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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Article
UCP 600 article 1
When clauses in a credit from an issuing bank indicated that documents must be correct on first presentation, that the negotiating bank must certify that the documents were correct on first presentation and that documents on first presentation must be in conformity with the L/C prior to reimbursement
Query [TA 677rev]
We received two troubling reports of letters of credit issued by some Country I banks containing clauses to the effect that:
1. "Documents must be correct on first presentation. Correction of documents is not permitted."
2. "Negotiating bank must certify that documents were correct on first presentation."
3. "Provided documents on first presentation [are] in strict conformity with the L/C terms, you are authorized to reimburse yourselves with ...".
It appears the issuing bank is attempting to prohibit the beneficiary from correcting any discrepancies in their documents and representing them.
Our national committee believes the use of these or similar clauses to be bad practice and beyond the authority of the issuing bank. Some of our banks have stated their intent to refuse to advise credits containing these or similar clauses.
Are we correct that such clauses are beyond the authority of the issuing bank and without effect on the beneficiary or any nominated bank?
National committee analysis
The documents are the property of the presenter (presumably the beneficiary or a party presenting on its behalf) until they are honoured. The documents may be withdrawn by the presenter and corrected and represented until such time as they are honoured or otherwise disposed of in accordance with the presenter's instructions.
Whilst UCP 600 article 1 permits issuers to vary the rules, the above clauses are beyond the authority of the issuing bank. Such clauses would fundamentally alter the obligations of the issuer and the rights of the beneficiary and place an inappropriate burden on the nominated bank.
National committee conclusion
The use of such clauses, or similar, are considered bad practice for the reasons stated. Banks are discouraged from placing such clauses in their credits. Notwithstanding the content of article 1, an issuing bank has no authority over the documents until such time as they are honoured. Such clauses are without effect.
Analysis
It is not for an issuing bank to dictate what a beneficiary or other presenter may or may not do in order to achieve a complying presentation. In the normal course of events, it is within the rights of a presenter to request the return of discrepant documents and have them corrected, where possible. It is also its right to replace discrepant documents with corrected ones. Until the documents are honoured or negotiated, they remain the property of the presenter.
It is also not for the issuing bank to request such certificates from the nominated bank in order that reimbursement be effected for any honour or negotiation that has transpired.
Final conclusion
The analysis and conclusion of the national committee is partially agreed.
A condition in a credit indicating that documents may not bear any corrections is one that the beneficiary would have to abide by, unless the credit was subsequently amended to remove the condition, and a nominated bank would be required to refuse documents that contained any corrections.
The other clauses specified in the query represent bad practice, and issuing banks should refrain from including such terms and conditions in their credit.
UCP 600 sub-article 7 (c); sub-articles 2 (b) and (c)
Do all of the rights and protections of UCP 600 continue to prevail for all parties to a transaction once an extension to the maturity date has occurred as they do with the original acceptance/deferred payment? Is the answer different for an acceptance credit versus a deferred payment credit?
Query [TA 674rev]
On behalf of our ICC national committee, we request that the following query about UCP 600 be considered by the Commission.
Occasionally, issuing banks extend the maturity date of accepted drafts (or bills of exchange) or deferred payment letters of credit when all of the parties to the letter of credit (nominated and/or confirming bank, issuing/ accepting bank, importer and exporter) have agreed to the extension. UCP is silent with respect to such extensions.
Our question is: do all of the rights and protections of UCP 600 continue to prevail for all parties to the transaction once an extension to the maturity date has occurred, as they did with the original acceptance/deferred payment? Is the answer different for an acceptance credit versus a deferred payment credit?
For clarity, the scenario under consideration is one in which the extension arises from payment term renegotiations between the exporter and the importer and NOT as a result of an issuing bank's request to refinance the letter of credit. It is recognized that the latter would constitute a bilateral financial agreement between the issuing and nominated banks. As an example: an issuing/accepting bank contacts the nominated bank with a request to extend the maturity date of an accepted draft from 1st November to 1st December, indicating that the importer (its customer) and exporter (the nominated bank's customer) have agreed to the extension. The nominated bank contacts its client (exporter) who indicates agreement to the extension. The nominated bank agrees to the extension and communicates this to the issuing/accepting bank. In other cases, the request to the nominated bank may come directly from its client (exporter).
Essentially, therefore, we are enquiring about situations in which the extension is requested from the confirming bank after the documents have been presented (i.e., in the middle of the payment term allowed in the letter of credit, or shortly before the payment date) or, in those cases where the draft is drawn on the confirming bank and it has accepted it, and again the extension request is presented to the confirming bank after acceptance but prior to the payment date.
Sub-article 7 (c) of UCP 600 states: "An 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."
Conclusion
Whether a replacement draft or new deferred payment undertaking is required will be determined by local law at the place of acceptance or where the deferred payment undertaking is incurred.
If the issuing bank, confirming bank and any bona fide holder other than the confirming bank agree to the payment term renegotiations that have been determined by the applicant and the beneficiary, no replacement draft or deferred payment undertaking is necessary.
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, a 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
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?
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
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 to, 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.
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.
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.
UCP 600 sub-articles 16 (d) (h) and (a); 14 (h); 7 (c); article 5
When a refusal notice was sent 14 days following the day of presentation, was the issuing bank precluded under sub-article 16 (f) from claiming the documents did not constitute a complying presentation? Was there a nondocumentary condition under subarticle 14 (h)? What are the consequences when a court injunction was issued at some point after the refusal message was sent?
Query [TA 689]
Relevant information
- Exporter (beneficiary): Company H (Country V)
- Importer (applicant): Company R (Country B)
- Issuing bank: Bank I, Country B
- Negotiating bank: Bank V, Country V
- Goods: fresh ginger
- Payment terms: irrevocable letter of credit at sight, unconfirmed, available with any bank in Country V by negotiation
Details:
• 10 December 2008: The exporter presented shipping documents under the abovementioned credit at our counters. We negotiated and sent the documents to the issuing bank;
• 13 December 2008: The date the documents were received by the issuing bank. According to UCP 600, the final date for examination should have been 20 December 2008. Up until now, there has been no information from the issuing bank about the status of payment despite our numerous tracers;
• 27 December 2008 (14 days after receipt of documents): the issuing bank sent us a SWIFT FIN999 message stating "Please treat the message as MT734" with the following contents, which are so-called "discrepancies":
"+ SWIFT field 47A, clause no.2, not comply as per L/C [note: Field 47A point no. 2 stated ‘Goods must be shipped in export standard packing and clearly marked country of origin and shipping marks in each and every package/carton/bag/container’’’];
+ Ginger is perishable goods but beneficiary has shipped the goods by dry container".
• 29 December 2008: We sent a SWIFT message to the issuing bank saying that we did not agree with its opinion concerning the discrepancies in the documents, because:
(a) the issuing bank did not send the refusal message within the maximum time of five banking days after receipt of documents, as per UCP 600; and
(b) the so-called "discrepancies" in their message are all invalid. Field 47A, clause 2, is a nondocumentary condition, which is disregarded by banks when examining the documents. Also, banks deal with documents and not with goods, services or performance to which the documents may relate (UCP 600 article 5). Therefore, the documents comply with the credit terms. We then continuously requested the issuing bank to make payment;
• 26 January 2009: the issuing bank informed us that the applicant could not release the consignment; the government authority had destroyed the consignment which was not considered fit for human consumption ("ginger is half rotten"), and it is unable to make payment because it is now in receipt of an ad-terim injunction from the 3rd assistant judge in City D, Country B;
• 11 May 2009: the issuing bank sent us a copy of the High Court notice via courier with the content almost all in the local language. It would appear that the court injunction was issued at some point after the refusal message was sent. At the time, the documents were originally refused, there were no discrepancies and therefore the bank should have paid. The status of the documents being compliant was evident prior to the injunction date.
Could you please give us your opinion on this case? What are the responsibilities of the banks (ours and that of the issuing bank)?
The refusal notice was sent 14 days following the day of presentation. Subarticle 16 (d) requires that a refusal notice be sent no later than the fifth banking day following the day of presentation. By not complying with the provisions of article 16, the issuing bank is precluded under sub-article 16 (f) from claiming that the documents did not constitute a complying presentation.
In any event, the discrepancies were not valid. The condition "[G]oods must be shipped in export standard packing and clearly marked [with] country of origin and shipping marks in each and every package/carton/bag/container'' is nondocumentary according to sub-article 14 (h). Provided the beneficiary did not insert data on one or more of the stipulated documents that conflicted with this requirement, the documents would be compliant in this respect. See ICC Opinion TA 644.
There would appear to have been no specific requirement in the credit as to how the goods were to be packaged other than that indicated in the non-documentary condition. Absent a specific requirement reflecting the perishable nature of the goods being shipped, the documents comply on their face in accordance with sub-article 14 (a).
It would appear that the court injunction was issued at some point after the refusal message was sent. At the time the documents were originally refused, there were no discrepancies (subject to the point made above), and therefore the bank should have paid.
As an injunction is now in place, the issuing bank cannot ignore this order of the court. The issuing bank should now re-consider its position vis-à-vis the status of the presentation and approach the court for the order to be removed, thereby upholding the principles of the letter of credit product and the UCP, in particular article 5 and sub-articles 14 (a) and (h).
Subject to the comment made in the analysis, the documents were compliant at the time of presentation to the issuing bank, and the issuing bank was required to reimburse the nominated bank in accordance with UCP 600 sub-article 7 (c).
UCP 600 sub-article 28 (e) and article 28
Was an insurance document discrepant for a missing issuance date or effectiveness date, or could the countersignature date be taken as the effective date of the policy?
Query [TA 732]
An insurance policy shows at the bottom, in preprinted wording: "Not valid unless countersigned by the insured or the insurance company" and underneath: "Countersigned at . (blank) Date: 13/10/2009". The document has been properly countersigned.
There is no issuance or effectiveness date shown on the document. The shipment date is the same as the countersignature date, i.e., 13/10/2009.
Is the document discrepant for a missing issuance date or effectiveness date, or may the countersignature date be taken as the effective date of the policy and is the policy acceptable?
Sub-article 28 (e) states that the date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.
In this context, the first sentence of ISBP publication 681 paragraph 13 states that drafts, transport documents and insurance documents must be dated even if a credit does not expressly so require.
The reference to "date" in sub-article 28 (e) and ISBP publication 681 paragraph 13 is not confined merely to the issuance date of a document, but can also include a date upon which a document becomes effective or valid.
The date of the countersignature is the date that the insurance becomes valid (or effective) and is to be taken into consideration by banks when determining compliance with the terms and conditions of the credit and UCP 600 article 28.
Absent any other date stated to be an issuance date or effective date of insurance, the countersignature date serves as evidence of the effective date of the insurance coverage. The document is compliant.
UCP 600 Miscellaneous
Where a credit required a document to be issued in more than one language
Query [TA 686rev]
We advised an L/C issued by a Country C Bank to a beneficiary in Country D. Under "Documents Required" the L/C states: "+copy of label printed both in English and Chinese". The L/C was issued in English.
When examining the document, we noted that one of the boxes on the document stated: "under 2 kg per piece". This was in accordance with other documents, the document itself and the credit as far as the English text goes. We are unable to read Chinese.
When presented to the issuing bank, the documents were refused, stating the following discrepancy: "Wrong translation in copy label about size". After consulting a Chinese-speaking person, we were informed that the Chinese text reads "above 2 kg per piece".
We would appreciate having the opinion of the Banking Commission.
The letter of credit was issued in English and required as one of the stipulated documents "copy of label printed both in English and Chinese". English was the acceptable language to both the issuing bank and the nominated bank. Chinese, whilst an acceptable and understood language of the issuer, would not be a language that was acceptable or understood by the nominated bank if required to be adopted in the determination of compliance of a document.
By requiring the copy of the label to be in both languages, the principal language for the examination of documents by the nominated bank and issuing bank would be English, in line with the language of the credit. The nominated bank would be entitled to accept the Chinese version on an "as presented" basis without regard to its proper and consistent translation.
Where a credit requires a document to be issued in more than one language, the nominated bank would be advised to inform the issuing bank of the language that can be examined for compliance.
There is no discrepancy.