Forgot your password?
Please enter your email & we will send your password to you:
Copyright © International Chamber of Commerce (ICC). All rights reserved.
( Source of the document: ICC Digital Library )
More Opinions from the Mexico Commission meeting
UCP 600 article 3; ISBP 681 paragraphs 39 and 26
Where the L/C stated that both the analysis certificate and the certificate of conformity should be stamped and signed, was a signature below the typewritten name of the issuing entity sufficient? Was a refusal based on the absence of a L/C number on a courier receipt, where requested in the L/C, grounds for refusal?
Query [TA 774]
A Country I bank confirmed a credit available by payment where the MT700, in field 46A and two subsequent amendments requested, among other documents, the following:
• Analysis certificate stamped and signed showing batch number;
• Certificate of conformity to product specification as per technical data sheet stamped and signed showing batch number;
• Beneficiary's certificate (supported by a copy of the courier receipt) stating having express couriered within 7 working days from the forwarder's certificate of receipt date to .....
Moreover, a general condition under "Additional Conditions" in field 47A stated: "The number of L/C must be mentioned on all documents."
The presentation of documents was considered compliant by the confirming bank, which sent them to the issuing bank. The confirming bank did not pay the beneficiary and was waiting for the acceptance message of the issuing bank.
The issuing bank refused the documents for the following reasons:
• Analysis certificate not stamped;
• Certificate of conformity not stamped; and
• L/C Nr. missing on copy of courier receipt.
The confirming bank contested the refusal message of the issuing bank on the grounds of:
• UCP 600 article 3 and ISBP 681 paragraph 39 for 1st and 2nd discrepancy; and
• ISBP 681 paragraph 26 for the 3rd discrepancy. In particular, the beneficiary presented five analysis certificates and five certificates of conformity, each of which were signed with the name of the beneficiary company typed in capital letters perfectly readable and a manual signature appeared below that. The confirming bank holds that the signatures evidenced on these documents were perfectly in line with the provisions of UCP 600 article 3 in respect of the request of the credit ("signed and stamped"), and standard banking practice applicable to article 3 by ISBP 681 paragraph 39 stating "signed and stamped", or that a similar requirement is also fulfilled by a signature and the name of the party typed, stamped or handwritten, etc."
As far as the third discrepancy was concerned, the confirming bank holds that the courier receipt did not need to show the L/C number. The document requested by the credit was "beneficiary's certificate (supported by a copy of the courier receipt) stating that ..." and not "copy of the courier receipt ... ". The beneficiary's certificate duly showed the L/C number.
The confirming bank holds that the requirement of the credit: "The number of L/C must be mentioned on all documents" was met because "beneficiary certificate (supported by a copy of the courier receipt) ... " is a request for one document and not two. The confirming bank refers to ISBP 681 paragraph 26, which states: "Pages which ... contain internal cross references ... are to be examined as one document even if some pages are regarded as an attachment."
During the dispute, which has lasted five months, the confirming bank paid the beneficiary. The issuing bank has never reimbursed the confirming bank.
We will be grateful to know the opinion of the ICC Banking Commission in respect of the discrepancies mentioned above.
1st and 2nd discrepancies
The L/C stated that both the analysis certificate and the certificate of conformity should be stamped and signed.
ISBP 681 paragraph 39 states: "A requirement for a document to be 'signed and stamped', or a similar requirement, is also fulfilled by a signature and the name of the party typed, or stamped, or handwritten, etc."
The certificates that were presented bore a signature below the typewritten name of the issuing entity.
The L/C stated that the beneficiary's certificate should be "supported by a copy of the courier receipt", and furthermore that the number of the L/C must be mentioned on all documents.
It would appear that the beneficiary's certificate mentioned the correct L/C number. ICC Opinion R696 stated that a beneficiary's certificate and an associated courier receipt formed part of the same documentary requirement, and either the certificate and the courier receipt or the certificate alone may indicate the credit number.
Furthermore, a conclusion given in ICC Opinion R578 should also be noted: "It should be pointed out that the request for insertion of L/C numbers is usually at the instigation of the issuing bank to facilitate the collation of documents when one or more go astray. The ICC has commented in the past that a refusal based on the absence of a L/C number on a document, where requested in the L/C, is not grounds for refusal."
ISBP 681 paragraph 26 is not relevant in this case as two separate documents are called for.
It should be noted that a confirming bank, having determined that a presentation was complying, is obligated to honour or negotiate and should not await an acceptance advice from the issuing bank before doing so.
The discrepancies are not valid.
UCP 600 sub-articles 7 (b), 8 (b) and 10 (a); articles 10 and 1
In a standby L/C with an evergreen clause, when the confirming bank did not include a notice period when adding confirmation to the standby, was such confirmation open-ended and subject to automatic renewal as defined in the standby L/C? Does a confirming bank that adds its confirmation to a credit, without expressing any conditions related to that confirmation, do so on the same terms and conditions as indicated in the credit?
Query [TA 762rev]
A standby letter of credit (the "standby L/C") was issued containing an evergreen clause indicating that the standby L/C "expires on 30 May 2010 (expiry date) but shall be automatically extended, without the need for amendment, for one year from the said expiry date and annually thereafter unless at least 60 days prior to the then applicable expiry date we have notified you (.) that we will not renew the [standby L/C] for the following year".
The standby L/C was confirmed in a letter stating: "The enclosed [standby L/C] bears our confirmation, consequently we shall honour documents presented to us in compliance with the terms thereof." The confirmation letter contained no language specifically entitling the confirming bank to terminate its confirmation.
The issuing bank did not give notice of termination pursuant to the evergreen clause, but the confirming bank wishes to terminate its confirmation by giving 60-days' notice as per the terms of the standby L/C. The confirming bank would like to obtain the opinion of the ICC Banking Commission about whether, on the basis of these facts, it is entitled to rely on the language of the standby L/C to terminate its confirmation, as the rights given to the issuing bank under the standby L/C to terminate should be regarded as also benefiting the confirming bank, in relation to its confirmation, on the basis of the principle that a confirming bank undertakes a commitment on the same terms as that of the issuing bank unless specifically indicated otherwise.
Alternatively, would the confirming bank have this right only if it specifically inserted language in its confirmation letter giving it the right to terminate its confirmation in a manner similar to that right given to the issuing bank in the standby L/C itself? In which case, in the absence of such language, the confirming bank would therefore be bound by whatever decision the issuing bank takes relating to termination. This situation could lead the confirming bank to be bound for an undetermined period without the possibility of terminating its undertaking unilaterally. This may create a legal issue in some jurisdictions, where perpetual undertakings are prohibited.
As another alternative, would the confirming bank be entitled to consider the "automatic extension" as an amendment to the terms of the standby L/C as per UCP 600 article 10 that does not bind it in the absence of its express approval?
Although it is not clearly stated, one may assume from the final paragraph of the query that the L/C was subject to UCP 600.
UCP 600 sub-article 7 (b) states: "An issuing bank is irrevocably bound to honour as of the time it issues the credit."
In this particular instance, the issuing bank qualified its obligation by stating that although extension of the standby L/C was automatically extended each year by one year, without the need for amendment, a notice period applied, "... unless at least 60 days prior to the then applicable expiry date we have notified you (.) that we will not renew the [standby L/C] for the following year".
UCP 600 sub-article 8 (b) states: "A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit."
The confirming bank did not include a notice period when adding confirmation to the standby L/C. Accordingly, such confirmation is open-ended and subject to automatic renewal as defined in the standby L/C. Unless specifically stated in the wording of the confirmation letter, the ability to give a notice period does not automatically apply to the confirming bank's obligation.
Should the confirming bank subsequently wish to include a notice period, it will require the agreement of the beneficiary of the standby L/C. Until any such agreement is given by the beneficiary, confirmation will be automatically renewed each year, or be valid until settlement or cancellation of the standby L/C, or until the expiry date of the notice period, if any, provided by the issuing bank.
If a legal issue exists in certain jurisdictions whereby open-ended undertakings are prohibited, then the confirming bank should take note of this requirement when adding confirmation and include appropriate wording that takes this into account.
UCP 600 sub-article 10 (a) states: "Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary." UCP 600 article 1 states: "They (UCP 600) are binding on all parties thereto unless expressly modified or excluded by the credit."
The issuing bank states in the evergreen clause included in the standby L/C that an amendment is not required for automatic extension, i.e., an express modification of UCP 600. Furthermore, an amendment is not required in order to bring into effect the non-renewal clause.
There is no requirement for the standby L/C to be amended in order for extended expiry dates, relating to the issuing bank's commitment, to be effective.
A confirming bank that adds its confirmation to a credit, without expressing any conditions related to that confirmation, does so on the same terms and conditions as indicated in the credit. If the issuing bank sends a notice of non-renewal and the credit therefore expires, then the obligation of the confirming bank also expires.
UCP 600 article 23; sub-article 18 (c)
When the credit required presentation of "[F]ull set "clean on board" air transport documents, was there a requirement to include an on board notation on the documents? Did the trade term stated in the invoice correspond to the trade term stated in the credit?
Query [TA 765rev]
One of our members received documents from its customer under an L/C and negotiated them in accordance with its terms and conditions. However, the issuing bank refused the documents. The discrepancies were:
• On board notation not shown in the AWB;
• Invoice shows FCA Singapore Changi Airport instead of FOB Singapore
Our member disagreed with the discrepancies. However, the issuing bank insisted and subsequently honoured, but deducted a USD$100 discrepancy fee from the proceeds. It would be appreciated if you could let us have your opinion whether the discrepancies raised by the issuing bank, are valid.
i. One of the documents required in the L/C was "[F]ull set "clean on board" air transport documents consigned to the order of the issuing bank and ... "
House air waybill is acceptable. In its Fields 44E and 44F, the credit showed:
44E: Singapore Changi Airport
44F: Mumbai International Airport
Description of Goods: XX cases of computer chips, FOB Singapore, as per purchase order No. ...
ii. The air waybill presented by the beneficiary complied with the requirements stated in UCP 600 article 23. Furthermore, the air waybill stated the actual flight details and flight date. As it was an air waybill, there was no "on board" notation.
iii. As the shipment was effected by air, the invoice showed "FCA Singapore Changi Airport". The beneficiary and our member bank indicated that the FOB term was not proper for an air shipment, as it is used only for sea and inland waterway transport. Moreover, according to the beneficiary, the Incoterm was not even quoted in the purchase order. The purchase order quoted only that shipment is to be effected by an air cargo agent nominated by the applicant, and the air transport document is to be marked as freight collect.
iv. Upon receipt of the refusal notice from the issuing bank, our member bank rebutted and disagreed with the discrepancies noted. But the issuing bank refused to accept and insisted that the documents were discrepant.
v. Its reason was that banks must follow strictly the terms stated in the L/C. It even quoted the "on board paper" recently published by the ICC Banking Commission saying that on board could also mean "on board" the truck, train and airplane. The issuing bank said that this meant the ICC Banking Commission also allows this practice. As such, it claimed that it was not wrong for an L/C to call for a "clean on board" air transport document. It further argued that under an FOB term the risks of loss of or damage to the goods would be transferred from the seller to the buyer only when the goods were delivered and loaded on board the airplane. It was different from FCA, as for FCA the risk of loss of, or damage to, the goods would be transferred from the seller to the buyer when the seller delivered the goods to the carrier or another person nominated by the buyer at the seller's premises or another named place.
It sounds reasonable, but it is not. Now, the opinions from our members are also divided. Some claim that the issuing bank was right, and documents presented by the beneficiary must strictly comply with the terms of the L/C whether or not the terms were reasonable. Some claim that an "on board" notation should apply only for sea or inland waterway transport document called for under the L/C, and FOB should not be used for air transport document.
It would be appreciated if the ICC Banking Commission could provide its opinion on whether the refusal notice given by the issuing bank is reasonable.
Discrepancy 1: "On board notation not shown in the AWB"
The credit required presentation of "[F]ull set "clean on board" air transport documents consigned to the order of the issuing bank and ... "
This wording is: (a) more suited to a bill of lading; and (b) not in line with the usual or standard construction of wording that is used when an air transport document is being called for.
There is no requirement in UCP 600 article 23 for an air transport document to contain an on board notation. The requirement in UCP is for an air transport document to indicate that the goods have been accepted for carriage, and its date of issuance will be deemed to be the date of shipment. A requirement in a credit for an air transport document to bear an on board notation cannot be interpreted as a requirement for the air transport document to indicate a specific notation of the actual date of shipment (including flight number details), and such a requirement will be disregarded.
The issuing bank, in its justification for the discrepancy, has stated that the "On Board Notation Paper" issued by the ICC Banking Commission refers to the fact that an on board notation can also pertain to loading goods on to a truck, train or aircraft. Such reference in the On Board Notation Paper is given solely to emphasize that a statement of "shipped on board" appearing on a bill of lading may not directly relate to the loading on board a vessel named in that document. The paper is not advocating that an air transport documents indicate an on board notation or that a credit should or may include a requirement for an air transport document to include such an indication.
Discrepancy 2: "Invoice shows FCA Singapore Changi Airport instead of FOB Singapore"
This discrepancy was refuted by the beneficiary's bank on the basis that FOB is not the proper Incoterm for air shipments, and the purchase order did not quote an Incoterm.
The issuing bank's counter argument was that credit terms must be strictly complied with, and it further argued that under FOB the risk of loss or damage to the goods would be transferred from the seller to the buyer only when the goods are loaded on board the aircraft. Since the credit called for a "clean on board" air transport document, it was correct in using FOB as the Incoterm.
UCP 600 sub-article 18 (c) states "The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit", and the trade term "FOB Singapore" was part of the description appearing in the credit. There was no reference made to the application of Incoterms 2010.
The Invoice presented under the credit stated "FCA Singapore Changi Airport".
When checking documents, banks are only obliged to examine the information that appears on the face of a document without further investigation as to whether it is accurate or necessarily appropriate for the underlying transaction. The fact that the purchase order did not quote a trade term does not have any bearing on the examination of the documents, since the credit is separate from the underlying contract (UCP 600 sub-article 4 (a)).
It must also be noted that the beneficiary is responsible for ensuring that the terms of the credit correspond to the terms of the underlying purchase order prior to dispatch of the goods and presentation of documents. If there are inconsistencies between the credit and the purchase order, the terms of the credit will prevail when documents are examined under UCP 600.
In this instance the trade term stated in the invoice does not correspond to the trade term stated in the credit.
The first discrepancy is not valid.
The second discrepancy is valid.