REQUIREMENTS FOR SPECIFIC MODES OF DOCUMENTATION
7.01 It is now necessary to examine the subject we postponed in Chapter 4, namely, acceptable modes of documentation in pursuance of specific classes of stipulations comparatively frequently found in letters of credit. Some of the matters expressly receive substantial attention in the Uniform Customs and Practice for Documentary Credits (the UCP 600), and have also come before the courts persistently. The exploration deals first with the conformity of documents as to their date of issue, and inclusion of the address, contact details, and name of the beneficiary and applicant, and then the effect of a credit clause calling for a draft drawn on the applicant of the credit. The third section covers the constituents of an original document and copies. The fourth section takes up the largest portion of the chapter and looks at the various means of determining the conformity of particular kinds of documents that feature prominently in contemporary letter of credit litigations. The most important of the documents are the commercial invoice, bill of lading, and certificate of, for example, quality, quantity, inspection, weight, or surveyor’s report. The chapter closes with a summary of the main principles applicable to the particular documents identified in the previous sections.
7.02 Certain features of certificates have been discussed in the preceding chapter, but the first three sections in this chapter will nevertheless generally be applicable when preparing the individual certificates for presentation under a credit. We confine our attention in later sections to the bill of lading, provided for in Article 20 of the UCP 600. There are other types of documents forming the subject of specific clauses in the code. They include multimodal bills of lading,1 non-negotiable sea waybills,2 charterparty bills of lading,3 air waybills,4 road or rail waybills,5 courier or postal receipts,6 switch bills of lading, and insurance documents7 (Article 28). The regularity of these documents has not been the subject of serious controversy in the last several decades. Nor are they themes on which modern bankers appear to be in great need of fresh insights in addition to the existing literature; their inclusion in the discussion would thus unduly increase the length of this book. However, the requirements for the bill of lading in Article 20, which we propose to explore, are largely similar to those of the other transport documents. Considerations controlling the conformity of the bill would, in principle, equally apply to compliance with the provisions on the related carriage documents.
7.03 Documents called for under a credit are not normally expressly required to specify the date on which they are issued. Originally, it was a customary requirement that they should do so. But the position changed when Article 24 of the UCP 400, the fifth version of the code, provided that, unless otherwise stipulated in a credit, a document bearing a date of issuance prior to that of the credit is a good tender. This provision, reproduced in Article 22, UCP 500, is now restated in Article 14 (i) of the UCP 600 with the important rider that the document ‘must not be dated later than its date of presentation’.
7.04 It might be asked, what is the rationale for drawing a distinction between the two dates? The simple answer would seem to be that the documents involved in certain contracts supported by a letter of credit routinely bear a date previous to that on which the credit is opened, as for example where the transaction is a string sale of goods contract under which the documents are typically sold to a sub-purchaser, who will himself re-sell to a sub-sub-purchaser and so on. On the other hand, the same cannot be said of a document dated ahead of the date it is tendered. If anything, it raises a red flag, which, as has been suggested in an earlier chapter, a reasonably prudent and diligent presentee bank should not ignore.
7.05 An excellent authority in this respect is the decision of the New York Appellate Division in Andina Coffee Inc v National Westminster Bank.8 In that case, a nominated bank could not recover reimbursement from the issuing bank because it negotiated to the beneficiary documents which had been dated six weeks into the future so as to make them comply with the date of presentation stipulated in the credit in question. However, the particular ground on which the court refused to allow the nominated bank to recover was because this bank’s knowledge that the documents were post-dated rendered it unable to claim having negotiated the presentation bona fide.9 Without such knowledge, it is likely that the bank would have succeeded on its claim, to the extent that the documents were apparently regular on their face, though in fact post-dated. In that event, it will have to be reimbursed by the issuing bank, which will in turn seek recoupment from its customer, the applicant. Of course, this party is entitled to raise a claim for damages against the beneficiary for including in the document materially false information.
7.06 Must the address and contact details of the beneficiary and applicant be included in the stipulated documents? According to paragraph (j) of Article 14, UCP 600, ‘when the addresses of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated documents, but must be within the same country as the respective addresses mentioned in the credit’. The paragraph makes the further point that an examining bank will ignore the contact details such as telex and telephone numbers and email inscription appearing as a part of those parties’ addresses.
7.07 Evidently, paragraph (j) is designed to address such problems as occurred in Continental Casualty Co v South Trust Bank.10 In this case, the beneficiary tendered a sight draft under a letter of credit stated to be subject to the Uniform Customs and Practice for Documentary Credit, 1993 Revision. The issuing bank refused to honour on the ground that the draft had not included the beneficiary’s address contained in the letter of credit. Holding for the beneficiary, the Supreme Court of Alabama considered that the credit ‘nowhere required that a sight draft drawn under it state the beneficiary’s address’. Otherwise, the draft would have had to bear the requisite information in order to appear on its face strictly complying.
7.08 It should, however, be noted that paragraph (j) contains a significant exception: if the address and contact details of the applicant appear as part of the consignee or notify a party’s particulars on a stipulated transport document such as a bill of lading, ‘they must be as stated in the credit’. Where the tendered transport document does not so state, the examining bank can reject as non-conforming.
7.09 Thus, if a credit stipulates that certain documents are to appear in the name of a designated person, then the documents expressly so specified when presented have to adhere to the stipulation. An issue of this sort recently came before Hamblin J. in Fortis Bank v Indian Overseas Bank.11 The credit at the centre of the dispute was expressed to be subject to the UCP 600. (This case is the first with a letter of credit incorporating this code to be decided by an English court.)
7.10 Under the credit, Field 47A, cl. 7 required: ‘All documents except for certificate of origin to be prepared in the name of the buyer viz SESA International Ltd, 31 Shakespeare Sarani, Jasmine Tower, 6th Floor, Kolkata 700017’. However, the related documents tendered by the claimant nominated bank to the defendant issuing bank carried the name of the applicant, MTSC, on whose request the credit was opened. The latter declined to effect reimbursement, citing that substitution, among other reasons which are not of immediate relevance, as a failure to comply strictly with the requirements of the credit.
7.11 Clause 7 was surely as clear as it could possibly be, and there was nothing contradicting it in any other part of the credit. Yet, rejecting the issuing bank’s submission, Hamblen J. said that the ‘L/C does not stipulate the name of the person to whom the documents are to be addressed and does not identify the name of any buyer’.12 Certainly, the judge was in error in taking this view, an error most probably the result of neglecting to give attention to the clause. It is suggested that had he properly looked at cl. 7, which he himself quoted fully in a section of his judgment, he ought to conclude that the cited condition of the credit had not been observed, so the tender was bad.
7.12 Almost invariably, the documents required in a credit are the originals,13 as opposed to copies. In view of the predominant use of the word processor, laser printers, and high quality photocopiers and photocopying papers in modern business transactions, determining whether that requirement is satisfied frequently entails practical difficulties. Indeed, in one case the judge lamented that it was impossible by the ordinary eye to distinguish the printed original from the photocopied version.14 Yet the document checker has an obligation to discharge such a task every banking day. When a credit stipulates for a certain document to be original, or calls for a copy rather than the original, the checker is obviously at high risk of taking up a document that does not comply with the stipulation.
7.13 Article17, comprising sub-paras (a) to (e) of the UCP 600, and which replaces Article 20 (b) of the 1993 Revision, has come to the rescue with reasonably detailed requirements and guidance. The article originally started life on 12 July 1999 in the form of a policy statement, which the ICC Banking Commission15 was obliged to issue in the aftermath of the conflicting conclusions reached by the English Court of Appeal16 in respect of Article 20 (b), and which was described17 as reflecting international standard banking practice on what comprises an original document. It thus seems that the decision will continue to be generally relevant to a consideration of issues respecting originality of documents under Article 17.18
7.14 Article 17 (a) reiterates the basic rule that at least one original of each document stipulated in a credit must be presented. In determining whether a document is original, the bank only needs to satisfy itself that the document appears on its face to be an original; it does not have an obligation to ascertain whether the document is in fact an original. At any rate, this derives from the broader common law idea,19 reflected in the code, that banks are under no duty to verify the genuineness of documents.20
7.15 Under paragraphs (b) and (c), unless a document indicates that it is not an original,21 it is considered an original if it bears an apparently original signature,22 mark, stamp, or label of the issuer of the document; or (i) appears to be written, typed, perforated or stamped by the document issuer’s hand; or (ii) appears to be on the document issuer’s original stationery; or (iii) states that it is original, unless the statement appears not to apply to the document presented. Respecting the last criterion, the document is considered original if the word ‘original’ has been rubber-stamped on it.
7.16 Sub-paragraph (d) provides that if a credit requires presentation of copies of documents, presentation of either originals or copies is permitted. The essence of this sub-clause is to be found in the ensuing sub-para (e), which states that where a credit requires presentation of documents, e.g. ‘in three copies’, this stipulation is satisfied by presenting ‘at least one original and the remaining number in copies’. At first glance, sub-para (e) would appear to frown on a tender of the entire number of documents in original. But it is suggested that having regard to sub-para (d), sub-para (e) does not disapprove of such a tender. Similarly, a presented original of a document rather than the copy called for by a credit should be considered acceptable; in taking this view, it is suggested that such an argument as was made by a presentee issuing bank in the Southern District of New York case of Trifinery v Banque Paribas,23 that the original of a document was presented instead of a copy specified in the credit, would in all probability be unsustainable.
7.17 On a reasonable view of the matter, Article 17 is satisfactorily comprehensive. It seems to have effectively tackled the various problems24 that arose from the application of Article 20 (b) of the preceding revision.25 Presumably, its major accomplishment is the introduction of sub-paras (b) and (c) that neatly set forth the scope of the documents acceptable as originals. It should be noted, however, that the range of documents entitled to be treated as originals is markedly amplified by Article 3, which explains that a document may be signed by handwriting, facsimile signature, perforated signature, symbol, or any other mechanical or electronic means of certification or authentication.
7.18 Article 3 remarkably augments sub-paragraphs (b) and (c) of Article 17, and will be particularly significant in judging compliance with stipulations in credits requiring certain documents, e.g. an inspection certificate or a certificate of origin, to be issued, legalized, visaed, or certified by a designated person or local Chamber of Commerce. In this regard, the American case of Western International Forest Products Inc v Shinhan Bank26 deserves some attention. A letter of credit called for, among other things, an ‘Inspection certificate issued by Mr. Sam Tae Shin (passport No. DG0101712) of Nam Moon Lumber Company of Korea’. The named party executed the requisite inspection certificate and faxed it to the beneficiary in New York, who then tendered it to the nominated bank there for payment. Cedarbaum J. upheld the bank’s contention that the certificate was defective because it neither bore an original signature nor appeared to have been authenticated by Mr Shin, the issuer of the document.
7.19 Were this case to arise for decision today, the facsimile inspection certificate before the court would pass muster as an original document, insofar as the document apparently carries a facsimile signature. The broader principle thus established by Article 3 read with the sub-paragraphs under reference is that, where a credit requires a document to be issued, legalized, or visaed, the requirement is to be considered satisfied if any manual or electronic signature, a signed chop, mark, or hieroglyphics appears to have been affixed on the face of the document by the issuing person. This remains true even if the certification wording is accompanied by a qualification, for example, that it is without prejudice,27 or the document has been partly completed by the beneficiary or by a third party, provided that the document is not executed on the letterhead of the beneficiary or that party.28
7.20 Letters of credit issued in respect of sales transactions almost invariably call for the presentation of particular types of documents such as the commercial invoice, the bill of lading, and the insurance policy covering the goods. Notably, these categories of documents are much the same as those the seller usually has to tender under an ordinary contract of sale on c.i.f. terms and to some extent a c. & f. contract. For this reason, judicial decisions dealing with the question of conformity of the shipping documents delivered to the buyer in the context of those types of sale contracts, although based purely on the law of sales, often have direct relevance to many of the problems connected with determining the acceptability of those types of documents presented to a bank under a credit.
7.21 Other varieties of documents that a credit may require to be tendered include one or more of the following we set forth earlier,29 but, compared with those mentioned initially, are less commonly used, except perhaps the first. However, as already intimated, they rarely give rise to real disputes. For this reason, they are not considered deserving of inclusion in this study.
7.22 We shall thus be dealing, in the ensuing discussion, with two particular types of documents, namely, the commercial invoice and bill of lading, the conformity of which under a credit is frequently in issue before the courts. The two documents are classically different, with each carrying a unique set of compliance requirements; it would therefore be helpful to treat them individually. The commercial invoice will be considered first and then the bill of lading.
7.23 A commercial invoice is usually required to be tendered under credits. In essence, it is a statement detailing the parties to the underlying transaction, particulars of the goods sold or services rendered, and the amount due. Notably, the description of the goods is the most important entry on the invoice and, for all practical purposes, a conclusive statement by the seller on the quality, correctness, and adequacy of the merchandise he has dispatched. A significant difference between the description of the goods in the credit and that in the invoice can only mean that the buyer’s order has not been properly satisfied, and thus make the invoice unacceptably deficient.
7.24 The criteria for establishing whether there is such an irregularity or not, are laid out under Article 18 of the UCP 600, which supersedes Article 37, UCP 400. According to the article, a commercial invoice must appear to have been issued30 by the beneficiary,31 be made out in the name of the applicant,32 and in the currency in which the amount of the credit is denominated,33 but need not be signed34 or dated.35 As previously stated under the erstwhile Article 37 (b), the new regime asserts that where a commercial invoice is issued for an amount in excess of that of the credit, the presentee bank may refuse the document or pay against it a sum not exceeding the credit amount.36 If it elects the latter course, the decision will be binding upon all the subsequent presentee parties.37
(a) Description of goods or services in the invoice
7.25 Sub-paragraph (c) constitutes the most distinctive part of Article 18 and provides that the description of the goods or services in the invoice must correspond with that appearing in the credit. This requirement has been in the UCP since the 1962 Revision.38 Although undefined under the Code, it is widely accepted that the degree of the requisite correspondence is not necessarily a literal replication in the commercial invoice of the description of the shipment in the credit.39 An invoice is to be construed as being in conformity with the credit insofar as the essential features of the description in the credit are reasonably noticeable on the face of the invoice. It is discrepant if found lacking in that regard. Similarly, if a credit stipulates for multiple copies of an invoice, the original and all the copies tendered must be identical in every respect,40 so where there had been an amendment to the originals after the making of the copies, the copies would be irregular unless they also reflect the amendment.41 A very instructive case in this respect is Oei v Citibank.42
7.26 In Citibank, one original and four copies of the commercial invoice were required in a credit which described the requisite goods as ‘Levi jeans 501-0191, New, Originals, made in USA labels’. Whilst the original invoice delivered to the issuing bank included the wording, ‘Levi 501-0191, New, Originals, made in USA labels’, with the ‘jeans’ manually typed directly above the word ‘Levi’, the accompanying copies of the invoice made no mention of the word, an omission which clearly indicated that a party43 other than the issuer of the document inserted the expression ‘jeans’ to the original after the copies had been produced. Mukasey J. wasted no time in reaching the conclusion that the invoice was defective. The original was not only marred by the awkward, unattested addition but was also inconsistent on its face with the copies. At all events, the copies themselves did not contain the proper description of the merchandise, and so were not the documents envisaged by the credit.
7.27 An amendment or a notation superimposed upon an invoice should thus ordinarily bear the attestation of the issuing party to make the invoice complying. Standard banking practice and common sense support that view. Nevertheless, an obvious inconsistency between two notations on the invoice would prevent the document from being regular on its face, but an attestation on the document can cross out the irrelevant notation in order to cure the irregularity. Overall, an unattested modification or alteration44 in a document normally impairs the authenticity and general acceptability of the document. There appears to be no substitute for exercise of prudence by the issuing person in such matters in relation to making changes in the documents. A document with an unattested alteration on its face would normally be considered a bad tender. Hence any amendment in a presentation document should bear against it the signature of the proper person.45
7.28 Parker J.’s decision in The Lena46 affords a further illustration of when a description in an invoice would be seen as a deviation from the credit. In this case, a credit providing payment of the purchase price of a Greek vessel described the vessel as ‘built January 1951 of about 11,250 tons gross register 6,857 tons net register and 5,790 long tonnage light displacement “as built”, with all equipment outfit and gear belonging to her on board’. Additional condition (a) in the credit stated: ‘Signed Invoices in triplicate certifying that the merchandise (vessel) is as per Memorandum of Agreement’. The invoice tendered read in material part: ‘We hereby certify that the vessel registered under the Greek Flag under official number 3723 of 11,123.89 tons gross and 6,297.41 tonnages net is as per Memorandum of Agreement’. As is apparent on the face of the invoice, the year the vessel was constructed is not indicated; no mention is made of all the equipment, outfit, and gear belonging to the vessel as being on board, nor the light displacement tonnage ‘as built’. And what is more, both the gross and net register tonnages are at variance with those contained in the credit.
7.29 In these circumstances, Parker J. concluded that the invoice had failed to describe the vessel in terms corresponding with the description in the credit and was thus defective.47 The judge also denied the beneficiary’s alternative argument that the invoice sufficiently conformed to the specific requirement in the credit as to certification, on the ground that the obligation to satisfy that requirement was additional to the obligation to provide an invoice which contains an adequate description of the vessel (i.e. goods) in terms of the UCP.
7.30 Another case in which the invoice was established to have inadequately described the goods is Courtaulds North America Inc v North Carolina National Bank.48 A credit incorporating the UCP 222 called for a commercial invoice in triplicate covering 100% Acrylic Yarn. The Fourth Circuit, reversing the trial judge, held that the invoice presented to the bank which described the goods as ‘imported Acrylic Yarn’ was faulty. The basis for the court’s ruling is not difficult to find. The defective description raised genuine questions about the quality of the yarn that had actually been shipped by the beneficiary. Were the irregularity of a different character, it may safely be assumed that the invoice would have passed muster.
(b) Additional words in the invoice
7.31 In certain instances, however, the invoice will accurately reproduce the description of the goods but also contain additional wording. A thorny problem may then arise whether the additional information represented by the phrasing is such as to render the invoice discrepant. Basically, the solution formulated by Donaldson J. in M. Golodetz & Co Inc v Czarnikow-Rionda Co Inc49 is that the additional language, for whatever it is worth, must not introduce an element of ambiguity and uncertainty in the invoice or cast doubt on the integrity of the document. In other words, the extra wording must not be such as would colour a reasonable banker’s judgment about the acceptability of the invoice.
7.32 The leading authority in point is Glencore International A.G. v Bank of China,50 but the ultimate conclusion is to be regretted. In that case, the credit in question stated: ‘Origin: Any Western brand’, but the copies of the tendered commercial invoice described the origin of the goods shipped as ‘Western brand—Indonesia (Inalum brand)’. The issue arose as to whether the additional qualifying reference made the invoice discrepant. At first instance, Rix J. considered that it did, but Sir Thomas Bingham M.R., giving the sole judgment of the Court of Appeal, reversed his decision and ruled that the additional information in the commercial invoice was not ‘in any way inconsistent’ with the description in the credit.51
7.33 It was accepted by the trial judge and in the Court of Appeal that the test of whether the extra wording caused the invoice to be non-conforming depends on what effect it would have on the mind of a reasonable banker. Evidently, the expression ‘Any Western brand’ used in the credit is a very broad generic description. Equally, all that the additional wording in the invoice intended was to indicate the exact brand of the goods. The critical question, therefore, was whether a reasonable banker would view ‘Indonesia (Inalum brand)’ as falling within the requisite terminology stated in the credit. There can be little doubt that it would not be obvious to him that it did so.
7.34 Put simply, the descriptions in the presented document were in conflict with each other because the description ‘Western brand’ has a reasonably established geographical connotation which does not contemplate a brand originating from any part of the world other than Europe and the Americas, whereas ‘Indonesia (Inalum brand)’ does not readily give rise to that connotation.
7.35 Nevertheless, it may well be that in the aluminium trade Western brand is commonly understood to include Indonesian aluminium, but it has been long settled, first in 1922 by the Supreme Court of Washington decision in National City Bank v Seattle National Bank52 and twenty years later by the English Court of Appeal in the Hambros’ Bank53 case, that such is no concern of the bank in the absence of evidence showing that the knowledge is also shared among bankers, and so known in banking practice.
7.36 So evaluated, it is submitted that, although the appropriate test of compliance of the invoice was applied, the conclusion at which the Court of Appeal arrived is misguided. Rix J.’s view that a reasonable banker was highly likely to be uncertain about whether the description adopted in the invoice was consistent with that in the credit is, accordingly, to be preferred. What emerges from Glencore, however, is that, while the criterion of conformity of a commercial invoice is remarkably clear-cut, there is considerable scope for the type of results it may generate in the individual cases to vary from judge to judge, an evidently unfortunate situation that may well encourage protracted litigation in the sense that it may readily incline a party that has lost its case at a lower court to chance an appeal to a higher court. We turn now to the position relating to transport documents.
(2) Bill of lading
7.37 Among the various, if elaborate, assortment of transport documents identified in the UCP to feature in many credits, the bill of lading and multimodal bill of lading54 (sometimes referred to as ‘combined bill of lading’ used in respect of a carriage involving at least two different modes of transportation) are far more important. As modern practice indicates, credits issued in support of long-distance or transnational sales of goods almost without exception call for either of those documents. We shall accordingly examine in the rest of this chapter the requirements for a complying bill of lading, which are, so far as is material for present purposes, virtually the same as for a combined, i.e. multimodal, bill of lading.
7.38 A discussion of the requirements for an acceptable bill of lading in credit transactions may conveniently begin with a brief sketch of the distinction traditionally drawn by the law of sales between the two types of the document: first is a bill of lading which makes the goods named in it deliverable to a specified person ‘or order or assigns’ (or words to that effect); and, second, a bill of lading which makes the goods deliverable to a specified person without the addition of any such words. So far as designation goes, the former is commonly interchangeably known as an ‘order bill’ or ‘negotiable bill’,55 and the latter as a ‘straight bill’ or ‘non-negotiable bill’—in any event, the respective documents are normally issued with the relevant legend conspicuously emblazoned on them.
7.39 Having regard to the negotiability and non-negotiability tags, the essential distinction between the two bills is that an order bill can be transferred by the original consignee to successive transferees by endorsement and delivery,56 whereas the straight bill is incapable of transfer by such a consignee. Put another way, the attribute of unlimited transferability distinguishes the one from the other.57
7.40 Functionally, though, the negotiable bill and straight bill are one and the same. They both operate as a receipt for the goods in the carrier’s charge and as evidence of the contract of carriage between the carrier and the shipper; they are capable of vesting in the consignee the contractual rights and liabilities of the shipper vis-à-vis the carrier; they serve as a document of title to the goods.58 Respecting the last mentioned function, a bill of lading is a symbol of the goods and, in the words of Bowen L.J., ‘the key to the door of the warehouse, floating or fixed, in which the goods may chance to be’.59 Transfer of the bill is equivalent to transfer of actual or constructive possession of the goods, so the transferee will then have a possessory title to the merchandise at law or in equity unless in the particular circumstances the mutual intention of the transferor and the transferee is to the contrary.60
7.41 As a symbol of the property or ‘special interest’61 in the goods, the bill provides the bank to which it is transferred against payment under a credit some security in the event of failure to obtain reimbursement of the sum paid out from the instructing party, such as the account party, or the issuing bank. Similarly, should the seller be unable to realize the credit, for example, on account of a documentary discrepancy which the buyer is unwilling to waive, the bill of lading will enable him to police his property in the goods,62 e.g., by redirecting the consignment to someone else with fresh instructions to the carrier. From the applicant-buyer’s perspective, the bill in his hands as the consignee or endorsee offers the advantage of furnishing him—before having to discharge his reimbursement obligation to the issuing bank—with some assurance that the goods promised by the seller in the sales contract have been duly dispatched.
7.42 Although the straight bill and an order bill perform substantially the same functions and the consignee under the former is generally recognized as possessing the same amount of protection as the consignee or endorsee under the latter, the question of what particular type and in what form it should be presented under a letter of credit primarily depends on the express requirements of the credit. Thus, if a credit requires an order bill, the tender of a straight bill will justify its rejection, and vice versa.63 Similarly, where a credit stipulates that the bill must be made out to the order of a named party, such as the issuing bank or the account party, a bill which is taken out simply to the beneficiary is irregular. So is a bill which runs to the beneficiary’s order, but is presented to the bank without being endorsed in blank or to the order of the credit applicant, issuing bank, or the nominated bank—the basis of this principle is explained in the next subsection.64