Negotiable BL's vs "If Required" Clause - Urgent Help Needed

[ramisy2k]

Dear LC Experts

I need your urgent feedback on below as we have to respond our Barclays Bank tomorrow morning…

1. We had sent a set of documents under LC for negotiation to our bank (Barclays Bank).
2. Having complying docs as per Barclays, they forwarded the documents to the confirming bank which was Deutsche Bank.
3. Deutsche Bank raised the discrepancy in the BL and send the message to Barclays that due to “if required clause” in the BL they refuse to accept the documents.
4. Barclays responded that as per UCP 600 this is not a valid discrepancy and also there is no valid article found in the UCP 600 and ISBP. Barclays asked them to please honor the docs and forward to issuing bank.
5. Deutsche Bank responded below, I copy paste the text of the SWIFT as it is below

“WE REFER TO YOUR MT 799 DD 27.9.09 WE DO AGREE THAT THERE IS NO SPECIFIC ARTICLE TO BE FOUND IN UCP 600 AND ISBP BUT LETTER OF CREDIT CALLS FOR A TRANSPORT DOCUMENTS COVERED UNDER ART. 20. THEREFORE WE WANT TO DRAW YOUR ATTENTION TO THE FACT, THAT THE L/C CALLS FOR PRESENTATION OF A BILL OF LADING ISSUED OR ENDORSED TO ORDER OF THE NAMED PARTY. THIS REQUIRMENT CONSTITTUTES A CLEAR REQUEST FOR PRESENTATION OF A NEGOTIABLE BILL OF LADING, WHICH MEANS IT’S UPTO THE NAMED CONSIGNEE’S BY HIS OWN, WHO WILL DEFINITIVELY RECEIVE/TAKE DELIVERY FOR THE GOODS. THE SO CALLED ‘IF-REQUIRED’ CLAUSE HOWEVER, ALLOWS THE CARRIER TO DELIVER THE GOODS WITHOUT PRESENTATION OF AN ORIGINAL BILL OF LADING AND THEREFORE CONSTITUTES A NON-NEGOTIABLE CHARACTER OF SAID DOCUMENT WHICH IS NOT IN ACCORDANCE TO THE REQUESTED REQUIRMENT OF THE LETTER OF CREDIT. THEREFORE WE HAVE TO INSISIT ON REFUSAL AND WAITING YOUR FURTHER INSTRUCTIONS.”

The B/L of Lading that we sent mentioned the following lines being referred above by the Deutsche Bank:

“IN WITNESS WHERE OF ONE (1) ORIGINAL BILL OF LADING HAS BEEN SIGNED IF NOT OTHERWISE STATED ABOVE, THE SAME BEING ACCOMPLISHED THE OTHER(S), IF ANY, TO BE VOID. IF REQUIRED BY THE CARRIER ONE (1) ORIGINAL BILL OF LADING MUST BE SURRENDERED DULY ENDORSED IN EXCHANGE FOR THE GOODS OR DELIVERY ORDER”

I would like to add that, the back side of the B/L under clause 4. NEGOTIABILTY OF GOODS SAYS THE FOLLOWING:

(1) THE B/L SHALL BE NON-NEGOTIABLE UNLESS MADE OUT TO ORDER IN WHICH EVENT IT SHALL BE NEGOTIABLE AND SHALL CONSITTUTE TITLE TO THE GOODS AND THE HOLDER SHALL BE ENTITILED TO RECEIVE GOODS OT TO TRANSFER THE GOODS HERE DESCRIBED.

We feel that Deutsche Bank is talking nonsense as docs are to be examined as per ISBP and UCP 600. Discrepancy on mere Deutsche Bank’s interpretation doesn’t make sense. One can interpret anything. If there is something beyond the scope of the UCP 600, ISBP then there may well 100s of interpretations. May be I am missing something and that is why i am seeking a Guru’s help here..

Please reply asap…
Muhammad Asim

[jmitra]

its a sad case. you are in a system fault. i am afraid that as per my understanding, the issuing bank is right. im quoting part of ICC opinion 675rev here which may be applicable here

However, this query relates specifically to a question as to whether a condition in a credit stating "bills of lading that on their face indicate that goods may be released without presentation of an original bill of lading are not acceptable" would be applicable for a bill of lading issued in negotiable form where the wording of the bill of lading refers to the applicability of a delivery clause in circumstances in which it is issued in a non-negotiable or negotiable form.

anybody with some better opinion?

[ramisy2k]

Dear Jmitra..

Thanks for your message, may I know what is meant by system fault? The docs are at Confirming Bank (Deutsche Bank) and as Deutsche Bank is still holding the docs at thier counter and have not forwaded to issuing bank..What should we do now?

regards
Asim

[shahriar]

The same opinion ends up with decision that the clause is a terms and condition and will be ignored and thereore no discrepancy. However the emphasis was on specific wording. Not sure whether we can apply this here. There is another reference on if required clause. Will try to find and put here tomorrow morning.

[ramisy2k]

Dear Jmitra, Shahriar

Would you please explain you messaged a in detail? Do you think German bank is wrong? Do we any sound argument to prove?

Please explain..

regards
Asim

[jmitra]

Dear Asim,

i think i made my position clear in the last post. the requirement of a negotiable bill is that goods will only be released against the original bill of lading. otherwise its discrepant. opinion TA675 says that if such clause does not relates to the delivery then its a terms and condition and will not be examined. but in your case its a delivery clause and therefore can not be treated as terms and condition. its a discrepancy therefore. its a long going battle between the shipping industry and bankers. i hope your presentation will be accepted by the applicant

[ajoy]

Dear Asim,

The essential question is Is there a possibility ( howsoever small or disputable) that the shipping company in this case can release goods without surrender of an original BL
I think there is such apossibility and hence the docs would be discrepant.

The releavant terms and conditions in current case from your post are as below:

A.

“IN WITNESS WHERE OF ONE (1) ORIGINAL BILL OF LADING HAS BEEN SIGNED IF NOT OTHERWISE STATED ABOVE, THE SAME BEING ACCOMPLISHED THE OTHER(S), IF ANY, TO BE VOID. IF REQUIRED BY THE CARRIER ONE (1) ORIGINAL BILL OF LADING MUST BE SURRENDERED DULY ENDORSED IN EXCHANGE FOR THE GOODS OR DELIVERY ORDER”

B.

I would like to add that, the back side of the B/L under clause 4. NEGOTIABILTY OF GOODS SAYS THE FOLLOWING:

(1) THE B/L SHALL BE NON-NEGOTIABLE UNLESS MADE OUT TO ORDER IN WHICH EVENT IT SHALL BE NEGOTIABLE AND SHALL CONSITTUTE TITLE TO THE GOODS AND THE HOLDER SHALL BE ENTITILED TO RECEIVE GOODS OT TO TRANSFER THE GOODS HERE DESCRIBED.

From above cluases it is implied that in normal circumstances the shipping company shall require a B/L for release of goods, if BL is negotiable . However ,it is also fair to interpret that the 'if required' clause can apply to a negotiable B/L in some circumstances. Thus, the shipper may release goods without a B/L in some situations where docs are delayed and goods are incurring demuurage or possible damage even if the BL is negotiable. While you could dispute this interpretation it is still possible. Please note that In B above a distinction is made between non nego and nego B/L but there is no reference to the 'If required ' clause

Now , compare above clauses to the clauses in TA 675 which came up in the discussion:

Where the bill of lading is non-negotiable, the Carrier may give delivery of the Goods to the named consignee upon reasonable proof of identity and without requiring surrender of an original bill of lading. Where the bill of lading is negotiable, the Merchant is obliged to surrender one original, duly endorsed, in exchange for the Goods. [Emphasis added]

Here the clauses make it unambiguosly clear that goods will not be surrendered without the surrendering of an original BL if the BL is negotiable.

So, if I was the confirming/ issuing/presenting bank I would point this out as a discrepancy as there is a possibility that the shipping company may be able to use the 'If required clause'.

I suspect that bank B simply missed the discrepancy otherwise they would have contested it even before coming back to you. I also wish that bank D had explained thier reasons for rejection better instead of referring to UCP and ISBP .... it would have saved time for you...

If you do want to contest Bank D I think you could try arguing that since the BL is negotiable the ' If required ' clause does not apply and quote the relavant clauses. You might also want to read the terms and conditions again and see if you can find something which clearly implies that the 'if required' clause does not apply when the B/L is negotiable . With the information we have now ,I doubt if you or Bank B can convince bank D to retract.

Also a suggestion, irrespective of whether you agree that this is a discrepancy or not it would be a good idea to talk with your buyers right away ( maybe send them a copy of B/L ) before the docs reach the IB counters and make sure they understand the issue, and talk with the Issuing bank and accept the docs otherwise there might be more delays.

You could even ask applicant to send an authenticated message from issuing bank to the confirming bank asking them to accept the BL provided there are no other issues than the 'if required clause'.

I do think though that the buyer will accept this discrepancy ultimately or better even agree with you that there is no discrepancy. So good luck.

Comments welcome.

Cheers

[nesarul]

Dear all,
I personally don't think that TA 675 rev is applicable here because in that specific case there was a clear condition [emphasis added] on the letter of credit regarding releasing of document without production of bill of lading.

The fact that ICC Denmark asked ICC banking commission regarding above fact but failed to received specific comments from ICC banking commission which is why the following quotation was made by the ICC banking commission in that TA 675rev.

By a letter, dated 23 October 2008, addressed to the members and observers of the ICC Commission on Banking Technique and Practice, the ICC Commission on Commercial Law and Practice, the ICC Commission on Transport and Logistics, and ICC National Committees and Groups, the Secretary General of the ICC made it clear that no opinion could be given in relation to the issues surrounding bills of lading

.
From above quotation, it has been revealed that Banking commission is yet to response on above query. so making or searching any reference from ICC is abortive.[from my point of view]
.
From my point of view:
Shipping industry practice and banking practice under international trade has got some differentiation. Every one should have maintain this sharp distinction so that he/she can identified as banker. I would consider it as a part of terms and conditions and thereby doesn't constitute discrepant.
.
But my logic doesn't provide any value in this particular case. I think IB should disregard the mentioned discrepancy as the same is a part of terms and condition followed by seeking an ICC banking commission opinion in this regard.
best wishes for issuing bank
nesar

[shahriar]

I think the judgment depends on the single issue now. whether to treat the clause as a terms and condition or not. if we treat this as a terms and condition, it will be disregarded in any situation [Emphasis]. now as i look back to the clause, i see that there are some vital information inside

“IN WITNESS WHERE OF ONE (1) ORIGINAL BILL OF LADING HAS BEEN SIGNED IF NOT OTHERWISE STATED ABOVE, THE SAME BEING ACCOMPLISHED THE OTHER(S), IF ANY, TO BE VOID. IF REQUIRED BY THE CARRIER ONE (1) (ORIGINAL BILL OF LADING MUST BE SURRENDERED DULY ENDORSED IN EXCHANGE FOR THE GOODS OR DELIVERY ORDER”

Its not uncommon to find the number of original issued from this section of a bill of lading which is generally placed just above the signature area. while we are fetching information from part of a clause, can we consider part of it or in fact two words of it ("if required") as terms and condition? i think we can not. if we are to consider this as a terms and condition, then we should consider all the bill of lading discrepant which does not show the number of original issued on the face of the Bill of lading.

[sunny]

From the shipping industry point of view the 'if required' is used when a straight BL is presented rather than 'to order'
In this case B/L was issued to order and 'if required' is not applicable here.
I know Deutsche Bank that make such mistakes....

[ajoy]

Dear All,

I think the issues are :

1) Is this BL negotiable ?
2) Can we ignore the 'if required' clause as 'terms and conditions'?

In effect it is one issue really :

Is the BL submitted indisputably and under all circumstances without exception a negotiable BL wherein goods will not be released by shipping co without surrender of original BL?

I think it is not clear from the BL itself ? Hence my contention remains.

I do agree that the arguments on this forum, the TA , ICC letters etc all need to be considered and so do teh arguments on this post but are any of them conclusive and doubtlessly correct.

I also think that in practice, the shiping co is not likely to release the goods without a surrender of an original negotiable BL (or without a shipping guarantee under its absence) whatever the circumstances.

As bankers we also recognise that industry practices change and we need to move with times but the fact remains that this clause has not been tested in a court of law.

To conclude we cannot be absolutely certain of whether or not the this BL is negotiable indisputably and under all circumstances. In other words there is a possibility that the shipping co can release goods at thier discretion without the BL howsoever remote the possibility.

Hence my contention that the Bl should be treated as discrepant and not meeting LC requirements.

Asim, do let us know the final outcome so we all learn on this one....so we learn foranother day...

( Disclaimer: I continue to reserve my birthright to be absolutely wrong

Cheers

[nesarul]

Deal all,
i hereby made a reference from frequently asked question on that issue :
Pls find question no. 20.25 and 20.34
regards
nesar

[Judith]

I'd like to add my two bits. (Please note that I share Ajoy's birthright )
Incidentally, this is an old standing issue and as far as I know has not been resolved by the ICC. There are arguements for both sides.

However, I think most most bankers would agree that the notation:
(1) THE B/L SHALL BE NON-NEGOTIABLE UNLESS MADE OUT TO ORDER IN WHICH EVENT IT SHALL BE NEGOTIABLE AND SHALL CONSITTUTE TITLE TO THE GOODS AND THE HOLDER SHALL BE ENTITILED TO RECEIVE GOODS OT TO TRANSFER THE GOODS HERE DESCRIBED.
is most defintely part of "terms and conditions" and will not be examined.

However, with regards to this notation "IF REQUIRED BY THE CARRIER ONE (1) ORIGINAL BILL OF LADING MUST BE SURRENDERED DULY ENDORSED IN EXCHANGE FOR THE GOODS OR DELIVERY ORDER": Is this part of "terms and conditions"?
If yes: documents are clean
If no: documents are discrepant

Personally, I think I not treat it as "terms and conditions" and therefore consider the B/L discrepant in light of the fact that the credit requires a "To order" consignment.

[ramisy2k]

Dear All,
Please note that the B/L is negotiable and is consigned to order. there is watermark on it that is a negotiable BL and it is also cosigned to order. We feel that "if required" clause is part of the terms and conditions of the carrier so what is our fault if they have mentioned it? Anyway, we would take German Bank to the wire and have sent the following in a fax to our Barclays Bank to send to "D" bank. We are waiting for the result. We have derived this answer from our understanding and also you all people's kind help for which i am grateful. We have tried to prove our point to "D" bank. Lets see what happens. I would keep all of you posted. Here is the message that we sent to Barcalys Bank. Once again thanks to all your genious people. Love this forum.

QUOTE
REFER TO YOUR MT 799 DD 28.08.09, WE WOULD LIKE YOU TO PLEASE NOTE THE FOLLOWING POINTS:

1. AS PER UCP 600 ARTICLE 20 (V) WHICH STATES "CONTENTS OF TERMS AND CONDITIONS OF CARRIAGE WILL NOT BE EXAMINED" AND THIS PHRASE “IF REQUIRED CLASUE” ON THE BILL IS A TERM OF CARRIAGE. SO IT CANNOT BE CONSIDERED AT ALL WHILE CHECKING THE DOCUMENTS. SO YOUR DISCREPANCY IS INVALID.

2. PLEASE REFER TO “ICC OFFICIAL OPINION TA675 REV UNPUBLISHED UCP 600 (APPROVED MARCH 2009 REGARDING RELEASE OF THE CARGO) AS PER WHICH “THIS OPINION DRAWS A LINE BETWEEN THE DATA THAT IS TO BE EXAMINED FOR COMPLIANCE AND THAT DATA WHICH IS CONSIDERED TO BE TERMS AND CONDITIONS OF CARRIAGE OR CARRIER. FOR EXAMPLE, DATA REFERRING TO THE ON BOARD NATURE OF THE BILL OF LADING IS TO BE EXAMINED. HOWEVER, DATA REFERRING TO THE ACTION OF THE CARRIER IN THE RELEASE OF THE CARGO IS CONSIDERED TO BE TERMS AND CONDITIONSOF CARRIAGE.”

3. ARTICLE 20 OF UCP 600 DOES NOT COMMENT ON WHETHER THE BILL OF LADING SHOULD BE NEGOTIABLE OR NOT.THE L/C ALSO DOES NOT DIRECTLY CALLS FOR A NEGOTIABLE B/L. INSPITE OF THIS THE PRESENTED BILL OF LADING IS ISSUED TO ORDER OF THE NAMED PARTY AND IS A NEGOTIABLE BL. ALSO B/L DOES NOT STATE THAT THE GOODS WOULD BE RELEASED WITHOUT THE PRESENTATION OF AN ORIGINAL B/L. SO IT IS NEGOTIABLE DOCUMENT BY ALL COUNTS. WE WOULD ALSO LIKE TO HIGHLIGHT THAT NON-NEGOTAIBLE B/L AND BEING NON-NEGOTIABLE CHARACTER OF THE B/L ARE TWO DIFFERENT THINGS. YOU ARE CREATING ASUMPTIONS ONE AFTER ANOTHER AS MERE ASUMPTIONS WOULD NOT MAKE THE BL’S NON-NEGOTIABLE.

4. THIS LETTER OF CREDIT IS SUBJECT TO THE LATEST VERSION OF UCP ISSUED BY ICC AND ACCORDING TO WHICH THE DOCUMENTS ARE TO BE CHECKED ACCORDING TO UCP 600 AND ISBP 681. ONE CANNOT ANALYZE DOCS BASED ON PERSONAL INTERPRETATION AND ASSUMPTIONS JUST BECUASED THE IS NO DIRECT OR SPECIFIC ARTICLE TO BE FOUND IN UCP FOR SUCH CASE. IF THERE IS SOMETHING BEYOND THE SCOPE OF THE UCP 600&ISBP THEN THERE MAY WELL BE 100S OF INTERPRETATIONS. WE INTERPRET THE SO CALLED “IF REQUIRED” CLAUSE AS “THE CARRIER MAY RELEASE THE CARGO AGAINST ONE ORIGINAL BL DULY ENDORSED INSTEAD OF 3/3 OBLS. SO THE WORDS “IF REQUIRED” DOESN’T NECESSARILIY MEAN THE CAREER MAY NOT NEED 1/3 OR 3/3 OBLS AT ALL TO RELEASE THE CARGO TO THE NAMED PARTY OR CONSIGNEE. YOUR DESCREPANCY BASED ON INTERPRETATIONS IS NOT IN THE SCOPE OF DOCUMENTS CHECKING. AS PER UCP/ISBP DOCUMENTS ARE TO BE CHECKED ON ITS FACE VALUE NOT ON CREATING HYPOTHETICAL ASSUMPTIONS WHICH CANNOT BE SUPPORTED BY THE RULES SET BY ICC.

5. SINCE IT HAS ALREADY BEEN ADMITED IN WRITING BY YOUR GOOD SELF THAT YOU CANNOT SUPPORT YOUR REFUSAL OF DISCREPANCY THROUGH EITHER UCP600 OR ISBP SO AS CONFIRMING BANK YOU CANNOT MAKE UP YOUR OWN DISCREPANCIES OR RULES BASED ON YOUR INTERPRETATIONS WITHOUT BACKING THEM UP THROUGH UCP OR ISBP - IF YOU CANNOT QUOTE THE RELEVENT ARTICLE THEN THERE ARE NO GROUNDS TO CALL IT AS A DISCREPANCY. KEEPING IN VIEW OF THE ABOVE POINTS, WE INSIST TO DEMAND IMMEDIATE HONORUING OF DOCUMENTS AND THE SETTLEMENT OF PAYMENT.
UNQUOTE

[ajoy]

Will wait for further updates.

Although we have a differnce of opinion on this I do want to say that this is a very well drafted response.

Good luck

Cheers.

[ajoy]

Waiting for the update on your case Asim.

All the more beacuse this has been a contentious issue where ICC intialy took one stand then revoked it and then effectively advised that banks have to decide themselves on a case to case basis.

The reolution of this case may or may not help us form an opinion but it will certainly give us some hints in teh right direction.

Cheers


Ajoy

[ramisy2k]

Dear Friend

I had been ill since then today joined my office. I would check tomorrow with my docs department what was the result. I think that there was no further response from "D" bank nor from Barclays Bank (our bank), after our last message to them which I copy-pasted in this thread, otherwise my docs department would have called me. I am also curious to know about the result.

I shall update you..

regards
Asim

[cristiand969]

I came across with a very similar situation on a b/l bearing such ' if required' clause. However, in other part of same document it is stated' original B/L must be surrendered to XYZ (identified as agent of carrier at destination).
I simply treat this as overwriting the preprinted wording 'if required' clause (whether or not such clause will be seen by anyone discrepant)
Pls review once again document to see whether you have some additional clause.

[narisa]

Dear Ramisy2k
In my point of view "if required clause" is part of terms and condition,so it will not be examined and can not treat as discrepant dox whether or not it consign to order or streight consigned.
rgds