Interpretation and Application of

1

• Interpretation and Application of
• UCP 600 Part 3
• XXV Latin American Foreign Trade Congress - CLACE
• Guatemala
• June 3-5, 2009
• Gary Collyer
• Collyer Consulting LLP

2
First Experiences with UCP 600 to July 2008

• Corporate view of UCP 600
• Easier to read, follow and apply
• Clearer rules that leave little room for banks to
  manipulate or interpret to their liking
• Widespread adoption by banks together with
  application of the ISBP publication
• Need for applicants to grasp that the UCP 600
  does not only benefit the beneficiary
• The content and structure of UCP 600 should
  encourage more usage of the documentary credit as
  a means of payment
• An opportune time to review current practices and
  look for better documentary credit structures
• Use the impetus of UCP 600 to seek out new buyers
  and suppliers and
• A reduction in discrepancy rates has been seen in
  many countries.

3
First Experiences with UCP 600 to July 2008

• Bank view of UCP 600
• Easier to read, follow and apply
• Clearer rules that leave little room for issuing
  banks to manipulate or interpret to their
  liking
• Widespread adoption by banks together with
  application of the ISBP publication
• Increased usage of documentary credits already
  seen in markets such as Asia and Middle East. For
  example, China is now number 1 issuer of
  documentary credits globally and the Middle East
  is projecting increases in usage of around 15-20
  per annum
• Banks are now promoting documentary credits as an
  offering whereas in the past it was not a
  priority product
• An opportune time to review current practices and
  look for better documentary credit structures and
  guidelines
• A reduction in discrepancy rates has been seen in
  many countries.

4
Applying UCP 600 and ISBP

• Corporate views now
• The fees are too high and impossible to
  anticipate
• It takes weeks to get paid when it should only
  take days
• The banks are too picky when checking my
  documents
• The banks are inconsistent in what they consider
  discrepancies
• I cant get my L/Cs routed through my preferred
  bank

5
Applying UCP 600 and ISBP

• Corporate views now
• I cant get my L/Cs confirmed by a bank
  acceptable to me
• Getting answers to my questions is like pulling
  teeth
• The information that I receive is awful
• The bankers and I do not understand one another
• There are just too many banks involved and I
  cant keep track

6
Article 1

• When certain rules of UCP 600 are expressly
  modified or excluded by the credit for
• material items, such as the period for making a
  refusal as per article 16, then what is
• the sanctity of UCP?
•  
• Answer
• The sanctity of the UCP remains to the extent
  that exclusions are not used to abuse
• the process. If exclusions or modifications are
  made that worsen the position of the
• beneficiary or nominated bank then it is for
  those parties to determine whether or not
• they can act under those conditions. If not, an
  amendment should be sought. It is often
• the case that modifications and, in particular,
  exclusions are made due to a
• misunderstanding of the meaning and intent of the
  rule.

7
Article 2

• An issuing bank accepts a complying presentation
  and communicates the maturity
• date to the nominated bank, post which the
  nominated bank negotiates, is this
• covered under the definition of negotiation?
•  
• Answer
• Article 2 refers to negotiation being the
  purchase of drafts and/or documents under a
• complying presentation. Sub-article 12 (c) states
  that the receipt or examination and
• forwarding of documents by a nominated bank do
  not constitute negotiation. If, at the
• time of presentation, a nominated bank is not
  willing to act on its nomination, which in
• this case is to negotiate a complying
  presentation, then they should request the
• issuing bank in their covering schedule to
  authorise their negotiating on receipt of an
• advice from the issuing bank that documents have
  been accepted by them.

8
Article 3

• Branches of a bank in different countries are
  considered to be separate banks. What
• does this mean? Can I understand that branches of
  a bank in the same country are
• considered to be the same bank?
• Answer
• Branches of a particular bank are able to perform
  different functions as envisaged by
• the UCP provided they are based in different
  countries. For example, if a bank in
• London issues a letter of credit, its branch in
  Manchester cannot confirm it as they are
• both in the same country and, therefore,
  considered to be the same bank. However, if
• the same bank in London issues a letter of credit
  and its office in Dubai were
• requested to add its confirmation then this is
  acceptable under article 3, (but not
• necessarily acceptable to the beneficiary) as the
  branches are in different
• countries.
•  

9
Article 4

• How should the nominated bank act if they receive
  a letter of credit which has a copy
• of the underlying contract as an integral part of
  the credit?
• Answer
• Ideally, they should revert to the issuing bank
  requesting the removal of this condition
• and referring them to the contents of article 4.
  If the nominated bank is willing to act
• under the credit i.e., review the documents
  against that contract, then they need take
• no further action. The rule is designed to
  protect a nominated bank that does not wish
• to (or should not) be burdened with additional,
  and often unnecessary, examination
• requirements.

10
Article 5

• Should a bank review documents such as inspection
  documents, certificates of
• analysis etc. to ensure that there are no
  derogatory comments regarding the goods?
•  
• Answer
• No. This is not the responsibility of a bank.
  Sub-article 14 (a) emphasises that banks
• examine a presentation on the basis of the
  documents alone as to whether or not they
• appear on their face to constitute a complying
  presentation. If the applicant requires
• that documents not contain any adverse comments
  or that documents should bear
• specific statements as to the quality or standard
  of the goods, this must form part of
• the terms and conditions of the credit.

11
Article 6

• Credit states that it is available with the
  issuing bank by payment or deferred payment.
• However, in field 31D of the MT700, it states the
  place of expiry is the country of
• beneficiary. Our opinion is that the credit
  should expire at the counters of the issuing
• bank and not the country of the beneficiary. Does
  our opinion seem correct or not?
•  
• Answer
• Ideally, the place of availability and the place
  of expiry should match. In the example
• that you have given, the credit is only available
  for presentation of documents in the
• country of the beneficiary. Provided the
  documents are presented to the named bank
• (or any bank if that option is stated) within the
  expiry date and otherwise comply
• when they reach the counters of the issuing bank,
  the issuing bank must honour even
• if the credit had expired by the time that they
  received the documents. If the
• beneficiary required a nominated bank to act
  under the credit then they must seek an
• amendment to make the credit available with a
  nominated bank by honour or
• negotiation.

12
Article 7

• MT700 sent at 9.00am on 10 October 2008 and MT799
  sent at 3pm on 10 October
• 2008. The content of MT799 is to correct
  information in the MT700. Both of them are
• issued on the same day. Can we treat the MT799 as
  an amendment?
•  
• Answer
• Sub-article 7 (b) states that the issuing bank is
  irrevocably bound as of the time that
• the credit is issued. Unless the content of the
  MT799 is critical to the structure of the
• MT700 representing a workable credit that is
  acceptable under the UCP, it will be
• considered to be an amendment.

13
Article 8

• Does a confirming bank only undertake its
  confirmation obligations in respect of
• documents that are presented to that confirming
  bank?
•  
• Answer
• This will depend on the wording of the
  confirmation advice. If the wording states that
• the confirmation applies to the extent that
  complying documents are presented to the
• confirming bank in accordance with the terms and
  conditions of the credit, then the
• obligations only arise against a presentation so
  made to the confirming bank. If the
• advice states something like we confirm this
  credit and it is available with any bank,
• the confirmation will also stand for
  presentations made to another nominated bank
• (see sub-article 8 (a) (i) (b-e)).

14
Article 9

• How to define the advising banks responsibility
  in respect of advice accurately
• reflects the terms and conditions of the credit
  or amendment received?
•  
• Answer
• Sub-article 9 (b) for the advising bank and
  sub-article 9 (c) for the second advising
• bank, recognise the responsibility of such banks
  to ensure that all the details of a
• credit or amendment are advised to the
  beneficiary. It can happen that when
• photocopying a credit or amendment that has been
  received, part of the message is
• not copied due to the folding of the document to
  accommodate the photocopier.
• The rules require the bank to ensure that all the
  details of a credit or amendment that
• are relevant to the beneficiary are sent to the
  beneficiary. There may be information
• that appears in a credit or amendment that is
  between the two banks e.g., financing
• requests, interest details or bank account
  numbers etc. that are of no concern to a
• beneficiary. These may be conveyed to a
  beneficiary or deleted from the advice that is
• sent to the beneficiary.

15
Article 10

• The beneficiary is entitled to express his
  acceptance or refusal of an amendment by
• presenting documents. If the amendment is about
  fees, say discount charges payable
• by the applicant changed to discount charges
  payable by the beneficiary, does a
• presentation by the beneficiary mean that the
  beneficiary has accepted the
• amendment, or how must the beneficiary express
  its acceptance or refusal of this
• amendment?
•  
• Answer
• This is a form of amendment that examination of
  the documents will not determine
• acceptance or rejection. Enquiries must be made
  of the beneficiary to determine
• whether or not they have accepted the amendment,
  before proceeding with the
• honour or negotiation of the documents.

16
Article 11

• If an issuing bank issues a pre-advice of a
  credit can they subsequently advise that
• they are cancelling the credit?
• Answer
• No. The rule in sub-article 11 (b) is quite clear
  the issuing bank is irrevocably
• committed to issue the operative credit. If a
  bank has any doubt as to whether a credit
• will be issued, no pre-advice should be sent.

17
Article 12

• A nominated bank receives documents from a
  beneficiary under a deferred payment
• credit and forwards the documents to the issuing
  bank without providing an
• undertaking to the beneficiary (nor does it give
  any commitment to do so on a future
• date). If the bank discounts the same set of
  documents after acceptance by the
• issuing bank, does the bank enjoy the same
  position as a bank which had provided an
• undertaking prior to forwarding documents to the
  issuing bank?
•  
• Answer
• In order to discount under the deferred
  payment, the nominated bank would be wise
• to request the agreement of the issuing bank to
  incur their deferred payment
• undertaking and then to prepay thereunder.
  Discounting, by a nominated bank, of the
• issuing banks deferred payment undertaking is
  not covered by sub-article 12 (b).

18
Article 13

• Why is article 13 split into sub-articles (a) and
  (b)? Do not the conditions specified in
• sub-article (b) apply to all bank-to-bank
  reimbursement arrangements?
•  
• Answer
• Ideally, all banks would use the ICCs rules on
  bank-to-bank reimbursements.
• However, this is not the case. There is therefore
  a need for UCP to state if the bank-
• to-bank reimbursement rules are to apply then
  those provisions will prevail. For those
• transactions not subject to URR the content of
  sub-article 13 (b) will prevail. The
• conditions expressed in the bank-to-bank
  reimbursement rules are far more
• comprehensive and detailed than those in
  sub-article 13 (b), so as to encourage
• usage of URR.

19
Article 14

• Very often credits will require presentation of
  a Forwarders Certificate of Receipt
• (FCR). Why did ICC not take this trend into
  consideration whilst drafting UCP 600 and
• include coverage of a requirement for an FCR?
  What date do we take as shipment
• date in the case of an FCR - cargo received date,
  issue date or sailing date (if
• indicated)?
•  
• Answer
• Basically, very few ICC national committees
  raised this as a requirement for inclusion
• as a new item for UCP 600. It should be
  remembered that a FCR is not a transport
• document, it is a receipt. A credit should not
  require a FCR to include a shipment date
• or details of shipment. If that is the
  requirement of an applicant then a bill of
  lading, air
• waybill, multimodal type transport document, road
  or rail transport document etc.
• should be called for as those are the documents
  that evidence receipt and shipment of
• goods.

20
Article 15

• Five banking days is the maximum time for banks
  to examine documents. What is the
• maximum time for banks to pay the proceeds to a
  beneficiary under a sight credit?
• Answer
• When a nominated bank acting on its nomination, a
  confirming bank, if any, or the
• issuing bank determine that the documents comply
  they must either honour or
• negotiate. The maximum time for honour or
  negotiation will be affected by the
• reimbursement conditions that are stated in the
  credit. For example, if a credit states
• that the confirming bank is to claim
  reimbursement value 3 working days following the
• determination of compliance of the documents,
  then the settlement to the beneficiary
• will be with a value date that matches the value
  that the confirming bank expects to be
• reimbursed.

21
Article 16

• LC states USD500 will be deducted for documents
  that contain discrepancies. Issuing
• bank checks the documents and finds
  discrepancies. The applicant and issuing bank
• decide to waive the discrepancies and pay the
  proceeds within the 5 banking days and
• the issuing bank deducts a USD500 discrepancy
  fee. Is this correct?
•  
• Answer
• Firstly, a fee of USD500 for discrepancies seems
  quite exorbitant. The situation that
• you highlight reflects a number of transactions
  i.e., where the issuing bank identifies
• discrepancies but before a refusal is sent the
  applicant provides their waiver. The
• presenter is unaware of the discrepancies but has
  a deduction for a discrepancy fee.
• In an ideal world the bank would deduct the fee
  and outline the discrepancies that had
• been observed and waived. In this way, the
  nominated bank could question the validity
• of them, if applicable. The fact that the issuing
  bank has not advised the
• discrepancies, does not stop the nominated bank
  seeking a subsequent advice of
• them for their consideration.
•  

22
Article 17

• In sub-article 17 (a) it says that the presenter
  must present at least one original
• document. In case one original must be presented
  to the applicant direct, can I
• present a copy?
•  
• Answer
• If the credit specifically states that an
  original of all or certain documents must be sent
  
• to the applicant, this would be seen as a
  modification of the rule unless the document
• was issued in more than one original in which
  case it would still be possible for an
• original to be presented.
•  

23
Article 18

• Sub-article 18 (c) corresponds means mirror
  image or not on the invoice?
•  
• Answer
• Reference to corresponds does not mean a mirror
  image, although in most instances
• the beneficiary will repeat the goods description
  word for word so as to avoid any
• possible dispute on the wording. Use of
  corresponds allows for the goods description
• to appear in a number of places on the invoice
  (not necessarily in one place or field)
• and to reflect what has actually been shipped
  rather than the quantities that may be
• shown in the credit. For example, in a credit
  allowing partial shipments and a goods
• description of 20 cars, 20 taxis and 20 vans, the
  beneficiary may only ship 15 cars in
• the first shipment. The invoice for this
  presentation would only make reference to the
• 15 cars that were shipped. It is not a mirror
  image but the description corresponds.
•  

24
Article 19

• Credit requires an ocean BL with port of
  discharge any USA port.
• Documents presented
• B/L shows port of discharge Los Angeles
• Place of delivery Ontario (an inland waterway
  Depot)
• Should this transport document be checked under
  article 19 of UCP 600? Does the
• ocean BL stipulation in the credit comply with a
  transport document covering at least 2
• modes of transport?
• Answer
• The document would be examined under article 20.
  The document covers a port to
• port shipment with an inland final destination
  that is beyond the requirements of the
• credit.
•  

25
Article 20

• A Bill of Lading shows in its heading or in the
  top right hand corner XYZ Ltd. It is
• signed by XYZ Ltd as carrier instead of XYZ
  Ltd, the carrier Can it be deemed as
• correctly signed?
•  
• Answer
• Yes, a bill of lading that is signed as carrier
  indicates the party signing is the carrier
• of the goods.

26
Article 21

• What is the basic difference between a
  non-negotiable sea waybill and a bill of lading?
•  
• Answer
• A non-negotiable sea waybill is, as the title
  suggests, a non-negotiable document and
• therefore not a document of title. This type of
  document is not issued to order of a
• named party, it is straight consigned. The
  consignee is not normally required to
• present an original of the non-negotiable sea
  waybill in return for their goods.
• A bill of lading is capable of being a document
  of title when issued to order of a
• named party. The order party is normally
  required to submit one of the original bills
• of lading in return for their goods.

27
Article 22

• Is a bill of lading stating Freight payable
  subject to charter party, a charter party bill
• of lading?
• Answer
• This is one of the ways in which a bill of lading
  would indicate that it is subject to a
• charter party.

28
Article 23

• Air waybill showing under description of goods, a
  notation Flight no MH108, Flight
• date 07 Sep 2007
• Will it be acceptable? Can we take the flight
  date as shipment date or we must look for
• wording like Actual Shipment date or Actual
  date of dispatch?
•  
• Answer
• If a notation is shown and it is under the goods
  description field it will be acceptable
• and the date will be taken as the date of
  shipment. In bills of lading, it is often the
  case
• that the on board notation appears in the area
  reserved for the goods description etc.
• There is no requirement for the word actual to
  appear. It is taken that the date shown
• in a notation indicates the actual date of
  shipment.

29
Article 24

• LC is asking for truck consignment note. Is it
  necessary that it should be issued on the
• transport company letterhead? If we issue the
  truck consignment note on beneficiary
• letterhead will it be acceptable?
•  
• Answer
• Sub-article 14 (l) states that 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 UCP 600. Any party would
• include the beneficiary.

30
Article 25

• A credit required a non-negotiable set of
  documents to be sent to the applicant and a
• courier receipt was to accompany the documents.
  Should the courier receipt be
• checked according to article 25?
•   
• Answer
• No. Article 25 covers the despatch of goods by
  courier service not the sending of
• documents to an applicant.

31
Article 26

• A bill of lading includes a field with the
  pre-printed wording particulars furnished by
• the shipper. In this field there is a goods
  description plus a freight paid stamp and an
• on board notation. Can it be deemed that the
  freight paid stamp and on board notation
• were furnished by the shipper and not the
  carrier or their agent?
•  
• Answer
• The pre-printed wording needs to be observed in
  the context of the bill of lading prior
• to the insertion of any data. The wording relates
  to the heading in that particular field,
• i.e., goods description and any packing details.
  It does not relate to other forms of data
• that may be stated later e.g., indications of
  freight paid or collect, on board notation or
• statements of goods being loaded on deck.

32
Article 27

• A bill of lading bears the words clean on board
  but the word clean has been deleted
• and this deletion has been authenticated by the
  agent of the carrier. Does this make
• the document discrepant? Can it be deemed to be
  unclean?
•  
• Answer
• No. As mentioned in question 27.1, most carriers
  and their agents will not allow the
• word clean to appear on the transport document.
  The fact that the word clean was
• added and then deleted does not make the document
  unclean unless it contains a
• clause or notation that expressly declares a
  defective condition of the goods or their
• packaging.
•  

33
Article 28

• If an insurance policy indicating covering ICC
  (A), excludes ICC (A) it does not meet
• the credit requirements, if it asks for an
  insurance policy covering ICC (A). If the
• insurance policy states covering ICC (A)
  excluding clause xx (ICC (A) has a number of
• different clauses) does it meet the requirement
  of the credit?
•  
• Answer
• Yes, sub-article 28 (i) allows for the exclusion
  of any clauses in an insurance
• document. The intent is that the entire risk
  i.e., ICC (A) is not excluded.
•  

34
Article 29

• In relation to sub-article 29 (b) many banks
  print the sentence all terms and
• conditions are complied with in their covering
  schedule (despite the fact that many
• presentations contain discrepancies) and the date
  of the covering schedule is often
• much later than the expiry date (i.e., in some
  case more than 1 or 2 months). Can an
• issuing bank reject the documents for the reason
  of late presentation despite the
• presenting banks declaration?
•  
• Answer
• This is not really an issue that is covered by
  sub-article 29 (b). If a schedule is dated
• some time after the expiry date of the credit
  especially 1 or 2 months the issuing
• bank would be entitled to seek an explanation for
  the delay in sending the documents.
• Hopefully, the wording now included in article 15
  will stop the practice of banks holding
• on to documents for a period of time.
•  

35
Article 30

• For the purpose of sub-article 30 (b) what types
  of quantities or goods are considered
• as individual items or packing units?
•  
• Answer
• 1000 Computers, 1500 Tyres, 10,000 Pens would be
  types of individual items.
• 500 boxes or 50 pallets would be types of packing
  units. 5,000MT of Rice, 10,000
• Gallons of Oil would not be types of packing
  units or individual items.

36
Article 31

• A credit stipulates that partial shipments are
  not allowed. The beneficiary presents five
• sets of charter party bills of lading. The
  contents of the bills of lading are almost
• identical, except the quantity and date. On the
  bills of lading the vessel, port of loading
• and port of discharge are the same but the
  shipped on board date varies over a period
• of 3 or 4 days. Is this a partial shipment or
  not?
•  
• Answer
• No. The goods are on the same vessel, for the
  same journey, voyage and destination.
• This is not a partial shipment provided the
  quantity evidenced on the five sets of
• charter party bills of lading meets the
  requirements of the credit and article 31.

37
Article 32

• According to article 32, if a beneficiary does
  not ship the goods within the period
• allowed for an instalment, the credit will cease
  to be available for that and any
• subsequent instalment. If an instalment is missed
  and the beneficiary requests the
• applicant to amend the credit in respect of the
  shipment schedule, is the credit still
• available for that and any subsequent instalment?
•  
• Answer
• Yes, the applicant may request that the issuing
  bank issue an amendment to reinstate
• the schedule and the credit.

38
Article 33

• If the bank puts the date and time of
  presentation on a document of the presenter
  (i.e.,
• a receipt), and if the time is after banking
  hours, can the documents be presumed
• received the next day?
•  
• Answer
• The bank would be well advised to qualify the
  receipt that although signed for today
• they are received for the work of the following
  banking day. A receipt signed after
• banking hours of one day could be seen as the
  bank agreeing to accept the
• documents for that days work despite the content
  of article 33.

39
Article 34

• Is it part of a banks responsibility to ensure
  that for documents issued by
• parties other than the beneficiary, that they
  have been issued by the stated
• company and signed by an authorized person of
  that company?
• Answer
• Banks have no responsibility with regard to the
  creation and signing of documents or
• the data that appears therein. Sub-article 14 (a)
  and article 34 make it clear that banks
• determine, based on the documents alone, whether
  or not, on their face, the
• documents comply with the terms and conditions of
  a credit.

40
Article 35

• Where the documents have been lost in transit
  between the nominated bank and the
• issuing bank, which bank is responsible?
•  
• Answer
• Provided the nominated bank has acted on its
  nomination by examining the
• documents and determining compliance (whether or
  not they have honoured or
• negotiated) and sent the documents to the issuing
  bank in the manner that may be
• described in the credit (i.e., in 2 mails, by
  courier etc.) then the issuing bank is bound
• to honour if the documents did comply.
•  

41
Article 36

• A bill under a credit is due on 05.02.2008.
  Issuing bank employees announce a strike
• on 05.02.2008. In this circumstance, when will
  the bill be settled - on 04.02.08 or
• 06.02.08?
•  
• Answer
• As the bank is closed on the date that the
  payment is due it would be payable on the
• next working day. However, in most cases the
  settlement of the bill would require
• action at some point prior to the due date in
  order that the funds were received in the
• place of payment by the due date. In which case,
  the fact that the issuing bank was
• closed on the due date would not affect the
  settlement to the nominated bank or
• beneficiary on the due date.

42
Article 37

• A nominated bank receives a presentation of
  documents and effects honour
• thereunder, deducting certain fees. They realise
  a short while later that they have
• forgotten to deduct their advising fee. Are they
  able to claim from the issuing bank
• citing sub-article 37 (c)?
•  
• Answer
• No. The nominated bank had an opportunity to
  deduct the fees from the presentation
• and failed to do so. They are not afforded any
  protection under sub-article 37 (c) for
• the fees that they failed to collect from a
  presentation that was made to them.

43
Article 38

• Could the 1st beneficiary substitute documents
  (other than the invoice and draft) for
• those of the 2nd beneficiary?
•  
• Answer
• Sub-article 38 (h) provides for the 1st
  beneficiary to substitute their own invoices and
• drafts, if any. Substitution of any other
  documents will be with the agreement of the
• transferring bank. The transferring bank is under
  no obligation to allow substitution of
• any other documents.

44
Article 39

• Must the bank that gives a notice of assignment
  endorse the original credit?
• Answer
• There is no requirement for this to occur but a
  number of banks do complete such an
• endorsement. Banks will usually cover their
  position by sending a separate notice to
• the assignee in which it is stated that the
  assignment will only be fulfilled if documents
• are presented to that bank, that the documents
  comply with the credit and that honour
• or negotiation occurs. In this way, the bank
  protects itself should there be (a) no
• presentation, (b) a presentation is made but is
  discrepant and the applicant refuses to
• provide a waiver, and (c) that the documents
  comply but for one reason or another
• honour or negotiation does not occur.

45
Applying UCP 600 and ISBP

• Thank You
• Contact Gary Collyer, Collyer Consulting LLP
• Email gary_at_collyerconsulting.com