1_understanding_main_rules_of_ucp600tt.pdf

3UCP 600 Article 1 - Application of UCP

Understanding the Main Rules

rules that apply provided there is express indication

extends to standby letters of credit

allows for modification and exclusions

throughout UCP 600;

There is a need to understand the concept of modification and exclusion and whenit is appropriate and when it is not.

4

UCP 600 Article 2 Meaning of Negotiation


Negotiation means the purchase by the nominated bank - of drafts (drawn on a bank OTHER than the nominated bank) - and/or documents under a complying presentation,- by advancing - or agreeing to advance funds to the beneficiary - on or before the banking day on which reimbursement is due

FAQS:1) What is advancing funds?2) What is agreeing to advance?3) With or without recourse? 4) Is the agreement to advance funds conditional?

5

UCP 600 Article 3 - Interpretations

A document may be SIGNED by: - handwriting, - facsimile signature, - perforated signature, - stamp, - symbol or - any other mechanical or - electronic method of authentication

FAQS:1) What is a facsimile signature?2) What is electronic / mechanical method of authentication?


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UCP 600 Article 6 - Availability, Expiry Date and Place for Presentation


A credit must state the bank with which it is available or whether it is available withany bank. A credit available with a nominated bank is also available with the issuingbank.

A credit must state an expiry date for presentation. An expiry date stated forhonor or negotiation will be deemed to be an expiry date for presentation

The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit with any bank is that of any bank.

A place for presentation other than that of the issuing bank is in addition to theplace of the issuing bank.

To whom should beneficiary requests DEF Bank to present their documents to the nominated bank or the issuing bank directly?

DEF Bank should be instructed to present documents to the NB especially if the latest presentation date or expiry date is imminent. Else, documents must reach the IB on OR before the latest presentation date (LPD) or expiry.

In sending the documents to the issuing bank, beneficiary takes the risk of non-delivery

In the event of IB finding discrepancies in the documents , beneficiary may find it impossible to correct them within any remaining presentation period or expiry date.

LC is available with ABC Bank as the nominated bank (NB)

Beneficiary presented documents to their own bank , DEF Bank

Beneficiary does not require nominated bank to act on nomination

Can Bank B honour or negotiate ?Can Bank A refuse the documents if not received within the LC stipulated timeframe?

A Credit was issued by Bank A in Country A making availability with Bank B in Country B and expiry at issuing bank's counters

Documents presented to Bank B within the presentation period and expiry

This is not the ideal situation. This means that if Bank B decide to honour or negotiate, this act must occur within the expiry date and presentation period, and they must ensure that the documents reach the issuing bank within those dates.

Bank B may be unwilling to act on nomination unless the expiry place is amended to their counter in Country B.

Bank A is entitled to reject the documents if not received by them at their counters on or before expiry date and/or any latest presentation date.

Should the beneficiary draw the draft on the issuing bank and confirming bank if any ?If no draft is presented, is this a discrepancy? Absence of a draft, can issuing / confirming bank use this as a basis for refusal?

Bank A issued an LC available with Bank B by acceptance

Bank B is unwilling to accept the draft since it is not the confirming bank.

Where a draft is presented, the issuing or confirming bank would be required toaccept it. If no draft is presented, a deferred payment undertaking would be given.

Are there any restrictions as to the location of the bank that is allowed to present documents and act as negotiating bank?

Can a bank located in Macau / HK claim that they acted on the nomination and certify that the documents were presented within LC validity?

The ICC position remains that China, HK and Macau would be different countries for the purpose of the LC. This position was given post the handover of HK to China. Given this position, it may be unwise to act on the nomination unless the bank is based in mainland China.

LC states place of expiry as China & available with ANY bank

Beneficiary's address is in HK

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UCP 600 Article 7 - Issuing Bank Undertaking

An issuing bank must honor a complying presentation

An issuing bank is irrevocably bound to honour as of the time it issues the credit.

An issuing bank undertakes to reimburse a nominated bank that has honoured ornegotiated a complying presentation and forwarded the documents to the issuing bank.

Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or notthe nominated bank prepaid or purchased before maturity.

An issuing bank's undertaking to reimburse a nominated bank is independent ofthe issuing bank's undertaking to the beneficiary.

FAQS:1) May an issuing bank refuse to pay if a court injunction was issued?


Since Beneficiary B is unaware of the existence of a credit because he could not be contacted by the correspondent bank, and so does not have the operative instrument, is it CORRECT that his consent to cancellation need not be obtained in order to advise the LC to another beneficiary?

On June 1, Bank I issues a credit through Bank A favoring Beneficiary B

Bank A was not able to contact Beneficiary B to advise the Credit.

On June 5, Bank A receives a cancellation request from Bank I and to advise the credit to Beneficiary C

Sub-article 7 (b) states "An issuing bank is irrevocably bound to honour as of thetime is issues the credit." On the basis of this rule, the issuing bank is liable to honour as of the moment the LC is issued and irrespective of when/if the beneficiary can be contacted. As a result, the credit can only be cancelled with the consent of the beneficiary.

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UCP 600 Article 8- Confirming Bank Undertaking


Provided that the stipulated documents are presented to the confirming bank or to any othernominated bank and that they constitute a complying presentation, the confirming bank musthonour or negotiate without recourse.

A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit.

A confirming bank undertakes to reimburse a nominated bank that has honouredor negotiated a complying presentation and forwarded the documents to theconfirming bank.

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UCP 600 Article 8- Confirming Bank Undertaking


Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or notthe nominated bank prepaid or purchased before maturity.

A confirming bank's undertaking to reimburse a nominated bank is independent of the confirming bank's undertaking to the beneficiary.

A confirming bank must inform the issuing bank without delay if it is not prepared to do so and may advise without confirmation

Is Bank A within their right to confirm the credit as instructed by the issuing bank, without consent of the beneficiary, providing the beneficiary does not object to adding of confirmation?

Bank I issues a credit indicating in field 49 "CONFIRM"

Bank A advised the credit to Beneficiary and added its confirmation without seeking their consent

Where the credit states "confirm" there is no requirement for a bank, that is requested to confirm, to seek the agreement of the beneficiary before doing so.

Where the credit states "may add", it is usual for the bank to advise the credit on an unconfirmed basis stating that they are authorised to add their confirmation upon receipt of a request from the beneficiary together with payment of the confirmation fee (if charges are for account of the beneficiary).

When should the confirming bank Bank C effect payment to the beneficiary?A. June 1B. June 4C. Only when funds are received from the reimbursing bank

Bank I issues a Credit which is available "by payment at sight" with drafts drawn on the confirming bank, Bank C

On June 1, documents presented were deemed clean by Bank C

On June 1, Bank C lodged a claim on Reimbursing Bank , Bank R value June 4

The beneficiary should be paid with the same value date that is requestedfrom the reimbursing bank. Ie. June 4In the event that funds are not received on June 4, the confirming bank isentitled to claim interest from the issuing bank. A confirmation does not allow a confirming bank to pay on receipt of funds. A confirmation is intended to cover the payment risk under that credit.

Under each type of availability Confirming Bank must honor or negotiate a complying presentation on a without recourse basis. Some banks that are requested to confirm a credit will do so only on the basis that it is available with them by payment or acceptance (or deferred payment) as opposed to negotiation. This is entirely down to the internal policy of the concerned confirming bank

UCP600 Article 8: Provided a complying presentation is presented to the Confirming Bank or to any other nominated bank, the confirming bank MUST honor/ negotiate if the Credit is available by sight payment / deferred payment/ acceptance or negotiation.

Is there a difference in the obligation of a confirming bank depending on the manner of availability?How do the obligations of a confirming bank in an L/C available by negotiation, with drafts drawn on the issuing bank, differ from that of a credit available by payment or acceptance, with drafts drawn on the confirming bank?

If Bank C is not willing to extend , does their undertaking to the beneficiary still holds?

Bank C has the following options, either : Agree to the amendment ( and confirm accordingly)

or refuse the amendment before advising to the beneficiary ( and the terms of the original confirmation will remain applicable)or advise the amendment to the beneficiary stating that if they agree to the

or they reject the extension.

Bank I had originally advised the maturity date under a Deferred Payment Credit as July 31 where Bank C had added their confirmation.

Prior to maturity, Bank C received an amendment from Bank I extending the maturity date to September 30 to which the beneficiary is willing to give consent.

Is the confirming bank liable to negotiate for the entire USD 150000 under their confirmation?

Original LC was confirmed for USD 100000

Amendment was received increasing the value by USD 50000

Confirming bank advised the amendment stating that their confirmation is not extended for the increase amount.

Beneficiary presented documents for USD 150000 and requested the confirming bank to negotiate the full value without recourse

Since the confirming bank has indicated that their confirmation do not apply to the amendment, the confirming bank must negotiate a complying presentation upto the amount of their confirmation ie. USD100,000. They have no undertaking to pay the remaining USD50,000.

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UCP 600 Article 9- Advising of Credit and Amendments


A credit and any amendment may be advised to a beneficiary through an advising bank. An advising bank that is not a confirming bank advises the credit an any amendment without anyundertaking to honour or negotiate.

By advising the credit or amendment, the advising bank signifies that it has satisfied itself as toapparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.

the credit and any amendment to the beneficiary.

FAQS:May an advising bank advise the credit through another bank at their own discretion?

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UCP 600 Article 10 - Amendments


The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until thebeneficiary communicates its acceptance of the amendment to the bank that advised such amendment.

The beneficiary should give notification of acceptance or rejection of an amendment.

If the beneficiary fails to give such notification, a presentation that complies withthe credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended.

FAQS:1) Is beneficiary under an obligation to notify of acceptance or rejection?2)

should we handle?

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UCP 600 Article 10 - Amendments


A provision in an amendment to the effect that the amendment shall enter intoforce unless rejected by the beneficiary within a certain time shall be disregarded.

FAQS:

is this deemed as a modification of the rule ? (Art 10f)4) Why disallow time limits for acceptance or rejection?

Let us take an example:

LC issued for USD100,000 Partial shipment allowed.Amendment received reducing amount to USD50,000Beneficiary presents documents for USD50,000 (without stating they have accepted orrejected the amendment )

Amendment accepted or partial shipment effected???

Does the confirmation added to a amendment by Bank C mean that all the parties(issuing bank/confirming bank/beneficiary) have accepted the amendment?

An LC for USD100M has been issued by Bank I and confirmed by Bank C

Amendment received reduced the LC to USD 80M and Bank C advised the amendment and confirmed the same.

Beneficiary rejected the amendment and informed Bank C

Bank C need not expressly state that confirmation has been added to amendment.If the amendment is silent with regard to the application of confirmation, theamendment is automatically considered to carry the confirmation of Bank C.If the beneficiary refuses the amendment, the terms and conditions under whichthe beneficiary is required to comply revert to those prior to the issuance of theamendment.The same applies to the confirmation of the confirming bank.

Will the amendment apply to :a. the original LC amount , orb. the balance LC amount?

The SWIFT handbook describes a change in the tolerance amount as being inrespect of the documentary credit amount, which is the original amount or theamount to which the credit has been increased. If the tolerance is only to apply to a segment of a shipment schedule then the amendment should clearly state this otherwise it will be applied across all remaining shipments.

LC was issued for USD100M ( Tolerance of +/- 10% allowed)

Amendment received to increase tolerance to 15%

Prior to amendment, several drawings have been made to the tune of USD50M

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UCP 600 Article 12 - Nomination


Unless a nominated bank is the confirming bank, an authorization to honour ornegotiate does not impose any obligation on that nominated bank except when expressly agreed to by that nominated bank and so communicated to the beneficiary.

By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank.[Article 12b]

Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.

FAQS:1) Is Article 12b applicable if credit is available with the IB only? 2) Can a nominated bank prepay or purchase without first incurring its deferred

payment undertaking or accept a draft?3) Is an authorization under Article 12b an obligation to prepay / a purchase?

Has ABC bank NEGOTIATED the presentation?

LC is available with Bank ABC by negotiation

Reimbursing bank is provided for in the LC

Upon receipt of complying documents, ABC bank claims from the reimbursing bank

On receipt of payment, ABC Bank held on to the funds and waited for the maximum 5 banking days to lapse, after receipt of documents by the issuing bank, before paying the beneficiary on the basis that no refusal notice has been received from the issuing bank.

Claim from the reimbursing bank is only allowed where the bank has negotiated. Using

be held accountable by the beneficiary if they become aware that reimbursement has already been received by the bank and no negotiation was offered or given. Mainly, it is an issue of reputational risk and how the issuing bank would view such actions in the light of them agreeing to route more business through that nominated bank.

.

Is it necessary for ABC Bank to keep issuing bank informed of its negotiation post their acceptance ?

Usance LC issued available with ABC Bank by Negotiation

ABC Bank forwarded documents without examination and state in their cover letter to the issuing bank that they have negotiated.

ABC Bank is entitled to state in their schedule that they have negotiated since the action taken by them would tantamount to "agreeing to advance funds" as described in the definition of negotiation in article 2

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UCP 600 Article 14a/b - Standard for Examination of Documents


A nominated bank acting on its nomination, a confirming bank, if any, and theissuing bank must examine a presentation to determine, on the basis of thedocuments alone, whether or not the documents appear on their face to constitute a complying presentation.

A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

FAQS:1)

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UCP 600 Article 14d - Standard for Examination of Documents


Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.

FAQS:1)Sub-article 14 (d):

LC calls for shipment of Stainless Steel Coils

Invoice states Stainless Steel CoilsCertificate of Origin states Steel CoilsPacking List states Coils stainless steelBill of Lading states Stainless Steel

Data is not identical but is it conflicting?

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UCP 600 Article 14 e/f/h - Standard for Examination of Documents


In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting withtheir description in the credit.

If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document aspresented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d). .

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.

FAQS:1) Must all documents bear a goods description? 2) How do we determine compliance that a document fulfills its function? 3) How should a nominated bank handle non-documentary conditions?

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UCP 600 Article 14j - Standard for Examination of Documents


When the addresses of the beneficiary and the applicant appear in any stipulated document :

they need not be the same as those stated in the credit or in any other stipulated document,

but must be within the same country as the respective addresses mentioned in the credit

Contact details (telefax, telephone, email and the like) stated as part of the beneficiary's and the applicant's address will be disregarded.

However, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document subject to articles 19, 20, 21, 22, 23, 24 or 25, they must be as stated in the credit.

FAQS:1) Must addresses appear on every document, even if different? 2) If the notify party details in BL omits the address, is that a discrepancy? 3) Is the exception mentioned above applicable if credit is silent on the consignee and notify party?

Can we accept the Certificate of Quality as presented?

The credit requires the 'actual' tested results. This means the data relating to the testing rather than a statement of conformity.

The Certificate of Quality as presented is NOT acceptable

LC REQUIRES : CERTIFICATE OF QUALITY IN 2 ORIGINALS ISSUED BY THE BENEFICIARY INDICATING THE ACTUAL TESTED RESULTS OF FULL SPECIFICATIONS

inspected and tested prior to shipment and have met all the published physical and

-article 14(f) of UCP600 ?

There must be evidence within the presentation ( NOT necessarily in the COQitself) of the name of the manufacturer and that the manufacturer must be thecompany that issued the certificate.

Alternative, XYZ Co. could have indicated in the certificate that they were the manufacturer.

LC requires Certificate of Quality (COQ) issued by manufacturer.

Beneficiary presented a COQ issued by XYZ Co.

this company as manufacturer.

Will the document be acceptable?

LC requires presentation of quality certificate issued by a FOFSA member surveyor

Quality certificate presented and issued by XYZ Co and there is no indication of whether they are a FOFSA member or not

Banks will need to determine compliance based on the documents alone. Hence, unless there is an indication that XYC Co is a FOFSA member, the document will be considered discrepant since the requirement that the document be issued by such a member cannot be determined.

.

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UCP 600 Article 16 - Discrepant Documents, Waiver and Notice


When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.

If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documentsdo not constitute a complying presentation.

FAQS:1) Does the concept of preclusion apply to the nominated bank? 2) Does preclusion apply even when nominated bank had indicated

discrepancies in documents presented?

Is the issuing bank obliged to check the documents and refuse them as per UCP?

ICC Opinion R331 - the issuing bank had no obligation to check the documents since the credit had already expired as its liability and undertaking had ceased thereof . There was no credit in existence at the time of presentationUCP can only be applied to credits that are valid at the time of presentation to the nominated or issuing bank.

Documents reached presenting bank on July 10, 2012.

Issuing Bank received the documents on July 18, 2012.

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UCP 600 Article 32 Instalment Drawings or Shipments


If a drawing or shipment by instalments within given periods is stipulated in the credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available for that and any subsequent instalment.

FAQS:1) If documents presented under the Credit are discrepant, will this mean that the LC has ceased to

be available for subsequent drawing? 2) Instalment not made and subsequently accepted, are further instalments authorised?

Which date of shipment (on board notation) must be considered to determine whetherdocuments are presented with the presentation period?

If partial shipment is NOT allowed:-The latest of those dates shall apply ie. 5 July

If partial shipment is NOT allowed:- Each on-board date shall be treated separately in relation to the period of presentation.

SINGLE BL SCENARIO

MULTIPLE ON-BOARD DATES ON SINGLE BL

MULTIPLE BLS SCENARIO

DIFFERENT ONBOARD DATES FOR EACH BL

BL 1 1 July BL 1 , 2 & 3 1 July

Same vessel 3 July Same vessel 3 July

More than one POL

5 July Different POLs 5 July

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UCP 600 Article 35 Disclaimer on Transmission and Translation


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 havebeen lost in transit between the nominated bank and the issuing bank or confirmingbank, or between the confirming bank and the issuing bank

FAQS:1) Is the beneficiary under an obligation to present a fresh set of originals? 2) Will a nominated bank who has not acted on its nomination have the

protection?3) Can the issuing bank refuse a new set of documents or photocopies of the

lost documents if the re-presentation is later than the presentation period?

L/C terms and conditions AT OUR COUNTER, will that be regarded as a modification of Art 35?

Is the beneficiary still protected by article 35?

Bank I in country A issues a Credit available with issuing bank.

ie. Country B

Documents were dispatched in a manner prescribed in the Credit

However, documents were lost in transit between Bank B and Bank I

In this example, there is no nominated bank and therefore article 35 cannot apply.

Article 35 specifically refers to a nominated bank that has determined that the documents comply.

Is the nominated bank or the beneficiary still protected by article 35?

Bank I in country A issues a Credit available with Bank N in country B

ie. Country A

Bank N checked documents and found them in order.

However, documents were lost in transit between the nominated bank and the issuing bank

Sub-article 6 (d) (i) describes an expiry date as an expiry date for presentation. Therefore, the presentation must be made at the stated place no later thanthe expiry date. The expectation in UCP is that the expiry place and availability will match. If a nominated bank agrees to act on their nomination, it will be their responsibility to ensure delivery of the documents to the issuing bank within the expiry date (and presentation period) Article 35 will not apply in this case

A credit states, in field 71B, that all charges and commissions outside of the country of issuance are for account of the beneficiary, even in the case of cancellation or non-utilization of the credit.

Sub-

by that bank in connection with its instructions.

If a credit states that charges are for account of the beneficiary and charges cannot be collected or deducted from the proceeds, the issuing bank remains liable for payment of charges.

As the credit is saying that the issuing bank will not effect settlement of anycharges not paid by the beneficiary, the whole of sub-article 37 (c) is excluded by the wording.

.

Will this clause also override the third paragraph of sub-article 37 ?

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UCP 600 Article 38 Transferable Credits


A bank is under no obligation to transfer a credit except to the extent and in themanner expressly consented to by that bank

A credit must specifically be designated as transferable in order for it to be transferred

Transferring Bank means a nominated bank that transfers the credit or in a freely available credit, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit

A credit may be transferred in part to more than one second beneficiary but cannot be transferred at the request of a second beneficiary to any subsequent beneficiary

FAQS1)

transfer under it, can we consider it as transferable? 2) In a freely available credit, can the issuing bank specify that any bank can transfer the credit?3) Can a transferred credit be further transferred?

44

UCP 600 Article 38 Transferable Credits


The transferred credit must clearly indicate under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearlyindicate those conditions

The transferred credit must accurately reflect the terms and condition of the

FAQS1) If a transferable credit is confirmed by the transferring bank, is it a must that the transferred

credit be confirmed as well? 2) Are changes beyond sub-article 38(g) permissible?3) Besides draft and invoice, can we allow for substitution of other documents?

Documents under a transferable credit is received by the Transferring Bank and it requests the First Beneficiary for substitution. UCP states that Beneficiary must substitute on First Demand.

First demand will depend on the structure of the transfer. Where the period forpresentation has been curtailed, it may be possible to use the difference betweenthe period stated in the original credit and that stated in the transferred credit asthe period.In other circumstances, banks will usually allow between 24 and 48 hours giventhat the 1st beneficiary is only required to present their invoices and draft, if any.

First Beneficiary requests for transfer the LC to be fully transferred to the LC. The credit if fully transferred to the 2nd Beneficiary by the Transferring Bank.

Sub-article 38 (k) requires that the documents be sent to the transferring bank.

In circumstances where there is a 100% transfer or where no substitution of documents is to occur, a transferring bank that has not confirmed the transfer may, in its advice of transfer, indicate that documents may be sent direct to the issuing bank, under advice to the issuing bank.

In such a case can the 2nd beneficiary present the documents directly to the issuing bank ? Or is it required to be routed only through the Transferring bank ?

1_understanding_main_rules_of_ucp600tt.pdf

Documents

issuing bank

abc bank

available withany bank

nominated bank nb beneficiary

beneficiary requests

nominationcan bank b

expiry date

complying presentation