At the core of documentary credit practice is the sending of paper documents between the various involved parties. Invariably, there is no issue with such transmission(s) and the documents end up at their chosen destination.
However, it is undeniable that, on occasion, the documents do not reach their destination in a timely manner. And, whilst even rarer, occasionally they do not arrive at all.
Such a situation is addressed in UCP 600 article 35 ‘Disclaimer on Transmission and Translation' wherein it is stated that an issuing or confirming bank remain liable to honour or negotiate when a nominated bank examines documents and determines that they comply, but the documents are lost in transit between the banks
It is interesting to observe that, despite a contrary view by some practitioners, this is not a new requirement within the UCP. In fact it goes as far back as UCP 82, article 12 which stated: "Banks assume no liability or responsibility for the consequences arising out of delay and/or loss in transit of cables or telegrams, letters and/or documents, or for delay, mutilation or other errors in the transmission of cables or telegrams."
UCP 290 updated the text slightly to incorporate a reference to ‘telex', which was a common communication method at that time. UCP 400 took the view to be more generic and made reference to "any telecommunication" rather than list out the various options for sending a message. The content remained largely unchanged throughout all of the revisions of UCP until the addition of specific reference to loss of documents in transit in UCP 600.
As such, the position that prevails in UCP 600 is that if a nominated bank determines that a presentation is complying and forwards the underlying documents to the issuing or confirming bank (whether or not it has honoured or negotiated), such issuing or confirming bank must honour or negotiate, or reimburse the nominated bank, even in a circumstance where the documents have been lost in transit between the banks.
It should be noted that this applies solely to circumstances where a nominated bank has examined the documents and determined their compliance, and not to a presentation with discrepancies. The essence of this approach is that it is not considered appropriate that an issuing (or confirming) bank can walk away from their undertaking by virtue of documents being lost in transit. If that were the case, it is very unlikely that a nominated bank would be prepared to act upon their nomination unless it were certain that documents had arrived at the counters of the issuing (or confirming) bank. Furthermore, banks asked to add confirmation under such circumstances would most likely refuse such a request.
As mentioned in the ‘Commentary on UCP 600', all of this needs to be put into perspective with the number of sets of documents that are sent daily between banks on a global basis against those that are lost in transit. In comparative terms, this involves miniscule percentages. The rule in UCP 600 article 35 merely outlines the impact and consequences of documents that are lost in transit.
If documents are lost in transit, an issuing or confirming bank cannot insist upon replacement original documents. However, they would be entitled to make their own decision as to whether or not the documents complied at the time the originals were presented to the nominated bank, by requesting sight of copies of the documents.
ICC Opinion R.651 made reference to such circumstances and, in fact, additionally referred to a previous ICC Opinion on the subject - R.548. In the earlier Opinion, it was concluded that an issuing bank would be obligated to honour any compliant presentations that had been lost in transit. It was made clear that reimbursement obligations are not subject to actual receipt of the documents.
The purpose of UCP is to establish rules and not an indication of the operational procedures that would be recommended in the event of documents going missing. To an extent, this was addressed in Opinion R. 651 where it was stated that it is the responsibility of the concerned parties to find a solution.
One such solution could be to revert to the former common practice of sending documents in two mailings. However, we would not recommend such an approach, as it would increase costs and is a rather cumbersome and excessive reaction to an event that is extremely infrequent.
As stated in R.651, a presentation can be ‘re-created' with copies of the documents that were originally presented. In such a circumstance, the documents would need to be checked as if they were originals, e.g., signatures considered as original. Not all nominated banks retain copies of documents, but it is noted in the Opinion that such practice may ease problems in the event that documents are lost in transit and need to be ‘re-created'. It does need to be considered that this is additional work, is entirely optional, and may not necessarily be justified for such a rare occurrence.