Article

UCP 600 articles 6 and 35

Where a credit contains an expiry in one place and the availability with a bank located in another

Query [TA 717rev2]

We are writing to check with ICC whether our opinions in column F of the attachment are correct. As we know, an L/C may be available with a particular bank, any bank or the issuing bank. It may expire in the beneficiary's country, at the counters of a particular bank, in the confirming bank's country, at the counters of the confirming bank, in the issuing bank's country or at the counters of the issuing bank. There are many possible scenarios and we are sometimes confused. As issuing bank, confirming bank or nominated bank, we have to understand when exactly the documents must be presented so as not to raise such discrepancies as "L/C expired" and/or "Late presentation".

We have drawn up the attached table to cover various scenarios and would appreciate it very much if ICC would indicate whether our opinions in column F are correct or incorrect. We would also appreciate ICC's opinion as to whether our assumption below is correct or not.

If the documents are lost in transit before being presented to a party in column F, the sender of the documents bears the mailing risk and no party in column F is obligated to negotiate or honour. Is this assumption correct?

Analysis and conclusion

The list that was attached to this query covered a number of different options for the expression of expiry place and place for availability. A number of these do not reflect good banking practice owing to the fact that the place of expiry and the place of availability are stated to be in different countries. It would not, therefore, be appropriate for ICC to offer any opinion as to whether the assumptions that have been made are correct when some of the examples do not reflect the expectation under the UCP and, as a result, the list is not appended to this opinion.

The establishment of a credit which contains an expiry in one place (i.e., Paris) and the availability with a bank located in another (i.e., London) causes unnecessary, and often, unwarranted complications for the beneficiary in determining to whom, where and by what date the documents must be presented. For the nominated bank, if any, this may seriously affect its ability to act under its nomination by honouring or negotiating. It is recognized that some transactions may require different locations to be stated, but these should be the exception rather than the rule and these differences should be clearly indicated in the credit.

The basis for the UCP, in article 6, and international standard banking practice is that the expiry place and place for availability are the same. In this way, the beneficiary knows that it can present its documents to the bank with which the credit is available (or any bank, where the credit is available with any bank) within the stated expiry date and presentation period. The nominated bank, and the beneficiary, will then have the support of article 35 in the event a complying presentation is lost in transit between the nominated bank and the issuing bank or confirming bank.

UCP 600 article 16

Whether a bank has the right to request a refund of an amount overpaid when, under the UCP, the payment is considered to have been paid on a without recourse basis; whether a beneficiary and/or beneficiary bank have any responsibility to return an overpaid amount

Query [TA 719rev]

We have opened a sight letter of credit in favour of a beneficiary in Country P. Subsequently, documents were received from the beneficiary's bank and we noted various discrepancies. A refusal notice was sent to the bank in accordance with article 16 of UCP 600. Thereafter, the discrepancies were accepted by the applicant, but it requested a reduction of 90% of the drawing amount.(i.e., applicant agreed to pay only 10% of the drawing amount).

Unfortunately, we wrongly interpreted the applicant's instructions and sent a SWIFT message to the beneficiary's bank for the acceptance of a reduction in the drawing amount of only 10%. Upon receipt of beneficiary's bank acceptance, by return SWIFT message, we paid 90% of the drawing amount in settlement.

Questions:

1. Do we have the right to recall the overpaid amount from the beneficiary and/or beneficiary bank?

2. Do the beneficiary and/or beneficiary bank have any responsibility to return the overpaid amount to us?

Analysis

Under the UCP, a payment made by the issuing bank is final and considered to be without recourse to the party to whom payment was made. A refund of the amount wrongly advanced may be possible through mediation of the parties and/or the applicable law in relation to a payment being made by a "mistake of fact".

Conclusion

1. Any bank has the right to request a refund of an amount overpaid. However, under the UCP the receiver of those funds may consider the payment to have been made on a without recourse basis.

2. This is a legal question, outside the UCP, that will depend upon the knowledge and understanding of the beneficiary and/or their bankers at the time the payment was made and how the applicable law deals with overpayments and payments made by mistake.

UCP 600 sub-articles 12 (b) and 7 (c)

Whether a nominated bank acted on its nomination and in terms of prepaying or purchase of a draft accepted or a deferred payment undertaking incurred by a nominated bank; when and on which conditions must such prepayment or purchase be effected in order to be "included" in the nomination given by the issuing bank, and consequently protecting the nominated bank.

Query TA 690rev4

We kindly ask your official opinion on the following issue associated with the interpretation of UCP 600 sub-article 12 (b).

UCP 600 sub-article 12 (b) underlines that, 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.

This sub-article is new to the UCP, and its purpose is to respond to legal questions raised as to whether UCP 500 or the international standard banking practice (prevailing under that regime) supported discounting of such obligations by nominated bank obligors. As such, the obligation of an issuing bank to honour a complying presentation is clearly expressed in UCP 600 article 7; thus, it must be expected that the main background for sub-article 12 (b) is to ascertain that a nominated bank following its nomination is protected by the UCP 600.

In terms of prepaying or purchase of a draft accepted or a deferred payment undertaking incurred by a nominated bank, the question arises when and on which conditions such prepayment or purchase must be effected in order to be "included" in the nomination given by the issuing bank, and consequently protecting the nominated bank. In that respect, please consider the following examples:

A documentary credit is available by deferred payment with a nominated bank (which has not confirmed the credit). A complying presentation is made to the nominated bank, and the nominated bank does not honour upon presentation but merely forwards the documents to the issuing bank.

a) After receiving a notice of acceptance from the issuing bank, the nominated bank - after express agreement with the beneficiary - prepays. The prepayment by the nominated bank is thereby effected after the issuing bank has accepted to pay at maturity, but before maturity.

b) After receiving a notice of acceptance from the issuing bank, the nominated bank sends an acceptance advice to the beneficiary to honour the presentation on its own. Before the maturity date, the nominated bank prepays the documents when asked to do so by the beneficiary for the sake of financing.

Does the nominated bank in the above examples act in accordance with its nomination, and is it thereby protected by UCP 600?

Analysis and conclusion

In both examples, the credit was available by deferred payment and nominated a bank to honour, by incurring its deferred payment undertaking. The nominated bank determined that a complying presentation had been made, but was not willing to incur its deferred payment undertaking at that time. Subsequently, the issuing bank agreed that a complying presentation had been made and gave its acceptance and advice of the maturity date.

Example (a)

The nominated bank made a prepayment to the beneficiary based on the acceptance of the documents and advice of maturity from the issuing bank. The nature of the express agreement between the nominated bank and the beneficiary is unclear, particularly as to whether the nominated bank ever incurred a deferred payment undertaking, and has been disregarded for the purposes of this opinion.

Sub-article 12 (c) states: "[R]eceipt 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." From the outline of the query, the nominated bank did not act on its nomination, i.e, to incur a deferred payment undertaking, and therefore its actions do not constitute honour.

Sub-article 7 (c) states: "[A]n issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated 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 not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank's undertaking to the beneficiary."

This sub-article entitles a nominated bank to reimbursement only if it honours or negotiates, and in the case of a nomination to incur a deferred payment undertaking, the nominated bank must do that to obligate the issuing bank to reimburse. The issuing bank would still have an independent undertaking to the beneficiary to honour a complying presentation.

Sub-article 12 (b) states: "[B]y 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." This sub-article specifically refers to the situation in which a nominated bank prepays or purchases a draft accepted or a deferred payment undertaking incurred by that nominated bank. In the context of this query, the authorization contained in sub-article 12 (b) only extends to a nominated bank that has acted on its nomination by incurring its own deferred payment undertaking. It does not extend to prepayment of a deferred payment undertaking given by another bank.

If the nominated bank did not incur its own deferred payment undertaking, this prepayment is considered not to have been effected in accordance with sub-articles 7 (c) or 12 (b). If the nominated bank did incur its own deferred payment undertaking, this prepayment is considered to have been effected in accordance with sub-articles 7 (c) and 12 (b).

However, it should be noted that a bank may agree to provide finance to a beneficiary outside the scope of UCP 600, subject to terms and conditions as may be agreed between the bank and the beneficiary.

Example (b)

Although the nominated bank did not act on its nomination at the time of presentation, it subsequently acted by incurring its deferred payment undertaking ("the nominated bank sends an acceptance advice to the beneficiary to honour the presentation on its own") and made a prepayment to the beneficiary prior to the maturity date.

It should be noted that a nominated bank may act on its nomination at any time prior to maturity, and any prepayment may be made at any time up to the date reimbursement is due from the issuing bank. The issuing bank has an obligation to reimburse at maturity when a complying presentation has been made (sub-article 7 (c)). This prepayment is considered to have been effected in accordance with sub-articles 7 (c) and 12 (b) because the nominated bank prepaid (or paid) a deferred payment undertaking incurred by the nominated bank.

For the avoidance of doubt, a written communication from the nominated bank, to the beneficiary, wherein it is indicated that the bank undertakes to pay a certain amount of money on a specified due date, will constitute a deferred payment undertaking for the purposes of sub-article 12 (b). This communication may be given, and a prepayment may be effected, at any time before the specified due date.

However, it should be noted that if a beneficiary accepts a prepayment as satisfying its right to payment at maturity, then the nominated bank may be entitled to reimbursement under sub-article 7 (c), without regard to sub-article 12 (b), on the basis of having incurred a deferred payment undertaking and having prepaid it.

UCP 600 articles 18 and 2; sub-article 14 (j)

Whether the definition of applicant in article 2 is confined to the name of the party upon whose request the credit was issued; whether an invoice that only quotes the name of the applicant, without any address (including reference to their country) is acceptable; whether there is a requirement in sub-article 14 (j) for an address of the beneficiary and the applicant to appear and for the country of the applicant to appear on a stipulated document.

Query [TA 716rev2]

In a documentary credit, the beneficiary is required to present, among other documents, an invoice. The presented invoice states just the name of the applicant, with no address or country stated. Based on article 18, sub-article 14 (j) and article 2 of UCP 600, the points at stake in this case, in relation to the invoice, would be the following:

The definition of applicant in article 2 means both the name as well as all the other data mentioned in field 50 of the SWIFT MT700 (i.e., including address, country, etc. when they so appear), or should it be understood to refer just to the name of the applicant with no need to compulsorily include other data such as the address, country, etc.?

Sub-article 18 (a) (ii) states: "a commercial invoice must be made out in the name of the applicant." Bearing this article in mind, can it be considered that an invoice which only mentions the name of the applicant - with no further detail regarding its address or country - is acceptable, even if that data were indicated in field 50 of the SWIFT MT700, as data of the applicant?

Sub-article 14 (j) states: "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 [emphasis added]." Can this rule be interpreted to mean that the address of the beneficiary and/or the applicant is not necessary as far as the commercial invoice is concerned? Can it be interpreted as asking, at least, that the country of the applicant should appear in the commercial invoice?

Analysis and conclusion

The definition of applicant, in article 2, is confined to the name of the party upon whose request the credit was issued.

Under international standard banking practice, it is expected that an invoice will include the name and address of the applicant. However, an invoice that only quotes the name of the applicant, without any address (including reference to their country), would be acceptable under sub-article 18 (a) (ii).

Sub-article 14 (j) refers to when the address of the beneficiary and the applicant appear in any stipulated document. Again, there is no requirement in sub-article 14 (j) for an address of the beneficiary and the applicant to appear. There is no requirement in sub-article 14 (j), even as a minimum, for the country of the applicant to appear on a stipulated document.

Where local regulations require an address to appear, an issuing bank should ensure that the credit clearly reflects those requirements, and the applicant should clearly indicate such a requirement in the credit application form.

UCP 600 article 35; sub-article 7 (c)

Whether wording in a credit to the effect that the issuing bank will reimburse "only upon receipt of documents at our counters constituting a complying presentation..." or similar such wording, modified the content of article 35 or the reimbursement undertaking that exists in sub-article 7 (c)

Query [TA 715]

We are writing to seek an opinion from the ICC Banking Commission on a point regarding article 35 of UCP 600.

Background

We have encountered certain L/Cs (subject to UCP 600) in which article 35 was neither specifically excluded nor modified. However, the issuing banks have included special instructions such as "only upon receipt of documents at our counters constituting a complying presentation, at maturity, we will effect payment as per your payment instruction" and instructions in similar wordings (the "Documents-Handling Instructions").

Issue

We would like to seek your opinion on the following issue. For the following two types of L/Cs, whether the Document-Handling Instructions, without any express exclusion or modification of article 35 of UCP 600, would exclude or modify the liability of the issuing bank and/or confirming bank for documents lost in transit: (a) L/Cs available with the issuing bank; and (b) L/Cs available with "any bank", i.e. a nominated bank other than the issuing bank.

Our view

Article 35 of UCP 600 states that: "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 [emphasis added]."

In respect of the first type of L/C, i.e., L/Cs available with the issuing bank, it is clear and unequivocal that the issuing bank is the only nominated bank involved, and article 35 would not be applicable in such circumstances. Accordingly, the issue would not arise in such a situation.

In respect of the second type of L/C, i.e., L/Cs available with a nominated bank which is not the issuing bank, ICC had decided in its official Opinion R548 that a nearly identical document handling instruction did not exclude, modify or in any way affect the liability of the issuing bank and/or confirming bank for documents lost in transit under article 16 of UCP 500 (equivalent to article 35 of UCP 600), as follows: "Notwithstanding the fact that the reimbursement instruction in the credit reads: 'Upon receipt of full set of documents in conformity with the L/Cs terms, we will effect payment as per your instruction', by virtue of Article 16 the issuing bank would be obliged to honour a compliant presentation that had been negotiated by a nominated bank but lost in transit. The reimbursement obligation under a credit, as outlined above, is not subject to the receiving of documents by the issuing bank, but only to a compliant presentation being made to the nominated bank.

The reimbursement clause in the credit does not make the reimbursement subject to the receiving of documents [emphasis added]."

Although the document handling instructions differ from the instruction above in that the word "only" has been inserted, the two instructions are, in substance, the same.

Moreover, if issuing banks are able to walk away from their undertaking when documents are lost in transit by merely inserting the document handling instructions, very few nominated banks would agree to act under their nomination until they are certain that the documents have arrived at the issuing bank's counter. In the end, it would defeat the whole purpose of nominating banks to facilitate any honour or negotiation that may be requested or required by the beneficiaries.

Accordingly, we are of the view that the document handling instructions, without any express exclusion or modification of article 35 of UCP 600, should not exclude or modify the liability of the issuing bank and/or confirming bank for documents lost in transit under article 35.

In summary, it is clear and unequivocal that when an L/C is available with a nominated bank, which is not the issuing bank, the document handling instructions, without any express exclusion or modification of article 35 of UCP 600, would not exclude or modify the liability of the issuing bank and/or confirming bank for documents lost in transit.

Analysis

In addition to the wording that appears in article 35 and which is quoted above, subarticle 7 (c) includes the following: "[A]n issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank."

Conclusion

We would agree with your view and conclusion. Wording in a credit to the effect that the issuing bank will reimburse "only upon receipt of documents at our counters constituting a complying presentation..." or similar such wording, does not modify the content of article 35 or the reimbursement undertaking that exists in sub-article 7 (c).

UCP 600 article 16 and sub-article 14 (d)

Where the credit did not require the contract number to appear on the certified copy of the fax but the beneficiary inserted "contract number" and quoted a number that was not the contract number stated in the credit or the number appearing as the contract number on the invoice, was this a discrepancy?

Query [TA 719rev]

A documentary credit issued by Bank A required the following documents (only the documents which are relevant for this case are listed):

- Signed commercial invoice in 3 originals and 3 copies indicating L/C no. and contract no. 09ICDINTL0804A.

- Beneficiary's certified copy of fax dispatched to the applicant within 10 working days after shipment advising name of vessel, shipment date, quantity, weight and value of shipment.

There was no requirement for the contract number to appear on any other document except the invoice, nor was the number mentioned anywhere else in the L/C.

The beneficiary presented documents. The invoice showed "Contract no. 091CDINTL0804A". Additionally, all the documents that were issued by the beneficiary, such as invoice, packing list, certificate of quantity/weight, certificate of origin, beneficiary's certificate, etc., indicated "our ref. 746293-SEG" or simply "746293-SEG".

Only on the beneficiary's certified copy of the fax did this reference appear as "contract no. 746293-SEB". There was no requirement in the L/C for any contract or reference number to be mentioned in the fax.

The issuing bank refused payment as follows:

"We refuse to honour according to UCP article 16 due to the following discrepancies:

1. Contract no. on shipping advice differs from that on invoice. We are holding the documents until we receive a waiver from the applicant and agree to accept it, or receive your further instructions prior to agreeing to accept a waiver."

We rejected this refusal on the following grounds:

The L/C required that the contract no. of the applicant be shown in the invoice. This requirement was fulfilled. The fact that the other documents showed beneficiary's reference, which was named in the fax message as contract number, does not render the documents discrepant.

The issuing bank insisted that the documents were discrepant and refused to pay. Ultimately, the documents were accepted, but only at a reduced price.

We would appreciate receiving your opinion whether the mentioning of beneficiary's reference number as contract number is really a discrepancy or not.

Analysis

Sub-article 14 (d) states: "[D]ata 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."

It is recognized that the number shown on the certified copy of the fax was the same number that the beneficiary had inserted on other documents as "our ref" or merely by insertion of the number.

However, the credit did not require the contract number to appear on the certified copy of the fax. Nevertheless, the beneficiary inserted "contract number" and quoted a number that was not the contract number stated in the credit or the number appearing as the contract number on the invoice. By inserting data on a document, the beneficiary is inviting the bank to examine that data for compliance with the credit and the UCP. According to subarticle 14 (d), the data shown as the contract number is in conflict with that shown on the invoice and in the credit.

Conclusion

The refusal was correct.

UCP 600 sub-article 14 (a); article 22

When shipment has been effected from two ports, does the charter bill of lading need to evidence separate on board notations for each port along with the relevant on board date? Would the position be different if the bill of lading were not subject to a charter party or if a "received for shipment" bill of lading were presented?

Query [TA 726]

We request an official ICC opinion in terms of the following scenario.

Details

A letter of credit was issued in favour of one of our beneficiaries calling for shipment from "Any Australian ports". On presentation of documents from the beneficiary, charter party bills of lading may be received that follow either of the following scenarios:

Example 1

A "shipped on board" charter party bill of lading is presented evidencing the following details:

- Port of loading: Melbourne/Brisbane, Australian Ports

- Shipped on board 31 Aug XXXX

Example 2

A "shipped on board" charter party bill of Lading is presented evidencing the following details:

- Port of loading: Melbourne and Brisbane, Australian Ports

- Shipped on board 31 Aug XXXX

Our query: is there a requirement in the above cases for the bill of lading to show separate shipped on board dates pertaining to each port of loading where the goods are actually loaded?

National committee analysis and conclusion

Since shipment has been effected from two ports, we believe that the bill of lading needs to evidence separate on board notations for each port along with the relevant on board date. Our rationale for this is because we need to establish on the basis of the document alone:

- that the shipment has actually been effected at the ports specified; and

- that all parts of the shipment have been completed within the time limits stipulated in the L/C.

As we can only be guided by the data "on the face" of the documents, if the bill of lading does not show a date on which the goods have been loaded at each port, we believe that there is no way of knowing which port came first - thereby stepping outside sub-article 14 (a).

Further, we believe that the shipment is completed only when the goods stated on the invoice have been loaded at the second (or final) port and, as we are unable to determine to which port the shown on board date pertains, we are not in a position to ascertain whether or not the shipment has therefore been completed in compliance with the stated L/C requirements.

The final date shown would then be the date that completes the shipment for the purpose of determining whether shipment was effected within the latest shipment date, with the first date being the operative date for dating of any insurance documents.

Issues for ICC Banking Commission

The beneficiary disagreed with the discrepancy, arguing that the shipping company would have inserted the on board date only after the entire quantity had been loaded at the final port of loading. Hence, there would not be a requirement for a separate on board notation for each loading port.

Kindly also clarify whether the position would be different if the bill of lading were not subject to a charter party or if a "received for shipment" bill of lading were presented.

Analysis

Whilst it is conceivable that the shipping company would only issue and/or add a dated on board notation to the charter party bill of lading once the final shipment had been completed, banks are required to examine documents on their face. If only one on board notation appears, it is not apparent to a document examiner whether that date applies to the completed shipment or to the loading of the cargo at the first port of loading.

Final conclusion

The analysis and conclusion of the national committee is agreed. The same response would apply to a transport document that is subject to examination under articles 19, 20 and 21 of UCP 600.