As mentioned previously, five Opinions were approved during the ICC Banking Commission meeting in Paris, in October 2019. The one that generated the most discussion was TA.895rev, which focussed on a documentary condition including an automatic reduction clause. A reminder of the issues raised is stated below:
"A credit was issued with a condition that in the event of delay in delivery beyond a particular date, the value of the credit would be reduced by a certain percentage. However, the credit did not actually state how such percentage reduction was to be identified and recorded. The confirming bank sent documents to the issuing bank apparently claiming the full amount of the credit. This was despite placing a reserve on the beneficiary, implying that they were aware that a deduction should be made. The issuing bank refused the documents due to the credit being overdrawn.
What was made very clear in the analysis was that the credit was poorly drafted, a fact that should have been noted by all parties but, in particular, by the issuing bank and the applicant who must take in the bulk of the blame. This does not, however, completely absolve the confirming bank or the beneficiary.
The stated condition in the credit was tantamount to an automatic reduction clause, and could not be ignored, even though it did not state exactly how such reduction was to be evidenced. It was concluded that the issuing bank's refusal notice should have been withdrawn once the confirming bank had agreed to a deduction, and the amount of the deduction was to be agreed by the issuing bank, confirming bank and the beneficiary, without delay."
The contentious point that was raised by a few participants surrounded an assertion that the stipulated condition in the credit was non-documentary and, in accordance with UCP 600 sub-article 14 (h), should be disregarded.
However, the majority viewpoint did not accept this statement. It was concluded that the clause was tantamount to an automatic reduction clause and could not possibly, therefore, be disregarded.