Does a Certificate Stating Compliance with a Phytosanitary Certificate Satisfy the L/C Requirement?

Introduction:

The interpretation of documentary requirements containing multiple alternatives linked by the word “or” can sometimes lead to different conclusions between the issuing bank and the beneficiary. The following case concerns an L/C clause requiring a certificate relating to the treatment of wood packing material, where the issuing bank and the beneficiary bank adopted different interpretations of the same wording.

The question is whether a certificate stating that the wood packing material has been appropriately treated as per a phytosanitary certificate complies with the terms of the credit.

Question

Please find below a real-life case based on an actual scenario that recently occurred. I have documented the complete sequence of events, along with the exact response provided by the beneficiary bank.

We would appreciate your professional insights and feedback on this matter.

L/C requirement:

The credit calls for the presentation of a bill of lading, invoice, certificate of origin, inspection certificate, analysis certificate, and:

“CERTIFICATE STATING THAT WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AND MARKED AS PER ISPM-15 OR PHYTOSANITARY CERTIFICATE OR FUMIGATION CERTIFICATE.”

Presentation of documents

The beneficiary presented a certificate containing the following statement:

“WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AS PER PHYTOSANITARY CERTIFICATE.”

Issuing bank’s rejection

The issuing bank rejected the presentation and issued an MT 734 notice of refusal on the following basis:

Discrepancy:

The certificate failed to state that the wood packing material had been “marked as per ISPM-15”.

The issuing bank argued that the word “or” separated three distinct document categories:

• Option 1: Certificate stating that wood packing material has been appropriately treated and marked as per ISPM-15;
• Option 2: Full phytosanitary certificate;
• Option 3: Full fumigation certificate.

Beneficiary bank’s position

The beneficiary bank rejected the discrepancy notice and argued that the presentation complied with UCP 600 for the following reasons:

1. The conjunction “or” introduces three alternative criteria under the phrase “certificate stating that”:
   • Wood packing material has been appropriately treated and marked as per ISPM-15;
   • Wood packing material has been appropriately treated as per a phytosanitary certificate; or
   • Wood packing material has been appropriately treated as per a fumigation certificate.
2. The requirement that the wood packing material be “marked” applies only to the ISPM-15 option, whereas the phytosanitary certificate and fumigation certificate options require evidence of treatment only.
3. Under international plant protection standards, ISPM-15 uniquely requires both treatment and physical marking, while phytosanitary certificates and fumigation certificates merely certify that the treatment has been carried out.
4. ISBP 821 paragraph V provides that the applicant bears the risk of ambiguity in the credit terms.

Firas Isifan

________

Answer

Dear Firas,

Thank you for your detailed question.

I am not a linguist, but in my understanding, the word “or” is a coordinating conjunction that indicates alternatives. Based on the wording of the credit requirement, the certificate may contain one of the following statements:

Option 1

“WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AND MARKED AS PER ISPM-15.”

Option 2

“WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AS PER PHYTOSANITARY CERTIFICATE.”

Option 3

“WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AS PER FUMIGATION CERTIFICATE.”

Accordingly, the beneficiary’s certificate stating:

“WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AS PER PHYTOSANITARY CERTIFICATE”

appears to satisfy Option 2 and, therefore, complies with the documentary requirement.

In my opinion, the issuing bank’s interpretation—that the credit requires an ISPM-15 certificate, a phytosanitary certificate, or a fumigation certificate as three separate document categories—is not the only reasonable interpretation of the wording.

Since the requirement is open to more than one reasonable interpretation, any ambiguity should be borne by the applicant in accordance with ISBP 821 paragraph V, which states:

“The applicant bears the risk of any ambiguity in its instructions to issue or amend a credit.”

Accordingly, in my opinion, the certificate should be considered acceptable.

Note: The above represents my own opinion. The issuing bank may nevertheless reject this argument on the basis that the wording of the credit should be read as requiring the presented certificate to certify that:

“WOOD PACKING MATERIAL HAS BEEN APPROPRIATELY TREATED AND MARKED AS PER:”

• (a) ISPM-15;
• OR (b) Phytosanitary Certificate;
• OR (c) Fumigation Certificate.

Under this interpretation, the words “treated and marked” apply to all three alternatives, and the presented certificate would therefore be discrepant because it does not state that the wood packing material was “marked.”

In other words, the wording of the credit is sufficiently ambiguous to permit both interpretations. My view is that the beneficiary’s interpretation is reasonable; however, the issuing bank may reasonably take a different view based on the grammatical structure of the clause.

Best regards,

Mr. Old Man