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    TA Briefing No 5 Modifications and Exclusions

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    TA Briefing No 5 Modifications and Exclusions

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    TA Briefing No 5 Modifications and Exclusions

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    International Chamber of Commerce

    33-43 avenue du Président Wilson, 75116 Paris, France


    +33 (0) 1 49 53 28 28 | iccwbo.org

    ICC Banking Commission

    Technical Advisory Briefing No. 5


    Subject: Modifications and Exclusions under Documentary Credits subject to UCP
    600

    7 December 2022

    ISSUE
    It is a fact that a number of documentary credits are issued with a modification or exclusion
    of one or more of the UCP 600 articles and/or sub-articles. Whilst this is permitted by the
    content of article 1, the manner in which these modifications and exclusions are indicated in
    a documentary credit often causes unexpected and, in many cases, unnecessary problems.

    INTRODUCTION
    The prime aims of the UCP 600 are to:
    • provide more transparency and clarity for processing whilst removing ambiguity;
    • provide a uniform rules-based approach to documentary credits;
    • reduce misunderstanding; and
    • detail the examination requirements for a presentation.

    A documentary credit containing any modification to, or exclusion of, a UCP 600 rule should
    continue to uphold these aims.

    The ICC Banking Commission has regularly responded to questions that relate to the impact
    of a rule modification and/or exclusion. Two notable ICC Opinions are R634 (TA638rev)
    which responded to questions relating to the exclusions of sub-articles 14 (f), 14 (k), 14 (l),
    16 (c) (iii) (d), 28 (h) and (i), and R716 (TA704rev) which responded to a question relating to
    a clause stating: “Should any terms or conditions stipulated in this credit be contradictory to
    or inconsistent with that of the UCP 600, the relative UCP 600 provisions are deemed
    expressly modified and/or excluded.”

    In addition, the International Standard Banking Practice for the Examination of Documents
    under UCP 600 (ISBP 745) has provided interpretations of terms or conditions often inserted
    in a documentary credit with the intention of either modifying or excluding an article or sub-
    article of the UCP 600. These are included in Paragraph A19 under the heading
    ‘Expressions not defined in UCP 600’ and include:

    • Freight forwarder transport documents allowed (sub-article 14 (l))


    • Stale documents acceptable (sub-article 14 (c))
    • Third party documents acceptable or not acceptable (sub-article 14 (f))
    • Shipping company (transport articles 19-25)
    • Documents accepted as presented (impact on article 6, article 7, article 8, article 14)

    ANALYSIS
    Article 1 states that the rules contained in the UCP “are binding on all parties thereto unless
    expressly modified or excluded by the credit”.

    1 International Chamber of Commerce


    Banking Commission Technical Advisors Briefing n°5
    International Chamber of Commerce
    33-43 avenue du Président Wilson, 75116 Paris, France
    +33 (0) 1 49 53 28 28 | iccwbo.org

    Furthermore, ISBP 745 Preliminary Considerations (ii) provides that the practices described
    in the ISBP 745 do not expressly modify or exclude an applicable article in the UCP 600.
    However, a term or condition of a documentary credit may impact the application of one or
    more paragraphs of the ISBP 745.

    In a wider context, it is critical for banks, applicants and beneficiaries to understand what
    kind of modification or exclusion is being suggested and, even more importantly, why it
    needs to be made. The latter raises the following considerations:

    • Is it the case that the rule being contemplated for modification or exclusion is
    completely unworkable for the structure of the documentary credit that is under
    discussion? Or, is it simply a misunderstanding or lack of knowledge as to how a rule
    is implemented in practice?

    • Think of the impact, if any, on the documentary credit as a whole (and not just the
    term or condition that will be impacted by a modification or exclusion), paying
    particular attention to how it may affect the subsequent issuance of one or more
    documents and/or the manner in which the presentation will be made. UCP rules
    often cannot be read in isolation and changing one rule may affect another rule(s) in
    an unintended way.

    • Where an exclusion is being contemplated, is there a void that will need to be filled
    by a new term or condition? If yes, what wording will need to be inserted into the
    documentary credit to provide clarity and a clear understanding to an advising bank,
    confirming bank if any, and/or a nominated bank, and the beneficiary?

    • As English is not the natural language of many countries, and when in the role of an
    issuing bank, are you satisfied that you can adequately describe any term or
    condition that will effectively create a new rule, bearing in mind that any ambiguity will
    be at the risk of the applicant (ISBP 745 Preliminary Consideration (v))?

    Essentially, the message, as also conveyed in Opinion R716 (TA704rev), is that banks
    should keep any exclusions (if at all needed) to a minimum recognising that it is often not as
    simple as merely making a statement in the documentary credit that article X or sub-article Y
    is deleted or is not to apply. Very often there is a need for a new term or condition to be
    expressly inserted into the documentary credit to cover the void that the exclusion leaves.

    Some modifications do not create a different perspective to a rule, but simply a revised
    outcome. For example, in a SWIFT MT700 message, field 48 (Presentation Period in Days)
    indicates the number ‘15’. By completing field 48 in this manner, the default period of 21
    calendar days after the date of shipment, as mentioned in sub-article 14 (c), has been
    modified to 15 calendar days.

    SUMMARY
    Three approaches are recommended in order to reduce problems in these areas:
    • Better understanding of documentary credit workflows and the principles of UCP 600.
    • Wider awareness of ISBP 745 by all persons, not just banks. For example, if
    beneficiaries and applicants held a copy of the ISBP 745 and could see how the UCP
    600 should be interpreted and the practices that prevail today, it is likely that the
    number of requests for modification or exclusion will reduce.

    2 International Chamber of Commerce


    Banking Commission Technical Advisors Briefing n°5
    International Chamber of Commerce
    33-43 avenue du Président Wilson, 75116 Paris, France
    +33 (0) 1 49 53 28 28 | iccwbo.org

    • Distribution of information, i.e., ensuring that ICC Opinions, DOCDEX Decisions and
    ICC Guidance Papers reach all persons involved in the handling of documentary
    credits.

    Overall, the key is education and it should not be forgotten that a documentary credit is in
    place to facilitate trade and not to hinder it.

    Banks should have in place a recommended approach on how to deal with modifications or
    exclusions of UCP 600 rules in documentary credits. Otherwise, they will need to accept,
    along with the applicant, the risk that will prevail in the event of ambiguity.

    This briefing is educational only

    About The International Chamber of Commerce (ICC)

    The International Chamber of Commerce (ICC) is the institutional representative of more


    than 45 million companies in over 100 countries. ICC’s core mission is to make business
    work for everyone, every day, everywhere. Through a unique mix of advocacy, solutions and
    standard setting, we promote international trade, responsible business conduct and a global
    approach to regulation, in addition to providing market-leading dispute resolution services.
    Our members include many of the world’s leading companies, SMEs, business associations
    and local chambers of commerce.

    www.iccwbo.org Follow us on Twitter: @iccwbo

    3 International Chamber of Commerce


    Banking Commission Technical Advisors Briefing n°5

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