CDCS PREPARATION

UCP600 Article 10 Explanation – CDCS Guide: Amendments in Documentary Credits

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Clause (a)

Clause: Except as otherwise provided by Article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.

Explanation: This clause states that a letter of credit cannot be changed or cancelled unless all parties involved—the issuing bank, the confirming bank (if one exists), and the beneficiary—agree to the changes.

Example: Suppose Company A (the beneficiary) received a letter of credit issued by Bank X (the issuing bank) with Bank Y as the confirming bank. If Bank X wants to reduce the expiration date of the letter of credit, both Company A and Bank Y must agree to this change. Without their agreement, the expiration date remains unchanged.

Clause (b)

Clause: An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment. A confirming bank may, however, choose to advise an amendment without extending its confirmation and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.

Explanation: Once an issuing bank issues an amendment, it is bound by it. A confirming bank has the option to confirm the amendment, in which case it is also bound by it once it advises the beneficiary. If the confirming bank chooses not to confirm the amendment, it must notify the issuing bank and the beneficiary promptly.

Example: If Bank X (issuing bank) issues an amendment to increase the credit amount and Bank Y (confirming bank) agrees to this change, Bank Y is bound by this amendment once it advises the amendment to Company A (beneficiary). However, if Bank Y decides not to confirm the increased amount, it must inform both Bank X and Company A immediately.

Clause (c)

Clause: 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.

Explanation: The original terms of the credit stay valid until the beneficiary accepts the amendment. The beneficiary should notify the advising bank of acceptance or rejection of the amendment. If the beneficiary does not notify, and present documents as per the amended credit terms, then it will be considered acceptance of the amendment.

Example: If Company A does not respond to the amendment issued by Bank X to extend the shipment date, but later presents shipping documents that comply with the extended date, it will be assumed that Company A has accepted the amendment.

Clause (d)

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

Explanation: The advising bank must notify the issuing bank about the beneficiary’s acceptance or rejection of the amendment.

Example: If Bank Z (advising bank) receives an acceptance of an amendment from Company A, it must inform Bank X (issuing bank) about this acceptance.

Clause (e)

Clause: Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.

Explanation: The beneficiary cannot accept only parts of an amendment. If the beneficiary attempts to partially accept an amendment, it will be treated as a rejection of the entire amendment.

Example: If an amendment increases both the credit amount and the shipment period, Company A cannot accept only the increased credit amount and reject the extended shipment period. Such partial acceptance will be considered a rejection of the entire amendment.

Clause (f)

Clause: A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.

Explanation: Any clause in an amendment stating that it will automatically take effect unless the beneficiary rejects it within a certain timeframe is invalid and ignored.

Example: If Bank X issues an amendment stating that the new terms will be effective unless Company A rejects it within 10 days, such a provision will be disregarded, and the amendment will not be automatically accepted after 10 days.

UCP600 Article 11 Explanations – CDCS Guide: Teletransmitted and Pre-Advised Credits and Amendments

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Clause a: Text: “An authenticated teletransmission of a credit or amendment will be deemed to be the operative credit or amendment, and any subsequent mail confirmation shall be disregarded. If a teletransmission states “full details to follow” (or words of similar effect), or states that the mail confirmation is to be the operative credit or amendment, then the teletransmission will not be deemed to be the operative credit or amendment. The issuing bank must then issue the operative credit or amendment without delay in terms not inconsistent with the teletransmission.”

Explanation: When a credit or an amendment is sent via authenticated teletransmission (e.g., SWIFT), it is considered the official and operative document. Any follow-up confirmation sent by mail should be ignored. However, if the teletransmission indicates that “full details to follow” or suggests that the mail confirmation will be the operative document, then the teletransmission is not considered operative. In such cases, the issuing bank must promptly issue the official credit or amendment, ensuring it aligns with the details in the teletransmission.

Example: A bank issues a letter of credit (L/C) via SWIFT message to the beneficiary, stating all the terms and conditions. This SWIFT message is the official L/C. If the message includes “full details to follow,” the SWIFT message is not operative. The bank must then send the official L/C via mail or another method, ensuring it matches the preliminary details in the SWIFT message.

Clause b: Text: “A preliminary advice of the issuance of a credit or amendment (“pre-advice”) shall only be sent if the issuing bank is prepared to issue the operative credit or amendment. An issuing bank that sends a pre-advice is irrevocably committed to issue the operative credit or amendment, without delay, in terms not inconsistent with the pre-advice.”

Explanation: A pre-advice is an advance notice about the issuance of a credit or an amendment. This should only be sent if the issuing bank is ready to issue the actual credit or amendment. Once a pre-advice is sent, the issuing bank is irrevocably bound to issue the operative credit or amendment promptly and in accordance with the terms mentioned in the pre-advice.

Example: A bank sends a pre-advice to a beneficiary stating that a letter of credit will be issued for a certain amount with specific terms. The bank is then obligated to issue the actual L/C promptly, ensuring it matches the terms outlined in the pre-advice. If the pre-advice states a credit amount of $100,000, the final L/C must also be for $100,000 with consistent terms.

UCP600 Article 12 Explanation – CDCS Guide: Nomination

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Clause a

Text:
“Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary.”

Explanation:
This clause means that if a bank is nominated to honour or negotiate a letter of credit (L/C) but is not a confirming bank, it is not automatically obliged to honour or negotiate unless it has agreed to do so and has informed the beneficiary. A confirming bank is one that adds its confirmation to the credit, thereby confirming bank is bound to honor or negotiate the documents if the terms of the L/C are met.

Example:
A beneficiary receives an L/C from Bank A, which nominates Bank B to honour or negotiate (this happens when LC is restricted to bank B). However, Bank B has not added its confirmation to the L/C. In this case, Bank B is not obligated to pay the beneficiary unless it has expressly agreed to do so and communicated this to the beneficiary.

Clause b

Text:
“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.”

Explanation:
When an issuing bank nominates another bank to accept a draft or take on a deferred payment undertaking, it is giving that nominated bank the authority to prepay or purchase the accepted draft or the deferred payment undertaking. This means the nominated bank can advance funds based on the draft or deferred payment undertaking.

Example:
Bank A issues an L/C and nominates Bank B to accept drafts (this happens when LC is restricted to bank B). In time of advising the LC Bank B communicates the beneficiary that they will prepay against presentation of complied documents. The beneficiary then presents a draft along with other documents as per LC, Bank B can then decide to prepay the draft amount to the beneficiary or purchase the draft, providing immediate funds to the beneficiary.

Clause c

Text:
“Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.”

Explanation:
If a nominated bank that is not a confirming bank receives, examines, and forwards documents under the L/C, it is not liable to honour or negotiate the credit. Simply handling the documents does not mean the nominated bank has undertaken the responsibility to pay the beneficiary.

Example:
Bank A issues an L/C and nominates Bank B. The beneficiary submits documents to Bank B, which then examines and forwards them to Bank A. Since Bank B is not a confirming bank, it is not obligated to pay the beneficiary; it is merely acting as an intermediary in the document handling process.

UCP600 Article 13 Explanation – CDCS Guide: Bank-to-Bank Reimbursement Arrangements

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Clause 13(a):

Clause: “If a credit states that reimbursement is to be obtained by a nominated bank (“claiming bank”) claiming on another party (“reimbursing bank”), the credit 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 credit.”

Explanation: This clause mandates that if a letter of credit specifies that a nominated bank will claim reimbursement from a reimbursing bank, it must also specify whether this reimbursement follows the ICC rules for bank-to-bank reimbursements effective at the time of the credit issuance.

Example: A letter of credit issued on January 1, 2024, instructs Bank A (nominated bank) to claim reimbursement from Bank B (reimbursing bank). The credit must state that reimbursement is subject to ICC rules for bank-to-bank reimbursements effective on January 1, 2024.

Clause 13(b)(i):

Clause: “If a credit does not state that reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the following apply: i. An issuing bank must provide a reimbursing bank with a reimbursement authorization that conforms with the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date.”

Explanation: If the credit does not refer that the reimbursement is subject to ICC rules, then mentioned rules will be applicable like- the issuing bank must issue a reimbursement authorization to the reimbursing bank that matches the terms of the credit’s availability. This authorization should not expire.

Example: If a credit is available by sight payment and does not mention ICC rules for reimbursement, the issuing bank must provide a reimbursement authorization to the reimbursing bank that allows sight payment and does not have an expiry date.

Clause 13(b)(ii):

Clause: “A claiming bank shall not be required to supply a reimbursing bank with a certificate of compliance with the terms and conditions of the credit.”

Explanation: The claiming bank is not obliged to provide the reimbursing bank with a certificate proving compliance with the credit’s terms and conditions.

Example: Bank A, the claiming bank, does not need to submit a certificate to Bank B, the reimbursing bank, verifying that all terms and conditions of the letter of credit have been met.

Clause 13(b)(iii):

Clause: “An issuing bank will be responsible for any loss of interest, together with any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit.”

Explanation: If the reimbursing bank fails to reimburse on the first demand as per the credit’s terms, the issuing bank is liable for any resulting loss of interest and expenses.

Example: If Bank B fails to reimburse Bank A on the first demand, and Bank A incurs additional interest and expenses, the issuing bank must cover these costs.

Clause 13(b)(iv):

Clause: “A reimbursing bank’s charges are for the account of the issuing bank. However, if the charges are for the account of the beneficiary, it is the responsibility of an issuing bank to so indicate in the credit and in the reimbursement authorization. If a 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. If no reimbursement is made, the reimbursing bank’s charges remain the obligation of the issuing bank.”

Explanation: The issuing bank generally bears the reimbursing bank’s charges unless the credit specifies they are for the beneficiary’s account. If the beneficiary is responsible, this must be stated in the credit and reimbursement authorization, and charges will be deducted from the claiming bank’s reimbursement. If reimbursement is not made, the issuing bank must still cover the charges.

Example: If Bank A’s charges are to be borne by the beneficiary, this must be indicated in the credit. When Bank B reimburses Bank A, it deducts its charges from the amount. If Bank B does not reimburse, the issuing bank must pay Bank B’s charges.

Clause 13(c):

Clause: “An 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.”

Explanation: The issuing bank remains responsible for reimbursement even if the reimbursing bank fails to reimburse on the first demand.

Example: If Bank B fails to reimburse Bank A on first demand, the issuing bank will be responsible to make reimbursement to Bank A .

UCP600 Article 14 Explanation – CDCS Guide: Standards for Examination of Documents

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Clause (a)

Clause: 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.

Explanation: Banks must evaluate the presented documents strictly based on their content to ensure they comply with the terms and conditions of the credit. The examination is limited to the documents alone without considering external factors.

Example: If an issuing bank receives a set of documents that includes an invoice, bill of lading, and certificate of origin, it must check if these documents fulfill the requirements of the letter of credit. The bank cannot rely on external information or assumptions.

Clause (b)

Clause: 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.

Explanation: Each Banks have up to five banking days from the date of presentation to decide if the documents comply with the credit terms. This review period is not shortened by the credit’s expiry date or any other deadlines that occur after the presentation date. Counting of 5 banking day starts from the next banking day of presentation.

Example: If documents are presented to a bank on July 1st, the bank has until the close of business on July 8th (assuming no holidays or weekends) to complete its examination, regardless of whether the credit expires on July 2nd.

Clause (c)

Clause: A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

Explanation: When a presentation includes original transport documents, it must be made within 21 calendar days after the shipment date, but also not beyond the credit’s expiry date.

Example: If goods are shipped on July 1st, the latest date for presenting the documents, including the bill of lading, is July 22nd, provided the credit does not expire before this date.

Clause (d)

Clause: 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.

Explanation: Data in the documents does not have to match exactly but should not contradict the data in other documents or the credit terms.

Example: If the credit states “blue shirts” and the invoice describes the goods as “navy blue shirts,” this is acceptable as long as there is no contradiction in other documents. However, if invoice describes as “navy blue shirts” but in certificate of origin goods description is mentioned as “green shirts” then it will be a discrepancy.

Clause (e)

Clause: In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit.

Explanation: Descriptions of goods or services in documents other than the commercial invoice can be general, provided they do not conflict with the credit’s description.

Example: If the credit specifies “100% cotton shirts,” the packing list can describe the goods as “cotton shirts” or “shirts”.

Clause (f)

Clause: 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).

Explanation: If the credit does not specify the issuer or data content of a required document, banks will accept the document as long as it fulfills its intended function and does not conflict with sub-article 14(d).

Example: If a credit requires a “certificate of inspection” without specifying who should issue it, a certificate issued by any party will be accepted if it serves the inspection function and does not conflict with other documents.

Clause (g)

Clause: A document presented but not required by the credit will be disregarded and may be returned to the presenter.

Explanation: Any documents that are not required by the credit terms will be ignored and can be returned to the presenter.

Example: If a beneficiary submits an additional certificate of quality that is not stipulated in the credit, the bank will disregard it.

Clause (h)

Clause: 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.

Explanation: Conditions in the credit that do not specify which document should show compliance are treated as if they do not exist.

Example: If a credit states that “shipment must be made on a vessel under 10 years old” but does not specify that this must be stated on the bill of lading or any other document, the bank will disregard this condition.

Clause (i)

Clause: A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.

Explanation: Documents can have dates earlier than the credit issuance date but cannot be dated after the presentation date.

Example: A bill of lading dated June 1st is acceptable for a credit issued on June 10th. Next scenario, A bill of lading dated 12th June and document presented on 11th June will be discrepant.

Clause (j)

Clause: 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 beneficiary’s and the applicant’s 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.

Explanation: Addresses in documents other than transport documents can differ from those in the credit as long as they are within the same country. Contact details like phone numbers and emails are ignored unless they are part of consignee or notify party details in transport documents.

Example: If the credit specifies the applicant’s address as “123 Main St, New York,” and an invoice states “456 Elm St, New York,” it is acceptable as both addresses are in the same country. Next scenario, if the credit specifies the consignee address as “123 Main St, New York,” and bill of lading states consignee address as “456 Elm St, New York,” it is Discrepant.

Clause (k)

Clause: The shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

Explanation: The shipper or consignor mentioned in any document does not have to be the beneficiary.

Example: If a beneficiary is “ABC Enterprise” as per LC, but the bill of lading shows the shipper as a “XYZ Enterprise”, this is acceptable.

Clause (l)

Clause: A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23 or 24 of these rules.

Explanation: Transport documents can be issued by parties other than the carrier, owner, master, or charterer as long as they comply with the relevant UCP600 articles.

Example: An agent of the carrier issues a bill of lading, which is acceptable as long as it meets the criteria set out in articles 19-24 of UCP600. Check out explanations on these articles, how agent can sign a transport documents and how capacity to be mentioned.

UCP600 Article 15 Explanation – CDCS Guide: Complying Presentation

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Clause a: When an issuing bank determines that a presentation is complying, it must honour.

Explanation: An issuing bank, upon receiving the documents under a letter of credit (LC), has the responsibility to check if the documents comply with the terms and conditions of the LC. If the documents are found to be in compliance, the issuing bank must honor its commitment to pay the beneficiary immediately or accept the documents and pay on due date.

Example: An exporter in India ships goods to an importer in the USA under an LC issued by an American bank. The exporter presents the required documents to the issuing bank. After examination, the bank finds all documents in compliance with the LC terms. The issuing bank then proceeds to honor the payment, transferring the funds to the exporter’s account.

Clause b: When a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank.

Explanation: A confirming bank adds its confirmation to an LC, providing an additional payment guarantee to the beneficiary. If the confirming bank determines that the presented documents comply with the LC terms, it must either honor or negotiate (purchase the documents) and then forward the documents to the issuing bank for reimbursement.

Example: An exporter in Germany receives an LC confirmed by a German bank. The exporter presents the documents to the confirming bank, which checks and finds them in compliance. The confirming bank pays the exporter (honours) and then forwards the documents to the issuing bank in the USA for reimbursement.

Clause c: When a nominated bank determines that a presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank.

Explanation: A nominated bank is authorized to pay, accept, or negotiate under an LC. If the nominated bank finds the documents compliant and decides to honor or negotiate, it must forward the documents to the confirming bank (if there is one) or the issuing bank.

Example: An exporter in China ships goods under an LC issued by a UK bank, with a nominated bank in China. The exporter presents the documents to the nominated bank in China. The bank reviews and finds the documents in compliance, pays the exporter, and then forwards the documents to the issuing bank in the UK for reimbursement.