UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS

(UCP 600)

  • International Chamber of Commerce (ICC), is a World Business Organization, its headquarters are based at Paris, it has developed and designed standards, rules and reference guides for international trade. UCP 600 is also designed by ICC and the rules contained therein govern letter of credit transactions worldwide.
  • UCP 600 became effective from 1st July 2007
  • UCP 600 is comprised of 39 Articles. These are a comprehensive and practical working aid to bankers, lawyers, importers, and exporters, transport executives, educators, and all others who are engaged and interested in letter of credit transactions.
banking laws and practices  UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS

Some of the important Articles of UCP 600

Article 1

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.

Article 2

It comprises definitions of certain expressions which are given below:

Advising bank: means the bank that advises the credit at the request of the issuing bank.

Applicant: means the party on whose request the credit is issued.

Banking day: means a day on which a bank is regularly open at the place at which an act subject to these rules is to be performed

Beneficiary: means the party in whose favor a credit is issued.

Complying presentation: means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

Confirmation: means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honor or negotiate a complying presentation.

Confirming bank: means the bank that adds its confirmation to a credit upon the issuing bank‘s authorization or request.

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

Honour means:

  • To pay at sight if the credit is available by sight payment
  • To incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment
  • To accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Issuing bank: means the bank that issues a credit at the request of an applicant or on its own behalf.

Negotiation: means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

Nominated Bank: means the bank with which the credit is available or any bank in the case of a credit available with any bank.

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

Presenter:  means a beneficiary, bank or other party that makes a presentation.

Article 3

A credit is irrevocable even if there is no indication to that effect.

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

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 honor, to negotiate or to fulfill any other obligation under the credit is not subject to claims or defenses 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, Performa invoice and the like.

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.

Article 7

Issuing Bank Undertaking

Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that they constitute a complying presentation, the issuing bank must honor if the credit is available by:

  1. i. Sight payment, deferred payment or acceptance with the issuing bank;
  2. ii. Sight payment with a nominated bank and that nominated bank does not pay;
  3. iii. Deferred payment with a nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;
  4. iv. Acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
  5. v. Negotiation with a nominated bank and that nominated bank does not negotiate.
  6. vi. An issuing bank is irrevocably bound to honor as of the time it issues the credit.

An issuing bank undertakes to reimburse a nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. 

An issuing bank’s undertaking to reimburse a nominated bank is independent of the issuing bank’s undertaking to the beneficiary.

Article 8

Confirming Bank Undertaking

Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must:

  1. i. Honor, if the credit is available by
  2. a. Sight payment, deferred payment or acceptance with the confirming bank;
  3. b. Sight payment with another nominated bank and that nominated bank does not pay;
  4. c. Deferred payment with another nominated bank and that nominated bank does not incur its deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;
  5. d. Acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;
  6. e. Negotiation with another nominated bank and that nominated bank does not negotiate.
    1. ii. Negotiate, without recourse, if the credit is available by negotiation with the confirming bank.
    2. iii. A confirming bank is irrevocably bound to honor or negotiate as of the time it adds its confirmation to the credit.

A confirming bank undertakes to reimburse another nominated bank that has honored or negotiated a complying presentation and forwarded the documents to the confirming bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity.

A confirming bank’s undertaking to reimburse another nominated bank is independent of the confirming bank‘s undertaking to the beneficiary.

Confirming Bank Undertaking

If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation.

UCP 600 – Article 11

Tele-transmitted and Pre-Advised Credits and Amendments

An authenticated tele-transmission 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 tele-transmission states “full details to follow” (or words of similar effect), or states that the mail confirmation is to be the operative credit or amendment, and then the tele-transmission 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 tele-transmission.

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.

Article 14

Standard for Examination of Documents

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.

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.

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.

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.

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.

f.  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 fulfill the function of the required document and otherwise complies with sub-article 14 (d).

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

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.

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

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.

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

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.

Article 15

Complying Presentation

When an issuing bank determines that a presentation is complying, it must honor.

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

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

Article 18

Commercial Invoice

A commercial invoice:

  1. i. Must appear to have been issued by the beneficiary (except as provided in article 38);
  2. ii. Must be made out in the name of the applicant (except as provided in sub-article 38 (g));
  3. iii. Must be made out in the same currency as the credit; and
  4. iv. Need not be signed.

A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, and its decision will be binding upon all parties, provided the bank in question has not honored or negotiated for an amount in excess of that permitted by the credit.

The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.

Article 20

Bill of Lading

A bill of lading, however named, must appear to:

  1. i. Indicate the name of the carrier and be signed by:

The carrier or a named agent for or on behalf of the carrier, or

The master or a named agent for or on behalf of the master

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

A bill of lading, however named, must appear to:

ii. Indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

Pre-printed wording, or

  1. ii. An on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

If the bill of lading contains the indication “intended vessel” or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.

Indicate shipment from the port of loading to the port of discharge stated in the credit.

  1. iii. Be the sole original bill of lading or, if issued in more than one original, be the full set as indicated on the bill of lading.

V. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back bill of lading). Contents of terms and conditions of carriage will not be examined.

vi. Contain no indication that it is subject to a charter party.

For the purpose of this article, transshipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.

  1. i. A bill of lading may indicate that the goods will or may be transshipped provided that the entire carriage is covered by one and the same bill of lading.
  2. ii. A bill of lading indicating that transshipment will or may take place is acceptable, even if the credit prohibits transshipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.

Clauses in a bill of lading stating that the carrier reserves the right to transship will be disregarded.

Article 23

Air Transport Document

An air transport document, however named, must appear to:

  1. i. Indicate the name of the carrier and be signed by:

The carrier, or

a. A named agent for or on behalf of the carrier

  1. b. Any signature by the carrier or agent must be identified as that of the carrier or agent.

c. Any signature by an agent must indicate that the agent has signed for or on behalf of the carrier.

  1. ii. Indicate that the goods have been accepted for carriage.
  1. iii. Indicate the date of issuance. This date will be deemed to be the date of shipment unless the air transport document contains a specific notation of the actual date of shipment, in which case the date stated in the notation will be deemed to be the date of shipment.

Any other information appearing on the air transport document relative to the flight number    and date will not be considered in determining the date of shipment.

  1. iv. Indicate the airport of departure and the airport of destination stated in the credit.

Be the original for consignor or shipper, even if the credit stipulates a full set of originals.

  1. v. Contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage. Contents of terms and conditions of carriage will not be examined.

For the purpose of this article, transshipment means unloading from one aircraft and reloading to another aircraft during the carriage from the airport of departure to the airport of destination stated in the credit.

  1. c.
    1. i. An air transport document may indicate that the goods will or may be transshipped, provided that the entire carriage is covered by one and the same air transport document.
    2. ii. An air transport document indicating that transshipment will or may take place is acceptable, even if the credit prohibits transshipment.

Article 27

Clean Transport Document

A bank will only accept a clean transport document. A clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging. The word “clean” need not appear on a transport document, even if a credit has a requirement for that transport document to be “clean on board”.

Article 31

Partial Drawings or Shipments

Partial drawings or shipments are allowed.

A presentation consisting of more than one set of transport documents evidencing shipment commencing on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering a partial shipment, even if they indicate different dates of shipment or different ports of loading, places of taking in charge or dispatch.

If the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

A presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

A presentation consisting of more than one courier receipt, post receipt or certificate of posting will not be regarded as a partial shipment if the courier receipts, post receipts or certificates of posting appear to have been stamped or signed by the same courier or postal service at the same place and date and for the same destination.

Article 33

Hours of Presentation

A bank has no obligation to accept a presentation outside of its banking hours.

Article 36

Force Majeure

A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.

A bank will not, upon resumption of its business, honor or negotiates under a credit that expired during such interruption of its business.

Article 38

Transferable Credits

A bank is under no obligation to transfer a credit except to the extent and in the manner expressly consented to by that bank.

For the purpose of this article:

Transferable credit means a credit that specifically states it is “transferable”. A transferable credit may be made available in whole or in part to another beneficiary (“second beneficiary”) at the request of the beneficiary (“first beneficiary”).

Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.

Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.

Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees, costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.

A credit may be transferred in part to more than one second beneficiary provided partial drawing or shipments are allowed.

A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary.

Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearly indicate those conditions.

If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain un-amended.

The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:

  • The amount of the credit,
  • Any unit price stated therein,
  • The expiry date,
  • The period for presentation, or
  • The latest shipment date or given period for shipment,

The first beneficiary has the right to substitute its own invoice and draft, if any, for those of a second beneficiary for an amount not in excess of that stipulated in the credit, and upon such substitution the first beneficiary can draw under the credit for the difference, if any, between its invoice and the invoice of a second beneficiary.

If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create  discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.

The first beneficiary may, in its request for transfer, indicate that honor or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the credit. This is without prejudice to the right of the first beneficiary in accordance with sub-article 38 (h).Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank.

Article 39

Assignment of Proceeds

The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law. This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit.

Uniform Rules for Contract Guarantee ICC publication # 325

These rules apply to any guarantee, bond, indemnity, surety or similar undertaking ( guarantee) which states that it is subject to uniform rules for contract guarantee of the international chamber of commerce (publication # 325)

The important rules are given hereunder:

Tender Guarantee– In this type of guarantee, the guarantor undertakes that in the event of default by the tendered (Principal) in fulfillment of his obligations resulting from submission of tender, to make payment to the beneficiary within the limits of a stated sum of money.

Uniform Rules for Contract Guarantee

Tender guarantees ensure that the party submitting the tender will not withdraw his tender before adjudication and that he will accept and sign the contract if and when awarded to him.

The beneficiary that is the party awarding the contract may claim under the guarantee up to the stated sum in the event of default by the contractor.

Uniform Rules for Contract Guarantee

The tender guarantees is issued by the contractor’s bank at his request in favor of contract awarding party (the beneficiary)

It is usually one percent to five percent of tender value

Tender guarantee has a fixed expiry date

Performance Guarantee:

It is an undertaking given by a bank etc., (Guarantor) whereby the guarantor undertakes to make payment to the beneficiary within the limits of stated sum of money on non performance of certain contractual obligations of the contract. It is usually for a fixed percentage of 5 % to 10% of contract value.

Uniform Rules for Contract Guarantee

Parties in performance Guarantee

Guarantor

Principal (Tenderer)

Beneficiary (the Party inviting tender)

Uniform Rules for Demand Guarantees—(URDG 458)

These rules are contained in ICC brochure # 458. Important rules are given hereunder:

A demand is required to be made by the beneficiary to the issuing bank in accordance with terms of guarantee and before its expiry.

Duty of Guarantor

To pay to beneficiary the amount stated on demand

Rules as contained in various articles:

Counter guarantee to be furnished by the principal in favor of guarantor

All instructions should be clear and precise

All guarantees should stipulate the following parties:

Principal (contractor)

Beneficiary   (the party to whom payment is to be made by bank etc on demand in case of default by the principal)

Guarantor (Bank/ Insurance Company etc.)

Specify the underline transaction for which the guarantee issued:

Maximum amount along with the currency in which the amount is payable

  • Expiry date / event
  • Terms for demanding payment
  • All guarantees and counter guarantees shall be irrevocable
  • Guarantee shall be effective from the date of issue
  • Documents inconsistent with terms shall be refused by the guarantor.
  • Examination of documents by guarantor in reasonable time.
  • In case of deciding refusal by the guarantor, beneficiary should be notified immediately
  • Guarantor to act in good faith and with reasonable care
  • Liability of guarantor to the extent of terms specified in guarantee
  • In case of demand received by the guarantor, principal to be informed by guarantor.
  • Termination of guarantee on payment of entire amount/ demand
  • Demand shall be made before expiry date, in accordance with the terms
  • Demand to be made/ documents to be presented at the place of issue of guarantee
  • Demand for payment should be made in writing and required documents to be attached there with.
  • Guarantees shall be governed by the law applicable at the place of issue of guarantee
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