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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Relating to: UCP 500
Apparent contradictory punctuation on an invoice; a certificate of inspection with an inconsistent attached log list; a quantity of a stated commodity - based on a total of partial shipments - that was claimed to be outside of tolerance levels
Articles
UCP 500 Sub-Article 13(a); Article 21
Parties
Initiator: Bank F
Respondent: Bank A
Factual summary
Documentary Letter of Credit ("L/C")
- Type of credit: irrevocable and freely negotiable
- Applicant: Company C
- Beneficiary: Company M
- Issuing bank: Respondent
- Advising bank: Initiator
- Negotiating bank: Initiator
- Availability: sixty days after bill of lading date
- Expiry: 30 April 2002, Country B
- Partial shipments: allowed
- Latest shipment date: 31.03.2002
On 7 February 2002, the Initiator issued an irrevocable and freely negotiable L/C, as amended on 25 February 2002, for USD 442,500 plus or minus 20%, expiring 30 April 2002, on behalf of the applicant and in favour of, and advised through the Initiator, to the beneficiary concerning:
A. Commodity: First grade beech saw logs Quantity: 1000 cubic meters plus or minus 20% Quality: Length 5.4 m and up excluding free trim Diameter 45 cm and up Unit Price: USD 210/M3 CFR City Z
B. Commodity: Second grade beech saw logs Quantity: 1500 cubic meters plus or minus 20% Quality: Length 4 m and up excluding free trim Diameter 30 cm and up Unit Price: USD 155/M3 CFR City Z
The L/C required presentation of the following documentation:
- Signed commercial invoice in 3 copies indicating L/C number and contract number;
- Full set of clean on board ocean bills of lading made out to order and blank endorsed marked "Freight Prepaid" and notifying the applicant;
- Certificate of origin in 3 copies issued by authorized organisation;
- Beneficiary's certified copy of fax/telex dispatched to the applicant within 3 days after shipment advising L/C no., name of vessel, date of shipment, name of the goods, quantity, weight and value of the goods;
- Packing list of 3 originals plus 3 copies;
- Phytosanitary certificate of 1 original plus 1 copy;
- Certificate of inspection of 1 original issued by representative(s) of the buyer.
The L/C allowed for partial shipments and transhipment, specifying the latest date of shipment as being 31 March 2002.
There were five drawings under the L/C presented to the Initiator, said to total USD 432,564.79, with the last drawing of USD 129,976.39 being in dispute.
On 23 April 2002, documents of such fifth/last presentation were sent by the Initiator through courier to the Respondent, the remittance letter mentioning that the Initiator had negotiated the documents and that the maturity was scheduled on 30 May 2002. Upon receipt of the documents covering the drawing of USD 129,976.39, the Respondent determined they were discrepant and notified the Initiator by SWIFT message on 8 May 2002 that the documents were rejected for the following reasons:
1. Not "clean on board" B/L
2. Punctuation on invoice is contradictory: 420,671 CBM VS. USD 129,976.39
3. Country of origin is both EC and Country B, which does not comply with the L/C
4. Details of the log list do not meet the L/C quality requirement
5. Quantity of commodity B of the five shipments is 1165.059CBM, which is less than 20 PCT of the L/C quantity - outside of the L/C tolerance
The Respondent later waived discrepancies 1 and 3 in its SWIFT message dated 14 May 2002 to the Initiator.
Summary of the case stated by the Initiator
The Initiator, in its Request of 2 August 2002, formally requests a DOCDEX Decision. With respect to the discrepancies in dispute, the Initiator stresses in particular the following:
(i) Discrepancy 2 - contradictory punctuation on invoice
The Initiator contends that the discrepancy is not a valid discrepancy as differences in European and American notations should not give rise to the rejection of documents. The Initiator refers to the ICC Banking Commission Opinions in case numbers R210 and R218 in ICC publication no. 565 and to the acceptance by the Respondent of similar invoices in prior presentations under the L/C.
The Initiator also assumed that this discrepancy was no longer applicable, as later communications from the Respondent dated 21 June and 5 July did not mention this particular discrepancy.
(ii) Discrepancy 4 - The certificate of inspection and attached log list does not meet the L/C quality requirement
The Initiator originally was of the view that the log list was not part of the certificate of inspection, but later agreed that it was integral part of the inspection document.
The Initiator, however, maintains that as the wording on the certificate of inspection stated that the goods were in conformity with both the letter of credit and the sales contract and signed by the applicant's representative, the data of the log list are overruled, and that such data are irrelevant under the applicable Article 21 of UCP 500.
(iii) Discrepancy 5 - quantity of Commodity B was less than permitted by the 20% tolerance allowed in the L/C (i.e., short-shipped)
The Initiator contends that as the L/C states that partial shipments are allowed without specifying that partial shipments are allowed within 20/20 limits, the discrepancy is not a valid discrepancy.
Summary of the case stated by the Respondent
The Respondent, in its Answer dated 23 August 2002, formally requests a DOCDEX Decision. With respect to the disputed discrepancies the Respondent stresses in particular the following:
The Respondent maintains that two different ways of punctuation should not appear on the invoice where the punctuation on the quantity does not correspond with the punctuation on the amount.
The Respondent also contends that because of the different punctuation, the goods cannot be cleared by customs for importation, and that prior acceptance of similar invoices does not prevent the Respondent to raise such discrepancy in respect of any following presentation pursuant to R332 of ICC publication no. 613.
(ii) Discrepancy 4 - the certificate of inspection and attached log list does not meet the L/C quality requirement
The Respondent contends that the log list is an integral part of the certificate of inspection and therefore subject to examination whether or not it does comply with the L/C requirements or the description on the invoice, and that, should such log list be treated as a document not required under the L/C, it may be examined and lead to the refusal of the presentation.
The Respondent also refers to UCP 500 Article 13 and the International Standard Banking Practice for the correct examination of documents under a letter of credit.
The Respondent contends that the five shipments of Commodity B only totalled 1165.05 cubic metres, whereas the L/C stipulated 1500 cubic metres plus or minus 20%, referring to the shipment in question of USD 129,976.39 being made on the last shipment date, being 31 March 2002, and to the Initiator not declaring any further shipments.
The Respondent also maintains that its view is supported by the Banking Commission Opinion given in case number R238 in ICC publication no. 565.
Analysis
While it appears that there are other factors at issue in this case, such as the suggestion that the personal issuance by the representative of the applicant of the certificate of inspection should have corrected any discrepancy in any log list attached thereto, in documentary credit operations banks only deal in documents and only in the manner made clear in sub-Article 13(a) of UCP 500 - that banks must examine all documents stipulated in the credit with reasonable care to ensure that the documents appear on their face to be in compliance with the terms and conditions of the credit and to be consistent with one another, and in sub-Article 14(b) of UCP 500 that banks must determine on the basis of the documents alone whether to accept or to refuse the same.
The commercial invoice presented under the L/C shows the quantities in the "European" punctuation (e.g., 420, 671 cbm) and the amounts in "American" punctuation (e.g., 129, 976.39, which amount is also expressed in words).
While it may, to a certain extent, be unprofessional to use both commas and full stops to denote decimal places on the same document as in this commercial invoice (and in the bill of lading attachment), both punctuations are internationally acceptable if this commercial invoice is quite clear as to the quantity and amount: Its total is stipulated in words and - using "American" punctuation - in figures, and its two sub-totals are stipulated in figures using the "American" punctuation, so that by dividing the two unambiguous sub-total figures through the respective of the two unit prices, it is obvious and clear that the figures of the two quantities are specified in the European punctuation, i.e., mean 420 cbm 671/1000 or 268 cbm 616/1000, respectively.
The Respondent's contention that because of the different punctuation the goods cannot be cleared by Customs for importation lies outside the scope of the UCP 500; also Customs duties usually appear to be calculated on the basis of the respective prices.
The log list(s) show several logs which, in respect of net length or net diameter, fall short of the quality specifications in the respective commercial invoice and the L/C.
The L/C in this case has stipulated a certificate of inspection which has been provided, together with attachments of log list(s) which has/have not been required in the L/C. Such certificate of inspection expressly refers to the "log lists(s) attached" thereto in order to identify the goods inspected and approved. Therefore, the log list(s)s is/are obviously essential for the certification contained in, and as attachment to, the certificate of inspection and form an integral part of such certificate of inspection.
Such document is to be checked under Article 21 UCP 500 and, under the circumstances, is acceptable as presented, unless its data content is not consistent with any other stipulated document presented. The data content of the log list(s) appears, as far as some specifications of net length or net diameter are concerned, to differ from the general quality specifications in the commercial invoice presented in connection therewith and in the L/C.
This is a relevant inconsistency because (1) the log list(s) form(s) an integral part of the certificate of inspection stipulated under the L/C, and (2) the wording of the certification in the certificate of inspection finds "that conditions of the logs in the log list(s) attached to this CERTIFICATE OF INSPECTION are in conformity with the requirements of the above-mentioned contract (underlying the L/C) and letter of credit", and therefore does not expressly or impliedly eliminate any inconsistency with the respective quality specifications in the relevant invoice, and (3) the issuer of the certificate of inspection, appearing to be a representative of the applicant, cannot bind the issuing bank, which must determine their compliance or non-compliance on the basis of the documents alone.
The Initiator's arguments that the certificate of inspection was supplied by the representative of the applicant and that it certifies the conformity of the logs in the log list(s) with the requirements of the underlying contract and the L/C, are therefore not material to the issue of whether the document is compliant or not.
It may be that the beneficiary has reasonable grounds for litigation against the provider of the certificate of inspection for misrepresentation or negligence, but such an issue is outside the scope of the L/C and the UCP 500.
Also, the certificate of inspection (including the log list(s)) was not excessive in detail in this case.
(iii) Discrepancy 5 - quantity of Commodity B was less than permitted by the 20% tolerance allowed in the L/ (i.e. short-shipped)
Whilst the minimum quantity of Commodity B to be shipped under the L/C was 1200 cubic meters (i.e., 1500 cubic meters minus 20% thereof), the aggregate quantity of Commodity B of all partial shipments under the L/C is said to be 1165 cubic meters and 59/1000.
The L/C is very clear as to the quantity of both Commodity A and Commodity B to be shipped, although the L/C provided for partial shipments. Though partial shipments were permitted under the L/C, the quantities were only stipulated therein as overall quantities for each of both commodities. The L/C neither expresses nor implies any minimum quantities for any partial shipments. The additional condition, "each shipment about 30 x 40' with gap of about 2 weeks between each shipment", does not allow any breakdown to certain quantities for certain commodities per each partial shipment, because such condition does not say so and because of the uncertainties created by the word "about", in particular with respect to the short shipping time available under this L/C from 8 February till 31 March 2002, and the quantities stipulated in the L/C.
Under such circumstances, a bank acting under the L/C is not concerned with any shortfall of the aggregate quantity of partial deliveries actually effected (even if the last delivery for which documents were presented under the L/C is shown therein as having been effected on the latest date of shipment pursuant to the L/C) and the issuing bank's definite undertaking is to honour any drawing, provided the stipulated documents are presented and the terms and conditions of the L/C are complied with - including the maximum amount stipulated in the L/C - and such definite undertaking or any payment thereunder is not expressly nor impliedly conditional upon any minimum aggregate quantity stipulated in the L/C, because neither the present L/C nor the UCP 500 stipulate or imply this.
Decision
Examination of the certificate of inspection required under the present L/C includes examination of any log list(s) referred to in the declaration of inspection contained therein and attached to the same, and therefore forming an integral part of such certificate of inspection. Partial non-compliance of the data content of such log list(s) (forming an integral part of the certificate of inspection) with certain specifications of the invoice presented therewith, and the terms and conditions of the L/C, renders such certificate of inspection as being non-compliant.
A differing use of both commas and full stops to denote decimal places of figures on the same document, i.e., the commercial invoice is acceptable, if the true meaning of each figure can be easily established on the basis of such document.
Therefore under the L/C, allowing partial shipments and stipulating overall quantities - together with certain maximum and minimum allowances without stipulating the same for each and every partial shipment, - a final presentation, including a bill of lading issued on the latest date of shipment stipulated in the L/C, is acceptable, even if together with the respective quantities of partial shipments under the L/C represented by prior presentations, the overall minimum quantity stipulated in the L/C is not achieved.
Due to the discrepant certificate of inspection, the complete presentation in dispute under this L/C is not compliant, and the Respondent's refusal thereof is justified under the terms and conditions of this L/C and the UCP 500.