For anyone working in international business, documents are a major part of their everyday work. This becomes especially important when finalizing deals, or when transporting goods across borders.
Documents vary in how they look and how they are presented. The documents generated by business organizations, exporters, importers, carriers, freight forwarders, governments of different countries have different colours, different logos, different layouts, but essentially, for international trade, the required information will be very similar if not the same.
Incorrectly completed documents can result in delays at borders, entry refusal, lost goods, penalties and fines, and non-payment. The following case study highlights the importance of ensuring that documents are managed properly and filled out correctly.
Case Study: Piaggio vs. Bank of Nova Scotia
In 2011, the Ontario Superior Court of Justice considered an application by Piaggio C.S.P.A. (“Piaggio”), an Italian manufacturer of motorcycles and scooters, arising from a dispute in connection with the refusal of payment under three letters of credit. Piaggio had presented three letters of credit (the “LCs”) to the Bank of Nova Scotia (the “Bank”) for payment. The LCs were in connection with goods supplied by Piaggio to a Canadian company on 90-day payment terms.
The Bank had refused to pay funds to Piaggio in accordance with the LCs. The Bank refused on the basis that the draw documents did not conform to the terms of the LCs in a material respect. In particular, it was of the view that the named beneficiary of the LCs did not conform to the draw documents. The Bank also refused to honour one of the LCs on the basis that Piaggio did not provide all of the original amendments to the first LC.
There were material discrepancies between the named beneficiary “PIAGGIO AND C.S.P.A. “APRILIA” or “PIAGGIO AND C.S.P.A. (APRILIA)”, and Piaggio’s legal name as set out in the presentation documents “Piaggio & C.S.P.A.”
Piaggio argued that the discrepancies between the letters of credit and the presentation documentation were minor and that there was no question that Piaggio was the only entity that could possibly be the proper beneficiary under the LCs. There was no legal entity called either “Piaggio & C.S.P.A./APRILIA” or “Piaggio & C.S.P.A. (APRILIA)”,
Although minor discrepancies between the letters of credit and the presentation documents are not fatal, the Ontario Superior Court of Justice determined that the correct name of the beneficiary was fundamental. It was not the Bank’s responsibility to determine the true name of the beneficiary; it was up to the Canadian customer or Piaggio to correct the mistake.
Had Piaggio insisted on amending the letters of credit to reflect its proper legal name, Piaggio would have avoided this problem. On this basis, the Bank was justified in refusing to pay Piaggio under the LCs.
The Court noted that even if the misnamed beneficiary was due to a minor discrepancy, the Bank would still have been justified in refusing to pay the first LC. This is because Piaggio failed to produce all of the original amendments relating thereto or, in lieu thereof, to provide the Bank with an affidavit deposing that the original LC amendment could not be found and had not been sold, assigned or transferred together with a comprehensive indemnity and a bond.
Lesson: Letters of credit should be carefully reviewed prior to acceptance, and any conditions negotiated in advance. Errors on the face of the letters of credit should not be accepted. Beneficiaries of letters of credit are cautioned to review their existing letters of credit for any errors, and at the time of presentation to ensure that the letters of credit and presenting documentation match.
In the event of loss of the original letter of credit, it may be possible in some cases to draw on the letter of credit by presenting the bank with a copy of the letter of credit, an affidavit relating to its loss, together with an indemnity and bond.
It should be noted that “Aprilia” was the brand name of one of the scooters manufactured by Piaggio.
Based on Piaggio vs. Bank of Nova Scotia, 2011 ONSC 2567
What to check to ensure full compliance in your trade documents
Once the necessary documents for exporting or importing goods and services have been determined, it is necessary to make sure they are filled out correctly and that all the documents have the same information. The case study illustrates the consequences of not having the same information in all of the documents. The following are guidelines for document compliance:
- Input all required information (e.g. all boxes, all fields), determine what to leave blank or enter for non-applicable fields or boxes
- Make sure documents are completed in the required language
- Always use legal names of all stakeholders
- Use additional pages as provided, do not add own pages
- Confirm that contact information is current, i.e. individual names, addresses and phone numbers are up to date
- Check for and use only allowed abbreviations, e.g. in-house jargon or terms may cause confusion
- Clearly spell out date in full if format is not specified. For instance, use September 04, 2016 instead of 09/04/16
- Use properly registered names for carriers and numbers for ships, box car numbers, container numbers, and vehicle numbers
- All references to the goods being transported should be identical across all transport and commercial documents (i.e. the description, the number of packages, the types of containers, the weights or volume and markings), and should add up to the same amounts, e.g. the packing lists of all the containers in a shipment must total what is on the waybill or bill of lading.
- Make sure monetary values are stated in the correct currency
- Make sure dates for departure and delivery are the same across all documents, e.g. different forms may use different formats
- Make sure all numbers related to carriage are correct and the same across all documents
- Clearly describe the locations of shipment origin and delivery and use the same description across all the documents