Parties to the query

Claimant: Confirming Bank

Respondent: Issuing Bank

Detailed description

The Respondent issued two credits, subject to the UCP 600, by order of the same applicant and in favour of the same beneficiary. The credits were confirmed by the Claimant.

Both credits required, inter alia, submission of “shipped on board” bills of lading marked “Liner Terms” and “Freight Prepaid”, and submission of certificates of origin issued/certified by a Chamber of Commerce.

The beneficiary submitted documents under both credits to the Claimant which, after examination, considered each set to be compliant and presented them to the Respondent.

The Claimant negotiated the presentations in accordance with its nomination, and sent the Respondent a SWIFT MT754 advice under each credit advising the Respondent of its negotiation in accordance with the instructions contained in the credits.

Subsequent to receipt of documents, the Respondent refused the presentations by means of a SWIFT MT799 for certain alleged discrepancies.

Under one credit, the Respondent stated a discrepancy that “B/L marked liner in – liner out whereas LC trade terms shows ‘CFR LO’.”

For the second credit, two discrepancies were noted, “B/L marked liner in – liner out whereas LC trade terms shows ‘CFR LO’”, and certificate of origin presented not signed by its issuer.

The Claimant considered the alleged discrepancies as invalid and demanded reimbursement.

At a later date, the Respondent added that “Liner Out” was only allowed because of the prohibition by the credits in respect of charges additional to freight. The Respondent returned all documents with 1/3 original bill of lading endorsed to applicant’s order.

The Claimant stated that, by doing so, the Respondent was precluded from claiming discrepancies by virtue of the UCP 600 sub-article 16 (f).

The question was raised as to whether there was a conflict between the data appearing in the field headed “Liner Terms” on the bills of lading and the SWIFT field which provided for “CFR LO”. In addition, whether the stamps on the certificate of origin satisfied the requirement for the certificate of origin to be certified.

Furthermore, whether the endorsement by the Respondent on the bills of lading precluded the Respondent from asserting that the documents were non-complying, and whether the later statement by the Respondent also precluded them from alleging discrepancies.

Analysis

The UCP 600 sub-article 14 (d) states that data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.

The UCP 600 sub-article 26 (c) states that a transport document may bear a reference, by stamp or otherwise, to charges additional to the freight.

The ISBP 745 Preliminary Considerations (iv) highlight that many of the problems that arise at the document examination stage could be avoided or resolved by the respective parties through careful attention to detail in the credit or amendment application and issuance of the credit or any amendment thereto. The applicant and beneficiary should carefully consider the documents required for presentation, by whom they are to be issued, their data content and the time frame in which they are to be presented.

The ISBP 745 Preliminary Considerations (v) highlight that the applicant bears the risk of any ambiguity in its instructions to issue or amend a credit. An issuing bank may, unless the applicant expressly instructs to the contrary, supplement or develop those instructions in a manner necessary or desirable to permit the use of the credit or any amendment thereto. An issuing bank should ensure that any credit or amendment it issues is not ambiguous or conflicting in its terms and conditions.

The ISBP 745 paragraph E27 (a) states that when a credit states that costs additional to freight are not acceptable, a bill of lading is not to indicate that costs additional to the freight have been or will be incurred.

The ISBP 745 paragraph E27 (b) states that an indication of costs additional to freight may be made by express reference to additional costs or by the use of trade terms which refer to costs associated with the loading or unloading of goods, such as, but not limited to, Free In (FI), Free Out (FO), Free In and Out (FIO) and Free In and Out Stowed (FIOS).

The Incoterms® 2020 provide a number of provisions which highlight that all port of loading handling and the costs of loading is included in the cost that must be paid by the seller, namely articles A2, A4, and A9.

Neither the UCP 600 nor the Incoterms® 2020 contain a definition of the terms “liner terms”, “Liner In” or “Liner Out”.

Consequently, the requirement that the bills of lading be marked “liner terms” has no defined interpretation under the UCP 600 and would be satisfied by any notation on the bills of lading that appeared to meet this requirement.

With respect to the stated discrepancy regarding the certificate of origin, the UCP 600 article 3 states that a document may be signed by handwriting, facsimile signature, perforated signature, stamp, symbol or any other mechanical or electronic method of authentication.

The ISBP 745 paragraph A35 (a) states that a signature, as referred to in paragraph A31 (a), need not be handwritten. Documents may also be signed with a facsimile signature (for example, a pre-printed or scanned signature), perforated signature, stamp, symbol (for example, a chop) or any mechanical or electronic method of authentication.

The ICC Opinion R718 indicated that a stamp could act as a form of signature and its use would not in itself be a reason for refusal. However, the context of the use of the stamp is important and, in certain instances, the stamp may not qualify as representing a signature of the issuer. If an issuing bank required a "manually" signed commercial invoice, then that qualification must be inserted into the credit. Otherwise, a stamp may be valid.

It was opined that the stamp on the certificates of origin fulfilled the necessary requirement by evidencing the name of the company.

Concerning the issue of the Respondent returning the bills of lading with one bill of lading containing a stamp which was not present on the document at the time of presentation, this was considered by the Claimant to represent an endorsement to the order of the applicant.

The ICC Opinion R214 stated that the confirming bank could not expect the issuing bank to endorse documents which it had not agreed to take up under the credit. It went on to state that the practice of banks when returning documents where discrepancies are found is to return the documents presented in the same manner as they were received. It was not for the issuing bank to decide how or if any changes should be made to the documents, including changes in endorsement.

The ICC Opinion R744 stated that the issuing bank was required to return the documents in the same form and number of originals and copies as received from tie nominated bank.

The ICC Opinion TA891rev stated that the issuing bank was required to return the documents in the same form and number of originals and copies as received from the nominated bank, and if the issuing bank was unable to return all the documents in this manner, it was precluded under the UCP 600 sub-article 16 (f) from claiming that the documents did not constitute a complying presentation.

In respect of the additional communication by the Respondent to the Claimant, the UCP 600 sub-article 16 (c) states that an issuing bank, when deciding to refuse to honour or negotiate, must give a single notice to that effect to the presenter, and that such notice must state each discrepancy.

The UCP 600 sub-article 16 (f) provides that if this provision is not adhered to, then the issuing bank would be precluded from claiming that the documents did not constitute a complying presentation.

The ICC Opinion R431 stated that when providing a notice of rejection, in accordance with the UCP 600 sub-article 14 (d) (ii), the issuing bank and/or confirming bank must state all the discrepancies in respect of which the bank refuses the documents. The confirming bank has one opportunity in which to give the reason(s) for refusal. The fact that the initial rejection was an error did not allow it to provide a rectification at a later date.

This was further endorsed by the ICC Opinion R271.

Decision

It was unanimously decided that the alleged discrepancy in respect of the clause “Liner In – Liner Out” was not valid and that no discrepancy existed.

By a majority decision, it was concluded that the certificate of origin was sufficiently signed and no discrepancy existed.

Also by a majority decision, the fact that one bill of lading was apparently endorsed by the Respondent was not considered as a failure to return the documents in the same form and numbers as presented by the Claimant. Nevertheless, the Respondent’s refusal notice was invalid as it stated no valid discrepancy.

Furthermore, it was decided unanimously that the Respondent could only claim non-compliance due to discrepancy(ies) raised in its initial refusal notice.