International Standard Banking Practice publication 745   

The ISBP (full title: International Standard Banking Practice for the Examination of Documents under Documentary Credits) is an International Chamber of Commerce (ICC) publication which provides important guidance to documentary credit examiners and practitioners relating to the examination of documents presented against Letters of Credit. It is important to note that the ISBP cannot in any way change the UCP 600 rules which apply to Letters of Credit, but the ISBP is a valuable supplementary guide to UCP.

The first ISBP was formally approved in 2002 and this first version acted as a companion guide to Uniform Customs and Practice  (UCP) 500 which were the current rules that governed Letters of Credit at that time. However, when the rules were revised to UCP 600 in July 2007, the ISBP was duly updated by the ICC publication No.681, thus aligning the ISBP with the newly updated UCP. A fully revised version of ISBP, ICC publication 745 is now available, after a series of draft versions, with the first draft produced in May 2011 through to the 5th draft in November 2012. Approval was finally achieved for the revised publication in April 2013, with the ICC publishing the guide in June/July 2013.

This revised guide is a substantial update to the former version and includes a number of  new interpretations and new chapters, so it is an absolutely essential publication for anyone who is involved in Letters of Credit. This article will highlight some of the key changes in the revised guide but it is worth emphasising why the first ISBP was produced back in 2002, and the objectives were ;

International Standard Banking Practice publication 745:

• To encourages a uniformity of practice worldwide to reduce the number of credits rejected by banks owing to discrepancies.
• To  supply practices and interpretations that should be applied by documentary credit practitioners helping to reduce discrepant presentations.

These objectives remain very much the same today, when the powers that be were drawing up the revised guidelines. There are now 15 sections/chapters in the revised version of ISBP compared to 10 sections/chapters in the former version.

These sections are Preliminary Considerations, Drafts and Calculation of Maturity Date, Invoices, Transport Documents covering at least two different modes of transport, Bills of Lading Charter Party Bill of Lading, Air Transport Document, Road, Rail or Inland Waterway Transport Documents, Insurance Document and coverage and Certificate of Origin with new sections relating to guidance on practices relating to Non-Negotiable Sea Waybill, Packing List, Note or Slip, Weight List, Note or Slip, Beneficiary’s Certificate, Analysis, Inspection, Health, Phytosanitary, Quantity Quality and Other Certificates.   The following is a selection of, what I consider to be some important information/changes following the release of the revised ISBP.

It is not intended to be a definitive guide, rather a personal interpretation of changes which, having discussed the matters with a number of my clients, are worth emphasising to ensure that documentary presentations are compliant when they are examined by banks.

1. In the Preliminary Considerations section there is an expanded paragraph on the risks that arise when a beneficiary accepts a Letter of Credit which requires the presentation of a document that is to be issued, signed or countersigned by the applicant. The expanded text in the revised ISBP emphasises that the beneficiary of the Letter of Credit should consider the appropriateness of this requirement carefully or seek an amendment. Having encountered a number of Letters of Credit with similar clauses in recent months, all issued by banks in the Middle East, this is without doubt a  real issue.

In one recent instance the presentation of a document which had to be signed by a specifically named  individual within the applicant’s organisation, represented 30% of the value of the Letter of Credit, but competitive forces meant that the beneficiary had reluctantly made a commercial decision to allow this onerous clause to remain in the Letter of Credit. I sincerely hope that they obtain this document signed in accordance with those terms and get paid!

2. Virgules (a diagonal mark ( / ) used especially to separate alternatives). In all honesty this is not a word I have encountered prior to reading the revised ISBP. However it is very relevant if used (ISBP suggests that virgules are not used) on a SWIFT MT700 in the goods description, for example in field 45A it reads  Red/Blue/Yellow sweatshirts according to PO number 76598654 dated 30^th August 2013, with no further clarification on the Letter of Credit.

ISBP provides guidance that the documents presented could evidence only Red or only Blue or only Yellow, or any combination of them. This is valuable clarification for every documentary credit practitioner.

3. Certificates, Certifications, Declarations and Statements. The ISBP now states that when a certificate, declaration or statement is required by the Letter of Credit, the document is to be signed. Most of my clients have told me that they would of course routinely sign such documents, but again this elucidation is helpful. It is unusual to come across a Letter of Credit which does not call for some form of certificate evidencing that ….. has taken place, so it is an important point to note.

4.Copy Transport Documents. If the Letter of Credit calls for copy transport documents rather than originals, the ISBP states that UCP 600 articles 19-25 which relate to transport documents does not apply. Copy transport documents are to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14(f), which effectively means that the documents appears to fulfil the function of the required document and that there is no conflict regarding the data on the document, with any other document stipulated in the Letter of Credit.

5. The ISBP contains an expanded segment which refers to expressions which should not be used in UCP 600, but if these expressions are used, how to interpret them. New additions are    “shipping company” and “documents acceptable as presented” and an expanded explanation of “third party documents not acceptable”. Perhaps the most onerous expression is “documents acceptable as presented” which almost seems to undermine the very use of a Letter of Credit.

The ISBP provides clarity that if this expression is used a presentation may consist of one or more of the stipulated documents provided they are presented within the expiry date of the credit and the drawing amount is within that which is available under the credit. The documents will not otherwise be examined for compliance under the credit or UCP 600, including whether they are presented in the required number of originals or copies. This fresh interpretation does at least provide some criteria, albeit very scant, should this set phrase be encountered.

6. Shipping Marks – As a former documentary examiner for a bank, I am conditioned to want to see exact mirror images when comparing documents to Letter of Credit. This is not necessarily the case or indeed correct, but it is, for me, a natural reaction. With this in mind, the ISBP indicates that if a Letter of Credit states that the details of a shipping mark are to be evidenced on specific documents, these details must be shown but not necessarily in the exact same sequence as expressed in the Letter of Credit. Some of my clients have commented that this is a surprise to them as they would never consider presenting documents which contain shipping marks in any other sequence to that required in the Letter of Credit, but it is worth noting these revised guidelines in the ISBP.

7.Invoices. Perhaps one of the areas that causes the most debate amongst documentary credit practitioners is the description of goods on the invoice compared to the description as stated within the Letter of Credit. The previous version of ISBP mentions there is no need for a mirror image when comparing the description of goods on the invoice to the description on the Letter of Credit.

The ISBP reinforces UCP 600 Article 18 which uses the word “correspond” when stating how the goods descriptions should be represented on the invoice compared to the Letter of Credit. The ISBP expands upon this by mentioning that invoices may also indicate data in respect of the goods, services or performance, provided that they do not appear to refer to a different nature, classification or category of the goods, services or performance. An example is provided using an invoice which describes the goods as “imitation suede shoes” whereas the Letter of Credit’s description is “suede shoes”. This would be considered unacceptable as ISBP deems that this would represent a change in nature, classification or category of the goods. The tried and tested policy of quoting goods description on the invoice verbatim, as per the description on the Letter of Credit is still the best course of action.

8. Bills of Lading. “A Bill of Lading may be issued by any entity other than a carrier or master (captain), provided it meets the requirements of UCP article 20″ is an important statement made in the ISBP. In consideration of this if the Letter of Credit has a stipulation such as ” Freight Forwarder’s Bills of Lading are not acceptable” or words of similar effect, this has no meaning in the context of the title, format, content or signing of a bill of lading unless the credit provides specific requirements detailing how the bill of lading is to be issued and signed.

In the absence of these requirements, such a stipulation is to be disregarded, and the bill of lading presented is to be examined according to the requirements of UCP 600 article 20. So in effect such clauses are totally superfluous and will be disregarded. This interpretation has been warmly welcomed, rather unsurprisingly by many freight forwarders as this is a very clear section and leaves the documentary practitioner in no doubt about what is acceptable.

9.Country named on bills of lading. I ran a public workshop recently in London, where a delegate mentioned that a well known bank had recently raised a discrepancy relating to the fact that a Letter of Credit had stated; port of loading – Felixstowe UK, and their bill of lading had shown the port of loading as “Felixstowe” but had not, unsurprisingly mentioned “UK”. The ISBP is quite clear on this issue – .

A bill of lading is to indicate the port of loading stated in the credit. When a credit indicates the port of loading by also stating the country in which the port is located, the name of the country need not be stated. So the bank in question has erroneously raised this as a discrepancy. This interpretation also applies to air waybills, with no need for a country to be stated on the document.

10. Air Waybills. There are some very important elements in the ISBP which relate to air waybills. The carrier is to be identified by its name and not merely by its IATA code, so for example British Airways needs to be stated rather than just “BA” or Singapore Airlines must be stated rather than just “SQ. However the airport can be identified using its IATA code without stating the full name of the airport, so LHR is perfectly acceptable for London Heathrow and LAX is similarly fine when the airport is Los Angeles.