Are Drarts part of required documents ?

Dear Nguyen Huu Duc

I do not think there is a straight forward answer: An simple answer (or
rather wish) would be that draft are not used in LC - and should
certainly not be used to refuse documents!!

Anyway - I have copied a string from the "DC-Pro focus discussion
forum"which will give you various angles to this. Please bear in mind
that this is from a closed forum - so this is for your eyes only.

Thanks for asking - let me know if you far further questions or
comments.

Thanks and have a nice weekend.

Kim



--------------------------
Drafts, Bills of Exchange under LCs - local law?

MatsS - Sweden
Posted 06 Feb 07 | Edit | Delete


Dear all,
I would venture to ask you whether you have come across a query as
470/T.A 608rev1, No 9, Banking Commission Opinion Fall 2006, the issue
was whether a nominated acted correctly not accepting the draft titled
"Bill of Exchange" instead of "Pay against this draft". The conclusion
made clear that the draft should be issued in a manner acceptable to the
local law at the place of payment, acceptance or negotiation. We are
some people in our bank who are a bit concerned over this. In general -
legal matters should be kept outside of LCs, otherwise it will be very
difficult to open LCs negotiable by nominated banks.
(the Geneva convention for one thing is requiring in the text "Pay
against this Bill of Exchange..." and
I think the U.K convention is similar) My question to you:
Has this conclusion caused you headache lately?
Most interest in your viewpoints.
Best regards
Marianne Wabnik/SEB




DanielD - Switzerland
Posted 07 Feb 07 | Edit | Delete


Marianne,
No headache so far, but I agree a draft should be issued according to
the appropriate local law. I mean if a beneficiary in Geneva presents
the documents and a draft, I expect the draft to be issued according to
the Swiss law (manually signed for instance even if UCP accepts other
ways for signing a document).
Just for the fun, a sentence of a lawyer about bills of exchange quoted
from the book by Raymond Jack "Documentary Credits" : " I do wish people
wouldn't use these things, they cause nothing but trouble
Daniel




JSMITH - United Kingdom
Posted 07 Feb 07 | Edit | Delete


Marianne,

I believe the question of bills of exchange is surrounded by much
confusion. You only have to see DOCDEX DECISION 260 (and my posting @ http://focus.dcprofessional.com/DCPRO_F_CODE/Dcpro-LevelOne.asp?dcpropag
e=View%20Topic&Locator=7.10&tid=800#4945) to see that.

See also CREDIT INDUSTRIEL ET COMMERCIAL v CHINA MERCHANTS BANK at: http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Comm/2002/97
3.html&query=china+merchant&method=boolean
where the judge appeared -to me- to hold that drafts were not
'documents' specified under the credit and incline to the view that the
documents could not have been refused even if no drafts at all had been
presented even though specified in the credit.

Having said all that, I would anticipate (1) that most banks have
required drafts (except those drawn @ sight on themselves) to meet the
requirements of local bills of exchange law for decades and (2) that
therefore this opinion does no more than reflect widespread practice.

Regards, Jeremy


[edited 2/8/2007 1:39:14 PM]




polterd - Romania
Posted 07 Feb 07 | Edit | Delete


Marriane,
Mostly,payment undertakings of the banks are based on dc rather than
drafts. therefore you may say that the implications of the draft aren't
subject to UCP but to something outside UCP rules (like national
laws,for example).
therefore,when national law ask for something out of the ordinary (int'l
banking practice) i think an issuing bank should clearly indicate in the
dc how the draft must be issued, the informations it must evidence on.
Bogdan





JimBarnes - United States
Posted 09 Feb 07 | Edit | Delete


TA 608rev1, No. 9, says: "The draft should be issued in a manner that is
acceptable to the local law applicable to the place of payment,
acceptance or negotiation. This is a matter for local law, not the UCP."


I would be OK with this opinion if it said that a nominated negotiating
bank is free to insist on presentation of a draft in whatever form it
wants, because it is not obligated to negotiate a complying
presentation. (On this basis, not ISBP para. 51, I agree that a
nominated negotiating bank may insist that a draft be endorsed as well
as drawn by the beneficiary.)

I have a problem with the opinion treating the question as a local law
matter. The question is not whether the "draft" presented is legal or
illegal under any law. The question is what document satisfies the
requirement for presentation of a "draft" as that word appears in the
credit. SWIFT, UCP, and ISBP address the parties, amount, and tenor of a
draft but do not define "draft" and do not refer to negotiable
instruments law for a definition. Unless there is unwritten standard
international banking practice, the question of what qualifies as a
"draft" is left to be decided under the "anything goes" default rule in
UCP500 Article 21. Article 21 does not indicate that a "draft" must
qualify as such under the negotiable instruments law of one or more
countries.

I think many are uneasy about treating drafts as Article 21 documents. I
also think that there is probably enough consensus to say what forms of
demand for payment do and do not qualify under LCs that call for a
draft. Perhaps the next substantive ISBP could address this topic. In
this regard, more often than not, negotiability does not matter. (A
sight draft drawn by a beneficiary on an issuing or confirming bank does
not need to be negotiable. Negotiability does matter to a non-obligated
bank that wants a right of recourse against the drawer and endorser of a
draft drawn on another. Negotiability matters also to any person who
wants to discount or rediscount an accepted time draft.)

Our Uniform Commercial Code is specific on the point that "draft" has a
broader meaning under LC law and practice than under negotiable
instruments law. (Incidentally, our negotiable instruments law wouldn't
care about the "against the bill of exchange" language but would insist
that the instrument be made payable to "the order of" the payee.) ISP98
Rule 4.16c is also specific on this point.

Regards, Jim Barnes





polterd - Romania
Posted 09 Feb 07 | Edit | Delete


1. I think 500's art.21 applies only to informations other than those
universally accepted with regard to the form and wording of drafts.
some informations are mandatory:
name of the document (draft/bill of exchange),unconditional instruction
to pay(sight/maturity), drawee,place of payment,order notation,place and
date of issue,currency and amount,
signature and name of issuer, endorsement.
usually drafts also indicate the l/c no they are drawn under and the
invoice no they are related to.but unless issuing bank ask for this
informations, a draft not indicating them cannot be rejected.
2.regarding marianne's question art.2 of ucp500 clearly states "bills of
exchange(draft(s))". so no bank can reject a draft for being titled bill
of exchange instead of draft or vice-versa.

-----------------------------



-----Original Message-----
From: [mailto:nhduc.dng@vietcombank.com.vn]
Sent: Tuesday, January 30, 2007 5:03 AM
To: singlewindow@lcviews.com
Subject: Single Window Question

Below is the result of your feedback form. It was submitted by
(nhduc.dng@vietcombank.com.vn) on Tuesday, January 30, 2007 at 05:03:08
------------------------------------------------------------------------
---

Name: Nguyen Huu Duc

q: Dear LC Views,

According to the opinions of ICC Banking Commission and of LC experts
like T.O Lee (T.O Lee Consultants Ltd), Heinz Hertl (Bank of Austria
AG), Laurence A.J. Bacon (Ireland) ... drafts are not part of the
documents required under the credit by the applicant, and accordingly
discrepancies if any on the drafts shall not constitute the good reason
for rejection of the documents. This view is also received the support
from judges like David Steel of the English Commercial Court in
connection with the CMB vs CIC case.
I am on the side of the ICC Banking Commission and the experts. However,
I wonder why in some other court cases, discrepancies on the drafts are
still argued if they are really discrepancies and it seems that some
other people still believe the issuing bank/applicant may reject the
documents if the drafts contain discrepancies).
I will be very grateful if the LC Views' specialists give their opinions
on the matter.

Best regards,

Nguyen Huu Duc
(Vietcombank)