ICC Guidance – ICC Technical Advisory Briefings
In the interests of providing guidance and support, the ICC Banking Commission established a process whereby regular Briefings (TAB) would be released on issues surrounding a particular contentious circumstance, or set of circumstances, with a recommended handling solution.
https://library.iccwbo.org/tfb/tfb-briefings.htm
To date, 12 have been published, with a number of others in the pipeline. This issue of TraydTalks covers Briefings 1-3.
Non-documentary conditions in Documentary Credits subject to UCP 600
Under UCP 600, a complying presentation is one that conforms to the terms and conditions of the credit, the rules of UCP 600 itself, and international standard banking practice. Nevertheless, there are situations where a documentary credit includes a condition for which no corresponding document is required to evidence compliance. These are known as non-documentary conditions. Although UCP 600 does not define the term explicitly, such conditions are addressed under sub-article 14 (h), which provides that if a credit includes a condition without specifying a document to evidence compliance, that condition is deemed not to exist and must be disregarded by banks.
Non-documentary conditions typically arise due to oversights during the drafting of a documentary credit. This may occur when the issuing bank does not identify that the applicant has included a condition without specifying how compliance should be demonstrated. It can also occur when data related to a document required in field 46A of the SWIFT MT700 message is instead placed in field 47A, or when references to an underlying contract are inserted in the credit, especially in the context of standby credits. While these references may serve fraud prevention purposes, they are not linked to any specific required document and hence qualify as non-documentary.
The inclusion of a non-documentary condition does not impose any obligation on the beneficiary to provide proof of compliance. Moreover, the beneficiary is not expected to reference such a condition in any stipulated document. However, if the beneficiary or any issuer of a stipulated document voluntarily includes data related to a non-documentary condition, then such data must not conflict with the terms of the credit. For instance, if a credit states “Origin of goods – India” but does not require a certificate of origin or indicate that this detail must appear on any presented document, then the origin condition is considered non-documentary. It will be disregarded unless a presented document mentions an origin, in which case the origin stated must match the credit’s reference to India to be compliant.
All documents presented under a credit are subject to scrutiny with UCP 600 sub-article 14 (d), which ensures that their content does not contradict the terms of the credit. A common non-documentary condition is the instruction that the beneficiary must send copies of documents to the applicant by courier. This does not necessitate any formal evidence and should not result in a discrepancy if unfulfilled or not documented. Any document presented that is not explicitly required under the credit is also to be disregarded, as reinforced by sub-article 14 (g).
This principle applies regardless of where such conditions appear in a SWIFT MT700, MT710 or MT720 message. ISBP expands on this with practical guidance, stating that compliance with a non-documentary condition need not appear on any document, but if such data is included in a document, it must not conflict with the credit’s terms. ICC Opinions, such as R892, R743 and R631, support this interpretation, illustrating situations where conditions referencing credit notes, packing methods, or shipment details were deemed non-documentary due to the absence of an associated document requirement.
Ultimately, careful drafting and review at the application stage of a documentary credit are essential to avoid the unintended inclusion of non-documentary conditions. The applicant and issuing bank must ensure that any included conditions are tied to specific documents or are clearly omitted if no document is expected. Failure to do so can result in unnecessary disputes or misinterpretation during document examination. If a condition could be evidenced by a document, this should be clearly stated in the credit. Otherwise, it should not be included in such a way that would render it non-documentary and thus ineffective.
Meaning of ‘without delay’ in UCP 600
The phrase without delay appears multiple times in UCP 600, yet it is not formally defined within the rules. Despite this absence, the term has generally not caused significant difficulties in practice. However, given that questions occasionally arise regarding its meaning, particularly from practitioners seeking clarity and consistency, it is helpful to consider its application more closely.
The phrase is used in various sub-articles of UCP 600, such as Articles 8, 9, 10 and 11. In each of these contexts, it relates to a required notification or subsequent action that must follow a decision taken by a bank, such as the decision not to confirm or advise a credit, or the obligation to issue an operative version of a credit after a pre-advice or teletransmission. Although not explicitly defined, the use of without delay consistently implies that the relevant action should be taken as soon as reasonably practicable, reflecting the expectation of efficiency and diligence in international banking.
The ICC, through its Banking Commission Opinions, has addressed the interpretation of without delay in several cases. For instance, Opinion R905 (TA891rev) questioned whether a delay of 12 days breached the requirement to act without delay in returning documents. While no fixed timeline was imposed, the opinion confirmed that international standard banking practice expects documents to be returned promptly, and ideally in one lot, unless directed otherwise. Similarly, during the COVID-19 pandemic, the ICC issued a guidance paper encouraging banks to liaise without delay where disruptions were expected, reinforcing the concept as an obligation to act quickly in light of prevailing circumstances.
Legal interpretation also adds further depth to the meaning of the term. A relevant UK case, Fortis Bank and Stemcor UK Ltd v Indian Overseas Bank, provides judicial consideration of without delay within the context of UCP 600. The Court of Appeal ruled that the issuing bank, once it had issued a refusal notice under article 16 and elected to return the documents, had an implied obligation to do so promptly and without delay. Although UCP 600 does not expressly set out such a requirement, the Court found that such a duty is embedded in the text and consistent with international practice. In the case in question, the documents were not returned until several months after the refusal, which the Court deemed a clear breach of this obligation. As a result, the bank was precluded from relying on the discrepancies.
Some have questioned whether it might be more effective to replace without delay with a fixed timeframe. However, doing so would introduce complexity rather than clarity. For example, any such amendment would necessitate a consequence or penalty for non-compliance to carry enforceable weight. As UCP 600 cannot impose penalties, specifying a timeframe would likely have no greater legal impact than the current flexible wording. More problematically, exceeding a fixed timeframe could result in unnecessary disputes over technical compliance, even where a delay might be justifiable due to unforeseen circumstances.
Ultimately, the use of without delay within UCP 600 is deliberately flexible, intended to accommodate the practical realities of international trade transactions. While it does not equate to an immediate or instantaneous response, it does impose an expectation of promptness relative to the task in question. The phrase embodies the need for banks to act with reasonable urgency and in good faith, mindful of their role within the broader commercial transaction. In line with international standard banking practice, it means the action should be completed as soon as feasible in the specific context, allowing for operational and logistical factors without diminishing the importance of timely performance.
Reducing discrepancy rates under Documentary Credits
The high rate of refusals for first presentations under documentary credits, estimated between 65% and 80%, remains a persistent issue in trade finance. While a refusal does not necessarily mean the beneficiary will ultimately be denied settlement, it causes tangible disruption. Delays in settlement or financing are common, often leading to increased bank charges, interruptions in the delivery of documents to the applicant, and a general inefficiency in the transaction chain. These outcomes are not only costly but also burden all parties involved, from beneficiaries and applicants to the banks themselves. The refusal of documents results in extra administrative work, including correspondence with the presenter and/or applicant, assessment and explanation of discrepancies, and the re-processing of the presentation, each adding to operational cost and time.
Refusals fall into three broad categories. The first involves documents prepared by the beneficiary that do not meet formal requirements, including timing breaches such as missing the latest shipment or presentation date. The second relates to documents issued by third parties, such as carriers or insurers, which may contain errors or inconsistencies. The third category concerns invalid refusals, often due to examiner errors, inadequate understanding of UCP 600, ISBP, or relevant ICC Opinions, or the presence of ambiguous or poorly drafted credit terms.
While there have been signs of marginal improvement over time, as reported in previous ICC Banking Commission Trade Surveys, this has not translated into widespread change. The majority of banks reported either no improvement or even worsening performance. Most discrepancies continue to arise from issues such as incorrect document content, missing documents, mismatched data, unauthenticated alterations, incorrect transport document notations, and other technical shortcomings.
A key source of tension in the handling of documentary credits lies in the discretion exercised by document examiners. UCP 600 sub-article 14 (a) obliges nominated, confirming, and issuing banks to examine documents solely on their face to determine if a presentation is compliant. Yet, the determination of what constitutes a complying presentation often rests on the judgment of a single examiner. While the term “strict compliance” is not found in UCP 600, many still apply this concept informally, which may lead to over-cautious or inconsistent refusals. A neutral, objective approach is essential, particularly given that disputes may ultimately require adjudication by an independent party, such as a court.
Several root causes for discrepancies have been identified by ICC National Committees, particularly in feedback shared at the 2017 ICC Banking Commission meeting in Jakarta. These include outdated or inadequately designed application forms, poor drafting of credit terms, limited awareness of UCP rules and ISBP guidance, a lack of attention to detail in the handling of goods and documents, and restricted access to essential ICC publications. Furthermore, overloading documents with excessive or irrelevant data remains a common and avoidable error.
Another controversial aspect of this issue concerns discrepancy fees charged by banks. Initially intended to compensate for the extra processing associated with discrepant presentations, these fees have in some cases become routine sources of revenue. While some argue these should be waived when discrepancies are later accepted, this is ultimately a matter of banking practice and falls outside the scope of UCP 600. ICC Opinions, such as R441, R741, and R820, provide guidance, suggesting that banks should disclose discrepancies even when seeking a waiver and should inform the presenter of any fees and discrepancies, particularly when a notice of refusal is not formally issued.
Education remains the most effective long-term solution. Banks should not only train their staff to understand UCP 600 and ISBP but also invest in educating their clients. Beneficiaries must be given feedback on the cause of discrepancies and guided on how to avoid them in future transactions. Repeated errors should prompt targeted support and intervention.
Better drafting practices are fundamental. Issuing banks should adopt a more disciplined approach when preparing documentary credits, referring to the ICC’s guidance on standard formats. Avoiding non-documentary conditions, simplifying data requirements, and ensuring that terms are clear and internally consistent can significantly reduce the risk of discrepancies. Likewise, confirming banks should review credits carefully and flag any problematic provisions early on.
Beneficiaries also bear responsibility. They must assess whether the timeline set out in the credit is realistic given their operational capabilities and shipping deadlines. They should avoid inserting unnecessary information into documents, ensure endorsements are accurate, and request amendments promptly if needed. Where credits modify or exclude specific UCP articles, care must be taken to address any gaps or potential inconsistencies that may arise.
A wider effort is also needed to promote access to the ISBP and related ICC guidance. Making these resources more widely available, including via digital platforms, would go a long way towards improving compliance. Workshops, webinars, and other educational events should be a priority for the ICC and its member banks.
Concluding, the problem of high discrepancy rates is not a failure of the rules themselves, but a matter of inconsistent application and insufficient knowledge. Banks and beneficiaries alike must take a more proactive and collaborative approach to education, drafting, and document preparation. With greater understanding and attention to detail, the frequency of refusals can be reduced, creating smoother, more efficient trade finance transactions.
