4．Description of goods under a
credit; linkage between
documents; compliance and
consistency
Query
We have a number of queries as
Described hereunder:
1) What is the importance of the ‘description of goods’ under a credit?
2) a) Does the ‘description of goods’ represent the bulk of the goods to be transacted under a credit?
b) Article 4 of UCP 500 states:
‘In credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.’ In other words, payment is made not against the transfer of the goods but against the documents. Does this mean that the documents presented under a credit represent the goods themselves?
3） a) Sub-Article 37(c) of UCP 500 states:
‘The description of the goods in the commercial invoice must correspond with the description in the credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the credit.’ Do the words ‘may be’ refer to the ‘description of goods’ in all other documents? Can there be some flexibility in describing in general terms rather than the full description as stipulated in the credit?
b) Is it implied that the ‘description of the goods’, at least in general terms, ought to be shown in each document?
4) According to case number 23 of the Case Studies on Documentary Credits under UCP 500, ICC Publication No. 535,
a) Does the style number 23 of the goods apply to the general terms of the description of the goods, which is a clear-cut link to the stipulated credit?
b) Does the commercial invoice number imply another obvious link to the same transaction, since the commercial invoice is a key document in a transaction?
c) Does the quantity under this case become a subsidiary link (data content) to ensure that the packing list presented is not inconsistent with other stipulated documents?
d) Does it mean that the packing list is not only consistent with itself, but also incorporates to some extent the particulars given in the other documents?
5) a) If the goods are described in general terms in all other documents, the identification of the goods will be unequivocal. Is this correct?
b) Can you suggest some possible identification marks in general to identify the goods with reasonable certainty?
6) Is the negotiating or issuing bank able to argue that the quantity of the goods can be regarded as general terms construct a sufficient link amongst certificates issued by the beneficiary and the other documents required under the credit? (e.g. certificates merely show the quantity of goods shipped without any form of description, whereas the other documents show the quantity as well as a full description).
7) Is the negotiating bank right that the quantity of the goods can be regarded as general terms to construct a sufficient link amongst any certificates and the other related documents so that they refer to one and the same goods?
8) What are the meanings of ‘compliance’ and ‘consistency’ under UCP 500
Analysis and conclusion
Point 1
Article 4 of UCP 500 makes the clear distinction that banks deal with documents and not with goods, services and/or other performances to which the documents may relate. Therefore, the importance of the description of goods is one for the beneficiary to ensure that the correct goods are delivered and for the banks to ensure that documents are presented purportedly covering the goods requested.
Point 2
a) The description of goods stated in a credit
Under the heading “covering” or similar should represent all the goods that an importer requires for that transaction. It is the responsibility of the applicant to ensure that the goods description mentioned satisfies their requirements, whilst remaining precise and not including excessive detail.
b) The only documents that “represent the goods themselves” are those which convey title, such as bills of lading, and only to the extent that such document are called for in a letter of credit.
Point 3
a) Unless otherwise stated, the only document which requires a description of the goods which corresponds to that quoted in a credit is the commercial invoice. If a description of goods is given in any other document, then this may be in more general terms than that in the credit, but not in any way inconsistent.
b) Unless the credit states otherwise, there
is no requirement that a description of goods (full or in general terms) must appear on all documents. However, a bank requires to see some form of “linkage” between the documents presented and/or the letter of credit terms. A goods description, in full or general terms, would be one means of achieving this.
Point 4
a) A style number could perform the function of providing a linkage between documents.
b) A commercial invoice number could
perform the function of providing a linkage between documents.
c) Quantity of goods could be a means of
providing linkage.
b) The packing list must contain information which is required by the credit and may include other details, provided that such additional detail is not inconsistent with that shown on any other document.
Point 5
a) The describing of goods in any document, whether in full or general terms, is merely for the benefit of the documents themselves. It can provide no real identification as to the goods actually shipped.
b) One way of monitoring what is actually shipped is to have inspection occur at the point of packing/loading. Identification marks are a documentary requirement and are not necessarily linked to the goods themselves.
Point 6
If the credit provides a quantity of
goods to be shipped and certificates
make reference to this among the
other information that was required
to appear, this may constitute a
sufficient link. Any definitive answer
would need to be on a case-by-case
basis.
Point 7
(See Point 6)
Point 8
Compliance is the presentation of documents which meet the requirements of the individual credit(s) in their terms and conditions, together with the stipulations that are written into the articles of UCP that may apply to that document(s). Consistency occurs when information quoted on one document is transposed onto another stipulated document in the same detail (e.g. weights, measurements, shipping marks, etc.). This applies whether or not the credit or the individual document required this information to appear. UCP 500 sub-Article 13(a) makes the clear statement that “Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit.”
5．Consequences of an original B/L being sent to the applicant or to a third party
Query
Some L/Cs stipulate that 1/3 bill of lading is to be sent direct to the openers or third party. If the bank discounts under such L/C, apparently with no discrepancies, can the L/C opening bank refuse payment on some flimsy grounds?
We may add that once 1/3 B/L is released, the negotiating bank loses control of the goods. Such drawing in effect becomes clean (instead of documentary). Mere possession of documents, held with opening bank of account of negotiating bank, is immaterial because the goods are released.
We are of the opinion that in such case the L/C opening bank must pay the bill regardless of any discrepancies.
Analysis
UCP 500 Article 4 makes a clear distinction that “ In credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.”
Conclusion
With this in mind, the answer to your question lies in the fact that the documents must conform to the terms of the credit, irrespective of whether or not an original bill of lading has been sent direct to the applicant or third party the issuing bank is only obliged to pay on receipt of conforming documents.
While we can occasionally see the necessity for one original bill of lading to be sent directly, the beneficiary should be aware of the possible consequences, as ourlined in the query, when accepting a credit incorporating such a consition.
The issue of whether or not the discrepancies are considered valid is one for resolution between the nominated and issuing banks.
