Since coming into existence of the ICC guidelines regarding the examination of documents, the main duty of the LC bank consists of determining whether the documents appear on their face to comply with the LC provisions. The obligation to strictly follow the issuer's instructions is a consequence of the credit being an instrument of documentary payment. Furthermore, the banks lack the industry specific knowledge and experience to determine the importance of seemingly minor deviations.
The globally recognized principle of compliance does not allow for equitable considerations. Lord Summer's remark made in the 1927 case of Equitable Trust Company of New York ./. Dawson Partners Ltd, (27 Li.L.Rep. 49) still applies: "there is no room for documents which are almost the same or which will do as well."
The discussions in the United States legal community whether to use strict or substantial compliance are of less practical relevance than the doctrines' names might suggest. In the end the discussion focusses on the acceptable exceptions from strict compliance. These exceptions are typically fraud related. It seems however, that a general doctrinal approach to resolving the issue of allowable discrepancies does and will not exist. Rather, a case by case approach to discrepancies as has been utilized in the past seems most appropriate.
A purely literal comparison of LC provisions and presented documents however is not sufficient. Currently still disputed is in how far to allow the interpretation of documents within the context of the Credit.
Comments
Standard for Exam.of Docs
Dear admin ! Lord Summer´s sentence is for me a substantial view on docs preparing or examining. I think all concerned parties, i.e. applicant and his bank, the beneficiary and his advising bank should very carefully check the contents of the new L/C, not copying an old one which needed to be amended. I have seen so much L/C showing under 46A three documents (Invoice, B/L and Packing List), 47A stipulating many non-documentary clauses. Now the question is - shall I disregard them as per UCP Art. 14h or creating documents to match them ? Furthermore it should be considered to check the L/C after advising with basic proforma invoice or contract, if the details conform to them. Then the transport -document should be discussed with freight forwarder if all stipulations - beginning in field 44A (place of receipt/ dispatch from) if filled and then E, F and B - can be fulfilled. My recommendation is: if not possible L/C has to be amended to avoid any inconveniences with banks. LC is a payment method - clear and transparent details shoud be a safe harbour to get money. What do You think about this ? Rgds Kurt
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standard of examination
the issue to be examined keeping in view UCP. a complying presentation has to be 1. credit compliant 2. rules compliant 3 ISBP compliant, the article 14 e ; 14 f adds to contriversy and loosens the doctrine of strict compliance.
it may be suggested that while opening a bank may exclude 14f of UCP in credit.
views please!
Article 14 (f), UCP 600
Article 14 (f), does not "add to controversy", but clarifies what appears to have been implicit under the old Article 21 of the UCP 500. In point of fact, the sub-article is part of the strength of the current Code.
Document examination
Good article Admin - it is for these reasons that UCP600 clearly leaves the decision as to acceptability of the documents for the purposes of the L/C strictly with the banks.
You also need to take into consideration other risk pressures that are not requirements of the L/C, such as where are the goods being shipped/in which country is the issuing bank? Are the underlying goods subject to price fluctuation between shipment and payment? and also the number one driver in documentary presentations from the nominated banks point of view - "if I let this go, will I still get paid?" - It is still fear of not receiving reimbursement that drives many bank decisions on the acceptability of presented documents.
Document examination
Peter M,
I Agree whole-heartedly regarding your closing comment. While the documentary credit is theoretically the opening bank's guarantee to the receiving bank that, "if documents are presented in accordance with what we have stipulated in this LC, we will pay you" I have seen that the receiving banks do not necessarily trust the opening banks anymore.
Regards
pame1a
Document examination
Hi,
Kurt made a good point, so many L/Cs now have documentary and non-documentary requirements appearing in 47A instead of 46A. This is because of the abysmal skills amongst bankers in many countries, often where the buyer would be afraid to question the banker as he is seen as an arm of authority for their government. The overall quality of L/Cs these days is very poor and actually interferes with the contractual arrangements between seller and buyer. Often the buyer won't even be aware of what a mess their bank has made of the L/C.
This is proven by anyone who has received L/Cs from different banks for the same applicant for similar contracts or even parts of larger multi-million dollar contracts. Each bank places its own interpretation and procedures on their L/C so that they call for different numbers of documents, and even call for entirely different documents.
This kind of issuing bank incompetence certainly does not engender a like of L/Cs amongst exporters as it makes it harder for them to comply.
Regards,
Bob