ICC Digital Library Forum

Dear Jeremy,

"CUSTOMER" IN NARROW SENSE

You regard the applicant as the "customer" (in narrow sense) of the issuing bank in DC. In fact, our view is different. The applicant is only a "customer" (or a party) of the issuing bank in the DC APPLICATION only, but NOT a party (or "customer") of the DC itself, where the beneficiary is a party (and customer) of the DC. The issuing bank, upon instructions by the applicant in DC application (another contract), delivers the payment undertaking services to the beneficiary, the target of banking services. So in a DC the beneficiary is the customer for the issuig bank for it to deliver banking services.

So you are getting confused. For the issues we are discussing, we are talking about the DC itself and not the DC application.

If the issuing bank does not serve the beneficiary well, the beneficiary would say to the applicant: "Please give me your next DC from another bank. I don't like this bank". He may be a power beneficiary (such as being one of the four suppliers in this world in my "hydrocarbon" story stated in the DC Pro previously) and the applicant has to listen.

CUSTOMER IN BROADER SENSE

From customer service point of view or from value added service point of view, we have internal customers, being your boss, your subordinates and external customers, who include everybody you deliver your banking services, beneficiary included of course, being the payee.

So in the service industry where banking is one, you should not deem a customer as "only a party in a contract". That would set your mind not service oriented and your service attitude may be affected due to such mind set.

As a consultant, you are our customer although you don't pay us or have a contract with us. We see any member in the DC Pro as our customers and we have to treat them as such. This is why when a customer from the DC Pro got angry with us, we could stay calm.

In delivering services, customers are always right. But in discussion in the DC Pro, customers may be getting confused, if not wrong.

We are from http://www.tolee.com

[edited 8/30/01 4:12:34 PM]

Jeremy,

I feel that we both have made our points fully, so we will have to agree to disagree.

Finally, may I ask what prompted the inclusion of such a "standard clause" in your L/Cs ? Were they at the behest of an applicant, a beneficiary or a member of your bank ?

Dear T.O.,

I sometimes get the impression you and I live on different planets, and not just different continents!

Firstly, I can assure you I am able to distinguish between an application form for a documentary credit and the documentary credit instrument itself. I would certainly find discharging my professional responsibilities somewhat difficult if I could not.

Secondly, I agree that:

1. The application form is a separate contract from the credit;

2. Legally, the applicant is not a party to the credit;

3. The issuing bank delivers a payment undertaking to the beneficiary.

However, to me the ‘service’ is issue of the credit on behalf of the applicant, i.e. the principal (the party from whom the issuing bank can only accept instructions with respect to the credit instrument), in accordance with the applicant’s instructions, not the checking of the documents. The checking of documents flows solely from the legal obligations of the issuing bank to the beneficiary. When checking documents, the issuing bank is ascertaining that the documents accord with the provisions of the credit so as to establish whether or not:
1. They have an obligation to take up the documents etc.
2. The documents accord with the mandate granted by the applicant, which gives them the right to (ultimately) debit the applicant.

To my mind, the issuing bank is certainly not checking the documents as a ‘service’ for the beneficiary and I cannot see the fact that the beneficiary can persuade an applicant to use a different issuing bank changes anything, at least in law (which is, for me (as a risk manager), what counts).

Finally, I do not see other contributors to the discussion forum as my ‘customers’. My contributions are made -solely at my discretion- to further inter-bank understanding, with the sole motivation of potentially cutting down on the number of problems we have with other banks (which often seem to be created by their lack of understanding of UCP500/the legal principles that generally apply to credits).

Yours most amicably, Jeremy.

[edited 8/30/01 5:11:47 PM]

Although more banks seem to be including this clause I support the other posters who regard it as bad practice and I would never include it on l/c's we issue.
Whilst it may speed up processing I feel that there is a chance it could horribly backfire on you especially on a large value l/c. Bankers Trust vs SBI is a good example of a bank being caught out even though they believed they acted within UCP.
PS a lot of people now seem on first name terms; mine is Philip

DEFINITION OF A CUSTOMER

Dear Jeremy,

The argument between you and us starts by your commenting on our use of the term "customer", which according to you should not include the beneficiary. This shows our different interpretations of the word "customer". You take a contractual view from a banker's perspective. We take a broader view from ISO 2000 quality assurance, and customer service perspectives. Of course we both should have understood the basics about beneficiary, DC, DC application and things like that.

To add to this, we have also the concept of "indirect customers" (such as the beneficiary in a DC if you disagrees that it is the "customer") and "direct customers" who pay you, such as the applicant in a DC as you consider.

We, as a consultant, have more things to worry about and naturally would take a broader view than a banker, who is only responsible to the UCP, and further protected by the four disclaimer Articles 15-18 in the UCP.

With this, we hope the argument would come to a close. Let us both concentrate on the issues themselves.

T. O.

[edited 2/2/02 8:53:35 PM]

There is an Unpublished ICC Opinion that addresses a matter very similar to the original question posed in this discussion.

This opinion can be viewed by searching
"questions concerning notices of refusal" in the site search.

The following text is taken from the conclusion to that Opinion.


If the letter of credit incorporated wording as described in your enquiry, or similar, this would effectively create a new rule for handling the refusal of documents. The ability to delete or amend Articles of the UCP is in line with Article 1 of the UCP 500 whereby the terms of the letter of credit may/would override one or more provisions contained in the UCP Articles. The presentation of documents by the beneficiary would constitute his agreement to the condition expressed in the credit.





[edited 9/5/01 5:18:23 PM]

As Mr. JSMITH I have also found some opinions expressed in the discussion forum of DC PRO very confusing, long-winded and misleading. Very often a specific topic or question is raised but certain contributors persist in debating unrelated or even completely different issues.

For the record I am not a customer of T.O.LEE consultancy services. This forum is, as far as I understand it, the debate place for personal opinions of the individuals involved in L/C business and not a place for self promotion or website marketing. The remarks above seem to be confession that he does this purposely.

I must admit that at first I was not convinced that the approach to release of documents to the applicant against waiver and bank taking up docs as per LC availability was in full adherence with UCP provisions. However, the clear position and well structured arguments of Jeremy have me convinced as to the acceptability an practical benefit of this approach. My cordial congratulations.

I agree that his approach (or his bank) is practical. In theory we might argue for ages that this is not the right approach according to law or whatever, but it is practical and from experience I agree with him that in the vast majority of cases there is no “real” threat to beneficiary`s interests at all!

I remember many years ago when this matter was not “hot issue” as today. I had "very hot" argument with my colleague who was more experienced then me and who had been working for leading bank with excellent procedures, stationary, everything ………approved by top lawers etc. I was arguing in favor of this what is now official ICC Opinion. I got assurances from applicant that beneficiary agreed which I did not accept as sufficient. So as boss I made the decision to request the permission from the presenting bank. The bank had no SWIFT connection. I was waiting for the approval with unbearable hassle from the applicant and also relationship manager, and others as with time left the anger of the customer was increasing very rapidly. I was facing big trouble with my boss etc. Many telexes, faxes, calls (the expenses were quite substantial) – and it took two weeks to get this ago ahead to release documents to applicant.

I must also stress that the presenting bank had problems to grasp what I wanted from them and why. They said 'why else would we send documents except in expectation of payment' The applicant did not bank with us as for some time as he had to pay some extra demurrage or whatever and he claimed it from us. My position was very “shaky” for some time after this as everybody took me for “academical fool”. Everybody was against me. So it is quite interesting to see the opposite – “everybody” (I mean not everybody in true sense, but many as above) seems to be against Jeremy!

So lets make it clear. The banks started to use this clause to fill the gap. UCP500 does not cover this expressly, it only says that the docs. are refused and returned or hold at the disposal of the presenter. It does not say what should be done after. The problem, which the banks wanted to solve, is that in practice you cannot always get the permission to release documents in due time.

Also do not forget that we are talking about two situations and we must keep this in our mind:

+ there is no clause in the L/C itself, this clause is only in the refusal. In this case it might be argued that we as issuing bank impose some rules on beneficiary which have not been agreed before and that we might deprive him of his rights.The refusal might be considered as conditional.This is true.

+ there is clause in original L/C, probably in additional conditions, which makes this mechanism clear to the advising/nominated/confirming bank and beneficiary. The situation is different here and this is the situation Jeremy is talking about. I see the arguments given by him as valid.

The clause is now very widespread. Jeremy, I guess, is working for a leading U.K. bank, I have seen this clause many times every week. The clause is used by the leading top world banks, the banks some of the members of ICC banking commission are even working for! I am sure that it was scrutinized by their lawers etc.

I understand JEREMY`S arguments that in majority of cases everybody profits, beneficiary, applicant and also the banks, which do not like keeping refused documents at their safe boxes for ages.

The cases where the beneficiary would try to sell the goods to somebody else are quite rare. Also this applies only to the documents of title or non negotiable documents consigned to other party then the applicant. But if the goods are already with the applicant, would you also argue that the presenter might object their release to the applicant?

And what about documents presented in “true sense” by a bank that had actually negotiated. That nominated bank only want money form issuing bank by way of reimbursement. Do you believe that the bank would like to sell the goods to somebody else rather than opt for fast reimbursement?

I don’t see this practice as “so bad” as the above participants. We have the real problem here and we must solve it. In theory it is very nice to go for permission of the presenter, but in practice it is does not work so easy. If you worked in the busy international bank, you would know.

I honestly believe that we need a default solution. Even if documents are refused and being held at disposal of presenter , does it mean that you cant send them back to the presenter after some time if you don’t receive any instruction from the presenter after tracers?

Pavel Andrle

Pavel Andrle's latest response is centred around making life easy for the issuing bank. There is no doubt that if the issuing bank is allowed to cede discrepant documents to the applicant upon the mere acceptance by the applicant of such discrepancies, this will make life a lot easier for the bank. It is also clear that such action is contrary to the explicit instruction of Article 14 d ii which says regarding the notice of discrepancies that it "must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter".

There are only two options allowed here. There is no third option to allow direct payment against acceptance of discrepancies by the applicant.

Arguments about whether this should be permitted for non-negotiable documents are not relevant for the same reason - there is no third option in Article 14 d ii.

The effect of Jeremy's clause is to reduce the controls inherent in UCP to URC, while enabling the banks to charge for UCP.

It is not unusual for banking personnel to view letters of credit as a financial transaction alone. This leads to the conclusions drawn by Jeremy and Pavel that payment against the L/C is the sole purpose of the transaction. I suggest that if they consider other parties affected by this transaction, this is actually seen as a commercial transaction. Thus the decision whether or not to cede allegedly discrepant documents to the applicant may appear to banking personnel to be only financial, but in fact, it is a commercial decision. There may be commercial or political reasons why the beneficiary does not want to cede discrepant documents to the applicant. Under UCP, he is allowed that control. Under URC, he is not.

Dear Mr. PavelA

These are some excerpts from your post in this discussion forum. Please give them a second though and I am sure you will not write in such a manner again, hopefully.

“Some opinions expressed in the discussion forum are very confusing, long-winded and misleading.”

“Very often a specific topic or question is raised but certain contributors persist in debating unrelated or even completely different issues.”

WOULD YOU LIKE US TO APPLY THIS STATEMENT TO YOUR OPINIONS AS WELL? OF COURSE NOT

“Everybody” (I mean not everybody in true sense, but many as above) seems to be against Jeremy!

WHY DO YOU THINK SO? DOES DISAGREEMENT MEANS DISRESPECT?

“The clause is now very widespread. Jeremy, I guess, is working for a leading U.K. bank, I have seen this clause many times every week. The clause is used by the leading top world banks, the banks some of the members of ICC banking commission are even working for! I am sure that it was scrutinized by their lawyers etc.”

ARE YOU FOND OF INTIMIDATION? I WOULD ASSUME NOT. WOULD IT BE APPROPRIATE FOR A PROFESSIONAL TO TELL PEOPLE BEFORE THE START OF THE MEETING “LOOK GUYS, OUR INFLUENTIAL MANAGER THINKS LIKE THIS, PLEASE DO THINK LIKE HIM”

THEN WHAT IS THE PURPOSE OF THE MEETING (FORUM)? THE PURPOSE IS DEFEATED.

IS THIS YOUR PURPOSE? I ASSUME NOT

I remember one colleague who when asked what to drink during a meeting he would always go for what the manager orders assuming that he would please him. If the manager orders tea then our colleague will order tea and so forth.

One last advice Mr. PavelA, do not be over sensitive and do not personalize things because we respect everybody in the forum and we respect your opinions as well, but I have my reservations on your approach.



[edited 9/6/01 10:08:58 AM]
[edited 9/6/01 10:35:05 PM]

FREEDOM OF SPEECH IN DC PRO

Dear Mr. Pavel Andrle,

It seems that after we have accepted your apologies early on, you have not changed. We do not wish to see again your personalised attack in the DC Pro against our T. O. Lee.

By the way, we have the freedom to express our opinions as a company rather than as a person.
We may also have the freedom to go for side issues. This is a forum for FREE exchange of opinions. We are not providing an answer to a question in an examination. So we need not have to focus 100% on a narrow scope. We may respond to new issues brought up by other members during the discussion. This is one of the characteristics of internet discussion groups.

If you see anything from us here, that means it is already approved by the DC Pro. Otherwise you should not have the chance to see it.

In the cyber space provided by the DC Pro, we have the freedom to use our website as our identity.

Mr. Andrle, please leave us alone from now on. Many thanks. We have no interest and are in fact tired of arguing further with you.

OUR RESPECT TO OTHER MEMBERS

Let us focus on the discussions and leave the policeman role to the DC Pro. Every member has the right to write in his or her own personal style and other members should not criticise his or her writing style, particularly in an international discussion forum with differences in cultures, value systems, religious believes and languages.

WE MAY DISAGREE WITH BUT MAY NOT CRITICISE THE OPINIONS OF OTHER MEMBERS

Hence, words such as "confusing, long-winded, misleading, unrelated ...(in criticising the opinions from other members)" should not be used to show our real respect of other members although we may not agree or like their opinions. We must respect and protect their rights to express in any way they like provided they do not hurt or intend to hurt any member or use terms not recommended in any culture.

WE ONLY DISAGREE BUT NOT AGAINST MR. JEREMY SMITH

Mr. Andrle, you seem to have confused, treating our disagreements with Mr. Jeremy Smith's OPINIONS as HOSTILITY. In fact, no member is AGAINST Mr. Smith as you have said. We only disagree. This is perfectly normal.

THE SUN AND WIND PARABLE

We would like to share with Mr. Andrle an old parable concerning the effective way to change others or their opinions.

The sun and the wind one day argued who was stronger. They agreed to decide this by an exercise - whoever first made a man taking off his clothes would be the winner.

The wind started first by blasting strongly towards the man with an intent to blow off his clothes by force but no matter how strongly the wind blew, the man kept holding on his clothes.

Then it was the sun's turn. The sun gave all his warmth to the man by shining his golden rays on him. The man felt very warm. So he took off all his clothes voluntarily. Hope Mr. Andrle would be inspired by this old parable. We believe that he should have heard of it during his childhood.

One effective skill in change management is: If you cannot change others, then change yourself! This works fine in marriage as well as in the DC Pro.

With our best regards,

http://www.tolee.com

[edited 2/2/02 8:50:37 PM]