CAIIB-BFM-MODULE-A-Documentary Letters of Credit-Cont'd.. Documentary Letters of Credit 31. Definitions and Interpretations (Articles 2 and 3): A new section of Definitions and Interpretations has been introduced in the UCP 600. This includes definitions of "Advising bank", "Applicant", "Banking day", "Beneficiary", "Complying presentation", "Confirmation", "Confirming bank", "Credit", "Honour", "Issuing bank", "Negotiation", "Nominated bank", "Presentation", "Presenter". In addition to that, the following terms are now clearly defined : "singular/plural", "irrevocable", "signatures", "legalizations", "Branches of a bank", "Terms describing issuer of a document", "Prompt etc", "on or about", "to", "until", "till", "from", "between", "before", "from", "after", "first half", "second half", "beginning", "middle", "end".
32. Deferred payment undertakings - Articles 7 and 8 :. Articles 7 and 8 establish a definite undertaking by issuing and confirming banks to reimburse on maturity whether or not the nominated bank prepaid or purchased its own acceptance or deferred payment undertaking before maturity.
33. Article 12(b) expressly provides authority from an issuing bank to a nominated bank to discount prepay or purchase) a draft that it has accepted or a deferred payment undertaking that it has given.
34. Advising of credits - Article 9: At present an advising bank only has to verify the apparent authenticity of the credit that it has advised. Under art 9(b) it has to certify that the document that it advises to the beneficiary is the same document that it received. The obligation is also extended to any second advising bank.
35. Amendments - Article 10:- The position under article 9(d)(iii) of UCP 500 has been maintained in Article 10 under UCP 600. Article 10 now deals exclusively with amendments and article 10(c) provides: '… 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.
36. Time Allowed Banks for Document Review (Article 14) :- Under UCP 500, banks have a "reasonable time … not to exceed seven banking days" in which to honor or dishonor documents. UCP 600 shortens the period to a maximum of five "banking days".
37. Article 2 defines a banking day as "a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed."
38. Non-Matching Documents (Article 14):- Article 14(d) provides the standard for examination of documents generally.
39. Regarding addresses on the various documents, Article 14 indicates that they do not have to exactly match as long as the country is the same. The only exception is when addresses appear as part of the consignee or notify party details on a transport document, in which case they must be the same as stated in the credit.
40. Examination of documents: The standard for examining documents is reflected in article 14. Banks now only have 5 banking days to accept or refuse documents. This replaces the "Reasonable time not exceeding 7 banking days".
41. The period for presentation (usually 21 days) only applies to original transport documents.
42. Addresses of beneficiaries and applicants need no longer be as mentioned in the documentary credit. They must however be within the same country.
43. Non-Documentary Requirements: - Under UCP 600, Banks should disregard all non-documentary requirements. This means that any requirement in the credit that is not specifically part of a required document will be ignored by the bank in determining conformity.
44. Complying presentation - article 15:- Under UCP 600 it is clear that this begins when the bank determines that a presentation is compliant.
45. Discrepant documents, waiver and notice - Article 16:- Under UCP 500 a bank which refuses documents has the option of holding them at the presenter's disposal or handling them in accordance with the presenter's prior instructions, such as to return them. Article 16 now encompasses additional options designed to avoid banks sitting on discrepant documents and issues relating to forced waivers. The options (which are alternatives) are as follows: # Hold documents pending further instructions from the presenter; or # Hold documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or return the documents; or act in accordance with instructions previously received from the presenter. There is no provision for payment under reserve or indemnity.
46. Original Documents (Article 17):- Article 17 of the new rules attempts to define original documents with more precision.
47. Transport documents: Articles 19-24:- The transport articles have been redrafted under advice of a group of "transport experts". The requirement that a bill of lading must show that goods are shipped on board a named vessel has been made much simpler which will hopefully lead to less confusion.
48. It is now acceptable that a "Charterer" (or a named agent on behalf of the charterer) can sign a Charter Party Bill of Lading. If an agent signs on behalf of a "Master" on a Charter Party Bill of Lading then the name of the master need not appear from the document.
49. Under UCP 600 a generic set of rules generally applies to all transport documents (other than charter party bills of lading). These include the following: # The document must indicate the name of the carrier and be signed by: (a) the carrier or named agent for or on behalf of the carrier; or (b) the master or named agent for or on behalf of the master. # Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent. # Any signature of an agent must indicate whether the agent has signed for or on behalf of the carrier for or on behalf of the master. # There is no need to name the master. # In the case of charter party bills of lading : # These no longer need to indicate the name of the carrier. # They may now also be signed by the charterer, although it is difficult to envisage a situation where an FOB buyer/ applicant would wish to rely on a bill of lading signed by the seller/beneficiary and vice versa in the case of a CIF sale. # Transport documents also no longer need to bear the clause 'clean' in order to comply with any credits that require a document to be 'clean on board'.
50. Insurance documents - article 28:- Documents providing for wider coverage than stipulated in a credit will be acceptable. Banks will also be able to accept an insurance document that contains reference to any exclusion clause.
51. For the insurance documents the following has been changed: "Proxies" can now sign on behalf of the insurance company or underwriter.
52. Force majeure - Article 36:-Despite suggestions for an option to allow a grace period of five banking days after a bank reopens for the presentation of documents, the position remains as it was under UCP 500 -i.e. banks will not honour or negotiate under a credit that expired during the force majeure event.
53. It is the responsibility of the Negotiating bank to examine the documents, before making payment.
54. In case the advising bank does not advise the LC, it must inform of its decision to the Opening Bank immediately.
55. The advising bank must ensure the authenticity of LC before advising the same to the beneficiary.
56. In case the reimbursing bank does not pay to the negotiating bank, the ultimate liability lies with the opening bank.
57. Important documents called for under the Letter of Credit : a. Bill of Exchange b. Invoice c. Bill of Lading d. Insurance Policy/Certificate e. Certificate of Origin f. Packing List, Weight List and other Documents
58. Bill of exchange is drawn by the Beneficiary on the LC issuing Bank.
59. Invoice is a commercial Document and is a basic necessity of trade documents. It is being prepared by the Beneficiary
60. If invoice is issued for an amount in excess of the amount permitted by credit (when not specifically prohibited by the terms of LC), as per Article 18 B of UCPDC, the drawing should not exceed the amount of credit. 61. Bill of Lading is a transport document evidencing movement of goods from the port of acceptance to port of destination. It is a receipt issued by the ship owner or its authorized agent.