Original or Copy: Is It Important for a Letter of Credit?
By IMBA-Exchange on The Capital
Sometimes the presentation of the original document is not possible for objective reasons, or the presentation of copies allows you to expedite the receipt of payment. In other cases, the bank should question the good faith of the parties or the validity of the transaction. Experts in the field of letter of credit settlement are well aware that determining whether a document is an original or a copy is one of the most difficult and controversial tasks when checking documents.
What criteria to follow and how to reduce the risks of their customers?
It is known that the basis for making a letter of credit payment is the submission of documents confirming the fulfillment of obligations of one party under a trade or other contract to another. The list of documents and requirements for their execution are provided for by the terms of the letter of credit. One of these requirements is an indication of in what form — the original or a copy — the document should be submitted since there is no indication of the type of document in accordance with Art. 17 of the ICC Uniform Customs and Practice for Documentary Credits (UCP 600) means the need to submit at least one original document.
Submission of the original document reduces the risk of fraud associated with the submission of counterfeit documents and increases the seller’s liability in relation to the required payment of a letter of credit, especially when it comes to documents issued by a third party, such as shipping documents, certificates of origin, quality or, for example, documents containing the results of chemical analysis of the supplied goods. An invoice containing information on the cost of the delivered goods and the amount required to be paid on the letter of credit also makes sense to demand in the original. The invoice statement is completely controlled by the beneficiary of the letter of credit. Consequently, this document can no doubt be presented in the original. It is advisable to do the same with other documents if it clearly follows from the requirements for their execution that they will be written out by the beneficiary.
Nevertheless, sometimes the presentation of the document in the original is impossible for objective reasons or the beneficiary wants to expedite the receipt of payment without making himself dependent on the ownership of the originals of documents written by a third party. For example, according to the terms of a trade contract, the original certificate of origin of goods must be transferred to the applicant of the letter of credit upon shipment to undergo customs procedures, which must take place earlier than the payment of the letter of credit. Or on the terms of delivery of Ex Works, Incoterms 2010, according to which the seller is not responsible for concluding a contract of carriage, the seller wishes to receive payment for the shipped goods, providing only a copy of the CMR. The acceleration of receipt of payment, which also takes place as the reason for the submission of copies, is true if the beneficiary is sufficiently geographically distant from the place of submission, and for such cases, the submission of copies can be combined with their transfer to the executing bank via electronic communication channels. In other cases, the request to open a letter of credit with the condition of payments against copies of all or part of the documents required by the letter of credit should raise questions about the reason for such treatment, and sometimes about the validity of the underlying trade transaction as a whole.
Criteria for determining the type of document
On the one hand, Art. 17b UCP 600 gives an unambiguous definition of the original, the meaning of which is that any document with the original signature, mark, stamp and other original identifiers of the person who wrote the document is considered to be the original unless the document clearly indicates that it is not the original. In simple words, the document is not marked as a copy.
On the other hand, in practice, there are many cases where a document looks like a copy, but it is impossible to definitely state that the issuer did not intend to create the document in the original. Therefore, the following art. 17c UCP 600 explains in detail in what other cases the document will be recognized as the original. When describing such cases, the word “appears” (“looks like”) is used to expand the boundaries of recognition of a document as an original in the face of changing document manufacturing technologies.
Many questions on determining whether a document is an original or a copy were found in the ICC Banking Commission Decision “Defining the” original “document in the context of UCP 500, subsection 20b, which subsequently formed the basis of UCP 600 and today is an annex to him, without losing its relevance.
* The determination of an ‘Original’ document in the context of UCP 500 sub-article 20(b) — A Decision prepared by the ICC Commission on Banking Technique and Practice.
Bank actions upon customer request for opening a letter of credit with copies
How important it is to present the original documents instead of copies is most clearly seen in the example of transport documents confirming the fact of the shipment of goods. Separate rules are created for each type of transport document depending on the method of transportation (by water, land, and air) in UCP 600. However, according to paragraph A6 (a) of the ISBP, they are all applied only to the originals.
Copies of transport documents should be checked only for compliance with the requirements for them if they are provided for by a letter of credit and in accordance with Art. 14f UCP 600 (does the document fulfill its function and are there any contradictions between the data in the document itself or with the data in other documents provided for by the letter of credit). The copies are not applicable as a requirement of UCP for submission within 21 days after shipment, provided for by Art. 14c, as well as any other period for presentation, indicated in the letter of credit if it does not provide for the procedure for determining the period according to the submitted copy.
Based on paragraph A6 © of the ISBP, in the absence of any requirements for the execution of a copy of the transport document, the only restriction is its submission before the date of the expiration of the letter of credit. Therefore, when applying for opening a letter of credit with an applicant submitting copies of transport documents, it is necessary not only to understand the reason for such a request but also to take all necessary measures to protect the interests of your client, providing for minimum requirements for processing a copy.
For example, for a copy of the international consignment note (CMR), you can indicate that it must be written in the name and address of the consignee indicated in the letter of credit (usually an applicant) and contain the date of shipment, signature, and seal of the carrier or named agent acting on behalf of or on behalf of the carrier.
“Documents are accepted as submitted.” What does it mean?
In an effort to receive payment for the delivered goods without risking a bank refuses to pay due to discrepancies between the documents and the terms of the letter of credit, the beneficiary often uses the condition “documents are accepted as submitted” in conjunction with the presentation of copies. Moreover, the beneficiary often expects that the documents will not be checked at all.
Before the appearance of the ISBP, this condition caused a lot of controversies, and sometimes banks really limited themselves to checking only the completeness of the documents according to the list, leaving the risk of payment for undelivered goods (work, services) on the applicant who provided the bank with instructions for opening such a letter of credit. Today, thanks to paragraph A19 (g) of the ISBP, the condition “documents are accepted as submitted” has generally applicable standards, such as the need to submit documents before the expiration date of the letter of credit and the availability of a sufficient amount of the letter of credit for payment. However, at the same time, one or several documents provided for by the list according to the letter of credit can be submitted that will not be checked for compliance with the terms of the letter of credit or UCP 600, including whether they are presented in the required number of originals or copies.
Despite the description of interpretation standards, the terms “documents are accepted as submitted”, in order to avoid still possible disagreements with the beneficiary due to his ignorance, it is recommended to describe the procedure for working with this condition directly in the letter of credit.
In determining the form in which the document should be presented, one should be careful with the direct use of the word “copy”, which in English has two main meanings: “copy” and “copy”. Accordingly, according to Art. 17d UCP 600 the provision for the submission of “copies of documents” permits the submission of documents both in the original and in copies. Even more confusing are the expressions One Invoice, Invoice in 1 copy, Invoice in 4 copies, Invoice — 1 copy, Invoice in 4 fold. When dealing with such conditions, banks are advised to refer to paragraph A29 (d) ISBP, explaining their meaning.
Practice shows that when translating sales contracts from English into Russian, translators who do not know the intricacies of the letter of credit business often encounter an incorrect interpretation of the terms of the document type, which is subsequently mirrored in the letter of credit and leads to a misunderstanding of the parties. Therefore, the dialogue of the bank with its client when opening a letter of credit and clarifying questions about whether the document should really be presented in a copy is fundamental.
Expressions such as in duplicate, in two-fold, in two copies can also be used in the letter of credit. Following the principle of presenting at least one original document, in this context, according to Art. 17e UCP 600 it will be sufficient to present one original and the rest in copies unless otherwise indicated in the document itself. Documents written in more than one original can be marked as Original, Duplicate, Triplicate, First Original, Second Original, etc. According to paragraph A28 of ISBP, none of these notes will be an obstacle to the recognition of such a document as an original.
In practice, the mark “original” is often used, sometimes “duplicate”; the remaining quantitative varieties of the originals listed above are rare. The mark “duplicate” can be found in relation to railway consignment notes, which are the second copy of the consignment note, handed over to the shipper. A duplicate railway bill has the same legal force as the bill itself, sent together with the cargo to the destination station, is often written out on a carbon copy and contains information about the departure station and destination station, the contract number, the general name of the goods and its weight. The date of shipment for the duplicate railway bill will be the date indicated on the stamp of the railway company or railway station of departure, and according to paragraph J7 (d) of the ISBP, such a document will be considered the original.
How many originals are required?
The number of original documents to be submitted is determined by the terms of the letter of credit or by the document itself when indicating the quantity in its text. When determining the amount, one should be guided by the parties ’need for a trade transaction and not create unnecessary requirements for a letter of credit. For example, there is probably no particular need to submit an excessive number of original invoices or packing lists issued by the seller, which will only complicate the receipt of payment if the conditions for the required quantity are not met and will create additional costs for the seller in the form of a bank commission for paying for documents with discrepancies.
The indication of the number of originals in the text of the document itself is most clearly represented by the example of a bill of lading, which is a document of title. It is also known that the possession of the original bearer bill of lading gives its holder the right to receive cargo, which can be transferred to another person by means of a transfer inscription on the bill of lading. Therefore, in order to protect the interests of the buyer, Art. 20a (iv) UCP 600 establishes a rule on the submission of one original bill of lading if it is the only one, or a full set of originals (the full set) in the quantity indicated on the bill of lading (usually next to the signatures at the bottom of the document).
When presenting a smaller number of originals of a bill of lading form a complete set, for example, two out of three, an informational instruction in the letter of credit on how the buyer will receive the missing originals is practiced, and this condition is considered non-documentary. If there is no way to deliver the missing originals of the bills of lading according to paragraph A29 © of the ISBP, a complete package may be presented, which will not be considered a discrepancy.
The presentation of a copy of the bill of lading is practiced if it is issued in a single original copy and is transmitted directly to the buyer. Moreover, in accordance with paragraph A30 (b) of the ISBP, an indication of the method of delivery of the original will logically mean the need to submit only a copy, that is, the possibility of providing the original document instead of a copy, as provided for in Art. 17d UCP 600 excluded. A similar principle of work, providing for the need to submit the entire number of originals, if the document indicates that it is written out in more than one original, is determined by UCP for insurance documents.
It is not uncommon for photocopies to be presented as copies of the required document, which will not be considered a discrepancy if the photocopy of the document is not expressly prohibited by the terms of the letter of credit. Photocopying is the easiest way to create a copy of a document, but also the most unprotected from fakes. For this reason, the applicant may not agree to accept a photocopy or establish an additional requirement for it in the form of a written certification of the document by its issuer. The reverse combinations are also interesting when the conditions of a letter of credit, for example, prohibit the presentation of the original invoice, since only a photocopy should be accepted. In this case, according to paragraph A30 of the ISBP, only a photocopy of the invoice or invoice containing the mark “copy” may be accepted.
In conclusion, we would like to note the gradual loss of relevance of the “original or copy” dilemma for letters of credit. Trade relations are becoming more and more transparent due to the expansion of trade borders, they are gradually becoming digital, and client-bank relationships are becoming more remote. Banks are already testing the first transactions in trade finance using blockchain technology, and the International Chamber of Commerce is working on the revision of eUCP, which today is becoming vital for maintaining a documentary letter of credit as a product against a background of Bank Payment Obligation, which provides for working with trade data instead of documents.