| During the
revision of the UCP 600 – all articles were changed – most of the
changes however - were merely linguistic – which did not really change
practice – other were material changes that would change the wording of
the provision – and also the practical application of the
provision. |
 |
Confused about 14(h) ?? |
There is however one article that
falls into a third category; namely sub-article 14(h) – where it seems that
only minor linguistic changes have been made to the UCP text – but really a
change in practice must be anticipated.
Sub-article
14(h) steams from UCP 500 sub-article 13(c) which reads:
| If a Credit
contains conditions without stating the document(s) to be presented in
compliance therewith, banks will deem such conditions as not stated and
will disregard them. |
UCP 600
sub-article 14(h) reads:
| If a credit
contains a condition without stipulating the document to indicate
compliance with the condition, banks will deem such condition as not
stated and will disregard it. |
At the outset
it seems however that the drafting group have some real changes in mind – at
least that is the impression one gets from reading the "Commentary on UCP
600" (page 66) which reads:
| If a credit
contains a condition without stipulating the document to indicate
compliance with the condition, banks will deem such condition as not
stated and will disregard it. The data in documents will still be
subject review under sub article 14 (d) to ensure that any data is not
conflicting |
Adbulkader Bazara and Kim
Christensen give their view on how to interpret sub-article 14(h) – ND
George and T.O. Lee comments.
Abdulkader Bazara
Exemplifies sub-article 14(h):
The explanation
given in the commentary, in my opinion, applies to both UCP 500 and UCP 600.
For example, an LC (MT 700) has the following condition in Field 47(a)
(Additional Conditions),
Production and Expiry dates must be printed on each unit in both Arabic and
English Languages. Production date should be within maximum 60 days before
date of shipment.
This is a
non-documentary clause whether the LC is subject to UCP 500 or UCP 600. If
the beneficiary presents documents that do not show the production and
expiry dates, they would be acceptable; however, if any of the documents
presented show production and expiry dates but the production date is shown
as more than 60 days before the date of shipment it would be discrepant.
Example 1:
Shipment date
April 15, 2007
Production
date March 01, 2007
If all other
terms and conditions of the LC are complied with, the production date would
be acceptable since it is within the allowed 60 days period prior to
shipment.
Example 2:
Shipment date
April 15, 2007
Production
date February 01, 2007
Documents are
not acceptable since the production date is 73 days prior to date of
shipment
Another
example, an LC (MT 700), in field 46 (a) (documents required), calls for a
bill of lading as one of documents to be presented and in field 47 (a)
(Additional Conditions) the following is stipulated:
Shipment
must be effected with United Arab Shipping Co., Evergreen Lines, Wan Hai
Lines Ltd. or National Shipping Company of Saudi Arabia.
This condition,
though it has characteristics of non-documentary conditions, it may not be
ignored.
Example 1:
Bill of Lading
shows Carrier as Evergreen Lines.
If all other
terms and conditions of the LC are complied with, documents are acceptable
as the shipping line is not in conflict with the condition stipulate in
field 47 (a).
Example 2:
Bill of lading
shows Carrier as Pacific International Lines.
Documents are
discrepant as the shipping line is in conflict with the condition stipulated
in field 47 (a).
This
is what, in my opinion, the commentary is trying to explain. Since the
commentary is related to UCP 600 it has made reference to article 14(d) to
substantiate its position.
Kim
Christensen compares UCP 500 and UCP 600 based on the
Position Paper 3 example:
UCP 500
sub-article 13(c) has been explained by the ICC in Position Paper number 3
(available here:
http://www.iccwbo.org/id357/index.html) published 1 September 1994 – 8
months after the UCP 500 was in force.
The
introduction to the UCP 600 states that:
| The four
Position Papers issued in September 1994 were issued subject to their
application under UCP 500; therefore, they will not be applicable under
UCP 600. |
Position Paper
3 would introduce the concept on “linkage” – i.e. saying that where a
condition is clearly linked to a document required under an LC – the it must
appear to have been complied with in that document. In order to understand
the difference between the position under UCP 500 (including Position Paper
3) and the position under UCP 600 it is relevant to take outset in the
example given in Position Paper 3. The example is the following:
| For example,
if a condition in the documentary credit states that the goods are to be
of German origin and no Certificate of Origin is called for, the
reference to 'German origin' would be deemed to be a non-documentary
condition and disregarded in accordance with UCP 500 sub-Article 13(c).
If, however, the same documentary credit stipulated a Certificate of
Origin, then there would not be a non-documentary condition as the
Certificate of Origin would have to evidence the German origin. |
This practice
is however the one that is no longer applicable – instead the UCP 600
Drafting Group refers to UCP 600 sub-article 14(d) which reads:
| Data in a
document, when read in context with the credit, the document itself and
international standard banking practice, need not be identical to, but
must not conflict with, data in that document, any other stipulated
document or the credit. |
What one should focus on is that “data
in a document need not be identical to but must not conflict with … the
Letter of Credit”.
Using
the example from Position Paper 3 – this would mean that if a
document presented under the LC (calling for German origin) would show the
origin – then it must not conflict – i.e. it must not be a different origin
– e.g. “China”.
Again following
in the same example – it is also important to observe UCP 600 sub-article
14(f) which reads:
| If a credit
requires presentation of a document other than a transport document,
insurance document or commercial invoice, without stipulating by whom
the document is to be issued or its data content, banks will accept the
document as presented if its content appears to fulfil the function of
the required document and otherwise complies with sub-article 14 (d). |
This means that a document
presented under an LC must appear to fulfil the “required function” of the
document. It may in fact be rather tricky to determine what the “required
function” is; but for a “Certificate of Origin” there can be only little
doubt that it must be to show the origin of the goods shipped.
So for the
exact example it seems that end-result would be the same as under UCP 500 –
but for very different reason:
1) The LC
requires “German Origin” and a “Certificate of origin”
UCP 500:
The origin must
be mentioned on the Certificate of origin because the origin is clearly
lined to the Certificate of origin.
UCP 600:
The origin must
be mentioned on the Certificate of origin because:
-
The LC
requires a Certificate of origin – and the “required function” of such
certificate is to show the origin of the goods shipped (14(f)) – i.e. the
origin must appear on that document.
-
The origin
stated in the Certificate of origin must not conflict with the origin
stated in the LC (14(d))
2) The LC
requires “German Origin” but does not require a “Certificate of origin”
UCP 500:
The origin need
not be mentioned on any of the documents presented because there is no clear
link between that requirement and a document required by the LC.
UCP 600:
The origin need
not be mentioned on any of the documents presented because – as it is a
“non-documentary condition” – but if it is mentioned in a document
(like the invoice) then it must not be in conflict with the origin stated in
the LC.
Conclusion:
These non-documentary conditions
should be observed carefully. One thing is the clear example given above –
but mixed with the rule of the “appear to fulfil the required function” it
may in fact be very difficult to handle. Therefore the best piece of advice
one can give is that the issuing bank makes sure that the LC is clear – and
that the advising react towards the issuing bank if the LC is not clear and
to the point.
 George
Devassy Nedumparambil comments on the views from Abdulkader and Kim
I agree with both Abdulkader and you. To give
meaning to Art.14 (h) we need also to capture the
spirit rather than rely on a literal reading of it -
that is until a court judgment rules otherwise!!
T.O. Lee comments on How to
Determine Function of A Document Precisely?
The concept of "Function of a document" first
appeared in ISBP 645 paragraph 43. I was commissioned by bankers in Dubai to
write a one day workshop to deal with the function of drafts, commercial
invoices, consular invoices, packing lists, BL, CPBL, AWB, MMTD, insurance
documents, C/O, certificate of inspection, beneficiary's certificate,
etc.
I focus on three categories:
- The "must have" data content to fulfil the
function of a specific document.
- The "may have" data content, not in conflict with
the function of that specific document.
- The "must NOT have" data content that are in
conflict with the function of that document.
This topic is beyond banking knowledge and involves
knowledge in UN trade conventions, BOE Acts, cargo insurance, Incoterms, law
of contract, etc etc. that I have taken 35 years to
prepare.
Those interested may buy handouts from my website
www.tolee.com. Otherwise
it is difficult to get any reliable info to determine which is the function
of a document.
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