Several Workarounds for the 'Consistency of Documents' Principle

In actual export business, the contents of negotiation documents must strictly comply with the relevant letter of credit terms—this is a standard rule. However, it is sometimes very difficult for the seller to ensure that every set of negotiation documents is in complete conformity with the pertinent L/C terms. The main reasons are:

1. Insufficient experience of the parties involved. When concluding the contract, the buyer and seller do not fully consider the practical issues that will arise during performance. Moreover, most current sales contracts are pre-printed fixed-format forms drafted by the seller, with only key terms filled in based on specific products, and then signed by both parties. The advantage of this method is simplicity and time-saving; the disadvantage is that the fixed format leaves limited—and often unreasonable—blank space, unable to accommodate the specific requirements of both parties, especially the buyer, for particular goods. By the time the buyer opens the L/C, to protect his own interests, he has to add clauses that were not in the original contract. However, before adding these clauses, the buyer often neglects to discuss them with the seller. The seller, having no prior knowledge of such additional clauses, only realizes the changes upon receiving the L/C—by which time it is too late to alter the contract. This puts the seller in a dilemma.

2. When opening an L/C through a bank, the buyer must provide a certain amount of collateral, meaning the L/C ties up the buyer's funds. Therefore, the buyer usually times the issuance of the L/C so that production starts on the date of issuance and finishes exactly by the delivery date, leaving a buffer of only one week to ten days to avoid any delay. Upon receiving the L/C, the seller must hasten all preparations for export without any room for delay. As is well known, although an L/C essentially reflects the economic relationship between buyer and seller, in form and operation it reflects the trading relationship between the issuing bank and the L/C beneficiary (seller). During Operation, the issuing bank and the beneficiary cannot communicate directly—they must go through intermediaries such as the advising bank, the negotiating bank (which can be the same bank), and the buyer. If the L/C needs amendment, from the time the seller files a request to the time he receives the formal amendment, even if all parties perform their duties diligently and with maximum efficiency, it will take no less than 10 to 15 days. Additionally, the bank charges extra fees for amendments (amendment and notification charges). Foreign businessmen are highly sensitive to both cost and time, and market conditions constantly fluctuate. As buyers, they are very reluctant to amend or extend (extending the shipment and expiration dates is also a type of amendment) an L/C, as this means bearing more expenses and risks.

Can we find a way to maintain conformity without amending the L/C, thereby ensuring safe and timely collection of export proceeds? In practice, the answer is: In many cases, it is possible. Based on practical experience, I present several workarounds below for your reference.

Problem 1: In the L/C terms, some key words are misspelled or the reference is ambiguous—how should the beneficiary handle this?

Regarding such problems, the exporter should treat them based on different circumstances. For example, an L/C contained the following: "...CREDIT AVAILABLE WITH ANY BANY BYNEGOTIATION AGAINST PRESENTATION OF BENEFICEARY'S DRAFTS AT SIGHT DRAWN ON YOURSELVES FOR 100PCT OF THE NETT INVOICE VALUE..." This L/C accepts drafts at sight drawn on your bank (the advising bank?) as the drawee, for 100% of the net invoice value, negotiable at any bank. Regarding this wording, I believe:

1. If the advising bank commits to confirm (CONFIRM), we can assume there is no typographical error or ambiguous reference, and the L/C does not need amendment.

2. If the advising bank does not confirm, then "YOURSELVES" in the text must refer to either the advising bank, the issuing bank, or another clearly specified paying bank. Otherwise, the beneficiary will suffer a loss.

International trade L/Cs are mostly in English, and for the English translations of place names in some non-English-speaking countries, discrepancies often occur, making it difficult to determine which translation is correct. For example:

One English Translation, Another English Translation, Chinese Translation
   BEIJING PEKING Beijing
   GUANGZHOU KUANGCHOW Guangzhou
   XIAMEN AMOY Xiamen
   TAIBEI TAIPEI Taipei
   MOSCOW MOSKVA Moscow
   BUSAN PUSAN Busan
   VOSTOCHNY VOSTOCHNY East Port

If such situations occur in the L/C, I believe that as long as both buyer and seller agree on the specific location (a consensus must be reached, without ambiguity), the L/C's spelling should be used. However, if such multiply-translated place names happen to be the port of destination, port of transshipment, or location of insurance settlement, the person preparing the documents should be sure to append the Chinese translation and the name of the country or region to which that place belongs, to avoid errors.