ICC Digital Library Forum

I would welcome the views of experienced documentary credit practitioners, from around the world, regarding the following:

If a credit stipulates the issuer of a document (other than an insurance or transport document), would a document issued by a party stating it is acting as agent for the stipulated issuer, and signed on the agent’s headed paper for and on behalf of (or similar) the stipulated issuer, be discrepant? To illustrate this: The credit stipulates ‘Inspection Certificate issued by ABC Inspection Ltd’. The document presented is an Inspection Certificate issued on ‘XYZ Inspection Services Ltd’ headed paper and is signed ‘XYZ Inspection Services Ltd, as agent for ABC Inspection Ltd’.

If it is discrepant, why (given the document appears to be issued by the authorised representative of, and binding on, the stipulated issuer)?

N.B. I am familiar with Opinion TA464, which deals with the issuer of a certificate of origin.

The answer to a similar query to ICC is found on page 68 of ICC Publication no. 489, "More Case Studies on Documentary Credits" , published in Dec. 1991. In that case the LC requirement was for an inspection certificate issued by applicant. The document presented was issued by applicant's representative instead.

The ICC reply was as follows:
Quote
UCP ariticle 23 states that "When documents other than transport documents, insurance documents and commercial invoice are called for, the credit should stipulate by whom such documents are to be issued and their wording or data content ....". the credit indicated that the certificate of inspection should be issued by Mr. Credit Applicant. Therefore, the inspection certificate should have been issued by Mr. Credit Applicant and not his representative.
Unquoute

For your info. Article 23 above refers to article 23 of UCP 400 corresponding to article 21 of UCP 500.
[edited 8/1/01 6:53:56 AM]

Thank you for your response. However, I would observe:

1. Firstly, Case 226 talks of the credit stipulating that the certificate of inspection be ‘signed’, as opposed to ‘issued’, by the credit applicant. Secondly, the Case does not state how the document was signed nor the paper used, i.e. whether it was signed ‘for and on behalf of’ (or similar) the credit applicant and/or whether it was on the credit applicant’s paper. Therefore, I do not believe this case can be taken, with any certainty, as applying to the situation outlined in my query.

2. If Case 226 is saying that an agent may not sign on behalf of the stipulated issuer, then -it seems to me- that in my own example a bank would also have to reject an Inspection Certificate issued on the headed note paper of ‘ABC Inspection Ltd’, but signed ‘XYZ Inspection Services Ltd, as agent for ABC Inspection Ltd’. However, my understanding is that such a document would be considered facially compliant under international standard banking practice (‘ISBP’).

3. The English High Court recently held in Montrod Ltd v Grundkotter Fleischvertriebs-Gmbh and Others (Queen's Bench Division- Commercial Court, 2000) that where a credit stipulated:

‘Certificate of inspection issued and signed by the credit applicant at his discretion on the goods quality and quantity in good order before shipment.’,

certificates of inspection signed by Grundkotter (the beneficiary) on behalf of Montrod (the applicant) were facially compliant. This would seem to Contradict Case 226. However, I recognize other jurisdictions may not take the same approach. (See DC Insight VOL 7 Issue 3 July -September 2001 for a discussion of the case.)

4. Lastly, and I admit I had not read it before raising my query, Opinion R157 (relating to UCP400) states:

‘The Commission agreed that if a credit calls for a certificate issued by a shipping company banks will accept a certificate issued ……. by the shipping company’s agent ……. as an agent has the power to bind his principal’.

This opinion would therefore also seem to contradict Case 226, although I recognise the issuer was not specified by name, but by function, in the case of this opinion. Also, there is not any indication as to whether the certificate was on the shipping company's headed note paper or not.

Overall, in view of these above-mentioned factors, I cannot see that Case 226 contains the answer to my query. Further views from around the world would be welcome.

[edited 8/1/01 10:53:29 AM]

Personally, I would not accept the document. If the credit calls for a document to be issued by XYZ a document issued by someone else acting as agent is not the same thing. The credit is quite clear as to who the issuer must be and UCP is silent on the matter.
As a comparison (although such instances would never occur) would a bank accept an invoice issued by an agent of the beneficiary or would anyone deal with an l/c issued by an agent of the issuing bank

Thank you for you for giving me your views on the subject; this is much appreciated. My reaction to what you have said is:

1. I believe that the fact that UCP is silent on a matter reinforces the case for it being acceptable, rather than the reverse. As sub-Article 13a says ‘Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice AS REFLECTED IN THESE ARTICLES.’ [emphasis added]. Therefore, if something does not contradict the Articles of UCP500 then, according to the terms of sub-Article 13a, it would seem it ought to be deemed compliant (unless -of course- it transgresses the terms of the credit itself).

2. My understanding is that:

A. An agent is a person/body corporate employed by a principal for the purpose of bringing that principal into contractual relations with third parties, i.e. an agent is ‘invested with a legal power to alter his principal’s legal relations with third parties’ (Towle & Co v White, 1873).

B. Where an agent enters into a contract, on behalf of its principal, the contract is binding on the principal but not on the agent (provided the agent has acted within its authority etc).

In addition, UCP500 does expressly recognise the role and powers of the agent in sub-Articles 23ai, 24ai, 25ai, 26ai, 27ai, 28ai, 30ii & 34a & d.

Therefore, if a document has been ‘issued’ by an agent on behalf of its principal, it has -in law, as UCP500 appears to recognise- been issued by the principal. Consequently, it would seem that if the credit calls for a document to be issued by XYZ a document issued by someone else -indicating they are acting as XYZ’s agent- IS actually the same thing. On this basis, an invoice issued by a party indicating they are acting as agent of the beneficiary would therefore be compliant.

3. As my previous comments indicated, the English courts have ruled -in the Montrod case- that a document issued by a party as agent for the stipulated issuer was compliant, and here it was the beneficiary signing on behalf of the applicant! This would seem to reinforce my point 2 above.

4. While I agree it is highly unlikely a bank or beneficiary would ‘deal’ with a credit issued by the agent of the issuing bank (as this would be a most unusual occurrence), it would not alter the fact that, provided the agent had acted within its authority etc, the credit would be binding on the issuing bank.

Once again, thank you for your views. If you, or anyone else, has further thoughts on the subject, I’d be pleased to ‘hear’ them.

[edited 8/2/01 11:19:26 AM]

In case 226 though in describing the problem it was indicated that the applicant has sent his representative to sign the document, the reply of ICC Experts unequivocally refers to issuance of the document by the representative would not be acceptable. There is no mention of signature in the reply.

I agree with you that the case doesn’t give detailed explanation of the nature of the document issued and also agree that different courts, as it is in many cases, could take different approach, but the fact remains, as Mr. PGauntlett has indicated, a document issued by someone else is not the same thing. We could go on discussing this issue and each of us could have some valid points. It would be interesting to hear some more views from the other DC Pro members.

Just a ‘quickie’, if I may:

1. I agree the author of Publication 489 unequivocally states issuance of the document by the representative would not be acceptable. Thank you for pointing that out.

2. For the reasons I have already outlined:

A. I believe it is questionable whether the answer given to this case study is correct (at least for nowadays), if it is indeed excluding a document that purports to be issued by a party indicating it is acting as agent for the stipulated issuer, particularly given result of the Montrod case (which I recognise may be reversed on any appeal).

B. There would seem to be a strong case for saying a document issued by someone else IS the same thing where it is issued by a party as agent for the stipulated issuer, as the sub-Articles of UCP500 I have quoted seem to recognise.

Regards.

[edited 8/2/01 1:14:43 PM]

With all the nice things being said over the issue by our predecessors, it becomes more difficult for us to add any further worthwhile comments. Since as a bystander, the debate seems to have no ending. To respond to the invitation of further comments from Mr. AbdulkaderB, shall we make some analysis here and hopefully we can see the different arguments presented so far more clearly.

DIFFERENT TREATMENTS FOR DIFFERENT DOCUMENTS IN UCP 500

Regarding issuance of documents by agents, the UCP 500 treats different documents differently.

For TRANSPORT documents, issuance by an agent is allowed in the transport Articles such as Article 23.

For INSURANCE documents, issuance by an agent is also allowed in the insurance Articles, such as Article 34.

For the COMMERCIAL INVOICE, issuance MUST be by the beneficiary named in the Credit (agent not allowed) as per Article 37.

For documents OTHER THAN TRANSPORT OR INSURANCE DOCUMENTS AND COMMERCIAL INVOICE, such as an inspection certificate, they are all governed by Article 21. If the DC has not named the issuer, then any issuer, whether an agent or not, is acceptable.

TWO ICC DECISIONS ON AN INSPECTION CERTIFICATE ISSUED BY AN AGENT

We have noted two decisions of the ICC Banking Commission regarding an inspection certificate issued by an AGENT OF THE PARTY NAMED IN THE DC. They are quoted as follows:

Case 226 on page 68 of ICC Publication 489

"The inspection certificate should have been issued by Mr. Credit Applicant and not by his representative".

An unpublished Query of ICC Banking Commission on Article 13 (a) that is available in the DC Pro search where a separate letter is enclosed indicating that an inspection agency is acting as agent for another inspection agency.

"Conclusion

The inclusion of a separate letter from the named inspection agency, i.e., SGS Bangladesh would not be acceptable under the credit terms. Evidence of SGS India acting as agents for SGS Bangladesh would need to appear on the actual certificate itself".

To be precise, this Decision does not deal with the "acceptability" of the inspection certificate. It only deals with the "evidence" of agency status.

OUR ANALYSIS OF THE RATIONALE BEHIND UCP 500 ON ISSUANCE OF A DOCUMENT BY AN AGENT

The purpose of the UCP 500 is to facilitate the trade rather than to interfere with or to hinder it.

That is the reason why for TRANSPORT and INSURANCE documents, the UCP 500 respects, follows and supports the trade practices in transport and insurance trades where a transport or insurance document signed by an agent is allowed and it is in fact their trade practices before the UCP 500 was enacted.

For the COMMERCIAL INVOICE, which is rarely issued by an agent in the market place, the UCP 500 respects and follows this market practice and hence stipulates clearly in Article 37 that it MUST be issued by the beneficiary himself rather than by an agent.

For ALL OTHER DOCUMENTS, such as an inspection certificate, there is no hard and fast rules or trade practice in the market place. If the DC specifies the name of the issuer, that indicates clearly the intention of the applicant to EXPECT the inspection certificate to be issued by the named party.

The underlying reasons are many.
(1) The applicant only trusts or feels comfortable with the named party but not its agent.

(2) The applicant is assured that the named party has the competence, due diligence and most importantly, INTEGRITY for the task entrusted by him. For the agent, the applicant is not so sure.

(3) The named party knows what the applicant wants, in terms of specific procedures and standards in carrying out the inspection due to previous experience dealing with the applicant. The agent may be a total stranger. This is a common sense issue and can be answered by one's wife. If she names No. 3 to do her hair styling, she will not accept No. 4 as an agent of No. 3.

(4) There are certain things that cannot be abused with performance by an agent, such as air ticket, Pavarotti Concert (how about by agent Colin Powers of White House who made his debut in Tokyo recently?), marriage, drafting for the army, death sentence and the like.

We support Case 226 in ICC Publication No. 89 where issuance by an agent is not acceptable if the DC names the issuing party for an inspection certificate.

SOME DOCUMENTS MUST BE ISSUED BY AGENTS

The Case 226 Decision cannot be carried too far.

For TRANSPORT documents, a carrier or a shipowner may not have an office in the port of loading or discharge. He has to appoint an agent to take care of his ship (providing fresh water, provisions, bunker and routine maintenance etc.) as well as the documentation (issuance of bills of lading, application and reporting to the port authorities for in-bound and out-bound voyages).

For charter party, the situation is more sophisticated and we do not wish to complicate the issue. Enough being said that the master (mariner) is the agent of the shipowners in certain legislations, such as the German maritime code.

The same situation also applies to an insurer who cannot afford an office in every city of the world to issue an insurance document.

For these reasons, transport and insurance documents issued by agents MUST be acceptable or else there would be no international trading or no DC.

If a DC names the issuing party of a document, the acceptability of such a document issued by an agent depends on what document we are talking about. The answer would be different for different documents.

This issue has clearly demonstrated two things.

(1) Bankers, to do their document examination task well, have to know the trade practices of other trades related to DC operations. In our DC workshops we often point out that bankers should not play golf only with bankers.

This opinion is supported by Mr. David Meynell, Head of Trade Finance at Deutsche Bank AG London, and consistent with his "DEUTSCHE" concept in which he states: "It is an ongoing process and includes elements such as keeping up-to-date with worldwide developments by reading appropriate industry publications, attendance and participation in relevant seminars, and regular contact with others involved in trade - not just bankers, but cross-industry - importers, exporters, carriers, forwarders, insurers, inspection agencies, etc." (from DCI, Vol 4 No. 2 Spring 1998 issue).

(2) Documents must be examined with simple common sense as promoted by the late Master Bernard S. Wheble, my mentor.

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

[edited 9/28/02 7:47:28 PM]

As already stated, this is an issue where there is clarity on the acceptability of some documents issued and signed by agents on behalf of a principal, e.g. transport documents, but a certain "grey area" for other documents.
Similarly there are cases where persons or entities clearly act as agents and others not so clear. By its very name, a forwarding agent clearly acts as an agent. I suggest, however, that an employee of a beneficiary also acts as an agent of the beneficiary in signing invoices or other documents. Furthermore, the beneficiary invoices etc may also be signed by non-employees acting as agents of the beneficiary and be equally acceptable.

In examining the document in question, I would have to side with those who call for the document to be issued by the nominated party in the DC. If the intent of the applicant was to also accept such documents issued by agents, it would have been a simple matter to word the DC accordingly.
However, if the agent is acting as such, he may be able to obtain the letterhead of the principal and issue the document as agent of the principal in a similar fashion to that of carrier's agents. This, I think, would be a more universally acceptable and pragmatic solution.

Mr. Lee and Mr. Bacon, thank you for your constructive and considered contributions to this discussion. Before I deal with the points you raise I would like to explain my motivation in raising my original query.

When a bank takes up, or -in the case of an issuing or confirming bank- rejects documents, it must be confident that its decision will stand scrutiny if challenged in a court of law. Therefore, if one is going to take up or reject a document of the kind of which I gave an example at the outset (let us call it a ‘Headed Agent Document’ or ‘HAD’ for convenience), one should be (ideally) confident as to the reason for one’s decision. To date, I have been unable to construct what I consider to be a strong case for rejection of a HAD, even if it were an invoice.

Turning to the points Mr. Lee makes, I would respond as follows:

1. I believe the unpublished opinion supports the view that a HAD is compliant. Here the credit specified issue by ‘SGS Bangladesh Ltd’, but the document was issued by ‘SGS India Ltd’, presumably therefore on their headed note paper. Consequently the Banking Commission seems -to me- to be saying this document would have been compliant had it ‘indicate[d] that they [SGS India Ltd] were acting as agents for the stated inspection company [SGS Bangladesh Ltd]’.

2. I agree the issue of transport and insurance documents are EXPRESSLY authorised by UCP. However, if (and I repeat, if) a document produced by an agent IS a document ‘issued’ by the principal (for the reasons I have already given) then I do not see how it can be contended sub-Article 37ai excludes the presentation of an invoice produced by a ‘corporate’ agent. In other words, document production by an agent equals ‘issue’ by the principal in all cases.

3. Per sub-Article 13a banks check documents ‘on their face’, no more than that. However, I recognise that courts sometimes expect bankers to have built up knowledge from their DAY-TO-DAY operations and to take this into account when determining FACIAL compliance. Nonetheless, I would have great difficulty in accepting -and with my current state of knowledge would contest- the propositions that:

A. The possible motivation of an applicant in specifying certain terms in a credit, such as the issuer of a document, is a factor that banks should take into consideration when determining facial (non-) compliance;

B. A banker has an ACTIVE duty to familiarise themselves with practice in other trades and to take such knowledge into account when determining facial (non-) compliance.

Now turning to Mr. Bacon, his suggestion -which I believe (from suggestions and discussions that preceded my raising my query) represents a widespread view- that ‘if the agent is acting as such, he may be able to obtain the letterhead of the principal and issue the document as agent of the principal in a similar fashion to that of carrier's agents. This, I think, would be a more universally acceptable and pragmatic solution.’ is at the nub of my intellectual difficulty. I cannot see what difference it makes whether a corporate agent signs as agent on their principal’s headed note paper or the agent’s own headed note paper when it comes to determining facial compliance. In both instances, a document has been presented that purports to have been produced by the principal’s agent and thus which purports to have been ‘issued’ by the stipulated issuer.

In sum, I still do not feel any nearer to being able to justify rejecting a HAD, even if it were an invoice, but if someone can give me what I consider to be a well reasoned argument that addresses all the factors that cause me doubt as to whether one can reject a HAD, I shall be happy to receive it.