A documentary credit A poorly checked document can turn a promised international transaction into a legal nightmare. Examination of the documents is the critical stage where everything can fall apart.
In my practice as a lawyer specialising in international banking law, this moment of verification crystallises the tensions between importers, exporters and banks. A minor discrepancy in a shipment date or a discrepancy between documents can block a payment of several million euros.
Let's take a look at the issues involved in this documentary verification, the pitfalls to avoid and the possible remedies in the event of a dispute.
The principle of strict conformity of documents
Legal basis for seamless compliance
The documentary credit is based on a fundamental principle: total independence between the banking transaction and the underlying commercial contract. This independence means that the documents must be meticulously checked, regardless of whether the commercial transaction has actually been carried out.
Article 4 of the Uniform Customs and Practice (UCP 600) of the International Chamber of Commerce clearly establishes this separation: "In documentary credit transactions, all interested parties have to consider the documents to the exclusion of the goods, services and/or other benefits to which the documents may relate.
This rigorous documentary approach has been confirmed by French case law, in particular in the decision of the Commercial Chamber of the Court of Cassation of 4 March 1953, which established the principle that banks must examine "the financial situation of their clients and their customers". with reasonable care, all documents stipulated in the credit agreement to check that they appear to comply with the terms and conditions of the credit agreement" .
Practical application: the need for absolute precision
In practice, the bank applies an inflexible rule: the documents must correspond exactly to the stipulations of the documentary credit. The slightest discrepancy may justify a refusal to pay.
A telling example: the Seine Commercial Court rejected documents presented for "lemons" when the letter of credit stated "Murcia lemons" (T. com. Seine, 16 April 1953). This decision illustrates the extreme rigour applied when examining documents.
Even if the goods have been delivered correctly, an imperfect document can block payment. It is this apparent unfairness that justifies exporters' caution and the need for preventive legal advice.
The banking examination of documents: a meticulous procedure
Checking transport documents: proof of shipment
Transport documents are often the centrepiece of the documentary file. According to Article 23 of UCP 600, a bill of lading must indicate :
- The name of the carrier
- Placing goods on board an identified vessel
- Loading and unloading ports
- Terms and conditions of carriage
The Court of Cassation (5 July 1994, Banque Finindus c/ Sté Embdef SPRL) confirmed that these requirements apply strictly, even if no sacramental formula is imposed.
In the case of multimodal transport, Article 26 of the UCP lays down specific rules, with the obligation to clearly indicate the name of the multimodal transport operator and the various stages of transport.
Insurance documents: risk coverage
Article 35 of UCP 600 specifies that the insurance documents must be those designated in the credit. They must cover the specified risks in sufficient amounts.
However, case law recognises a degree of flexibility. The Court of Cassation has ruled that an "all risks" insurance certificate containing an exclusion clause remains acceptable (Cass. com., 24 November 1987).
Invoices and other documents: exact correspondence
Article 37 of UCP 600 requires that the description of the goods on the invoice corresponds exactly to that given in the letter of credit.
This rule does not apply with the same rigour to other documents, which may describe the goods in general terms, provided they do not contradict the credit.
Concordance between documents: mandatory consistency
The documents must not only comply individually with the terms of the credit, but must also present a clear and unambiguous image of the credit. perfect coherence between them. Article 13 of the UCP specifies that ". Documents that are apparently incompatible with each other will be deemed not to present the appearance of conformity with the credit conditions." .
A typical example: a court rejected documents in which the bill of lading mentioned a shipment for Marseille, while the certificate of origin referred to goods destined for Le Havre (T. com. Seine, 6 February 1950).
Deadlines and consequences of documentary irregularities
Examination period: limited time to decide
Article 13 of the UCP gives the bank a "reasonable time" not exceeding seven working days to examine the documents and decide whether to accept or reject them.
This period is mandatory. The Court of Cassation has ruled that a bank can no longer rely on irregularities after allowing this period to elapse (Cass. com., 5 July 1983).
Notification of irregularities: compulsory formalities
In the event of rejection, the bank must notify its decision without delay, specifying any irregularities found. Inaccurate or late notification can be fatal.
The Paris Court of Appeal (10 July 1986) ruled against a bank that had refused payment on the grounds of "significant discrepancies" without giving precise details, thereby depriving the beneficiary of the opportunity to rectify the situation within the time limit.
Regularisation options: a second chance
Case law recognises the possibility of regularising non-compliant documents, provided that this regularisation takes place before the expiry of the credit (Cass. com., 20 November 1990).
In some cases, a letter of guarantee can help to unblock the situation. The beneficiary undertakes to reimburse the bank if the originator rejects the documents. This practice, which is tolerated for minor irregularities, nevertheless gives rise to bank liability if it is demanded improperly (Cass. com., 16 May 1955).
The fraud exception: the limit to the autonomy of the documentary credit
Despite the autonomy of the documentary credit, a higher principle applies: fraus omnia corrumpit (fraud corrupts everything). Case law authorises the bank to refuse to grant credit in the event of manifest fraud.
The Court of Cassation has specified that this exception only applies when the fraud affects the documents themselves, not the performance of the commercial contract (Cass. com., 29 April 1997).
Fraud must be "certain" and not merely "probable" (Cass. com., 24 June 1997). This high standard protects the effectiveness of the documentary credit as an international payment instrument.
Practical issues for businesses
For the exporter, meticulous document preparation is essential. The slightest error can lead to rejection and costly delays. Even if an adjustment is possible, it may be too late to meet the credit deadlines.
For the importer, the precise drawing up of documentary conditions is a major challenge. Instructions that are too vague or ambiguous may force them to accept documents that do not meet their expectations.
For both parties, theassistance from a specialist lawyer in drafting and checking the terms of the documentary credit can avoid costly disputes. Preventive legal expertise generally costs much less than international litigation.
The firm regularly assists companies with their international trade operations. Our expertise in documentary credit will enable you to anticipate difficulties and secure your transactions. Contact us for a preventive analysis of your documents or to assist you in a documentary dispute.
Sources
- Article 13 of the International Chamber of Commerce's Uniform Customs and Practice for Documentary Credits (UCP 600)
- Cass. com. 4 March 1953, establishing the principle of documentary verification
- Cass. com. 5 July 1994, Banque Finindus c/ Sté Embdef SPRL
- T. com. Seine, 16 April 1953, on the requirement of strict conformity
- Cass. com. 24 November 1987, on insurance documents
- Cass. com. 29 April 1997, on the fraud exception
- Stoufflet J., "Le crédit documentaire", Paris 1957, a major doctrinal reference.
- Cass. com. 24 June 1997, establishing the standard of certain fraud
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