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What is documentary consistency?
Documentary consistency means that all documents provided by the exporting party should be strictly in line with the requirements of the letter of credit issued by the issuing bank of the importing party, or that all the documents produced and provided by the exporting party in connection with the purchase and sale of this item of goods, and the importing party applies for the opening of the letter of credit on the documents required to be in full compliance with the requirements of the document, there is no contradiction.
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Points of Documentary Consistency
To achieve documentary consistency, the bank must examine all the documents with reasonable care to ensure that the type, content and number of documents submitted by the beneficiary, and even the wording of the documents must be in full conformity with the provisions of the letter of credit, and even if the actual shipment of the goods or the content of the contract and confirmation letters and telegrams are contradictory to the provisions of the letter of credit, the letter of credit must prevail.
Therefore, if the bank negotiation documents on the surface of the letter of credit with the goods do not match, because the bank has no way of knowing, so does not bear any responsibility; on the contrary, the actual goods and the documents on the surface of the letter of credit with the provisions of the bank will need to assume responsibility for the applicant can be refused to redeem the bill of lading payment.
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Example Analysis of Documentary Consistency
In the actual export business, the content of the negotiation documents must be strictly consistent with the provisions of the relevant letter of credit, which is a routine. However, it is sometimes difficult for the seller to make every negotiation document fully consistent with the content of its related letter of credit.
The following case reflects the fact that there are inconsistencies in the documents and the exporter was refused payment: China A company and West Africa B company entered into a contract for the sale of cloth, by the A company to the CIF price conditions to the B company sales of a number of cloth, the two sides agreed to pay by letter of credit. After the conclusion of the contract, Company B opened a letter of credit, which stipulated that the delivery quantity of Company A was "about 50,000 yards" and required Company A to provide an insurance policy to insure against W-P-A (water damage) and WAR RISK (war risk).
As it is customary for Company A to take out ALLRISKS and WAR RISKS when exporting such goods, without carefully examining the documents, Company A took out ALLRISKS and WAR RISKS, and Company A shipped the goods to the bank and requested payment. After reviewing the documents, the bank considered that the documents did not match and refused to pay.
The bank raised two inconsistencies:
(1) the insurance policy did not contain the same coverage as the letter of credit; and (2) the bill of lading stated that the quantity of goods delivered by Company A was 44,800 yards, which did not correspond to the approximate 50,000 yards stipulated in the letter of credit. Company A argued that the coverage of all risks was greater than that of the water damage insurance, which was in favour of the buyer, Company B. Company B argued that it was not in favour of the buyer because of the lack of insurance. As for the quantity of goods, because the letter of credit stipulates "about 50,000 yards", but does not specify the specific range of increase or decrease, so the bill of lading 44,800 yards of this quantity is also in line with the provisions of the letter of credit.
Obviously, in this case, company A insured all insurance and war risk, while the letter of credit is required to water damage insurance and war risk, although all insurance coverage is greater than the water damage insurance, company B is beneficial, but the bank only care about the surface of the documents with the letter of credit, regardless of the rights and obligations of the parties, the bank has the right to submit the insurance policy because of the insurance policy of the company A does not meet the requirements of the letter of credit and refused to pay.
As for the question raised by the bank that the quantity of the goods in the bill of lading is not in conformity with the provisions of the letter of credit, according to the provisions of Article 39 of the UCP500, the words "approximately", "roughly" or similar words used in the letter of credit amount, quantity and unit price should be interpreted as the amount, quantity or unit price does not exceed the amount, quantity or unit price of the letter of credit, and should be interpreted as the amount, quantity or unit price of the letter of credit. The amount, quantity or unit price is not to be increased or decreased by more than 10 per cent.
Therefore, if the quantity of goods in the bill of lading submitted by Company A is between 55,000 and 45,000 yards, then it is consistent with the letter of credit. But in fact, the bill of lading submitted by company A, the number of goods is 44,800 yards, and the letter of credit is not consistent with the provisions of 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 specified period due to time conditions, thus being in an unfavourable position in the international trade.
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How to effectively achieve documentary consistency
In international trade settlement by letter of credit is very common, therefore, China's enterprises in the export business should strictly abide by the principle of documentary consistency, when receiving the letter of credit issued by the foreign buyer, the letter of credit should be carefully reviewed to determine whether the provisions of the letter of credit and the contract is consistent with the letter of credit whether there is a soft clause, letter of credit of the provisions of the seller's ability to do.
Once any problem is found, the buyer should be notified promptly to amend the letter of credit, and never take any chances. If there is no problem after the examination of the letter of credit, the documents should be made carefully in accordance with the provisions of the letter of credit, so as to keep the documents strictly consistent in order to avoid unfavourable situations, to take precautionary measures and to effectively protect their rights.
