Article

UCP 600 sub- articles 14 (l), 28 (h) and (i), 16 (c) (iii) (d), 14(f) and (k); and 10(c)

When L/Cs exclude whether a presentation not impacted by an as yet unaccepted amendment constitutes acceptance of the amendment by the beneficiary

Query [TA 638rev]

UCP 600 sub-articles 14 (l), 28 (h) and (i), 16 (c) (iii) (d), 14(f) and (k) Our national committee has received the following requests for ICC Opinions related to UCP 600.

1. Impact of the deletion of UCP 600 sub-article 14 (l)

UCP 600 sub-article 14 (l) states: "A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23, or 24 of these rules." Various issuing banks have been deleting this article outright.

Questions:

a) Who would you consider the issuer of the attached bill of lading? Is MOL (America) Inc. the "issuer" or are they merely signing this document as an agent of Mitsui OSK Lines Ltd?

b) If UCP 600 sub-article 14 (l) is deleted, would this bill of lading be acceptable?

c) Would it meet the requirements of the transport articles mentioned in sub-article 14 (l) considering articles 19-24 would still apply?

2. Deletion of UCP 600 sub-articles 28 (h) and (i)

We are receiving a number of L/Cs from different banks, largely from Country T and Country E, where issuing banks are deleting reference to UCP 600 sub-articles 28 (h) and (i). Our concerns are:

a) All insurance documents have exclusions. We are unaware of any maritime insurer who will cover all loss circumstances.

b) There is the possibility that we may now have to review the whole insurance document, including its terms and conditions to see if any exclusion exists.

c) It is common knowledge that industry practice for insurance documents to reference "all risk" clauses may be satisfied in different ways, such as Institute Cargo Clause A or B or C, etc., and do not cover every risk that may be encountered en route to a shipment's final delivery. We feel that this practice is improper, and we have been refusing to advise these L/Cs. We deem the L/C as unworkable. We believe that the issuers should clearly and concisely reference what insurance risks must be covered and/or indicate what risks cannot be excluded.

Question: Is our interpretation correct?

3. Deletion of UCP 600 sub-article 16 (c) (iii) (d)

My bank and a number of other our country's banks have been receiving L/Cs that delete UCP 600 Article 16 (c) (iii) (d). We find this deletion confusing. We are unsure of the intent of it and unsure if both sections 16 (c) (iii) (all in) and 16 (d) are being deleted or if only section 16 (c) (iii) (d) is deleted.

Questions:

a) If the former and both sections are being deleted, then the concern is when and how a notice of discrepancies must reach a nominated bank.

b) If the latter, then why would an issuing bank refuse to accept instructions a nominated bank has previously sent, as they relate to a specific documentary presentation? Your guidance would be greatly appreciated.

4. Deletion of UCP 600 sub-article 14 (f) and others.

We have received a variety of other UCP 600 article deletions, such as the deletion of sub-article 14 (f).

Questions:

a) When articles such as this are deleted outright and no further L/C guidance is provided, how should banks interpret this?

b) In this case, does a document title now have to match the title of a document stated in an L/C or, since no further L/C guidance is provided, can a nominated bank exercise its own judgement as to whether or not a document complies?

Sub-article 14 (k) is also routinely being deleted.

Questions:

a) Does this mean that only the L/C beneficiary must appear as the shipper on a transport document or can the shipper's box read as: XYZ company on behalf of the beneficiary or manufacturer name or agent name, etc.?

b) By outright deletion, are nominated banks allowed to make judgement calls to offset the silence created by the outright deletion?

5. Acceptance of Amendments - UCP 600 sub article 10(c) UCP 600 sub article 10(c)

UCP 600 sub-article 10 (c) UCP 600 sub-article 10 (a) states:

"a. Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.

" Sub-article 10 (c) states: "c. The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary 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 with the 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."

A question has arisen regarding amendments which do not impact a presentation of documents. Example: where under a credit for USD 100,000 permitting part shipments, and the issuer amends the credit to reduce it by USD 50,000, if a beneficiary presents documents for USD 50,000 without stating it has accepted or rejected the amendment. In this case, the bank cannot construe the beneficiary's silence regarding the amendment as acceptance to reduce the credit to zero, because the amendment had no impact on the presentation, and therefore the beneficiary has neither expressed consent nor rejection of the amendment. A beneficiary may not even have received such an amendment, and to construe silence as acceptance when the documents are not impacted by the amendment directly conflicts with the rights of the beneficiary stated in sub-article 10 (a).

Please confirm that a presentation of documents which is not impacted by an as yet unaccepted amendment does not constitute acceptance of the amendment by the beneficiary. A position to the contrary is in direct conflict with sub-article 10 (a). An amendment which does not impact a presentation of documents may not be automatically enforced against the beneficiary.

Analysis and conclusion

Query 1 - sub-article 14 (l)

a. The issuer of the bill of lading is Mitsui O.S.K. Lines Ltd. MOL America is signing the document as agent of Mitsui O.S.K. Lines Ltd, as carrier.

b. If a credit stated that sub-article 14 (l) was excluded or did not apply, this bill of lading would still be acceptable. It is issued on the letterhead of the carrier and signed by an agent of a named carrier according to sub-article 20 (a) (i).

c. Sub-article 14 (l) would not apply to this particular transport document, as it is issued by the carrier (on its letterhead).

It should be noted that the issuance of a document (as referred to in sub-article 14 (l)) and the signing of a transport document (as referred to in articles 19-24) are not linked. For example, Party A may issue a transport document (i.e., by use of its letterhead) and may sign it as carrier, but that transport document may also be signed by Party B as agent for Party A.

Query 2 - sub-articles 28 (h) and (i)

If an issuing bank states that sub-article 28 (i) is excluded or does not apply, then the insurance document that is to be presented must not bear any exclusion clauses. Banks are only required to review the conditions of insurance as detailed on the face of the insurance document. As is recognized in the query, today it is becoming quite rare to see an insurance document that does not contain some form of exclusion clause with regard to risks - primarily risks relating to terrorism and the like. It was for this reason that the UCP 600 was drafted with the rule that appears in sub-article 28 (i). To exclude this rule may, in a vast number of transactions, create an unworkable letter of credit or necessitate the beneficiary obtaining an amendment in order to allow specific exclusion clauses or the removal of the restriction completely. If an issuing bank has an issue with the rule, it would be better to include within the credit the exclusion clauses that either are or are not acceptable.

The wording of sub-article 28 (h) is to discourage banks from merely indicating that the insurance document is to cover "all risks" rather than expressly stating the risks that are required to be covered. In effect, the outcome of the rule is a form of penalty for banks that are not explicit in their requirements. By excluding the rule, the issuing bank is further compounding the lack of detail in its credit by prohibiting any exclusions to a risk that most insurance companies do not cover, i.e., all risks. In previous Opinions, the ICC Banking Commission has expressed the view that an insurance document covering ICC (A) will be considered to be an all risks insurance document. This position also recognizes that ICC (A) does not cover "all risks".

Query 3 - sub-article 16 (c) (iii) (d)

By excluding this sub-article, an issuing bank may be reading too much into the wording or not understanding the intent behind the words. In a number of cases, a presenter will identify discrepancies in the documents and indicate those discrepancies on a covering schedule to the nominated bank or issuing bank. In addition to the listed discrepancies, there will be instructions with regard to the action that the presenter wishes to be carried out in relation to those discrepancies. Invariably, these will be to hold them pending an acceptable waiver from the applicant (effectively, the option in sub-article 16 (c) (iii) (b)). If the issuing bank agrees with the discrepancies and agrees to carry out the instructions, it will provide a refusal notice according to sub-article 16 (c) indicating the wording in option (d) as the status for handling of the documents. If the issuing bank does not agree to carry out the requested instructions: for example, if it has no intention of accepting a waiver from the applicant, it will refuse and either seek further instructions (option (a) or return the documents to the presenter (option (c)).

Under sub-article 16 (c), one of the options (a-d) must be utilized in relation to advising the status of the documents. To exclude the whole of sub-article 16 (c) or all of options (a-d) would require the credit to incorporate alternate conditions in relation to the handling of a refusal notice.

From the wording given in the query, only option (d) of sub-article 16 (c) (iii) has been deleted.

Query 4 - sub-articles 14 (f) and (k)

Sub-article 14 (f ) - Whilst article 1 of UCP 600 allows for modification or exclusion of the rules, if a bank excludes 14 (f ) without any further comment, how is a nominated bank expected to review documents for which there is no stated issuer or data content? The rule in sub-article 14 (f) provides a sense of certainty in these circumstances - for a nominated bank in that it may accept a document, as presented, provided the document appears to fulfil the function of the required document. To exclude the rule, without inserting a new condition with regard to the review of such documents, can possibly leave the nominated bank in an untenable situation. Unless each requested document indicates the name of the issuer and provides the required data content, a nominated bank would be well advised to revert to the issuing bank for clarification and reinstatement of sub-article 14 (f ). With the exclusion of this rule, it is unclear what judgement a nominated bank could exercise in the examination of documents. Removal of the ability to accept a document as presented would leave the nominated bank in the dark as to the process under which the issuing bank will be reviewing the documents.

Sub-article 14 (k) - by excluding this sub-article, the issuing bank is effectively stating that the shipper or consignor on any document must be the named beneficiary.

Query 5 - sub-article 10 (c)

The example provided in the query outlines the type of issue that the UCP 600 Drafting Group sought to clarify by proposing a change in the language that appeared in UCP 500 sub-article 9 (d) (iii), now UCP 600 sub-article 10 (c). Keeping the wording as appeared in UCP 500 sub-article 9 (d) (iii), would mean that the nominated bank or issuing bank cannot, in the circumstances shown in the query, make any determination as to whether the beneficiary has accepted the amendment. Even if the nominated bank or issuing bank were to ask the beneficiary whether it has accepted the amendment, the beneficiary could refer to the content of sub-article 10 (c) and state that it has yet to make up its mind.

You are correct in saying that a presentation that is not impacted by an as yet unaccepted amendment does not constitute acceptance of the amendment by the beneficiary.

General comment - It should be noted that a number of exclusions that are being made in credits, including those exclusions referred to in Query 2 (sub-article 28 (h)) and Query 4 (sub-article 14 (f )), are provisions that essentially existed in UCP 500. Banks should keep any exclusions (if at all needed) to a minimum, recognizing that it is often not as simple as merely making a statement in the credit that article X or sub-article Y is deleted or is not to apply. Very often there is a need for a new condition to be inserted into the credit to cover the void that the exclusion leaves. As stated in ISBP Publication 681 paragraph 2, the applicant bears the risk of ambiguity in its instructions to issue the credit or an amendment thereto.

UCP 600 article 35; sub-articles 38 (d) and (a)

Where an issuing bank requires the nominated bank to send copies of all documents under the L/C to satisfy the rule in article 35 should the original documents be lost in transit; where there are fees charged for additional sets of documents; when an original credit allows for the transferred credit to also be transferred

Query [TA 639rev]

1. Some banks in Country H and Country S have issued letters of credit, available with any bank by negotiation, whose terms include a condition stating that: "The issuing bank shall be entitled to require the nominated bank to send copies of all the documents presented under the credit and which the nominated bank has determined to be a complying presentation, were the documents thus determined to be complying lost in transit after being sent by the nominated bank. The issuing bank should be entitled to examine the copies of the documents to determine if they comply with the terms of the credit (except for the question of originality) and to refuse reimbursement to the nominated bank should the issuing bank determine that the documents do not comply with the terms of the credit. Article 35, to the extent it is inconsistent with the foregoing, is expressly excluded."

It is our opinion that a more adequate procedure would be to request that required documents be forwarded to the issuing bank by two subsequent courier parcels. Also, we have strong reservations concerning the legitimacy of determining the compliance of documents based on photocopies of documents. It seems too easy to state "except for the question of originality", as if it were a minor issue. How would they establish if a document is originally signed or stamped? And what about the term of validity or period for presentation? Would the issuing bank abide by the negotiating bank's statement concerning documents lost in transit? We would strongly appreciate your comments.

2. A letter of credit which originated in Country H, allowing partial shipments, mentions: "Additional fee for USD 25.00 will also be charged on each additional set of documents (a 'set' of documents would include one set of invoice plus relative transport document) under the same drawing."

Is it acceptable that the beneficiary should bear charges related to a circumstance of the transport that caused more than one set of transport documents to be issued? We do not think so, and also feel that if the beneficiary chooses to present documents related to more than one shipment in a single drawing under the credit, he should be entitled to do so. Kindly let us have your view on this subject.

3. An applicant of a credit, at the alleged request of the first beneficiary, asked for a transferable credit to be issued stating that the second beneficiary would be allowed to transfer the credit to a subsequent beneficiary, arguing that the allowance in article 1 (... unless expressly modified or excluded by the credit) overruled sub-article 38 (d). Since we refused to do it based on our understanding that double transferability represented an accrued risk both for the applicant and the issuing bank, the matter was otherwise resolved.

However, the first beneficiary kept insisting that double transferability was a current practice (without referring as to where). We feel we can hardly be blamed for being overzealous in our refusal. Nevertheless, your view on our decision and a comment on the risks that double transferability involves would be most appreciated.

Analysis

Query 1 is in relation to the wording that appears in article 35, which reads: "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."

Query 3 is in relation to the wording that appears in sub-article 38 (d) which reads: "A credit may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed. A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary."

Conclusion

Query 1

The concept that has been incorporated into article 35 is not new. Under UCP 500, the ICC Banking Commission issued its Opinion R. 548 which, in the conclusion, reads: "Notwithstanding the fact that the reimbursement instruction in the credit reads 'Upon receipt of full set of documents in conformity with the L/C 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."

Neither the Opinion nor the rule in article 35 provides the answer to what course of action is required in the event of documents being lost in transit or how to negate such a risk. This is left to the parties concerned. There is, of course, and as mentioned in the query, the option of pre-emptive action in requesting that the documents are sent in two lots. This is the choice of the issuing bank and/or the applicant, bearing in mind that mailing in two lots will increase the costs under a credit for an event (loss in transit) that is quite rare.

Where only one mailing is made - and this was requested in the credit or no indication of the number of mailings was given and documents are lost in transit - the issuing or confirming bank may determine that they require a presentation to be re-created consisting of copies of the documents that were originally presented. The issuing or confirming bank will then review the copies "as if they were the originals and copies as requested by the terms and conditions of the credit" and were presented thereunder. This would include the stance that any signatures appearing on the copies of the original documents would need to be considered as if they were originally made.

As the presentation of the documents must have been made to the nominated bank within the expiry date and/or last date for presentation, there is no issue regarding validity or presentation periods. If the issuing or confirming bank determines that the documents did comply when originally presented to the nominated bank, then they must honour or negotiate. It should be noted that whilst a nominated bank is not bound to retain copies of the documents presented to it, it may ease problems later (in the unlikely event that documents are lost in transit) in recreating the presentation in the form of copies if so requested by an issuing or confirming bank.

The clause, as mentioned in the query highlights to the nominated bank, the issuing bank's requirements in the (unlikely) event that documents are lost in transit, this option being selected over one requesting the sending of documents in two lots.

Query 2

It is not for ICC to pass comment on the charging structure that banks may impose under letters of credit. If the beneficiary is not in agreement with any stated charge, then it should liaise with its applicant to arrange a suitable amendment.

Query 3

The rule in sub-article 38 (d) reflects the standard position in relation to transferable credits i.e., that they may be transferred only once. Where there is a need for the transferred credit to also be made transferable, the original credit must include a condition to the effect that the "transferred credit may also be transferred". This wording would be in line with the content of article 1, which allows for each rule to be modified or excluded by the terms and conditions of the credit.

Sub-article 38 (a) makes it quite clear that a bank is under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank. This would include the right of the bank, subject to this query, to decline any request for transfer, especially when the transferred credit was also designated to be transferable.

When an original credit allows for the transferred credit to also be transferred, this increases the number of parties involved (and the inherent risks of not knowing the parties, with possible fraud implications); the number of substitutions of documents that may need to occur and delays in the issuing bank receiving the documents following each presentation, each of which will entail: examination thereof; substitution thereunder; honour or negotiation; and sending of documents to the next bank in the chain. Whilst in most countries it is not common for an original credit to allow the transferred credit to be transferred, this can often occur under standby letters of credit.