5 March Thank you for your queries regarding UCP 500. Please find below the opinion of the officers of the Banking Commission.

Size: px

Start display at page:

Download "5 March Thank you for your queries regarding UCP 500. Please find below the opinion of the officers of the Banking Commission."

Dina Elisabeth Preston
5 years ago
Views:

1 International Chamber of Commerce The world business organization Department of Policy and Business Practices Jordi Sellarés Serra, Vicesecretario Comité Español de la CCI Avda. Diagonal Barcelona Spain 5 March 2007 Subject: Document 470/TA.619 Dear Mr. Serra Thank you for your queries regarding UCP 500. Please find below the opinion of the officers of the Banking Commission. QUOTE I write to forward to the ICC Banking Commission two queries from ICC Spain group of experts on documentary credits. After long discussion, they have considered that the queries received require a final clarifying decision by the Commission in Paris. They are the following: * Query 1. Case 95: DESCRIPTION: We can read in a documentary credit issued by Bank E a field 39A (Tolerance: 10/10 and a field 45A (description of goods) as follows: PREPAINTED GALVANIZED COILS EN 10169, DX 51 D ACC.EN 10142,Z275 0,60 X TM PW ,60 X TM TR ,60 X TM NG 3000 UNIT PRICE 655 EUR/TM CIF FO QUANTITY: 250 MT (+/-10PCT) International Chamber of Commerce 38, Cours Albert 1er, Paris, France Telephone Fax March 2007 RK/wj Website icc@iccwbo.org

2 Bank D hands the documents to Bank E, who rejects them mentioning that allowance has been exceeded in some items. Bank D reverts back to Bank E disagreeing as the credit allows a 10% tolerance in the overall amount and does not mention that it has to be considered by item. QUESTION: Can it be understood that the allowance in the overall amount and total quantity is also applicable to partial amounts? On the contrary, partial amounts can be applied to any amount if it does not exceed 275 MT? ANALYSIS: Sub-article 39 (a) says that the words about, approximately, circa or similar expressions used in connection with the amount of the Credit or the quantity or the unit price stated in the Credit are to be construed as allowing a difference not to exceed 10% more or 10% less than the amount or the quantity or the unit price to which they refer. ICC Spain group of experts understands that the 10% allowance can only be interpreted as affecting both the total quantity and partial quantities of each item. If the contrary is acceptable, it may lead to illogical conclusions. For instance, a shipment of TM PW, 90 TM TR and 72.5 TM NG does not exceed a plus 10% tolerance (which would be 275 TM in this case) and would be acceptable even though the last quantity is 290% of the amount required in the credit. Also, if no allowance of the total amount is expressed, no allowance of the partial quantity would have been admitted. Thus, should there be an allowance for the total quantity, that allowance must also be applicable to partial quantities. In case it is not applicable to partial quantities, what sense would it be to mention it referred to the maximum quantity? In order to reinforce this approach, a reference is made to answer R238 of ICC Banking Commission. ANSWER: The majority of ICC Spain group of experts considers that the discrepancy alleged by the issuing bank is admissible. Nevertheless, the group also warmly recommends the issuing bank that in future occasions they make clear the allowance applicable to each one of the partial quantities, and not just only for the overall one.

3 QUERIES FOR ICC BANKING COMMISSION: In the case above mentioned, there were two different points of view in ICC Spain group of experts. The first one is that of the analysis, and was finally adopted by all members of the group. So it became the answer to the question. The other point of view applies sub-article 39 (a), admitting that the parties will, when fixing the conditions of the credit, accept the one expressed above. Its reasoning is as follows: 1) In sub-article 39 (a) we can read that allowance will be permitted on the amount or the quantity or the unit price to which they refer. In this case, it refers to 250 MT and does not refer to partial amounts. It is true that the credit does not mention about, but an allowance of +/- 10 % must lead us to that article. 2) If the intention is that the allowance is applied to partial quantities, it does not seem to have much sense to mention it just for the total. The addition of allowances in partial quantities would leave us with an allowance over the maximum amount. In this case, would equal 275. It seems that a different way to express it would be more adequate, so that the authorized allowance should also go with each partial quantity, rather than the allowance referring to the maximum quantity. 3) There is nothing written anywhere that the allowance expressed on a total amount should also be applied in the same proportion to the different items that make up that total amount. 4) Opinion R238 does not seem to be applicable. That opinion says that allowance will be also applied to partial amounts if that allowance is not restricted to a specific amount. In this case, it appears next to a very concrete quantity. This is why ICC Spain group of experts agrees to forward this case to ICC Banking Commission asking for a final decision. ICC Spain group of experts is quite aware that probably in the seller s and in the buyer s mind the 10 % allowance could only be understood as being applicable to the total amount and partial amounts each item. Thus it believes that we are in front of a biased interpretation of UCP 500 sub-article 39 (a), done a posteriori by the seller and Bank D. That interpretation is possible, even though not commercially logical. * Query 2. Case 106: Description Savings Bank XYZ is faced quite frequently with documentary credits, especially in cases involving perishable goods, with the following clauses:

4 a. The applicant states that the documentary credit would only be payable under the condition that the nominated bank presents a certificate issued by the applicant itself for the goods received. b. In case this certificate is not presented, the applicant bank is exempted from the obligation to pay and assumes no engagement to return, to the presenting bank, the documents required by the credit terms. c. Beneficiary of the documentary credit accepts all the previous conditions. Question Which is the opinion of ICC Spain group of experts regarding these clauses? Analysis A similar case was analyzed by the group not too long ago. It was case 72. In the analysis of that case it was mentioned that: Issuing documentary credits is a definite and irrevocable undertaking to pay, when the terms of the credits clauses are fulfilled. Any clause being added to restrict the payment of the credit to the will of one of the parties alters the credit itself and should be rejected On the other side, point 4 of International Standard Banking Practice (ISBP) says: A credit should not require presentation of documents that are to be issued and/or countersigned by the applicant. If a credit is issued including such terms, the beneficiary must either seek amendment or comply with them and bear the risk of failure to do so According to UCP 500 sub-articles 14 (d)(i) and (ii), if the issuing bank decides to refuse the documents, it must hold them at the disposal of presenter or return them. Answer Documentary credit, as a means of payment in favour of the beneficiary, its payment should not be restricted to the presentation of documents from the applicant nor include blocking clauses like those expressed above, as they wholly affect their main function as means of payment. In case like this one, the group insists in referring to previous case 72 where it can be read the following: In these sort of operations, where goods under the contract are subject to public control bodies, clauses stopping payment should be only adopted with a text that makes the documentary credit applicant needs to hand in a document that reflects that the goods have

5 been refused by sanitary authorities as not fitting European Union requirements, in concrete terms that should be stated in the clause included in the credit. ICC Spain group of experts considers that it cannot be seen as a good banking practice to accept that the applicant, just by silence or doing nothing, can leave without any effect the due fulfilment by the beneficiary of the terms and conditions of the documentary credit. When faced with documentary credit including such clauses, it is the beneficiary who should decide whether to ask for amendment, which seems highly recommended, or accepts them and takes the risk. To this end clause (c) adds nothing to the credit, because if the beneficiary hands in the documents it is implicitly accepting such clauses and, if the beneficiary asks for an amendment, clause (c) would be able to obstruct it. Finally, and regarding free disposal of documents which clause (b) is referring to, ICC Spain group of experts considers that, under such clauses, the issuing bank could give the applicant the documents received and later consider that the credit conditions have not been fulfilled so to deny its payment. Notwithstanding the previous point, ICC Spain group of experts considers that acting in this way the essential function of the documentary credit is dodged, because if documents are handed out to the applicant, payment should be due in favour of the beneficiary. ANALYSIS & CONCLUSION Query 1 Case 95 Although the letter of credit states that the total quantity of prepainted galvanized coils is 250MT (+/-10PCT) it does provide evidence of a base quantity for each of the 3 individual specifications within that stated description of goods. Based on the information provided, the tolerance of +/-10% is to be applied against the individual quantities. As indicated within the Analysis made by the ICC Spain group of experts, the issuing bank should have been more specific as to the application of the tolerance of +/-10% in relation to the stated goods. The position of the majority of the ICC Spain group of experts is supported. Query 2 Case 106 It is recognized that for certain types of perishable goods, there is a need for destination inspection and compliance with local regulatory conditions/requirements. Where this is the case, and in order for this to be achieved, the letter of credit should clearly indicate: - the point at which the issuing bank undertaking will come into force;

6 - the process of delivery of the shipping documents to the applicant for goods clearance/inspection; - the process for advising discrepancies in the underlying documentation and/or indication of rejection of the consignment. Any rejection of the consignment should be upon the receipt of a notice from a recognized body within the importing country, although this is a matter for agreement between beneficiary and applicant. As indicated by the ICC Spain group of experts, the beneficiary has a choice of whether or not they will perform under the credit. The presentation of the documents would indicate their agreement to the underlying terms of the credit and the actions that may follow such presentation. The advice of ICC Spain group of experts reflects good documentary credit practice. The opinion(s) rendered on this query reflect the opinion of the ICC Banking Commission s officers based on the facts under QUOTE above. They do not necessarily reflect the opinion of the ICC Banking Commission until the Banking Commission renders its approval or disapproval of these opinion(s) at the next scheduled meeting. The reply given is not to be construed as being other than solely for the benefit of guidance and there should be no legal imputation associated with the reply offered. If this query relates to a matter currently under consideration by the courts, the ICC Banking Commission will refrain from considering it for adoption as an opinion. Neither the ICC nor any of its employees, nor any member of the Banking Commission, including the Chairman, Vice-Chairmen or Technical Adviser shall be liable to any person for any loss or damage arising out of any act or omission in connection with the rendered opinion(s). Yours sincerely,

7 Ron Katz Policy Manager Banking Commission

26 January Thank you for your query regarding UCP 600. Please find below the opinion of the officers of the Banking Commission.

26 January Thank you for your query regarding UCP 600. Please find below the opinion of the officers of the Banking Commission. Ms Elena Filatova Policy Director ICC Russia 21/1 Bolshaya Polyanka Str. 119180 Moscow Russia 26 January 2010 Subject: Document 470/TA.714 Dear Ms. Filatova, Thank you for your query regarding UCP 600.