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IS LC LECTURING RISKY ?
Can wrong LC lecturing leading to wrong LC practice and resulting in financial loss
ultimately lead to lawsuit ?Neal Millard:
I know of no such law suits. I would not consider LC lecturing to be risky, at least, any
more than lecturing in any other subject.
Donald Smith: You are asking legal questions. I
am not a lawyer. I do not know of a LC Trainer/lecturer being sued.
Soh Chee Seng: So far I have not heard any
lawsuit relating to these questions.
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CAN LC OUTSOURCE BUSINESS BE SUED FOR LC
COMPLIANCE REJECTION?
Neal Millard: . If you are asking whether
the LC outsource person can be sued, I would think it is like any other business and if
the failure to get paid is due to the negligence or incompetence of the LC outsource
person, he can be sued. Recovery, of course, would depend on the nature of negligence or
incompetence, the terms of the contract under which the parties operated and the extent of
the damages.
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LOOKING BEYOND UCP
A bank examiner's approach to document examination is traditionally determined by 1)
UCP rules; 2) ISBP/ICC clarifications; 3) internal exigencies; and 4) buyer-related
consequences of the examination decision. Should not the bank examiner go beyond the ICC
rules and clarifications for document examination to look at the expectations and
suggestions of the economists as well, who say that for transition and developing
economies international trade is requisite for their economic development and for
international trade letter of the credit is the best method to cover risks of
international trade as their exporters may lack risk management skills? Should not the
bank examiner be made, during training or otherwise, to think of the interests of the
low-income countries when he examines documents presented from low-income countries and to
realize how the low-income country will suffer if he follows the rule of strict
compliance. Don't you think such realization among bankers, brought through classroom/
ICC, will also contribute to documents reduction? ISBP alone is not adequate, as I
understand, to achieve the ICC's noble objective of document reduction, which is obviously
beneficial to low-income countries.
Soh Chee Seng's Views:
To answer this question, we must first know the definition of an irrevocable letter of
credit used in international trade settlement. It is an irrevocable undertaking given by a
bank, the issuing bank, on the instructions of its customer, the applicant, to honor a
presentation that complies with the terms and conditions of the letter of credit. The
letter of credit provides with the assurance to the beneficiary that it would be paid if
the presentation complies with the terms and conditions thereof. Issuing bank may only
refuse to honor the presentation if the terms and conditions of the letter of credit are
not complied with. What is the role of UCP? It is only part of the terms in the letter of
credit. ISBP and ICC opinions are to clarify the practice which is acceptable in UCP. If
an examiner relies on the internal exigencies or buyer decision to refuse the
presentation, the bank may risk itself being sued by the beneficiary or the presenter for
wrongful refusal. Any requirement by the issuing bank or the buyer for the beneficiary to
comply, it must be clearly stated in the letter of credit. For example, if the issuing
bank likes to have an additional copy of invoice for its internal file, it must indicate
in the LC to call for the presentation of the additional copy of invoice. If the buyer
wishes to counter-sign a document, ie. inspection certificate, it must clearly indicate
that condition in the letter of credit although this practice is discouraged. Beneficiary
must know the risks of non-payment if it fails to comply with the requirement in the
letter of credit.The problem of non-compliance can actually
be resolved if the beneficiary studies the terms and conditions carefully before it
accepts the letter of credit and effects shipment to the buyer. It is a matter of
education and training for the beneficiary. In actual fact, in my experience, the
rejections are mainly from developing and low-income countries.
Heinz Hertl's Views
1) First of all please allow me for good order sake to add to the list of what determines
document examination as major item "the terms and conditions of the credit".
2) I assume that by "document reduction" you mean
reduction of discrepancies in documents. My answer is based on this assumption.
First of all I would say that a bank examiner's approach to document examination is
traditionally determined by two things: 1) the terms and conditions of the credit and 2)
UCP if the credit is subject to UCP. In doing this the document checker may rely on the
interpretations given by ISBP and the opinions given by the banking commision on certain
subjects connected with the checking of documents. Internal exigencies and buyer-related
consequences of the examination decision to my feeling should not be cited in this context
though I am fully aware that they may exist. However, they are nothing we should consider
as being part of a traditional approach to the document examination process.
To answer your specific question: the bank examiner should not go beyond the requirements
of the credit and the ICC rules and clarifications for document examination. He, being a
trustee between credit applicant and beneficiary, should judge the documents on this basis
alone as any other approach would endanger documentary credits as being an instrument to
secure payment. However, and this is something which very often leads to different
opinions and controversial discussions, the reliance on the text of the credit and UCP
alone should not be exaggerated. Documents need not be a mirror image of the credit and
UCP. There should always be something which Bernhard Wheble, the late chairman of the
banking commission and the top expert on documentary credits, always used to mention:
common sense. May I give you an example for this to understand what I mean. Some years ago
the banking commission had a long discussion on the question whether a certificate of
origin had to show a goods description if not literally required under the credit. There
were members who argued that being a document checked under art 21 of UCP500 ("If the
Credit does not so stipulate, banks will accept such documents as presented.....")
the certificate of origin need not show a description of goods if not required in the
credit. This was for me and others not the right argument because the document in itself
required a description of goods because it is describing the origin of something, namely
goods. On the other hand we have to be very careful and are not allowed to go too far with
this view. It has to be decided case by case. The basic philosophy, however, we all still
should follow has to be strict compliance. No special interests of any nature should
influence the process of checking documents because only then both buyer and seller will
have trust in this instrument.
What a bank and a document checker can do to help the beneficiary reduce the amount of
discrepancies in his documents is an operational issue of the bank and a question of how
much service a bank is prepared to give. It has nothing to do with the principles with
which documents have to be checked. These are my principal thoughts on this item.
Donald Smith's Views:
The document examiner should NOT go beyond the rules...
Pavel Andrle says:
My opinion is that the examination of documents must be determined only by international
standard banking practice. Any other interests - political etc. - should be cared for
otherwise.
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