ICC Digital Library Forum

OUR NEW STRATEGY IN YEAR 2002

When we made our year end review of our participation in the Discussion Forum in 2001, we were amazed that we had contributed the largest number of opinions, more than 440. We think we have to change our strategy in 2002 not to response immediately to any query or comments by other members, eventhough they may be on our opinions, to allow other members who have the same opinions to voice out theirs first. In that case, to be frank, we may save our time spent in the Discussion Forum and use the time saved to find our rice and noodles. So from now on our silence does not mean our acceptance of any comments made on our opinions expressed here.

Having said that, there is always an exception to every rule. If there is urgency in the query itself or we are very interested in the issue, we may respond promptly, provided we have the time for it.

From our past experience in response to queries in the Discussion Forum, we may be handicapped in time to respond as we in Toronto are six hours behind Europe and 12 hours behind Asia. Well, it all depends on where the query comes from. If it is from North America, then we would have some advantage in timing.

WAITING FOR A WHITE KNIGHT

So when we saw Khalid's comments on our opinions regarding our use of "on behalf of or otherwise upon authorization of" to describe the nominated bank in carrying out the instructions or request from the issuing bank, we chose not to respond promptly to allow some white knights to point out that Khalid's interpretation may not be correct. And this time the white knight is Laurence. Thanks for his clarification by quoting Article 10 of the UCP 500. This also evidences that our new strategy does work out in a way that we have expected.

HOW WE SHOULD QUOTE SOMEONE ELSE'S WRITINGS

Our opinions expressed hereunder are agreed by a member of the UCP 500 Working Party when we talked to him by phone concerning his writings often being quoted to support an individual's incorrect interpretations of his writings.

Sub Article 18 is not drafted by the UCP 500 Working Party. It existed in previous versions of the UCP. It only tries to cover the risks of the issuing bank when other parties (including non banks) do not carry out the tasks instructed by the issuing bank that makes the sole decision to chooses such parties. It does not change, and also has to be read in conjunction with, the responsibilities and liabilities of the issuing bank as mentioned in the important Articles 9 & 10 of the UCP 500 where the DC gets its credibility.

HOW WE SHOULD QUOTE THE UCP ARTICLES TO SUPPORT OUR INTERPRETATION

In any debate, or in doing case studies, we often indicate to the participants of our workshops that it is a dangerous habit to read any UCP Article in isolation to support one's incorrect interpretation. It is also important to find out whether that particular Article existed before the birth of the UCP 500. If it was, then we should trace back its origin (the version of the UCP where this Article first appeared) and interpret its meaning in the context of the trade environment at that particular historic time frame.

This is as simple as opening a MS Word 97 document, one should use the MS Word 97 software. If it is opened with a later version, say MS Word 2000, some of the alignments may be shifted. This is particularly so in opening a WordPerfect 5.0 document with a MS Word 2000 software.

READ OUR WORDS CAREFULLY AND DON'T ASSUME OR IMPLY

Please read the words in our opinions or comments carefully, and don't make any assumption or implication, as Jeremy sometimes does. So far we regard the issue of "whether a nominated bank is or is not an agent of the issuing bank" a complicated one, all depending on the local legislation and there is no "one size to fit all" answer, since all the legislations may be different. Even agency laws may be different from one legislation to another. That is what we are trying to say.

DIFFERENT TREATMENTS OF QUERIES FROM THE FLOOR IN DIFFERENT WORKSHOPS

In a basic workshop, participants always expect us to give "one firm answer" to a query, according to the comments collected at the end of the workshop.

In an advanced workshop, we cannot give "one firm answer", and it is our duty to point out the various possible answers. However, certain participants would not understand this and may blame us for not giving one firm answer to a query, known from their feedbacks collected afterwards.

Too bad, they have walked in the wrong room! That is what we could respond to such comments. Understanding and professional organizers like Hatem do understand that this is not our fault.

http://www.tolee.com

[edited 1/3/02 5:54:30 PM]

Speaking about contributions to the discussion forum we would like to express few ideas inhere

Discussion Forum is the beating heart of the DC PRO.

The discussion forum is an unprecedented experience for DC practitioners to voice their opinions, queries and concerns on different facets of trade finance particularly letters of credit. It is as well as testing business on different skills be it technical or behavioral. We have found that indulging in discussions where contrasting views are voiced refines the behavioral skills of the person towards more extraverted look to others, solicit a phenomenal reawaking of profound interaction and innovation.

We hope that with the contribution of Laurence Bacon, Jeremy Smith, Abdulkader Bazaraa, the discussion forum will become a literary model where DC practitioners are constantly alerted and in search of something new, a model that provides a rhythmical ascending movement in a peculiar climate that appeals to every mind and offers it something.

A tribute to T O Lee

Since my subscription to the DC Professional, I have found that Lee’s writings, which are as pure as the dew of the dawn, possess an ideal and perfect picture of contemporary trade with all its facts encompassed with a genuine touch of wisdom. Through his writings, T O Lee, disseminated a practical yet mystic touch to many of the queries/ issues addressed in the discussion forum. Mr. Lee penetrated with his sagacity and profound insight to the core of the trade finance, wherein his defiance and confrontation to other subscribers was identical to the challenge of the French revolution to the authority of the church.

We found through our review of the postings in the discussion forum that Mr. Lee was the intellectual pioneer of the forum. His diction and versification was innovative, serious and momentous and was disentangled from the artificial making of writing. What I liked most in his writings is the use of surprising similes and metaphors, his eloquent diction flowing like a tranquil stream, and his tender and delicate words.

Writing skills are not easy to master. I recall when a very strenuous experience when I was studding for my first degree in English language. I was required to score an aggregate of 75 or above in all six courses to be taken in two consecutive semesters to be accepted to join English language specialization in reputed university in Palestine. One of the courses, which really challenge my abilities to the most extent, was advanced writing skills. The female doctor (now a public figure in Palestine) requested at the outset of the course that we should come with an essay every morning we show up in the class, otherwise we will be considered absent. My goodness we exclaimed, but there seemed to be no compromise with that tough yet well-educated lady of literature. Every morning we had to bring an essay on whatever subject we like to her so that we are considered present in the course. To or surprise the doctor would not accept but intellectual presence, in the sense that she was going throughout our premature writings to make sure that we write up to the standard, hence another challenge was set before us that we almost opted to read from dictionaries to build our vocabulary. When I later moved to UK for further studies, I realized what a hell of success that course has done to my writing skills.

[edited 1/4/02 10:07:36 AM]

I have the following personal comments (without responsibility):

1. AGENCY

In ‘The Law of Bankers’ Commercial Credits’ by Gutteridge & Megrah, 7th Edition, Europa Publications, 1984, it is stated on page 77:

‘As between the issuing bank and the intermediary [nominated] bank the relationship is, unless otherwise agreed, that of principal and agent so when the intermediary bank has fully complied with its mandate it is entitled to reimbursement of any moneys it has properly paid.’

In ‘Bankers’ Documentary Credits’ by Ventris, 2nd Edition, Lloyds of London Press, 1983 it is stated on page 46:

‘If their [the confirming bank’s and issuing bank’s] relations are subject to English law the confirming bank will be considered the agent of the issuing bank.’

Sorry I cannot quote anything more recent.

Despite what conclusions other may have drawn from my previous postings, I do not quarrel with the assertion that the nominated bank is -at least when it takes up documents in accordance with its mandate- the agent of the issuing bank. What is unclear to me is if -in principle- that makes the issuing bank liable to third parties for the negligent handling of documents by the nominated bank (setting aside the legal effect of sub-Article 18b, whatever that may be). I remain sceptical, but have an open mind and am prepared to be persuaded to the contrary by convincing substantiated argument.

2. ARTICLE 18

I would be very pleased if Khalid’s interpretation of sub-Article 18b were correct and certainly would not say it is definitely wrong. However, sub-Articles 18a, c & d seem to deal purely with the Applicant’s/instructing party’s obligations. Therefore, taken in the context of the whole Article, I can see -what I believe to be- a reasonable (counter-) argument for saying sub-Article 18b is only intended to cover banks’ relations with an Applicant/instructing party and not third parties, such as beneficiaries and therefore, it is not applicable to the issuing bank’s responsibility to third parties for the negligent acts of the nominated bank.

3. UCP 500 & 400 COMPARED

I think the key words are ‘could not AUTOMATICALLY bind’ [emphasis added] and ‘under the UCP Rules’. The fact that something is not ‘automatic’ does not mean it cannot happen, in certain circumstances. More importantly, the reference is to the ‘UCP Rules’, rather than the law (of the applicable jurisdiction where there has been negligence by the nominated bank in the handling of documents). Therefore, while I agree with this particular part of UCP 500 & 400 Compared, I would not consider it to show conclusively that an issuing bank could not be held liable for the negligent handling of documents by a nominated bank.

For the avoidance of doubt I must stress:

A. My comments in 2 – 3 above do not affect the views I have expressed in 1. above.

B. I do not think that a court would automatically hold a nominated bank liable that had negligently handled documents; there would at least have to be financial loss to the beneficiary and if the documents were ultimately paid (a distinct possibility) this loss might be non-existent or negligible (e.g. interest for a short period only).

[edited 1/4/02 3:04:04 PM]

Many thanks for the kind words from Hatem which makes us quite uneasy as we know we are not as good as what he thinks we are. We are also flattered since Hatem is a Master of English Literature from London. From our experience, the most dangerous moment is that someone is saying that you are good. For those who wish to know what exactly we mean, they may see the article "The Life Cycle of A Photographer - Part II" available in the "Photography" section in our home page.

Believe it or not, I am a professional photographer (by qualification but not using it as my profession), interested in photographic optics and antique cameras and lenses, using 4x5 (that means the film size is 4" x 5") Linholf Super Technika View Camera.

We see the DC not purely as a banking thing but rather a complex technology involving transports, insurance, law, Incoterms and a host of other trade practices. That is why we think and write differently from an average DC practitioner.

However, we do receive complaints occasionally on the style we write from some of the registrants of our website. We would like to thank them for alerting us that we are not as good as we think we are.

Hatem, to tell you a secret, when I was wondering whether I should give up the well paid job of a director and general manager in the "Noble House", or the "Taipan" corporation - Jardine Matherson Group in Hong Kong to start my own DC consultancy career, I met a Gypsy fortune teller on board the QEII, during celebration of our 20th Anniversary in marriage.

She told me that I have healing power. I lamented: 'Unfortunately I am not a medical doctor. So this gift from God is useless for me". "No", she responded: "Since you have a lot of Teacher's Squares in your palms, also exhibiting writing talents, you may heal people's wrong concepts in your workshops and in your writings!"

As this is a matter of do or die, I double checked with his daughter separately and her daughter told me the same thing. So I quitted my job and ventured into the first DC consultancy business in Hong Kong. In 1996 I moved my company to Toronto and then found out that "T. O." means "Toronto, Ontario".

When I wrote five pages to tell the owner of Hong Kong Economic Journal how his interpretation of FOB is not entirely accurate, he wrote back to invite me to open a Friday column named "T. O. Talking About Trade and Commerce", which started my writing career. Then followed by Lloyd's of London. The rest is history.

We find that sharing personal stories like what Hatem did makes the members more close and puts some warmth into the otherwise quite cool subject of UCP.

We are also glad that now Pavel becomes our friend after meeting him personally in the ICC Banking Commission meetings in Frankfurt last November.

http://www.tolee.com

[edited 1/6/02 5:31:37 AM]

My thanks to Hatem Shehab for his kind, flattering words.

T.O. has referred, at times, to the distraction necessitated to take care of rice and noodle issues. I too have to take care of "bread & butter issues". This sometimes means that the responses I make are brief and to the point, but perhaps my style is construed as terse. If this is so, it is not intentional. I also acknowledge a certain affinity towards T. O. Lee, because I also do not have a traditional banking background, but my rather varied experience enables me to step into the shoes of applicant, beneficiary and banker as I have first-hand experience of all of these spanning about thirty years.

Laurence

Further to my posting above, I now have something more up-to-date. On page 115 of Documentary Credits by (Judge) Raymond Jack, 2nd Edition, published by Butterworths (the 3rd edition has been recently published and we are awaiting our copy), it states:

‘A. The Functions which may be assumed by a Correspondent Bank.

……

(1) As advising bank

……

6.4 (b) Agency

Unless the correspondent bank is interacted to issue the credit itself, it will be asked to advise the seller/beneficiary of the opening of the credit by the issuing bank and its terms. In doing so the correspondent bank acts as the agent of the issuing bank.’

The author then cites McNair J in Bank Melli Iran v Barclays Bank, 1951, 2 Lloyd’s Rep 367 to support this statement.

Also on page 123 it states:

‘6.18 (7) As a discounter of time drafts

……

[where the credit provides that it is available by negotiation by the correspondent or advising bank] the correspondent is either acting simply as the agent of the issuing bank or as a confirming bank ……’.

Much to my consternation, I have come across the following passage in the 3rd edition of ‘Documentary Credits’ by (Judge) Raymond Jack, (barristers) Ali Malek & David Quest:

‘5.37 In considering the application of Article 14.b to 14.e a point must be remembered ….. with regard to a nominated bank. This is that, in English law at least, an advising bank which is given the duty [of performing the nominated bank role] does so as the agent of the issuing bank …… So when an advising bank comes to examine the documents presented to it, as it is the agent of the issuing bank it must comply with Article 14 to secure compliance by the issuing bank with the Article. If it fails to do so, the effect may be to bar the issuing bank from contending against the beneficiary that the documents do not comply …… if, under the terms of the credit, the beneficiary has not been paid following presentation of documents …… and is looking to the issuing bank for payment(.) then non-compliance with Article 14 by the advising bank would bar the issuing bank from alleging that the documents were not in order …… the issuing bank could recover its ultimate loss [if any] from the advising bank as damages for breach by the advising bank of its duty as the issuing bank’s agent’.

This clearly does not support my views (or, more accurately, hopes!) on the subject.

The above book really is a jolly good read and at £150 an absolute ‘snip’ (= bargain, for those not familiar with colloquial (British) English). I recommend it to all credit speciliasts.

Jeremy,

Judge Raymond Jack's book that you have recommended is highly respected by the UK courts and where UK has influence, such as Hong Kong and Singapore.

As you have pointed out, Article 18 of UCP 500 is not to cover everthing. So UK issuing banks should take care in nominating another bank to work for them, particularly within the UK jurisdiction.

We are leaving in eight hours to Malaysia. We may join you again in Kuala Lumpur or Hong Kong if we have the time for it.

http://www.tolee.com
[edited 1/18/02 4:58:36 PM]