Documentary Credits

UCP600 Article 37 Explanation: Disclaimer for Acts of an Instructed Party

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Clause a:

Clause: A bank utilizing the services of another bank for the purpose of giving effect to the instructions of the applicant does so for the account and at the risk of the applicant.

Explanation: When an issuing bank uses another bank’s services to fulfill the applicant’s instructions, it does so on behalf of and at the risk of the applicant. This means any issues arising from the other bank’s actions are the applicant’s responsibility.

Example: A company in India (the applicant) applies for a letter of credit with an Indian issuing bank to pay a supplier in Germany. The Indian bank uses a German bank to advise the credit to the supplier. If the German bank fails to deliver the documents on time, causing a delay, the risk and consequences of this failure fall on the Indian company, not the Indian issuing bank.

Clause b:

Clause: An issuing bank or advising bank assumes no liability or responsibility should the instructions it transmits to another bank not be carried out, even if it has taken the initiative in the choice of that other bank.

Explanation: Neither the issuing bank nor the advising bank is liable if the instructions they send to another bank are not executed, even if they chose that bank themselves.

Example: The Indian issuing bank selects a German advising bank to notify the supplier in Germany. If the German bank fails to notify the supplier, the Indian bank is not responsible for this failure, even though it chose the German bank.

Clause c:

Clause: A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses (“charges”) incurred by that bank in connection with its instructions. If a credit states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges. A credit or amendment should not stipulate that the advising to a beneficiary is conditional upon the receipt by the advising bank or second advising bank of its charges.

Explanation: The bank that instructs another bank to perform services must pay any charges incurred by that bank. If the credit specifies that charges are the beneficiary’s responsibility but cannot be collected, the issuing bank must pay. Credits should not make the beneficiary’s receipt of advice conditional on the advising bank receiving its charges.

Example: An Indian issuing bank instructs a German advising bank to notify the supplier and charges the supplier for the advising fees. If the supplier refuses to pay, the Indian bank must cover the advising fees. Additionally, the letter of credit should not state that the supplier will only be advised upon payment of the advising bank’s charges.

Clause d:

Clause: The applicant shall be bound by and liable to indemnify a bank against all obligations and responsibilities imposed by foreign laws and usages.

Explanation: The applicant must cover any obligations and responsibilities the bank faces due to foreign laws and customs.

Example: An Indian company applies for a letter of credit with an Indian bank to pay a supplier in Germany. If German laws impose additional requirements or responsibilities on the advising bank, the Indian company must indemnify the Indian bank for any resulting costs or obligations.

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 30 Explanation: Tolerance in Credit Amount, Quantity, and Unit Prices

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UCP600 Article 30 Explained

Clause (a)

Clause: The words “about” or “approximately” used in connection with the amount of the credit or the quantity or the unit price stated in the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which they refer.

Explanation: When a credit uses terms like “about” or “approximately” concerning the credit amount, quantity, or unit price, it permits a deviation of up to 10% above or below the stated figure to which they refer . This provides flexibility in fulfilling the credit terms, accounting for minor variations in shipment or pricing.

Example: If a letter of credit specifies “approximately USD 100,000,” the beneficiary can present documents for an amount between USD 90,000 and USD 110,000. Similarly, if it states “about 1,000 units,” shipment quantities between 900 and 1,100 units would be acceptable.

Clause (b)

Clause: A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

Explanation: A 5% tolerance in the quantity of goods is permissible as long as the credit does not specify the quantity in exact packing units or individual items. Additionally, the total drawings under the credit must not exceed the credit amount.

Example: If a credit requires the shipment of 2,000 tons of a product but does not specify packaging units, shipping between 1,900 and 2,100 tons is acceptable, provided the total amount drawn does not exceed the credit’s limit. If the credit amount is USD 500,000, the total value of shipped goods should not surpass this amount.

Clause (c)

Clause: Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub-article 30 (a).

Explanation: If partial shipments are prohibited, a 5% tolerance less than the credit amount is allowed, provided the full quantity of goods is shipped and the unit price, if mentioned, is not reduced. This tolerance is void if the credit specifies a different tolerance or uses terms like “about” or “approximately.”

Sub-article 30 (c) addresses scenarios where terms are either CFR or CIF, and the price quotation is based on estimated or provisional insurance premiums and/or freight charges. When the documents are presented, the beneficiary invoices for the actual insurance and freight costs, which may be lower than those initially quoted in the purchase order. Consequently, a 5% tolerance is permitted in the beneficiary’s invoice, provided that the full quantity of goods specified in the credit is shipped and the unit price remains unchanged.

Example: A credit for USD 200,000 that does not permit partial shipments and requires the shipment of 500 units at USD 350 per unit (500*350 = USD 175,000. Balance 25,000 freight charges) will allow a shipment of the full 500 units at USD 350 per unit even if the total invoice amount is as low as USD 190,000 (5% less than USD 200,000). If the credit used terms like “approximately,” the 10% tolerance from clause (a) would apply instead.

UCP600 Article 29: Extensions for Expiry Dates and Presentation Days Explained

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UCP600 Article 29 Explained

Clause (a)

Clause: “If the expiry date of a credit or the last day for presentation falls on a day when the bank to which presentation is to be made is closed for reasons other than those referred to in article 36, the expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day.”

Explanation: If the expiry date of a credit or the final day for document presentation coincides with a day when the bank is closed for reasons not covered under Article 36 (such as public riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control), the deadline is automatically extended to the next business day when the bank is open.

Example: A letter of credit expires on 1st January. The bank where the documents are to be presented is closed on 1st January for New Year’s Day (a public holiday), which is not falling under reasons covered in Article 36 (such as public riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.) Therefore, the expiry date is extended to 2nd January, the next business day.

Clause (b)

Clause: “If presentation is made on the first following banking day, a nominated bank must provide the issuing bank or confirming bank with a statement on its covering schedule that the presentation was made within the time limits extended in accordance with sub-article 29 (a).”

Explanation: When documents are presented on the first business day following an extended deadline, the nominated bank must include a statement on its cover schedule indicating that the presentation occurred within the extended time frame as per sub-article 29(a).

Example: Documents are presented to the nominated bank on 2nd January (following the extended deadline). The nominated bank must state on its covering schedule to the issuing bank, “Documents presented within the extended time limits as per UCP600 Article 29(a).”

Clause (c)

Clause: “The latest date for shipment will not be extended as a result of sub-article 29 (a).”

Explanation: The provision to extend the expiry date or the last day for document presentation does not apply to the latest date of shipment. The shipment date remains fixed and unchangeable even if the presentation deadline is extended.

Example: A letter of credit specifies the latest shipment date as 25th December, and the presentation deadline as 1st January. If the presentation deadline is extended to 2nd January due to the bank being closed, the shipment must still occur by 25th December, without extension.

Summary

Article 29 of UCP600 addresses situations where the expiry date or the last day for document presentation falls on a non-banking day for reasons other than those mentioned in Article 36. It extends the deadline to the next banking day but does not affect the shipment date. Proper documentation and statements are required to inform all parties of the extended deadlines.