Understanding Key Rules of UCP 600 and ISBP

Interpretation and Application of
UCP 600 Part 1

XXV Latin American Foreign Trade Congress - CLACE
Guatemala
June 3-5, 2009
Gary Collyer
Collyer Consulting LLP
1
Applying UCP 600 and ISBP
Understanding the main rules of

UCP 600 and a review of the
important and critical opinions given
under UCP 600

UCP 600 article 1 - Application of UCP
Concept of Modify or Exclude;

No reference to unless otherwise stipulated in the credit throughout
UCP 600;
UCP applicable when the LC expressly indicates that it is subject to
these rules; and
Retention of Standby Letters of Credit.
There is a need to understand the concept of modification and

exclusion and when it is appropriate or not.

UCP 600 article 2 - Definitions
Negotiation:
the purchase by the nominated bank of

drafts (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.
Q. What is agreeing to advance?
Q. Why no reference to recourse?
Q. Why on or before the banking day reimbursement is due .?
4

Understanding recourse
Having confirmed a LC, the confirming bank has no right of recourse to the
beneficiary in the event of default by the issuing bank, or the issuing bank
subsequently identifying discrepancies that were not determined by the confirming
bank.
But what form of recourse is available where the documentary credit is not
confirmed?
Recourse when the issuing bank fails to provide reimbursement according to the
terms of the credit citing bankruptcy, lack of foreign exchange, Government
intervention etc.
and (?)
When the issuing bank identifies discrepancies in documents that the nominated
bank failed to determine.

Understanding recourse LC available by Honour with a nominated bank
(not confirmed)
Honour is to:
Pay, if the LC is available by sight payment;
Accept a draft drawn on the bank, if the LC is available by acceptance; or
Incur a deferred payment undertaking, if the LC is available by deferred

payment.
To pay, accept or incur a deferred payment undertaking is a commitment on

the part of the nominated bank and is considered without recourse to the
Beneficiary. For payment LCs a separate recourse agreement may,
however, be made with the beneficiary

UCP 600 article 6 - Availability, Expiry Date and Place for Presentation
Sub-article 6 (a):
A credit must state the bank with which it is available or whether it
is available with any bank. A credit available with a nominated bank
is also available with the issuing bank.
Q.
Q.
Q.
Why allow any form of LC to be available with any bank?

Is it really possible under each type of availability for a LC to be
available with any bank?
What is the value to a beneficiary of a LC available with any bank?

Understanding the correct form of availability
with an issuing bank;
with a confirming bank;
with a nominated bank;
with an issuing bank and confirming/nominated bank;
with issuing/confirming bank for expiry and nominated bank for

honour or negotiation;
for presentation only.
Banks need to understand availability and what it means in each transaction.

8

Sub-article 7 (c) ICC Opinion TA. 674 approved March 2009
The conclusion to this opinion (as to the effect of extending a maturity date
of a draft or deferred payment undertaking) includes:
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 not required then
the draft must be re-accepted to mature on the new agreed maturity date
(where the credit is available by acceptance with the confirming bank); or
a new or amended deferred payment undertaking must be incurred to reflect
the new agreed maturity date (where the credit is available by deferred
payment with the confirming bank).
continued
9

Sub-article 7 (c) ICC Opinion TA. 674 approved March 2009
The conclusion to this opinion (as to the effect of extending a maturity date
of a draft or deferred payment undertaking) concludes by saying:
By complying with the above, and in line with the definition of honour in
article 2, i.e.,
b. to incur a deferred payment undertaking and pay at maturity if the credit
is available by deferred payment; and
c. to accept a bill of exchange (draft) drawn by the beneficiary and pay at
maturity if the credit is available by acceptance,
the obligation of the issuing bank to reimburse the nominated (confirming)
bank, according to sub-article 7 (c), extends to the new agreed maturity
date.
10

Understanding the risks when acting in a non-nominated capacity
It is often the case that a bank will act for its client under a transaction
where they are not stated to be the nominated bank or the LC is not
designated as being available with any bank.
The issuing bank must still honour a complying presentation made by that nonnominated bank, but the issuing bank may seek confirmation from a named
nominated bank (of no prior payment) before honouring;
The non-nominated bank has no greater protection from UCP 600 as does the
beneficiary in the delivery of documents to the issuing bank article 35 would not
apply.
The examination of documents by the non-nominated bank carries no value within the
context of UCP 600 and any settlement thereunder is outside the scope of UCP 600.
11

Adding confirmation what is possible and what needs to be observed
considerations to add confirmation;
reduced expiry;
reduced amount;
determining confirmation of 100% where a split schedule is included in

the LC;
more than one confirming bank.
The basic rule for a bank requested to confirm is do I understand what I am

confirming and the risks that I am undertaking
12

UCP 600 article 9 - Advising of Credits and Amendments
Concept of 2nd Advising Bank;

Bank now satisfies itself as to the apparent authenticity; and
Advice of LC or amendment accurately reflects the terms and
conditions of the LC or amendment received.
Are instructions to confirm addressed to the advising bank and/or the

second advising bank that is stated in the LC?
What is satisfying itself as to the apparent authenticity?
What are the risks of not passing to the beneficiary what was received?
13

UCP 600 article 10 Amendments
Sub-article 10 (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.
Q. Effect of banks requesting a beneficiary certificate certifying as to which
amendments have been accepted or rejected.
14

UCP 600 article 10 - Amendments
Let us review the circumstances of a LC:

LC issued for USD25,000 covering shipment of nuts and bolts.
Partial shipment allowed.
Amendment received reducing amount to USD15,000
Beneficiary subsequently presents documents for USD15,000 and the LC is
valid for another 5 weeks.
Has the amendment been accepted or has a partial shipment been effected?
15

Nomination and acting under a nomination
Consider the UCP 600 position in article 12:

Nominated bank may obligate itself under an unconfirmed credit if expressly
communicated to beneficiary.
Receipt or examination and forwarding of documents does not constitute
honour or negotiation.
Q. what is nomination?
Q. what is a nominated bank acting on its nomination?
16

What constitutes an express communication to the beneficiary?
Silent Confirmation agreement
Agreement or Commitment to Negotiate/Purchase/Honour etc.
An indication, in any written communication to the beneficiary, that the

bank will honour or negotiate - as opposed to a statement on a
covering advice to the LC that states something like This credit is
available with us by negotiation.
17

UCP 600 article 12 - Nomination
Sub-article 12 (b):
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.
Note:
Only applicable where nominated bank accepts a draft or incurs a
deferred payment undertaking.
An authorization not an obligation to prepay or purchase.
18

UCP 600 article 14 - Standard for Examination of Documents
Sub-article 14 (a):
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.
Q. What is the scope of check on the basis of the documents alone?
19

Sub-article 14 (b):
A nominated bank acting on its nomination, a confirming bank, if any,
and the issuing bank shall each have a maximum of five banking days
following the day of presentation to determine if a presentation is
complying. 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.
Q.
Q.
Removal of reasonable time but does not maximum give a reasonable

time?
Can a beneficiary hold a nominated bank responsible if the documents
are presented 2 days prior to expiry but examined 2 days after expiry and
discrepancies are found that the beneficiary is now unable to correct?
20

Sub-article 14 (d):
Data in a document, when read in context with the credit, 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 credit.
Note:
No reference to inconsistency.
Data need not be identical, but must not conflict.
21

Sub-article 14 (d):
LC calls for shipment of 5000 MT Stainless Steel Coils
Invoice states 5000 MT Stainless Steel Coils
Certificate of Origin states Stainless Steel Coils
Bill of Lading states 5000 MT Coils
Data is not identical but is it conflicting?
22

Sub-article 14 (d):
LC calls for shipment of 5000 MT Stainless Steel Coils
Invoice states 5000 MT Stainless Steel Coils
Certificate of Origin states Stainless Steel Coils
Bill of Lading states 5000 MT Aluminium Coils
23

Sub-article 14 (d):
LC calls for shipment of 5000 MT Rice of Indian and Sri Lankan origin
Partial shipments allowed
First drawing:
Invoice states 3500 MT Rice Indian Origin
Certificate of Origin states Rice Indian Origin
Bill of Lading states 3500 MT Rice
24

Sub-article 14 (f):
If a credit requires presentation of a document other than a transport
document, insurance document or commercial invoice, without stipulating by
whom the document is to be issued or its data content, banks will accept the
document as presented if its content appears to fulfil the function of the
required document and otherwise complies with sub-article 14 (d).
Q. What are the requirements for a document to appear to fulfil its
function?
Q. Are document checkers supposed to become experts in
documentation?
25

Sub-article 14 (f):
How to determine a document fulfils the function of the required document?
LC requires presentation of Inspection Certificate and Certificate of Analysis
(no other details given).
Inspection Certificates states We hereby certify that we have inspected
[STOP RIGHT HERE]
Analysis Certificate states We have analysed the consignment [STOP
RIGHT HERE]
the documents fulfil the function by the opening statements. The remainder
of the document is subject to review according to sub-article 14 (d).
26

UCP 600 article 14 Standard for Examination of Documents
Sub-article 14 (h)
If a credit contains a condition without stipulating the document to
indicate compliance with the condition, banks will deem such
condition as not stated and will disregard it.
Issues:
1. Understanding the impact on the applicant
2. Ability of the issuing bank to enhance the wording in the LC
3. Action required by the beneficiary
4. Examination of such terms by a nominated bank
27

Sub-article 14 (h) ICC Opinion TA. 644 approved April 2008
The conclusion to this opinion (as to the effects of a non-documentary

condition that is misstated in one or more documents) includes:
According to sub-article 14 (h), banks will deem a non-documentary
condition as not stated, (on the basis that there is no necessity for
the beneficiary to provide any evidence of compliance) and will
disregard it. Should the beneficiary, nevertheless, elect to insert
such data on any other stipulated document then they must ensure
that it does not conflict with the data in the credit. The view of the
Banking Commission is that sub-article 14 (h) is not absolute and is
qualified by the content of sub-article 14 (d).
28

Sub-article 14 (h) ICC Opinion TA. 644 approved April 2008
Simple examples to demonstrate the effect of the opinion given in TA.644:LC states in additional conditions:
Vessel must be less than 25 years old.
Goods must be packed in 25KG steel drums with red stripe
Bill of Lading includes within the body of the document Vessel built in 1980
Packing list states Goods packed in heavy duty plastic drums with red
stripe
In both instances, the documents would be discrepant.
29

Sub-article 14 (j):
When the addresses of the beneficiary and the applicant appear in any
stipulated document, they need not be the same as those stated in the credit
or in any other stipulated document, but must be within the same country as
the respective addresses mentioned in the credit. Contact details (telefax,
telephone, email and the like) stated as part of the beneficiarys and the
applicants address will be disregarded. However, when the address and
contact details of the applicant appear as part of the consignee or
notify party details on a transport document subject to articles 19, 20, 21, 22,
23, 24 or 25, they must be as stated in the credit.
Q. Addresses must appear on every document, even if different?
Q. Is any address required at all?
30

UCP 600 article 19 - ICC Opinion TA. 650 approved April 2008
The conclusion to this opinion (enquiring as to the need for an on

board notation on a MMTD type document) includes:
A dated on board notation is clearly required when the credit so requests. It
is also required when the document evidences the first leg of the carriage as
a sea shipment from the place stated in the credit.
Where a transport document is pre-printed shipped on board then the date of
issuance would be deemed to be the date of shipment. When the document
evidences the first leg of the carriage as a sea shipment from the place
stated in the credit, there is a need for evidence of the date the goods were
shipped on board i.e., pre-printed or by notation.
31

UCP 600 - ICC Opinion TA. 675 approved March 2009 regarding release of cargo
clauses
This opinion draws a line between the data that is to be examined for
compliance and that data which is considered to be terms and
conditions of carriage.
For example, data referring to the on board nature of the bill of lading
is to be examined. However, data referring to the action of the carrier
in the release of the cargo is considered to be terms and conditions
of carriage.
32

UCP 600 article 20 - ICC Opinions TA. 635 approved October 2007
and TA.665 & 667 approved October 2008
There is no wording in UCP 600 that is similar to that which

appeared in UCP 500 sub-article 23 (a) (ii), but .
The conclusions to the above opinions include:
Unless it is evident from the bill of lading that the shipped on board
statement applies to the vessel and the port of loading, the bill of lading will
require an on board notation showing the port of loading and the name of the
vessel, even if the goods are loaded on the vessel named in the bill of
lading.
33

UCP 600 articles 20 and 21 - Bill of Lading / Non-Negotiable Sea Waybill
For example:
LC requires shipment from Rotterdam to Puerto Quetzal
Bill of lading shows:
Pre-carriage
[blank]
Place of receipt Amsterdam
Ocean vessel
River Sun
Port of loading
Rotterdam
Port of discharge Puerto Quetzal
BL marked Shipped on board 25 May 2009 Is this okay?
34

For example:
Pre-carriage
[blank]
Place of receipt Rotterdam CY
Ocean vessel
River Sun
Port of loading
Rotterdam
35

Revised wording:
If the bill of lading [non-negotiable sea waybill] does not indicate the port of
loading stated in the credit as the port of loading, or if it contains the
indication intended or similar qualification in relation to the port of loading,
an on board notation indicating the port of loading as stated in the credit, the
date of shipment and the name of the vessel is required. This provision
applies even when loading on board or shipment on a named vessel is
indicated by pre-printed wording on the bill of lading [non-negotiable sea
waybill].
36

For example:
Pre-carriage
River Sun
Place of receipt Rotterdam
Ocean vessel
River Moon
Port of loading
Dubai
37

UCP 600 article 22 - ICC Opinion TA. 662 approved October 2008
The conclusion to this opinion states that any indication of a charter

party will be considered as making the transport document a charter
party bill of lading for the purposes of UCP 600. This applies even if the
transport document otherwise complies with article 20.
For example, wordings such as:
Issued pursuant to charter party dated [no date]
Freight paid as per charter party
will be considered as evidence of an indication of a charter party
even if the charter party reference or date is not inserted.
38

UCP 600 article 22 - ICC Opinion TA. 683 approved April 2009
Does a credit that requires the presentation of a charter party bill of lading
and the respective charter party contract modify the rule in sub-article 22 (b)
that says A bank will not examine charter party contracts, even if they are
required to be presented by the terms of the credit? Is a bank required to
examine, cursorily or otherwise, to establish that the contract relates to the
charter party bill of lading?
The conclusion to both these questions was NO. The objective of sub-article
22 (b) is to discourage the requirement for the contract to be presented in
the first place.
39

Documentary Credits allowing different forms of transport/transport document
The conclusion to ICC opinion TA.641 refers to situations where the LC

allows for various forms of transport document i.e., in the case of the
opinion, consignment notes, bill of lading or forwarding agents receipt
evidencing shipment from Gdynia, Gdansk or Swinoujscie to Russia, and
states:
It should be noted that the credit, in allowing for different forms of delivery,
should have provided for the individual requirements where consignment
notes, bills of lading or a goods receipt were to be presented.
40

UCP 600 article 31 - Partial Drawings or Shipments
A presentation consisting of more than one set of transport documents

evidencing shipment commencing on the same means of conveyance
and for the same journey, provided they indicate the same destination,
will not be regarded as covering a partial shipment, even if they
indicate different dates of shipment or different ports of loading, places
of taking in charge or dispatch.
(b) Clarification given that in the case of multiple presentations, on same
means of conveyance and same journey, latest date = date of shipment;
and
(b) Clarification where more than one means of conveyance used within
the same mode of transport (i.e., 2 trucks) and one or more sets of
transport documents presented = partial shipment.
41

UCP 600 article 35 Disclaimer on Transmission
and Translation
If a nominated bank determines .. an

issuing bank or confirming bank must honour
or negotiate, or reimburse ., 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.
Q.
Q.
Q.
Honour without documents?

Insist on replacement originals?
Insist on copies being provided?
42

Documentary Credits stating that issuing bank charges are for account of the
beneficiary
The conclusion to ICC opinion TA.659 states, where a credit specifies that
the issuing banks charges (except issuance fees) are also for account of the
beneficiary:
The credit stated that all banking charges except those related to the
opening were for the account of the beneficiary. If the issuing bank wishes to
make a deduction from the proceeds in respect of their fees, then the credit
should clearly indicate the amount or percentage of charges that will be
deducted. It will then be for the beneficiary to decide whether it will perform
under the credit with such a charge for its account.
43
Thank You
Contact : Gary Collyer, Collyer Consulting LLP
Email : gary@collyerconsulting.com
44

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Interpretation and Application of

UCP 600 Part 1

Applying UCP 600 and ISBP

Understanding the main rules of

Applying UCP 600 and ISBP

Concept of Modify or Exclude;

There is a need to understand the concept of modification and

Applying UCP 600 and ISBP

the purchase by the nominated bank of

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Accept a draft drawn on the bank, if the LC is available by acceptance; or

Incur a deferred payment undertaking, if the LC is available by deferred

To pay, accept or incur a deferred payment undertaking is a commitment on

Applying UCP 600 and ISBP

Why allow any form of LC to be available with any bank?

Applying UCP 600 and ISBP

with an issuing bank;

with a confirming bank;

with a nominated bank;

with an issuing bank and confirming/nominated bank;

with issuing/confirming bank for expiry and nominated bank for

for presentation only.

Banks need to understand availability and what it means in each transaction.

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

considerations to add confirmation;

determining confirmation of 100% where a split schedule is included in

more than one confirming bank.

The basic rule for a bank requested to confirm is do I understand what I am

Applying UCP 600 and ISBP

Concept of 2nd Advising Bank;

Are instructions to confirm addressed to the advising bank and/or the

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Let us review the circumstances of a LC:

Applying UCP 600 and ISBP

Consider the UCP 600 position in article 12:

Applying UCP 600 and ISBP

Silent Confirmation agreement

Agreement or Commitment to Negotiate/Purchase/Honour etc.

An indication, in any written communication to the beneficiary, that the

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Removal of reasonable time but does not maximum give a reasonable

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

The conclusion to this opinion (as to the effects of a non-documentary

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

Applying UCP 600 and ISBP

The conclusion to this opinion (enquiring as to the need for an on

Applying UCP 600 and ISBP