Responses to Mr. Cameron's Proposals

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26 December 2005

To: The Chair and Members
Canadian Working Party on the
ICC Commission on Banking Technique and Practice

Dear Members of the CWP,
I am glad to respond to the message presented by Bill Cameron. Basically I agree with his proposals and would like to add some modifications as follows:
1 Discounting of Deferred Payment Credits
One of the many purposes in the revision of UCP 500 is to remove the threat of fraud exception as evidenced in the Santander Case of UK. However, in USA, according to UCC Article 5, this is not a problem.
Mr. Cameron proposes the concept that when the Nominated Bank discounts a deferred payment undertaking, the payment obligation of the Issuing Bank towards the Beneficiary would be extinguished and shifted to the Nominated Bank. However, Mr. Cameron's concept would be valid only if the discounting were authorized by the Issuing Bank. If the discount is unauthorized, then it may be a different story as the Issuing Bank may refuse reimbursement because the mandate of the letter of credit has not been followed strictly. If in the Santander case, the discounting were authorized, the judicial decision would be reversed. Hence another barrier that Mr. Cameron has to clear is whether an unauthorized discounting would entitle the Nominated Bank for reimbursement. This is not an easy hurdle to clear and Mr. Cameron must provide a legal support for his opinion.
2 Standard for Examination of Documents
Mr. Cameron proposes that in checking for inconsistency in the same document, or amongst the documents, the document checker will restrict to only those data content stated in the letter of credit. I would like to add that the document checker should include those inconsistencies that are material to the underlying transaction. For example, the letter of credit requires a liner bill of lading, and the liner bill of lading presented bears a stamp "FIO". This should be a valid discrepancy because it is material to the underlying transaction. In liner terms, which a liner bill of lading is subject to, the carrier pays for the costs of loading and discharge whereas in FIO, the carrier is not responsible for the costs of loading and discharge. Another example is that in a packing list, the net and gross weights (not appearing to be typo errors) are different from that shown in the bill of lading, whereas the letter of credit has not mentioned net and gross weights. This should be a valid discrepancy because such inconsistency is material to the underlying transaction.
So from common sense point of view, I would add that any inconsistency in the document itself or with other documents should be examined for inconsistency if such inconsistency is material to the underlying transaction, even if the letter if credit is silent on such requirements.
3 Authentication
I think Article 20 (d) of UCP 500 has given clear provisions for authentication. It is adequate to add to this sub-Article "a document bearing an authentication is an original for the sake of presentation".
Merry Christmas & A Happy New Year!
T. O.

This document is the 1st episode of T.O. Lee's correspondence with Mr. Bill Cameron.

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