Non-documentary condition?

[Mr. Smith]

A credit requires:

PACKING LIST AS PER PURCHASE ORDER NO 2011/2017.

Is 'AS PER PURCHASE ORDER NO 2011/2017' a NDC per 14(h)?

I shall be grateful if you will kindly let me have your views regarding this question and thank you in advance for providing them.

[Vadim Gusev]

to be honest i am not sure this is exactly so. on the one hand, AS PER PURCHASE ORDER NO 2011/2017 may be interpreted as part of a name of the document or to be considered as a necessary declaration to be indicated on the packing list, on the other hand, and what is even worse, AS PER might be interpreted as MUST COMPLY with indicating a document with which the packing list must comply, so the LC "contains a condition" and "stipulate the document to indicate compliance" - must comply with the packing list. from the practical point of view I would indicate in the packing list "as per purchase order no 2011/2017".

[Paul Orian]

Hello there,

To my mind a negotiating bank must ask for an amendment since the purchase order is not part of the documents to be submitted.

It is akin to asking banks to check documents in terms of the contracts signed between buyers and sellers.

Regards

Paul

[Mr. Smith]

Thanks Vadim & Paul for taking the time to express your views.

Firstly, ”PACKING LIST AS PER PURCHASE ORDER NO 2011/2017” is quoted verbatim from a credit issued by an Indian bank we were asked to advise earlier in the week!

My initial reaction was that this was a NDC, i.e. a condition where the credit does not stipulate the document to indicate compliance with the condition, namely that the PL was 'AS PER PURCHASE ORDER NO 2011/2017'.

What made me pause for thought was that on re-reading 14(h) it seems to be drafted only to cover conditions that do not expressly relate to any document mentioned in the credit. For example, a condition in the ‘additional conditions’ simply stating:

‘Packaging must be suitable for exportation.’

In other words, 14(h) does not appear to be drafted to relate to a condition that clearly relates to a stipulated document, by reason of the drafting of the credit, as in my example above. (I would stress I am not advancing the UCP500 Position Paper 3 ‘linkage’ argument in any shape or form.) Therefore, as the condition in question clearly relates to a stipulated document it cannot be treated as a NDC.

Vadim, I found your argument that this could be regarded as simply being the title of the document required interesting; it certainly had not occurred to me and I have to admit I have not been able to come up with a convincing (to me) rebuttal so far to this. As this approach achieves the desired effect (see below) anyway I shall not rack my brain further on the question.

Overall, I think that the applicant must state the packing list 'AS PER PURCHASE ORDER NO 2011/2017' but that is as far as it goes, i.e. there is certainly not any question of a bank having to establish the PL is actually AS PER PURCHASE ORDER NO 2011/2017 given the provisions of UCP600, e.g. Article 5.

Regards, Mr. Smith

[Vadim Gusev]

quote
there is certainly not any question of a bank having to establish the PL is actually AS PER PURCHASE ORDER NO 2011/2017 given the provisions of UCP600, e.g. Article 5.
unquote

EXACTLY

[tshilpi]

Mr. Smith,

Is 'AS PER PURCHASE ORDER NO 2011/2017' a NDC per 14(h)?

Yes it is. Some of the Indian Banks are not updated in the UCP revisions and are still following UCP 500. This may be by virtue of the lack of training or resistance to accept changes in their existing system of LC issuance (which is absolutely ridiculous).

Firstly, UCP 600, Article 4, clearly states:

a. A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit.
b. An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.

Secondly, if the issuing bank has mentioned "as per purchase order/contract", negotiating banks are in no way required to check the document with the underlying for a compliance. Even the issuing bank, after the receipt of the document cannot refuse the same on any ground.

Either the beneficiary must seek amendment in the LC or the document is to be accepted as presented.

I have myself experienced this wherein one of my banks mentioned "Specifications of the material must be as per contract dated XXX dated XXX". Beneficiary presented the documents with specifications different from what as agreed and the issuing bank could not reject the documents. The dispute had to be taken seperately between buyer and the seller.

Other Comments are welcome!