UCP 600 Articles Explanation

UCP600 Article 36: Force Majeure Explained with Examples

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Clause 1:

Clause: “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.”

Explanation: This clause specifies that banks are not liable for any interruptions in their services caused by events that are beyond their control, commonly referred to as “force majeure” events. These events include natural disasters (Acts of God), social or political unrest (riots, civil commotions, insurrections), wars, acts of terrorism, and labor disputes (strikes or lockouts). The clause ensures that banks are protected from being held responsible for disruptions in their business due to these uncontrollable events.

Example: Imagine a bank in a country experiencing severe flooding due to a hurricane (an Act of God). The flooding disrupts the bank’s operations, making it impossible to process transactions or honor letters of credit. Under UCP600 Article 36, the bank is not liable for any financial losses or consequences that customers might face due to this interruption.

Clause 2:

Clause: “A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business.”

Explanation: This clause indicates that if a letter of credit expires while a bank’s operations are interrupted due to a force majeure event, the bank is not obligated to honor or negotiate the credit once it resumes business. This provision ensures that banks are not forced to process expired credits after their operations have been restored.

Example: Consider a bank that had to close its offices for two weeks due to a violent civil commotion in the city. During this period, a letter of credit that was issued by the bank expired. According to UCP600 Article 36, once the bank resumes its operations, it is not required to honor or negotiate the expired letter of credit. The beneficiary of the credit cannot demand payment or negotiation of the credit post-expiry due to the force majeure event that caused the interruption.

Understanding UCP600 Article 35 Explanation: Disclaimer on Transmission and Translation

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Clause 1:

Clause: 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 credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.

Explanation: This clause states that a bank is not responsible for any issues such as delay, loss, mutilation, or errors that occur during the transmission or delivery of messages, letters, or documents. This applies if the bank follows the delivery instructions specified in the credit or selects a delivery service on its own when no instructions are provided.

Example: Suppose an issuing bank sends the documents via courier service as specified in the credit terms. If the documents are delayed, lost, or damaged during transit, the bank is not liable for these issues as it followed the given instructions.

Clause 2:

Clause: If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, 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.

Explanation: This clause ensures that if a nominated bank finds that the presented documents comply with the credit terms and forwards them to the issuing or confirming bank, the issuing or confirming bank must honor or negotiate the credit. This obligation remains even if the documents are lost in transit between these banks.

Example: A nominated bank in Japan finds the documents presented under a letter of credit to be compliant and sends them to the issuing bank in the USA. Even if the documents are lost during transit, the issuing bank must still honor the credit and make the payment or reimburse the nominated bank.

Clause 3:

Clause: A bank assumes no liability or responsibility for errors in translation or interpretation of technical terms and may transmit credit terms without translating them.

Explanation: This clause states that banks are not liable for any errors in translating or interpreting technical terms. Banks may transmit credit terms as they are, without translating them into another language.

Example: An LC is issued in English with specific technical terms. The bank in a non-English speaking country transmits the terms as received without translating them into the local language. If there are misunderstandings due to the lack of translation, the bank is not responsible for any resulting issues.

UCP600 Article 34 Explanation: Disclaimer on Effectiveness of Documents

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Clause: Disclaimer on Effectiveness of Documents

A bank assumes 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; 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, the insurer of the goods, or any other person.

Explanation of Clause: Disclaimer on Effectiveness of Documents

Explanation: Article 34 of UCP600 clarifies that banks involved in the handling of documentary credits do not take on any liability or responsibility regarding the documents presented under a letter of credit. Specifically, banks are not responsible for verifying the form, completeness, accuracy, authenticity, or legal validity of the documents. They also do not concern themselves with any conditions mentioned within these documents, whether general or specific. Furthermore, banks are not accountable for the actual description, quantity, weight, quality, condition, packing, delivery, value, or even the existence of the goods, services, or performances referenced in the documents. Additionally, banks do not guarantee the honesty, actions, or reliability of any party involved in the transaction, such as the consignor, carrier, forwarder, consignee, insurer, or any other individual.

Example: Consider a scenario where a seller presents a bill of lading and an invoice under a letter of credit to the bank. The bank’s role is to ensure these documents comply with the terms of the credit. However, the bank does not verify if the bill of lading is authentic, if the goods described were actually shipped, or if the quantity and quality mentioned in the invoice are correct. If the invoice contains an error in the price or description of goods, or if the bill of lading is falsified, the bank is not liable for these issues as long as the documents meet the credit requirements. Similarly, if the goods are not delivered as described, or if any party involved in the transaction, such as the carrier or seller, fails to perform their duties or becomes insolvent, the bank is not responsible for these failures. Their duty is limited to handling the documents in accordance with the terms of the letter of credit, without guaranteeing the performance or integrity of any involved parties.

UCP600 Article 33 Explanation: Hours of Presentation

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Clause:

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

Explanation:

Article 33 of the UCP600 stipulates that banks are not required to accept documents presented to them outside of their official banking hours. This clause ensures that the bank’s responsibilities regarding the acceptance and processing of documentary presentations are limited to the time frames during which they are officially open for business. This provision protects banks from having to accommodate document presentations at any time, which could otherwise lead to logistical challenges and increased risk of errors.

Examples:

  1. Example 1:
    • Scenario: A bank’s official banking hours are from 9 AM to 5 PM. An exporter attempts to present the required documents for a letter of credit at 6 PM.
    • Application: The bank is not obligated to accept or process these documents at 6 PM. The exporter will need to return during the bank’s official hours.
  2. Example 2:
    • Scenario: A bank’s official banking hours are from 9 AM to 5 PM. A document is presented at 4:50 PM, just ten minutes before closing.
    • Application: The bank is required to accept and begin the processing of the document, provided it is within the banking hours. If the processing cannot be completed by 5 PM, the bank can continue the process on the next working day.
  3. Example 3:
    • Scenario: An importer submits documents at 9:30 AM on a public holiday when the bank is closed.
    • Application: The bank is not obligated to accept the documents on a public holiday since it is outside of its banking hours. The importer will need to present the documents on the next working day.

UCP600 Article 32 Explanation: Instalment Drawings or Shipments

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Instalment Drawings or Shipments

Clause: “If a drawing or shipment by instalments within given periods is stipulated in the credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available for that and any subsequent instalment.”

Explanation: This clause indicates that if a letter of credit requires shipments or drawings to be made in specific instalments within defined periods, the failure to meet the deadline for any one instalment results in the cancellation of the entire credit for that and all future instalments. In essence, missing a single instalment deadline nullifies the credit’s availability for any further instalments, even if they are within their specified periods.

Example: A buyer opens a letter of credit (L/C) requiring a seller to ship 1000 units of goods in three instalments as follows:

  1. 1st instalment: 300 units to be shipped by January 31.
  2. 2nd instalment: 300 units to be shipped by February 28.
  3. 3rd instalment: 400 units to be shipped by March 31.

If the seller fails to ship the 300 units by January 31, the credit will no longer be available for the February and March shipments. The entire L/C becomes void due to the failure to comply with the shipment schedule stipulated for the first instalment.

Clause-by-Clause Explanation and Examples

Clause: “If a drawing or shipment by instalments within given periods is stipulated in the credit…”

Explanation: The letter of credit specifies that shipments or drawings must occur in predetermined instalments over set periods.

Example: A letter of credit outlines that a supplier must ship 500 units of goods in two instalments:

  • 1st instalment: 250 units by July 31.
  • 2nd instalment: 250 units by August 31.

Clause: “…and any instalment is not drawn or shipped within the period allowed for that instalment…”

Explanation: If the shipment or drawing for any instalment is not completed within the stipulated timeframe, it means the seller has failed to meet the conditions for that instalment.

Example: If the supplier ships only 200 units by July 31 instead of the required 250 units, they have not met the conditions for the first instalment.

Clause: “…the credit ceases to be available for that and any subsequent instalment.”

Explanation: Failing to meet the timeframe for any instalment results in the termination of the letter of credit for both the current and all future instalments.

Example: Due to the failure to ship the required 250 units by July 31, the entire L/C is void. Consequently, the supplier cannot use the L/C for the August shipment of 250 units, rendering the credit invalid for any remaining instalments.

UCP600 Article 31 Explanation: Partial Drawings or Shipments

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Partial Drawings or Shipments

Clause (a): Partial drawings or shipments are allowed.

Explanation: This clause means that under a letter of credit, shipments can be made in parts. There is no requirement for the entire shipment to be made in one go. Each part of the shipment can be drawn upon separately, and the exporter can present documents for each partial shipment to claim payment.

Example: An exporter has a letter of credit for $100,000 to be shipped to a buyer. The exporter sends $40,000 worth of goods in the first shipment and $60,000 worth in the second. The exporter can present the documents for the $40,000 shipment, get paid for it, and later present the documents for the $60,000 shipment to get paid for the remaining amount.

Clause (b): 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. If the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

Explanation: If multiple sets of transport documents are presented for shipments that start on the same means of transport and are headed to the same destination, it will not be considered as partial shipments. This holds true even if the documents indicate different shipment dates, different ports of loading, or places of taking charge. The latest shipment date on any of the transport documents will be considered as the shipment date.

Example: An exporter ships goods using the same vessel but loads goods at different ports on different dates. The vessel then proceeds to the same destination. The exporter presents multiple sets of bills of lading indicating these different loading ports and dates. Since all the goods are on the same vessel going to the same destination, it is not considered a partial shipment. The latest date on the bills of lading will be the official shipment date.

Clause (b) continued: A presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

Explanation: If the shipment is made using multiple means of transport within the same mode (e.g., multiple trucks, ships, or planes), even if they leave on the same day for the same destination, it will be considered a partial shipment.

Example: An exporter sends goods using two different ships departing on the same day to the same destination. Each ship carries part of the total consignment. Since the shipment is on different vessels, it is considered a partial shipment even though they are headed to the same place on the same day.

Clause (c): A presentation consisting of more than one courier receipt, post receipt or certificate of posting will not be regarded as a partial shipment if the courier receipts, post receipts or certificates of posting appear to have been stamped or signed by the same courier or postal service at the same place and date and for the same destination.

Explanation: Multiple courier or postal receipts indicating shipments from the same service, stamped or signed at the same place and date for the same destination, will not be considered partial shipments. This implies that the entire consignment is viewed as a single shipment, despite being sent in separate packages.

Example: An exporter sends goods in three different packages using the same courier service. All packages are stamped at the same location and on the same date, and all are addressed to the same destination. Although there are three receipts, it will not be considered a partial shipment since all receipts show the same courier service, place, date, and destination.