NON DOCUMENTARY CONDITION ?

[JimBarnes]

This topic has interested and involved me for decades, longer than the short and not so happy life of "linkage".

The primary purpose of the NDC rule in UCP500 and 600 is to reinforce the point that LC conditions must not involve the LC bankers in determining extrinsic facts. (It may not be enough for UCP to say that documents are to be examined on their face when confronted with an LC condition that says this LC shall terminate when the underlying debt is paid. At least, it may not be enough for judges reading an LC and incorporated rules.)

I think LC bankers, particularly those on the commercial rather than standby/guarantee side, take that point for granted and over-focus on whether and how the NDC rule applies to LCs that list conditions separately from the listing of required documents. Unhappily, there is a decades long tradition of separating lists of conditions from lists of required documents, which is now embodied in SWIFT LC formats.

Whenever a condition is listed separately from the document listing, there is a question as to whether the condition must be shown in all the required documents, any one of them, a particular one of them, or none of them. This is true with or without the NDC rule introduced with 500.

So, there are lots of interpretive questions arising under commercial LCs in SWIFT format, and some, but not all, are answered by reading the UCP text, as Jeremy did in his prior post. (These interpretive questions rarely come up in standby practice because the practice is to spell out the document to be presented, which forces the drafter to expressly connect each required condition with each required document. The problem in standbys is that some drafters really do want the bank to determine extrinsic facts and don't understand or care that that might convert the LC into a ordinary guarantee.)

Jeremy rightly uses the UCP text to interpret the meaning of an LC that does not itself link conditions to documents. On that basis he concludes that a condition of "free demurrage" is an NDC but that a listed liner condition is not an NDC because the liner condition is covered by the UCP rules on carrier identification in a transport document and the free demurrage condition is not mentioned in the UCP in connection with any particular document.

I assume Jeremy would also look at SWIFT standards to see if they indicated that a particular condition related to a particular document.

What about isbp, Jeremy? I assume you would consider isbp (the practice, not the ISBP publication), but didn't find any for "free demurrage". I think some of the interpretive questions that arise, e.g., about additional conditions on country of origin and price and delivery terms could be answered by resort to isbp.

That effort failed, I believe, in the course of drafting ISPB, which may be just as well as that effort was overwhelmed by the "linkage" controversy.

Maybe we'll have to wait until some court writes an opinion that says that a condition like "free demurrage" in an LC that calls for a transport document and an invoice must be affirmatively shown in both those relevant documents or at least in one of them and that its total absence from the documents makes the presentation discrepant.

If I were the LC industry king, I would try to identify and record isbp that would address some of the recurring questions and the basic approach in applying the NDC rule (as with the topic of originals after the Glencore case).

Regards, Jim Barnes

[DanielD]

M. Barnes,
I think that a judge confronted for the first time with a NDC under a DC would be very puzzled. So,
we could expect the unexpected.

Jeremy,

The cows have restarted fighting

Regards

D. Devahive

[NigelHolt]

Jim,

You say ‘The primary purpose of the NDC rule in UCP500 and 600 is to reinforce the point that LC conditions must not involve the LC bankers in determining extrinsic facts’. This is not my perception. My perception is that it is intended simply to improve doc. credit advising -and possibly doc. examination- by exonerating advising banks -and non-advising nominated banks- from having to worry about poorly drafted doc. credits that contain NDCs.

Without the NDC rule advising banks would either have to revert to the issuing bank for clarification as to how the condition was to be evidenced or advise the doc. credit saying to the benef. either that the credit was unclear, and therefore it was not prepared to act as nominated bank, or in the advising letter tell the beneficiary how the condition was to be evidenced (thereby having to make a -possibly incorrect- judgement) and make any confirmation conditional on this. The NDC rule obviates the need for all this. (Having said that, I would prefer the UCP was silent on the question of NDCs so as to force issuing banks to issue credits properly.)

No, Jim, I would not look at SWIFT standards to see if they indicated that a particular condition related to a particular document in deciding if something was an NDC. I am confident that the SWIFT standards would not be of any relevance.

The only ‘isbp’ I considered was Opinion TA644rev. This to me is the ‘be all and end all’ on the matter of the correct interpretation / application of 14(h) (not that I agree with it, but that is another matter). I cannot see how there could be any relevant isbp regarding "free demurrage", as Article 14(h), as clarified by Opinion TA644rev, is ‘king’ and isbp cannot override the express provisions of the UCP should there be any conflict. Furthermore, additional conditions on country of origin and price and delivery terms -if not part of the ‘goods description’- can only be answered (currently) by resort to Opinion TA644rev.

Daniel,

I will be very upset if the fighting cows of Switzerland are not featured on TV5.

Leo,

Glad (sincerely) to see Ireland finally got there after 61 years, even if it meant Wales finishing 4th!

Regards, Jeremy

[edited 3/24/2009 11:07:04 AM]