Strict Compliance: ICC Issues Paper & Expert Perspective 3/3


In our final blog on this subject, we will examine the expert perspective.


It had been noted by Professor Boris Kozolchyk in 1999 that there had been a significant upward trend in the number of documentary credit court cases during the lifetime of UCP 400. He attributed this, in part, to the fact that courts were interpreting ‘strict compliance' as ‘a mirror image'. 


He went on to highlight that a reversal in this trend was observed with the introduction of UCP 500, primarily due to the fact that the new rules made ‘strict compliance' an increasingly objective determination based on international standard banking practice.


One standard textbook, Gutteredge and Megrah's ‘Law of Bankers' Commercial Credits' (2001), highlighted that ‘strict compliance' should not be extended to the dotting of i's and the crossing of t's, or to obvious typographical errors either in the credit, or the documents.


At a later date, as stated in ‘Jack: Documentary Credits' (2009), it was expounded that there existed an element of reluctance by judges to take the principle of strict compliance to absurd lengths: when it can be plainly seen that the divergence is of no possible importance, the court may look for a way round, or ignore it where it is almost imperceptible.


Perhaps the most objective comment can be seen in ‘UCP 600: An Analytical Commentary' (2010) by Professor James Byrne, wherein it is stated that the UCP has never used the doctrine of ‘strict compliance'. In fact, it is a legal conception that, in the common law, is applied to the fulfilment of express conditions and certain other contractual obligations. The principle is that an express conditional obligation must be strictly fulfilled but that where the condition is implied it can be substantially fulfilled by a performance that is substantially the same.


So, returning to the question in our original blog, exactly how can ‘strict compliance' be defined? 


The answer is not within UCP and is, in fact, as mentioned by Professor James Byrne, a legal principle derived from contract law. 


The introduction to UCP 600 states: 

‘During the revision process, notice was taken of the considerable work that had been completed in creating the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP), ICC Publication 645. This publication has evolved into a necessary companion to the UCP for determining compliance of documents with the terms of letters of credit.' 


ISBP, particularly the latest version ISBP 745, has made a significant impact in lessening the exactitude of the doctrine of strict compliance. In fact, it is arguable whether or not strict compliance even exists any more. A review of the General Principles section of ISBP 745 highlights numerous aspects of the document examination process that reduce the need for a literal application. 


The ICC paper concluded that there was no merit in attempting a definition of this multifaceted subject. Developments in the past have proved, as time goes by, that it is customs and practice that will provide the required clarity. And once such customs and practice have become commonplace, they will form part of a future revision of ISBP. 



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