The Open LC Community for and by LC Specialists

 [Home]
Inside lcviews.com

 
Library

 
Who's Who in LC World

 
Single Window

 
High Profile

 
Global

 
Devil lies in the detail

 
Eye of the hurricane

 
Traders corner

 
LC Action

 
Contact and Editorial Board

 
Inter-web tour

 
  Focus on the Master Air Way Bill

 
 
At the meeting of the ICC Banking Commission in Singapore (April 2006) a query was discussed. The background for the discussion was opinion TA.621. The scenario was an LC calling for "master airway bill consigned to …". The document presented did not mention that it was a "master airwaybill" - but did in fact mention a "HAWB number".

The big question: Is this a discrepancy?

The ICC Banking Commission concluded that this was not at discrepancy - because the "HWAB" was signed "as carrier".

In trying to understand this lcviews.com editor Kim Christensen published an article in DC World (Volume 11, Number 7 (July/August 2007): The logic of UCP logic). This article makes an analysis of this issue presenting 3 (three) ways of determining this issue:

  1. Industry logic
    Saying that from a transport industry perspective - a master air waybill is by nature different from a house air waybill.
     
  2. Common Sense logic
    Saying that since the LC calls for a master air waybill - then the relevant UCP article have effectively been changed - and it must be apparent from the document that it is in fact a "master air waybill".
     
  3. UCP logic
    Saying that such ICC opinions should be in line with existing practice - and from that perspective it is the "function" of the issuer of transport documents that is "in play" in such LC requirements (taking into account various statements on "freight forwarders").

The conclusion by Kim Christensen presented in the mentioned DCW article was that - although highly illogical - it is the right call taking the prevailing perception/practice into account.

This lcviews.com feature - with basis in the above - have confronted a number of LC specialists / experts in order to have their view on this ICC Opinion.

As it appears the agrumentation and angles differ between the statements - but one thing is common for all: The conclusion given in ICC Opinion TA.621 is wrong! It is simply too far from common sense - and for that matter from industry practice.

 

 
  T.O. Lee (See Bio) says:
 
1/2   First comment on this feature from T.O. Lee; browse down to see second comment from Mr. Lee.
Extra:   Public announcement from T.O.Lee
on ICC Opinion TA.621

 

T. O. Lee's Comments on ICC Document No. 470/TA.621
10 September 2007

This is not the first time that the officers of the ICC Banking Commission determine transport and cargo insurance issues solely based on their assumption as bankers without consultation with the ICC Transport and Insurance Commissions.

The Maersk bill of lading dilemma (the carrier may have the option to release the cargoes without presentation of an original bill of lading) is a good example, resulting subsequent withdrawal of a public statement made by the ICC Banking Commission in the ICC website.  If they keep on doing this, the authoritative image of ICC established by Bernard Wheble and Charles del Busto will be tarnished. 

They did the same thing many years ago and regarded that the insurance value must be accurate to two places after decimal if the credit asks for "insurance amount 110% of invoice value".  This is going against the market practice and the intention of the parties.  They would not reverse their decision until about three years (by R 468 Query 2 where the DC asks for insurance amount 110% invoice value) after my articles were published in the L/C media such as the Documentary Credits Insight, L/C Monitor, www.tolee.com and the like.  I have also heard that some participants to my workshop call them "Mr. Yo Yo".  Of course they are not referring to the world famous cello maestro.

In ICC Document No. 470/TA.621 the officers of the ICC Banking Commission opine that:

1                    Wordings like "HAWB  (house air waybill) No. XXXXX" in an air waybill is acceptable even if the credit expressly requires a "master air waybill" (MAWB).

2                    The intent of this condition (requiring presentation of a master air waybill in a credit) is unclear. 

3                    Under Article 27 of UCP 500, as far as the air waybill is signed by a "carrier", it is acceptable.  UCP 500 does not care whether the carrier is an actual carrier or a contracting carrier.

4                    This "MAWB condition" does not prohibit signature by a freight forwarder.

5                    The above statements are based on ICC Opinion No. R 221 where the credit does not expressly require a MAWB.

From the above statements, it appears that either the officers of the ICC Banking Commission are confused over the difference between a MAWB and a HAWB or they simply wish to build convenience for the bankers in document examination at the expense of the beneficiaries.

A MAWB is issued by an actual carrier who provides the aircraft for air transport.  The actual carrier shoulders great responsibility as a "common carrier" under the air transport legislations. It is also governed by the IATA Rules, the international air conventions (e.g. the Warsaw Convention, the Hague Amendment, the Guadalajara Convention and the like) and the related protocols (e.g. Montreal Protocol, Guatemala Protocol and the like). 

A HAWB is normally issued by a freight forwarder as a contracting carrier that does not provide the aircraft for air carriage.  Hence it may not need to shoulder the heavy responsibility as a "common carrier" as required under the air transport legislations.  It may not be an IATA member.  In other words, it may not be subject to the IATA Rules, the international air conventions and the related protocols.

In the market place, a freight forwarder receives LCL (less than container load) cargoes from the cargo owners/sellers and charges them a higher LCL airfreight rate.  Then it tries to load the LCL cargoes from several sellers into one full container load (FCL) and pays to the actual carrier a lower FCL airfreight rate.  This is known as consolidation and is one of the key businesses of a freight forwarder.  They do the same with cargoes shipped by bills of lading.

The actual carrier issues one MAWB to cover all the consolidated cargoes, naming the freight forwarder as the shipper.  The freight forwarder then issues several HAWBs against this MAWB naming the sellers as shippers in the HAWBs.  That means the sellers in the HAWBs are not parties to the MAWB. 

The freight forwarder will claim the cargoes from the actual carrier upon arrival against the MAWB.  Then the freight forwarder will "stripe" (clear the contents of) the FCL containers upon arrival and then places the cargoes in separate and distinct heaps waiting for the buyers to claim the goods from the freight forwarder against presentation of HAWBs where the buyers or their banks are named as consignees.

This works fine if there is no damages or loss during the air transport. 

A small freight forwarder has no branches overseas and has to rely on other freight forwarders acting as its agents in various airports.  I often hear small freight forwarders complaining to me during the transport workshops that some of these overseas agents are not reliable.  They may release the cargoes to their good customers without payment to the bank even if the shipment is under D/P or letter of credit.  If the small freight forwarder has finance difficulties or is double-crossed by an overseas agent, the seller or the buyer may not be able to claim on the freight forwarder successfully.  So in case the seller or buyer wishes to claim on the actual carrier, it is not possible as they are not a party to the MAWB.

Hence some prudent buyers will put on their credits an expressly stated condition "MAWB required or HAWB not acceptable" in order to sleep well and eat well.

The express statement "MAWB required" shall override the provisions of UCP 500/600 as stated in article 1 of both UCP 500 and UCP 600.  I am very surprised to see hat the officers of the ICC Banking Commission will accept a HAWB even if the credit expressly requires a MAWB.  This is against commercial sense.  Such decisions detached from the market practice would further tarnish the authoritative image of ICC worldwide.  I am very sorry to see this to happen.  Hopefully such decisions would be reversed after the ICC Banking Commission meetings in October 2007 in Paris.  I hope this time we need not wait for another three years.

 
  Bogdan Iile (LC Specialist from Rumania) says:

I made some search in real life and look what I found:

Quote

The freight forwarder may consolidate the consignments of several independent shippers that are intended for the same airport of destination and dispatch them together under one air waybill (AWB) issued by the carrier, known as master air waybill (MAWB), with a cargo manifest detailing such consignments attached to the MAWB. The freight forwarder in turns issues to each shipper its own AWB, known as a house air waybill (HAWB) or freight forwarder's waybill.

In the case of air freight using a house air waybill (HAWB),just like in ocean freight using a house bill of lading (the freight forwarder's bill of lading), it is the freight forwarder's handling agent at destination, not the carrier, who notifies the consignee of the cargo arrival at destination.

Unquote

If negotiating bank would have asked for clarification from the start, this case would not exist, but this is another issue.

As long as UCP logic isn't 100% based on shipment industry logic and common sense logic, the dc world will only have to lose.

Notwithstanding the fact that documentary credits are separate transactions from sale/contract, the DCs exists due to such contracts. The contracts are concluded between traders. Their actions and expectations are within the real life of trade, not within a bubble of rules.

Does the fact that a freight forwarder signs as agent on behalf the carrier mean that he has the legal capacity to act as an agent of the carrier? I wish to remind you 600's art.34 "a bank assume no liability or responsibility for the ...or legal effect of any document...".Which is the legal effect of a freight forwarder signing as agent of the carrier? And what are the consequences of such act?

Well, too much talking.

Sincerely, I would not accept the document presented.

The reasons are:

  • based on "industry logic": it is a total different document from the one asked for, (with different legal effects ?).
     
  • based on "UCP logic" (it seems under UCP are more logics):

    a    rt.1 "unless expressly modified",art.14 "data in the document...must not conflict with...the credit".

 
  Marek Dubovec (see bio ) says:
 
I have reviewed your article and TA.621 and here are my views from the legal perspective.

International transportation by air is regulated by the Warsaw and Montreal Conventions.

None of them recognizes the distinction between house and master air waybills. There is only one air waybill (See Arts. 5 and 7 of the Montreal Convention) that must indicate

  1. the places of departure and destination,
  2. agreed stopping places, and
  3. an indication of the weight.

If these elements are present on the face of the AWB, we have a valid air transport document under the Montreal Convention. Obviously, it would not satisfy the UCP requirements in this skeletal form.

The Master AWB issued by the actual carrier that covers international carriage would be governed by the Convention. In contrast, a House AWB issued by the freight forwarder who is not the actual carrier (does not operate an aircraft) would not be automatically governed by the Convention, unless the House AWB incorporated it, which in practice frequently does. So far, both documents may be hypothetically covered by the same regime.

Let's now turn to the differences.

Unlike bills of lading that are documents of title and whoever holds the BL controls the goods, AWBs are contracts with the issuer that do not convey any property rights in the goods. The consignor's copy carries the right of disposal, meaning, the consignor has certain contractual rights against the carrier. For instance, in case the buyer goes bankrupt, he can direct the carrier to change destinations or not to deliver the cargo. In order to exercise this right, there must be a direct link between the consignor and the carrier. That link is incorporated in the Master AWB. However, if you are holding a House AWB that link does not exist, because your contract is with the forwarded or whoever issued the document. Then you would have to go through the forwarder to exercise your rights. He in turn would exercise the rights under a contract with the carrier. However, the carrier might not be able to comply, if other shippers would be prejudiced.

Overall, from the legal standpoint, one has much better rights under the Master AWB than under the House AWB.

 

 
  Ahmir Mansoor  (LC Specialist from Pakistan) says:
 
I feel that the discrepancy is valid!

The LC has categorically asked for a “Master AWB”. Sub-article 27a states "if a credit calls for an air transport document, banks will, unless otherwise stipulated in the credit, accept a document, however named"

I can quote you many cases where the Master AWB issued in favour of the Importer and the HAWB complying the LC terms is issued to the order of the issuing bank. Importer gets custody of the good without payment & document remains unsettled with the issuing bank. The Exporter bank keeps asking about the payment and finally come to know from the shipping company that the goods were released by importer.......

I think by restricting to MAWB the issuing bank is minimizing the possibility of FRAUD.

 

 

 
  Mike Tress Chinn  (LC Specialist) says:
 
It is a bit awkward to answer a question to which an "official answer" is already given.

So for whatever it is worth:

I have with interest read the "analysis" by Mr. Christensen in his article "The logic of UCP logic".

 

Although I can follow his arguments - it seems to me to be somewhat "over the top". I mean; it may well be that due to some "almost legal" interpretation of the UCP and prevailing practice - a case which is totally wrong - ends out right.

Can this be the intention of the rules?

If a company (or private person for that matter) have identified a "hole" in the law - and uses this to cheat others - or the system - is this right then? It is surely not! It may be that the accused is acquitted - but the judges will know that the acts is violating the intention of the law - and usually this will be stated as well - just as measures are taken to correct this.

So basically what I need in this "Official opinion" from the ICC - is a statement that although the "technically correct" answer is "yes" - the intention of the LC issuer and of the rules and practices is clearly "no".

I hope that the ICC will take appropriate measures to correct this "discrepancy".

 
  T.O. Lee (See Bio) says:

 
2/2 Second comment on this feature from T.O. Lee; browse up to see first comment from Mr. Lee.

Inspired by the insightful inputs from all enthusiastic L/C specialists, I have the following comments to add:

This "official opinion" of the ICC Banking Commission was already "debated" vigorously in the ICC Banking Commission meetings in Singapore in 24-25 April this year, with strong objections from specialists like Don Smith, myself and others, yet ICC Banking Commission officers still insist on their illogical "official opinions" without any change although the ICC Banking Commission agreed to give further thoughts on the feedbacks from Don, myself and others. This is the part that horrifies me.

I now understand why Bernard Wheble and Charles del Busto never made mistakes like this even though they are bankers and do not understand the transport practice. The secret is that they are aware of their "Achilles heel" and they invite specialists to work behind the curtain to help them decide on issues related to transport. Mr. Wheble's "man behind the curtain" is Mr. John Richardson from P&O, who is an authoritative author for many maritime transport publications from Lloyd's of London Press. Guess who is the man behind the curtain for Charles del Busto? You should know him.

Hence they are very intelligent bankers. That is why they never made such mistakes like their successors to tarnish the authoritative image of ICC..

Charles del Busto gave me about 2 dozens of hand signed original recommendation letters when I first started my consultancy business in 1992 in Hong Kong to thank me for my support. In one of the ICC Banking Commission meetings, a heavy weigh officer of the ICC Banking Commission said to me over the coffee break when we were not surrounded by others:

"T. O. I am a banker, an idiot and will examine documents solely form the perspective of a banker". Hence no wonder why the officers of the ICC Banking Commission still refuse to change any wordings in their "official opinions".