6/10/2016

Module 2
Class No. 1

CDCS preparatory course

UCP-600 : Article 1-5 & Chapter 4 & 6
[Other than definition of honour and negotiation]

- ATM Nesarul Hoque

Assumptions:

UCP reflect Global Standard Practice

UCP Fraud Exception rule. [R- 202]

Law always govern Documentary credit over UCP [R-509]

CDCS Book,
Minimum parties Page 31
to documentary
credit: Issuing Bank

Beneficiary

1
 6/10/2016

Article 1: Application of UCP

The Uniform Customs and Practice for Documentary Credits,2007 Revision, ICC
Publication No. 600 ("UCP") are rules that apply to any documentary credit
("credit") (including, to the extent to which they may be applicable, any
standby letter of credit) when the text of the credit expressly indicates that it is
subject to these rules. They are binding on all parties thereto unless expressly
modified or excluded by the credit.
 UCP are Rules
 Meaning of parenthetical definition
 Any Documentary Credit including standby
 Express Indication
Swift Field 40E: UCP LATEST VERSION
Swift Field 40E: UCP URR LATEST VERSION

Swift Field 40E: UCP LATEST VERSION

Swift Field 40E: ISP LATEST VERSION
Swift Field 40E: UCP ISP LATEST VERSION

Article 1: Application of UCP

 Express Indication
Swift Field 40E: UCP LATEST VERSION
Swift Field 53a: Reimbursement Bank
XYZ Bank

Swift Field 40E: eUCP LATEST VERSION

Swift Field 78: DOC must be presented
through e-mail[address]

Swift Field 40E: eUCP LATEST VERSION

Swift Field 78: DOC must be presented at
Issuing Bank counter

Swift Field 40E: eUCP LATEST VERSION

Swift Field 78: DOC must be presented either at
Issuing Bank counter or electronically [email]

2
 6/10/2016

Article 1: Application of UCP

 They are binding all parties thereto

Issuing Bank

Confirming Bank, if any

Beneficiary

 Modification & Exclusion

ICC General statement regarding exclusion [ICC official opinion R-633]

Exclusion Modification General Advice

from ICC

It should be noted by
banks that if they are Where a modification
considering the is made, the issuing
exclusion of a rule, it is bank must ensure that Bank Should
often not as simple as the revised wording in keep any
merely making a the credit is sufficiently exclusions (if
statement in the credit descriptive so that at all needed)
that article X or sub- there may be no
article X is deleted or is to a minimum
ambiguity as to how it
not to apply. Very often may be interpreted or
there needs to be applied.
something put into the
credit to cover the void
that the exclusion leaves.

3
 6/10/2016

End with a proverb

An old African proverb that is

appropriate in this context –

"If you take from a man his tribal customs, you had better
have something of value to replace them"!!

Article 1: Application of UCP

The Uniform Customs and Practice for Documentary

Credits,2007 Revision, ICC Publication No. 600 ("UCP")
are rules that apply to any documentary credit ("credit")
(including, to the extent to which they may be
applicable, any standby letter of credit) when the text of
the credit expressly indicates that it is subject to these
rules. They are binding on all parties thereto unless
expressly modified or excluded by the credit.

4
 6/10/2016

Article 2
Reason for incorporation this article
- Simplification of the text
- Creating common platform among the practitioner

There are 14 Definitions in this article

Non capitalization defined

Definition in other places

- Article 9: Second Advising Bank

- Article 11: Pre-Advice
- Article 13: Claiming Bank & Reimbursing Bank
- Article 37: Charges
- Article 38: Transferable Credit

Article 2 : Definitions
For the purpose of these rules:
Advising bank means the bank
Applicant means the party that advises the credit at the
on whose request the request of issuing bank
credit is issued

Party means an entity other than

2nd Advising Bank:
customer. –CDCS Guide, Point 4.2
-May or may not be named in credit
- Not having RMA with Bnf Bank
- CDCS Guide, Point 4.3.2
Role of applicant in credit operations:

- Request for issuance

- Request for subsequent amendment Issuing Bank is not obligated to

accept or to take note of such
- Waiver of discrepancy
request or waiver.
- CDCS Guide, Page no. 34

5
 6/10/2016

For the purpose of these rules:
Beneficiary means the party in
whose favour a credit is
issued.
Issue, Collate and Present stipulated
doc to the IB, CB, if any or NB
- CDCS Guide, Point 4.1.2
Article 2 : Definitions
Banking day means a day on
which:
- A Bank is regularly open &
- At a place at which an act
subject to this rules is to be
performed. [Saturday]
Meaning of regularly
Saturday (half day) [R 536]
- CDCS Guide, Point 4.4.1

Article 2 : Definitions
For the purpose of these rules:
Confirmation means a definite undertaking of the
confirming bank, in addition to that of the issuing bank,
to honour or negotiate a complying presentation.

 In addition to that = double assurance of payment.

 Why Confirmation required ????:
 What risk the confirming bank can assume usually:
 Country Risk
 Bank Risk
 Documentary Risk.

Confirming bank means the bank that

adds its confirmation to a credit upon the
issuing bank's authorization or request Authorization
Request

Effect of Silent Confirmation

CDCS Guide, Point 4.4.3

6
 6/10/2016

Article 2 : Credit
Credit means any arrangement, however named or described, that is
irrevocable and thereby constitutes a definite undertaking of the issuing
bank to honour a complying presentation.

However named principle applied.

Irrevocable principal uphold

 Up to UCP 400
 From UCP 500 to onward
Definite Undertaking.

Article 2: Issuing Bank Resolving Issues: CDCS Guide Page 79

Issuing bank means
the bank that issues a
credit at the request of
an applicant or on its
own behalf
Non Bank Issuance of LC [R-505]
Credit can be issued at the request of
applicant or
Its own behalf:
Two role in single transaction..
- CDCS Guide, Point 4.1.1

Article 2: Nominated Bank

• Discussion Agenda:

– Two situation: Applicable either one

Nominated Bank [indication OR]
means the bank with
which the credit is
available or any bank  First situation is applicable where
in the case of a credit credit is restricted to a particular bank.
available with any
bank.  Second situation is applicable where
credit is freely available.

7
 6/10/2016

Article 2: Presentation, Presenter

 Presentation means either the delivery of documents under a credit
to the issuing bank or nominated bank or the document so
delivered.

covers two scenarios :

"delivery of documents under a credit" means the actual receipt by

the issuing or nominated bank.
[Commentary of UCP 600]

"the documents so delivered" is mentioned to establish that it is not for the

bank to determine whether or not all the documents have been presented,
prior to the actual commencement of their review. [UpSkill 600]

Delivery of Doc: Actual delivery of document

So Deliverred : Documents have already been deliverred and
are in the Bank possession
- CDCS Guide, point 4.4.7

 Presenter means a beneficiary, bank or other party that makes a

presentation

Article 3: Interpretations

There are 12 Paragraphs in this articles.

The Drafting Group decided that, like definitions, the UCP would be
simplified by putting all the concepts that it considered necessary to
require interpretation in one article at the beginning of the rules.
– Commentary of UCP-600

Each concept will be interpreted “for the purpose of this rules” only.

8
 6/10/2016

Article 3: Paragraph 1
For the purpose of these rules:

Where applicable, words in the singular include the plural and in the plural
include the singular.

UCP 600 maintains singular format for drafting.

Where applicable:
The interpretation would not apply where its application would
change the meaning of the rule or distort practice.
for example: article 38:

Transferring Bank [always singular]

Article 3: Paragraph 2
A credit is irrevocable even if there is no indication to that effect.

Are the Irrevocability and

Independent principle
What does it same?
mean?

- Article 7 (c)
- Article 10 (a)
- Any communication among
the parties under credit etc.

9
 6/10/2016

Article 3: Paragraph 3
A document may be signed by handwriting, facsimile signature, perforated, signature,
stamp, symbol or any other mechanical or electronic method of authentication

Handwriting

Commonly seen:
Facsimile  Insurance document usually declaration under open cover
 Image Signature on Maersk line BL

Perforated

Stamp
Will these two
signature comply

Symbol

Article 3: Paragraph 3
A document may be signed by handwriting, facsimile signature, perforated signature,
stamp, symbol or any other mechanical or electronic method of authentication

A35) d
Mechanical

THIS CERTIFICATE IS COMPUTER GENERATED DOESN’T REQUIRE ANY SIGNATURE, HOWEVER

Electronic THIS CERTIFICATE IS AVAILABLE AT www.bestinspectionagency.com for verification.

THIS CERTIFICATE IS COMPUTER GENERATED DOESN’T REQUIRE ANY SIGNATURE

If credit requires any of the

A35) C
following requirement like
Document must be:

 Stamped,
 Countersigned,
 Inscribed,
 Undersigned

10
 6/10/2016

Article 3: Paragraph 4
A requirement for a document to be legalized, visaed, certified or similar will
be satisfied by any signature, mark, stamp or label on the document which
appear to satisfy the requirement.

Requirement that
document to be officialzed

 Authenticated,
 Validated,
 Averred
 Endorsed
Signature

Stamp
Article 14 (a)
Level
Article 34
Mark

Article 3: Paragraph 5…

Branches of a bank in different countries are considered to

be separate banks.
Historical Background

Corporate Head Office Vs Branch

Agency or other form of operations Vs Bank

Any two offices [ such as Branch and Head office]

ICC Official Opinion R-387

Including agencies or other form of operation.

[Centralized operation, outsourcing] ICC Official Opinion R-507

11
 6/10/2016

Article 3: Paragraph 6…
Terms such as "first class", "well known", "qualified", independent", "official",
"competent" or "local" used to describe the issuer of a document allow any issuer
except the beneficiary to issue that document.

Reason for general qualification

Article 3: Paragraph 7…

Unless required to be used in a document, words such as "prompt",

"immediately" or "as soon as possible" will be disregarded .

What does it mean

Reason for disregard

Article 3: Paragraph 8…
The expression "on or about" or similar will be interpreted as a stipulation that an
event is to occur during a period of five calendar days before until five calendar
days after the specified date, both start and end dates included.

Shipment On or about 6th April

1 2 3 4 5 6 7 8 9 10 11
five calendar days before five calendar days after

11 Days

12
 6/10/2016

Article 3: Paragraph 9,10,11,12

The words "to", "until", "till", "from" and "between" when used to determine a period
of shipment include the date or dates mentioned, and the words "before" and "after"
exclude the date mentioned

Shipment must be made from 10.01.2015 to 15.01.2015

Shipment must be made after 10.01.2015

The words "from" and "after" when used to determine a maturity date exclude the
date mentioned
A 15
10 days after the date of shipment or 10 days from the date
of shipment, where the date of shipment was 4 May, will be 14 May

The terms "first half" and "second half" of a month shall be construed respectively as the
1st to the 15th and the 16th to the last day of the month, all dates inclusive

The terms "beginning", "middle" and "end" of a month shall be construed respectively as
the 1st to the 10th, the 11th to the 20th and the 21st to the last day of the month, all
dates inclusive

A 14 (b) (ii)
The term "within" when followed by a date or a reference to a
determinable date or event includes that date or event date

“Presentation to be made within 14 May" or

“Presentation is to be made within credit validity (or credit expiry)"
where the expiry date of the credit is 14 May,

14 May is the last day upon which presentation is

allowed, provided that 14 May is a banking day.
Shipment to be made within 14 May"
14 May is non Banking Day Which date will be the
last date of shipment
A 14 (b) (i
( i)
For the purpose of calculation of a period of time, the term "within" when used in
connection with a date or event excludes that date or the event date in the
calculation of the period
Within 2 days of 6th June 2015 (date or event)

4 5 6 7 8
Two days before Two days after

5 Days

13
 6/10/2016

A 14 (a)
A14) a. When a credit uses phrases to signify time on
either side of a date or an event, the following shall apply:
A 14 (a) i

"not later than 2 days after (date or event)" means a

latest date. If an advice or document is not to be dated
prior to a specified date or event, the credit should so state.
A 14 (a) ii

ii. "at least 2 days before (date or event)" means that an

act or event is to take place not later than 2 days
before that date or event. There is no limit as to
how early it may take place.

Article 4 - Credits v. Contracts

 A credit by its nature is a separate transaction from the sale or

other contract on which it may be based.

 Banks are in no way concerned with or bound by such contract,

even if any reference whatsoever to it is included in the credit.

 Consequently, the undertaking of a bank to honour, to negotiate or

to fulfil any other obligation under the credit is not subject to
claims or defences by the applicant resulting from its relationships
with the issuing bank or the beneficiary.

14
 6/10/2016

Article 4: A credit by its nature is a separate transaction from the sale or

other contract on which it may be based

Sales or Other Contract

Lord Diplock said:

There are four autonomous though interconnected contractual relationships

involved:
United City Merchants (investments) Ltd Vs Royal Bank of Canada [Lloyd’s Law Report ,1979(2) page 498]

Buyer and seller [sales contract]

 Buyer and issuing bank
 Issuing Bank and Confirming Bank
 Confirming bank and beneficiary

Other contract may also mean transaction

related to service or performance contract.

Article 4 - Relationship between Credit Vs. Sales of other contract

 A credit by its nature is a separate transaction from the sale

or other contract on which it may be based.

How it is separated

 Consequently, the undertaking of a

bank to honour, to negotiate or to fulfil
any other obligation under the credit is claims or defences by the
not subject to applicant resulting from
its relationships with the
issuing bank or the
beneficiary.
A beneficiary can in no case avail
itself of the contractual relationships
existing between banks or between
the applicant and the issuing bank.

15
 6/10/2016

Discourage to include proforma invoice as an integral part of the LC

An issuing bank should discourage any attempt by the applicant

to include, as an integral part of the credit, copies of the
underlying contract, proforma invoice and the like

It should also be noted by applicants that the attaching of a

proforma invoice or contract as an integral part of the
documentary credit offers limited protection with regard to the
goods and their standard or quality. Such issues are resolved by
requiring the necessary documents and the data that is to
appear therein. – Commentary of UCP-600

Article 4 - Credits v. Contracts

A credit by its nature is a separate transaction from the sale or other

contract on which it may be based.
Banks are in no way concerned with or bound by such contract, even
if any reference whatsoever to it is included in the credit.
Consequently, the undertaking of a bank to honour, to negotiate or to
fulfil any other obligation under the credit is not subject to claims or
defences by the applicant resulting from its relationships with the
issuing bank or the beneficiary.

A beneficiary can in no case avail itself of the contractual

relationships existing between banks or between the applicant
and the issuing bank.

An issuing bank should discourage any attempt by the applicant to

include, as an integral part of the credit, copies of the underlying
contract, proforma invoice and the like

16
 6/10/2016

Article 5 - Documents v. Goods, Services or Performance

Banks deal with documents and not with goods,

services or performance to which the documents
may relate.

A reimbursing bank's charges are for the

account of the issuing bank. However, if the
charges are for the account of the beneficiary,
…… they shall be deducted

A reimbursing bank's charges are for the

account of the issuing bank. However, if the
charges are for the account of the beneficiary,
…… they shall be deducted

17