Non-Documentary Condition and Data Conflict
By. Rupnarayan Bose
(https://www.tradeservicesupdate.com/editor?editor=editor_rbose&PHPSESSID=coth4v9jh8dsdpg31l3cns8pk4)
Conflict of data or ‘data conflict’ is a unique concept in the annals of documentary credit operations. Defined by sub-article 14(d) of UCP 600, it is as follows:
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.
The theme about data conflict is carried over in the next sub-article 14(e) which goes as follows:
In documents other than 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.
Conflict of data has an annoying habit of sneaking in and trapping the unwary exporter or banker to upset the smooth flow of a transaction. Ask yourself this question, “How should an examining bank respond to a data conflict in a document presented, but not called for in a credit (a non-documentary condition)?” Ignore the fact completely and let it be business as usual, or raise a red flag and let the issue take its own course? The concept of data-conflict is complicated, for it has two faces. On the one hand, data-conflict concerns non-documentary conditions in a credit vis-à-vis the data in documents in a presentation. On the other, it’s about inter-se consistency of data – among the documents presented as also with the credit.
The issue of data conflict under a non-documentary condition is addressed by Section A26 of ISBP 745 which states thus:
When a credit contains a condition without stipulating a document to indicate compliance therewith (“non-documentary condition”), compliance with such condition need not be evidenced on any stipulateddocument. However, data contained in a stipulateddocument are not to be in conflict with the non-documentary condition. For example, when a credit indicates “packing in wooden cases” without indicating that such data is to appear on any stipulateddocument, a statement in any stipulateddocument indicating a different type of packing is considered to be a conflict of data. (emphasis added)
Although this is easily comprehensible, conflict of data as a concept still retains an aura of mystery in our minds. Hence the ISBP goes to great lengths to clarify this point about data-conflict. There are several examples to choose from, of which only two are quoted below:
1: Article L7 of ISBP 745 states as follows:
“When a credit indicates the origin of the goods without stipulating a requirement for the presentation of a certificate of origin, any reference to the origin on a stipulateddocument is not to conflict with the stated origin. For example, when a credit indicates “origin of the goods: Germany” without requiring the presentation of a certificate of origin, a statement on any stipulateddocument indicating a different origin of the goods is to be considered a conflict of data.” (emphasis added)
2: In another example Article C11, ISBP 745 states:
“Any total quantity of goods and their weight or measurement shown on the invoice is not to conflict with the same data appearing on other documents.”
To reiterate, even if the LC shows a non-documentary condition, the data in any of the stipulateddocuments (I take this to mean presentation of only those documents as stipulated in the credit) should not contain data that conflicts with the non-documentary condition in the credit. All documents must tell the same story.
Refusal on the basis of document presented but not called for in the LC
Let us move over to a related aspect. Can a refusal of a presentation be based on the data content of documents not called for in the LC, yet included in the presentation, say, in support of the non-documentary condition or for any other purpose? The dilemma to the document checker would be obvious – ignore it (at your own risk) or wave that red flag of ‘discrepancy’ and let the chips fall as they may?
This dilemma can be resolved by reference to Section A.26 of the ISBP and two sub-sections of UCP article 14. It should be noted very carefully that ICC ISBP 745 Section A.26 (quoted earlier) refers only to “stipulated documents” (“data contained in a stipulated document are not to be in conflict with the non-documentary condition”). By its very definition, there cannot be any stipulateddocument against a non-documentary condition. So, what are the examining banks supposed to do with that extraneous piece of paper? The UCP sub-article 14.g says:
“A document presented but not required by the credit will be disregarded and may be returned to the presenter.”
But, hang on. There is more to this ‘conflict’ (and ‘disregard’) than that meets our eyes.
Another conflicting issue
Let us re-visit UCP sub-article 14.h. It states:
“If a credit contains a condition without stipulating the document to indicate compliance with the condition (i.e. a non-documentary condition), banks will deem such condition as not stated and will disregard it.”
Paraphrasing this sub-article, what one gathers is that if a credit contains a non-documentary condition banks are to pretend that there is no such condition included in the credit and disregard it completely. So, we now have two ‘disregards’. The UCP wants the examining banks to “disregard”,
A: documents presented against a non-documentary condition (14.g), and
B: the non-documentary condition itself (14.h) as if it never existed.
But tarry a while, danger zone ahead! ISBP A.26 demands that the banks ensure that “…data contained in a stipulated document are not … in conflict with the non-documentary condition.”
It’s an instance of ignore, but do not ignore, a non-documentary condition – both at the same time. Is the UCP conflicting with the ISBP? Reconcile that, if you can.
Additional information in documents and discrepancy
Documents in a presentation often include data or information that go beyond what a credit may have asked for. Would such data in a document make a presentation discrepant? The answer is, “It depends.” It depends on the nature of the additional data. The overriding condition is that the additional data should “not appear to refer to a different nature, classification or category of the goods, services or performance.” The following is a ion from the ISBP on additional data or information on transport documents – quoted below for ready reference.
A shipping mark indicated on a document may show data in excess of what would normally be considered a “shipping mark”, or which is specified in the credit as a “shipping mark”, by the addition of information such as, but not limited to, the type of goods, warnings concerning the handling of fragile goods or net and gross weight of the goods. (ISBP Section A.33)
Transport documents covering containerized goods often only show a container number, with or without a seal number, under the heading “Shipping mark” or similar. Other documents that show a more detailed marking will not be in conflict for that reason. (ISBP Section A.34.a)
The fact that some documents show additional information as mentioned in paragraphs A33) and A34) (a), while others do not, will not be regarded as a conflict of data under UCP 600 sub-article 14(d). (ISBP Section A.34.b)
Now let’s examine another scenario with regard to ‘additional information’ in documents. Let us assume that the goods description in a credit shows, “Porsche Cayenne”. The invoice presented may show one of the following:
A: Porsche Cayenne, or
B: 2017 Porsche Cayenne or
C: Porsche 718 Cayenne
Which of the three above would make the presentation discrepant?
For an answer, we need to understand Section C(5) of the ISBP. It states:
An invoice showing a descriptionof the goods, services or performance that corresponds with that in the credit may also indicate additional data in respect of the goods, services or performance provided that they do not appear to refer to a different nature, classification or category of the goods, services or performance(emphasis added).
For example, when a credit requires shipment of “Suede Shoes”, but the invoice describes the goods as “Imitation Suede Shoes”, or when the credit requires “Hydraulic Drilling Rig”, but the invoice describes the goods as “Second Hand Hydraulic Drilling Rig”, these descriptions would represent a change in nature, classification or category of the goods.
For all we know, in the above example the underlying contract between the seller and the buyer may have actually been for second hand rigs. But it is not for us to know or judge. Banks and the document preparers must strictly adhere to what the credit requires – nothing more, nothing different.
“Data-conflict” within ISBP itself!
A little while earlier I cited an instance of possible conflict between the UCP and the ISBP. Now let’s look at another conflict situation – this time within the ISBP itself. ISBP 745 section Q7 (titled ‘Contents of a certificate’) state as follows:
When a credit indicates specific requirements with respect to analysis, inspection, health, phytosanitary, quantity or quality assessment or the like, with or without stipulating the document to indicate compliance with these requirements, the data regarding the analysis, inspection, health, phytosanitary, quantity or quality assessment or the like mentioned on the certificate or any other stipulated document are not to conflict with those requirements.
Note the words “without stipulating the document to indicate compliance with these requirements”. These words make for a non-documentary condition – pure and simple. Going by the preceding analysis, if a credit includes a non-documentary condition then the words “or the like mentioned on the certificate or any other stipulated document” in the above quoted section of the ISBP should not apply, because any certificate furnished in response to a non-documentary condition cannot be a “stipulated” document. Very obviously, there is a conflict of the rules in the above section. It needs to be re-drafted.
Let us put under the microscope section M4 of ISBP 745 to see what we can come up with. It is titled, “Packing list, note or slip ('packing list') - content of a packing list” and states as follows:
When a credit indicates specific packing requirements, without stipulating the document to indicate compliance with these requirements, any data regarding the packing of the goods mentioned on a packing list, if presented, are not to conflict with those requirements.
I would have had no quarrel with this section, but for the fact that when the ISBP establishes a code of conduct (the concept of a ‘stipulated’ document - as this analysis shows), it is incumbent on the ISBP to adhere to that same rule or code. Therefore, when “a credit indicates specific packing requirements” but “without stipulating the document to indicate compliance with these requirements”, we have a non-documentary condition in that credit, don’t we? Consequently, “a packing list, if presented” (mind you, it’s against a non-documentary condition) cannot be deemed to be a stipulateddocument, hence to be ignored (and possibly returned to the presenter?). By that same token, its data content should be ignored too – conflict or no conflict? Which makes this clause, “any data regarding the packing of the goods mentioned on a packing list, if presented, are not to conflict with those requirements” a direct contradiction to what the ISBP had itself established as the norm through section A26. Since a packing list, if submitted against a non-documentary, is not a stipulateddocument, it ought to be ignored. The data-conflict rule should not apply to this document at all.
I suggest that this section be modified to read as, “any data regarding the packing of the goods mentioned on a [stipulated document] are not to conflict with those requirements”.
Get rid of “stipulated”
It took me a long time to find the peg from which to hang this thing called “data conflict”. I found it only after I had stumbled upon the two key words “stipulated document” – no, not in the UCP but in the ISBP. The result is this article, being my own interpretation and understanding of the term, for sharing with others similarly confused.
Which brings me the next question – why isn’t the definition simpler? I also ask myself, why hide this bit of wisdom deep inside the ISBP? Further, why can’t sub-article 14(d) in UCP 600 itself be modified to be a clear, standalone, unambiguous, complete provision? After modification, article 14(d) could very well read as:
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 document in the presentation (whether called for in the credit or otherwise) or the credit itself.
Similarly, why not ^ the word “stipulated” from all the sections quoted above in the ISBP? For example, after modification ISBP L7 could read as, “…a statement on any stipulateddocument (in a presentation, whether called for in the LC or not) indicating a different origin of the goods is to be considered a conflict of data.” This will simultaneously resolve the “data conflict” issue within the ISBP itself – as pointed out earlier in this article. The concept of “data-conflict” would become much easier to understand and implement.
In my opinion, sub-article 14(d) represents one of the two pillars on which documentary credits stand – that of the doctrine of strict compliance. It is of great benefit to the applicant. We cannot afford to dilute it, ignore it, or disable it. But surely, we can make it possible for everyone to understand it easily, implement it efficiently?
Conclusion
My recommendations:
A: Make the UCP as simple as possible.
B: A major step in this direction is to make the UCP provisions as complete, as comprehensive as possible. If the meaning of an article needs to be explained by reference to another publication or document, then there is something wrong with the construction of the UCP article itself. (Examples, data-conflict, norms and rules for scrutiny when only copies of transport documents are submitted.)
C: The ISBP should not add or take away anything from the UCP. Importantly, the ISBP should not introduce a concept not there already in the UCP. (Who would have known about ‘stipulated’ documents without reference to the ISBP?)
D: The UCP has many wrinkles (some which I have already presented through my articles). These could be ironed out with a little bit of effort. (For example, how many people on the ground care about the difference between a credit available by negotiation and that available by payment? There is a logical error in article 10.)
The revision process for the UCP, as well as some of the other ICC publications, is very elaborate, though very effective. Given the demand of modern times, can the process be speeded up? Or, can the issues be so segregated that some of them are resolved without resorting to the standard revision process? I welcome what Bob Ronai said only a day back, “I suggested that ICC adopt a model like the software industry does, with twice a year revisions whereby ICC Opinions were incorporated and the latest version was available for download.” Yesterday’s dreams, today’s reality.
Home page of the author: www.rnbose.com