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 4-6.

Documents presented by a nominated or confirming bank under UCP 600 and lost in transit

Although rare, the loss of documents in transit under a documentary credit can have significant implications for the parties involved. This issue, distinct from cases where documents are simply delayed, centres around what happens when a complying presentation has been made, but the original documents do not reach their destination due to loss during transmission. While electronic presentation is becoming more prevalent, paper-based credits remain common, and such losses, though statistically infrequent, require careful attention under the UCP 600 rules.

The foundation of documentary credit practice is established in article 5 of UCP 600, which underscores that banks deal with documents, not with the underlying goods or services. Therefore, the accurate and timely transmission of those documents is vital. Under articles 7 and 8, the issuing bank must honour, and the confirming bank must honour or negotiate, once a complying presentation is received. The question then becomes: what if the documents never arrive due to loss in transit, even though they were duly examined and found to comply at the nominated or confirming bank?

UCP 600 addresses this in article 35, which offers two levels of protection and guidance. The first paragraph provides a general disclaimer of responsibility for any delay, mutilation, or loss of documents in transit, provided the bank followed the method of dispatch stated in the credit. If the credit stipulates a named courier, specific service or method, the bank must comply with that instruction. Where no specific method is stated, the bank may use its discretion in selecting the means of dispatch. This provision protects banks acting in good faith and in line with the documentary credit terms from liability in the event of unforeseen transmission issues.

However, the second paragraph of article 35 introduces an important safeguard for beneficiaries and nominated banks. It holds that an issuing bank or confirming bank remains obligated to honour or negotiate, even if the original documents are lost in transit, so long as a complying presentation was made to a nominated bank, and that bank determined the documents to be in order. This applies regardless of whether the nominated bank itself honoured or negotiated the documents. What matters is that the documents were examined and found to comply, and that they were dispatched in accordance with the terms of the credit.

This principle is not new. Earlier versions of UCP, as far back as UCP 82, already included similar disclaimers, and ICC Opinions issued under UCP 500, such as R429, confirmed that issuing banks are liable to pay if a complying presentation is lost in transit, provided the documents were sent as instructed. The risk, in such cases, does not lie with the beneficiary, but with the nominated bank if it chooses an unauthorised method of dispatch.

In practical terms, when documents are lost, the issuing or confirming bank cannot insist on original replacements, such as bills of lading. They may, however, request copies of all the originally presented documents and assess whether the presentation was compliant. The examination period, as provided in sub-article 14 (b), would begin upon receipt of those copies. The requirement to assess the documents as if they were the originals, including adherence to stipulated formats and signatures, still applies.

ICC Opinions such as R548 and R561 further confirm that lost documents do not absolve an issuing or confirming bank of its obligation to honour a complying presentation. R561 highlights that while some banks retain copies of presented documents to assist in these rare circumstances, doing so is optional and not universally practised. The idea of ‘re-creating’ a presentation through copies is recognised, though clearly burdensome.

Operationally, some suggest reverting to the earlier practice of requiring documents to be sent in two separate mailings. While this might mitigate the risk of total loss, it introduces additional cost and administrative complexity.

Ultimately, the UCP rules provide clarity on the rights and responsibilities in such cases, but they do not dictate the operational measures that banks must adopt when documents are lost. As noted in ICC Opinion R651, it is incumbent on the concerned banks to engage in practical dialogue to resolve the matter equitably. Loss of documents should prompt cooperation, not conflict, and the banks involved should aim for a fair resolution.

While this Briefing Paper does not cover delayed deliveries or broader disruptions such as those caused by the COVID-19 pandemic, reference should be made to the ICC’s Guidance Paper on that subject. In all cases, the goal is to ensure that the risk of document loss is managed fairly and that the beneficiary’s right to payment for a complying presentation is preserved, even when the physical documents go astray.

Modifications and Exclusions under Documentary Credits subject to UCP 600

 
It is not uncommon for documentary credits to include modifications or exclusions to one or more articles or sub-articles of UCP 600. While article 1 of the UCP permits such alterations, their manner of inclusion often leads to confusion and unintended consequences. The core issue lies in how these modifications or exclusions are expressed, and the subsequent impact they may have on the credit’s clarity, consistency, and enforceability.

The UCP 600 was designed with specific objectives: to provide clarity, promote uniformity in practice, eliminate ambiguity, and set out examination requirements for presentations. When a credit includes any exclusion or modification, these fundamental goals should not be undermined. However, problems frequently arise when such modifications are poorly drafted, loosely worded, or inserted without fully appreciating the rule being altered and its interrelation with other provisions.

Over the years, the ICC Banking Commission has issued numerous Opinions addressing the implications of rule modifications and exclusions. For instance, Opinion R634 (TA638rev) discussed the exclusion of multiple sub-articles, while Opinion R716 (TA704rev) examined the impact of a broadly worded clause asserting that any conflicting credit terms override UCP 600. In addition, ISBP, particularly in paragraph A19, provides guidance on commonly used phrases that often amount to modifications, such as “stale documents acceptable” or “freight forwarder transport documents allowed”. These expressions correspond to specific sub-articles of the UCP 600 and, if not properly contextualised, can lead to misinterpretation.

Article 1 is clear in stating that UCP provisions are binding unless expressly modified or excluded by the credit. However, clarity is key. A vague or ambiguous clause may not have the intended effect and, worse still, may create uncertainty that hinders the processing of the credit. The ISBP also reminds users that while its practices do not modify UCP rules, the terms of a credit can override ISBP provisions, and where they do, transparency is paramount.

When considering a modification or exclusion, several practical questions should be asked. Is the proposed change truly necessary, or does it stem from a misinterpretation of UCP? How will the change impact the operation of the credit as a whole, not just the specific term in question? Could this exclusion affect the drafting or examination of other documents in the presentation? If a rule is excluded, does this leave a void, and if so, what language should be added to fill it effectively? These are critical considerations for issuing banks and applicants, especially where English is not the first language and the risk of ambiguity is compounded.

It is not enough to merely declare that a rule is excluded. Often, a new, precise condition must be introduced to ensure the intended effect is clearly understood by all parties. For example, modifying sub-article 14 (c) by stating a different presentation period in field 48 of the SWIFT MT700 (e.g., “15 days” instead of the default 21) is a valid, straightforward adjustment. But more complex exclusions, such as those relating to third-party documents or transport documents, must be approached with caution.

The implications of modifying one rule can ripple through other provisions. UCP rules are interconnected, and a change in one area may necessitate compensatory changes elsewhere. In practice, this demands a high level of understanding from those drafting the credit, particularly the issuing bank, and a willingness to consult ICC resources, including Opinions, ISBP guidance and other supporting documentation.

To avoid unintended disputes or delays, three key strategies are recommended. First, there must be broader education on UCP 600 and the workflows of documentary credits. Second, greater awareness and access to ISBP is essential, not only for banks but also for beneficiaries and applicants. Understanding how documents are examined and how rules apply can reduce the impulse to seek unnecessary modifications. Lastly, the wider dissemination of ICC materials, Opinions, DOCDEX decisions and Guidance Papers, is crucial in equipping practitioners with the knowledge they need to interpret and apply the rules correctly.

Ultimately, the goal of a documentary credit is to facilitate trade, not to create barriers. Banks should adopt a consistent, well-considered approach to handling modifications and exclusions, ensuring that any alterations serve the interests of clarity and commercial utility. Where such changes are unavoidable, they must be articulated with precision, foresight, and a clear understanding of the consequences. In doing so, all parties. banks, applicants and beneficiaries, can avoid the risks of misinterpretation and ensure the smooth operation of the credit.

ICC Guidance Papers

From time to time, the ICC Banking Commission publishes Guidance Papers to clarify areas of documentary credit practice that are of particular significance to practitioners. While these papers are often insightful and beneficial, they are occasionally overlooked or become less accessible over time. In recognition of their ongoing value, a selection of the most pertinent Guidance Papers has been re-positioned on the ICC’s website, ensuring they are more readily available for consultation by banks, corporates, and trade professionals.

One of the most notable of these papers addresses the use of drafts under documentary credits. This topic came to the fore during the 2017 consultation on a possible revision of UCP 600, when many National Committees questioned whether drafts, particularly sight drafts, remained necessary for a valid presentation. The consensus reached was that, in most instances, a draft is not required under a UCP 600 credit. The paper published in January 2019 discourages the routine requirement for sight drafts unless there is a compelling commercial, regulatory or legal justification. Instead, it encourages greater reliance on specific agreements between negotiating banks and beneficiaries, and recommends the use of deferred payment credits as an alternative to drafts requiring acceptance. Issuing banks were also advised to update their credit application forms to reflect this approach.

Another critical paper is the Guidance on Simple Documentary Credit Formats, released in December 2019. It builds on the work done during the drafting of ISBP and highlights the benefits of a methodical, simplified approach to drafting credits. The paper recognises that a straightforward format is particularly effective in established trading relationships and can help reduce discrepancies and misunderstandings. The guidance promotes clarity in terms, minimal use of unnecessary requirements, and better alignment with international standard banking practices.

The requirement for ‘on board’ notations on transport documents is also covered in a dedicated guidance paper, originally published in 2010. Prompted by discussions at the 2009 ICC Banking Commission meeting in Dubai, this document clarifies how ‘on board’ notations should be understood and applied in the context of articles 19 to 22 of UCP 600. The paper covers various transport documents, including Bills of Lading and Sea Waybills, and offers both narrative guidance and a flowchart to assist banks and presenters in understanding the requirements. Much of the content was subsequently incorporated into ISBP, reinforcing its status as the most authoritative guide to documentary examination.

The topic of strict compliance has long been debated in trade finance, with many differing views on its interpretation. In response, the ICC released a paper in May 2016 to explore the concept in depth. Drawing from ICC Opinions, DOCDEX decisions, court rulings, and expert commentary, the paper concluded that there is no single, defined approach to strict compliance. Notably, the UCP has never sought to define it, recognising it as a principle of contract law that is interpreted by courts. With the advent of ISBP, the rigidity traditionally associated with strict compliance has softened. The general principles outlined in ISBP promote a more practical and commercially sensitive approach, where unnecessary literalism gives way to reasoned examination of documents. As a result, it is debatable whether strict compliance, in its traditional form, still has a meaningful role in modern documentary credit operations.

Finally, the ICC has also revisited its guidance on sanctions clauses in trade finance instruments. The original paper, issued in 2010 and updated in 2014, addressed concerns surrounding the use of broad or ambiguous sanctions clauses that could compromise the independence of instruments such as documentary credits and demand guarantees. Given the increased use of such clauses in recent years, particularly in response to geopolitical developments, the ICC issued an addendum in May 2020 and again in 2024. The updated guidance reinforces that sanctions clauses should not be included as a matter of routine. When necessary, any clause must be narrowly drafted, clearly worded, and limited to those sanctions’ laws or regulations mandatorily applicable to the bank or its correspondents. The ICC included a model clause in the guidance, recommending that it be used to prevent uncertainty and to ensure enforceability.

These Guidance Papers reflect the ICC Banking Commission’s ongoing commitment to promoting clarity, reducing ambiguity, and enhancing the consistency of documentary credit practice. They are not intended to replace the UCP or ISBP but rather to supplement them by addressing nuanced or evolving issues that arise in practice. For banks, exporters, importers and legal professionals involved in trade finance, these papers offer a valuable source of practical insight and should form part of the core reference materials for those working with documentary credits. Ensuring greater visibility and accessibility of such papers, whether through the ICC’s website or by integrating them into training programmes, can help ensure that best practice is more widely understood and more consistently applied across the global trade ecosystem.