ICC Rules Study_ International Chamber of Commerce Opinion
This opinion is a review of a bank guarantee required under a letter of credit, with the key point being the requirement of the bank guarantee: Payable in Country X.
R818
The credit requires the presentation of a guarantee payable in Country X; the presented guarantee complies with the limited requirements in the credit except it does not refer to it being payable in Country X; can this requirement be deemed to be non-documentary?
The issuing bank and the applicant are both located in Country X, and the documents required by the letter of credit include a bank guarantee, with the applicant of the letter of credit as the beneficiary, and requiring payment to be effective in Country X (payable in Country X).
The guarantee received by the confirming bank is issued by a bank in Country Y, the country of the beneficiary, and meets other requirements, but does not specify “payable in Country X” and states that it is governed by the laws of its own country. The confirming bank believes the guarantee is compliant, but the issuing bank refuses payment on the grounds that “the bank guarantee is not payable in Country X”.
So, is the discrepancy raised by the issuing bank valid?
105
Opinion R818(TA799rev)
How to Meet the Requirement of “Payable in Country X” for Bank Guarantees?
R818(TA799rev)2012~16
Problem Review
QUERY
QUOTE
A letter of credit issued by an issuing bank located in country X, on behalf of an applicant also located in country X, and confirmed by a bank located in country Y, required in field 46A “Documents Required”, amongst others, the following document:
Bank guarantee from an international first-class bank payable in country X equivalent to EUR xxxx [the guarantee indicates an amount] valid till xx.xx.xxxx [the guarantee indicates – fixed date]
The bank guarantee presented to the confirming bank is issued by a bank located in country Y and states that it is subject to the laws of country Y. The wording of the presented guarantee shows the applicant of the letter of credit as the beneficiary of the guarantee. The amount and expiry date of the guarantee are in compliance with the requirements stipulated in the letter of credit. The payment undertaking of the guarantee is worded as follows:
We, xxx [the guarantee indicates the guaranteeing bank], hereby irrevocably undertake to pay you [the guarantee is addressed and directed to the applicant of the Letter of Credit] without delay on your first written demand for payment an amount up to xxx [the guarantee indicates an amount] provided your demand for payment is simultaneously supported by (…)
The issuing bank in Country X opened a letter of credit on behalf of the applicant in its own country, confirmed by a bank in Country Y, and field 46A “Documents Required” stipulates the submission of the following documents:
A bank guarantee issued by an international first-class bank, payable in country X, equivalent to EUR xxxx, valid until XX.XX.XXXX (fixed date).
The bank guarantee submitted to the confirming bank is issued by a bank located in Country Y and states that it is governed by the laws of Country Y. The wording of the guarantee shows the applicant of the letter of credit as the beneficiary. The amount and expiry date of the guarantee comply with the stipulations of the letter of credit. The payment undertaking of the guarantee is as follows:
We, xxx [the guarantee indicates the guaranteeing bank], hereby irrevocably undertake to pay you [the guarantee is addressed to the applicant of the Letter of Credit] without delay on your first written demand for payment an amount up to xxx [the guarantee indicates an amount], provided your demand for payment is simultaneously supported by (…)
The wording of the guarantee does neither contain an express indication that it is “payable in country X” nor any express reference to country X being the place of payment.
The confirming bank accepted the presented guarantee but the issuing bank raised the following discrepancy:
Bank Guarantee from an international bank is not payable in country X.
The wording of the guarantee does not explicitly state “payable in country X” nor mention country X as the place of payment.
The confirming bank accepted the guarantee but the issuing bank refused payment and raised the following discrepancy:
The bank guarantee issued by an international bank is not payable in country X.
The consultant inquired with the ICC:
Please let us have your official opinion whether, and if so why, the issuing bank was entitled to raise the discrepancy by answering the following questions:
1. Is the guarantee only compliant if it either indicates expressly that it is “payable in country X” or contains an express reference to country X being the place of payment? Or, can it be argued that the guarantee meets the requirement “payable in country X” because it is issued in favour of a beneficiary located in country X and as it provides that payment thereunder has to be made to this beneficiary?
2. Would the requirement “payable in country X” be met if the guarantee were made out as described above, but is not issued by a bank located in country Y but in country X?
3. Does the stipulated requirement “payable in country X” require the document checker to determine whether the presented guarantee’s place of payment is country X?
4. Could the confirming bank argue, validly, that the letter of credit does not stipulate that the requirement “payable in country X” must be met by an express reference or wording in the guarantee document (e.g. 46A: Bank guarantee from international first-class bank indicating that it is “payable in country X” equivalent to […]) and that this requirement may therefore be deemed as non-documentary and not stated and thus be disregarded according to UCP 600 sub-article 14 (h)?
5. Could the confirming bank argue validly that the checking of the document falls with respect to the requirement “payable in country X” under the auspices of UCP 600 sub-article 14 (f) because this requirement is worded in a way that does not amount to a stipulation of the document’s data content?
Please provide your official opinion on whether the issuing bank was entitled to raise the following discrepancies and answer the following questions:
1. Must the guarantee explicitly state “payable in country X” or directly refer to country X as the place of payment to be compliant? If the beneficiary of the guarantee is an entity in country X and requires payment to that beneficiary, can it be argued that it has met the requirement of “payable in country X”?
2. If the guarantee is as described above (not explicitly stating the place of payment), but is issued by a bank in country X (rather than a bank in country Y), does it meet the requirement of “payable in country X”?
3. Does the requirement “payable in country X” necessitate that the document checker determine whether the place of payment of the guarantee is country X?
4. Can the confirming bank validly argue that the letter of credit does not require “payable in country X” to be met by an explicit reference or wording in the guarantee (e.g. 46A: Bank guarantee from an international first-class bank indicating that it is “payable in country X” equivalent to […]) and that this requirement may therefore be considered non-documentary and disregarded according to UCP 600 sub-article 14 (h)?
5. Can the confirming bank validly argue that the checking of the document regarding the requirement “payable in country X” falls under UCP 600 sub-article 14 (f) because this requirement is worded in a way that does not amount to a stipulation of the document’s data content?
ICC Analysis
ANALYSIS
The credit included, in field 46A of the MT700, a requirement for a guarantee to be issued by an international first-class bank payable in country X (the country of the credit issuing bank). Apart from the amount and expiry date, no other requirements were provided. The credit was confirmed by a bank in country Y (the country of the credit beneficiary).
The guarantee that was presented to the confirming bank was issued by a bank in country Y, stating that it was subject to the laws of country Y.
The guarantee contained a statement from the guarantor that it irrevocably undertook to pay the beneficiary (the applicant of the credit) without delay, on first written demand for payment. It did not include an explicit statement or reference that the guarantee was payable in country X.
Field 46A of the MT700 states that the letter of credit requires a guarantee issued by an international first-class bank, payable in country X. Apart from the amount and expiry date, no other requirements were specified. The credit was confirmed by a bank in country Y.
The guarantee submitted to the confirming bank was issued by a bank in country Y, stating that it is governed by the laws of country Y.
The guarantee includes a statement from the guarantor that it irrevocably undertakes to pay the beneficiary (the applicant of the credit) without delay upon the first written demand for payment. The guarantee does not explicitly state or indicate that it is “payable in country X.”
While the confirming bank accepted the guarantee as a compliant document under the credit, the issuing bank refused it on the basis that it was not payable in country X.
Given that the beneficiary of the credit was located in country Y, it is not unusual that they would use a bank in their own country to issue the guarantee, as was the case in this query. The guarantee had been issued directly in favour of the beneficiary (the credit applicant) in country X, and not via another bank in country X. It included a condition that payment would be made against first written demand. It does not state a place for presentation. Because the guarantee did not state a place for presentation, demands must be presented to the guarantor. The guarantor is located in country Y.
ICC Conclusion
CONCLUSION
1. The guarantee needed to clearly state that it was payable in country X. In order to achieve this, it would have needed to be payable at the counters of a bank in country X, and not at the counters of the guarantor in country Y. The fact that the guarantee was issued directly in favour of the beneficiary (credit applicant) in country X and was payable against first written demand, did not fulfil this requirement.
2. If the guarantee had been issued by a bank in country X, this would have met the requirements of the credit.
3. The place of payment of the guarantee was to be stated as “in country X” or determinable as being within country X.
4. The requirement for the guarantee clearly related to a requirement for an actual document. Consequently, UCP 600 sub-article 14 (h) is not applicable.
5. The condition in the credit “payable in country X” is a specific requirement that must be clearly reflected in the guarantee if it is to fulfil its function. The discrepancy raised by the issuing bank is valid.
1. The guarantee must clearly state “payable in country X.” To achieve this requirement, it should specify payment at a bank in country X, rather than at the counters of the guarantor in country Y. Even if the guarantee is issued directly to the beneficiary in country X (the applicant of the letter of credit) and promises payment upon demand, it still does not meet this requirement.
2. If the guarantee were issued by a bank in country X (rather than a bank in country Y), it would meet the requirements of the letter of credit.
3. The guarantee must explicitly state the place of payment as country X, or it must be inferable from the terms that the place of payment is in country X.
4. The requirements of the letter of credit for the guarantee are documentary conditions (must be reflected in the document), thus UCP 600 sub-article 14 (h) (non-documentary conditions) is not applicable.
5. The condition “payable in country X” in the letter of credit is a specific requirement that must be clearly reflected in the guarantee to fulfill its function. The discrepancy raised by the issuing bank is valid.
Meeting the Place of Payment Requirement
Since I have not participated in the CSDG exam nor studied the “Uniform Rules for Demand Guarantees (URDG758)” in depth, I can still glean some insights from reading this case.
The confirming bank hopes to counter the discrepancy raised by the issuing bank from a non-documentary perspective, but for the issuing bank, one of the most substantive requirements of the guarantee is to ensure effective payment in the beneficiary’s country (i.e., the applicant of the letter of credit) in country X. To achieve this requirement, as stated in conclusions 2 & 3, the guarantee must either state this (payable in country X) or be issued by a bank in country X.
Bright Moon | Original
# Music Space
……
Fragmented Thoughts
In the World
Last week, I watched a series of documentaries about Chinese students abroad who fell victim to online scams, and Friday was the last episode. The program mentioned a non-governmental organization called the International Anti-Fraud Alliance and provided two statistics: One in four people in the world has been a victim of online fraud, and among reported cases, only 7% of victims file a report. I imagine that among this 7%, the cases that are solved and losses recovered are even fewer.
A volunteer guest who helps victims mentioned that to film this program, he wanted to invite some of the victims he had helped to share their experiences of being scammed, even if their faces were blurred and real names hidden, but all were refused. He helplessly stated that many victims take a long time to recover after realizing they have been scammed and feel ashamed and embarrassed, unwilling to tell others.
Years ago, I also fell victim to an online scam while shopping online, called the police, made a record, and received a report receipt, but then it just ended there. Looking back now, the police probably thought the amount was not worth investigating. Now, when I see the anti-fraud videos and slogans released by the police, I find it unbelievable; did I really let myself be fooled? It was from that time that I became cautious and no longer easily trust. A colleague also recounted a time years ago when he traveled abroad and had issues with a data card he purchased, his phone was locked, and he had to pay hundreds of yuan as a “ransom” to get it working again. While I find these scammers despicable, I also feel that I was too foolish and not smart enough to avoid being scammed. Perhaps this mentality is why people view their experiences of being scammed as a shame, unwilling to share. Only minor scam incidents are recounted lightly to warn others.
We have been educated under the sun since childhood, and even in hardship, we should pursue truth, goodness, and beauty. It often takes a harsh lesson from society, a moment of humiliation, to gradually accept the darker side of the world. I do not wish to live in the world as a victim. If light and darkness are two sides of the world, I hope there is more light, pushing the darkness out of the world.
Summer
SUMMER
2025.6.11 Wednesday
Language is the blade of thought; even after the wound heals, scars remain.
WeChat ID: CDCS-2018
1. CDCS Exam Experience
2. Letter of Credit Practice/English
3. International Trade/Settlement Knowledge
4. Interpretation of ICC Rules
5. Bright Moon’s Reflections
