Exclusions of certain risks to Institute Cargo Clause (A)/

[T.O.Lee]

Jeremy,

We wish to point out three things for you to consider:

(1) EVEN A CHILD KNOWS THAT STEEL GOODS MAY RUST.

This is merely simple common sense that does not need any technical knowledge on steel or steel commodity trade to come to aware of this simple fact. That means a banker with simple common sense should be able to see “on the face” (your favourable defence) of the insurance document that rust exclusion is a normal thing. Therefore, if a banker considers this as a discrepancy, then a child may do the document examination job better than him, particularly that the exclusion clause also says that if the rust is proximately caused by an insured peril, the insurance company will pay for such rust damages.

(2) WHAT WE CONSULTANTS, EXPERTS OR BANKERS ARE DOING?

To help the traders to do their trades easier, faster, risk free and more cost effectively. If bankers try to regard rust exclusion in an insurance document as a valid discrepancy, saying that bankers do not know that steel goods may rust, then they are in fact killing their bank by losing customers who would go to a bank around the corner that has simple common sense and they are killing their own jobs, as well as the jobs of their colleagues eventually. If all bankers did the same thing, very soon we would see a DC only from a museum of trade finance.

(3) IF BERNARD WHEBLE WERE WITH US TODAY

He would certainly say: “It is simple common sense for a banker to know that steel goods may rust and rust exclusion in an insurance document should not be deemed as a valid discrepancy”. So would his friend Gray Sinclair say. We miss them both and wish that they were still here.

(4) PLEASE GIVE A BETTER REASON THAN “ON THE FACE”

We appreciate your persistence in other discussions but this time you are going too far to deny a fact known even to a child. As your friend we would advise you to agree with us this time. We all respect you all the time and expect a better reason from you than “on the face” which seems to be abused here.

If you still insist on using “on the face” to defend yourself, then we may give you a nickname “Rocky”, unless you can come up with a better reason to support your own opinions.

Sun Tse (whose doctrines are standard lecture materials in the US West Point) would have said: "Retreat immediately if you find yourself entering a wrong battle field!"

One of your reasonable friends who care about you
T. O. from
www.tolee.com

[edited 5/7/02 5:34:12 PM]

[larryBacon]

Jeremy,

I think that you underrate your knowledge of insurance and those of your confederate bankers. If, as you say, bankers have no need to know details of insurance, then how do you know that ICC(A) refers to insurance ? If the DC called for ICC(A) in relation to insurance, would you accept Institute Cargo Clause (A) & v.v.? The requirements of a bank checker as described by you would seem to indicate that "strict compliance" would apply and only the literal compliance would suffice. Do you agree ?

Laurence

[NigelHolt]

T.O.,

In a spirit of fisticuffs (Queensbury Rules of course) I respond as follows:

(1) I’m afraid this adult did not know that steel is always susceptible to rust. I thought that the point of stainless steel was to avoid rust. But that’s the British education system for you.

Also, I return to my point that, even if a banker is familiar with a particular trade’s practices, I cannot see that they are entitled to assume the underlying contract has been concluded on that trade’s usual terms (irrespective of the potential consequences if they are not). However, I must stress I do not consider this point to be central, so there is no need for you to respond regarding it.

(2) If the correct application of sub-Article 13a results in the death of the credit, so be it. I certainly do not see attempting to preserve of the credit justifies departing from the fundamental tenets of document examination.

(4) Clearly you and I fundamentally disagree on the correct application of sub-Article 13a. At least I have adduced case law to support my position.

Laurence,

The only reason I know ICC(A) relates to insurance is because applicants stipulate it in the provisions of credits we issue/advise and because it appears in insurance documents we examine. In other words, this knowledge springs from my bank’s day-to-day credit operations.

I’m not sure what you mean by ‘ICC(A) & v.v.’. If you are talking about a situation where -on the face of it(!)- cover in excess of that required by the credit appears to have been arranged, then I would not consider this -of itself- non-compliant.

Overall, I am not advocating ‘literal compliance’, and it would be pointless if I were as the English courts do not subscribe to it. I am simply advocating that the insurance documents must appear (to an insurance non-expert) to offer the full cover specified in the credit.

Regards, The Pugilist
[edited 5/8/02 11:36:19 AM]

[larryBacon]

Jeremy,

I used v.v. as an abbreviation for vice versa.

EDUCATION BY THE BACK DOOR
You acknowledge that your knowledge of insurance is obtained by your day-to-day business. This is akin to sneaking in to lectures to gain a tertiary education. (I don't mean to suggest that you are a sneak !) If you rely on incomplete pieces of information to make a judgement, there is always a danger that such judgement is flawed. You are not alone in banking circles in taking this attitude. I wrote an article published in DC Insight last year about the (incorrect) practice of banks in issuing credits requiring presentation of an AWB consigned to order. One can readily see how such a practice can remain if bankers curtail their education to documents which pass their desks. In this case (AWB), the bankers are most likely to be at risk themselves, but it has not deterred some of them from continuing this practice.

I am not suggesting that bankers obtain doctorates in International Trade, but to avail of structured training programmes to "fill in the gaps" in at least the basics of the subjects they encounter daily. This is no different from their counterparts acting as applicants and beneficiaries.

Laurence

[NigelHolt]

Laurence,

I do not have any problem with bankers availing themselves of structured training programmes, so as to "fill in the (general) gaps" regarding the international trade documentation they commonly stipulate/examine. However, what is at issue here is the application of knowledge of a particular aspect of a specific trade and commodity, together with the assumption that the buyer and seller have contracted in a particular way. This, to me, flies in the face of sub-Article 13a (and English law).

Jeremy

[T.O.Lee]

"INHERENT VICE" OF CERTAIN BANKERS

Well said by Laurence. Bankers, like any body, cannot gain knowledge of other trades just by the “random” way. He has in fact creating an “inherent vice" (to borrow an insurance jargons used so frequently here) for himself. If he does not use it, the “inherent vice” is harmless, such as "knowing" that an AWB is endorsable (as pointed out by Laurence’s article in the DCI) and things like that.

FRAGMENTED KNOWLEDGE IS THE MOST DANGEROUS

Once he uses that sort of “fragmented” knowledge to check documents issued by other trades, he is taking a great risk. His inherent vice will surface and cause the damages. He would say in his refusal advice:’ The AWB is discrepant because it has no blank endorsement like a BL”. We have seen such bankers in our consultancy life. Anything may happen these days.

Coming back to Jeremy, do you agree that knowing “fragmented” law is most dangerous, more dangerous than knowing nothing about law at all?

If you answer to this simple question is “No”, and knowing that law is your favourable subject, shall we create some amusement here out of this otherwise dry topic and try to convince you with a variation of the famous dictum of Viscount Sumner in his landmark case of Equitable Trust Company of New York v. Dawson Partners Limited.

WHAT VISCOUNT SUMNER WOULD SAY

Here it goes:

“It is both common ground and common sense that steel goods may rust. There is no room for a banker to deny that he does not need to know this fact of life in examination of documents. Business could not proceed securely on any other lines. The banker who knows nothing about the underlying trade practice cannot be qualified to determine discrepancies on documents used for such purposes. With "fragmented" knowledge about other trades, he cannot take upon himself to decide what will do well enough and what will not.

If he refuses to learn the trade practice of other trades, he is safe:

If he learns the trade practice of other trades the “fragmented” way and doesn’t use it to examine documents, he is safe;

If he uses it to examine documents and to determine discrepancies, he acts at his own risk”.

Jeremy, we hope you would response using a dictum from another case. This should not be a difficult job for you since you know law so thoroughly.

NOT ALL BANKERS ACT LIKE THE SAME

By the way, a lot of bankers from Asia and the Middle East are eager to learn the trade knowledge and practices of other trades. Our workshops on transport, charter party, cargo insurance, Incoterms, frauds, risk management etc. are hot sellers in these markets. So not all bankers are refusing knowledge of other trades. They would welcome that to do their jobs more professionally and to serve their customers better.

We agree that bankers need not know trade practices to the FULL extent. But he should know the BASIC trade knowledge and practices of other related trades. That is what our workshops are designed, just ENOUGH to make determination of discrepancies not a difficult job for the bankers.

www.tolee.com

[edited 5/8/02 5:43:19 PM]

[LeoCullen]

I am going to "stick my neck out" and agree with the Banking Commission and Jeremy as to the correctness of Opinion R360.

I am sure that eveyone has looked at the conclusion of this Opinion but I will restate it here for ease of reference :

"Analysis and conclusion

Sub-Article 35(b) applies where the letter of credit is not specific in the insurance cover required for that specific transaction. The letter of credit in question detailed the insurance requirements and therefore this sub-Article does not apply.

The exclusion of certain risks would be grounds to reject in the circumstances that have been outlined above."

So, the credit asked for an insurance policy covering ICC(A) but an insurance policy indicating ICC(A) with an exclusion was presented.

In my opinion, it is the fact that there is an exclusion indicated on the "face" of the document (not the practical effect of the exclusion to the underlying transaction for insurance purposes) that makes this a discrepancy.

While there will be a lot more debate in this forum reagarding ISBP and "broader education", I believe the key issue to the effective/correct use of LCs is the correct training (and application) of UCP.


[edited 5/8/02 5:33:51 PM]

[NigelHolt]

T.O.,

Time to bring matters to a conclusion I think.
1) I have no intention of indulging in the -to me- rather curious exercise of re-writing court judgements to suit one’s views.
2) A fragmented (or erroneous) knowledge of the elementary tenets of documentary credit operations is certainly dangerous for a banker involved in them.
3) I believe English law is quite clear as to what is expected of a banker examining documents. For example, in Westpac v S.N.C.B. (1986) it was held that ‘it is well settled that a bank …… is concerned with the form of the documents presented to it, and not with the underlying facts. It forms no part of the bank’s function to speculate about the underlying facts’. Your approach would at least seem to require a banker to indulge in a substantial amount of speculation.
4) I would respectfully observe that throughout these discussions you have not adduced any case law or expert legal commentary to support your views.
5) If bankers want to learn more about other aspects of international trade so as, for example, to be able to assist their customers better draft documentary credits, good luck to them.

Yours finally, Jeremy

Leo,

Thanks for the support.

Jeremy

[larryBacon]

Jeremy,

on the basis quoted by you that bankers' L/C knowledge is confined to their day-to-day business, surely to quote case law is ultra vires ?

Laurence

[NigelHolt]

Laurence,

I did not say “that bankers' L/C knowledge is confined to their day-to-day business”. It is -to put it simplistically- their NON- credits knowledge.

I think we, too, should call it a day.

Yours till the next discussion topic, Jeremy