Laurence,
Thanks for bringing the inconsistency part.
NON-DOCUMENTARY CONDITIONS
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
NON-DOCUMENTARY CONDITIONS
Laurence,
My understanding of the purpose of requiring presentation of a credit is for the nominated/issuing bank to ‘endorse’ it with the value of presentations, so as to avoid another bank also carrying out its mandated role under the credit, thereby avoiding fraud. (In reality this should only be a risk on credits that are freely negotiable.) Once endorsed, the credit is returned to the presenter, i.e. it is not forwarded to the issuing bank or applicant.
Also, I do not believe that when a credit has to be presented for endorsement that its absence makes the presentation non-complying. It just means that before settling/giving an undertaking the bank to whom the documents have been presented must first verify presentation has not taken place to another bank that is authorised under the credit to take up documents.
For these reasons, I would not be able to accept that the credit was a document required under the credit. Also, even if it were, per the credit provisions (i.e. sub-Article 13c), any non-documentary condition would have to be ignored. Thus, overall, I cannot see inconsistency per sub-Article 13a could have any relevance.
In conclusion, I believe banks have no choice; they either accept sub-Article 13c and Position Paper No 3 as they are written, or insist that any credit they are asked to issue/advise must not include non-documentary conditions.
Jeremy.
[edited 11/29/01 3:10:58 PM]
My understanding of the purpose of requiring presentation of a credit is for the nominated/issuing bank to ‘endorse’ it with the value of presentations, so as to avoid another bank also carrying out its mandated role under the credit, thereby avoiding fraud. (In reality this should only be a risk on credits that are freely negotiable.) Once endorsed, the credit is returned to the presenter, i.e. it is not forwarded to the issuing bank or applicant.
Also, I do not believe that when a credit has to be presented for endorsement that its absence makes the presentation non-complying. It just means that before settling/giving an undertaking the bank to whom the documents have been presented must first verify presentation has not taken place to another bank that is authorised under the credit to take up documents.
For these reasons, I would not be able to accept that the credit was a document required under the credit. Also, even if it were, per the credit provisions (i.e. sub-Article 13c), any non-documentary condition would have to be ignored. Thus, overall, I cannot see inconsistency per sub-Article 13a could have any relevance.
In conclusion, I believe banks have no choice; they either accept sub-Article 13c and Position Paper No 3 as they are written, or insist that any credit they are asked to issue/advise must not include non-documentary conditions.
Jeremy.
[edited 11/29/01 3:10:58 PM]
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PGauntlett
- Posts: 153
- Joined: Fri Apr 05, 2019 5:25 pm
NON-DOCUMENTARY CONDITIONS
Firstly, inclusion of the original l/c with the docs does not mean it forms part of the presentation.
Secondly, re the l/c stating 'goods of German origin' (non d/c condition) with presentation of invoice showing UK origin. In my view it is standard banking practice to reject the documents. The inclusion of ART 13c was not meant to allow an obvious discrepancy such as this to be accepted and, in reality, I can't imagine any bank would feel comfortable justifying acceptance of docs on this basis.
Furthermore, the USCIB standard banking practice guide states re non-doc conditions '......the docs presented need not be examined for compliance with such condition. However, the examiner may note a discrepancy with regard to such condition if non-compliance is facially or otherwise readily apparant to the examiner'
Secondly, re the l/c stating 'goods of German origin' (non d/c condition) with presentation of invoice showing UK origin. In my view it is standard banking practice to reject the documents. The inclusion of ART 13c was not meant to allow an obvious discrepancy such as this to be accepted and, in reality, I can't imagine any bank would feel comfortable justifying acceptance of docs on this basis.
Furthermore, the USCIB standard banking practice guide states re non-doc conditions '......the docs presented need not be examined for compliance with such condition. However, the examiner may note a discrepancy with regard to such condition if non-compliance is facially or otherwise readily apparant to the examiner'
NON-DOCUMENTARY CONDITIONS
Phil,
I have great sympathy for your views. Nonetheless, given -among other things- the extracts I have quoted from UCP 400 & 500 Compared and, more particularly, Position Paper No. 3, you will no doubt appreciate I do not share them and, furthermore, that I believe no case -on the basis of these documents- can be made to support the views you are expressing. As to the USCIB document you quote, when we reviewed it in 1999 we identified this contradiction with the provisions of UCP500 and Position Paper No. 3. Also, just in case someone raises it, I have also advised the UK representative sitting on the ICC working party drafting ‘International Standard Banking Practice’ (Document 470/951, I think) that the first published draft document contradicts sub-Article 13c and Position Paper No. 3.
Best regards, Jeremy.
[edited 11/29/01 5:15:51 PM]
I have great sympathy for your views. Nonetheless, given -among other things- the extracts I have quoted from UCP 400 & 500 Compared and, more particularly, Position Paper No. 3, you will no doubt appreciate I do not share them and, furthermore, that I believe no case -on the basis of these documents- can be made to support the views you are expressing. As to the USCIB document you quote, when we reviewed it in 1999 we identified this contradiction with the provisions of UCP500 and Position Paper No. 3. Also, just in case someone raises it, I have also advised the UK representative sitting on the ICC working party drafting ‘International Standard Banking Practice’ (Document 470/951, I think) that the first published draft document contradicts sub-Article 13c and Position Paper No. 3.
Best regards, Jeremy.
[edited 11/29/01 5:15:51 PM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
NON-DOCUMENTARY CONDITIONS
Jeremy,
I agree with you that there could only be inconsistency with Article 13 a if the L/C is accepted as one of the documents required.
Whilst I accept that the reason for submitting the original L/C may be different from the documents listed within it, the fact remains that the L/C, on its face, is a document. As you say, it is required to prevent fraud.
This is obvious in a freely negotiable credit, but it also applies in other credits where presentation can be made to the nominated or issuing bank.
Most letters advising credits which I receive specifically require the original L/C to be presented, even though most are SWIFT credits. My simple logic is this : if the L/C is required with the presentation and if the L/C is, on its face, a document, therefore it is a required document.
You have said that the absence of a credit in a presentation would not make it discrepant and that in such circumstances the negotiating bank could check for presentation elsewhere. This means that the negotiating bank in a freely negotiable credit would take on the responsibility of checking with every branch of every bank in the world for prior/simultaneous presentation.
Even for your bank, Jeremy, I think that this would be an impossible task. Is it your banks policy to do this ?
Even from a practical point of view, if documents were submitted under a freely negotiable credit to a bank which had not issued/advised it, how could the bank check the documents against an L/C which it did not have ?
Finally, I would advocate the abolition of all non-documentary conditions, but people are human, so this bad practice will continue.
Laurence
I agree with you that there could only be inconsistency with Article 13 a if the L/C is accepted as one of the documents required.
Whilst I accept that the reason for submitting the original L/C may be different from the documents listed within it, the fact remains that the L/C, on its face, is a document. As you say, it is required to prevent fraud.
This is obvious in a freely negotiable credit, but it also applies in other credits where presentation can be made to the nominated or issuing bank.
Most letters advising credits which I receive specifically require the original L/C to be presented, even though most are SWIFT credits. My simple logic is this : if the L/C is required with the presentation and if the L/C is, on its face, a document, therefore it is a required document.
You have said that the absence of a credit in a presentation would not make it discrepant and that in such circumstances the negotiating bank could check for presentation elsewhere. This means that the negotiating bank in a freely negotiable credit would take on the responsibility of checking with every branch of every bank in the world for prior/simultaneous presentation.
Even for your bank, Jeremy, I think that this would be an impossible task. Is it your banks policy to do this ?
Even from a practical point of view, if documents were submitted under a freely negotiable credit to a bank which had not issued/advised it, how could the bank check the documents against an L/C which it did not have ?
Finally, I would advocate the abolition of all non-documentary conditions, but people are human, so this bad practice will continue.
Laurence
NON-DOCUMENTARY CONDITIONS
Laurence,
There seems to be a misunderstanding. I do not accept there could be inconsistency per Article 13a, even if it were the case that the original credit advice were considered –legally- as being one of the documents required in order to make a complying presentation, given the provisions of sub-Article 13c and Position Paper No. 3. This, to me, is the central point and therefore I consider the question, of whether or not the requirement for the credit to be presented for endorsement makes it a document required under the credit, to be subsidiary to this.
Nonetheless, dealing with that subsidiary matter, my personal comments, without responsibility/liability, are:
1. I can understand your ‘simple logic’ that if the original credit advice is required with the presentation, and that as it is literally a ‘document’ in the everyday sense of the word, that the original credit advice is a document a required under the credit. However, this does not appear to take account of the fact that:
A. Presentation of the original credit advice is not required to determine compliance of the documents with the credit provisions (a true copy is equally good); it is only required to try to prevent fraud, in practice in a most limited range of circumstances (generally credits freely available by negotiation).
B. The documents specified in the credit have been presented UNDER the credit, i.e. the original credit advice does not form part of the documents presented FOR EXAMINATION per sub-Article 13a (despite the fact that it could be said that the credit provisions themselves will be literally ‘examined’, in the everyday sense of the word).
C. I believe that few, if any, credits include the credit endorsement provisions under the ‘documents required’ section and that such provisions are usually worded along the lines of:
‘The Nominated Bank must endorse the L/C with the amount of each presentation’.
In other words, there is no direct instruction to the beneficiary to present the original credit advice with the documents. Therefore, in the case of a credit freely available by negotiation, I do not see that -in the presence of a reasonable explanation from the beneficiary as to the fate of the original credit advice, the issuing/confirming bank could ultimately refuse to make settlement, unless there were a clear provision in the credit, addressed to the beneficiary, that presentation of the original credit advice was a condition of making a complying presentation.
2. Regarding freely negotiable credits, I agree it would not be practical to contact any bank, other than the issuing bank, to establish if presentation had been made. Therefore, I believe that if the potential (non-confirming) negotiating bank were not prepared to accept an apparently reasonable explanation from the beneficiary as to the whereabouts of the original credit advice, it would have little choice but to decline to negotiate.
If you are not prepared to accept my arguments (1 – 2) above, given the ‘theoretical’ and subsidiary nature -to the central point- of our discussions and the amount of time they could consume if continued, I would prefer to leave it at that. Of course you are at liberty to respond to what I have said, but you will understand if I am reluctant to devote the time to further discussion.
As to your final point regarding the continuance of bad practice, one way of discouraging it is to apply sub-Article 13c and Position Paper No. 3 as was intended and as they are written
Regards, Jeremy.
[edited 12/3/01 1:49:53 PM: grammar etc]
There seems to be a misunderstanding. I do not accept there could be inconsistency per Article 13a, even if it were the case that the original credit advice were considered –legally- as being one of the documents required in order to make a complying presentation, given the provisions of sub-Article 13c and Position Paper No. 3. This, to me, is the central point and therefore I consider the question, of whether or not the requirement for the credit to be presented for endorsement makes it a document required under the credit, to be subsidiary to this.
Nonetheless, dealing with that subsidiary matter, my personal comments, without responsibility/liability, are:
1. I can understand your ‘simple logic’ that if the original credit advice is required with the presentation, and that as it is literally a ‘document’ in the everyday sense of the word, that the original credit advice is a document a required under the credit. However, this does not appear to take account of the fact that:
A. Presentation of the original credit advice is not required to determine compliance of the documents with the credit provisions (a true copy is equally good); it is only required to try to prevent fraud, in practice in a most limited range of circumstances (generally credits freely available by negotiation).
B. The documents specified in the credit have been presented UNDER the credit, i.e. the original credit advice does not form part of the documents presented FOR EXAMINATION per sub-Article 13a (despite the fact that it could be said that the credit provisions themselves will be literally ‘examined’, in the everyday sense of the word).
C. I believe that few, if any, credits include the credit endorsement provisions under the ‘documents required’ section and that such provisions are usually worded along the lines of:
‘The Nominated Bank must endorse the L/C with the amount of each presentation’.
In other words, there is no direct instruction to the beneficiary to present the original credit advice with the documents. Therefore, in the case of a credit freely available by negotiation, I do not see that -in the presence of a reasonable explanation from the beneficiary as to the fate of the original credit advice, the issuing/confirming bank could ultimately refuse to make settlement, unless there were a clear provision in the credit, addressed to the beneficiary, that presentation of the original credit advice was a condition of making a complying presentation.
2. Regarding freely negotiable credits, I agree it would not be practical to contact any bank, other than the issuing bank, to establish if presentation had been made. Therefore, I believe that if the potential (non-confirming) negotiating bank were not prepared to accept an apparently reasonable explanation from the beneficiary as to the whereabouts of the original credit advice, it would have little choice but to decline to negotiate.
If you are not prepared to accept my arguments (1 – 2) above, given the ‘theoretical’ and subsidiary nature -to the central point- of our discussions and the amount of time they could consume if continued, I would prefer to leave it at that. Of course you are at liberty to respond to what I have said, but you will understand if I am reluctant to devote the time to further discussion.
As to your final point regarding the continuance of bad practice, one way of discouraging it is to apply sub-Article 13c and Position Paper No. 3 as was intended and as they are written
Regards, Jeremy.
[edited 12/3/01 1:49:53 PM: grammar etc]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
NON-DOCUMENTARY CONDITIONS
Jeremy,
I think that we will have to agree to disagree.
One final point I would like to make in defence of treating the DC itself as a document is that it is subject to examination to ensure that it complies with UCP rules in the same way as other documents comply with UCP rules.
Laurence
I think that we will have to agree to disagree.
One final point I would like to make in defence of treating the DC itself as a document is that it is subject to examination to ensure that it complies with UCP rules in the same way as other documents comply with UCP rules.
Laurence