Documents Lost in Transit

In documentary credit transactions,documents are crucial. The "documents" in question are those produced or collected by the beneficiary (often the seller) - such as an invoice,packing list or bill of lading. These are to be presented under the documentary credit ultimately for the applicant (the buyer) when he collects the purchased goods from the carrier and clears them through customs.

It is the documents that are required by the documentary credit to be presented. The bank will examine them to determine whether they constitute a complying presentation. It will then act (or make payment) on the basis of that examination.

These documents are sent between the parties via mail,courier or other means.

From time to time an unfortunate situation arises and the documents are lost or delayed in transit. The purpose of this article is to outline the rules that apply in such a situation.

The key to understanding this is UCP (Uniform Customs and Practices) 600 Article 35 which reads as follows:

Disclaimer on Transmission and Translation

Paragraph 1:

A bank assumes no liability or responsibility for the consequences arising out of delay,loss in transit,mutilation or other errors arising in the transmission of any messages or delivery of letters or documents,when such messages,letters or documents are transmitted or sent according to the requirements stated in the credit,or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.

Paragraph 2:

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank,whether or not the nominated bank has honored or negotiated,an issuing bank or confirming bank must honor or negotiate,or reimburse that nominated bank,even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank,or between the confirming bank and the issuing bank.

Paragraph 3:

A bank assumes no liability or responsibility for errors in translation or interpretation of technical terms and may transmit credit terms without translating them.

Paragraph 2 outlines the scenarios where the nominated bank does not bear the risk of documents lost in transit:

Between the nominated bank and the issuing bank

Between the nominated bank and the confirming bank

Between the confirming bank and the issuing bank

(in this last case the nominated bank has presented the documents to the confirming bank,but the documents are lost in transit between the confirming bank and the issuing bank.)

Paragraphs 1 and 2 are especially important in this respect. These indicate the elements of variations that may affect whose risk the documents are forwarded:

1.The role of sending the documents

Paragraph 2 assumes that the bank sending the documents to the issuing bank (or a confirming bank) is a nominated bank. It is not a requirement that the nominated bank has "acted on its nomination."

The consequence of this is that this article does not apply to an advising bank (that is not a nominated bank).

Similarly,the article does not apply where the documentary credit is only available with the issuing bank. In such cases the documents must be presented at the counters of the issuing bank in order to obligate the issuing bank. ( in such case the risk from documents lost in transit between the advising bank and the issuing bank is that of the beneficiary).

2. Whether or not the documents have been sent according to instructions

Paragraph 1 includes the provision that when the documents are sent according to the instructions in the documentary credit (or in the case of no instructions to that effect according to the choice of the sender) such bank is not liable once the documents have been sent and have left its control.

This is not limited to a nominated bank,but also (as an example) to an advising bank.

There are two dimensions to this:

One is the relationship between the beneficiary and the bank (advising,nominated etc.) sending the documents to the issuing bank (or confirming bank). This provision protects the bank towards the beneficiary - e.g. where the documents are lost in transit. In such case this risk is borne by the  beneficiary.

The other is the relationship between the bank sending the documents to the issuing bank and the issuing bank. This is of particular interest when the bank sending the documents is the nominated bank. Here the consequence is that the issuing bank only has the risk of documents lost in transit if the documents are sent according to the instructions in the documentary credit. If,for example,a nominated bank makes a business decision to use a delivery service or method different from the one instructed in the documentary credit (regular mail instead of courier) or send the documents in one lot instead of two lots it will be liable should the documents be lost in transit.

In that respect it must be added that the fact that the documents are not forwarded to the issuing bank according to instructions does not make the presentation discrepant,and the issuing bank cannot use that as a reason to refuse the documents. (And this is only relevant when the documents are lost in transit).

3.Whether or not a complying presentation has been made

Paragraph 2 highlig