Uniform Customs and Practice for Documentary Credits

An Overview by AMIT BHUSHAN

Question No. 1 Can a letter of credit be issued subject to UCP500 after 01st July 2007?

 Yes, UCP is a voluntary rule; there is no restriction on using UCP500 after 01 July 2007. However it is advisable that UCP600 is used. An LC was issued on your behalf on 10th Jan 2007 subject to UCP 500. On On 10th July 2007, 2007, you want to amend the credit to reflect a change in the contract. What are the options available to you? A. Ask your your bank bank to issue the amendm amendment ent under under UCP 500 500 B. Ask your your bank bank to issue the amendm amendment ent under under UCP 600 600 C. Amend the the L/C to be subject subject to UCP UCP 600 and issue amendm amendment ent under  under  UCP 600 B. Although option C is possible, option B is advisable.

Question No. 2 A documentary credit is available with ABC Bank, Hong Kong by negotiation at 30 days after shipment date. The beneficiary presents credit compliant documents to ABC Bank. Which of the following actions by ABC Bank constitute negotiation? a) Forwa rward docum cuments to issu ssuing bank for for payment at maturi turitty date b) Pay the beneficiary an and forwa rward documents to to issuing bank c) Agree to pay th the beneficiary, on once the the docum cuments are accep cepted ted by th the issuing bank and forward the documents to issuing bank B & C, mere checking and forwarding documents to the issuing bank is not considered as negotiation.

Question No. 3 Negotiation means the purchase by the nominated bank of  a) drafts drawn on itself   b) drafts drawn on a bank other than itself  B, a nominated bank cannot negotiate drafts drawn on itself. Question No. 4 Your bank is open on Saturdays to transact only in retail transactions (like cash withdrawals and cheque book issuance.) Will Saturdays be considered as a banking day for your bank under UCP600? No, Saturdays will not be considered as banking day for your bank since the bank is not open to transact in business relating to letters of  credit.

Question No. 5 If a documentary credit requires presentation of a “Phytosanitary Certificate issued by a competent authority”. The phytosanitary certificate must be issued by a) Government authority b) Department of Agriculture c) Anyone except the beneficiary C, If terms such as "first class", "well known", "qualified", "independent", "official", "competent" or "local" used to describe the issuer of a document allow any issuer except the beneficiary to issue that document. Question No. 6 If a credit requires shipment to be effected “immediately” upon receipt of L/C, when should the shipment be effected? The term “immediately” will be disregarded. Hence shipment can be effected anytime on or before expiry date

Question No. 7 A letter of credit states “Beneficiary to send one set of copy documents to the applicant immediately after shipment. A certificate to this effect is required.” Beneficiary certificate presented states - :”We hereby certify that one set of copy documents have been sent to applicant within 1 day after shipment” s hipment” Is this document acceptable, As per UCP 500? As per UCP 600? UCP500 – Yes, as per UCP500 the term immediately will be disregarded. UCP600 – No, as per UCP600 the term immediately will be disregarded unless it is required to be mentioned in a document

Question No. 8 A credit states that t hat the shipment must be effected on/about 10 January 2007. On which of the following dates can the shipment s hipment be effected? a) 05 Jan 07 b) 13 Jan 07 c) 10 Jan 07 d) 16 Jan 07 A, B & C. 05 January 2007 to 15 January 2007 both dates inclusive in clusive

Question No. 9 A credit states that shipment can be effected from 01st January until 10th January 2007. On which of the following dates can the t he shipment be effected? a) 01 Jan 07 to 10 Jan J an 07 (both days inclusive) b) 02 Jan 07 to 09 Jan J an 07 (both days inclusive) A. 01 January to 10 January both dates inclusive

Question No. 10 The maturity date of a documentary credit with tenor “10 days after B/L date” (B/L date is 01-Jan-2007) is _____________  11 Jan 07 Question No. 11 The maturity date of a documentary credit with tenor “10 days from B/L date” (B/L date is 01-Jan-2007) is _____________  The maturity date will be 11 Jan 07, the words “From” and “After” used in connection with the maturity date will be considered as to exclude the date mentioned

Question No. 12 A Proforma Invoice is attached to the credit as an integral part of the credit. Is this acceptable? No, UCP600 discourages banks to issue L/C which include copies of the underlying contract or proforma invoice as an integral part of the credit. However if the same is included it will be considered at the time of checking documents.

Question No. 13 Is draft mandatory when a Credit is available by negotiation? No, negotiation means giving value to drafts and / or documents. A L/C available by negotiation need not call for drafts.

Your customer receives a letter of credit issued by XYZ Bank, London. The L/C is restricted to XYZ Bank, Hong Kong by negotiation. Your customer wants to present documents to your counters since they do not have a banking relationship with XYZ Bank, Hong Kong. Question No. 14 Can your customer present documents to you, despite the L/C being restricted to XYZ Bank, Hong Kong?  Yes, it is not mandatory for beneficiary to present documents to the nominated bank Question No. 15 Can you negotiate documents under the L/C? No, only the nominated bank can negotiate documents under a letter of  credit Question No. 16 Is the issuing bank liable to pay even of documents are not presented by the nominated bank?  Yes. By issuing a L/C the Issuing Bank has given an irrevocable undertaking to honour upon receipt of credit compliant documents

Question No. 17 Your customer presents credit compliant documents under a L/C available with your bank by negotiation. You negotiate and dispatch documents to t he issuing bank by courier. However the documents are lost los t in transit and do not reach the issuing bank. Is the t he issuing bank responsible to reimburse your  bank?  Yes, the issuing bank is responsible to reimburse a nominated even if  the documents are lost in transit between the issuing bank and the nominated bank` Question No. 18 Re: Question 17. If you y ou have not negotiated documents, is the issuing bank obliged to pay?  Yes, the issuing bank is liable to reimburse a nominated bank when documents are lost in transit even if the nominated bank did not act according to its nomination

Question No. 19 Re: Question 17. If your bank is not the nominated bank, is the issuing bank obliged to pay? No, issuing bank is not liable to pay if the documents are sent by a bank other than the nominated bank is lost in transit Question No. 20 A letter of credit is restricted for negotiation with Bank X, Hong Kong. Beneficiary presented documents to Bank Y, Hong Kong on the L/C expiry date (22 Dec 2006). Documents were sent by Bank Y to issuing bank on 22 Dec 2006. The documents reached Issuing Bank on 24 Dec 2006. Issuing bank refused to pay due to the discrepancy “L/C expired”. Is the issuing bank correct?  Yes, documents must be presented to the nominated bank or issuing bank within the latest presentation date

Question No. 21 What happens if a credit is made available by drafts drawn on the applicant? Should a draft also be drawn on the issuing bank? UCP600 aims to discourage banks from calling for drafts drawn on applicant. However, if there is such a requirement in the credit, we must request the issuing bank to remove such requirement.

XYZ Bank, London issued a letter of credit with the following terms: Available with ABC Bank, Hong Kong by acceptance Drafts at 60 days after bill of lading date Drawn on ABC Bank, Hong Kong ABC Bank, Hong Kong has not added its confirmation to the L/C. Beneficiary presented credit compliant documents to ABC Bank, Hong Kong along with a drafts drawn on ABC Bank, Hong Kong as per L/C terms. Question No. 22 Is ABC Bank, Hong Kong obliged to accept the drafts? No, ABC Bank, Hong Kong should not accept drafts drawn on it unless it has added its confirmation to the L/C. If it accepts the drafts it will be liable to pay on maturity even if the issuing bank does not pay

Question No. 23 Can ABC Bank, Hong Kong request r equest that the drafts be replaced with a draft drawn on XYZ Bank, London?  Yes, issuing bank is obliged to accept drafts drawn on itself, when the drafts drawn on nominated bank are not accepted by the nominated bank

Question No. 24 Credit compliant documents are presented to the Nominated Bank. The Nominated Bank does not honour or negotiate the documents. The beneficiary sends the documents to the Confirming Bank. Is the Confirming Bank required to honour the document?  Yes, a confirming bank is irrevocable bound to honour even if the nominated bank refuses to do so.

Question No. 25 ABC Bank advised a letter of credit available by negotiation after adding it confirmation. Subsequently the beneficiary presented credit compliant documents and requested ABC Bank to negotiate documents and pay immediately. a) Is ABC Bank obliged to negotiate documents?  Yes, having added its confirmation, ABC Bank must act according to its nomination and negotiation credit compliant documents. b) Will this payment be without recourse r ecourse to the beneficiary?  Yes, negotiation / honour by a confirming bank is without recourse

Question No. 26 Can an LC be sent by the t he issuing bank directly to the beneficiary without wit hout the use of an advising bank?  Yes, but it is in the beneficiary's interest to have it advised through a reliable bank in order to ensure it is authenticated. Question No. 27 A bank has received an LC to be advised to the beneficiary through another  bank. Can it choose to advise the LC directly to the beneficiary without taking the beneficiary's consent? No. It is advisable to take the beneficiary's consent as they may have made special arrangements for processing with their own bankers.

Question No. 28 Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of _________  Issuing bank, confirming bank, if any, and the beneficiary. Question No. 29 A Bank received an amendment for a Credit confirmed by it. Its advice to the beneficiary did not mention whether or not it has added confirmation to the amendment. This means – a) Bank Bank has add added ed its its confirm confirmati ation on to the amen amendme dment nt b) Bank Bank has not not added added its con confirm firmati ation on to the the amendm amendment ent.. c) Cann Cannot ot be be asce ascerta rtain ined ed fro from m the adv advic ice e A. If a bank is not extending its confirmation to an amendment it must state so in its advice to the beneficiary.

Question No. 30 A beneficiary received an amendment stating ‘This amendment shall be deemed to have been accepted by the beneficiary, if rejection is not sent to us within 7 working days from the Date of Issue of this amendment’. The beneficiary does not revert with his acceptance or rejection within 7 working days. Does the amendment become effective? No, such clauses in an amendment will be disregarded.

Question No. 31 A Credit issued under UCP 600 is available with Bank N by Deferred Payment. The beneficiary presents credit compliant c ompliant documents to Bank N and requests for immediate payment. Can Bank N prepay?  Yes, prepayment of deferred payment undertakings is allowed in UCP600. However the payment will be without recourse even if the nominated bank has not added its confirmation to the L/C. Question No. 32 Would your opinion change, if the L/C is issued iss ued under UCP 500? As per UCP500 deferred payment credits are payable only on maturity. Prepayment of a deferred payment undertaking is not allowed

Question No. 33 Will an L/C (subject to UCP) containing instructions for bank-to-bank reimbursements automatically be subject to latest version of the URR? No. It must be explicitly mentioned. (Note that SWIFT usage rules have been changed taking this into consideration.) Question No. 34 An LC stated, "Claim reimbursement from reimbursing bank certifying all terms and conditions have been complied with." The claiming bank sent a claim without the certification. Is the claim valid?  Yes, there is no requirement for the nominated bank to provide a certificate of compliance to the reimbursing bank

Question No. 35 The latest presentation date for a set of documents falls on 14th January 2007(Sunday). The documents presented on 15th January 2007 contain a draft dated 16th January 2007. All other documents are dated on 12th January 2007. Is this acceptable? No, a document cannot be dated later than the date of its presentation. Question No. 36 The Address of the beneficiary as per L/C is “ABC Ltd, 17 Main Street, Adam Square, Country ZZZ”. The beneficiary presented an Invoice evidencing Beneficiary as ”ABC Ltd, 18 McNault Park, Mellonic Town, Country ZZZ”. Is this acceptable?  Yes, documents evidencing address of the beneficiary / applicant different from the address mentioned in the L/C is acceptable as long as the address is within the same country as in the credit.

Question No. 37 The address of the Applicant as per L/C is “PQR Ltd, 23 Clark Street, Eve’s Park, Country YYY”. The Credit called for bill of lading consigned to the applicant. The beneficiary presented a Bill of Lading evidencing Consignee as “PQR Ltd, Belleville Road, Marshal Square, Country YYY”. Is this acceptable? No, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document, they must be as stated in the credit.

Question No. 38 The L/C calls for ‘Copy Transport Document’, without stipulating the presentation period. What is the latest presentation date under the L/C? a) 15 days after shipment date b) 21 days after shipment date c) L/C expiry date L/C expiry date, presentation period of 21 days after shipment date will apply only if the L/C requires presentation of original transport documents

Question No. 39 The L/C calls for a Certificate of Quality. A Document titled ‘Certificate of  Quality’ evidences the following: “The Gross Weight and Net Weight of the goods are 1000 Kilos.” Is this document acceptable? No, if the L/C does not stipulate the data content in a document banks will accept the document only if its content appear to fulfill the function of the required document. In this case the document presented is not acceptable because there is no certification regarding quality of goods. Question No. 40 A letter of credit requires a “Certificate of inspection”. The certificate of  inspection issued by the beneficiary was presented. Is this acceptable?  Yes, unless the issuer is stipulated in the L/C any party can issue a document

Question No. 41 A letter of credit requires a “Certificate of inspection issued by XYZ Inspection Company”. A certificate of inspection issued by XYZ Inspection Company was presented and it was mentioned that the goods did not pass inspection. Is this acceptable?  Yes, unless the content is stipulated in the L/C a document can show any content as long as it fulfils the function of the document. Question No. 42 A Bill of lading presented under a letter of credit evidences beneficiary as shipper, while all other documents evidence another party as shipper. Is this acceptable?  Yes, consigner / shipper in any document need not be beneficiary of  the credit Question No. 43 Can a beneficiary issue a bill of lading in the t he capacity of a carrier?  Yes, as long as the bill of lading complies with all the requirements of  article 20.

Question No. 44 A refusal message was sent by the issuing bank as follows: “We are holding documents at your disposal. Meanwhile we are contacting the applicant for waiver of discrepancies. If we obtain waiver from the applicant prior to the receipt of your instructions to the contrary, we will release the documents to the applicant”. Is the refusal valid?  Yes, UCP600 allows banks to release documents to the applicant upon receipt of a waiver acceptable to them. Question No. 45 Re: Question 44: Would your opinion change if the LC is issued under  UCP500? As per UCP500 issuing bank cannot release documents to the applicant prior to presenter’s consent. (even if the discrepancies are accepted by the applicant)

Question No. 46 An issuing bank that refused documents under an L/C referred r eferred the same to the applicant who accepted the discrepancies. Is the issuing bank obliged to make payment? No, issuing bank the right to reject discrepant documents even if the discrepancies are accepted by the applicant Question No. 47 Documents are received by the Issuing Bank on 04 Dec 2006 (Monday). What is the Latest Date for the Issuing Bank to communicate its acceptance or rejection of documents, a) As per UCP 500? b) As per UCP 600? (Assume that there are no Bank Holidays except for Saturday and Sunday) As per UCP 500, 13 Dec 2006 As per UCP 600, 11 Dec 2006

Question No. 48 A credit calls for an “Original Invoice”. The invoice presented is issued on the original stationery of the beneficiary without any signature or original stamp. Is this acceptable?  Yes, a document issued on original stationery will be considered as an original. Question No. 49 A letter of credit calls for a “Certificate of Origin” in “one copy”. Can a copy of  the certificate of origin be presented? No, unless otherwise specified at least one original of each stipulated document must be presented.

Question No. 50 A Transport Document as per Article 19 of UCP 600 is signed as ‘PQR Ltd as Agents for the Multimodal Transport Operator XYZ Ltd’. Is this acceptable? No Question No. 51 A multimodal transport documents is signed by an “agent on behalf of the master” without identifying the name of the master. Is this document acceptable?  Yes, there is no requirement to identify the name of the master when the documents issued by the master or by an agent on behalf of the master. Question No. 52 Re: Question 51. Would your opinion change if you are checking the documents under UCP 500? The document will not be acceptable under UCP500 since Master’s name is not identified.

Question No. 53 A Bill of Lading contains an indication “Intended Port of Loading”. What should be evidenced in the On-Board Notation? N otation? Port of loading, vessel name and on board date Question No. 54 Is it necessary for a Bill of Lading to be issued from the same place as the Port of Loading? No, a bill of lading can be issued at a place different from port of  loading

Question No. 55 Can a beneficiary of the L/C issue a charter party bill of lading, if he is also the charterer of the vessel?  Yes, UCP600 allows charterers of the vessel to issue charter party bills of lading in their capacity of charterers. Question No. 56 A letter of credit requires presentation of a charter party bill of lading evidencing shipment from Hong Kong to Any European Port. Which of t he following “ports of discharge” mentioned in a charter party bill of lading is acceptable? a) Rotterdam, European Port b) Rotterdam and Amsterdam Ports c) Any European ports All three. A charter party bill of lading can show a geographical area stated in the credit as the port of discharge

Question No. 57 A Credit calls for “AWB consigned to the Applicant marked Freight Prepaid” Pr epaid” without calling for actual flight date. The AWB presented evidences Date of  Issue as 22nd December 2006 and Flight date as 25th December 2006. Which of these dates will be taken as the Shipment Date? 25 December 2006. As per UCP600 actual flight date shown on the AWB will be considered as shipment date. However if the AWB does not show the actual flight date, issue date will be considered as shipment date

Question No. 58 Re: Question 57. Would you answer change, if the documents are checked under UCP 500? As per UCP500, 22 December 2006 will be considered as shipment date.

Question No. 59 Can Rail Transport Documents be issued and signed by a Railway R ailway Company?  Yes, UCP600 allows for railway bills to be issued by railway companies Question No. 60 Can we accept a rail transport tr ansport document marked "duplicate" as an original?  Yes, as per UCP600 a rail transport document marked “duplicate” will be accepted as an original. Question No. 61 A letter of credit requires the presentation of a road transport document. The road transport document presented by the beneficiary is marked “Original for  Consignee”. Is this acceptable? No, a road transport document must appear to be the original for  consignor or shipper or bear no marking indicating for whom the document has been prepared

Question No. 62 A credit calls for an Insurance Certificate. The Insurance Certificate presented is signed by ABC Ltd as Proxy for PQR Insurance Co Ltd., as Insurer. Is this acceptable?  Yes, as per UCP600 proxies of insurance i nsurance companies can issue insurance document on behalf of insurance companies or underwriters. Question No. 63 A Credit requires Insurance Certificate to cover Institute Cargo Clauses (A). Beneficiary presents an Insurance Certificate evidencing “Covering Institute Cargo Clauses (A) excluding risks of rust and oxidation.” Is this acceptable?  Yes, as per UCP600 an insurance document may m ay contain reference to any exclusion clause.

Question No. 64 An Insurance Policy presented under a credit evidences that it is subject to 30% franchise. Is this acceptable?  Yes, an insurance document indicating the cover is subject to franchise is acceptable Question No. 65 A Credit requires an “Insurance Policy in Duplicate endorsed in blank for 110 percent of the Invoice Value…..” The beneficiary presents an Insurance Policy for 150 percent of the Invoice Value. Is I s this acceptable?  Yes, a requirement in credit for insurance coverage will be considered as the minimum coverage required.

Question No. 66 A transferable credit is available with Any Bank by Negotiation? Who is authorized to transfer the LC? a) Issuing Ba Bank b) Advising Bank c) Any Bank d) Bank Bank speci specifica fically lly author authorise ised d in in the the LC LC A & D. In a freely available L/C, only a bank specifically designated in the L/C or issuing bank can transfer  Question No. 67 ABC Bank has received documents from its customer under a transferred letter of credit. The customer instructs ABC Bank to send documents directly to the issuing bank bypassing the transferring bank. Can ABC AB C Bank send documents directly to the issuing bank? No, unless expressly agreed to by the t he transferring bank second beneficiary’s documents must be sent to the transferring bank only.

Question No. 68 Documents presented by the Second Beneficiary are Credit Compliant. The invoice substituted by First Beneficiary is discrepant. What is the course of  action for the Transferring Bank? a) Forwar Forward d discre discrepan pantt docume documents nts to to issuin issuing g bank. bank. b) Request Request first first benefic beneficiary iary to rectify rectify docume documents. nts. If first first benefici beneficiary ary doesn’t rectify on first demand, send second beneficiary’s documents to issuing bank. c) Request Request first first beneficiar beneficiary y to rectify documents. documents. If first first benefi beneficiary ciary doesn’t rectify till latest presentation date, send second beneficiary’s documents to issuing bank. Transferring bank must request the first beneficiary to rectify his invoice, however if the first beneficiary fails to do so on first demand. The transferring bank must send second beneficiary’s benefi ciary’s documents directly to the issuing bank.

Question No. 69 A transferring bank confirms the t he master LC. Will the confirmation confir mation hold goods for the transferred credit?  Yes, confirmation added to the master L/C will also hold good for the transferred L/C

Question No. 70 Any assignment of proceeds by the beneficiary must be in accordance with a) Applicable law? b) UCP? c) ISBP? Applicable Law