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Submitted as a Single Window Question I received a somewhat unusual
question:
I
have read your article on LC in court room. Certainly it was very useful. I
will highly appreciate if you could please discuss the cases in the light of
600.
[Submitted by Sajib]
I
accepted the challenge, and the below is an attempt to do exactly that. It
goes without saying that the mentioned court cases will not be changed even
where a new version of the UCP is implemented – but it may well be that a
100% identical case would in fact reach a different result. One should also
acknowledge that once the LC steps into the court room it is a totally
different ball game – and a vast complex of elements may in fact affect the
final verdict.
Original documents
Comparing the provisions on what constitutes an original document it is
evident that the controversies about this have indeed affected the wording
of the UCP 600:
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UCP 500 sub-article
20(b) |
UCP 600 article 17
(Original Documents and Copies) |
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Unless otherwise stipulated in the Credit, banks will also accept as an
original document(s), a document(s) produced or appearing to have been
produced:
i. by
reprographic, automated or computerized systems,
ii. as carbon copies,
provided that it is marked as original and, where necessary, appears to
be signed.
A
document may be signed by handwriting, by facsimile signature, by
perforated signature, by stamp, by symbol, or by any other mechanical or
electronic method of authentication.
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a. At
least one original of each document stipulated in the credit must be
presented.
b. A
bank shall treat as an original any document bearing an apparently
original signature, mark, stamp, or label of the issuer of the document,
unless the document itself indicates that it is not an original.
c.
Unless a document indicates otherwise, a bank will also accept a
document as original if it:
i.
appears to be written, typed, perforated or stamped by the document
issuer’s hand; or
ii.
appears to be on the document issuer’s original stationery; or
iii.
states that it is original, unless the statement appears not to apply to
the document presented.
d. If
a credit requires presentation of copies of documents, presentation of
either originals or copies is permitted.
e. If
a credit requires presentation of multiple documents by using terms such
as “in duplicate”, “in two fold” or “in two copies”, this will be
satisfied by the presentation of at least one original and the remaining
number in copies, except when the document itself indicates otherwise. |
 UCP
600 clearly addresses the issue discussed in the two court cases – namely
what constitutes an original document. Reading through article 14 it is
evident that “originality” can be achieved in a number of ways – not limited
to the documents being “marked original”.
One
must expect however that UCP 600 article 14 does not change the current
practice (year 2007/2008) – it merely supports it. The reason for this is
that this issue has been addressed in official ICC publications a number of
times. First in the ICC Policy statement: “The determination of an
"Original" document in the context of UCP 500 sub-Article 20(b)” – later
in ISBP (2003) §§ 31-35 – and then again in ISBP (2007) §§ 28-33.
As such
the ICC Policy statement mentioned above effectively solved the case – and
the new wording in UCP 600 merely supports this solution.
Refusals v. holding documents at
the disposal of ..
The
background for the cases related to the above was a (at that time) new
practice that had emerged namely that when refusing documents the issuing
bank would state that they would contact the applicant for a waiver – and if
such was received would effect payment and release document to the applicant
without further notice.
This
practice was not in line with the UCP 500 provisions and would constitute a
problem (risk) for the issuing bank unless this was integrated into the
specific LC – effectively modifying the UCP 500 provisions.
While
drafting the UCP 600 the drafting group acknowledged this practice, and did
in fact build it into article 16. A comparison of how to dispose of refused
documents looks as follows:
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UCP 500 sub-article
14(d)(ii) |
UCP 600 sub-article
16(c)(iii) |
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Such
notice must state all discrepancies in respect of which the bank refuses
the documents and must also state whether it is holding the documents
at the disposal of, or is returning them to, the presenter.
[emphasis added] |
a)
that the bank is holding the documents pending further instructions from
the presenter; or
b)
that the issuing bank is holding the documents until it receives a
waiver from the applicant and agrees to accept it, or receives further
instructions from the presenter prior to agreeing to accept a waiver; or
c)
that the bank is returning the documents; or
d)
that the bank is acting in accordance with instructions previously
received from the presenter. |
 The
consequence of the above is that at least the two mentioned court cases
would (at the outset) have reached a different result. Under the UCP 500 the
acts of the issuing bank was not acceptable – while it would have been under
UCP 600 had they used option “b” above.
Bill of lading clauses
 In
short this issue is still outstanding. There is no established practice in
the banking community whether or not a clause in a negotiable B/L presented
under an LC worded as follows:
If
required by the Carrier one (1) original Bill of Lading must be surrendered
duly endorsed in exchange for the goods or delivery order."
Is or
is not a valid reason for refusal. The status is that one national ICC
committee have asked this question to the ICC Banking Commission asking for
their official opinion. The question has been circulated to the other
national ICC committees in order to evaluate if it is indeed possible to
achieve consensus on this issue. That still remains to be seen.
Deferred payment credits
Behind
this headline is one of the most famous and most quoted LC court cases ever,
namely the so-called “Banco Santander Case”. The scenario in the case
was that a nominated bank had prepaid the beneficiary under a deferred
payment LC. This payment was done after the issuing bank had accepted the
documents – but before maturity. The issuing bank received a stop payment
order before maturity – and the question was if the nominated bank was
protected by the UCP 500 – i.e. had the right to be reimbursed by the
issuing bank. The judge found this prepayment an agreement outside the LC –
at the sole risk of the nominated bank. In other words the nominated bank
was not reimbursed.
In
order to avoid future cases no less than 3 sub-articles were added to the
UCP 600:
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Sub-article 12(b):
By
nominating a bank to accept a draft or incur a deferred payment
undertaking, an issuing bank authorizes that nominated bank to prepay or
purchase a draft accepted or a deferred payment undertaking incurred by
that nominated bank.
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Sub
article 7(c) (Issuing Bank Undertaking) (excerpt)
…
Reimbursement for the amount of a complying presentation under a credit
available by acceptance or deferred payment is due at maturity, whether
or not the nominated bank prepaid or purchased before maturity…
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Sub
article 8(c) (Confirming Bank Undertaking) (excerpt)
…
Reimbursement for the amount of a complying presentation under a credit
available by acceptance or deferred payment is due at maturity, whether
or not another nominated bank prepaid or purchased before maturity…
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 The
signal in the above quotes is clear: The act of prepaying or purchasing
under deferred payment or Acceptance LCs is within the nomination given by
the issuing bank. This has (as far as I know) not been tested in a court
room – but it is my sincere hope these new wordings will indeed change
things – and a case similar to the Banco Santander case would have the exact
opposite result. That remains to be seen however.
Conclusion
One may
think what one may about the UCP 600 – if does however address all above
cases – except for one: The bill of lading clauses. It will be interesting
to see the concrete result of the changes made to the UCP in the years to
come. This may sound as if I wish for lawsuits. I do not – and will conclude
this – the exact same way I did the original article:
As a
final remark I should of course say, that the LC is better of – being out of
the courtroom. It is simply better to have cases solved between the parties.
Lawsuits should be the absolutely last resort.
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