UCP 600 and Its Legal Aspects

UCP 600 and Its Legal Aspects

Dr. Ramlan Ginting 2013

UCP 600 and Its Legal Aspects, Dr. Ramlan Ginting, 2007

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Letter of Credit

bank obligation to pay

SellerBuyer

Issuing BankCorrespondent

Bank

sales contract

shipment

contract to issue L/C

L/C

agency contract

L/C advice


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Status of the UCP 600

A set of contractual rules Universal acceptance by practitioners (uniformity in

practice) The most successful set of private rules for trade The sixth revision


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Application of UCP

under UCP 600, Article 1

The Uniform Customs and Practice for

Documentary Credits, 2007 Revision, ICC Publication No. 600 (“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. They are binding on all parties thereto unless expressly modified or excluded by the credit

Credit = L/C


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Meaning of Honour under UCP 600, Article 2

To pay at sight To incur a deferred payment undertaking and pay at

maturity To accept a bill of exchange drawn by the

beneficiary and pay at maturity

Payment on deferred payment undertaking could be based on the Law on Promissory Note

Payment by acceptance is in compliance with the Law on Bill of Exchange, not the UCP


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Meaning of Negotiation under UCP 600, Article 2, cont…

The purchase by the nominated bank of draft (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

The purchase of a draft is in compliance with the Law on Bill of Exchange, not the UCP


7

Independent Contracts Rule under UCP 600, Article 4

L/C is a separate transaction from the sale or other contract

The undertaking of a bank to honour, to negotiate or to fulfill any other obligation under the L/C is not subject to claims or defenses by the applicant resulting from its relationships with the issuing bank or the beneficiary


8

Independent Contracts Rule under UCP 600, Article 4, cont…

A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the applicant and the issuing bank

The Independent Contracts Rule is also in compliance with the Law on Letter of Credit


9

Document Compliance Rule under UCP 600, Article 5

Banks deal with documents and not with goods, services or performance to which the documents may relate

Doctrine of Not In Contradiction (the UCP 600) Doctrine of In Compliance (the UCP 500) Doctrine of Strict Compliance (the Law on Letter of Credit)


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Availability of L/C under UCP 600, Article 6

L/C must state the bank with which it is available, or L/C may be available with any bank

L/C available with a nominated bank is also available with the issuing bank


11

Expiry Date for Presentation under UCP 600, Article 6, cont…

L/C must state an expiry date for presentation

An expiry date stated for honour or negotiation will be deemed to be an expiry date for presentation


12

Place for Presentation under UCP 600, Article 6, cont…

The place of the bank with which the L/C is available is the place for presentation

The place for presentation under L/C available with any bank is that of any bank

The place of presentation is also the place of the issuing bank


13

Issuing Bank Undertaking under UCP 600, Article 7

The issuing bank must honour a complying presentation if the credit is available by sight payment, deferred payment or acceptance with the issuing bank

The issuing bank must honour if the credit is available by sight payment, deferred payment, acceptance or negotiation with a nominated bank and that nominated bank does not perform its nomination


14

Issuing Bank Undertaking under UCP 600, Article 7, cont…

Issuing bank is irrevocably bound to honour as of the time it issues the L/C

Issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank


15

Issuing Bank Undertaking under UCP 600, Article 7, cont…

Reimbursement under the L/C available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity

Issuing bank’s undertaking to reimburse a nominated bank is independent of the issuing bank’s undertaking to the beneficiary


16

Confirming Bank Undertaking under UCP 600, Article 8

Confirming bank must honour a complying presentation if L/C is available by sight payment, deferred payment or acceptance with the confirming bank

Confirming bank must honour a complying presentation if L/C is available by sight payment, deferred payment, acceptance or negotiation with another nominated bank and that nominated bank does not perform its nomination


17

Confirming Bank Undertaking under UCP 600, Article 8, cont…

Confirming bank must negotiate a complying presentation, without recourse, if the L/C is available by negotiation with the confirming bank

Confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the L/C

Confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank


18

Confirming Bank Undertaking under UCP 600, Article 8, cont…

Reimbursement under the L/C available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity

Confirming bank’s undertaking to reimburse another nominated bank is independent of the confirming bank’s undertaking to the beneficiary


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Advising of L/C and Amendment under UCP 600, Article 9

L/C and its amendment may be advised to a beneficiary through an advising bank

Advising bank advises the L/C and its amendment without any undertaking to honour or negotiate

Advising bank could be as confirming bank Advising bank signifies that it has satisfied itself as

to the apparent authenticity of the L/C or amendment and that the advice accurately reflects the terms and conditions of the L/C or amendment


20

Advising of L/C and Amendment under UCP 600, Article 9, cont…

Advising bank may utilize the services of second advising bank to advise the L/C and any amendment to the beneficiary

The second advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the L/C or amendment

Advising of L/C and Amendment under UCP 600, Article 9, cont…

The advising bank that cannot satisfy itself as to the apparent authenticity of the L/C, the amendment or the advice, must so inform, without delay, the bank from which the instructions appear to have been received. If the advising bank elects to advise the L/C or amendment, it must inform the beneficiary (or second advising bank) that it has not been able to satisfy itself.


22

Amendments under UCP 600, Article 10

L/C can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, and the beneficiary

A confirming bank may extend its confirmation to an amendment

The beneficiary is required to communicate its acceptance of the amendment to the bank that advised such amendment by notification of acceptance or rejection

A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection


23

Teletransmitted and Pre-Advised Credits and Amendments


An authenticated teletransmission of L/C or amendment will be deemed to be the operative L/C or amendment, except the teletransmission states others

A pre-advice of L/C or amendment shall only be sent if the issuing bank is prepared to issue the operative L/C or amendment


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Nomination under UCP 600, Article 12

Nominated bank may honour or negotiate a complying presentation, but confirming bank as a nominated bank must honour or negotiate

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

Banco Santander SA vs Banque Paribas is the basis of rule for discounting the deferred

payment undertaking


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Bank-to-Bank Reimbursement under UCP 600, Article 13

L/C may state that reimbursement is to be obtained by a nominated bank claiming on reimbursing bank. In this regard, the L/C must state if the reimbursement is subject to the ICC Rules for Bank-to-Bank Reimbursements in effect on the date of issuance of the L/C

If the L/C does not state that reimbursement is subject to the ICC Rules for Bank-to-Bank Reimbursements, then Article 13b of the UCP 600 that stipulates reimbursement shall apply

Bank-to-Bank Reimbursement

under UCP 600, Article 13, cont…

Issuing bank is not relieved of any of its obligations to provide reimbursement if reimbursement is not made by a reimbursing bank on first demand


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Standard for Examination of Documents under UCP 600, Article 14

Nominated bank, confirming bank, and issuing bank must examine a presentation to determine a complying presentation under ‘on their face’ rule.

Nominated bank, confirming bank, and issuing bank shall each have a maximum of five banking days following the day of presentation to determine a complying presentation.

This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.


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Standard for Examination of Documents under UCP 600, Article 14, cont…

Presentation must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment, but not later than the expiry date of the L/C


29


Data in a document, when read in context with the L/C, 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 L/C

In documents other than the commercial invoice, the description of the goods, services or performance may be in general terms not conflicting with their description in the L/C


30


A document may be dated prior to the issuance date of the L/C, but must not be dated later than its presentation date


31


The addresses of the beneficiary and the applicant in any document need not be the same as those in the L/C or other document, but must be within the same country as the respective addresses in the L/C

The shipper or consignor of the goods need not be the beneficiary


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Complying Presentation under UCP 600, Article 15

Issuing bank must honour a complying presentation

Confirming bank must honour or negotiate a complying presentation and forward the documents to the issuing bank

Nominated bank that honours or negotiates a complying presentation must forward the documents to the confirming bank or issuing bank


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Discrepant Documents, Waiver and Notice under UCP 600, Article 16

Nominated bank, confirming bank, or issuing bank may refuse to honour or negotiate a non-complying presentation

Issuing bank may, in its sole judgment, approach the applicant for a waiver of discrepancy


34

Discrepant Documents, Waiver and Notice under UCP 600, Article 16, cont…

Nominated bank, confirming bank or issuing bank that decides to refuse to honour or negotiate a non-complying presentation must give a single notice to that effect to the presenter no later than the close of the fifth banking day following the day of presentation


35


Single notice, must state:

a. a bank is refusing to honour or negotiate, and

b. discrepancy as the basis of the refusal of the

bank, and


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c. a bank is holding the documents pending further instructions from the presenter; or the issuing bank is holding the documents untill receiving a waiver from the applicant and agreeing to accept it, or receiving further instructions from the presenter prior to agreeing to accept a waiver; or the bank is returning the documents; or the bank is acting in accordance with instructions previously received from the presenter


37


Issuing bank or confirming bank that fails to act in accordance with the provisions of Article 16 of the UCP 600, shall be precluded from claiming that the documents do not constitute a complying presentation


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Discrepant Documents, Waiver and Notice


Issuing bank that refuses to honour or confirming bank that refuses to honour or negotiate and has given notice to that effect in accordance with the provision of Article 16 of the UCP 600, shall be entitled to claim a refund, with interest, of any reimbursement made


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Original Documents and Copies under UCP 600, Article 17

At least one original of each document must be presented

Requirement of the copy of documents is fulfilled by presentation of either originals or copies

Requirement of multiple documents (in duplicate, in two fold, in two copies) is fulfilled by the presentation of at least one original and the remaining number in copies, except when the document itself indicates otherwise.


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Commercial Invoice under UCP 600, Article 18

Commercial invoice must appear to have been issued by the beneficiary (except in case of transferable L/C), must be made out in the name of the applicant (except in case of transferable L/C), must be made out in the same currency as the L/C, and need not be signed


41

Commercial Invoice under UCP 600, Article 18, cont…

Nominated bank, confirming bank, or issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the L/C, provided the bank in question has not honoured or negotiated for an amount in excess of that permitted by the L/C

Description of the goods, services or performance in a commercial invoice must correspond with that appearing in the L/C


42

Transport Document under UCP 600, Articles 19, 20, and 21

Indication of the name of the carrier Be signed by the carrier, master, or agent Signature must be identified No name of master needed when the agent signed Sole original transport document, or full set No indication subject to a charter party Indication of transhipment


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Transport Document under UCP 600, Articles 22

Indication of a charter party Be signed by the master, owner, charterer, or agent Signature must be identified Indication of the name of the owner or charterer

needed when the agent signed Sole original charter party bill of lading, or full set


44


Indication of the name of the carrier Be signed by the carrier or agent Signature must be identified Sole original transport document, or full set The original for consignor or shipper Indication of transhipment


45


Indication of the name of the carrier Be signed by the carrier or agent Signature must be identified Sole original transport document, or full set Indication of transhipment


46


Courier receipt Indication of the name of the courier service Be stamped or signed by the named courier service

Post receipt or certificate of posting Be stamped or signed


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“On Deck”, “Shipper’s Load and Count”, “Said by Shipper to Contain” and Charges Additional to Freight

under UCP 600, Articles 26

A transport document must not indicate that the goods are or will be loaded on deck

A transport document bearing a clause such as “shipper’s load and count” and “said by shipper to contain” is acceptable

A transport document may bear a reference, by stamp or otherwise, to charges additional to the freight


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Insurance Document and Coverageunder UCP 600, Article 28

Insurance document, such as an insurance policy, an insurance certificate or a declaration under open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies

When the insurance document indicates that it has been issued in more than one original, all originals must be presented


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Insurance Document and Coverageunder UCP 600, Article 28, cont…

Cover note will not be accepted

The date of the insurance document must be no later than the date of shipment


The insurance document must indicate the amount of insurance coverage and be in the same currency as the L/C

If there is no indication in the L/C of the insurance coverage, the amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods


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The insurance document must indicate that risks are covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the L/C


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Extention of Expiry Date or Last Day for Presentation


The expiry date of L/C or the last day for presentation that falls on a day when the bank to which presentation is to be made is closed, the expiry date or the last day for presentation will be extended to the first following banking day. However, the latest date for shipment will not be extended

Tolerance in Credit Amount, Quantity and Unit Prices


The words “about” or “approximately” used in connection with the amount or the quantity or the unit price in the L/C are to be construed as allowing a tolerance not to exceed 10% more or less to which they refer

A tolerance not to exceed 5% more or less than the quantity allowed, provided the total amount of the drawings does not exceed the amount of the L/C and the L/C does not state a stipulated number of packing units or individual items


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Tolerance in Credit Amount, Quantity and Unit Prices


Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the L/C is allowed, provided the full quantity of the goods is shipped and a unit price is not reduced. However, this tolerance does not apply when the L/C stipulates a specific tolerance.


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Partial Drawings or Shipmentsunder UCP 600, Article 31

Partial drawings or shipments are allowed Partial shipments versus non-partial shipments


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Instalment Drawings or Shipmentsunder UCP 600, Article 32

If a drawing or shipment by instalments within given periods is stipulated in the L/C and any instalment is not drawn or shipped within the period allowed for that instalment, the L/C ceases to be available for that and any subsequent instalment


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Hours of Presentationunder UCP 600, Article 33

A bank has no obligation to accept a presentation outside of its banking hours


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Disclaimer on Effectiveness of DocumentsUnder UCP 600, Article 34

A bank assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a document or superimposed thereon;


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Disclaimer on Effectiveness of DocumentsUnder UCP 600, Article 34, cont…

nor does it assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for the good faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee or the insurer of the goods or any other person

Fraud or Injunction is settled under the Law on Letter of Credit

Disclaimer on Transmission and Translationunder UCP 600, Article 35

A bank assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the L/C, or when the bank may have taken the initiative in the choice of delivery service in the absence of such instructions in the L/C


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Disclaimer on Transmission and Translationunder UCP 600, Article 35, cont…

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, the issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit

A bank assumes no liability or responsibility for errors in translation or interpretation of technical terms and may transmit L/C terms without translating them


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Force Majeureunder UCP 600, Article 36

A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control

A bank will not, upon resumption of its business, honour or negotiate under L/C that expired during such interruption of its business


62

Disclaimer for Acts of an Instructed Partyunder UCP 600, Article 37

A bank utilizing the services of another bank for the purposes of giving effect to the instructions of the appllicant does so for the account and at the risk of the applicant

An issuing bank or advising bank assumes no liability or responsibility should the instructions it transmits to another bank not be carried out, even if it has taken the initiative in the choice of that other bank


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Disclaimer for Acts of an Instructed Partyunder UCP 600, Article 37, cont…

A bank instructing another bank to perform services is liable for charges that are commissions, fees, costs or expenses incurred by that bank in connection with its instructions

The applicant shall be bound by and liable to indemnify a bank against all obligations and responsibilities imposed by foreign laws and usages


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Transferable L/C under UCP 600, Article 38

L/C is transferred upon approval of the transferring bank, and an issuing bank may be a transferring bank

Transferable L/C means L/C that specifically states it is “transferable”

Transferable L/C may be made available in whole or in part


66

Transferable L/C under UCP 600, Article 38, cont…

Transferred L/C means L/C that has been made available by the transferring bank to a second beneficiary at the request of the first beneficiary

L/C may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed

Transferred L/C cannot be transferred at the request of a second beneficiary to any subsequent beneficiary


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The transferred L/C must accurately reflect the terms and conditions of the L/C, including confirmation, if any, with the exception of : the amount the unit price the expiry date the period for presentation, or the latest shipment date or given period for

shipment,any or all of which may be reduced or curtailed


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The percentage of insurance cover may be increased to provide the amount of cover stipulated in the L/C or UCP 600


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The name of the first beneficiary may be substituted for that of the applicant in the L/C

If the name of the applicant is specifically required by the L/C to appear in any document other than the invoice, such requirement must be reflected in the transferred L/C


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Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank

Assignment of Proceedsunder UCP 600, Article 39

A beneficiary has a right to assign any proceeds to which it may be or may become entitled under the L/C, in accordance with the provisions of applicable law


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THANK YOU

UCP 600 and Its Legal Aspects

Documents

ramlan ginting

legal aspects

application of ucp

documentary credit credit

nominated bank of draft

standby letter of credit

document compliance

bill of exchange