The ICC Uniforms Custom and Practice for Documentary Credits (currently UCP 600) is a set of contractual rules frequently included by express agreement into a documentary credit transaction. One particular point of interest to banks is Article 7 (Issuing Bank Undertaking).

Article 7(c) provides that the issuing bank must reimburse the nominated or confirming bank at maturity when that bank has accepted a draft or incurred a deferred payment obligation whether or not that bank has prepaid or purchased that accepted draft or deferred payment undertaking before maturity.

The construction of this provision and Article 15 was considered in Societe Generale SA v Saad Trading and another [2011] EWHC 2424, with regard to the terms of a letter of credit and a facility agreement between the applicant for the credit and the issuing bank. This case is of interest as it highlights the possible consequences of common banking practices moving away from the strict requirements of UCP 600.

The High Court ruled that Articles 7(c) and 15 put a duty on the confirming bank to forward to the issuing bank all of the documents presented to it under the terms of a letter of credit, without exception. In the present case, however, despite the issuing bank not having received all necessary documents from the confirming bank, it was held that the applicant was bound to reimburse the issuing bank for its liability to indemnify the confirming bank.

In this case, it is important to note the "good faith" condition in the related facility agreement. Due to the forgiving nature of the provision, the Judge found that even if Societe Generale had been of the mistaken belief that it was obliged to reimburse the confirming bank (as it had not received all the documents), the fact it decided to do so in good faith, meant the applicant was liable under the indemnity in the facility agreement.

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