Documents Lost in Transit: Must the Issuing Bank Honour If the Nominated Bank Retained No Copies?

Introduction

Article 35 of UCP 600 protects a nominated bank when documents are lost in transit after it has determined that the presentation is complying. But what happens if the documents are later found to have been discrepant, or the nominated bank cannot prove that it examined them because it retained no copies?

The following question explores an important practical issue that is not expressly answered by UCP 600.

Question

Dear Mr. Old Man,

I hope this mail finds you well.

I have a situational question as follows:

According to UCP 600 article 35, a nominated bank examines and determines that the documents comply with the terms and conditions of the letter of credit and forwards them to the issuing bank or the confirming bank, if any, for reimbursement or payment. An issuing bank or confirming bank, however, must honour that nominated bank when the documents have been lost in transit between the nominated bank and the issuing bank or between the confirming bank and the issuing bank.

Assume that the documents forwarded to the issuing bank were actually discrepant, but the nominated bank remained silent in its covering schedule as to whether the presentation was complying. The issuing bank then requested the nominated bank to provide copies of all stipulated documents.

What if the nominated bank refused, stating that it had retained no copies of the documents?

Must the issuing bank honour?

Thank you for your valuable opinion.

Best regards,

NT

_____

Answer

Dear NT,

Thank you for your question.

Although documents being lost in transit is quite rare, it does occur.

I have answered several questions on this topic before. For reference, you can search Google using “Mr. Old Man” + “Documents lost in transit”, or search directly on my website www.mroldman.net.

I also recommend reading the following ICC publication carefully:

Technical Advisory Briefing No. 4
Documents presented by a nominated or confirming bank under UCP 600 and lost in transit
21 September 2022

According to this ICC Technical Advisory Briefing, an issuing bank remains obligated to honour, and a confirming bank remains obligated to honour or negotiate, when a nominated bank has examined the documents and determined that they constitute a complying presentation (whether or not it has honoured or negotiated), but the documents are subsequently lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank.

However, the ICC makes it equally clear that this principle does not apply where the presentation was discrepant or where the nominated bank did not examine the documents.

Article 35 merely allocates the risk of documents being lost in transit. It does not deprive the issuing bank of the right to satisfy itself that the presentation was complying. Since the original documents are unavailable, the issuing bank may request the nominated bank to provide copies of all stipulated documents.

In your scenario, the nominated bank forwarded the documents without indicating that it had determined the presentation to be complying. If the issuing bank requests copies of the documents and the nominated bank responds that it retained no copies, the issuing bank may face practical difficulties in determining whether a complying presentation was made.

Technical Advisory Briefing No. 4 does not address the consequences of such a situation. It merely confirms that Article 35 applies only when the nominated bank has examined the documents and determined that they comply. Therefore, whether the issuing bank remains obligated to honour in the absence of evidence that such a determination was made is a matter that falls outside the scope of the Briefing and would ultimately depend on the facts, the parties’ agreements and the applicable law.

If the nominated bank nevertheless maintains that it examined the documents and determined that they complied, while the issuing bank disputes that assertion and no documentary evidence is available, UCP 600 does not provide a mechanism for resolving such a dispute. The resolution would therefore depend on the available evidence, the parties’ agreements and the applicable law and jurisdiction.

Best regards,

Mr. Old Man