IS “ACCURATELY” ACCURATE?

An international Debate

[From LC VIEWS Newsletter No. 80, December 2006]

Ravi Mehta

New UCP puts new responsibility of “accurately” on the advising bank
And, becomes controversial before it becomes effective, because it does not accurately define article 10. May be it impliedly intends to say “use common sense” to understand “accurately”.

His accurate comparison

UCP 600 puts one more obligation on the advising bank of accurately advising the credit to the beneficiary, which is not stipulated under UCP500.

His accurate question: what accurately means?

What Jia says is not clear. I presume that the word accurately means that no pages are missing when advising the credit.

His accurate clarification: The advice should not miss any credit terms and conditions, should not be different from the credit that the advising bank has received

In an official opinion ICC concluded that “UCP Article 7, while addressing the advice of a credit and its authenticity, does not address the accuracy of an advice; however, accuracy may be addressed by local law.” UCC Revised Article 5-107(c) states “An adviser undertakes to the issuer and to the beneficiary accurately to advise the terms of the letter of credit, confirmation, amendment, or advice received by that person and undertakes to the beneficiary to check the apparent authenticity of the request to advise.” ISP98 Rule2.05 also states” Unless an advice states otherwise, it signifies that I) the advisor has checked the apparent authenticity of the advised message in accordance with standard letter of credit practice; and ii) the advice accurately reflects what has been received.” So it is known that the requirement for accuracy of advising credit has been set up in other rules and codes before UCP600. Such requirement in my understanding means the advice should not miss any credit terms and conditions, should not be different from the credit that the advising bank has received. However, in daily operations, especially handled by people without high level of automation, omissions and deviations may possibly appear occasionally. Even the advice of the credit is the printout of what the advising bank received though SWIFT, there may happen to get something wrong with the printer so as to miss certain pages. In an American case, ITM Enterprises Inc v Bank of New York2003 N.Y. App. Div. LEXIS 743 [U.S.A.], the advising bank missed a documentary condition listed in the credit that it received so as to cause the beneficiary to fail to be honored. Although the credit states to be subject to UCP500 which has no requirement for the accuracy of the advice, the court ruled that the advising bank be obligated to reimburse the beneficiary according to UCC 5. In my views, “accurately” used in UCP600 Art. 9 can be interpreted with its plain meaning. There is no any special usage of this word embodied in UCP600. However, the inaccuracy arising out of the transmissions applicable to UCP600 Art. 35 may not cause the advising bank obligated to the beneficiary.

His accurate conclusion: “It all depends”

Dear Ravi, Zahoor and Hao,

I am just back from Hong Kong to handle an LC case on trial there.

I am glad to see the professional grade comments from Jia Hao, and that demonstrates his hard work spent in pursuit of LC knowledge. I am also pleased to know that by the time I retire, an up and coming banker from China is willing to continue my unfinished journey, a rocky road ahead.

I wish to add to the comments of Hao as follows:

An article of any rules cannot be interpreted in isolation. After reading Hao's quotation of UCC Article 5 requirements, then people would ask the question: "In USA, does it mean that the advising bank will face legal consequences if the advice is not accurate?"

The answer is "It all depends”.

If one page is missed due to transmission problems, as Zahoor has brought up, then the advising bank is protected by the disclaimer clauses in UCP 600 articles 34 & 35 or even 36, whichever applies to that particular situation.

If it were due to the negligence of the advising bank, then these disclaimer articles would not be able to protect the advising bank.

My approach in resolving disputes such as these is to refer to two things:

1 The underlying intent of the article.

2 Common sense rule.

For 1, we hope it can be clarified in the forthcoming Commentary to UCP 600, or later through the ICC opinions to queries (which is not available until October 2007 as I was told in Paris but this could be changed).

For 2, what would be the function of an advising bank if it could not transmit the message accurately, fully and could not ascertain the apparent authenticity of the message, whether LC or amendment or instructions from a party? Words used in UCP 500 for giving instructions, such as "clear, complete and precise" are no more found in UCP 600.

Does it mean that there is no need for "clear, complete and precise" in giving instructions, or advising LC and amendments under UCP 600?

The answer from common sense rule is "Of course not".

The Drafting Group's explanation is that these words are basic and represent common sense and hence there is no need for these words to appear in the UCP 600.

My personal view is that, if these words were not originally used in UCP 500, then UCP 600 could forget about them. But if they are already used in UCP 500 and then disappear in UCP 600, most of the users of UCP 600 may be misled to think that these requirements are no more important in UCP 600. Otherwise why they are deleted?

UCP 600 is made for those who do not understand UCP 600, and not for Zahoor, Hao or Ravi, who understand it. So we have to ask ourselves:” Whom the UCP 600 is made for?"

My answer is "For those who do not understand LC. Otherwise for people like Zahoor, Hao and Ravi, most of the rules can be deleted".

For me, I need only one article:

"LC is a payment mechanism to be operated with common sense"

This article would also provide the answer to "accuracy" in advising LC and amendments.

Ms Nicole Keller communicates her personal opinion:

Member of the Drafting Group

An advice with … adjustments would still accurately reflect the terms and conditions of the credit. but would not be an exact copy of the message received by the advising bank.

Dear Ravi,

As Jia Hao points out, the advising bank's task is to satisfy itself as to the apparent authenticity of the credit or amendment. By undertaking the action of advising the credit it is implied that the advising bank was able to satisfy itself in this respect.

This is the question of what is checked prior to an advice and whether the recipient of such an advice can draw a conclusion as to the result of such checking from the fact that an advice took place.

The issue of "accurately reflects" refers to the question as to what the advice includes. As Jia Hao points out, the advising bank must not change the requirements of a credit. This concept which falls into the category "goes without saying" (and was also true for UCP500) was still considered to be worthwhile to be mentioned in the UCP. Why? When an advising bank advises a credit received it will in most cases change the layout and introduce changes to accommodate a different format. Just think about the difference between a MT700 and a MT710.

Also an advice may be with or without reimbursement instructions to the advising bank, with or without instructions as to financing facilities with the advising bank. An advice with those adjustments would still accurately reflect the terms and conditions of the credit. but would not be an exact copy of the message received by the advising bank.

However, some customers complain that they do not receive the full wording including reimbursement instructions, financing instructions, instructions as to the margin arranged between banks, account number of the issuing bank with the advising bank..........Article 9 (b) offers assistance.

This is my personal point of view - not an official opinion (if one exists) from the drafting group.