Letter of Credit: On the basis of the documents alone

Complying presentation definitions

UCP 600 article 2 states that a “Complying Presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.” 

The beneficiary to an LC must, therefore, in order to obtain the expected benefits from the bank, prepare the documents required by the LC, observing in terms of hierarchy: the LC conditions, the provisions of the UCP 600, and the international banking practice, partially codified in the ISBP 745 publication.

Criteria for examining LC documents

What are the criteria to use when examining LC documents? 

We can identify the answer to this question by reading UCP 600 article 14, “Standard for examining documents”. 

In particular, sub-article (a) reads as follows, “A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.” 

It should be noted that to better understand this article it is advisable to read it together with UCP 600 articles 4 (Credits v. Contracts), 5 (Documents v. Goods, services or services) and 34 (Disclaimer on the effectiveness of documents) UCP 600.

On the basis of the documents alone

It can therefore be said that the evaluation of documents “on the basis of the documents alone” is a general principle of documentary credit operations. Banks are obliged to examine them to the extent that the “prima facie” are in accordance with the terms of the LC, the UCP 600 and the international standard banking practice. 

In this regard, the “four-corner rule” is mentioned, which alludes to the fact of having to strictly limit the evaluation of data that can only be extracted from the four corners of a document. 

Therefore, the banks involved in examining the documents are not obliged to make assessments beyond the literal aspect of the documents presented. Banks are not obliged to determine questions of fact or of law in relation to the data contained therein. 

Moreover, the examination of the documents must be conducted with “professional care” to assess their conformity according to the requirements of the UCP 600.

Examining the LC as it appears

Furthermore, the banks examining the documents must determine whether the presentation “appears on its face” conforms. 

“On its face” is not intended to distinguish the first page of a document from its back. Rather, each piece of informative data detected on a document must be compared in its literal aspect with that requested by the LC or the UCP 600 and not in its substantive meaning to which banks are extraneous. 

In fact, the control of the bank does not invest the merit of the declarations contained in the documents, nor does it affect the validity or legitimacy of the same.

In light of the above, appropriate to inform operators of the importance of defining, in the LC itself, the characteristics (in terms of issuer, content, indications to be reported, etc.), of a document to be requested or to be presented in an LC.

Even if requested with the indication “issued by an independent inspection company”, the request for a pre-shipment inspection certification may not be sufficient for the performance of the service by the beneficiary of an LC if there is no indication of which control result is acceptable.

The banks, in the absence of this clarification, could also accept an inspection document bearing a sentence with a negative tenor, since they are not required to assess the meaning of the certifications. 

According to article 14 of the UCP 600, banks are in fact obliged to exclusively evaluate that the content of the document presented “appears – on the basis of the documents alone” and “on its face” – “to fulfil the function of the document in conflict with the data stated in the credit or in other required documents.”