Parties

Initiator: Company C

Respondent: Bank H

The case

- Documentary credit subject to UCP 500

- Applicant: Company E

- Issuing bank: Bank H

- Advising Bank: Bank C

- Beneficiary: Company C

- Amount: USD 4,997,300.00

- Validity: 15 June 1998 (as amended) in Country S

- Availability: by negotiation by any bank - draft at 90 days after B/L date

- Form: irrevocable

- Confirmation: without

- Goods description: 24.200 metric tons Brazilian origin low protein soyabean meal

- Manufacturer and origin: Company C's own affiliated/associated factories in Country A or in Country B

- Documents required (among others): i) six sets of manually signed original commercial invoices for each set of bills of lading indicating this DC number and contract number; ii) certificate of origin in one original issued by Government Authority

- Additional conditions (among others): i) 5 per cent more or less both in quantity and credit amount allowed; ii) third party documents are acceptable; iii) shipment may be effected from main ports of Country A and/or Country B within the period from ...

Company C presented five invoices numbered 12345A, 678910B, 111213C, 141516D, and 171819E dated June 18, 1998. In the upper portion of each invoice "DC quantity 24,000 Metric Tons (5 per cent more or less)" was indicated. However, in the lower portion of each of the invoices, the actual quantity shipped for each bill of lading was indicated. The total quantity invoiced (total quantity shipped) was 25,410 Metric Tons, which was consistent with the 5 per cent more provision in the L/C.

Bank H did not accept documents negotiated by Bank C on the ground of the following discrepancies:

- invoices showing DC quantity differ (24.000 Metric Tons shown instead of 24.200 Metric Tons as indicated in the L/C);

- certificate of origin showing invoice no. and date differ (certificate of origin showed invoice number as CON202122/9798 dated 09.06.1998 whereas beneficiary's invoices were numbered 12345A, 678910B, 111213C, 141516D, 171819E and dated June 18, 1998).

Company C contended that quantity of 24.000 Metric Tons showed on the invoice instead of 24.200, was a typographical error not giving the right to reject the documents, as the quantity of goods actually shipped was in line with the credit's provision. Company C also argued that the reference to another invoice on the certificate of origin was justifiable on the ground of the additional condition in the credit "third party documents are acceptable"; it was claimed that this condition, implying the presence of a middleman, made the document acceptable, as the middleman provided the issuing of the certificate of origin.

Issues to be determined

- Whether an invoice showing a DC quantity of 24,000 Metric Tons was discrepant when the L/C indicated under field 45A of the SWIFT MT 700 ("description of goods and/or services") a quantity of 24,200 Metric Tons, bearing in mind that the invoice did show the actual quantity shipped;

- Whether a certificate of origin produced by the manufacturer showing an invoice number CON202122/9798 dated 09.06.1998 was consistent with the beneficiary's invoice which showed number(s) as indicated above, dated June 18, 1998.

Comments and conclusions

Relevant UCP Articles

Sub-Article 13a: " ... Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the credit ... "

Article 21: "When documents other than transport documents, insurance documents and commercial invoices are called for, the Credit should stipulate by whom such documents are to be issued and their wording or data content. If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented."

1) Discrepancy concerning the quantity of goods mentioned in the invoice.

The wording "DC quantity: 24.000 Metric Tons 5 per cent more or less" shown on each of the invoices was used as a reference to the quantity stated on the L/C and was not the actual quantity shipped. The actual quantity shipped was clearly stated on each invoice, and the sum of each quantity actually shipped stated on the five invoices (25,410 N1/T) was consistent with the quantity stated in the credit (i.e., 24,200 Metric Tons plus 5 per cent). The quantity 24,000 Metric Tons was incorrectly entered as 24,200 Metric Tons on the invoices. As the typographical error did not affect the actual quantity shipped, the panel of experts holds that, in this case, such an indication does not constitute a discrepancy.

2) Discrepancy concerning the reference to another invoice in the certificate of origin and the related additional condition in the credit: "Third party documents are acceptable".

UCP sub-Article 5(b) states: " ... the credit itself ... must state precisely the document(s) against which payment, acceptance, or negotiation is to be made."

Bearing this in mind, it is to be noted that the clause "Third party documents are acceptable" is a very obscure provision which does not clarify:

- in respect of which parties a party has to be considered a "third party";

- whether a document (and which document ) is acceptable when issued by a party not mentioned in the credit (i.e., whether it means, contrary to UCP Article 37, that an invoice issued by a party different from the beneficiary is acceptable);

- whether a document (and which document) is acceptable when containing a reference to a party not mentioned in the credit.

On this matter ICC publication no. 565 (Opinions of the ICC Banking Commission 1995-1996, item R. 246) discusses the ambiguity of the said clause and does not give an opinion concerning its meaning with the aim not to support in any way this term and to discourage applicants and issuing banks from adopting such terminology without providing some meaning thereto. Express references are made to several UCP Articles, including Article 12, where banks are requested to do their best to clarify incomplete or unclear instructions.

Nevertheless, common banking practice usually gives the term "Third party document acceptable" the restricted meaning of making acceptable a transport document where the shipper differs from the beneficiary of the credit. This practice is reflected in ICC publication no. 371 (Opinions of the ICC Banking Commission 19751979, case no. 64), and in ICC publication no. 434 (Opinions of the ICC Banking Commission 1984-1986, case no. 129) and confirmed by the express wording of Article 33 of UCP 400, which also appears as sub-Article 31(iii) of UCP 500.

Moreover, among the comments made in the discussion of case no. 129 in ICC publication no. 434 is the following: "goods might well have been passed on from an original supplier, so that a name other than the beneficiary would appear on a certificate of origin, and it was hard to see a reason to reject such a certificate."

For the reasons stated above, the Panel of Experts agrees that the clause "Third party documents are acceptable" as stipulated in the L/C should not have been used and that this clause does not support documents which appear on their face to be inconsistent with one another.

The discrepancy raised by the issuing bank was the inconsistency of the invoice number and data on Company C's invoice and the certificate of origin produced by the manufacturer in Country B. According to the issuing bank, the inconsistency rendered the certificate of origin discrepant. However Company C argued that there was no inconsistency in this case, as the L/C permitted third party documents. It leads to the following question: "Where third-party documents are permitted in an L/C, must the invoice number and date indicated on a certificate of origin produced by the manufacturer of the goods be consistent with the invoice number and date of the beneficiary's commercial invoice?"

Bearing in mind that:

- The L/C clearly indicated that the beneficiary is not the supplier of the goods stating: "24,204 Metric Tons Country C origin low protein ... " and "Manufacturer and Origin: Company C's own affiliated/associated factories in Country A and/or Country B", and

- The L/C clearly indicated: "Shipment may be effected from main ports of Country A and/or Country B within the period from ... ",

the Panel of Experts holds that, in this particular case, the variation of the invoice number and date is not a discrepancy, because the L/C indicated, in addition to the clause "third party documents are acceptable", the manufacturer as a party other than the beneficiary.

Statement of the Chair

The decision about the consistency of the invoice was a unanimous decision. The decision about the consistency of the certificate of origin was a majority decision.