Article

UCP 600 article 1; sub-article 18 (b)

Where a copy of an [unpaid] invoice was presented under a standby credit, was it subject to examination under UCP 600 sub article 18 (b)?

Query [TA 728rev]*

Under a standby credit subject to UCP 600, in addition to a beneficiary's certificate, a copy of an unpaid invoice was required to be presented. The beneficiary's certificate complied, but the invoice was issued for an amount that is greater than that of the standby.

Bearing in mind that the invoice is a supporting document, please advise whether an issuing bank, a confirming bank, if any, or a nominated bank acting on its nomination, as the case may be, must accept such invoice as with the case of ISP98 rule 3.08 (e), or do they still reserve the right to refuse it in line with the content of UCP 600 sub-article 18 (b)?

Analysis

The issue raised in this query highlights one of the problems that can arise when a bank issues a standby credit, subject to UCP 600, requiring presentation of a document such as a copy of an unpaid invoice without compensating for the fact that certain articles of UCP 600 will not apply in the examination of that document. It is the responsibility of the applicant to indicate the required data content for any stipulated document in the application for issuance, and for the issuing bank to indicate this in the standby credit. It is against this data content that the examination for compliance will be made.

In this context, UCP 600 article 1 indicates in part that the UCP are rules that "apply to any documentary credit ("credit") (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules".

The query makes reference to sub-article 18 (b) which reads "A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, and its decision will be binding upon all parties, provided the bank in question has not honoured or negotiated for an amount in excess of that permitted by the credit."

Where a copy of an [unpaid] invoice is to be presented under a standby, it is not subject to examination under sub-article 18 (b) except to the extent required by the terms and conditions of the standby.

The query makes reference to the copy of the [unpaid] invoice being a supporting document. The UCP makes no reference to a document having such status. As a document that is required by the standby credit, it is to be examined according to the requirements contained therein.

Conclusion

An issuing bank, confirming bank or a nominated bank acting on its nomination must accept the copy of the unpaid invoice, provided that it otherwise complies with the terms and conditions of the standby credit.

* replaces educational query of the same number

UCP 600 sub-article 15 (a)

Can the issuing bank use the UCP as a defence to avoid its commitment to pay the amount due under a complying presentation?

Query [TA 741rev]

The issuing bank failed to comply with its payment obligation under the letter of credit (payment due at sight). All documents required for payment had been properly presented. The letter of credit is subject to UCP 600.

Questions:

- Are there any circumstances that release the issuing bank from performing its obligations under the letter of credit?

- How is the relationship regulated between the beneficiary and the issuing bank in the given situation?

- Are there any specific requirements needed for the beneficiary to raise (put forth) a claim against the issuing bank?

- Can the beneficiary take out a court action against the issuing bank for non-payment?

Analysis

UCP 600 sub-article 15 (a) provides: "When an issuing bank determines that a presentation is complying, it must honour".

It follows that an issuing bank is compelled to pay, accept or incur a deferred payment undertaking in respect of a complying presentation and cannot, under the UCP, be released from its liability. There may well be circumstances under the applicable law where the issuing bank could seek such a release. Examples include fraud, provisional court measures, or the nullity of the undertaking. Those circumstances, however, and the relationship between the beneficiary, nominated bank and the issuing bank that arise pursuant thereto, are outside the UCP. The same goes for the claim that the beneficiary could file against an issuing bank or any legal avenue that may be available for it.

Conclusion

Under the UCP, the issuing bank must pay, accept or incur a deferred payment undertaking in respect of a complying presentation. Any defence to avoid this commitment should be assessed under the applicable law, not the UCP.

UCP 600 article 16

If a nominated bank's confirmation has lapsed as a result of complying documents not being presented within the validity of the credit, is any subsequent agreement by the nominated bank either to reinstate its confirmation or to agree to act as if its confirmation still stands in respect of the presentation solely for the nominated bank to decide?

Query [TA 742rev]

At the request or on the authorization of the issuing bank, a bank confirmed a usance credit (e.g., available by acceptance, deferred payment or negotiation), stating on its advice letter that compliant documents must be presented to it within the presentation period and in any event no later than the expiry date of the credit. The beneficiary failed to make a complying presentation, and the confirming bank issued a refusal notice in accordance with UCP 600 article 16.

The beneficiary did not cure the discrepancies within the presentation period and asked the confirming bank to forward the documents as presented, or to indicate the discrepancies on its covering schedule to the issuing bank. The confirmation obligation of the confirming bank towards the beneficiary therefore ceased to be available for that presentation according to ICC official Opinion R520. Furthermore, the confirming bank did not indicate to the beneficiary at the time of refusal of the documents, or before forwarding them to the issuing bank, that its confirmation obligation would reinstate once the issuing bank accepted the draft and/or documents.

We believe that after acceptance of the documents by the issuing bank, and at the request of the beneficiary, the confirming bank can reinstate its confirmation obligation without further authority of the issuing bank to do so, and according to the scope of UCP, can:

- prepay or purchase the draft drawn on it and accepted by it, or a deferred payment undertaking that has been incurred by it, if the credit is available by acceptance or by deferred payment; or

- negotiate without recourse to the beneficiary by advancing or agreeing to advance funds on or before the banking day on which reimbursement is due, if the credit is available by negotiation.

Analysis

ICC Opinion R520, which was issued in respect of a credit subject to UCP 500, but which has equal application under UCP 600, stated in its conclusion: "[A] confirmation of a letter of credit is, as you say, an undertaking from a bank in addition to the undertaking provided by the issuing bank. The UCP, in sub-Article 9 (b), states that the undertaking (confirmation) is subject to complying documents being presented under the credit.

Where documents are presented to the confirming bank, within the validity of their undertaking, and found to be discrepant, and the confirming bank provides a notice of refusal in accordance with the UCP, its undertaking would no longer exist in respect of that presentation (subject to the beneficiary being unable to correct the discrepancy(ies) within the credit timelines).

If the documents, on instructions of the beneficiary, are subsequently sent to the issuing bank on an approval basis and the discrepancies are waived, the confirming bank has no obligation to make payment unless it has indicated its willingness to do so at the time of providing its notice of refusal. The presentation of discrepant documents to the confirming bank would end its obligation under the credit unless it has stated otherwise, and the fact that the issuing bank accepts a waiver of discrepancies would not further obligate the confirming bank."

It should be noted that when a nominated bank, following the receipt of an advice from the issuing bank that the documents have been taken up, agrees to accept a draft, incur a deferred payment undertaking or negotiate without recourse, this would constitute an undertaking of that bank. This position is irrespective of whether the bank reinstated its confirmation or not. However, it is recognized that a decision to accept a draft, incur a deferred payment undertaking or to negotiate without recourse may only have been made as a result of the bank's determining that it agrees to reinstate its confirmation, and it matters not whether this was at the instigation of the bank or as a result of a request from the beneficiary.

The UCP contains no rules in respect of a bank reinstating its confirmation. The request or authorization of the issuing bank to add confirmation is only withdrawn by an amendment from the issuing bank that will be subject to the consent of the confirming bank - when the confirmation is still valid - and the beneficiary.

Conclusion

Once a nominated bank's confirmation has lapsed as a result of complying documents not being presented within the validity of the credit, any subsequent agreement by the nominated bank, either to reinstate its confirmation or to agree to act as if its confirmation still stands in respect of the presentation, is solely for the nominated bank to decide. It may do so without further reference to, or authorization from, the issuing bank.

UCP 600 article 17; sub-article 14 (a)

Whether a certificate of origin containing a reference that it could be verified online (together with the attached invoice) was acceptable as an original according to UCP 600 article 17

Query [TA 737rev]

A documentary credit calls for:

1) "Signed commercial invoice in original and 4 copies. The original to be certified by Chamber of Commerce."

2) "Certificate of Origin issued and certified by the Chamber of Commerce in Beneficiary's country indicating xxx origin of the goods."

While applying for the issuance of the certificate of origin at the chamber of commerce, the beneficiary provided two copies of the invoice. The certificate of origin was printed at the chamber of commerce. Both invoices were stamped on the reverse, by the chamber of commerce, with the following text: "Attachment to the Certificate of Origin Chamber of Commerce".

The certificate of origin made a reference to the invoice by saying in the description of goods field: "As per the attached invoice".

The certificate of origin included the stamp and signature of the chamber of commerce - in what appears to be scanned form (note that the issuer's name (logo) " ***** Chamber" was printed in two colours - orange and blue - on the document). In addition, the certificate of origin can be "verified online", as it included the wording: "For online verification of this Certificate, please visit our website." It further included the name of the website from which it could be verified as well as a "Verify ID".

We ask you kindly to advise if the certificate of origin (together with the attached invoice) is acceptable as an original according to UCP 600 article 17.

It is noted that a signed commercial invoice bearing the chamber's stamp plus four copies was presented in addition to the stamped invoice attached to the certificate of origin.

Analysis

UCP 600 sub-article 14 (a) states that a nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

Based on the content of this sub-article, a reference on the certificate of origin to it being capable of being verified online, and to the website where such verification can be made, must be disregarded by banks for the purposes of determining compliance of the document.

From what is stated, the document does not profess to be a copy of an original or bear any evidence to that effect. The intent of the issuer was seemingly to produce an original document for the purpose of the underlying transaction and the credit. The reference to a scanned signature would appear to indicate a facsimile-style signature being appended to the document.

The invoice of the beneficiary forms part of the content of the certificate of origin by virtue of the cross-referencing that appears on both documents and the attaching of those documents. In this context, the entire document has not been reproduced, and collectively should be considered as one document and representing an original for the purposes of article 17.

UCP 600 article 18

The meaning of conditions in L/Cs stating either that all documents must indicate certain data except the bill of lading or that the described data must not appear on any document except for the invoice and drafts

Query [TA 734]*

We seek an opinion on the correct interpretation of the L/C clause(s) mentioned below, since we recently experienced difficulties with their interpretation.

Although we realize that the clauses referred to are not subject to any specific UCP article, we believe that such clauses are so common that an opinion from the ICC would be beneficial in ensuring all parties apply a uniform understanding.

The following is the exact wording of the clause in dispute and is a clause we see in varying forms in L/Cs on a regular basis. The clause quoted appears in a L/C issued subject to UCP 600, which requires presentation of drafts, invoices, bills of lading, packing lists and four different beneficiary certificates:

Example 1

"All documents except Bill of Lading must indicate this credit number and P.O. no. XXXXX"

The problem seems to be the interpretation of the word "except" and what effect it has on the clause. In our opinion, the word means that the "excepted" document does not need to comply with the instruction that follows. Only the remainder of the documents must comply.

In this example, so long as all documents other than the bill of lading quote the credit and P.O. numbers, the clause is satisfied. The fact that the bill of lading may or may not quote the credit and P.O. numbers is not a matter of concern, since the document is "excepted" by the clause. We encounter banks that are of the opinion that the clause means that the bill of lading must not quote the credit and P.O. numbers.

We would also like to add to the argument the following (actual) clause, which has a reverse effect but is nevertheless of a similar nature and follows the same principle.

Example 2

"All documents except invoice and drafts must not show invoice number, invoice value, invoice date, unit price, contract number, name of applicant, trade term, L/C No., L/C issuing date and name of issuing bank."

In this example, the clause points the document checker, not in the direction of the invoice and drafts, since those documents have been "excepted", but to all the other documents to ensure that they do not quote any of the forbidden information. Therefore, the invoice and drafts may or may not quote any or all of this data. In this case, some banks are of the opinion that the wording means that the invoice and draft may show the specified details.

Since these L/C terms are not covered by any specific article of UCP, we believe that they must be applied literally, and banks should not try to second guess the reasons for their inclusion.

Analysis and conclusion

Example 1

The emphasis in this condition, as drafted, is that all documents must indicate certain data except the bill of lading. However, this condition does not prohibit the bill of lading mentioning the stated data. If the intention is that the bill of lading is not to include such data, then the credit should be specific and so state.

Example 2

The emphasis in this condition is that the described data must not appear on any document except for the invoice and drafts. This condition, as drafted, does not require that the invoice and drafts mention all or some of the prescribed data. Whether the specified data is to appear on the invoice will be subject to a specific condition in the credit. However, it should be noted that some of the stated data must be mentioned in the invoice according to UCP 600 article 18. ISBP Publication 681 also contains paragraphs that refer to the requirement for certain data to appear on invoices and drafts.

* Replaces educational query of the same number