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:
LC information:
The description of goods in the credit
included supplementary information: “As per proforma invoice n. 104 dated
12/12/1012”.
Refusal information:
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:
Argument 1:
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.”
Kim’s comment:
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!
Argument 2:
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.”
Kim’s comment:
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.
Argument 3:
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.”
Kim’s comment:
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!
Argument 4:
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.”
Kim’s comment:
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!
Argument
5:
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.”
Kim’s comment:
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.
Kind regards
Kim