Is a Draft a Document?

(This article can also be viewed on lcviews.com - Single Window Question)
Question from Nguyen Huu Duc

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

Answer from Abdulkader Bazara

Position : Product Manager, Trade Finance, Samba Financial Group
Contact : Abdulkader.Bazara@samba.com

It would be difficult to make a general statement. It depends on the circumstance. I would agree that, in many circumstances, banks may not need to call for drafts but there could also be reasons to do so – examples:

a) beneficiary requires the draft for the purpose of post export finance
b) maturity for payment is to be calculated from the date of a draft.
c) Etc

In any case, if a credit calls for a draft and if a draft is presented, discrepancies similar to the following could be serious and may have adverse legal implications:

1. Draft amount higher than the LC value / invoice value.
2. Drawer or drawee on the draft a party other than the party stated in the LC (or the issuing bank).
3. Wrong endorsement on the draft. Let's say that the draft is endorsed to another legal entity (not the nominated bank or advising) but still presented by the beneficiary along with the documents for payment.

In practice many banks usually ignore discrepanices of the following natures:

1. draft is missing (sight LCs)
2. LC number is missing from the draft
3. draft is not endorsed

Best regards,
Abdulkader Bazara