leading insurance company is acting for and on behalf of the co-insurers.

Analysis

UCP 600 sub-article 28 (a) states: "[A]n insurance document, such as an insurance policy, an insurance certificate or a declaration under an open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies."

The requirement in UCP 600 is for an insurance company or underwriter that is covering the risk to issue and sign the insurance document either in its own name or for it to be signed for or on its behalf by its agents or proxies.

When an insurance document indicates that the risks are covered by two or more insurers, the document must be signed by all the insurers or one insurer on behalf of other co-insurers. Alternatively, separate insurance documents may be presented signed by each co-insurer indicating by percentage or otherwise the value its cover and stating that each insurer will bear its share of the liability severally without any pre-conditions relating to any other insurance cover arranged for the same shipment.

In this particular case, the insurance policy submitted indicates that the risks are covered by two different insurers. Therefore, and in order to comply with UCP 600 sub-article 28 (a), the policy must be signed

- by both the named insurers or their respective agents or proxies; or

- by one insurer on behalf of the other insurer, for example "ABC Insurance Ltd as leading insurer and for and on behalf of the co-insurer".

Conclusion

In response to question a, an insurance policy signed only by ABC Insurance Ltd is not acceptable.

In response to question b, an insurance document signed indicating "leading insurer" only will not be sufficient to comply with UCP 600 sub-article 28 (a). The leading insurer must also identify that it is signing on behalf of the other co-insurer(s).

URDG 758 sub-articles 34 (a) and (b), sub-articles 35 (a) and (b), sub-articles 1 (a) and (b); articles 34 and 35

Is a counter-guarantee deemed to be subject to URDG 758 and at the same time governed by Country T law and jurisdiction, hence overriding sub-articles 34 (b) and 35 (b)? To what extent will URDG prevail with regard to local law?

Query [TA 760rev]

An MT760 has been received as follows:

- 40C Applicable Rules: URDG.

- At the end of field tag 77C (Details of the Guarantee) it reads: "Our counter-guarantee and your guarantee will be governed by Country T Law and place of jurisdiction is City I."

Our understanding, therefore, is that the counterguarantee is deemed to be subject to URDG 758 and at the same time governed by Country T law and jurisdiction, hence, overriding sub-articles 34 (b) and 35 (b). The guarantee is requested to be issued subject to URDG 758 and be governed by Country T law and jurisdiction in line with the provisions of URDG 758 sub-articles 34 (a) and 35 (a).

Furthermore, the applicable law and jurisdiction clause in the counter-guarantee changes only the application of sub-articles 34 (b) and 35 (b), and other rules of URDG 758 will still apply to the counter-guarantee.

Please advise as to whether our opinion is correct.

Analysis

URDG 758 sub-article 1 (a) states: "The Uniform Rules for Demand Guarantees ('URDG') apply to any demand guarantee or counter-guarantee that expressly indicates it is subject to them. They are binding on all parties to the demand guarantee or counter-guarantee except so far as the demand guarantee or counter-guarantee modifies or excludes them."

URDG 758 sub-article 1 (b) further clarifies: "Where, at the request of a counter-guarantor, a demand guarantee is issued subject to the URDG, the counter-guarantee shall also be subject to the URDG, unless the counter-guarantee excludes the URDG. However, a demand guarantee does not become subject to the URDG merely because the counter-guarantee is subject to the URDG."

Field 40C, in relation to a SWIFT MT760 message, specifies the rules to which the guarantee is subject. Unless otherwise specified in field 77C, the counter-guarantee will also be subject to such rules. By incorporation of URDG 758 in field 40C of the MT760, both the counterguarantee and the guarantee are subject to URDG 758.

URDG 758 article 34 allows for the governing law to be provided in the wording of both the counter-guarantee and guarantee. URDG 758 article 35 allows for the country or place of jurisdiction to be provided in the wording of both the counter-guarantee and guarantee.

Field 77C of the MT760 states: "Our counterguarantee and your guarantee will be governed by Country T Law and place of jurisdiction is City I", which results in both the counter-guarantee and the guarantee also being subject to Country T law with City I jurisdiction.

Conclusion

The counter-guarantee and guarantee will be subject to URDG 758 and Country T law, with place of jurisdiction as City I. As to how URDG 758 will prevail is a question for the applicable law.