Article 16

URC 522 Article 16: “Payment Without Delay” – Detailed Explanation

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ARTICLE 16: PAYMENT WITHOUT DELAY

Clause (a): “Amounts collected (less charges and/or disbursements and/or expenses where applicable) must be made available without delay to the party from whom the collection instruction was received in accordance with the terms and conditions of the collection instruction.”

Explanation: This clause emphasizes the obligation of the collecting bank to promptly transfer the collected funds to the remitting bank (the party from whom the collection instruction was received). The phrase “without delay” indicates that the collecting bank must not hold onto the funds unnecessarily. However, any legitimate charges, disbursements, or expenses incurred during the collection process can be deducted before transferring the funds.

The transfer must be made according to the specific terms and conditions outlined in the collection instruction. This ensures that the remitting bank receives the funds in a manner consistent with the agreed-upon process, whether that involves a particular currency, method of transfer, or other stipulations.

Example: If an exporter (remitting bank) sends goods to an importer and provides a collection instruction to the collecting bank, the collecting bank is responsible for collecting the payment from the importer. Once the payment is received, the collecting bank must quickly transfer the amount (after deducting any applicable fees) back to the exporter’s bank according to the terms set out in the collection instruction. If the collection instruction specifies that payment should be made in USD, the collecting bank must ensure that the amount is converted and transferred in USD without unnecessary delay.

Clause (b): “Notwithstanding the provisions of sub-Article 1(c), and unless otherwise agreed, the collecting bank will effect payment of the amount collected in favour of the remitting bank only.”

Explanation: This clause highlights that, unless there is a prior agreement stating otherwise, the collecting bank is obligated to transfer the collected funds solely to the remitting bank. This provision overrides any conflicting statements that might be found in sub-Article 1(c) and ensures that the payment chain remains secure and direct.

The phrase “unless otherwise agreed” allows for flexibility in cases where the parties involved have made different arrangements. However, by default, the collected funds must be sent directly to the remitting bank to maintain the integrity and security of the transaction process.

Example: In a situation where an exporter instructs a collecting bank to collect payment from an importer, the standard expectation is that the collected amount will be sent directly to the exporter’s bank (remitting bank). Even if sub-Article 1(c) suggests a different process, this clause ensures that, by default, the collecting bank does not have the discretion to redirect the funds to any other party unless there is a specific agreement in place allowing such action. This prevents any potential misrouting of funds and ensures the remitting bank receives the payment as intended.

URR 725 Article 16: Charges in Reimbursement Transactions – CDCS Guide

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Article 16 – Charges

a. “A reimbursing bank’s charges are for the account of the issuing bank.”

Explanation: This clause stipulates that when a reimbursing bank incurs charges while processing a reimbursement claim, these charges are to be covered by the issuing bank, not the reimbursing bank.

Example: Suppose Bank A (the issuing bank) authorizes Bank B (the reimbursing bank) to pay a reimbursement claim for a letter of credit. If Bank B incurs a fee for processing this claim, Bank A will be responsible for paying that fee, not Bank B.

b. “When honouring a reimbursement claim, a reimbursing bank is obligated to follow the instructions regarding any charges contained in the reimbursement authorization.”

Explanation: This clause requires the reimbursing bank to adhere to any specific instructions given by the issuing bank concerning charges when processing a reimbursement claim.

Example: If Bank A’s reimbursement authorization specifies that Bank B should deduct a particular fee from the reimbursement amount, Bank B must follow this instruction when it processes the claim.

c. “If a reimbursement authorization states that the reimbursing bank’s charges are for the account of the beneficiary, they shall be deducted from the amount due to a claiming bank when reimbursement is made. Where a reimbursing bank follows the instructions of the issuing bank regarding charges (including commissions, fees, costs or expenses) and these charges are not paid, or a reimbursement claim is never presented to the reimbursing bank under the reimbursement authorization, the issuing bank remains liable for such charges.”

Explanation: If the reimbursement authorization specifies that the reimbursing bank’s charges are to be borne by the beneficiary, these charges will be subtracted from the reimbursement amount due to the claiming bank. However, if the reimbursing bank incurs charges based on the issuing bank’s instructions and these charges are not paid, or if no claim is presented to the reimbursing bank, the issuing bank will still be liable for these charges.

Example: Suppose Bank A’s authorization directs Bank B to deduct its charges from the reimbursement amount due to the beneficiary. If Bank B follows this instruction, the charges are deducted from the payment made to the beneficiary. If Bank B’s charges remain unpaid or if no claim is made to Bank B, Bank A is responsible for covering those charges.

d. “All charges paid by the reimbursing bank will be in addition to the amount of the authorization, provided that the claiming bank indicates the amount of such charges.”

Explanation: This clause indicates that any additional charges incurred by the reimbursing bank will be added to the total amount authorized for reimbursement, provided the claiming bank specifies these charges.

Example: If Bank B pays $500 in charges to process the reimbursement, and the reimbursement authorization was for $10,000, Bank B can claim $10,500 from Bank A, assuming Bank A was informed about the $500 charge.

e. “If the issuing bank fails to provide the reimbursing bank with instructions regarding charges, all charges shall be for the account of the Issuing bank.”

Explanation: When the issuing bank does not provide specific instructions on how to handle charges, it is responsible for covering all such charges incurred by the reimbursing bank.

Example: If Bank A does not specify how to handle charges in its reimbursement authorization, any fees incurred by Bank B will be covered by Bank A.

UCP600 Article 16 Explanation – CDCS Guide: Discrepant Documents, Waiver, and Notice

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Clause a: Refusal to Honour or Negotiate

Clause: When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.

Explanation: If any bank involved in the letter of credit transaction (nominated, confirming, or issuing) finds that the documents presented do not meet the terms and conditions of the credit, they have the right to refuse payment or negotiation.

Example: A seller presents documents to the confirming bank, but the documents indicate that the goods were shipped on a later date than specified in the letter of credit. The confirming bank, upon noticing this discrepancy, can refuse to pay the seller.

Clause b: Waiver of Discrepancies

Clause: When an issuing bank determines that a presentation does not comply, it may in its sole judgment approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

Explanation: The issuing bank, upon finding discrepancies, may ask the applicant (the buyer) if they are willing to accept the discrepancies and waive them. However, this process must be completed within the timeframe specified in Article 14(b).

Example: A letter of credit requires a certificate of origin from the chamber of commerce. The seller submits a certificate issued by beneficiary. The issuing bank contacts the buyer to see if they will accept this discrepancy. The buyer agrees, and the issuing bank proceeds with the acceptance or payment. However, if issuing bank wants they may not approach applicant for waiver.

Clause c: Notice of Refusal

Clause: When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter. The notice must state: i. that the bank is refusing to honour or negotiate; and ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and iii. a) that the bank is holding the documents pending further instructions from the presenter; or b) that the issuing bank is holding the 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 c) that the bank is returning the documents; or d) that the bank is acting in accordance with instructions previously received from the presenter.

Explanation: If a bank decides to refuse the documents, it must inform the presenter (usually the bank from where documents received) in one comprehensive notice. This notice must detail the refusal, list all discrepancies, and state what the bank will do with the documents. Incase issuing bank forgets something to mention in the refusal notice and then sends a second message to presenter stating that this is the additional information related to the refusal notice sent earlier. In this case second message will be disregarded.

Example: A seller presents documents to the nominated bank, but they do not comply with the letter of credit terms. The nominated bank sends a single notice to the seller stating that they are refusing the documents because the insurance policy is missing, and informs the seller that they are holding the documents pending further instructions.

Clause d: Notice Timeline

Clause: The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.

Explanation: The bank must send the notice of refusal promptly, no later than five banking days after the documents are presented. This notice must be communicated quickly, preferably through electronic means.

Example: A seller submits documents to the issuing bank on Monday. By the next Monday, the issuing bank must send a notice of refusal if they find discrepancies.

Clause e: Return of Documents

Clause: A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may, after providing notice required by sub-article 16 (c) (iii) (a) or (b), return the documents to the presenter at any time.

Explanation: After informing the presenter of the discrepancies and what they intend to do with the documents (holding or seeking a waiver), the bank may return the documents to the presenter at any time.

Example: After sending a notice of refusal and informing the seller that the documents are being held pending further instructions, the issuing bank decides to return the documents to the seller after two days. Issuing bank can do this.

Clause f: Consequences of Failure to Act

Clause: If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.

Explanation: If the issuing or confirming bank does not follow the proper procedure for refusing documents as outlined in Article 16, they lose the right to assert that the documents are non-compliant.

Example: The issuing bank fails to notify the seller of discrepancies within five banking days. As a result, the issuing bank cannot later claim that the documents are non-compliant and must honour the presentation.

Clause g: Refund and Interest

Clause: When an issuing bank refuses to honour or a confirming bank refuses to honour or negotiate and has given notice to that effect in accordance with this article, it shall then be entitled to claim a refund, with interest, of any reimbursement made.

Explanation: If the issuing or confirming bank properly refuses the documents and has already reimbursed the nominated bank, they are entitled to get their money back along with any interest accrued.

Example: The issuing bank refuses the documents due to discrepancies and notifies the presenting bank properly. If the issuing bank had reimbursed the confirming bank before getting the documents, it can now claim that amount back with interest.