ICC guidance papers throw light on LoCs

Last Monday, the International Chamber of Commerce (ICC) released a set of four guidance papers on the usage of documentary credits. These include recommendations regarding the requirements for ‘onboard notation’ on transport documents, notes on the principle of ‘strict compliance’, the use of ‘drafts’ i.e. bills of exchange under documentary credits, and the prescribed documentary credit format.

The first paper deals with a situation where a bill of lading (BL) indicates place of receipt different from the port of loading stated in the credit and/or pre-carriage details.

The question is whether or not there is a need for an onboard notation showing the name of the vessel and the port of loading, even if they are the same as shown in the respective fields on the BL.

After detailed discussions, the paper says that where a BL indicates a place of receipt different from the port of loading and there is an indication of a means of pre-carriage (either in the pre-carriage field or the place of receipt field), a dated onboard notation will be required indicating the name of the vessel and the port of loading, whether the BL is pre-printed with the words ‘received for shipment’ or the words ‘shipped on board’.

Where there is no indication of a means of pre-carriage in a BL pre-printed ‘received for shipment’, the onboard notation need not indicate the name of the vessel or the port of loading whether the place of receipt is same as the port of loading or different. Also, in a pre-printed ‘shipped onboard’ BL, where no indication of a means of pre-carriage appears, no onboard notation is required. The same guidelines apply for combined/multimodal transport documents, sea waybills, and charter party BLs.

The second paper deals with the principle that the documents presented must strictly comply with the terms and conditions of the credit. After detailed discussions, the paper says the document examiners must decide each case based on the presented facts and the context. There is no merit in attempting a definition of this multifaceted subject. Developments in the past have proved that, as time goes by, it is customs and practices that provide the required clarity. 

And once such customs and practices become commonplace, they will form part of the next revision of ICC publication on the International Standard Banking Practices for examination of documents under documentary credits, says the paper.

The third paper examines the need for drafts (i.e. bills of exchange) to be presented under documentary credits and prepayments under deferred payment letters of credit (LoCs). This paper essentially says drafts need not be called for unless there are specific commercial, regulatory, or legal reasons to create a bankers’ acceptance.

The fourth paper gives guidance on filling up various fields in the SWIFT MT700, the format used in the near universally used secure global electronic network through which the issuing banks transmit documentary credits.

The discussions in these papers are quite nuanced. All parties who use documentary letters of credit, carriers and their agents who issue BLs and customs brokers should look up this link for these papers: https://iccwbo.org/content/uploads/sites/3/2023/02/set-of-guidance-papers-on-recommended-principles-and-usages-around-ucp600-rules.pdf and get familiar with the guidance and recommendations given in them. Banks should review their forms and practices based on the recommendations in these papers.

Email: tncrajagopalan@gmail.com