Thursday, February 22, 2018

Non-documentary condition in LC and data-conflict


Conflict of data or ‘data conflict’ is a unique concept in the annals of documentary credit operations. It’s defined by sub-article 14(d) of UCP 600. 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. One the one hand it concerns non-documentary conditions in a credit vis-à-vis the data in documents that form part of a presentation. On the other, it’s about inter-se consistency among the documents presented as also 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 stipulated document. However, data contained in a stipulated document 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 stipulated document, a statement in any stipulated document indicating a different type of packing is considered to be a conflict of data. (emphasis added)
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 examples galore, 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 stipulated document 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 stipulated document 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 documents presented as stipulated by the LC should not contain data that conflicts with the specific non-documentary condition in the credit. As it’s been said earlier, all documents must tell the same story.
                   Can a refusal be based on a document not called for by the LC
Can a refusal of a presentation be based on the data content of a document submitted by the beneficiary – say, in support of the non-documentary condition or for any other purpose – but not called for by the LC? This question can be answered 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 is no ‘stipulated’ document against a non-documentary condition. “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” (UCP Sub-article 14.h). Further, “a document presented but not required by the credit will be disregarded and may be returned to the presenter. (UCP Sub-article 14.g)”
That should settle the matter for now.
          Additional information in documents and discrepancy
Documents in a presentation often include data or information that goes 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 selection 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 either:
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 description of 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.]

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