ICC Digital Library Forum

We would like to change our role this time, instead of responding, we wish to ask questions.

From what we know, (please correct us if we are wrong) the orthodox belief and also the stance of the ICC Banking Commission are expressed as follows:

"There are only two things in examination of documents under Article 13 of the UCP 500. There is a discrepancy or there is not a discrepancy.

There is no such thing as 'material, immaterial, serious, trivial, small, big, careless, typo, disputable, unintentional, waivable, fatal...' discrepancy(ies)(which we have picked up from lawyers, judges, and some DC practitioners)"

Our two questions are:

Q1 Can we address Mr. Discrepancy like that?

Q2 How about Mr. "valid and not valid" Discrepancy?

NOTE: We use masculine gender just for simplicity and there is no other intentions.

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

[edited 8/25/01 3:42:20 PM]

My personal view is that legally, a discrepancy is an absolute concept; i.e. the law (English at least) does not attempt to distinguish between the significance of a discrepancy. Therefore, on this basis, as you seem to be saying, something is either a discrepancy or it is not in the light of the apparent ‘terms and conditions’(!) of the credit and the articles of UCP500 (per sub-Article 13a), when it comes to checking documents. However, this is not to deny that the potential material impact of a discrepancy may be minor or major, but this is NOT -I personally believe- a bank’s concern.

2. I am not sure what distinction you are intending to draw between an ‘invalid discrepancy’ and a ‘valid discrepancy’. I personally use the terms as follows:

A. ‘invalid discrepancy’: a discrepancy raised by a bank that is NOT -in fact- a breach of the ‘terms and conditions’ of the credit, the articles of UCP500 etc.

B. ‘valid discrepancy’: a discrepancy raised by a bank that IS -in fact- a breach of the ‘terms and conditions’ of the credit, the articles of UCP500 etc.

However, if you are looking for a simple term to describe an apparent deviation from the ‘terms and conditions’ of the credit, the articles of UCP500 etc that is not –in fact- a discrepancy, then I’m afraid I cannot offer one.

[edited 8/23/01 3:54:44 PM]

Jeremy, thanks to be the first to respond to our query. We place this query with an intent to hear the different opinions of other experts in the DC Pro. That is why we do not wish to respond here to your comments and opinions so soon in order to stay neutral for the time being so that other would not be "contaminated" by our opinions.

By the way, Jeremy, this "discrepancy" issue should not be side tracked to the issue of "terms and conditions" which has been thoroughly discussed and opinions exchanged already and you of course have your own right not to agree with the writings of Mr. Charles del Busto.

T. O. Lee
http://www.tolee.com
[edited 11/4/02 8:21:33 PM]

A post-script: I can now see that a discrepancy could well be defined as ‘an apparent deviation from the ‘terms and conditions’ of the credit, the articles of UCP500 etc’, so perhaps I’ve not said what I actually meant in the last para!

Also, I cannot see why you would think I might want to re-open the 'terms and conditions' debate.

Jeremy, thanks for your prompt clarification. This is another good example that any form of communication may lead to mis-interpretation. Please accept my apologies if you don't mean it this way.

Don't worry, be happy!

Besides the Americans, a Canadian may not understand English English too! (just a joke!)

T. O.

[edited 10/21/02 6:59:12 PM]

It is not easy to answer this query unless we come a mutual agreement of what is a martial discrepancy and what is an immaterial discrepancy. My experience and intuition tell me that a martial discrepancy is that which constitute an obvious breach to the terms and condition of the credit and may have real effect on the underlying transaction, goods or the interest of one party. Discrepancy such as TWO THIRD OF GOODS LOADED ON DECK in lieu of GOODS TO BE SHIPPED ON BOARD VESSEL is a material discrepancy that can really result in damages. Although not necessarily as goods may not be in jeopardy and may reach in good condition as well. An immaterial discrepancy is such “certificate of origin stating consignee as applicant not issuing bank as bill of lading indicates”

I need to point out that this exercise to define a martial or immaterial discrepancy is a job for a scholar and a law practitioner rather than for me but I’m trying to have my share here.

In documentary credits operations “discrepancy” to me is an absolute terms as Mr. Jeremy has pointed out. I can share one experience with you. Once I have checked documents for 1,2 million USD covering shipment of canned milk powder. The description of goods was as per the credit “ sweet milk powder” while invoice was stating it as “sweat milk powder” since I knew too hard facts that 1. The applicant is an honorary consul to a foreign country and well versed in L/Cs and well connected to top management 2. That the transaction was for the government against a performance bond issued by our bank, I was cautious of this “typo error”. Is it an unintentional or might be interpreted as there is some degree of humidity in the milk, how do I know that this is trivial or silly mistake, how do I know that it is really serious and can cause damages to the underlying contract. There was nothing wrong in documents expect this, all was in order but this troublesome thing. I deal with documents not with goods, ultimately I said to myself.

As we approached the applicant he said this is a typo error, I told him then mark your acceptance in writing, he became furious and angry. He said you take the decision on this, but we refused and he also. To sum the things up briefly, the applicant, based on our advice, managed to convince the beneficiary to issue on his favour an indemnity for the value of documents to cover his …. Since the beneficiary was a giant company in Europe and have a wonderful relations with the applicant he agreed. It seems his liquidity was high.

The milk was perfect and the only one hurt from this turned to be typo error in reality is the beautiful secretary in Europe who has typed the invoice on the company’s letterhead. She was sacked.

So is it the duty of the banker to search for facts or what is material and what’s is not? However it is to be said that checking documents is an art and the banker should not rely on black and white approach, he should have common sense, intuition and a sense of risk. If one feels that something is a discrepancy but he is doubtful about it ask, ask, ask, and then take a stance but one should take responsibility.

Dear Hatem,

Although we have promised not to respond to discrepancy, when we meet a good side issue, we would like to comment on it.

UCP IS NOT EVERYTHING

You need not do all these steps and they are not required under the UCP 500. But UCP 500 is not everything. If one does business like a robot sticking strictly to the UCP. he/she may lose his/her business to his/her competitors like your goodself who does not mind walking an extra mile. That is customer service, value added service which makes a corporation tick. Remember, we are in business. We are not a body guard to protect Mr. UCP or a slave of Mr. UCP.

WE ARE IN BUSINESS

That is common sense and sound commercial sense. Similarly from UCP point of view, we do not need to check and are not allowed to check the underlying facts, e.g. whether or not the ship is actually in the harbour as stated in the fake BL. But if we do not check it we may lose our job, and from the risk management point of view, we have to check this although Mr. UCP does not allow us.

T. O. Lee

http://www.tolee.com

[edited 11/4/02 7:23:49 PM]

Yes, I agree that we should not so static and confined in our thinking to UCP 500 blindly. I have said that document checking is an art, it evolves a lot of skills and competencies among them are UCP but there is more off course and the foremost is common sense.

However it is very difficult to draw a border for a banker to show him where to tread and where not. This is achieved through self-education, training and willingness for an exposure to other experiences. That’s why we are eagerly waiting for you to come to Saudi Arabia for the trade finance risk management, to get the best of you and to tantalize you with a lot of queries, off course politely.

I hope that I have made myself clear. The experience I shared is just to illustrate the difference between martial and immaterial discrepancies. It is not to undermine the extra-step thinking as you suggest. The very fact that our suspicion of the sweat powder milk assures that we care about real business, but how far can we go in this is our discussion with you in Jeddah.

The issue you have raised is quite interesting, and I would like to see experiences shared by other participant on handling discreanoes in letter if credit.

Dear Hatem,

Yes, when I come to Saudi Arabia in early October, you can even torture me with difficult questions or do anything you want, PROVIDED you pay us good fees, as customers are always right even when they are wrong!

In fact, the best part is often the Q& A session, where nobody would fall into sleep! We also learn from the participating bankers but we pay no fees for that! That is one good reason to be a speaker. But with squeezed budget for DC training now in the market place, it is difficult to survive solely as a speaker.

T. O.

[edited 11/4/02 7:14:22 PM]

Under UCP documents are either discrepant or not. The comparative importance, being subjective or relating to the underlying contract, is not relevant in the context of UCP. If the applicant seeks redress for alleged breach of contract, a court may assess the monetary value of such discrepancy in the context of digression from the underlying contract.

Whether discrepancies are valid or not lies, like beauty, in the eyes of the beholder. All of us, if truthful, view the world and everything in it in the context of one's belief's, experiences and environment. In other words it is difficult to sublimate one's subjective assessment in order to come to an objective opinion. This is one of the reasons why so many court cases arise between banks relating to L/Cs. One might think that banks should be able to view the opinion of another bank on common ground, but the facts often prove otherwise.

Part of my job often involves trying to show a bank that a perceived valid discrepancy is not. This is not an easy task, as many banks "dig their heels in" once they have taken a stance on an issue. Such reluctance to keep an open mind often leads to conflicts which may be resolved only in court.

I often take the view previously expressed by T.O. Lee, that one should seek to "win the war, not the battle", but I prefer to think of it in non-belligerent terms. Thus, even when I know that an alleged discrepancy is not valid, it may be more expedient to adopt the (incorrect) interpretation in drawing up documents, if one knows by experience that the policy adopted by a bank is flawed in a particular way or contrary to ICC opinions etc.