ICC Digital Library Forum

according to my knowledge in d/c's ,the word terms means(any specified date or period of time mentioned in the credit
such as date of issuance, latest date of shipment and expiry date ETC..),while the word conditions means all other details and clauses mentioned in the credit, although i found in the general discussion here that some topics do not use this concept
properly,the question is am i right or wrong in the analysing the above mentioned meaning .

TERMS AND CONDITIONS ARE DIFFERENT IN DC

We try to address to "terms and conditions" in the context of DC operations only. They are different things.

"Terms" mean some facts that are certain, such as CIF Hong Kong, Price USD100 per piece, description of goods, etc.

"Conditions" mean some incidents/situations/events/changes/perils that may or may not happen in the future, usually preceded by "if", "provided". They are, for example, force majeure, embargo, foreign exchange control, war, and other uncertain events/perils that may or may not happen in the future.

"Conditions" used in DCs are to avoid disputes amongst the parties when these desirable or undesirable changes/perils do happen.

EXAMPLES OF CONDITIONS

Examples of conditions in a DC are:

"If sea carriage is not available (e.g. due to dock strikes or other reasons), air shipment is also acceptable".

"Prices may be adjusted up to 10% to reflect increased costs due to bunker and foreign exchange fluctuations".

"Shipped quantity may be 10 percent more or less (popular for natural produce in which the harvest depends on weather conditions which human beings cannot control 100% at this point of time)".

That is also the reason why we say "weather conditions", and not "weather terms" (unless and until the time we can make or control weather).

TERMS AND CONDITIONS MUST BE CLEAR, COMPLETE AND PRECISE

Terms and conditions in a DC, like instructions, must be clear, complete and precise. Otherwise they may do more harm than good.

ISSUING BANK TO CHECK TERMS AND CONDITIONS IN DC APPLICATION FORMS AS ADDED VALUE IN CUSTOMER SERVICES

Although there is no specific Article in the UCP 500 to require an issuing bank to check the terms and conditions in a DC application form, it can be seen as a value added customer service. This is also a great way to know its customers by understanding their businesses. Unusual terms and conditions in a DC may also raise a red flag to the bankers, if they take the troubles to check them. Millions of dollars may be saved in this way, without the need to consult a risk management expert.

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

[edited 8/13/01 4:46:19 PM]

I agree with T.O. Lee's distinction between Terms & Conditions.

It should also be noted that some of these may be assumed. For example, if no latest date of shipment is stated, it is an assumed condition that shipment and presentation of documents must take place within the term of the L/C - i.e. within the expiry date. This is assumed in order to comply with Article 42b.

For a discussion of the expressions ‘terms’ and ‘conditions’, see ‘Terms versus Conditions’ on page 42 of ‘UCP500 & 400 compared’, Publication 511. I do not believe this wholly supports the views expressed by Mr. Lee or Mr. Bacon (but apologise if I have misunderstood what either is saying), not that this publication is necessarily the final word on the subject.

Personally, and I must stress personally, I find the distinction between ‘terms’ and ‘conditions’ somewhat artificial and prefer to use -what I regard as- the all encompassing terms ‘provisions’ or ‘stipulations’. However, I could see someone versed in the art of semantics possibly taking issue with me.

[edited 8/14/01 10:43:00 AM]

To respond to the highly observant comments from Mr. JSmith, we would like to respond as follows:

OUR OPINIONS ARE SAME AS THOSE OF MR. CHARLES DEL BUSTO

(1) Our interpretation of "terms" and "conditions" is same as the opinions expressed by Mr. Charles del Busto (the author of ICC Publication 511 "UCP 500 & 400 Compared") in a discussion on this issue when he came to Hong Kong to present his UCP 500 workshops.

On page 42 of this publication, it is written "For almost two thousand years international law has distinguished the difference between FUTURE and UNCERTAIN events (CONDITIONS) and events that are CERTAIN to take place (TERMS)".

So we do not find any difference between our opinions and those of Mr. del Busto. Hence we do not understand what Mr. JSmith actually means by stating that our opinions on "terms" and "conditions" are different from Charles's. Would he elaborate a bit on this?

PAGE 42 TALKS ABOUT "NON DOCUMENTARY CONDITIONS" AND NOT "TERMS AND CONDITIONS"

(2) On page 42, Mr. del Busto is not actually talking about the difference between "terms" and "conditions". The main theme should be "non documentary conditions". This is a different subject and the opinions of Mr. del Busto should not be interpreted in isolation as this may create confusions.

(3) The two examples on "non documentary conditions" gvien by Mr. del Busto on page 42 are:

"Shipment from London to Hong Kong" and "Terms CIF Hong Kong - INCOTERMS".

These are UNCERTAIN FUTURE events that may or may not happen. The issuing bank must state the name(s) of document(s) to reflect these CONDITIONS so that the document checkers can find out from the data content in the document(s) presented to ascertain whether the beneficiary has done what is required in the DC or not. To put it in another way, whether these CONDITIONS have happened or not?

If CONDITIONS are given without naming the document(s) to reflect them, they would be deemed to be "non documentary conditions" and may be disregarded.

PROVISIONS AND STIPULATIONS

Should we interpret the relationships amongst these terms mathematically as "terms" + "conditions" = stipulations or provisions.

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

[edited 10/16/02 8:48:08 PM]

Thank you for your response. I would comment as follows:

1. I cannot, of course, comment on views the editor of publication 511 may have expressed orally.

2. Given the extract you have quoted, and the sentence that immediately follows it:

‘Accordingly, as long as a given calendar date is in force, the date of issuance or expiration of the Credit constitutes terms and not conditions.’,

I regret I cannot see how it can be argued that the section ‘Terms versus Conditions’ is confined exclusively to non-documentary conditions. The supposed distinction between a ‘term’ and a ‘condition’ –it seems to me- is plainly described. I recognise the following paragraph goes onto discuss non-documentary conditions, but I am at a loss to see how this affects the preceding paragraph’s contents.

3. Publication 511 states:

‘it is clearly established that by having credit terms such as, for example: “Shipment from London to Hong Kong” or ‘Terms CIF Hong Kong- INCOTERMS”, etc., even though no individual document may be required to certify such a condition, this requirement must nevertheless be satisfied and stated within the documents presented.’

Therefore, if something ‘must …… be satisfied and stated within the documents presented’ my understanding is that –by definition- it is not a ‘non-documentary condition’, as -I believe- Position Paper No. 3 confirms. Therefore, I do not believe these are (as you seem to be suggesting) examples of ‘non-documentary conditions’.

Also, it is interesting to see the words ‘term’, ‘condition’ and ‘requirement’ all used to describe the same things.

4. The expression ‘terms and conditions’ relates to ‘the terms and conditions of the Credit’, (sub-Article 13a). The expression does not relate to any other contract, such as the underlying contract between the buyer and the seller for example. Therefore for an event to be certain (i.e. to be a ‘term’) it must be something that will definitely happen under the credit alone, e.g. ‘date of issuance or expiration of the Credit’.

Something that is not certain is presentation of documents. Therefore, on this basis, it seems to me that anything that relates to the required contents of documents should automatically be regarded as a ‘condition’ and not a ‘term’, if one accepts the Publication 511 approach (and I am not saying that I necessarily do). Consequently, to me ‘CIF Hong Kong, Price USD100 per piece, description of goods, etc.’ are not ‘terms’ (as you seem to suggest) but ‘conditions’, as these are things that the documents have to evidence; i.e. they are not ‘events’, let alone ‘events that are certain to take place’.

Also, I struggle to see how the ‘conditions’ of a credit can primarily be ‘some incidents/situations/events/changes/perils that may or may not happen in the future, usually preceded by "if", "provided". They are, for example, force majeure, embargo, foreign exchange control, war, and other uncertain events/perils that may or may not happen in the future.’, (although I accept that they could be if –unusually (from my perspective)- they were covered by the credit stipulations). My impression is that Publication 511 -read in the context of sub-Article 13a- is saying that the documentary requirements of a credit are themselves ‘conditions’, e.g. the requirement for a bill of lading marked freight paid showing shipment from ‘A’ to ‘B’ or a certificate of origin showing goods of UK origin are ‘conditions’ of the credit. Also, you will notice sub-Article 13c refers to ‘conditions’ only, it does not use the word ‘terms’ regarding documentary requirements. Therefore, it seems to me that the expression ‘conditions’ is intended to refer primarily (but not necessarily exclusively) to the documentary requirements of a credit.

I trust it can now be seen why I took the view (and still do) that Publication 511 did (and does) not wholly support your views. However, ultimately -as I’ve already intimated- I believe trying to distinguish between ‘terms’ and ‘conditions’ is an artificial exercise which achieves little of substance, as documents must meet the provisions of a credit irrespective of whether individual requirements are ‘terms’ or ‘conditions’ (true non-documentary conditions excepted). Therefore, I hope you will understand and forgive my not responding to any further views which may be subsequently expressed on this subject.

[edited 8/15/01 11:36:19 AM]
[edited 8/15/01 1:46:23 PM]
[edited 8/15/01 1:48:04 PM]
[edited 8/15/01 2:41:28 PM]
[edited 8/15/01 2:45:08 PM]

TWO KINDS OF "JSMITH CONDITIONS" IN DC

We try to apply the opinions of Mr. JSmith, that all the "requirements" in a DC are deemed to be "conditions" (and not comprising of "terms" and "conditions" according to our understanding), then there would be two kinds of "conditions" in a DC - those that are USUALLY reflected in the documents and those that are NOT.

Those "conditions" that are usually reflected in the documents (which we consider as "terms") are description of goods, price, CIF Hong Kong (invoice), ports of loading and discharge, weights, measurements (B/L), ICC (A)(insurance policy) and drawer and drawee (drafts).

Those conditions that are not usually reflected in the documents are some SPECIAL conditions (which we consider as conditions), such as "vessel must be not over 15 years old", "carriage must be by a certain shipping conference line vessel" and the like.

NON DOCUMENTARY CONDITIONS

If such UNUSUAL conditions are specified in the DC, the DC should specify a document(s) to reflect such conditions.

If no document is specified in the DC, then such unusual conditions may be deemed to be "non documentary conditions".

Having said that, some conditions, such as "Goods of German origin", can be BOTH documentary and non-documentary conditions, all depending on how the DC is worded.

If a certificate of origin is also specified in the DC, it is of course not a "non documentary condition".

If the invoice shows the goods are of German origin, it may also not deemed to be a "non documentary condition" even though the DC does not specify a document to show the country of origin according to the opinions of Mr. Charles del Busto in his ICC Position Paper No. 3.

However, if the documents presented do not show the origin of the goods whereas the DC does not specify which document to reflect the origin of the goods, then it may be deemed to be a "non documentary condition" and may be ignored.

So document checking is an art.

WHAT "TERMS" USED IN THE UCP 500 MEAN IF ALL "REQUIREMENTS" IN A DC ARE LABELLED AS "CONDITIONS" ?

If all the "requirements", "instructions", "provisions" and "stipulations" in a DC are deemed to be the same as "conditions" according to the interpretation of Mr. JSmith, then there should be no "terms" in a DC other than the DC expiry date, shipment deadline etc. In that case, we would like Mr. JSmith to give us a few examples of "terms" stipulated in the UCP 500, such as in article 9 (a) & (b), 13 (a) & 14 (a).

On page 42 of ICC Publication No. 511, "UCP 500 & 400 Compared", Mr. del Busto states "For instance, it is clearly established that having Credit TERMS such as, for example: "Shipment from London to Hong Kong" or "Terms CIF Hong Kong - INCOTERMS" etc....".

It is now clear from Mr. del Busto's statement quoted above that "Shipment from London to Hong Kong" and "CIF Hong Kong - Incoterms" are TERMS and not "conditions" (as considered by Mr. JSmith).

By the way "CIF Hong Kong" should be a term, an Incoterm. If Mr. JSmith's interpretation on "CIF Hong Kong" is right, then we should have "IncoConditions" and not "Incoterms"!

DEFINITIONS OF "TERMS" AND "CONDITIONS"

We would like to quote definitions of "terms" and "conditions" from publications in our private consultancy library as follows:

The Marine Encyclopaedic Dictionary 4th Edition by Eric Sullivan.

"Terms and conditions

A common terminology in the shipment of merchandise. These are given by the shippers to the receivers laying down their MUTUAL GENERAL ACCEPTANCE. The word Term represents the GENERAL PROCEDURE of the shipment, say CIF or FOB. Conditions concern the kind of payment, such as "Cash Against Documents' , Letter of Credit, or Payment After 30 Days".

It is now clear that CIF and FOB are terms (our view) not conditions (Mr. JSmith's view).

Law Dictionary 11th Edition by E.R. Hardy Ivamy

"Condition. A restraint annexed to a thing so that by the non-performance the party to it receives prejudice and loss, and by the performance gain or advantage; it is also defined to be what is referred to as an UNCERTAIN chance which may or may not happen. The following are the most important kinds of conditions: (1) a condition in a deed, or express: a condition in law, or implied; (2) precedent or subsequent.

It is now clear that only UNCERTAIN things (events, perils, however named) should be deemed as conditions. Things that are CERTAIN, such as description of goods, CIF, shipment by sea and other terms agreed by the parties, should be terms.

COMMENT PRECISELY ON WHAT WE HAVE STATED

Whilst we admire Mr. JSmith for his serious attitude, originality of thoughts and not to take anything for granted, we would like to request him to make his comments based on precisely what we have stated and try not to generalise, assume, imply or interpret in isolation of our statements and then make comments on such assumptions (which we have not stated and intended to mean that way). Putting words in our mouth would only create unnecessary
arguments and confusions.

We think it is not appropriate to respond to such comments to avoid further arguments and also because by reading our statements carefully a second time, one should be able to grasp our real meaning and intention.

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

[edited 10/16/02 8:40:06 PM]

Dear Mr. Lee,

I will respond to the points you have made, as it would appear from the tone of your response that you may have taken exception to the views that I have expressed (if so, my apologies for this).

1. I must confess I am surprised you feel my comments have not been based on precisely what you have stated or that I have tried to generalise, assume, imply or interpret in isolation your statements and then make comments on such assumptions. My intention has simply been to carry out a textual analysis of what you have said (quoting those things in my own contribution) and the contents of Publication 511, compare the two and then identify where I believe there are variances. Nonetheless, I am sorry if this is not your own impression and hope it will not be so with my further contribution below.

2. Turning to your belief that:

‘It is now clear from Mr. del Busto's statement quoted above that "Shipment from London to Hong Kong" and "CIF Hong Kong - Incoterms" are TERMS and not "conditions" (as considered by Mr. JSmith).’

As I pointed out before, in the sentence to which you refer these stipulations are all described as ‘terms’, ‘conditions’ and ‘requirements’. Therefore, I do not accept that this sentence is conclusive, particularly given the highly restrictive interpretation that the preceding paragraph in Publication 511 seems to give to the meaning of the word ‘term’ (see 3. below).

3. Given the reference to a ‘given calendar’ and time related examples quoted (date of issue and expiry) my reading of Publication 511 is that it is proposing a very limited (and limiting) interpretation of the word ‘term’. Therefore, I am struggling to come up with further examples of ‘terms’ that would meet this apparently highly restrictive interpretation. The only one I can presently think of for certain is a term that prevents presentation of documents before a specified date, for example:

‘Documents may not be presented under this Credit on or before 31 August 2001’.

The credit would, of course, in this example expire after this date.

However, I could also see the argument that any express latest date of shipment is a ‘term’ of the credit, as it involves a fixed date that is certain to occur.

4. As I have indicated in 1. above, my comments are confined solely to the contents of Publication 511. I readily recognise that there may well be other publications/commentators whose views do not reflect the apparently very limited interpretation Publication 511 seems to give to the word ‘term’ (myself being among them). Therefore, I am quite happy to accept that the expression ‘Incoterm’ could be considered as calling into question the Publication 511 approach to the meaning of the words ‘term’ and ‘condition’.

5. I do not believe you or I disagree that Publication 511 is saying a ‘condition’ is a ‘future and uncertain event’. Where we do seem to differ is in your belief that ‘description of goods, CIF, shipment by sea and other terms agreed by the parties’ (presumably between the buyer and seller in the underlying contract) are ‘events certain to take place’ (Publication 511) under the Credit. I regret I still cannot see that this is so and therefore persist in the view that they are ‘conditions’, IF using the Publication 511 approach.

In conclusion, I trust that you can understand why my views regarding Publication 511 differ from your own and that you appreciate that I have expressed them with the sole intention of contributing to dialogue among those involved in, and thus furthering understanding (my own included) of, documentary matters.

Jeremy Smith

[edited 8/20/01 11:06:08 AM]

DIFFERENT INTERPRETATIONS OF THE SAME PAGE

Dear Mr. J. Smith,

Thank you for your clarification of your opinions on "terms" and "conditions" which is now crystal clear to us. It seems that we have different interpretations of the writings of Mr. Charles del Busto on page 42 of his publication "UCP 500 & 400 Compared", ICC Publication No. 511.

From effective communication point of view, this is normal. Our interpretation of words, whether spoken or in writing, may be affected by our subjective concepts, different cultures, education and value systems.

We understand that by interpretation of his writing, we are both putting words in Mr. del Busto's mouth and both of us may be wrong. In order to seek for the truth, rather than to convince anybody, we venture to call Mr. del Busto this morning and hear words from the horse's mouth to clarify what exactly the author means.

CLARIFICATION FROM MR. DEL BUSTO

Mr. del Busto has kindly returned our call at 4.15pm on 20th August North America Eastern Time and he has given us the permission to quote his explanation as follows:

He gives us a few examples of "Shipment from London to Hong Kong" which is stated in his publication.

"Shipment from London to Hong Kong TO ARRIVE at 1st September 2001" is a CONDITION because it is NOT CERTAIN that the vessel will arive at Hong Kong at the specified time. The ship may arrive a couple of days late or a couple of days early".

"Shipment from London to Hong Kong SCHEDULED TO ARRIVE at 1st September 2001" is a TERM because the shipment period is a CERTAIN time frame and can be counted from a calendar.

"Shipment from London to Hong Kong" (which happens to be the example used on page 42 that we have different interpretations) is a TERM because that is the BASIS of the underlying contract, which is CERTAIN and agreed by both the seller and the buyer to bind them contractually.

"CIF Hong Kong - INCOTERMS" is also a TERM for the same reason.

(This paragraph is from T. O. Lee) It follows that other BASIS of the contract terms quoted in the DC, such as USD10,000 per MT, shipment by air, drafts drawn on issuing bank, are TERMS, not conditions and they can be checked for compliance from the data content of the stipulated documents.

He also requests Mr. J. Smith to approach Mr. Terence J. Mitchell, now retired but formerly with Lloyd's Bank Plc. London. Mr. Mitchell, being a British Bankers' Association Representative to the ICC Banking Commission, is also a member of the UCP 500 Working Party (led by Mr. del Busto). Mr. Mitchell will be glad to explain to Mr. J. Smith the position of the Working Party regarding "terms" and "conditions".

Before he ends, Mr. del Busto shares with us a joke: "Now I see the reason why a British banker and a Canadian consultant have different interpretations on my writings. It is because the publication is written in American English!" No wonder we often say "USA and England are two countries divided by a common language".

For those who wish to know how he is doing now, he is enjoying his retired life in Florida with his wife Denise. He plays golf almost every day and his golf handicap is now upgraded to 16."

Now Mr. del Busto is consistent in what he told us in Hong Kong and what he tells us today in Toronto. Our interpretation of his writings is not incorrect so to speak.

We think the debate may not end here because we agree, as Mr. J. Smith has said: "Terms and conditions may have other meanings outside the letter of credit domain". But that is "out of bounds" for the Discussion Forum in the DC Pro.

We think that Mr. J. Smith's interpretation, although we do not share the same opinion, has its own merit points and it has stimulated our thoughts all the way. Thank you Mr. Smith.

Mr. J. Smith, if we meet again in November ICC Banking Commission meeting in Frankfurt, would you buy me a German beer for this?

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

[edited 10/16/02 8:16:04 PM]

Dear ‘T.O.’,

I thank you for taking the trouble to contact Charles del Busto on this matter. However, given what he has said, my impression (with due respect to Mr. del Busto) is that this section of Publication 511 is an example of where what is written is not, perhaps, an unambiguous reflection of the writer’s intentions, a trap I have fallen into myself.

Secondly, I do not think it would be a good idea for me to contact Mr. Mitchell as he has been long retired and, I believe, made plain his wish to leave the world of documentary business behind.

Finally, I would regard it as a pleasure to buy you a beer (or any other beverage) wherever and whenever we next may meet. However, I suspect I will not be in Frankfurt in November.

Regards, Jeremy Smith