QUERY

QUOTE

We occasionally see commercial letters of credit issued subject to UCP600 and transmitted using the SWIFT MT700 format in which fields 42C (Drafts at...) and 42a (Drawee) have been completed and yet, either in the section for Documents Required or that for Additional Conditions, the issuing bank includes a requirement for drafts, specifying the same tenor and drawee.

Certain issuing banks believe that such letters of credit require presentation of two drafts and are asserting this in public forums, like LinkedIn. We believe this is incorrect.

Please provide us with your official opinion regarding letters of credit issued as described, i.e.,

When, in two different fields of a UCP 600 letter of credit, the letter of credit requires presentation of drafts and the tenor and drawee are the same in both fields, does it mean that two original drafts must be presented, or just one?

UNQUOTE

ANALYSIS

The question concerns documentary credits that require the presentation of a draft in more than one field of an MT700 (i.e., in field 42C (Drafts at…) and field 42a (Drawee) as well as in field 46A (Documents Required) or field 47A (Additional Conditions)).

First, it should be noted that the ICC Guidance Paper “The Use of Drafts (Bills of Exchange) under Documentary Credits” recommends that the practice of requiring a draft for a documentary credit available at sight be discontinued, unless required for a specific commercial, regulatory or legal reason. The Guidance Paper, which can be located at https://iccwbo.org/news-publications/policies-reports/set-of-guidance-papers-on-recommended-principles-and-usages-around-ucp-600/, also recommends that banks issue usance documentary credits available by deferred payment as an alternative to availability by acceptance of a draft, unless there is a specific commercial, regulatory or legal reason to create a banker’s acceptance.

Second, the requirement for a draft, if needed under a documentary credit, should only appear in the designated fields (42C and 42a) of the MT700, 707, 710 or 720.

If, however, 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 specific details in fields 42C and 42a, and the requirement in field 46A or 47A is to be disregarded.

As stated in ISBP 821 Preliminary Consideration v), an issuing bank should ensure that any credit it issues is not ambiguous nor conflicting in its terms and conditions.

CONCLUSION

Under the circumstances mentioned in the Query, and expanded upon in the Analysis, only one draft is required for presentation.

The opinion(s) rendered on this query reflect the opinion of the ICC Banking Commission based on the facts under “QUOTE” above.

The reply given is not to be construed as being other than solely for the benefit of guidance and there should be no legal imputation associated with the reply offered.

If this query relates to a matter currently under consideration by the courts, the ICC Banking Commission will refrain from considering it for adoption as an opinion.

Neither the ICC nor any of its employees, nor any member of the Banking Commission, including the Chairman, Vice-Chairmen or Technical Advisers shall be liable to any person for any loss or damage arising out of any act or omission in connection with the rendered opinion(s).