ICC meeting long gone – and I am still rumpled
Or … welcome to the world of "Evaluated compliance"
Beginning of November the ICC Banking Commission met in Istanbul. Reviews of the final Opinions have just been added to lcviews premium.
As mentioned in previous blog post (The Istanbul Draft Opinions have landed) 3 of those were of principal interest as those could potentially change the practical application of UCP 600 article 14(d).
For the first one in line – i.e. TA.809 – a heated discussion unfolded at the meeting – where the countries that opposed to the Draft Opinion (ICC Denmark included) were accused of wanting to bring back the LC to the times of “strict compliance.” (Auch that hurt!) Here of course I can only speak for myself – but what I want is to 1) respect the UCP 600 and 2) avoid what I would call “evaluated compliance” – i.e. where the involved banks evaluates the data in the documents based on evaluation of its “importance” for the document in question – and the commercial transaction.
To me this accusation of wanting to bring back the LC to the times of “strict compliance” is very unjust – and in fact my main concern – both with the Draft and the Final Opinion is not the conclusion as such – but rather the analysis leading to the conclusion. I find that downright “sloppy.”
Let me elaborate:
Details of the query are as follows:
The description of goods in the credit included supplementary information: “As per proforma invoice n. 104 dated 12/12/1012”.
The issuing bank refused the documents stating the following discrepancy:
“CMR evidence proforma invoice n. as 1074 I/O 104”.
The question then is if this is a valid discrepancy?
The answer is that there is no discrepancy based on the following arguments:
Quote: “The CMR included all other information as required by the terms and conditions of the credit and was compliant in all aspects, as were all the other documents. It is argued that the addition of one character to the proforma invoice number within the CMR is not sufficient grounds for refusal, particularly when the correct proforma invoice number was stated in the invoice.”
This argument seems totally abstracted from the UCP 600. Where is it stated that the addition of one character is not sufficient grounds for refusal? In 14(d) data is to be examined – and if there is a conflict – there is a discrepancy!
It goes on to add that this applies “particularly when the correct proforma invoice number was stated in the invoice.” Again an argument not in any way based in the UCP 600: nowhere is it stated that because the data is correct in one document – then it is not a problem that it is wrong in another document! As such article 14(d) says the exact opposite: I.e. that this creates a conflict – i.e. a discrepancy!
Quote: “Whilst UCP 600 does not specifically address such errors, sub-article 14 (e) states: “In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit.” UCP 600 sub-article 14 (d) states that data has to be read in context and that between documents it need not be identical, but must not conflict. Considering that the description of goods within the CMR was not disputed; the proforma invoice number 1074 would not appear to indicate a conflict with the invoice.”
Reference is made to article 14(e) – which relates to goods description in documents other than the invoice as well as 14(d) on how to compare data between documents. These references boils down to the argument that since the goods description in the CMR was not disputed – the “wrong” proforma invoice number does not create a conflict.
That is indeed a flawed argument. First of all the reference to article 14(e) makes no sense: It is correct that a general description is acceptable; but still it must not conflict with the LC goods description (which is exactly what is discussed here). Secondly the statement that the goods description in the CMR is not disputed is really strange. It seems to suggest that in order for the quoted discrepancy to have sufficient “weight” another discrepancy should be quoted. Again – argumentation that is not found in the UCP 600.
Quote: “A CMR is a road transport document. It is a consignment note with a standard set of conditions and confirms that the carrier has received the goods and that a contract of carriage exists between the exporter and the carrier. Information in respect of, for example, a proforma invoice number, is additional information over and above that required by this document and its purpose. The proforma invoice number is stated correctly on the invoice and the reference to it on the CMR expands but does not contradict this. In the context of the otherwise correct description of the goods within the CMR and the function of the CMR, the wrong proforma invoice number (clearly a typographical error) cannot be considered to be in conflict with the data on other documents and the requirement in the documentary credit.”
Also this argumentation is flawed: To classify a proforma invoice number as “additional information over and above that required by this document and its purpose” is no no way based on the UCP 600. There is no such thing as “additional information” in the UCP 600 – and the second part of the sentence “over and above that required by this document and its purpose“ I frankly do not understand (??).
In any case: the argument is that since the proforma invoice number is additional information, and that the goods description is otherwise correct – then the “wrong” proforma invoice number is clearly a typographical error.
As far as I can see this is applying a new standard for comparing data in documents for the purpose evaluating compliance. The fact that data is classified as “additional information” – and therefore (I assume) less important – means that we now have a new standard: “Evaluated compliance.” I.e. that the data is evaluated on the basis of the importance it has in the commercial agreement.
This is what I dislike the most with this ICC Opinion. This is downright wrong!
Quote: “In view of the fact that typographical errors had been the focus of former ICC Opinions, and that it was foreseen that such issues would re-occur, the issue had previously been included within ISBP. The latest version, ISBP 745, states in paragraph A23: “A misspelling or typing error that does not affect the meaning of a word or the sentence in which it occurs does not make a document discrepant.”
Reference is made to ISBP 745 paragraph A23. Interesting indeed as this paragraph deems a misspelling as not creating a discrepancy – provided the misspelling does not change the meaning of the word. The paragraph offers some examples to this effect, i.e.:
The following misspellings are not discrepancies:
“mashine” / “machine”
“fountan pen” / “fountain pen”
“modle” / “model”
The following misspelling is a discrepancy:
“model 123” / “model 321”
The example in question is:
“As per proforma invoice n. 104 dated 12/12/1012” / “As per proforma invoice n. 1074 dated 12/12/1012”
This surely is closer to the example that creates a discrepancy!
As far as can be ascertained, the credit did not specify the contents to be mentioned in the CMR to include the proforma invoice number. UCP 600 sub-article 18 (c) only requires the description of goods, services or performance in a commercial invoice to correspond with that appearing in the credit. The description of goods other than the proforma invoice number is not in dispute. The fact that the proforma invoice number stated on the CMR included an additional character is clearly a typographical error.”
It is argued that the LC did not specify the contents to be mentioned in the CMR to include the proforma invoice number. This may well be – but where is it stated in the UCP 600 that the data to be compared is limited to the data required by the LC? No such rule exists – and the argument is totally outside the UCP 600!
I must admit that reading through the analysis to this ICC Opinion is a total nightmare. It is so flawed – so wrong! It is really disappointing.
But then the good question is: what are the correct analysis / conclusion? – or perhaps rather – what is the correct approach for answering this question?
As far as I can see the answer lies in UCP 600 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.
For a case like my best guess is that looking at the whole presentation, the context WILL in fact show that this is NOT a discrepancy. For example it may be clear from the context that the CMR relates to that presentation – and that it in fact covers the goods shipped.
However – this can only be ascertained when seeing the whole presentation, and for a query to the ICC the whole presentation is not there; only the information that the submitter finds appropriate to pass on.
Therefore the ICC should simply refrain from answering such query until they receive a copy of the LC and the full presentation!
So just to underline: I do NOT support the outdated strict compliance (!!) – and I do NOT like to see refusals like the one covered in TA.809rev (!!). But even less I like seeing the ICC technical advisors arguing like they do in this (now official) ICC Opinion. It is not right.
It makes me sad.
Take care of each other and the LC.
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