The terms that banks employ when sending unchecked/discrepant documents to the issuing bank cause much confusion. Terms such as ‘documents in trust’, ‘documents on collection’ and, from what you say, ‘documents on approval’ are all used to describe the SAME process. The term ‘documents on collection’, in particular, can lead to serious misunderstandings, with the issuing bank sometimes treating the documents as a true collection, under URC522. Although long-winded, my opinion is that it is best simply to talk of sending documents to the issuing bank under protection of the credit for examination, and for one’s remitting schedule to make clear this is the purpose for, and basis on, which one has despatched documents.

According to Charles del Busto, documents with known discrepancies presented to the issuing bank should be sent "for PAYMENT against the DC under UCP 500" to avoid being misunderstood and processed as if it were under ICC Documentary Collections Rules URC 522.

Presentation "for payment against the DC under UCP 500" would require the issuing bank to comply with Articles 13 & 14 of the UCP 500.

http://www.tolee.com

In fact that is the same. Mine opinion is that By L/C /UCP 500/ is better to
use >approval basis<.Term >collection
basis< is more related on other instrument-collection-/URR 522/
regards
Lj.Holik, Novi Sad, Yugoslavia

I agree with the opinion that it is more advisible to use "on approval basis" or "in trust" terms, but on the other hand if docs are sent "on collection basis" without any clear indication that the presentation is to be subject to URC 522, it is still being made under protection of UCP500. The appropriate way is that one suggested by T.O.Lee, for instance.
Regards,
Pavel Andrle
[edited 12/2/01 4:14:03 PM]

Our thanks to Pavel for his recommendation of our suggested wordings.

A CASE OF INVALID TYPO DISCREPANCY

Now let us bring the issue to a further depth and share with members our views gained in resolving DC disputes.

Let us imagine that we have an immaterial typo error, such as a telephone number of the notifying party in a bill of lading which we cannot cure due to lots of reasons, such as pressure of time or the bill of lading is issued in a place other than the port of loading and the like.

EXERCISING OUR RIGHTS OR ASKING FOR MERCY?

If we point out the typo error to the issuing bank as a honest person and at the same time present documents "for payment under UCP 500", we may still deny the validity of this typo error discrepancy in a court of laws. Pointing it out as typo does not necessarily mean that we deem it as a valid discrepancy. By saying "presentation for payment" we are in fact exercising our right as a beneficiary to "demand payment".

If we present documents "for approval", we may give an unclear signal or imprecise instruction to the issuing bank that we admit the typo as a valid discrepancy and ask for merciful "approval".

DC AND TRUST ARE ENTIRELY DIFFERENT THINGS

Similarly, prsentation "in trust" may be interpreted as appointing the issuing bank as a "trustee" that is then empowered to determine the typo as a valid discrepancy which the beneficiary as a "settlor/principal" cannot deny later. In fact trust and DC are two entirely different things and we should not use terms unless we understand them fully and have caution of the possible confusions or misinterpretations.
We think in a court of laws, the barrister representing the issuing bank would most probably make such interpretations to protect his clients. Then we may regret that we have chosen those words.

AVOID THE WORD DISCREPANCY

From risk management point of view, we would recommend our clients not to use the word "discrepancy" in their covering letter but rather use "typo error" for absolute safety and clarity.

Which wording you prefer? It is entirely up to you. For those who do this sort of presentation quite frequently, it is now time to seek your legal counsel to get this straight once and for all.

DISCLAIMER

Our opinions expressed above are solely for discussion purposes and you should not rely or act on them without first seeking legal counsel. We have not any responsibility or liability on our parts for any damages, losses or consequences of whatever nature.

http://www.tolee.com

[edited 12/2/01 6:53:17 PM]

In such circumstances I would recommend an instruction to "forward documents to the issuing bank for examination under UCP 500".

From the beneficiary's viewpoint there is no admission of discrepancy. From the nominated bank's viewpoint, the instruction is to examine (for discrepancies) the documents presented. This does not preclude the nominated bank from listing its alleged discrepancies, but the above instruction requires the issuing bank to examine the documents independently (as it should do anyway).

A PROCESS IS NOT THE AIM OR RESULT

Examination of documents is merely a PROCESS leading to THE RESULT - payment or payment decision. We present documents for payment - the end result. We are not interested in the process. That is not our aim.

CLEAR AND PRECISE INSTRUCTIONS

We think that the proposed instruction to "forward documents to the issuing bank for examination under UCP 500" is not clear and precise enough as required in DC instructions. The sole purpose for the presentation is to demand payment. This most important message must be spelt out precisely. Otherwise the issuing bank may respond:

"Thank you very much, we have examined the documents and no discrepancies are found. They are now returned to you for your disposal at your risk and cost".

If we ask the issuing bank why it does not pay us, it may say:

"We do exactly as you have instructed us - to examine the documents and nothing more!'

If this case is to be adjudicated by a Judge more inclined to literal interpretation, we may need an apeal.

We would like to share with members a good slogan from Quality Management

"Do it right the first time".

http://www.tolee.com

[edited 12/3/01 5:46:47 PM]

T. O.

a nominated bank which finds, in their opinion, a discrepancy in documents presented, may be unwilling to accept an instruction to send documents to an issuing bank "for payment". It is accepted that if this is agreeable to the nominated bank, this (for payment instruction) is the best instruction to give. However, in the absence of such agreement, an alternative wording, agreeable to both bene & nominated bank is necessary. It was this question which I addressed.

Laurence