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Five Draft Opinions involving commercial LCs were discussed at the most recent quarterly session of the ICC Banking Commission on 23 January 2024. In advance, ICC received comments on the Draft Opinions from 32 of its National Committees (NCs). Based on these comments, one Draft Opinion (TA935) was re-drafted and will be taken up further at the next quarterly ICC Opinion Session in April 2024. The four other Draft Opinions (TA936-TA939) were approved for finalization.
Draft Opinion TA935 involved a query about an issuing bank raising as a discrepancy a presented bill of lading showing ‘CAT LAI PORT’ as place of delivery instead of as port of discharge without notation evidencing that port of discharge is ‘CAT LAI PORT’. The initial Draft Opinion concluded that the discrepancy is not valid. Following receipt of written comments and reassessment, the ICC Banking Commission Technical Advisory Team determined the discrepancy is valid. During the discussion session, the written comments and suggested changes were offered to NC representatives for consideration. A re-submitted Draft Opinion TA935 will be released to NCs for a look and re-visited at the April 2024 ICC Opinion Session.
Draft Opinion TA936 dealt with a query in which an exporter submitted documents under an LC in six tranches. The first four presentations were honoured, but the fifth and sixth presentations were refused. The issuing bank quoted the discrepancy: “Trade term not found in invoice.” The LC’s goods description stated xxx CFR [Port C] with no indication of the applicable Incoterms publication. The presented invoice showed C&F under the unit price and amount, with Port C mentioned as the port of discharge and final destination elsewhere in the invoice. In disputing the discrepancy, the presenting bank mentioned among its contentions that the trade term “C&F” from the 1980 Incoterms publication was modified to “CFR” in subsequent Incoterms publications and is equivalent. Because the trade term specified in the credit did not indicate the relevant Incoterms publication, the presenting bank’s stance is that the trade term was mentioned in the invoice and the discrepancy is not valid.
The Opinion’s Analysis said the presenting bank was correct in pointing out that that “CFR” did replace the term “C&F” in the Incoterms publications. Moreover, the Analysis added that certain industries such as GAFTA (the grain and feed trade association) still use C&F. In reaching its conclusion there is no discrepancy, the Opinion determined that the invoice complied with ISBP paragraph C3, satisfied UCP600 Sub-Article 18(c), and further reminded of ISBP 821 preliminary consideration (iv).
The set of several written comments from NCs was somewhat split as to whether or not a document checker should know that C&F and CFR are similar terms for the same concept. The Technical Advisory Team explained there is no doubt it is within the scope of international standard banking practice for a document examiner to understand the basics of their role and further added there was so much correspondence between the bank that it is “inconceivable” that no one in the issuing bank’s office had such knowledge.
Draft Opinion TA937 addressed a query dealing with a presented airway bill showing: “Airport of departure: Amsterdam” and “Airport of destination: Panama, Ciudad DE”. The issuing bank refused the presentation, citing the discrepancy: “Air Waybill does not show name of Airport of departure nor Airport of Destination”. The nominated bank contended that the AWB does show the relevant airports, but the issuing bank maintained its position and referenced ISBP Paragraph H11. The query asked if the discrepancy is valid.
The Opinion concluded the discrepancy is not valid. In considering the text of ISBP Paragraph H11, the Opinion’s Analysis explained that the wording “‘actual airport of departure or destination’… is to emphasise that when a credit provides a geographical area for the airport of departure and/or destination, it is not acceptable to insert the same wording i.e., the geographical area in the respective fields of the air transport document. The details inserted in the air transport document must reflect compliance with the stated geographical area and the insertion of Amsterdam and Panama Ciudad DE achieves this.” The Analysis also referenced ICC Opinions TA628rev and TA796rev that reflect this position “that in such circumstances it is sufficient to merely state the name of the city in the transport document without any need for the name of a specific (air)port.”
In discussion, one NC representative said there was some dispute within their national committee whether or not there was a discrepancy and said that ISBP Paragraph H11 be read different ways. It was noted that the paragraph could be one to review if ISBP 821 were to be revised.
Draft Opinion TA938 dealt with the role and responsibilities of an “Advising Bank” based on UCP600 Sub-Articles 9(b), (c), and (f). From the complex scenario it outlined, the query asked a series of questions related to an LC issued by a bank (Bank A) subsequently revealed to be non- existent and the involvement of an alleged first advising bank (Bank Z) whose role was not initially disclosed by the second advising bank (Bank B) to the third advising bank (Bank C).
On the question of whether the LC text was decisive in qualifying the role of an advising bank under UCP600, the Opinion explained that the role is defined in the rules: to advise a credit at the request of an issuing bank. Likewise, a second advising bank’s role is to advise a credit at the request of the advising bank.
Based on initial details received by Bank C, the Opinion determined that Bank B could be qualified as the First Advising Bank, but subsequent details clarified that Bank B was the Second Advising Bank.
On the question of whether a bank, if qualified as a First Advising Bank, is required to verify whether the Issuing Bank even exists, the Opinion said so, adding: “In satisfying itself as to the apparent authenticity of a credit, an advising bank should be satisfied that the sending bank exists. Mere reference to UCP 600 sub-article 9 (f) with no explanatory comment is not sufficient.”
Asked to determine if Bank B has satisfied itself ‘as to the apparent authenticity of the credit’ and/or that the ‘advice accurately reflects the terms and conditions of the credit’, the Opinion’s conclusion determined that based on the full set of facts, Bank B was the second advising bank and therefore responsible for satisfying itself as to the apparent authenticity of the advice it received from Bank Z. Bank Z would have been responsible for satisfying itself as to the apparent authenticity of the credit it received from Bank A.
On whether Bank B was in breach of certain UCP600 Article 9 provisions by failing to inform Bank C that it was unable to satisfy the apparent authenticity of the LC, the Opinion’s conclusion said yes. Although Bank B’s message to Bank C made reference to UCP600 Sub-Article 9(f), the underlying rationale was lacking. The Opinion went on to state: “Bank B should have provided an explicit indication to Bank C that it was unable to authenticate the advice of the credit it had received.”
On the sixth question of the query about whether Bank B was in breach of UCP600 Article 9 provisions when it failed to inform Bank C that it was only acting as Second Advising Bank and not as First Advising Bank, the Opinion said this approach is bad banking practice. By failing to provide details of a first advising bank, the advice was not accurate and Bank B did not meet the requirements of UCP600 Sub-Article 9(b). Additionally, the Opinion determined that Bank B’s mere reference to UCP600 Sub-Article 9(f) was insufficient and Bank B also did not appear to have met this sub-article’s provisions.
Draft Opinion TA939 dealt with a query regarding UCP600-issued credits requiring presentation of a draft in more than one field of an MT700, for instance, field 42C (Drafts at …) and field 42a (Drawee) as well as in field 46A (Documents Required) or field 47A (Additional Conditions). In such cases when the LC requires presentation of drafts and the tenor and drawee are the same in both fields, the query asked whether two original drafts must be presented or if just one will suffice.
The Opinion’s Analysis first drew attention to the ICC Guidance Paper, “The Use of Drafts (Bills of Exchange) under Documentary Credits”, which recommends that the practice of requiring a draft for a documentary credit available at sight be discontinued in most all instances. The Analysis went on to explain that in cases where “a requirement for a draft is repeated in the designated fields in the MT700 (i.e., field 42C (Drafts at …) and field 42a (Drawee) as well as in field 46A (Documents Required) or field 47A (Additional Conditions,) and includes the same tenor and drawee, this will be regarded as a repetition of the details in fields 42C and 42a, and the requirement in field 46A or 47A is to be disregarded.” The Opinion concluded that just one draft is required for presentation.
In comments, both NCs and the Technical Advisory Team noted that the ICC Banking Commission has a role to educate, as evidenced by its March 2023 Briefing Paper which reinforced the ICC Guidance Paper on the handling of drafts. Conversely, bankers and other parties to LCs should refrain from relying on LinkedIn and other social media platforms for formal opinions on LC practice. In discussion, there was also some exchange of views whether the Analysis’ wording that “the details … be disregarded” was overly broad and if “specific” should be added prior to “details”. The TA Team subsequently agreed and made the addition.