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Technical Advisor to the Banking Commission of the

International Chamber of Commerce (ICC)

Founder of Sindberg Consult

Executive Adviser to Nordea

Member of several national and international Trade

Finance forums, and has served in several ICC

working- and drafting groups.


Published books include:


“lcviews premium” is a new and innovative service

that links Trade Finance rules to Trade Finance

practice

Covers:

• UCP 600

• URDG 758

• URC 522

• ISBP 745

• PRC Guarantee Provisions – and much more


Introduction and expectations for the day

Letters of Credit (L/C) - worst and best practices

Recent ICC guidance

Pitfalls and challenges in daily L/C handling

Case studies and recent examples

Networking break

Highlights from Incoterms 2020

Status and key topics

Relationship and interaction with the UCP 600

Lunch Break

Guarantees - worst and best practices

ICC rules on guarantees

Pitfalls and challenges in daily guarantee handling

The SWIFT release on guarantee messages (MT760 etc.)

Case studies and recent examples

Networking break

Status on the demand guarantee standard banking practices

Questions and Answers

Thanks for today and round up


Letters of Credit (L/C)

- worst and best

practices


Recent ICC Guidance


UCP 600 revision?

Feed-back April 2017

Recent

ICC Guidance

15 NC’s support the Executive Committee’s view that, at the present

time, a revision of UCP 600 is not justified

1 NC split decision: no agreed consensus

All remaining NC’s: lack of feedback thereby implying no current support

for a revision

3 NC’s request review of individual sub-articles but not full revision

1 NC supports a full revision process but business case predicated only

upon one ISBP paragraph


In line with the majority recommendation of National Committees, it is not considered, at this stage, to be appropriate to undertake a revision of UCP 600. However, there is a definitive viewpoint that a greater understanding of practices should be the way forward, rather than a revision of the rules.

Recent

ICC Guidance

More

comprehensive

and widely

circulated

training and

guidance*

GU

IDA

NC

E

Review pricing

and digital

availability of

UCP rules and

practices

AC

CESS

Smart usage of

information to

achieve greater

awareness by

practitioners

MA

RK

ET

ING


Recent

ICC Guidance

Conclusion: There is no definition of Strict Compliance

The “UCP 600 Compliance” is e.g. reflected in these articles:

UCP 600 sub-article 14 (a): “…examine a presentation to determine, on the basis of the documents

alone, whether or not the documents appear on their face to constitute a complying presentation.”

UCP 600 sub-article 14 (d): “…context … need not be identical … must not conflict …”

UCP 600 sub-article 14 (e): “…description of the goods … in general terms…”

UCP 600 sub-article 14 (f): “…accept the document as presented if its content appears to fulfil the

function …”

UCP 600 sub-article 14 (j): “…addresses … Contact details (telefax, telephone, email and the like) …”

ISBP 745 Paragraph A23: “… misspelling or typing error …”


Recent

ICC Guidance

CONCLUSION AND RECOMMENDATIONS

1. It is recommended that the habit of requiring a draft for a documentary credit available at sight be

curtailed, particularly sight drafts drawn on an issuing bank, confirming bank, or a bank nominated to

pay, unless required for a specific commercial, regulatory or legal reason.

2. UCP 600 article 2 allows for negotiation to occur under a documentary credit available by negotiation

with or without a presentation of a draft. It is recommended that the habit of requiring a sight draft for

a documentary credit available by negotiation be reviewed and that negotiating banks be encouraged

to rely, not on negotiable instruments' law, but instead on specific agreements with beneficiaries

evidencing negotiation and their respective recourse and other rights and remedies.

3. It is recommended that banks issue usance documentary credits available by deferred payment as

an alternative to availability by acceptance of a draft, unless there is a specific commercial, regulatory

or legal reason to create a banker’s acceptance.

4. All banks should review their UCP 600 documentary credit forms, whether in paper format and/or

online, to indicate that a draft is not a standard requirement of the issuing bank and to indicate their

requirements for another form of demand.


Pitfalls and challenges

in daily L/C handling




• Ambiguities in the L/C

• Modifications and exclusions of UCP 600 articles

• Availability vs expiry vs risk of documents lost in

transit

• Who is obligated?

• Non-documentary conditions

• Oil LCs

• Sanctions clauses




• Ambiguities in the L/C

ISBP 745 paragraph v:

The applicant bears the risk of any ambiguity in

its instructions to issue or amend a credit….

LC information:

Bill of lading showing shipment from “ANY NORTH EUROPEAN PORT”

Presentation information:

Bill of lading showing shipment from Antwerp

Refusal information:

Antwerp is not within the geographical area or range stated in the LC.

Is this a valid discrepancy?





L/C requirement UCP 600 article

UCP 600 article 14 (l) does not

apply to this L/C

A transport document may be issued by any party other than a

carrier, owner, master or charterer provided that the transport

document meets the requirements of articles 19, 20, 21, 22, 23,

or 24 of these rules.

UCP 600 sub-article 28(i) does not

apply to this L/C

An insurance document may contain reference to any exclusion

clause.

UCP 600 article 14 (k) does not

apply to this L/C

The shipper or consignor of the goods indicated on any document

need not be the beneficiary of the credit.





L/C requirement UCP 600 article

IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 16 C

III B OF UCP 600, IF WE GIVE NOTICE OF REFUSAL OF

DOCUMENTS PRESENTED UNDER THIS CREDIT WE SHALL

HOWEVER RETAIN THE RIGHT TO ACCEPT A WAIVER OF

DISCREPANCIES FROM THE APPLICANT AND, SUBJECT TO

SUCH WAIVER BEING ACCEPTABLE TO US, TO RELEASE

DOCUMENTS AGAINST THAT WAIVER WITHOUT REFERENCE

TO THE PRESENTER PROVIDED THAT NO WRITTEN

INSTRUCTIONS TO THE CONTRARY HAVE BEEN RECEIVED

BY US FROM THE PRESENTER BEFORE THE RELEASE OF

THE DOCUMENTS. ANY SUCH RELEASE PRIOR TO

RECEIPT OF CONTRARY INSTRUCTIONS SHALL NOT

CONSTITUTE A FAILURE ON OUR PART TO HOLD THE

DOCUMENTS AT THE PRESENTER'S RISK AND DISPOSAL,

AND WE WILL HAVE NO LIABILITY TO THE PRESENTER IN

RESPECT OF ANY SUCH RELEASE.

UCP 600 sub-article 16 (c) (iii) (b) reads:

“The notice must state […] that the issuing

bank is holding the documents until it

receives a waiver from the applicant and

agrees to accept it, or receives further

instructions from the presenter prior to

agreeing to accept a waiver.”




• Availability vs expiry vs risk of documents lost in transit

Availability and expiry:

Advising bank: Bank A, UK

Place and date of expiry: 1 April

2019 at the counter’s of the issuing

bank (Bank B, Sweden)

Documents should be presented to

Bank A:

“Date of presentation of original

documents at advising bank

counters will be construed as the

presentation date”

UCP 600 article 6 (d):

i. A credit must state an expiry date for

presentation. An expiry date stated for

honour or negotiation will be deemed to

be an expiry date for presentation.

ii. The place of the bank with which the

credit is available is the place for

presentation. The place for presentation

under a credit available with any bank is

that of any bank. A place for presentation

other than that of the issuing bank is in

addition to the place of the issuing bank.




Nomination

UCP 600, Article 2 Nominated bank means the bank with which the credit is available

or any bank in the case of a credit available with any bank.

UCP 600, Article 2 Honour means:

a. to pay at sight if the credit is available by sight payment.

b. to incur a deferred payment undertaking and pay at maturity

if the credit is available by deferred payment.

c. to accept a bill of exchange (“draft”) drawn by the

beneficiary and pay at maturity if the credit is available by

acceptance.

UCP 600, Article 35 If a nominated bank determines that a presentation is complying and

forwards the documents to the issuing bank or confirming bank,

whether or not the nominated bank has honoured or negotiated,

an issuing bank or confirming bank must honour or negotiate, or

reimburse that nominated bank, even when the documents have

been lost in transit between the nominated bank and the issuing

bank or confirming bank, or between the confirming bank and the

issuing bank.




• Who is obligated?

From DOCDEX Case 359:

THE ISSUING BANK WILL EFFECT PAYMENT ON DUE DATE UNDER THIS CREDIT

TO THE BENEFICIARY BANK IN ACCORDANCE WITH THEIR INSTRUCTION UPON

RECEIPT OF DOCUMENTS REQUIRED FULLY COMPLYING WITH LC TERMS AND

PAYMENT FROM THE APPLICANT.




• Oil LCs

:47A (Additional Conditions):

The price shall be in united states dollars and shall be based on the bill of lading

quantity in metric tons measured in vacuum at the average og high and low quotations

for the FOB XXXXX quote for PREM UNL 10PPM under the heading Mediterranean cargoes

as published in Platts European Marketscan substract a discount of U.S. Dollars 45.00

per Metric Ton.

The platt’s quotations to be applied shall be for the period 01 February 2019 to 28

February 2019 (both dates inclusive). All published quotes shall apply.

The final price shall be rounded to three (3) decimals places and the following

arithmetic rules shall be applied to do this: If the fourth decimal place is five (5) or

greater than five (5) then the third decimal shall be rounded up to the next digit. If the

fourth decimal place is less than five (5) decimal places then the third decimal place

will be unchanged.

Any published correction to an y relevant quotations shall be taken into account.




• Oil LCs

Questions:

• How is this condition to be documented in the presented documented?

• What is the requirement of the involved banks in respect of checking “Platts

European Marketscan”

Information box

S&P Global is an independent provider of

information and benchmark

prices for the commodities and energy markets

covering over 150 countries, and offer expertise

in news, pricing and analytics. S&P Global Platts

coverage includes oil and gas,

power, petrochemicals, metals, agriculture and

shipping.




• Oil LCs

Relevant provisions and practices:

• UCP 600 sub-article 14(h): Non-documentary conditions

• ISBP 745 paragraph A26: Non-documentary conditions

• UCP 600 sub-article 14(a): Standard for document examination




• Non-documentary

conditions

UCP 600 article 14(h):

If a credit contains a condition without stipulating

the document to indicate compliance with the

condition, banks will deem such condition as not

stated and will disregard it.

L/C requirement Scenarios:

Country of origin: China Certificate of origin not called for

Certificate of origin called for by the L/C




• Sanctions Clauses


….an economic or military coercive measure adopted usually by

several nations in concert for forcing a nation violating

international law to desist or yield to adjudication…




… clauses in a trade finance-related instruments in relation to trade, economic or financial

sanctions or embargos (“sanctions”) …




* “A credit by its nature is a separate transaction

from the sale or other contract on which it may be

based…”

(From UCP 600 article 4)

* Regardless of the UCP and any obligation that it may

have incurred in the ordinary course of its letter of

credit business, a confirming bank has a legal duty

to abide by mandatory economic sanctions that are

applicable to it by law or regulation

(From ICC Opinion TA752rev3)




”If the sanctions clauses in trade finance-related instruments, including

letters of credit or demand guarantees or counter-guarantees, allow the

issuer a level of discretion as to whether or not to honour beyond the

statutory or regulatory requirements applicable to that issuer, they bring

into question the irrevocable and documentary nature of the letter of

credit or guarantee”




There is no standard for these clauses and they vary considerably in their

scope. Where they simply state:

“[The bank] is under a statutory duty to comply with sanctions laws and

regulation mandatorily applicable to [it]”,

they are merely informational and do not extend beyond applicable

laws and regulation.




Clause in the credit:

“OUR BANK PROCESS TRANSACTIONS IN

ACCORDANCE WITH LOCAL AND

INTERNATIONAL LAWS AND

REGULATIONS, AND RESERVE THE RIGHT

TO COMPLY WITH FOREIGN SANCTIONS

AS WELL. CONSEQUENTLY DOCUMENTS

ISSUED BY OR SHOWING ANY

INVOLVEMENT OF PARTIES SANCTIONED

BY ANY COMPETENT AUTHORITY OR

CONTAINED ANY INFORMATION THEREON

MIGHT NOT BE PROCESSED BY OUR

BANK AT OUR SOLE DISCRETION AND

WITHOUT ANY LIABILITY ON OUR

PART”




Refusal message:

“NOTE THE DOCUMENTS HAVE BEEN REJECTED AND

RETURNED TO YOU BY COURIER BECAUSE OF LOCAL AND

INTERNATIONAL LAWS AND REGULATIONS AND INTERNAL

POLICY FOR AML/CTF AND FOREIGN SANCTIONS IN

ACCORDANCE WITH OUR L/C TERMS”

Refusal explained:

A. A vessel’s shipping route throughout a given period,

rather than solely on the vessel’s route for the shipment

under the letter of credit; or

B. The applicant itself, presumably arising from internal

knowledge that manifested after issuance of each credit,

but not arising to the level of a prohibition under

applicable laws or regulations.




ICC’s conclusion

Under such circumstances, an issuing bank

has an obligation to honour a complying

presentation.

Should an issuing bank wish to apply its

own internal policies within a credit, such

policies should be substantiated in detail

within the terms and conditions of the

credit.




* Sanctions is a fact of life

* Sanctions may restrict a bank’s ability to

perform its role under ICC rules

* Sanctions clauses must be considered case-by-

case:

* No problem if they inform about what applies

* A problem if the clause bring into question the

irrevocable and documentary nature of the letter

of credit or guarantee




Case studies and

recent examples


LC goods description:

VISCOSE STAPLE FIBER - QUANTITY: 500,000 KGS UNIT PRICE: 1.84 USD/KG

VISCOSE STAPLE FIBER - QUANTITY: 500,000 KGS UNIT PRICE: 1.84 USD/KG

(-/+ 5 %)

Documents presented:

Certificate of origin - gross weight 504,402 KGS / net weights 501,604.80 KG

Bill of lading - gross weight 504,402 KGS / net weights 501,604.80 KGS

Invoice - gross weight 504,402 KGS / net weights 501,604.80 KGS /

commercial weight 513,828 KGS

The amount of the commercial invoice

was based on this commercial weight.

Case studies and

recent examples


There is no conflict with the net and gross

weights that appear on the documents

The commercial invoice is acceptable in

terms of the quantity invoiced and the

calculation of the invoice amount

Case studies and

recent examples


Refusal:

“Bill of Lading is not clean. It bears the clause as follows: Vessel under arrest 18 February

2013.”

Case studies and

recent examples


1. The remark on the arrest of the vessel does not render the charter party bill of lading

unclean

2. The issuing bank must accept the presented bill of lading

Case studies and

recent examples


Case 1: CPBL Signed as follows:

Signed by XXX Logistics Co Ltd as agent for carrier YYY Shipping Lines Ltd


Signed by “YYY SHIPPING JAPAN CO LTD” as agents for the master, Cap. (name)

CPBL also shows “CARRIER: ZZZ SHIPPING LINE LTD”

(twice, near the right-hand top and at signature column)

Case studies and

recent examples



Signed by XXX Logistics Co Ltd as agent for carrier YYY Shipping Lines Ltd

------

The discrepancy raised by the issuing bank, “Charter Party BL signatory‟s capacity not as

master, owner, charterer or agent for any of the aforesaid”, is correct

Case studies and

recent examples



Signed by “YYY SHIPPING JAPAN CO LTD” as agents for the master, Cap. (name)

CPBL also shows “CARRIER: ZZZ SHIPPING LINE LTD”

(twice, near the right-hand top and at signature column)

---

The bill of lading is correctly signed and acceptable, based on the information provided in

this query.

Case studies and

recent examples


Details of the query:

DC information:

32B Currency Code, Amount: USD 80,000.00

39A Percentage Credit Amount Tolerance: 10/10

43P Partial Shipments: ALLOWED

45A Description of Goods and/or Services:

400 MT WIDGETS AT USD200.00/MT, PACKED IN 8 CONTAINERS

46A Documents Required:

1 ORIGINAL INVOICE, 3/3 ORIGINAL B/Ls

47A Additional Conditions:

Both quantity and amount 10 pct more or less allowed.



Document information

Two presentations of documents were made covering 2

shipments, as follows:

1st presentation – USD 26,400.00 3 containers with 132 MT

2nd presentation – USD 44,000.00 5 containers with 220 MT

2nd presentation was done after 1st presentation was paid by

issuing bank. The issuing bank did not refuse the first

presentation.

USD 70.400

352 MT

Case studies and

recent examples



Refusal:

The issuing bank refused the second presentation citing the following

discrepancies:

1. Short shipment in 8 containers

2. LC amount short drawn

Question:

1. Is the first presentation complying? Why or why not?

2. Is the second presentation complying; or, are the discrepancies cited by the

issuing bank valid? Why or why not?

Case studies and

recent examples



Conclusion:

1. The first presentation was compliant.

2. The second presentation was not compliant

Case studies and

recent examples



Analysis:

The credit allowed partial shipments and, additionally, its amount (USD 80,000) and

quantity of goods to be shipped (400 MT) were both subject to a tolerance of plus or

minus 10%. The unit price was stated to be USD 200 per MT. In addition the credit terms

was that the goods were to be packed in 8 containers.

Therefore, by the time 8 containers are utilized, the quantity of goods shipped is to be

between 360 and 440 MT.

Given that partial shipment was allowed, and the credit did not include a requirement in

respect of the quantity to be shipped in each container, the shipped quantity, amount and

number of containers in the first presentation was within that permitted by the credit.

The second presentation would be discrepant for the reason that the quantity of goods

shipped and containers utilized in the first two drawings were 352 MT and 8 respectively

Case studies and

recent examples



DC information:

Amount: EUR 2.418.154,10

Partial shipment: Allowed

Credit amount tolerance: +/- 10%

10 % more or less on total quantity and amount allowed.

Goods description:

50MT for size 1.5x1,250XC

….

Total quantity: 5.000MT


Negotiated Amount: EUR 1.471.959,10

…

55.55MT For size 1,5x 1,250XC

…

Total quantity: 3.043,88 MT

Refusal information:

Quantity over-shipped for size 1,5X1,250XC

Is this discrepancy

valid?

Case studies and

recent examples



Conclusion:

Discrepancy is not valid

Analysis:

The credit allowed partial shipments and, additionally, indicated that the amount and

total quantity of goods to be shipped were both subject to a tolerance of plus or

minus 10%.

So this applies to total quantity instead of individual line items noted in the goods

description

Case studies and

recent examples



DC information:

Documentary Credit required, among others, the following document:

+ Beneficiary’s certificate dated and signed confirming that shipment details (vessel

name, vessel flag, building date, quantity and date loaded, number of bills of lading,

number of coils loaded and value of cargo) have been sent by e-mail to “xxx” (“xxx” being

applicant’s name), for insurance purposes, within 3 working days of maritime bill of lading

date

Additional information included in the credit

+ Any spelling errors in our documentation is not going to affect payment obligation of the

buyer, unless they materially affect quantity or value of product shipped

+ The number of the letter of credit to be mentioned on the invoice

Case studies and

recent examples


Refusal / Question:

Shipment certificate: O/ref LC number is not correct


The credit was issued under ref “xxx0724xxx” and the certificate

showed the credit number as “xxx0742xxx”

Is this discrepancy

valid?

Case studies and

recent examples



Conclusion:

The discrepancy is not valid

Analysis:

This type of issue has been addressed in numerous ICC Opinions in the past: R289, R578

(TA567rev), R635 (TA658) R811 (TA823rev)

The mistyping of the credit number on this type of document does not render such document

discrepant as the figure and other information for the insurance coverage can still be ascertained

Moreover LC condition concerning spelling errors, can also be interpreted to mean that insertion of

an incorrect credit number cannot, in any event, be construed as a discrepancy provided that

documents can be applied to the correct credit

The exception to this position is where it is a requirement of the importing country that the letter

of credit number be stated on one or more documents. In such circumstances, the letter of credit

should clearly indicate that this is the reason for the number to be shown on that or those

documents

Case studies and

recent examples



DC information:

LC amount: USD 100,000.00

Field 46A Required Documents:

1. Invoice

2. Bill of lading

3. Packing list

4. Insurance document

5. Acceptance certificate issued by the

applicant

Field 47A: Additional Conditions:

Mixed Payment Details:

• 80 pct of LC amount will be paid

against presentation of documents 1 to

4 in field 46A

• 20 pct of LC amount will be paid

against presentation of acceptance

certificate issued by the applicant or

in case this document is not

presented, at 45 days after B/L date

(whichever occurs earlier).

Case information:

Documents 1 - 4 (USD 100,000) were

presented, refused – and are not yet

accepted.

Case studies and

recent examples


Questions:

1. Must the issuing bank pay the 20% on 6

October 2016 (B/L date + 45 days), if the

acceptance certificate was not presented?

2. Is payment of the 20% subject to the drawing

for 80% having been previously honoured or

refused?

3. Is the issuing bank obligated to pay the 20%,

against presentation of the acceptance

certificate i.e. without presentation of

documents 1 to 4?

The provision for the (automatic) 20% is only effective if the 80% drawing has been

honoured. If not there is no applicable bill of lading date to establish the payment date

for the 20%.

Payment 45 days from bill of lading date is subject to the 80% having been honoured.

(given that the acceptance certificate has not been presented).

Yes, in this case, one presentation will trigger up to two tenors. If the 20% tenor is based

upon the bill of lading date, that payment was subject to the 80% having previously been

honoured.

If 20% was to be paid upon the presentation of the acceptance certificate, the answer is

“no”.

Yes, provided that presentation of the acceptance certificate is made prior to expiry.

However, if the acceptance certificate is presented prior to presentation of documents 1

to 4, this should raise a Red Flag (however outside the scope of UCP 600.)

Conclusion:

Case studies and

recent examples


Analysis:

The provision for the automatic payment of 20%, i.e., 45 days from the bill of lading

date, is only effective if the drawing for 80% has been honoured due to the fact that

this is a single presentation with two possible tenors, 80% at sight and 20% as stated

in the credit. It is considered unlikely that any bank, having refused the presentation

for 80%, would then proceed to record a commitment to pay the 20% portion.

Until the discrepancies are accepted by the issuing bank (e.g., based upon a waiver

from the applicant), the 80% and the 20% that could be payable at 45 days from the

bill of lading date (an amount that would now be due for payment immediately)

cannot be honoured.

It should be noted that if the applicant had chosen to issue an acceptance certificate

(however unlikely as it may be, given that the applicant had not waived the

discrepancies for documents 1 to 4) and the document had been presented and was

compliant, the issuing bank would be required to honour the 20%.

Case studies and

recent examples


Networking Break


Highlights from

Incoterms 2020


Definition:

* Agreement between buyer and seller regarding

delivery of a

consignment of goods:

* Passing of risk from seller to buyer

* Insurance

* Transport agreement / freight

Incoterms 2020

Trade Terms


1953

1976

1936

1980

1967

1990 2000

*A set of standard Trade

terms drafted by the ICC

*First published in 1936

*Since revised a number of

times:

Incoterms 2020

http://www.unzco.com/regre/eireg.htm#inco


Status &

Key topics


FOB, CFR/CIF to be used with containers?

– Challenge: where does risk passes from buyer to the seller

– Better to use FCA, CPT/CIP?

Status &

Key topics


The seller

delivers the

container to

the container

terminal in

Copenhagen

Risk transfers to

buyer when the goods

have been loaded on

board the ship

Trade Terms agreed: CFR Hong Kong

Who is at risk here?

Status &

Key topics


Shall Incoterms deal with transfer of

title/Ownership?

Currently it regulates:

– Passing of risk from seller to buyer

– Insurance

– Transport agreement / freight

Status &

Key topics


FAS to be deleted?

– Replaced with a FCA-Delivery point

Status &

Key topics


EXW to be recommended only for domestic trade?

– Export formalities difficult to handle by the buyer

DDP to be recommended only for domestic trade?

– Import formalities difficult to handle for the seller

Status &

Key topics


Insurance to be expanded?

– To cover ICC(A) by default

– Currently the rule only require a minimum level of cover

Status &

Key topics


Status &

Key topics


From the Introduction to Incoterms® 2010:

If you want the Incoterms® 2010 rules to apply, you should make

this clear in your contract, through such words as, “[the chosen

Incoterms rule including the named place, followed by] Incoterms®

2010”.

From UCP 600 (Article 4(a)):

A credit by its nature is a separate transaction from the sale or

other contract on which it may be based. Banks are in no way

concerned with or bound by such contract, even if any reference

whatsoever to it is included in the credit…

Incoterms

versus UCP 600

http://www.unzco.com/regre/eireg.htm#inco


From ISBP (ICC Publication 745):

When a trade term is stated as part of the goods description in

the credit, an invoice is to indicate that trade term, and when the

source of the trade term is stated, the same source is to be

indicated.

For example, a trade term indicated in a credit as “CIF Singapore

Incoterms 2010” is not to be indicated on an invoice as “CIF

Singapore” or “CIF Singapore Incoterms”.

However, when a trade term is stated in the credit as “CIF

Singapore” or “CIF Singapore Incoterms”, it may also be

indicated on an invoice as “CIF Singapore Incoterms 2010” or any

other revision.

Incoterms

versus UCP 600


Goods description in a documentary credit:

500 cases of machine tools as per PO 123456. CFR Hong Kong Incoterms latest edition


500 cases of machine tools as per PO 123456. FOB Heathrow Incoterms 2010


500 cases of machine tools as per PO 123456. CFR Kuala Lumpur Incoterms 2010

BUT: No indication that the bill of lading should state that freight has been prepaid?


500 cases of machine tools as per PO 123456. CIF Xingang Incoterms 2010

BUT: No insurance document required?

Incoterms

versus UCP 600


Lunch Break


Guarantees –

worst and best

practices


ICC Rules on

Guarantees


* Guarantee instruments are often issued using different names and standards – and subject to different rules – or no rules

* The following slides will identify some of the key differences in the independent undertakings such as demand guarantees and standbys – as well as the main differences in the rules that the undertakings are issued subject to

ICC Rules

on Guarantees


ICC's Uniform Rules for Demand Guarantees (URDG 758) – 2010 Revision

Designed for independent (demand) guarantees

The International Standby Practices (ISP98) – In force as of 1 January 1999

Designed for standbys

ICC’s Uniform Customs and Practice for Documentary Credits (UCP 600)

– 2007 Revision

Designed for commercial documentary credits

Or no rules …

ICC Rules

on Guarantees


* Independent undertakings are issued as different “types”

* Sometimes based on an active choice – but more often than not based on practice and historical habits.

* The different types appear:

* Independent Guarantee (or “demand guarantee“ or just “guarantee”) The guarantee is used all over the world to identify an instrument where one part promise to pay another part a sum of money if a complying demand is made.

* Standby Letter Of Credit (or “standby” or “SBLC”) The standby credit was invented in the USA at a time where the banks were not allowed to issue “guarantees.” I.e. it is a guarantee in the form of a documentary credit.

ICC Rules

on Guarantees


* Although the guarantee and the standby are both “guarantee instruments,”

there are some differences in terms of how they are being structured

For example:

Issuer

Beneficiary Applicant

Confirmer

Applicati

on

Confi

rmati

on

Issuance

Same standby

credit

Same standby

credit

Standby letter of credit – Confirmation

Guara

nte

e

Beneficiary Applicant

Guarantor Counter

Guarantor

Applicati

on

Counter guarantee

Same standby

credit

Two separate

guarantees

Guarantee issued on the basis of a counter

guarantee

ICC Rules

on Guarantees


* Guarantees and standbys are issued in different forms and shapes, for

example:

* In letter form – directly towards the beneficiary

* In letter form – via an adviser

* In SWIFT – as message type MT700

(Structured to fit commercial documentary credits)

* In SWIFT – as message type MT760

(structured to fit guarantees and standbys)

ICC Rules

on Guarantees


Demand guarantee or guarantee means any signed undertaking, however named or

described, providing for payment on presentation of a complying demand.

Article 2

A standby, however named, is an irrevocable, independent, documentary, and binding

undertaking when issued

Rules 1.01 (b) and 1.06

Credit means any arrangement, however named or described, that is irrevocable and

thereby constitutes a definite undertaking of the issuing bank to honour a complying

presentation.

Article 2

ICC Rules

on Guarantees


• Applicant / Principal / Instructing Party

• Guarantor

• Counter Guarantor

• Beneficiary

Article 2

• Applicant

• Issuer

• Nominated person / confirmer / adviser

• Beneficiary

Rule 1.09 (a)

• Applicant

• Issuing bank

• Nominated bank / confirming bank / advising bank

• Beneficiary

Article 2

ICC Rules

on Guarantees


A guarantee is issued when it leaves the control of the guarantor.

Article 4 (a)

A standby is issued when it leaves an issuer's control unless it clearly specifies that it is not

then "issued" or "enforceable".

Rule 2.03

No equivalent rule.

ICC Rules

on Guarantees


The presentation must be made in paper form and the demand must be signed and include

a supporting statement.

Articles 2, 14 (e) and 15 (a)

A document must be presented as a paper document, unless only a demand is required, in

which case a demand that is presented via S.W.I.F.T. by a beneficiary that is a S.W.I.F.T.

participant or a bank complies.

Rule 3.06 (b)

Documents must be presented in original.

Article 17

ICC Rules

on Guarantees


On the basis of a presentation alone, whether it appears on its face to be a complying

presentation.

Data in a document shall be examined in context. Need not be identical but shall not

conflict with, data in that document, any other required document or the guarantee.

Article 19 (a) + (b)

Demands for honour of a standby must comply with the terms and conditions of the

standby.

An issuer or nominated person is required to examine documents for inconsistency with

each other only to the extent provided in the standby.

Rules 4.01 and 4.03

On the basis of the documents alone, whether or not they appear on their face to

constitute a complying presentation.

Data in a document, when read in context, need not be identical to, but must not conflict

with, data in that document, any other stipulated document or the credit.

Article 14 (a) + (d)

ICC Rules

on Guarantees


Where a complying demand includes, as an alternative, a request to extend the expiry, the

guarantor may suspend payment for a period not exceeding 30 calendar days following its

receipt of the demand.

Article 23 and 24

A beneficiary's request to extend the expiration date of the standby or, alternatively, to pay

the amount available under it

Rules 3.09

When [the bank] determines that a presentation does not comply, it may refuse to honour

or negotiate

Article 16

ICC Rules

on Guarantees


Extend or pay demand received from the beneficiary

(Information to the instructing party (article 16))

Examination of the demand (article 19)

Complying demand Non complying demand

May reject

(article 24(a+d))

May waive (article

24(a+b+c))

May pay

(article 23(e)) *)

May suspend

payment up to

30 calendar days

(article 23(a)(c))

*)

*) Guarantor to inform instructing party

Agree to

extend the

guarantee *)

Scenario: A guarantee is issued by the Guarantor – on

the basis of an application received

(It is NOT a counter guarantee)

Guarantor transmit copy of complying

demand (article 22)

Extend or Pay demand – Guarantee Issuance

(direct)


A guarantee expires on its Expiry date, or upon

* Expiry event (on presentation of stipulated documents),

* Presentation of signed release

* 3 years after issuance (in case of no expiry)

Articles 2 and 25 (a) + (b)

Must contain

* an expiry date, or

* a termination clause

May also be cancelled upon consent in writing.

Rule 9.01

A credit must state an expiry date for presentation.

Article 6 (c) (i)

ICC Rules

on Guarantees


Governing law and jurisdiction is that of the guarantor’s office that issued the guarantee.

Articles 34 and 35

An issuer is not responsible for observance of law or practice other … applicable at the

place of issuance.

Rule 1.08 (d)

No equivalent rule.

ICC Rules

on Guarantees


Counter Guarantor

perspective

Counter Guarantee Rules / Law of the guarantee

Local Guarantee Rules / Law of the guarantee

Comments

URDG 758 / No law or law of the counter guarantor

URDG 758 / No law or law other than that of the counter guarantor

The counter guarantee can be booked off after expiry.

URDG 758 / No law or law of the counter guarantor3

No rules / No law or law other than that of the counter guarantor


No rules / law of the counter guarantor



No rules / No law


To be determined on a case-by-case basis. If there is doubt as to the expiry of the guarantee the customer must be informed that he will only be released from its obligations under its indemnity when Nordea is released under the guarantee.

URDG 758 / Law other than that of the counter guarantor

URDG 758 / No law or law other than that of the counter guarantor4

To be determined on a case-by-case basis.

No rules / Law other than that of the counter guarantor

No rules / Law other than that of the counter guarantor

To be determined on a case-by-case basis.

[1] In case the counter guarantee is silent as to the applicable law and jurisdiction the law and jurisdiction is that of the counter guarantor. [2] In case the local guarantee is silent as to applicable law and jurisdiction the law and jurisdiction is that of the guarantor. [3] I.e. the Nordea law and jurisdiction clause. See appendix 3.



in daily handling



in daily handling

*Reduction clauses in guarantees

*Customers may ask to include reduction clause (worded in

accordance with the requirements stated in the contract)

Almost as a rule those reduction clauses include non-documentary

conditions



in daily handling

*Traps beneficiaries can fall into

*Has the bank of the beneficiary exchanged SWIFT keys with the

guarantor?

*Will the beneficiary bank confirm that the signatures are binding

on the beneficiary?

* Is it clear from the guarantee wording whether or not it is enough

to transmit the demand by swift, or does the demand also have to

be sent by courier?



in daily handling

*Advance payment guarantees

* Is it a condition in the guarantee that the payment should be done

with a reference to the guarantee no? Has that been done? Or has

only the invoice no been given as reference?



in daily handling

*Expiry date

* Is the expiry date of the guarantee a couple of weeks later than the latest date for payment/performance? Sometimes it is not possible to give a true statement of default within the expiry of the guarantee as the expiry date is too close to the date of performance

* Is the guarantee issued subject to international standard rules? If not you don’t know how long time the bank will take to check the documents and refuse them if discrepant. If presentation is made late, but before expiry, you might not be able to remedy before expiry

* If you want to release the guarantee before the expiry/reduce the guarantee amount; what is required? It is normally not enough to return the physical document, and it could cause more work than anticipated, and a release must normally be signed by authorised signatories



in daily handling

*Governing law

*When a guarantee is subject to law and jurisdiction other than the

guarantor, it may be challenging at the guarantor do not have any

knowledge (or limited knowledge) about these laws and there may

accrue costs and expenses for our customers account and risk


SWIFT

2019/2020 release


SWIFT 2019/2020

release


SWIFT 2019/2020

release

* MT 767 Amendment needed to be

completely redesigned, given the

redesign of the base message MT 760

* New field, File Identification, to

identify location of attachments

* New field for the counter-guarantee

rules

* Optional field for Transfer Conditions


Case studies &

Recent examples


Amendment to a demand guarantee (subject to

URDG 758):

“In view of the provisions of Section 28 of the

Indian Contract Act and as per the opinion received

from Indian Bankers Accociation, it has been

decided by [BANK] that while issuing fresh BG or

extending any existing BG, claim period of a

minimum of one year from the date of expiry of

validity period for BG is to be specified invariably.

Accordingly, please arrange to make following

amendments in the guarantee text….

Case studies &

Recent examples


Guarantee is subject to English laws - and URDG 758

Two issues:

1: In order to claim there must be “any and every

written demand”

Will a demand in SWIFT form comply?

2: The demand states “we claim ... as a result of failure

by the supplier to fulfil his obligations under the

purchase order documents in question”

This is the requirement from the guarantee.

Is if this sufficient (considering URDG article 15(a)) - or

do they need be more specific as to the breach?

Case studies &

Recent examples

URDG 758, article 14(e): Where the

guarantee does not indicate whether a

presentation is to be made in electronic

or paper form, any presentation shall be

made in paper form.

URDG 758, article 15(a): A demand

under the guarantee shall be supported

by such other documents as the

guarantee specifies, and in any event by

a statement, by the beneficiary,

indicating in what respect the applicant

is in breach of its obligations under the

underlying relationship. This statement

may be in the demand or in a separate

signed document accompanying or

identifying the demand.


Networking break


Status on the

International Standard

Demand Guarantee

Banking Practices


1. To provide a complement to URDG758 and articulate as to how the URDG rules are to

be applied

2. To align ISDGP with ISBP considering the similarities in documentary credits and

demand guaranties (independent character, documentary nature and irrevocable)

3. To provide a standard practice taking into account the URDG,ICC Banking Commission

Opinions and DOCDEX decisions

4. Provide clarity to standard practice to e.g.

1. issuance,

2. amendment,

3. what constitutes a complying demand and

4. transfer

Status on ISDGP


1. Drafting Group (Glenn Ransier)

2. Consulting Group (Dr. Georges Affaki, Dr Andrea Hauptmann)

Status on ISDGP

1. First Draft presented to the Consulting Group for comments

2. Update on the ICC Banking Commission Meeting in Beijing (April 2019)


Questions and

Answers


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Sindberg Consult

Kim Sindberg

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E-mail: [email protected]

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