From the perspective of a study on disputes in checking sea transport documents applying UCP600/ISBP

Assignment:

 

According to many documents, Ocean Bill of Lading - often abbreviated as B/L is a document of carriage of goods by sea, issued by a competent person to the shipper after the goods have been loaded onto the ship or received for carriage.

 

B/L has 3 basic functions:   

                        

- B/L is a receipt from the carrier confirming that they have received the goods for carriage.

 

- B/L is a proof of the terms of an ocean freight contract.

 

- The most important function: B/L is a document of ownership of goods, stipulating to whom the goods will be delivered to at the destination port, thus allowing the buyer to sell the goods by transferring the B/L.

 

I. Specific issues and challenges of Vietnamese businesses when applying UCP 600 in checking sea transport documents:

 

(i) For businesses that are commercial banks: banks are the main subjects facing challenges when performing operations and checking bills of lading presented by exporters. The set of documents includes many components and for each type of document, the bank will have to check according to different regulations. For ocean bills of lading (B/L), banks must refer to Article 20 of UCP 600 and some instructions in the content of ISBP 745 Bill of Lading to inspect. Banks sometimes encounter difficulties in the consulting process and do not explain clearly to importers about the bank's responsibilities in checking the suitability of documents for payment, leading to disputes with importers.

 

For example, in the case of a charter agreement bill of lading (CPBL), which is a transport document that contains provisions referring to a charter agreement. Normally, when an exporter presents the CPBL, the charter agreement is not included because according to Article 22(b) of UCP 600, the bank does not check the charter agreement.

 

Accordingly, a case occurred at ABBANK: the bank issued the L/C at the request of Company A (Vietnam) to pay the purchase contract to company B (India) and in the L/ C agreed to let Company B present the CPBL. After sending the goods, Company B presented a set of documents (BCT) without the charter agreement to ABBANK. After examining the surface of the documents, the documents were found to be suitable, so ABBANK paid company B and endorsed to let Company A receive the goods according to L/C.

 

However, Company A later did not receive the goods due to the carrier’s requirement that Company A to contribute to the general loss when the ship was damaged under the charter agreement. Company A contends that it was ABBANK's fault to assume that BCT was appropriate in the absence of a Charter Agreement, resulting in losses to Company A. ABBANK had to re-explain to Company A under Article 22(b) of UCP that the bank only carried out a surface inspection of the BCT and not the charter agreement, regardless of whether Party B has enclosed the agreement or not.

 

This is an important problem in reality stemming from the fact that importing businesses do not really understand the responsibilities and roles of banks in checking documents, leading to disputes between the parties. Issuing banks also need to overcome the above problem and provide adequate consultation to let customers know about the nature of checking documents according to the letter of credit.

 

(ii) For businesses as importers: importing businesses are parties requesting to open letters of credit (L/C) so that the bank to base on which to inspect the set of documents and make a payment to the exporters. Importers are not directly subject to the inspection of the Documents, so the challenges of importers related to the inspection of Transport Documents are to be aware of the applicable rules of UCP 600 to ensure regulatory compliance, determine the scope of responsibility of the bank in checking the suitability of the set of documents to take addional meassures or coordinate with the bank when necessary.

 

This issue is important because according to the TDCT method, banks only check the set of transport documents on the basis of the "surface" of the document, not by goods, services or other objects to which the document is relevant. This leads to the fact that the bank is not completely responsible for the delivered goods, all disputes between the importers and the exporters are resolved based on the terms agreed in the foreign trade contract, not in the letter of credit. This feature of the payment method protects the interests of exporters and banks.

 

Specifically for banks, they will avoid risks associated with legal disputes. In practice, banks often have limited expertise in the type of goods traded between buyers and sellers, so even if problems arise with the goods, the bank still pays the seller when the appropriate set of transport documents is presented and debited the importer, they are not responsible for ensuring that the delivered goods fully meet the conditions, nor will be liable in case of forged documents.

 

This content leads to the risk for the importer that the exporter may forge the set of documents, present it to the bank for payment but in fact do not deliver the goods, deliver the goods in the wrong quantity or violate the obligations that are agreed conditions for payment. In addition, the quality of the goods is also a difficult issue for importers to inspect, in many cases, after the bank has paid the beneficiary, the importers only discover the quality of the goods is not as agreed in the contract after bringing the documents to receive the goods.

 

(iii) For businesses as exporters: The main challenge for exporters is to prepare an accurate set of shipping documents to be accepted as "appropriate presentation" when inspected by banks. Many times, when exporters make a set of shipping documents, there are often errors such as mispelling, name, address, quantity or lack of documents, the content of documents is contradicted with each other. Sometimes, because of subjectivity and trust the importer without double-checking the L/C, the importer can also make requirements that the exporter cannot meet or control. In addition, there are also cases where the importer requests to issue a letter of credit with terms and conditions that are inconsistent with the contents agreed upon in the Purchase Contract such as increasing the insurance amount, changing the port of destination or description of goods, using misleading words that directly affect the set of transport documents to be presented, resulting in the bank’s refusal to pay the exporter.

 

Exporters can confront great challenges because each document in the transport document needs to ensure that it is prepared properly in accordance with many regulations and guidelines such as UCP 600, ISBP 745 and even other regulations, the bank's own supplement. For example:

 

*For ocean bill of lading (B/L): at ABBANK, this document is checked based on Article 20 of UCP 600, some instructions in the Bill of Lading section of ISBP 745, however, ABBANK also gives other instructions not found in UCP 600 and ISBP 745 on transshipment: "If the B/L expresses the phrase "the cartier reserves the right to transship", then the international documents will not be need to consider the above phrase. In practice, in many cases, exporters' ocean bills of lading are deemed invalid, due to:

 

- The port of loading/port of discharge is different from the requirements in the L/C, or the port name is misspelled, the bank must verify whether the port is correct or not.

 

- The total weight shown in the B/L is different from the packing list.

 

- The name of the carrier is not clearly indicated, the B/L is not signed precisely in according to UCP regulations.

 

- Show surcharge when L/C does not allow it.

 

- Late delivery.

 

- Staying "On board" does not mention the specific vessel.

 

*For Commercial Invoices: ABBANK checks this document based on Article 18 of UCP 600, C1 to C14 in ISBP 745 and also adds regulations: commercial invoices must not show fees and costs that exceed the value of the goods. In fact, many commercial invoices are considered invalid due to:

 

- Commercial invoices are not issued by the beneficiaries.

 

- Use proforma invoice (Profoma Invoice) instead of commercial invoice.

 

- When the L/C is combined with a commercial condition but the commercial invoice does not indicate that trade condition and the source of the condition in question.

 

- The commercial invoice shows a description of goods or services that does not conform to the requirements of the L/C.

 

* For Packing Slip (P/L): ABBANK refers to Article UCP 600 and the instructions in ISBP 745, however ABBANK also adds additional regulations such as: "In case the L/C does not stipulate the issuer, the P/L must be issued by the shipper (whereas, ISBP 745 stipulates that the P/L can be issued by any organization); The P/L must show that it relates to the goods delivered and demanded this time”. In many cases, the exporter's packing list is considered invalid, due to:

 

- The description of goods in the P/L conflicts with other documents

 

- P/L shows volume or weight, number of containers contradicts with transport documents

 

- P/L is not issued by the party for whom the L/C is requested

 

- The number of originals presented is insufficient

 

Complex regulations with many strict conditions create great difficulties for exporters as they have to make corrections and additions that take time-consuming and costly, or will not be accepted by the bank after delivery.

 

II. Issues and challenges for Vietnamese businesses when applying ISBP 745 in inspecting sea transport documents:

 

The issue that makes it difficult for Vietnamese businesses, especially banks to apply ISBP 745 is to determine the legal relationship between UCP 600 and ISBP 745. In the Scope of application section of ISBP 745, it says " "interpretation and application" of the provisions of UCP 600, indicating that the rule is designed to clarify the provisions of UCP 600 primarily on the examination of documents presented, affirming that there is no amendament or repeal the provisions of UCP 600.

 

However, some rules of ISBP 745 contain content that "amends or supplements" UCP 600. This also creates questions for businesses whether the rules of ISBP 745 has "amended or supplemented" UCP 600 are legally valid for examining documents presented under the L/C, if the L/C does not refer to the application of ISBP 745 , considering that both UCP and ISBP are applied only when the parties agree on the choice.

 

*Specifically, there are contents of ISBP 745 that supplement some provisions of UCP 600. For example:

 

- Rule C10 ISBP 745 adds clause 18aiv UCP 600 to the effect that invoices are not required to have a date of issue.

 

- Rules D32, E28, G26 ISBP 745 supplement clauses 19, 20, 22 of UCP 600 2007 on the issue of clearance of goods with multiple transport documents.

 

- Rules D17a, E13a, G12a ISBP 745 supplement clauses 19, 20 and 22 UCP 600 2007 on regulations on the consignor's endorsement of transport documents.

 

- Rules D26, E22, G20, F20, H22 and J17 ISBP 745 supplement clauses 19, 20, 21, 22, 23, 24 UCP 600 2007 on the description of goods on transport documents.

 

* ISBP 745 has amended some provisions of UCP 600

 

- Rules D24, E20, F18, G18, H20, J15 ISBP 745 amend article 27 UCP 600 on clean transport documents. UCP 600 defines the concept of clean transport documents as “documents on which no terms or notes explicitly declare the defective condition of goods or packaging”, ISBP 745 has revised “… no terms or provisions..”, omitted the word “note”.

 

- Rule D1c ISBP745 amends the provisions of Article 19UCP600: If a letter of credit requires the presentation of a transport document other than a combined or multimodal transport document and it specifies the route of carriage of goods specified in the Letter of credit and by various modes of transport, for example, if the transport document indicates inland receipt or final destination or indicates the port of loading or unloading area performed in a place which is in fact an inland place and not a port, then UCP 600 Article 19 shall apply to the examination of such document.

 

Thus, some of the guidelines and interpretations of ISBP 745 2013 exceed the scope of application prescribed by this publication causing confusion for businesses in choosing to apply with UCP 600. ISBP 745 2013 is separately linked to UCP 600 as shown by the name and scope of application, but on the contrary, if an L/C has referenced UCP 600, does it automatically apply ISBP 745, this is an important issue that banks need to be sure of and advise customers when opening letters of credit. As Article 2 of UCP 600 states: “Conformity means the presentation that complies with the terms and conditions of the credit, with the applicable provisions of these rules (UCP 600) and international standard banking practices ". Subjects checking documents according to UCP 600 may have difficulties in applying because there are up to 3 "ISBP International Standard Banking Practices" with different numbers: 645, 681 and 745. ISBP regulations in article 2 above does not specify which number it carries, so it should not be understood that when UCP 600 has been applied, of course ISBP 745 also applies.

 

List of references:

 

1. Professor Dinh Xuan Trinh, Associate Professor, Dr. Dang Thi Nhan (2011) - International Payments Textbook - Science & Technics Publishing House - Foreign Trade University;

 

2. Professor Dinh Xuan Trinh (2010) - ICC's set of international practices on L/C - Information and Communications Publishing House;

 

3. ICC Publication: 745E (2013) – International Standard Banking Practice for the Examination of Documents under UCP 600 – ISBN:978-842-0188-4 ICC Business Bookstore .

 

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