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What is document consistency and how to effectively achieve document consistency?
Aug 14,2024
01What is document consistency?
Documentary consistency means that all documents provided by the exporter must strictly comply with the requirements of the letter of credit opened by the issuing bank of the importing party, or that all documents produced and provided by the exporting party in connection with the sale of this item of goods are fully consistent with the requirements of the letter of credit applied for by the importing party for the opening of the letter of credit, without contradiction.
02Key points of consistency of documents
In order to achieve the consistency of documents, the bank must examine all documents with reasonable care to ensure that the type, content and number of copies of documents submitted by the beneficiary, and even the wording of the letter of credit must be completely consistent with the provisions of the letter of credit, even if the actual shipment of goods or the contents of the contract and confirmation letter of letter of credit and the provisions of the letter of credit, the letter of credit must prevail.
Therefore, if the documents negotiated by the bank appear to be consistent with the letter of credit and the goods do not match, the bank does not bear any responsibility because it does not know.
03Analysis of examples in document consistency
In the actual export business, it is a regular that the contents of the negotiated documents must be strictly consistent with the provisions of the relevant letter of credit. However, it is sometimes difficult for the seller to ensure that each negotiated document is completely consistent with the contents of the relevant letter of credit.
The following case reflects the fact that the exporter was refused payment due to a discrepancy in the documents: Company A of China entered into a contract with Company B of West Africa to buy and sell cloth, and Company A sold a batch of cloth to Company B on CIF price terms, and both parties agreed to pay by letter of credit. After the conclusion of the contract, Company B opened a letter of credit, which stipulated that Company A's delivery quantity was "approximately 50000 yards" and required Company A to provide insurance policies to cover W. P. A (water damage insurance) and WAR RISK (war risk insurance).
As it is customary for Company A to export such goods often insured against ALLRISKS (all risks) and war risks, Company A insured against all risks and war risks without careful examination of the certificate. After Company A ships the goods, it submits a bill to the bank for payment. After reviewing the documents, the bank considered that the documents did not match and refused to pay.
There are two discrepancies raised by the bank:
1. The insurance policy does not conform to the provisions of the letter of credit; 2. The bill of lading indicates that the quantity of goods delivered by Company A is 44800 yards, which does not conform to the approximately 50000 yards stipulated in the letter of credit. Company A believes that the coverage of all insurance is greater than that of water damage insurance, which is beneficial to the buyer B company. As for the quantity of goods, since the letter of credit provides for "approximately 50000 yards" and does not provide for a specific increase or decrease, the quantity of 44800 yards in the bill of lading is also in accordance with the provisions of the letter of credit.
Obviously, in this case, Company A has insured all risks and war risks, while the letter of credit requires water damage insurance and war risks. Although the coverage of all risks is greater than water damage insurance, which is beneficial to Company B, the bank only cares whether the surface of the documents is consistent with the letter of credit, regardless of the rights and obligations of the parties. The bank has the right to refuse payment because the risks of the insurance policy submitted by Company A do not conform to the provisions of the letter of credit.
As for the problem that the quantity of goods in the bill of lading proposed by the bank does not conform to the provisions of the letter of credit, according to the provisions of Article 39 (UCP500), where "approximately" "large" or similar words are used in the amount, quantity and unit price of the letter of credit, they shall be interpreted as an increase or decrease of not more than 10% of the relevant amount, quantity or unit price.
Therefore, if the quantity of goods in the bill of lading submitted by Company A is between 55000 and 45000 yards, it is consistent with the letter of credit. In fact, however, the quantity of goods indicated in the bill of lading submitted by Company A is 44800 yards, which does not conform to the provisions of the letter of credit, and the bank has the right to refuse payment. It shows that in the export business, the documents are inconsistent due to various reasons, and the beneficiary is unable to correct them within the prescribed time limit due to time conditions, thus being at a disadvantage in international trade.
04How to effectively achieve document consistency
In international trade, settlement by letter of credit is very common at present. Therefore, Chinese enterprises should strictly abide by the principle of consistency of documents in export business. After receiving the letter of credit opened by foreign buyers, they should carefully examine the letter of credit to determine whether the provisions of the letter of credit are consistent with the contract, whether there are soft clauses in the letter of credit, and whether the seller has the ability to do so.
Once any problems are found, the buyer should be notified to amend the letter of credit in a timely manner, and must not take any chances. If it is considered that there is no problem after the examination, the documents should be carefully produced in accordance with the provisions of the letter of credit, so that the documents are strictly consistent, in order to avoid adverse situations, nip in the bud, and effectively protect their rights.
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