lcviews premium – an example: Non-Documentary Conditions
The lcviews
premium pages have taken year to build. There have been different writers – but
all pages have been through the same editorial process – for language
consistency.
Below is an
example of one premium page – showing how it is “linked” to different pages –
and how other pages links to it.
The page in
this example is a commentary to ISBP 745 paragraph A26 “Non-Documentary
conditions and conflict of data.” This page is written by the great Vijay
Kumar:
Quote
045 ISBP
745 Paragraph A26 (Non-Documentary conditions and conflict of data)
Relevant references:
UCP 600 article 5, 14(h), 14(a), 14(d), Uniform Civil
Code(USA) –UCC Section 5-108g
ICC Opinion 136 (UCP 400) [Credit should not require
sailing date]
ICC Opinion R237(UCP 500) [description of goods on the
packing list]
ICC Opinion R 321 (UCP 500) [Certificate of origin
requirement under special condition of LC]
ICC Opinion R 326 (UCP 500) [Demurrage should be
account of beneficiary]
ICC Opinion R 388 (UCP 500) [Guarantee requirement
under special condition]
ICC Opinion R389 (UCP 500) [Data content on the
Certificate of Origin]
ICC Opinion R411 (UCP 500) [ Non-documentary condition
to be disregarded]
ICC Opinion R412 (UCP 500) [Instructions appearing on
the 47A under MT700]
ICC Opinion R511 (UCP 500) [Condition of payment]
ICC Opinion R631 (UCP 600) [Data in the transport
document inconsistent with a condition deemed non-documentary]
ICC Opinion R743 (UCP 600) [Goods must be shipped in
export standard packing and clearly marked [with] country of origin and
shipping marks in each and every package/carton/bag/container]
ICC Opinion TA799 (URDG 758) (LC requirement: Bank guarantee
from international first class bank payable in country X)
UCP in court:
Gian Singh & Co Ltd v. Banque de l’Indochine
[1974]
Banque de l’Indochine v. J H Rayner(Mincing Lane) Ltd
[1983]
Astro Exito Navegacion SA v. Chase Manhattan Bank NA,
The Messiniaki Tolmi [1986]
Korea Exchange Bank v. Standard Chartered Bank [2006]
Oliver v. Dubai Bank Kenya Ltd [2007]
Uzinterimpex JSC v. Standard Bank PLC[2008]
United Overseas Bank(Malaysia) Bhd v. Indian Bank
(2013) (relying on UCP Article 14(h) for payment).
Comments:
This paragraph guides on how to deal with the
so-called “non-documentary conditions” i.e. the situation where an LC contains
a condition without stipulating the document to indicate compliance with the
condition. The paragraph is closely linked to UCP 600 article 14(h), which
indicates that such condition will be deemed as not stated and therefore
disregarded.
As it will appear from the following there are
situations where such “non-documentary conditions” should not be disregarded.
Below are 4 “external” definitions of “Non-documentary
conditions:”
1: T.O. Lee:
Non-documentary conditions are those
conditions named in a documentary credit that cannot be checked for compliance
solely on the face of the stipulated documents.
2: Gary Collyer:
Non-documentary condition can be
defined as any instruction or condition that is not clearly attributable to a
document to be stipulated in documentary credit.
3: Professor James E. Byrne:
A non-documentary
condition is a condition whose fulfillment must be ascertained by a factual
determination of the occurrence of an event as opposed to giving conclusive
effect to a documentary representation of the occurrence of the
condition.
4: ISP98 Rule 4.11(b)
Terms or conditions are
non-documentary if the standby does not require presentation of document in
which they are to be evidenced and if their fulfillment cannot be determined by
the issuer from the issuer’s own records or within the issuer’s normal
operations.
Banks deal only with the documents called for by the
LC – and examine a presentation to determine on the basis of the documents
alone, whether or not the documents appear on their face to constitute a
comply presentation.
From the above, it is understood that the beneficiary
is not obligated to provide any document(s) in evidence of compliance with any
non-documentary conditions.
However, if the beneficiary chooses to state the
non-documentary conditions in a document called for by the LC, then the data on
that document must comply with the conditions in the LC – including the
non-documentary condition.
Any data in a document required by the LC must not
conflict with the conditions stipulated in the LC – including any
non-documentary conditions. I.e. the standard for the examination is UCP 600
article 14(d).
If the beneficiaries choose to present a document not
required by the LC in order to satisfy the non-documentary conditions, such
document will be disregarded and may be returned to the presenter (UCP 600
article 14(g)).
Examples of Non-documentary conditions:
(Most of the LC contains non-documentary conditions
under MT700 Swift field 47A (Additional conditions). However, it may also
appear under 46A (Documents required) field.)
* Phytosantiary certificate to be sent applicant
within 3 workings after shipment.
* Goods are of Indian Origin.
* Goods are packed in Jute bags and marked with
shipping marks.
* Goods are shipped in FCL/FCL.
* Goods are shipped under CY/CY basis.
* Labels sewn with textile clothes should evidence
instructions for cleaning in the Vietnamese language.
* HS code of the commodity 2805.00.00
* Beneficiary should send the shipment advice by fax
mentioning the details of shipment for insurance purpose to applicant and
insurance company.
* Beneficiary should sent the copies of all documents
to the applicant after shipment.
* Shipment to be sea freight vessel sailing to Mombasa
Port via Suez Canal.
* Shipment should be effected through conference liner
and also the vessel must not be more than 25 years old.
* Applicant will cover the insurance.
From the above examples, it applies that none of them
requires a document to satisfy the conditions stated in LC.
Precautionary measure:
1: Applicant should refrain from including
non-documentary conditions in their LC application. If they nevertheless do,
such should be “linked” to the documents in order to evidence its compliance.
Otherwise, the applicant bears the risk of the ambiguity created (ISBP 745
paragraph 7).
2: Issuing bank should discourage from including
non-documentary conditions in their LCs.
3: Confirming bank should take precaution about the
non-documentary conditions during their confirmation to the LC. If they do so,
they should approach the beneficiary to initiate an amendment before
confirmation of the LC.
4: Beneficiary should approach the issuing bank and
applicant for clarification.
Note: UCP600 Article 14(h) rescinds the ICC Opinion
R212 and ICC Position Paper 3.
Unquote
From this
page there are links to reviews of the relevant ICC Opinions on the issue – for
example ICC Opinion TA644rev. Clicking on that one you will find the following
review:
Quote
Title:
Non-documentary condition
Links:
UCP 600:
Article 14(d) and (h)
ISBP 745:
A26
Topic:
Standard for Examination of Documents
Details
of the query:
Is a
condition that stipulates details of transport and latest shipment date without
the LC requires a document indicating compliance with the condition a
non-documentary condition?
ICCs
opinion:
Details as
above may be disregarded for the purpose of determining a complying
presentation and need not be stated in any other stipulated document that is
presented.
However,
the data in the other stipulated documents will still be subject to review
under sub-article 14 (d) to ensure that any data is not conflicting with the
data in the LC.
Full
transcript
This review
is written by LC Views.
For the
full transcript of the Official ICC Opinion please contact ICC Books or DC-Pro.
Reference:
Official
Opinion R631 / TA644rev - 2005-2008
Unquote
Of course
one could have started it search for the practice regarding non-documentary
conditions in the page that includes a commentary to UCP 600 article 14(h) “Standard
for Examination of Documents (Non-documentary condition).” In this page there
is the following text:
Quote
UCP 600
Article 14(h) Standard for Examination of Documents (Non-documentary condition)
Article
14(h)
Standard
for Examination of Documents (Non-documentary condition)
This
article bears a warning to the issuing bank that banks are expected to
disregard a condition in the LC that is not “documentary.” I.e. a condition in
the LC that does not stipulate the document to indicate compliance with the
condition.
This
provision is qualified by ISBP 745 paragraph A26 which indicates that data in
any document required by the LC are not to be in conflict with the
non-documentary condition.
For example
if the LC mentions “Goods origin: Spain,” then there is no requirement that
this be indicated in any document. However, if for example, the invoice
indicates the origin of the goods, then this must not be in conflict with
‘Spain.’
Unquote
This page
of course also links to reviews of both the relevant ICC Opinions (like the one
quoted above) AND ISBP 745 paragraph A26.
So now you
have the practice on non-documentary conditions in on place – all linked
together.
Take care
of each other and the LC!
Best
regards
Kim