Technical Advisory Briefing #4 on Lost Documents Should Cause Much Relief for Practitioners

Back in 2007, when adoption of the final draft of what was to be the UCP600 was being put to vote among the country representatives to the International Chamber of Commerce (ICC) Banking Commission, there was a good amount of consternation over the late addition of the second paragraph of Article 35. Although adoption was approved, a number of banks began stating in their letters of credit subject to UCP600 that Article 35 was excluded. Although this practice seems to have died down, there has remained a fair amount of concern over what this rule actually requires of an LC issuer if documents get lost in transit between banks.

In the September 2022 issue of DCW, it was reported that the Banking Commission has now published Technical Advisory Briefing (“TAB”) #4 on the topic of lost documents, i.e., the subject of UCP600 Article 35. The TABs are intended to serve as educational materials about ICC rules regarding which practitioners may need guidance. They are not meant to change any rules, but they may clarify what the rules say. Four TABs have now been issued, a fifth is in the process of finalization, and more are planned.

In the case of TAB#4, “Documents presented by a nominated or confirming bank under UCP 600 and lost in transit”, the clarification provided should cause much relief as it removes the primary concern many practitioners have had with the second paragraph of Article 35. What that paragraph says is:

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank.

The concern has been that this paragraph is saying that the LC issuer must pay a nominated bank upon receipt from the nominated bank of a statement that the nominated bank received a presentation of documents from the beneficiary, examined the documents and found them to be compliant, sent to the LC issuer, and they now appear to have been lost in transit. TAB#4 says that the correct interpretation of this wording is merely that the LC issuer remains liable to honor a compliant drawing even if the documents get lost. In other words, the fact the documents have been lost cannot be used as a reason to refuse to pay. Although the wording of Article 35 implies (at least to some practitioners) some immediacy, it does not actually say what needs to happen before the LC issuer is expected to honor.