Article 17

URC 522 Article 17: “Payment in Local Currency” Explained

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ARTICLE 17 PAYMENT IN LOCAL CURRENCY

Clause 1: “In the case of documents payable in the currency of the country of payment (local currency), the presenting bank must, unless otherwise instructed in the collection instruction, release the documents to the drawee against payment in local currency only if such currency is immediately available for disposal in the manner specified in the collection instruction.”

Explanation:

This clause mandates that when a collection involves payment in the local currency of the country where the payment is to be made, the presenting bank has a specific responsibility. The bank must ensure that the documents are only handed over to the drawee (the party responsible for making the payment) upon receiving the local currency payment. The crucial point here is that the currency must be “immediately available for disposal” according to the instructions given in the collection order. This means that the funds should be instantly usable in the manner specified by the remitting bank (the bank that initiated the collection process). If the payment is not immediately available in the required manner, the presenting bank should not release the documents unless explicitly instructed otherwise.

Example:

Imagine a situation where an exporter in the United States ships goods to a buyer in India under a documentary collection. The collection instruction from the U.S. bank specifies that payment must be made in Indian Rupees (INR). When the Indian bank (presenting bank) receives the documents, they are instructed to release these documents to the buyer only upon receiving payment in INR. However, the buyer offers to pay in a foreign currency, such as U.S. dollars, instead of INR.

In this scenario, unless the collection instruction specifically allows for payment in a currency other than INR, the presenting bank should refuse to release the documents. The bank must ensure that the payment in INR is immediately available and can be used as per the remitting bank’s instructions before handing over the documents to the buyer. If the buyer insists on paying in U.S. dollars, the presenting bank would need to seek clarification or further instructions from the remitting bank.

By breaking down this article into its key components and providing practical examples, the intention behind URC 522 Article 17 becomes clear. It ensures that local currency payments are handled in a manner that aligns with the instructions provided, thereby protecting the interests of all parties involved in the transaction.

URR 725 Article 17: Interest Claims and Loss of Value – CDCS Guide

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Article 17 – Interest Claims/Loss of Value

“Any claim for loss of interest, loss of value due to any exchange rate fluctuations, revaluations or devaluations are between the claiming bank and the issuing bank, unless such losses result from the non-performance of the reimbursing bank under a reimbursement undertaking.”

Explanation and Examples:

1. “Any claim for loss of interest, loss of value due to any exchange rate fluctuations, revaluations or devaluations are between the claiming bank and the issuing bank”

Explanation: This clause establishes that if there are any losses related to interest or value due to changes in exchange rates, or due to revaluation or devaluation of currencies, these claims should be directed between the bank making the claim and the issuing bank. Essentially, it means that the claiming bank cannot hold other parties accountable for these financial losses unless specific conditions are met.

Example: Suppose Bank A issued a letter of credit, and Bank B is the claiming bank. If there are fluctuations in exchange rates that affect the value of the amount being claimed, and if Bank B incurs a loss due to these fluctuations, Bank B must seek compensation from Bank A (the issuing bank) rather than from other involved parties. For instance, if Bank B claims $10,000 in foreign currency under a letter of credit and the exchange rate changes unfavorably, leading to a loss in value, Bank B should pursue a claim directly with Bank A.

2. “unless such losses result from the non-performance of the reimbursing bank under a reimbursement undertaking.”

Explanation: This clause adds an exception to the rule mentioned above. If the losses are due to the non-performance of the reimbursing bank (a bank that agrees to reimburse the issuing bank), then those losses are not solely between the claiming bank and the issuing bank. In such cases, the claiming bank may have recourse against the reimbursing bank as well.

Example: Consider a situation where Bank A (the issuing bank) is supposed to be reimbursed by Bank C (the reimbursing bank) for an amount under a letter of credit. If Bank C fails to perform its reimbursement obligation, and as a result, Bank B (the claiming bank) faces a loss due to exchange rate fluctuations, Bank B can then claim compensation not only from Bank A but also from Bank C. For example, if Bank C fails to reimburse Bank A, causing Bank B to suffer a financial loss due to currency devaluation, Bank B can seek recovery from Bank C as well as from Bank A.

UCP600 Article 17 Explanation: Original Documents and Copies

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Clause a

Clause: At least one original of each document stipulated in the credit must be presented.

Explanation: This clause mandates that for any document required by a letter of credit, at least one of the documents presented must be an original. This ensures authenticity and originality in the transaction.

Example: If a letter of credit requires an invoice, a bill of lading, and a packing list, at least one original of each of these documents must be submitted to fulfill the requirements.

Clause b

Clause: A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original.

Explanation: This clause states that banks will consider a document as an original if it has what appears to be an original signature, mark, stamp, or label. However, if the document explicitly states it is not an original, the bank will not treat it as such.

Example: A bill of lading with an original shipping company’s stamp and signature will be treated as an original by the bank unless it has a note saying “Copy”.

Clause c

Clause: Unless a document indicates otherwise, a bank will also accept a document as original if it: i. appears to be written, typed, perforated or stamped by the document issuer’s hand; or ii. appears to be on the document issuer’s original stationery; or iii. states that it is original, unless the statement appears not to apply to the document presented.

Explanation: This clause details three additional criteria under which a document can be accepted as original. If it looks handwritten, typed, perforated, or stamped by the issuer, is on the issuer’s original stationery, or claims to be original (unless context suggests otherwise), it will be considered original by the bank.

Example: i. A certificate of origin typed and stamped by the Chamber of Commerce will be accepted as an original. ii. A commercial invoice on the supplier’s letterhead stationery will be accepted as original. iii. A document that states “This is an original document” will be accepted as such, provided there are no conflicting indications.

Clause d

Clause: If a credit requires presentation of copies of documents, presentation of either originals or copies is permitted.

Explanation: If a letter of credit asks for copies of documents, you can present either original documents or copies. The requirement for copies does not restrict you to only submitting copies; originals are also acceptable.

Example: If the credit requires a copy of the inspection certificate, you can submit either the original inspection certificate or a copy of it.

Clause e

Clause: If a credit requires presentation of multiple documents by using terms such as “in duplicate”, “in two fold” or “in two copies”, this will be satisfied by the presentation of at least one original and the remaining number in copies, except when the document itself indicates otherwise.

Explanation: When a credit demands multiple copies of a document (e.g., in duplicate or two copies), it is sufficient to present one original and the rest as copies unless the document specifically requires all to be originals.

Example: If the credit asks for a commercial invoice in duplicate, presenting one original commercial invoice and one copy will satisfy this requirement, unless the commercial invoice explicitly states that both must be originals.

By understanding each clause in UCP600 Article 17, parties involved in international trade can ensure they comply with documentary credit requirements, thus facilitating smoother and more efficient transactions.