ICC Digital Library Forum

My personal views, without liability, are:

Hatem,

1. In the case of a credit that stipulates a specific risk ‘clause’ (as opposed to ‘all risks’, for example) I think it is important to distinguish between an insurance document that seems to indicate what that specific risk ‘clause’ does not AUTOMATICALLY cover and an insurance document that seems to indicate that the cover USUALLY provided by the particular risk ‘clause’ has been CURTAILED. The latter situation would seem to apply to the R360 query and therefore I do not currently have any difficulty with the conclusion. It does not appear, for example, to require a banker to have any particular knowledge of insurance or a particular trade’s practices.

2. If the presenter disputes an ‘R360’ rejection, to me the position will be the same as for any other disputed discrepancy and ultimately legal action may be necessary to resolve the dispute.

Phil,

Firstly, enough of your bleedin’ cheek!*!*! (As this is a public forum I shall not go any further.)

Secondly, thanks for this info., it provides useful clarification. However, I still do not see any conflict or inconsistency between R360 and Article 36.

Finally, as an aside, I am disturbed that the response to ‘Issue 2’ in R234 appeared to have involved reference to the particular terms of ICC(A) in order to arrive at the conclusion. This seems quite inappropriate to the determination of facial compliance by a banker.

Jeremy
[edited 4/16/02 12:41:05 PM]

My younger brother, Dominic T. O. Lee (we have three T. O. Lees in our family, the third one is in IT profession),is the Chief Actuary of AIA in Hong Kong, now also serving in Shanghai. If I refer to him our arguments here, he would be very amused and would wonder why the rust exclusions for steel goods are to be rejected by the bankers.

If bankers know clearly the nature of ICC (A) and the big difference between (A) , (B) and (C), there should be no argument. In a nutshell, the concept of ICC (A) is that we cover EVERYTHING EXCEPT THOSE EXCLUDED. Hatem is right in pointing out that at the beginning of the ICC (A) policy, there are some STANDARD exclusions. The rust exclusions only apply to steel goods and are hence not in the policy for general purposes. But there is a need to add it in a specific policy for steel goods.

We do not wish to spend more time on this issue, which is a common sense in steel trade.

We would suggest commodity traders to find their right partners in banking who know their customers' businesses and we also suggest that there is a need for NICHE MARKET BANKING to avoid such R360 dilemma.

If one cannot stand the heat, then better leave the "commodity trade" kitchen.

www.tolee.com

[edited 4/16/02 5:32:10 PM]

Going through the insurance literature, it may not require more than a horse sense that the concept of “risk” is highly linked with the word “uncertainty". The risk in insurance is defined as probability of occurrence of something undesirable, inability to speculate what will surely happen in future, as speculations might differ from actual events, uncertainty that loss will take or will not take place is not ascertained. This will surely entail that there are different degrees of risks and therefore different results may arise because of one reason or many reasons, and this goes in line with the concept of "risk" in insurance.

Stepping from the above argument, the insurance industry has laid down restrictions on what is insurable and what is not. It is uncommon to allow a criminal to avail from his crimes. Imagine allowing a man to insure against his neighbour's house and then at a later stage set fire on that house to claim damages!!! Not only that, but also the event or the risk has to fortuitous from the point of view of the insured. It would be bizarre to provide an insurance cover to a risk that this certain to happen. Therefore insurance policies exclude:

1. Loss damage or expenses attributable to willful misconduct of the assured.
2. Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured.
3. Loss damage or expense caused by inherent vice or nature of the subject-matter insured.

So if we look at number three of the exclusions, which are standard in ICC (A) policy, would anyone tell me that he encountered steel that can stand rust, deoxidization or colouration? These risks are inherent in the subject-matter insured and therefore the exclusion is understandable as per ICC (A). If the insured is desirable of insuring against those risks then he should so state in the L/C and of course be ready for additional premium. There is nothing in the ICC (A) that tells us that “rust, deoxidization or colouration” is covered under standard coverage clauses.

The clause “‘excluding rust, oxidization & discolouration unless directly caused by stranding, sinking, burning, collision and/or heavy weather only” accurately reflect the insurance principles under ICC (A). First of all, it relates those risks to another risks that are covered in ICC (A); stranding, sinking, burning, collision, and heavy water are all covered by the ICC (A) and therefore any damage resulting from those risks will be covered under the principle of Proximate Cause and also under the principle of fortuitous risks because in case of sinking for example rust, colouration will be inevitable.

In this regard, I would ask Jeremy what is that specific risk ‘clause’ that seems to indicate that the cover USUALLY provided by the particular risk ‘clause ICC (A)’ if the credit indicated “'Insurance policy/certificate endorsed in blank for 110% of invoice value covering Institute Cargo Clause (A) /Institute Strikes Clause (cargo)/Institute War Clauses (Cargo) with claims payable in Country S'

L/C DID NOT EXPRESSLY MENTION ANYTHING RELATED TO RUST AND ITS SISTERS.

My argument for the Unpublished Queries 15 1099 is different from the query dealt with in R 234 and therefore I am seeking clarification for the last question addressed to Jeremy.

The ICC banking commission in its decision stated that “the letter of credit in question detailed the insurance requirements … the exclusion of certain risks would be grounds to reject” the insurance policy. What is the standard clause in ICC (A) that states “rust, oxidization & discolouration” is covered?

[edited 4/20/02 6:28:10 AM]

Hatem,

My personal response, without liability is:

I have absolutely no idea what risks ICC(A) covers or does not cover. Neither do I have any idea whether steel is prone to rusting etc or not. I believe this is simply not knowledge that is needed, or even allowed to be applied, in determining the facial compliance of documents in accordance with UCP and international standard banking practice. Therefore, I cannot answer your question. All I believe one can do is look, in isolation, at each insurance document presented to establish if it APPEARS (to someone who is neither an expert in insurance or the trade concerned) to give the full cover stipulated in the credit.

Finally, I would observe many insurance documents presented do not, on their front, spell out what the cover includes and excludes. They simply say, for example, without any elaboration:

“Institute Cargo Clause (A)
Institute Strikes Clause (cargo)
Institute War Clauses (Cargo)
Claims payable in Country S”

Incidentally, I would not regard such an insurance document as meeting the requirements of a credit that stipulated 'insurance against all risks' as the document would not, on its front and therefore on its face (as banks do not examine the reverse of insurance documents, except for indorsments) contain “any 'all risks' notification or clause”.

Regards, Jeremy

NEAR PERFECT EXPLANATION

We agree with the comments made by Hatem entirely as that is the true concept of insurance. It is as clear as spring water. However, there is no perfection in this world. Perfection is not stable according to some philosophical thinking.

There should be no defence from anyone because this reflects the underlying principles in the MIA (Marine Insurance Act of UK).

BETTER INVOLVE OTHER ICC COMMISSIONS FOR NON-BANKING OPINIONS

For those opinions related to transport, insurance and Incoterms made by bankers, that are not within their scope of competence, but without consulting the respective ICC Commissions, we should hold come reservation. It is also glad to see that from time to time certain previous ICC opinions would be replaced with reversed opinions.

We would suggest that for those opinions on queries related to transport, insurance and Incoterms, a copy would be sent to the respective ICC Commissions for their information. Then they could intervene at the right time to modify those opinions. The Secretary General of ICC, Maria Cattuai, always encourages close communication amongst ICC Commissions.

www.tolee.com

[edited 4/19/02 5:10:34 PM]

T.O.,

The problem I see with your suggestion is that it would involve the application of non-banking specialist knowledge to opinions. This is not something bankers are required to have or permitted to apply, as I imagine you appreciate. Therefore, it would seem the Banking Commission is quite right not to involve other ICC committees in the formulation of responses to opinions.

Jeremy

[edited 4/19/02 10:03:44 AM]

Jeremy,

NO CROSS TRADE KNOWLEDGE SHARING WOULD BRING US BACK TO STONE AGE

Please do not consider the two situations with the same approach or mind set. When the problem surfaces to ICC Banking Commission, it is no more an isolated case. If the ICC opinions are made without referring to the latest or changed trade practice of the related trades, then we may go back to the Stone Age.

Bankers are not IT men, and when the eUCP is fully applied, we have bigger problems due to bankers resisting to learn new things and sticking to their paper concepts to examine electronic presentations.

The world is changing very fast since the introduction of email and we cannot just sit there and relax. Otherwise DC would be out as it is more a hindrance or barrier if you will to international trade than an effective tool to give payment assurance.

In a global village, no body can work alone. Networking includes also sharing of knowledge and experience across different trades. One of the success formulas of Li Ka Shing, the top 10 or 20 (sorry, we have no time to check this as it varies each year) Fortune 500 richest men in the world from Hong Kong, is that he has a habit of spending a couple of hours reading publications about other trades before he goes to bed.

Although we do not want to be so rich, still we have to learn the changing trade practices of other related trades, whoever we are.

www.tolee.com

[edited 4/19/02 5:11:36 PM]

Jeremy

1. I cannot accept that a banker should blindly ignore other related industry like insurance and transport. I do not think that you suggesting that. May be your are taking a very conservative stance, because I think from your discussion of tenor of draft you seemed to tactfully use your information on legal issues to support your opinion that draft is discrepant if it did not stipulate the maturity date.

A. There is an example were ICC has resorted to specialists in transport. R349 Opinion of the ICC Banking Commission is a good example of that. The question is: without the clarification of the ICC Commission on Maritime Transport would it have been possible to answer the query?

The response of the ICC Banking Commission reads:

“Following extensive deliberations between the ICC Banking Commission and the ICC Commission on Maritime Transport, we are able to reply to the questions on Document 470/TA.18 as follows:

The ICC Commission on Maritime Transport has provided the following definition on how reference to " substitute vessel " or a "substitute clause" in the pre-printed wording on the face of a bill of lading is to be interpreted:

"Without knowing the intention of the drafters of UCP 500, ... The named vessel is therefore a firm choice vessel and any equation of a substitution clause with 'intended vessel' is unfounded."

In the light of this clarification, we would confirm that a bill of lading which in its pre-printed form uses the words "or substitute vessel " is not to be considered as a qualification similar to "intended vessel", in the context of sub-Article 23(a)(ii). This Opinion replaces that given in Document 470.TA.18 and Opinion No. R.283 appearing in ICC Publication No. 596.”

B. Did the stipulation of UCP500 on insurance and transport come from blue? Isn’t it a reflection of practices in insurance industry and transport? Even UCP itself is a reflection of practices in trade and therefore understanding practices in trade is in a way understanding UCP and vise versa. Where did the “all risks” clause come from? Is it the invention of UCP or is it related to insurance? Is it a coincident that UCP represents more than one third of its articles to transport and insurance

Anyway, it is not easy to draw a line on where the document checker is required to demark his borders between transport and insurance industry on the one hand and UCP 500 on the other.

This is not for publicity but it may be noteworthy to tell that I was recently delivering an intensive workshop on Foreign Trade Operations. Part of the program was to explain INCOTERMS2000. Before two weeks of the start date of the program one nominated trainee suggested that I arrange a visit to Jeddah seaport for better understanding of the functions of seaports in relation to movement of goods in international trade, the application of INCOTERMS, understating of loading and unloading operations, etc.

I thought the idea was great, and despite what pressure it entails especially in arranging it to achieve its desired objectives, I decided I will carry on with it for the benefit of my trainees, especially the one who proposed it since he holds me in high esteem and seemed to sound very thrilled by this own idea.

I have completed all communications and correspondence with port authorities to make the visit successful and informative. We went to the seaport in an air-conditioned shuttle designed for sightseeing. We almost went to every corner of the port. To the container yard station, bonded warehouses, terminals, silos, refrigerated warehouses. We have tried to understand INCOTERMS2000 not in the eye of a banker only but in the eye of a trader also. I can tell you confidently that the visit was very successful and it has surpassed its objectives. The trainees appreciated what we were talking about in the class and they were far better confident in linking the educational subjects of Incoterms with reality. Now do not assume that I am suggesting that a document checker must go to the seaport, however I am sure those who know about transport industry are more relaxed and confident than those who do not. At least I had this feeling and it was reinforced by the feedback of the trainees who also felt more confident when you talk about certain jargons like CY, DES, CIF and so.

TO ADD FUN TO THIS HEATED ARGUMENT

Jeremy, just imagine talking about women when you have never wrestled with one, would you feel confident? When you understand geography you will be able to negotiate your way through.

GO TO KITCHEN TO FIND OUT THE FACTS

Hatem has done well in this insurance issue a second time. He has clearly pointed out the need for a document checker to understand the trade practice of a trade represented by the document he is going to check. Only going to the kitchen that he can understand which is a discrepancy and which is not. There is no free lunch in this world.

HOW TO ANSWER QUESTIONS THAT SHOULD NOT BE ASKED IN THE FIRST PLACE

When I gave workshops on maritime transport in Hong Kong, to answers all those “should not be asked” questions from the floor, I brought the participants on board a vessel to witness how goods were unloaded from the “midstream operations” by barges and reloaded on the cargo ship, how the first mate supervised the loading operations and how the mate’s receipts were processed. How the derricks worked out and what precautions should be taken for certain hazardous goods. So on and so forth.

And after that no body asked any “questions that should not be asked”. This saved me a lot of time and efforts trying to provide answers to those questions. Without personal experience, my answers would not be understood fully and the worst thing was that a lot of questions would follow after my explanation. I think Hatem should have the same experience.

BREAK BULK TO CONTAINERIZATION

In the good old days, maritime transport was in “break bulk” mode using wooden crates or boxes, no container. If a document checker did not learn the changing practice in maritime transport, then when he saw the terms CY, CFS, on deck and Container No. xxx in a BL, could he say to himself: “I am a DC technician and any changing practice in maritime transport does not border me. So I would deem CY, CFS, on deck and Container No. xxx as discrepancies as I do not understand what they are and they are also not asked in my DC”.

Now document checkers know what CY, CFS, on deck and Container No. xxx are. Either one takes all of it or one takes nothing of it. One cannot take whatever one wants. This would create an imbalanced or biased understand on the trade practices of other trades. This is more dangerous than not understanding them at all.

OTHER ICC COMMISSION WAS CONSULTED TO DETERMINE DISCREPANCIES

ICC Document 470/TA.18 now replaces ICC Opinion R 283 in ICC Publication 596, as pointed out by Hatem to regard “substitute vessel” not to imply “intended vessel”. Mr. Chang-Soon Thomas Song from Korea and we brought up this issue several times in the ICC meetings before ICC finally approached the ICC Transport Commission for consultation that led to the changed opinion. We still remember the Secretary of the BIMCO said in the forum: “We do not know why this issue is brought up here as we transport people consider this is not a problem at all!”

IF ONE DOES NOT UNDERSTAND IT, THEN DON’T TOUCH IT

If document checkers do not wish to update themselves on transport practice, fine, then they should not try to interpret the transport terms. If they want to do it, they have three approaches: (1) To learn them (2) To consult other professions or (3) To learn and consult.

For things they are not certain, they have to consult the transport trade for the right interpretation. The same goes with insurance or any other trades. Otherwise incidents like the TA.18 will not be stopped.

When ICC Banking Commission did it (to consult other professions), then document checkers should do the same too. Transport and insurance workshops are all there. It is only a matter of whether one wants them or not. And information about transport and insurance pracitce in many websites, including ours, is all free.

After the explanation from Hatem and us, there seems to be no excuse if one doesn’t want to do it.

www.tolee.com

[edited 4/20/02 5:37:32 PM]