Re-Examining the Humei Case and ICC Opinion TA936: Chinese Court Standards for Document Examination under Letters of Credit

This in-depth discussion between two leading figures in the study of LC law & practice is based on an online lecture on 25 February 2024. In their remarks, Saibo JIN and SOH Chee Seng talk about the "thinking" and different methods of analysis adopted by international banking experts.

Re-Examining the Humei Case and ICC Opinion TA936: Chinese Court Standards for Document Examination under Letters of Credit

JIN: We are honored to have Dr. SOH Chee Seng join us to participate in discussion[[1]] of ICC Opinion TA936 [January 2024] and the Humei case decision[[2]] of the Supreme People's Court of China. First, may I ask Dr. Soh to introduce Opinion TA936?

SOH: Many bankers have this problem when issuing letters of credit where they reference international trade terms such as CFR, CIF, etc., but only append the name of the port afterward, such as “CFR Shanghai”. However, there are few letters of credit that explicitly state “CFR Shanghai (Incoterms 2020)”. So, which version of Incoterms does “CFR Shanghai” actually refer to? Don't forget that customers can still use Incoterms 1980; they are not necessarily adopting Incoterms 2020, even though it's already 2024. Therefore, in such cases, if the issuing bank does not specify the version of Incoterms, it becomes the issuing bank's problem.

For example, some young trade finance specialists who haven't seen older versions of Incoterms might not know what C&F means. So, young document examiners might consider it a discrepancy and refuse payment. However, C&F itself is a term, which stands for "cost and freight"; as CFR is also "cost and freight". The meanings are the same. So, whether this constitutes a discrepancy in such a situation has also sparked some debate.

For example, if "CFR" is not followed by a port name, but the overall document indicates the destination port -- let's say Hong Kong -- the documentary credit examiner can still deduce that the complete trade term is "CFR Hong Kong." So, if documents presented in this way are still rejected, the issuing bank would be overly nitpicking. Because we say the purpose of a letter of credit is to facilitate international trade and ensure payment to the beneficiary, as long as the documents presented comply with the terms of the letter of credit, the beneficiary's documents should be honored by the issuing bank. We cannot always assume that everyone has a dishonest intention. Frankly, if the applicant and the issuing bank suspect the beneficiary of having dishonest intentions, they should not issue a letter of credit in the first place. Because even if the beneficiary intends to deceive the issuing bank or the buyer, no matter how complex and sophisticated the letter of credit is, in the end, the issuing bank will still be vulnerable to deception.

Returning to the content of Opinion TA936, it's quite obvious that C&F and CFR both refer to "Cost and Freight" and the terms are interchangeable. Because the letter of credit requirement doesn't specify which version of Incoterms applies, it could also potentially adopt the 1980 version. Therefore, I believe the conclusion of Opinion TA936 stating that this discrepancy is not valid is correct. The analysis is well done.

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