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It is always a privilege to read the
words that flow from the hands of Jia Hao.
As I see it, Jia Hao discusses 3
general issues:
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The LC independence principle
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Terms & conditions in documents (e.g.
transport documents)
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The “carrier requirement” in relation
to the UCP 500.
Although they work in a “mix” in this
case, I will try to comment on them separately.
1: The LC independence principle
The weakness and the strength of the LC no doubt is the “independence
principle” – which is, e.g., reflected in UCP 500 article 3 (contracts),
article 4 (goods) and article 9 (obligation of issuing/confirming banks).
This means that based on the documents alone, it should be determined
whether or not a bank is obligated to pay. This is in my view linked to one
of the major principle discussions during the last couple of years: How much
transport knowledge must the LC banker have? Some have argued “none”. This
is probably not true – since a number of statements from the ICC Banking
Commission point out in the opposite direction. e.g.:
ISBP paragraph 98 requires that a banker must know which terms on a bill of
lading (e.g. Free Out), has the effect that costs in addition to the freight
have been or will be incurred.
ICC Opinion TA.567rev (unpublished)
requires that a banker is able to determine that a tanker B/L is in fact a
charter party B/L.
ISBP paragraph 64 deals in specific
with trade terms, and besides the general rule that the trade term must be
reflected in the invoice (if part of the goods description of the credit),
it also states that: “Charges and costs must be included within the value
shown against the stated trade term in the credit and invoice. Any charges
and costs shown beyond this value are not allowed”
Some even go to
say that the LC banker must be transport expert. Again this is probably not
realistic – especially since levels of expertise may vary – and what may be
necessary transport knowledge to one LC banker may seem far out to another.
The above is a clear dilemma – and a clear indication that the wording in
ICC rules is so important. ICC rules on, e.g. transport document, must be
solid based on industry practice – but be worded in a way that the LC banker
need not be a transport expert when examining the transport documents.
The case presented here is a clear indication of exactly that: The job of
the LC banker is to determine whether (in this case) article 23 has been
complied with; i.e. who is signing and who is carrier.
The flow of this case clearly indicated the potential
problem that may occur if the banker should relate to terms and conditions
in the document: The verdict of this case was changed twice – first by the
Court of Appeal and secondly by the House of Lords – and it may very well
have been a different outcome had the case been tried in another country!
2: Terms & conditions on documents (e.g. transport documents)
Another dilemma is the phrase “appear on its face” – how far reaching is
that? What does that include? The famous Maersk case – as also cited - here
is a splendid example of how challenging the life of the document checker
is: These terms and conditions were printed on the “front” of the document –
but in my view still “Terms and conditions” – that may just as well have
been on the back. What if they were on the back – and the nominated bank did
not notice them – but the issuing bank did?
There are lots of dilemmas here – and I think it is impossible to establish
a 100% watertight rule. The rules must be determined by practice - that is:
On transport documents the LC document checker should:
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not read the small print on the back.
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find the place on the document where
it says whether it is a “shipped on board document” or a “received for
shipment” document (usually in the small print in the bottom right corner)
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check if the documents says anything
to the effect that goods may be released without the original; e.g. “If
required by the carrier ….”
3: The “carrier requirement” in
relation to the UCP 500
With reference to the above, this case is actually (in my view) frightening
simple from an LC bankers perspective: Is UCP 500 article 23(a)(i) complied
with or is in not? From this case – as presented here – it seems to me
without a doubt that it is. One example is:
United Pansar Sdn Bhd "As agents for Continental Pacific Shipping" ("The
Carrier")
Here you can see who is signing – in what capacity –
who is carrier – and the “link” between the agent and the carrier. This is
as they say: by the book!
Mr. Jia Hao also makes reference to ICC
opinion R.403. To me this is somewhat different, since the document in
question here is an inspection certificate. This means that it is examined
according to article 21:
When documents other than transport
documents, insurance documents and commercial invoices are called for, the
Credit should stipulate by whom such documents are to be issued and their
wording or data content. If the Credit does not so stipulate, banks will
accept such documents as presented, provided that their data content is not
inconsistent with any other stipulated document presented.
This means that the problem here is actually not a UCP sub-article – the
problem is the wording of the credit: Since it is formulated as a document
requirement, then naturally this must be reflected in the document. It is
not – hence it is discrepant.
Conclusion
The research document by Jia hao sets focus on a number of interesting LC
dilemmas. It is of course important to keep on focusing on those in order to
make current practice as clear, easy and transparent as possible at all
times. It is however vital to stress that all of those are borne by the very
nature of the credit; e.g.
That it is independent from contracts and goods
That bankers focus alone of the
documents while the buyers and sellers have their natural focus on the
contract and the goods.
So if you totally remove those – you
actually “remove” the LC – or perhaps more precise – you make another
instrument with totally different characteristics. With different pros and
cons.
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