CDCS

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.

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.

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.