ICC Opinions – means to an end?
Last week I was in rather good company! A couple of the people there were traders. The kind of traders that have been doing that kind of business for more than 30 years …. and tried it all. Being hit hard by fraudsters – going bust – and having to build it all up again … In other words people that have experienced things on there own body and wallet! And have traded using all kind of payment/security instrument.
I must admit that I had kind of a hard time there. Constantly I was being “nagged” … or rather the LC was being “nagged.” They kept telling me … about impossible bankers doing nitty gritty useless jobs … about poorly drafted LCs being a total minefield … about how slow and cumbersome it was to work with LCs. In essence: They did not like the LC at all … and did whatever they could to find alternative solutions.
I of course did my best to explain that it was not that bad … and at the time I guess I even believed it myself. However; then I returned to my hotel room – and started to read the new draft Opinions from the ICC Banking Commission to be discussed at their next meting in Mexico this November… At that time I really started to doubt how “not bad” it actually was. And here I am not thinking about the answers given. I am thinking about the questions asked. If those Opinions somehow represent a picture of the “real” LC world … then we are in trouble! Those questions represent a dispute between two parties … but in most of the cases the problem is a really really badly drafted LC.
Let me offer three examples:
The LC calls for an air waybill covering a transport between two airports, and indicating trade term as “FOB Singapore.” Of course (!!) the invoice indicated “FCA Singapore,” and of course (!!) the presentation was refused for that reason. I will not elaborate about the refusal as such – only say that the combination of “FOB” and air waybill should ring an alarm bell!!!
The same LC indicated the following requirement: “Full set “clean on board” air transport document consigned to the order of the issuing bank.”
For the trained eye this looks very much like a requirement for a bill of lading where the words “bill of lading” has been replaced by “air transport document.” Of course this is deemed to create problems; air waybills does not show a clean on board notation – and likewise it is really wrong to call for an air waybill issued “to order.” Of course the documents was refused for the reason that the on board notation was not shown in the AWB.
The third example is a bit tricky … and actually downright a trap for the beneficiary to fall in! The scenario is as follows:
The LC calls for:
+ Photocopies of air waybill showing flight number and flight date …
+ Insurance policy
+ AWB date deemed to be the date of shipment.
On the air waybill the actual flight date was 17-6-2011 – and date of issue was 13-6-2011. The insurance policy shows “AWB dated 2011-06-17” and “Place and date of issue – Stockholm 2011-06-17.”
The tricky part here is that since the LC calls for a copy of the air waybill UCP 600 article 23 does not apply, as it only applies to original air transport documents. However Article 28(e) applies. That one reads: “The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.“
Since the LC defines “shipment date” – namely the AWB date – the logic is that there is a discrepancy when comparing the AWB shipment date (13-6-2011) against the insurance date (17-6-2011).
However this is because we are dealing with a poorly drafted LC. The combination of 1) a copy AWB showing flight date AND 2) a condition that the AWB date is deemed to be the date of shipment AND 3) an insurance policy – looks like a trap.
Technically there is a discrepancy, but it makes no sense checking the insurance date (as per article 28(e)) against the issuance date when the copy air waybill also indicates a flight date.
I remember so well a “classic” article by my mentor Reinhard Längerich where he described certain banks conducts as a “murder attempt on the Old Lady” (The Old Lady being the LC). From reading the latest Draft Opinions from the ICC it seems that banks have learned nothing. Frankly it makes me sad: The LC is a strong and powerful instrument that adds value to trade even in 2012 – but when used like it is in the examples above it destroys trade … it destroys companies value chain … it destroys the reputation of the LC instrument … and it makes it impossible to defend the LC when approached by people like the ones I met last week. For I know that they may well be more right than I am. And that hurts :-)
I think that I will adapt a new motto: Take care of each other – and the LC!