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( Source of the document: ICC Digital Library )
UCP 600 sub-article 9 (b)
Was the advising bank justified in inserting its own condition for honour or negotiation to occur under the nomination granted to it by the issuing bank or for the handling of documents under the credit? Can ICC national committees offer informed and "unofficial" opinions based on UCP 600 and international standard banking practice?
Query [TA 780rev]
An issuing bank issued a documentary credit available with Bank C by deferred payment. No confirmation was requested.
Bank C advised the credit adding the following text (translated):
"Given the regulations on defense and dual-use material, in order to use this documentary credit, it is necessary to present, together with the documentation for negotiation, the export licenses authorized by the Sub-directorate General of Foreign Trade for defense and dual-use material, or, should said export licenses not be necessary, the following statement duly signed by the beneficiary:
'We hereby confirm that the export licenses are not necessary for the goods and/or services covered by this documentary credit, and that their export does not infringe Country S export laws, the War Weapons Control Act or the regulations of the Council of Europe setting a Community regime for the export of dual-use material, in particular Council Regulation (EC) no. 1334/2000.'"
A question has been put to our national committee Group on Documentary Credits. The question is: May an advising bank add conditions and request documents in addition to those established by the issuing bank?
The Group took into consideration the following:
• The documentary credit conditions are those established by the issuing bank when issuing the credit.
• The advising bank, in its capacity of advising bank, is not authorized to add any additional condition to the credit (other than those conditions that may relate to its function as advising bank).
• Should the advising bank, for any reason whatsoever, not feel comfortable advising the credit as received, it should advise the issuing bank that it is not prepared to advise the credit and suggest the issuer use a different advising bank.
• If Bank C, in its capacity as nominated bank, wished to add any additional condition in relation to its nomination, and make any future payment or undertaking conditional to that additional condition, such nominated bank should make it crystal clear to the beneficiary that any such condition is not a condition of the documentary credit but a condition limited and restricted to a request made by Bank C in order to honour a presentation.
In consequence, the Group on Documentary Credits considered the Bank C practice was not to be considered as an acceptable practice under UCP 600 or under international banking practice.
Furthermore, this Group resolved to notify Bank C that its practice was not considered acceptable, requesting it to modify it.
The Group on Documentary Credits included in its answer its usual disclaimer declaring that "the reply to the broached inquiry reflects the viewpoint of the members of our Committee's Expert Group, not of the Banking Commission at the ICC. This inquiry and its conclusion are taken into account purely for informational purposes and, if appropriate, must be endorsed at a future meeting by the Banking Commission itself. Said reply must not be interpreted in a different manner to the one included herein, i.e., to serve as a guideline to the parties and, thus, shall not have any legal implications. Neither the Committee nor any of its employees - including the Chairman, Secretary, Assistant Secretary and Technical Advisor - shall be held liable before any natural person or legal entity for any loss or damage arising from any act or omission related to the viewpoint expressed herein."
Questions to the Banking Commission:
1. Was the Group's opinion correct and according to international standard banking practice?
2. Can a national committee be an interpreter of UCP and international standard banking practices for a documentary credit?
3. Can a national committee address a party in a documentary credit in order to request that party to change its practices?
In line with UCP 600 sub-article 9 (b), the advice of the advising bank should accurately reflect the terms and conditions of the credit it has received. This is predicated upon the fact that an advising bank should advise a credit with its terms and conditions unchanged. There is no indication that the advising bank sought to change any of the terms and conditions of the credit. By adding the stated condition, the advising bank has, however, inserted its own condition for any honour or negotiation to occur under the nomination granted to it by the issuing bank or for the handling of documents under the credit.
The only conditions that an advising bank may add, without reference to the issuing bank, are those that may relate to its function as an advising bank, or its conditions to act as a nominated bank, when the credit is freely available or restricted for honour or negotiation at the advising bank's counters. It would appear that this is the case here.
1. The statement of the national committee Group on Documentary Credits that "the Bank C practice was not to be considered as an acceptable practice under UCP 600 or under international banking practice" is not agreed. An advising bank may, out of necessity, incorporate into its form of advice conditions that apply under the applicable law in relation to its advising of the credit or an indication of those conditions that need to be fulfilled by the beneficiary in order for it to honour or negotiate a complying presentation or to handle documents under the credit. Any conditions that an advising bank may incorporate, as part of its requirements for honour or negotiation to occur, do not amend the credit and an issuing bank would still be bound to honour a presentation that complied with its terms and conditions.
2. As is the case with individual banks handling L/Cs, there is nothing to prevent ICC national committees from offering informed and "unofficial" opinions based on UCP 600 and international standard banking practice. A few national committees, including the committee that submitted this query, offer such a service to their membership, and some have done so for many years. When an endorsement of such an opinion is sought, or where there is disagreement about it, the underlying issue may be referred to the Banking Commission for an official opinion to be issued. This has already happened on a number of occasions.
3. A national committee, as part of its response to the initiator, may need to make certain recommendations as to practice, but these should be kept to a minimum and responses should merely look to address the underlying issue. Whether one of the involved parties takes notice of a recommendation is for that party to decide. As mentioned above, any objection to the findings of a national committee may be referred to the Banking Commission by way of a request for an official opinion.
ISBP 681 paragraph 23
Was the confirmation invalid if a shipping mark contained symbols or wording that was not in English as opposed to symbols or lettering shown in Spanish? When the confirming bank refused documents on the basis that the documents did not comply with a condition attached to its confirmation, was it entitled to claim reimbursement if it did not waive the condition and take up the documents, or if it did not act in its role as nominated bank?
Query [TA 776rev]
We would like to seek an official opinion of the ICC Banking Commission on the following questions related to shipping marks appearing in the documents presented under a documentary credit issued subject to UCP 600.
The documentary credit was issued by Bank I in a Central American country and confirmed by Bank C in Country T.
Relevant information of confirmation advice and L/C:
1. The confirmation advice stated: "Our confirmation will be null and void if any wording, except description of goods indicated on the L/C appearing on any presented document, is not in English."
2. The L/C was issued in English except for the applicant's name and address and the description of goods that were in Spanish. There was no special requirement regarding the language in which the documents were to be issued.
3. The L/C stated: "Upon receipt of original shipping documents in full compliance with the terms and conditions, you are authorized to claim reimbursement from Bank R (the reimbursing bank," i.e., the confirming bank's head office in New York).
1. Documents were presented to the confirming bank through us.
2. The confirming bank refused payment as follows: "Shipping marks bearing wording... not in English." (The L/C was silent with regard to shipping marks, which appeared in the documents in Spanish.)
3. We rejected this refusal as follows:
"Shipping mark is not any wording. It is just a symbol used to identify the goods during import and export, so that it will be easily recognizable. Since the documents presented constitute a complying presentation, please effect payment immediately. "
4. The confirming bank refused again as follows:
"The discrepancy is valid. Pls refer to paragraph 23 of ISBP. A nominated bank (including the confirming bank) may, in it conformation advice, restrict the number of acceptable language[s] as a condition of its engagement and confirmation in the L/C."
In our opinion, as stated in our rejection of the refusal, a shipping mark is just a symbol used for identification purposes only; it does not constitute any wording of documents, and therefore the point is not related to paragraph 23 of ISBP.
Much to our regret, we were not able to convince the confirming bank. It insisted on sending the documents to the issuing bank for approval to obtain its authorization to claim reimbursement from the reimbursing bank. However, it could not determine any discrepancy subject to the L/C terms. Nevertheless, the issuing bank authorized the confirming bank to claim reimbursement, and payment has been received.
We would like to seek your opinion on the following two questions:
1. Is the discrepancy raised by the confirming bank valid with respect to the shipping mark?
2. Is the confirming bank in a position to claim reimbursement from the reimbursing bank if the confirming bank determines that the presentation does not comply with its own requirements, but does comply with the L/C terms?
The confirming bank qualified its confirmation undertaking by stating: "Our confirmation will be null and void if any wording, except description of goods indicated on the L/C, appearing on any presented document is not in English." In the context of this query, the confirmation is only to be considered invalid if the shipping mark contained wording that was not in English as opposed to symbols or lettering shown in Spanish.
Even though the shipping mark is not in English, there is no requirement in the credit for documents to show shipping marks. There is also no restriction concerning the language in which documents are to be issued. Therefore, documents showing shipping marks in Spanish do not constitute a discrepancy under the credit.
In view of the condition that the confirming bank applied to its confirmation in respect of an acceptable language, it had no obligation to honour or negotiate. Although it had no such obligation, and the documents were otherwise complying with the terms and conditions of the credit, the bank could have agreed to act in its role as nominated bank by forwarding the documents to the issuing bank and claiming reimbursement, and effecting settlement to the beneficiary upon receipt of funds, or to make settlement to the beneficiary on a with recourse basis.
The issuing bank still had an obligation to honour a presentation that complied with the terms and conditions of its credit.
1. The discrepancy is not valid under the terms of the credit, and the issuing bank would be required to honour the presentation. The use of any Spanish language in the wording of the shipping mark would cause the confirmation of the confirming bank to cease in respect of that drawing.
2. Given that the confirming bank refused documents on the basis that the documents did not comply with a condition attached to its confirmation, it was not entitled to claim reimbursement unless it subsequently waived that condition and agreed to take up the documents, or was willing to act in its role as nominated bank, as outlined in the Analysis.
ISBP 681 paragraph 28; UCP 600 sub-articles 17 (b) and (e), 24 (b) (i) and 24 (b) (ii)
Does ISBP Publication 681 paragraph 28 apply to a truck consignment note? Was the issuing bank correct in interpreting that the document was not original due to the appearance of the mark "Duplicate" when the document was issued on the original letterhead of the issuer and signed manually by the issuer? When an L/C requires documents to be presented in "One original and one duplicate", does presentation of one original plus a copy satisfy the requirement? Did an exactly similar truck consignment note earlier presented by the beneficiary under the same L/C, and honoured by the issuing bank without raising a discrepancy, have any bearing on the outcome?
Query TA 781 rev
The issuing bank refused payment against a complying presentation that contained a truck consignment note. The truck consignment note had a marking "Duplicate", but was issued on the original letterhead of the carrier and was manually signed by it. The document was considered by the issuing bank to be a "copy", contrary to ISBP Publication 681 paragraph 28. While the L/C required presentation of a truck consignment note countersigned by the applicant, there is an exception to this condition in the L/C itself, i.e., in case the truck consignment note is not countersigned by the applicant and is returned to the beneficiary within 15 days from the date of the truck consignment note, the beneficiary is allowed to negotiate documents along with the truck consignment note without bearing the countersignature of the applicant.
Since presentation was complying as per our examination of documents, we think the issuing bank is going back on its commitment by inventing some invalid discrepancy due to extraneous considerations rather than satisfying itself as to compliance strictly in accordance with the terms and conditions of the credit, the applicable provisions of the UCP 600 and international standard banking practice.
We, therefore, seek the official opinion of the ICC Banking Commission on the following questions:
a. Is the subject presentation complying or not under this L/C?
b. The issuing bank contends that ISBP Publication 681 paragraph 28 is out of context for the truck consignment note. Do you agree with this?
c. Is the issuing bank correct in its interpretation of an "original" under the given circumstances?
d. If the issuing bank is right in interpreting that the document is not original due to the appearance of the mark "Duplicate" when the document is in fact issued on the original letterhead of the issuer and signed manually by the issuer, does it not violate ISBP Publication 681 paragraph 28?
e. When the L/C requires documents to be presented in "One original and one duplicate", does presentation of one original plus a copy satisfy the requirement?
f. Does an exactly similar truck consignment note earlier presented by the beneficiary under the same L/C, and honoured by the issuing bank without raising a discrepancy, have any bearing on the outcome?
Questions (a), (b), (c), & (d)
UCP 600 sub-article 17 (b) states: "A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original."
UCP 600 sub-article 24 (b) (i) states: "A road transport document must appear to be the original for consignor or shipper or bear no marking indicating for whom the document has been prepared."
It should be noted that whilst UCP 600 sub-article 24 (b) (ii) states: "A rail transport document marked 'duplicate' will be accepted as an original", no such allowance is made for road transport documents.
ISBP, Publication 681 paragraph 28 states: "Documents issued in more than one original may be marked 'Original', 'Duplicate', 'Triplicate', 'First Original', 'Second Original', etc. None of these markings will disqualify a document as an original."
UCP 600 defines what is to be considered as an original road transport document; therefore, ISBP Publication 681 paragraph 28 does not apply in these circumstances.
To comply with UCP 600 sub-article 24 (b) (i), a truck consignment note must appear to be an original for shipper or consignor or bear no marking indicating for whom the document has been prepared. Even though the truck consignment note has been issued on the letterhead of the carrier and has been manually signed by it, marking of "Duplicate" would appear to indicate that it is not intended to be considered as the original truck consignment note.
UCP 600 sub-article 17 (e) states: "If a credit requires presentation of multiple documents by using terms such as 'in duplicate', 'in two fold' or 'in two copies', this will be satisfied by the presentation of at least one original and the remaining number in copies, except when the document itself indicates otherwise."
ICC Banking Commission Opinion R 473 states that each drawing under a credit is considered to be independent of any other.
a) The discrepancy is valid.
b) ISBP Publication 681 paragraph 28 does not apply in these circumstances.
c) The issuing bank is correct.
d) The issuing bank was correct in rejecting the document as shown in the Analysis.
e) A requirement in a credit for a document to be presented in "one original and one duplicate" will be satisfied by a presentation of two originals or one original and one copy.
f) The fact that the issuing bank had honoured a previous presentation under the same credit consisting of a truck consignment note issued in a similar manner has no bearing on the outcome.
URDG 758 sub-articles 1 (a) and 1 (b); ISP98 Rule 1.01 (b)
When "OTHR" was indicated in SWIFT field 40C and no other set of rules was specified in sub-field 2 of field 40C, should the counter- guarantee be considered as excluding URDG and ISP? When the guarantee in Field 77C (Details of the Guarantee) incorporated the guarantee wording within quotation marks and indicated therein that the guarantee was subject to URDG 758 with the exception of articles 16, 22 and 35, would the guarantee be subject to URDG?
Query [TA 761rev2]
A counter-guarantee has been received, which states in field 40C (Applicable Rules) "NONE". This means, according to the SWIFT handbook, that the guarantee/counter-guarantee is not subject to any rules.
Field 77C (Details of the Guarantee) incorporates the guarantee wording within quotation marks and indicates therein that the guarantee is subject to URDG 758 with the exception of articles 16, 22 and 35.
The wording of the counter-guarantee that follows the wording of the guarantee in field 77C indicates, however, that it is subject to English law and the jurisdiction is English courts.
We understand that on the grounds of the code word "NONE" in field 40C, and the governing law clause of the counter-guarantee in field 77C, that the counter-guarantee is subject to only English law, contrary to the content of URDG 758 sub-article 1 (b). Sub-article 1 (b) will apply unless the counter-guarantee excludes the URDG, and it does not require "express" exclusion (contrary to sub-article 15 (c) for instance). The message for the case in hand states in field 40C "NONE", which is a choice not to submit the counter-guarantee to any rules.
We believe that the guarantee is subject to URDG other than the excluded articles, and the counter-guarantee is not subject to URDG, but is governed by English law and jurisdiction.
We further believe that the counter-guarantee would have been subject to URDG 758 under the auspices of sub-article 1 (c) and would be governed by English law and jurisdiction had field 40C indicated the code word "OTHR" in lieu of NONE, even in the absence of any set of rules or laws which, according to the SWIFT handbook, must be specified in the narrative (2nd sub-field) when the code word OTHR is used.
Please advise whether our opinion is correct or not.
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) states: "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 of an MT760 must contain one of the following codes: "URDG", "ISP", "OTHR", or "NONE". If field 40C indicates "OTHR" this means that the guarantee is not subject to either URDG or ISP but to another set of rules, which should be specified in sub-field 2 of field 40C.
Where "OTHR" is indicated in field 40C and no other set of rules is specified in sub-field 2 of field 40C, the guarantee is considered as excluding URDG and ISP. Any indication of a choice of law within the text appearing in field 77C is not indicative of the opting in or out of URDG 758 or ISP98.
An indication in field 40C of either "OTHR" or "NONE" is an exclusion of URDG and ISP as allowed for in URDG 758 sub-article 1 (b) and ISP98 Rule 1.01 (b). For the referenced question, the guarantee, by virtue of the wording in field 77C, is subject to URDG 758 and will be governed by the law of the guarantor. The counter-guarantee is governed by English law but is not subject to URDG 758 as a result of the indication in field 40C of "NONE". Had the MT760 stated "OTHR" in field 40C, the applicable rules should have been specified in the narrative (2nd sub-field).