In international trade, banks often rely on other banks — known as instructed parties — to perform specific tasks under a Letter of Credit (LC). These tasks may include advising, confirming, paying, negotiating, or handling documents. However, what happens if that instructed bank makes a mistake or fails to perform?
👉 Article 37 of UCP 600 clarifies that the instructing bank (such as the issuing or confirming bank) bears no responsibility or liability for the actions, delays, or omissions of another bank it instructs, provided it acted in good faith when giving the instructions.
This article protects banks from being held accountable for errors beyond their control in the complex network of international banking.
📖 What Does Article 37 of UCP 600 Say?
1️⃣ No Responsibility for Acts of Instructed Party
If a bank (say, an issuing bank) instructs another bank (say, an advising or nominated bank) to act on its behalf, the instructing bank is not responsible for:
- The performance of that instructed bank,
- Any delay, omission, or error made by that bank,
- Losses or consequences arising from the instructed bank’s actions or inactions.
The instructed bank acts on behalf of the instructing bank, but at its own risk and responsibility.
2️⃣ No Obligation to Assume Liability
The instructing bank’s role ends when it has properly transmitted its instructions. It does not guarantee that the instructed bank will execute them correctly or promptly.
For example, if an advising bank fails to notify the beneficiary of an LC in time, the issuing bank is not liable for that failure.
3️⃣ Transmission of Instructions and Documents
When instructions or documents are sent to another bank, the instructing bank:
- Must act in good faith and use reasonable care in selecting the instructed party.
- Bears no liability for delays in transmission or loss of messages/documents in transit.
- Is not responsible if instructions are misinterpreted or not acted upon correctly by the instructed bank.
4️⃣ Banks Act Independently
Each bank involved in the LC process acts independently, even if linked by the same transaction.
No bank automatically guarantees the performance or obligations of another, unless it has explicitly confirmed the credit.
For instance:
- An advising bank is not responsible for payment unless it is also a confirming bank.
- The issuing bank is not liable for an advising bank’s delay or mistake.
🔎 Breaking Down Article 37
💡 Why This Matters
International trade transactions often involve multiple banks across borders, currencies, and time zones. Article 37 ensures that each bank is only responsible for its own actions — not for those of others.
It provides clarity, fairness, and risk limitation for all banking parties, especially when communication passes through various intermediaries.
🏦 Bank’s Role and Responsibilities
Instructing Bank (e.g., Issuing or Confirming Bank):
✔ Must choose a reliable bank to act as its agent.
✔ Must send clear, accurate, and timely instructions.
✔ Not responsible for mistakes or failures of the instructed party once instructions are transmitted correctly.
Instructed Bank (e.g., Advising, Negotiating, or Paying Bank):
✔ Must carry out instructions precisely as received.
✔ Acts on its own responsibility and bears risks for its own errors.
✔ Should notify the instructing bank immediately in case of issues or delays.
🚢 Exporter’s (Beneficiary’s) Responsibility
✔ Ensure the advising or nominated bank handling documents is reliable and experienced.
✔ Maintain direct contact with the advising or confirming bank for updates.
✔ Understand that the issuing bank is not liable for mistakes of other banks unless the credit explicitly states otherwise.
🏭 Importer’s (Applicant’s) Responsibility
✔ Be aware that delays or errors caused by intermediary banks are not the responsibility of the issuing bank.
✔ Choose reputable banks when structuring the LC.
✔ Include clear timelines and channels in trade contracts to minimize risk.
🌍 Practical Trade Examples
Scenario 1: Advising Bank Delays LC Notification
An issuing bank sends an LC to an advising bank to notify the exporter.
The advising bank delays notification by three days, and the shipment misses the LC deadline.
✔ Under Article 37, the issuing bank is not liable — it transmitted the LC properly; the advising bank bears responsibility for the delay.
Scenario 2: Negotiating Bank Misplaces Documents
A nominated bank receives documents but loses them before sending to the issuing bank.
✔ The issuing bank is not responsible for the loss — it was the instructed bank’s mistake.
Scenario 3: SWIFT Transmission Error
An issuing bank sends an LC amendment via SWIFT, but due to a transmission error, the message is corrupted or delayed.
✔ The issuing bank is not liable for delays or loss during transmission, as long as it acted in good faith and used standard communication channels.
✅ Why Article 37 Matters
- Protects banks from liability for the acts or omissions of other banks they instruct.
- Maintains clear boundaries of responsibility in complex international transactions.
- Encourages banks to use good faith and due diligence when selecting their correspondents.
- Provides importers and exporters with a realistic understanding of risk allocation among banks.
✍️ Final Thoughts
Article 37 of UCP 600 reinforces one of the fundamental principles of international banking — each bank acts independently and is responsible only for its own actions.
This article protects banks from being unfairly held accountable for errors or negligence of others, provided they acted with good faith and due care.
For traders, it emphasizes the importance of choosing trustworthy intermediary banks and maintaining clear communication channels.
In short, Article 37 ensures fairness, defines responsibility, and keeps the global LC system efficient and dependable.