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Guide to Documentary Credits
Fourth Edition
Contributing editor: Gary Collyer
ISBN 978-1-84516-467-6
9 781845 164676
The ifs School of Finance is a not-for-profit professional body and registered charity, incorporated by Royal Charter.
The Institute of Financial Services is a division of the ifs School of Finance, a registered charity, incorporated by Royal Charter. The Institute believes that the sources of infor ation upon !hich the boo" is based are reliable and has ade every effort to ensure the co plete accuracy of the te#t. $o!ever, neither the Institute, the author nor any contributor can accept any legal responsibility !hatsoever for conse%uences that ay arise fro any errors or o issions or any opinion or advice given. &part fro any fair dealing for the purpose of research or private study, or criticis or revie!, as per itted under the Copyright, 'esigns and (atents &ct )*++, this publication ay be reproduced, stored or trans itted, in any for or by any eans, only !ith the prior per ission in !riting of the publisher, or in the case of reprographic reproduction in accordance !ith the ter s and licences issued by the Copyright ,icensing &gency. -n%uiries concerning reproduction outside those ter s should be addressed to the publisher.s agents at the address belo!: ifs School of Finance ifs $ouse /0* 1urgate ,ane Canterbur y 2ent CT) 345 T 6)337 +)+86* F 6)337 7+/99) editorial:ifslearning.ac.u" ; !!!.ifslearning.ac.u" ;arning: the doing of an unauthorised act in relation to a copyright !or" in both a civil clai for da ages and cri inal prosecution. ay result
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Copyright acknowledgements
ICC Uniform ocumentar! Credits Re#ision
Rules 200"
for
Bank-to-Bank
Reimbursements
under
ICC (ublication ?o. 73@- IS1? *7+-*3-+/3-66/@6 Copyright > 366+ International Cha ber of Co (aris &ll rights reserved. ICC Uniform Customs and $ractice for Credits ICC (ublication ?C 866 IS1? *3-+/3-)3@74 Copyright > Co erce 3668, International Cha ber of erce AICCB,
ocumentar!
ICC International Standard Bankin% $ractice for the &'amination of ocuments Under ocumentar! Credits 2013 Re#ision for UC$ (00 ICC (ublication ?C 7/@- IS1? *7+-*3-+/3-6)++/ Copyright > 36)9 International Cha ber of Co (aris &vailable !!!.iccboo"s.co at erce AICCB,
-#tracts fro IS( *+ > )**+ Institute of International 1an"ing ifs School of Finance iii
2013
)uide to Credits
ocumentar!
,a! D (ractice, Inc. &ll Rights Reserved. Reproduction of any part of this !or" by any eans !ithout e#press !ritten per ission is prohibited. For further infor ation about IS(*+ or its Efficial Co entary, see !!!.iiblp.org
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ifs School of Finance 2013
Copyright Note to students acknowledgements

For the purpose of consistency this study Fdocu entary credit.. $o!ever, F'C., Fletter of Fcredit. are also !idely used in the sa Fdocu entary credit.. Students should decide preference for describing the product. te#t refers to credit., F,C. or e conte#t as on their o!n
Content s
) 3 9 / @ 8 7 + * )6 )) )3 )9
1asic principles of docu entary credits The sales contract 'ocu entary credits: types, uses and characteristics Issuing a docu entary credit &dvising a docu entary credit Ship ent of goods and preparation of docu ents Insurance docu ents Financial, co ercial and other official docu ents -#a ination of docu ents Settle ent Ether products relating to a docu entary credit &nalysis of ICC rules <oney laundering and terrorist financing 1ibliography &ns!ers to revie! %uestions Inde#
) )@ @@ )39 )/) )@) )+@ )*7 33@ 377 969 9)7 9*7 /69 /67 /)@
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Chapter )
Basic principles of documentary credits
Learning ob ecti!es This chapter includes a brief history of the docu entary credit. It also provides a short introduction to the roles and responsibilities of the ore co on entities that participate in a docu entary credit. 1y the end of this chapter, students should be able to: describe the origins of a docu entary creditG define creditG a docu entary ain responsibilities of an applicant and
describe the a beneficiaryG
identify the types of role perfor ed by ban"s in a docu entary credit and their ain responsibilitiesG and outline the structure and flo! of a basic docu entary credit transaction.
"." Brief history

$istorians have been able to trace the use of letters of credit bac" as early as ancient -gypt and 1abylon. $o!ever, it !as not until the eighteenth and nineteenth centuries that the ter Fletter of credit. beca e !idely used and recognised. ifs School of Finance )
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'uring this period it !as co on for erchants to see" out ne! ar"ets and a"e use of the trading opportunities offered by such ar"ets. In order to provide their clients !ith a eans of obtaining cash during their overseas travels, ban"s in the ;estern !orld introduced the concept
Brief histor!
of a traveller.s letter of credit. This docu ent avoided the need for ban" clients to carry large su s of oney, !hich could be lost or stolen. In addition to the traveller.s letter of credit it !as usual for a for al letter of introduction to be addressed to the ban".s overseas correspondent or agent. This letter, usually sent in advance of travel, !ould indicate that the client !as a valued custo er of the ban". It !ould also re%uest that the correspondent or agent provide the client !ith any necessary assistance. & traveller.s letter of credit !as, literally, in the for of a letter. It indicated that the issuing ban" !ould honour bills of e#change dra!n on it by the correspondent or agent in respect of a ounts paid to the na ed traveller, plus any charges incurred by the correspondent or agent. There !ould also be an indication of a a#i u a ount that could be dra!n and an e#piry date. -ach correspondent or agent !as re%uired to indicate on the original letter of credit details of a ounts paid and the relevant dates. The client al!ays retained possession of the original letter of credit. The origins of the docu entary credit began !ith a Fletter. provided by a ban" to a correspondent or agent. =pon production of that letter, Fcredit. !as provided to a na ed client in the for of oney. Fro the )+/6s, docu entary credits began to serve as a eans of facilitating pay ent for foreign trade transactions. It ay !ell be that, as a result of personal contacts ade during their travels, erchants !ere able to arrange for goods to be sent fro overseas. Ene of the oldest available e#a ples of a traveller.s-type letter of credit can be found in the archives of the =S ,ibrary of Congress. It !as issued in ;ashington on / 5uly )+69 and signed by the then (resident of the =nited States, Tho as 5efferson. It !as provided to e#plorers Captain <eri!ether ,e!is and Captain ;illia Clar" as they departed on their fa ous e#pedition through the !estern part of the =nited States. The letter read: ;ashington. =S of & erica. 5uly /. )+69. 'ear Sir In the Hourney !hich you are about to underta"e for the discovery of the course and source of the <issouri and of the ost convenient !ater co unication fro thence to the (acific ocean, your party being s all, it is to be e#pected that you !ill encounter considerable dangers fro of the Indian inhabitants. Should you escape ifs School Finance
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credits those dangers and reach the (acific ocean, you i prudent to haIard a return the
1* Basic +rinci+les of documentar!
ay find it
Brief histor!
sa e !ay, and be forced to see" a passage round by sea, in such vessels as you ay find on the ;estern coast. 1ut you !ill be !ithout oney, !ithout clothes, D other necessariesG as a sufficient supply cannot be carried !ith you fro hence. Jour resource in that case can only be in the credit of the =S for !hich purpose I hereby authorise you to dra! on the Secretaries of State, of the Treasury, of ;ar D of the ?avy of the =S according as you ay find your draughts !ill be ost negociable, for the purpose of obtaining oney or necessaries for yourself D your en: and I sole nly pledge the faith of the =nited States that these draughts shall be paid punctually at the date they are ade payable. I also as" of the Consuls, agents, erchants D citiIens of any nation !ith !hich !e have intercourse or a ity to furnish you !ith those supplies !hich your necessities ay call for, assuring the of honorable and pro pt retribution. &nd our o!n Consuls in foreign parts !here you ay happen to be, are hereby instructed D re%uired to be aiding D assisting to you in !hatsoever ay be necessary for procuring your return bac" to the =nited States. &nd to give ore entire satisfaction D confidence to those !ho ay be disposed to aid you, I Tho as 5efferson, (resident of the =nited States of & erica, have !ritten this letter of general credit for you !ith y o!n hand, and signed it !ith y na e.... Th: 5efferson In order to obtain global understanding and a co on interpretation and application of docu entary credits, the International Cha ber of Co erce AICCB developed and published its first version of the Uniform Customs and $ractice for ocumentar! Credits A ore co only "no!n as =C(B in )*99 AICC publication =C( +3B. Subse%uent revisions occurred in )*@) A=C( )@)B, )*83 A=C( 333B, )*7/ A=C( 3*6B, )*+9 A=C( /66B, )**9 A=C( @66B and 3667 A=C 866B. =C( 866 is the current version and ca e into effect on ) 5uly 3667. These rules are supple ented by: ICC Uniform Under ocumentar! 73@BG Rules Credits for Bank-to-Bank Reimbursements
A=RR
ICC Su++lement to the Uniform Customs and $ractice for ifs School of Finance @ ocumentar! Credits for &lectronic $resentation Ae=C(B
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versiKn ).)G and
1* Basic +rinci+les of documentar! credits
International Standard Bankin% $ractice for the &'amination of ocuments Under ocumentar! Credits AIS1(B.
Brief histor!
"."." #so de las reglas y de otras publicaciones de la $CC dentro de este te%to de estudio
Todas las publicaciones %ue se tratan en este te#to de estudio se pueden obtener en la librerLa online de la ICC en: http:MM!!!.iccboo"s.co M$o eM$o e.asp# o desde las oficinas o locales de la ICC. -l capLtulo )3 de este te#to de estudio analiIa en detalle las disposiciones de las =C( 866, e=C(, IS1( 7/@, =RR 73@ e IS1( *+. Todos los detalles de las publicaciones pertinentes a la ICC u otros organis os se encuentran recogidas en la 1ibliografLa.
".& Definici'n documentario
de
cr(dito
-n tNr inos uy sencillos, un crNdito docu entario es un co pro iso irrevocable e itido por un banco por el cual se co pro ete a realiIar el pago al deno inado co o beneficiario sie pre y cuando se presenten los docu entos estipulados en el crNdito cu pliendo las condiciones y tNr inos del crNdito. #C) *++, articulo & un OcrNditoP es todo acuerdo, co o%uiera %ue se deno ine o describa, %ue es irrevocable y por el %ue se constituye un co pro iso fir e del banco e isor para honrar una presentaciKn confor e. -l is o artLculo define el tNr ino OpresentaciKn confor eP co o Ouna presentaciKn %ue estQ en confor idad con los tNr inos y las condiciones del crNdito segRn las disposiciones aplicadas de este regla ento y de la prQctica bancaria internacional. & pesar de %ue cual%uier banco puede e itir un crNdito docu entario cual%uier e presa o persona puede actuar co o e isor. Si un e isor debe dispone de los edios financieros para cu plir con los tNr inos asu idos en el crNdito docu entario puede deter inar %uiNn es el beneficiario. -l beneficiario deberQ solicitar el asesora iento de los bancos sobre la idoneidad del e isor de un crNdito docu entario, ya %ue pueden e#istir diversos riesgos %ue deben ser obHeto de e#a en. (or eHe plo la disponibilidad de divisas, riesgos polLticos y la solvencia del e isor son los proble as potenciales %ue pueden afectar a cual%uier pago debido al benficiario. (ara los efectos de estudio recogido en este te#to nos centrare os en los crNditos ifs School of Finance 7 docu entarios %ue son e itidos por bancos.
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".- )artes inter!inientes en un cr(dito documentario, funciones y responsabilidades

-n este apartado se e#ponen las principales funciones del ordenante y del beneficiario. Ta biNn se detallan el tipo de funciones %ue son realiIadas por parte de los bancos y de sus responsabilidades en sun funciones.
".-." .rdenante /tambi(n conocido como comprador o importador0

#C) *++, art1culo & define al OordenanteP co o Ola parte %ue solicita e itir el crNditoP. Cabe seSalar %ue el ordenante es el responsable de co pletar el for ulario de solicitud para la e isiKn, o la odificaciKn de un crNdito docu entario, no es una parte del crNdito docu entario. -l uso del tNr ino OparteP en la definiciKn del ordenante no estQ destinada a i plicar %ue el ordenante es una parte del crNdito docu entario. -s a fin de refleHar el concepto de OordenanteP co o una entidad distinta a la de clientes reales del banco. -n este sentido cabe seSalar: ,a interacciKn entre el ordenante y su banco, es anterior a la e isiKn de un crNdito docu entario, estQ fuera del conte#to de las =C( 866. Tras la e isiKn de un crNdito docu entario, el ordenante podrQ solicitar posterior ente una odificaciKn de sus tNr inos y condiciones, o proporcionar un levanta iento de las discrepancias %ue han sido identificadas por el banco e isor. -l banco e isor no estQ obligado a aceptar o a to ar nota de la solicitud o de la renuncia. ayor detalle Qs adelante en
-stas cuestiones se analiIan con este te#to de estudio.
,a principal responsabilidad de un ordenante es rellenar el for ulario de solicitud del crNdito en su banco. Cada banco tendrQ su propio estilo de for ulario de solicitud, aun%ue los ca pos individuales suelen seguir la estructura de un ensaHe S;IFT <T766. A(ara obtener Qs infor aciKn sobre ensaHes S;IFT, consulte !!!.s!ift.co B.
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$arties in#ol#ed in a documentar! credit, and their roles and res+onsibilities
-l principal propKsito de un crNdito docu entario es pagar la co pra del ordenante, y no la de investigar o ad inistrar el correspondiente contrato de co praventa o pro for a. (or lo tanto al co pletar el for ulario de solicitud, el ordenate debe: (roporcionar a su banco instrucciones claras y precisas, evitando toda for a de a bigTedad en la descripciKn de los tNr inos y condiciones %ue debe cu plir la parte del beneficiario.
Tener conoci iento de los docu entos %ue son necesarios para la i portaciKn de las ercancLas, o para evidenciar la entrega de los servicios o prestaciones %ue debe facilitar el beneficiario. (roporcionar detalles sobre el tipo, e isiKn Asi procedeB y el contenido de la infor aciKn de los docu entos %ue se han de presentar. -sto incluye cual%uier referencia a las especificaciones y re%uisitos de calidad %ue deben evidenciar uno o Qs de esos docu entos. -specificar %ue productos re%uieren o estQn suHetos a una for a de inspecciKn, indicar clara ente el tipo de docu ento y, en su caso, el no bre o el tipo de e presa Apor eHe plo, la presentaciKn de un certificado de control e#pedido por una e presa de inspecciKn o de calidad, indicando o no el no bre de la e presaB.
&segurarse de %ue todas las condiciones, y los docu entos %ue se solicitan, estQn de acuerdo con el contrato de co praventa o pro for a acordados con el beneficiario. -ste for ulario de solicitud, una veI ter inado y aprobado, bien sea de for a online o rellenado y fir ado de for a anual por el ordenante, actuarQ co o una solicitud de su banco A%ue se darQ a conocer co o banco e isorB para e itir un crNdito docu entario irrevocable a favor del beneficiario designado. ,a solicitud se puede presentar de for a electrKnica o en papel.
".-.& Beneficiario /tambi(n conocido como !endedor o e%portador0

#C) *++, article & defines a Fbeneficiary. as Fthe party in !hose favour a credit is issued.. & beneficiary should revie! the docu entary credit upon its receipt to deter ine if its ter s and conditions are acceptable. If not, the beneficiary should contact the applicant and re%uest an a end ent. It is advisable that only !hen the docu entary ifs Finance credit is School in of an acceptable for should the beneficiary *
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credits production or ship ent of co ence or arrange anufacture, the goods, or provide the re%uired service or perfor ance.
1* Basic +rinci+les of documentar!
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Follo!ing ship ent or dispatch of the goods, or !hen the re%uired service or perfor ance has been provided, the beneficiary !ill issue, collate and present the stipulated docu ents to the issuing ban", a confir ing ban" Aif anyB, or a no inated ban" for honour or negotiation.
".-.&." $ssuing bank /also referred to as the opening bank0

#C) *++, article & defines an Fissuing ban". as Fthe ban" that issues a credit at the re%uest of an applicant or on its o!n behalf.. &n issuing ban" issues its docu entary credit in favour of a beneficiary and, in so doing, incorporates its irrevocable and independent underta"ing to honour ie to pay, to accept a draft and pay at aturity, or to incur a deferred pay ent underta"ing and pay at aturity provided: todos los docu entos serQn presentados tal y co o se estipulan en el crNdito docu entarioG y el beneficiario cu plirQ con todos los tNr inos y condiciones del crNdito docu entario. In the conte#t of an irrevocable underta"ing, #C) *++, article & defines Fcredit. as Fany arrange ent, ho!ever na ed or described, that is irrevocable and thereby constitutes a definite underta"ing of the issuing ban" to honour a co plying presentation.. #C) *++, sub2article 3/a0 highlights the separateness of the docu entary credit fro the sales contract. #C) *++, art1culo 3/a0 -l crNdito, por su naturaleIa, es una operaciKn independiente de la venta o de cual%uier otro contrato en el %ue puede estar basado. ,os bancos no estQn afectados ni vinculados por tal contrato, aRn cuando en el crNdito se incluya alguna referencia a este. (or lo tanto, el co pro iso de un banco de honrar, negociar o cu plir cual%uier otra obligaciKn en virtud del crNdito no estQ suHeta a recla aciones o e#cepciones por parte del ordenante resultantes de sus relaciones con el banco e isor o con el beneficiario. &n irrevocable underta"ing is enforceable against an issuing ban" even if an applicant is unable or un!illing to rei burse it. ifs School of Finance ))
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".-.&.& Banco a!isador

#C) *++, art1culo & define a un Obanco avisadorP co o Oel banco %ue avisa el crNdito a peticiKn del banco e isorP. (ara una operaciKn tranfronteriIa, un banco e isor suele trans itir electrKnica ente, o enviar, un crNdito docu entario a un banco del paLs del beneficiario con el %ue antiene una relaciKn de banco corresponsal, siendo este banco el %ue avisa al beneficiario. -ste banco es conocido co o Obanco avisadorP. ,a trans isiKn de un crNdito docu entario a travNs de un banco avisador se realiIa ediante un ensaHe S;IFT <T766.
".-.&.- Nominated bank

#C) *++, article & defines a Fno inated ban". as Fthe ban" !ith !hich the credit is available or any ban" in the case of a credit available !ith any ban".. &n issuing ban", at the re%uest of an applicant, or even as a atter of ban" policy, ay a"e a docu entary credit available for pay ent, acceptance, deferred pay ent or negotiation !ith a na ed ban". This ban" !ill usually be located in the country of the beneficiary. & docu entary credit ay also indicate that it is available !ith any ban", but this is also usually restricted, by reference in the docu entary credit to an e#piry place Aie a countryB, and to any ban" located in that e#piry place. In either event, a ban" that agrees to act on a no ination of an issuing ban" to pay, accept, incur a deferred pay ent underta"ing or negotiate, !ill be "no!n as a no inated ban". ?ote that a docu entary credit ay be ade available !ith the issuing ban" only. In this event, there is no no inated ban". & na ed no inated ban" usually, but not necessarily, also acts as an advising ban".
".-.&.3 Confirming bank

#C) *++, article & defines a ban" that adds its confir ation to ban".s authorisation or re%uest.. Fconfir ation. as Fa definite underta"ing of the confir of the issuing ban", to honour )3 Fconfir ing ban". as Fthe a credit upon the issuing This article also defines ing ban", in addition to that or negotiate a co plying ifs School of Finance
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res+onsibilities presentation..
$arties in#ol#ed in a documentar! credit, and their roles and
& ban" that adds its confir ation to a docu entary credit, upon the authorisation or re%uest of an issuing ban", provides a beneficiary
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!ith an additional irrevocable and independent underta"ing that is separate fro that of the issuing ban". If confir ation is added, the docu entary credit should be ade available !ith the confir ing ban" for honour or negotiation. It is co on for a confir ing ban" to also be an advising and no inated ban".
".-.Goods
;hen a docu entary credit covers the purchase of goods, those goods are to be shipped or dispatched according to the ter s and conditions specified. Ship ent or dispatch !ill be evidenced by the docu ents re%uired by, and presented under, the docu entary credit. &n applicant !ill usually re%uire these docu ents to obtain clearance and delivery of the goods upon arrival. ;hen co pleting a docu entary credit application for , one of the fields to be co pleted by the applicant is the description of the goods, services or perfor ance. -very docu entary credit should contain a description that concisely describes !hat is re%uired to be shipped, dispatched or rendered by the beneficiary.
".-.3 Documents, reimbursement
settlement
and
#C) *++, art1culo & define el tNr ino OhonrarP. #C) *++, 5honrar6 art1culo &4 Definici'n de
a. pagar a la vista si el crNdito es disponible para pago a la vista. b. contraer un co pro iso de pago diferido y pagar al venci iento si el crNdito es disponible para pago diferido. c. aceptar una letra de ca bio AOgiroPB librada por el beneficiario y pagar al venci iento si el crNdito es disponible para aceptaciKn.
)/
-l
is o artLculo define el ter ino OnegociaciKnP. ifs School of Finance

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#C) *++, article &4 Definici'n de 5negociaci'n6 . . . la co pra por el banco designado de giros Alibrados sobre un banco distinto del banco designadoB yMo docu entos al a paro de una presentaciKn confor e, anticipando o
)@
acordando anticipar fondos al beneficiario el o antes del dLa hQbil bancario en %ue el banco designado deba ser ree bolsado. ;hile a no inated ban" ay choose !hether to honour or negotiate under a docu entary credit, a no inated ban" that is also a confir ing ban" ust honour or negotiate. $onour or negotiation is effected provided a co plying presentation has been ade by or on behalf of the beneficiary. =pon honour or negotiation, a no inated ban" is re%uired to dispatch the docu ents to the issuing ban" according to the instructions stated in the docu entary credit. Rei burse ent that is due to a no inated ban" for any honour or negotiation ade to a beneficiary is effected in accordance !ith the rei burse ent condition that should be specified in the docu entary credit. This ay, for e#a ple, allo! for the no inated ban" to: debit an account of the issuing ban" that is held !ith the G clai rei burse ent fro rei bursing ban"B or to clai as the ;orld 1an"G or another ban" A"no!n as a fro a funding institution such
be rei bursed by the issuing ban" !hen it is deter ined by the that the docu ents represent a co plying presentation. 'ocu ents, other than any bill of e#change that ay have been re%uired, are released to an applicant against preagreed settle ent ter s.
".3 7tructure of a basic documentary credit transaction

The structure of a basic docu entary credit transaction, !hich covers the ove ent of goods, is described in Figure ).). There are a nu ber of variations to this structure and these are e#plained later in this study te#t. & trade transaction !ill nor ally begin !ith the establish ent of a purchase or sale contract, or pro for a invoice, bet!een a buyer and seller. & ongst other details such as the nature of the goods, the a ount, the buyer.s and seller.s na es, etc, the contract or pro for a invoice !ill indicate the ter of s of pay ent. )8 ifs School Finance
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res+onsibilities For the e#a ple in Figure ).), the contract or pro for a indicates a docu entary credit as the chosen ethod of settle ent.
$arties in#ol#ed in a documentar! credit, and their roles and
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Figure "."
7tructure of a basic documentary credit transaction
Uendedor AbeneficiarioB
). Contrato
Co prador AordenanteB
@. Ship entM dispatch

/. &viso de crNdito docu entario
Goods
)3. T a"es delivery

)6. 'ocu entos )). Settle ent 3. 'ocu entary credit application
1anco avisadorMconfir ador
7. (ago
8. 'ocu entos
+. 'ocu entos *. Ree bolso 9. Credito docu entario
1anco e isor
)+
8e!iew 9uestions
The follo!ing %uestions are designed to enable you to assess your understanding of the topic that you have Hust studied.
).
;hat triggers settle ent under a docu entary creditV a. evidence of ship ent of the goodsG b. letter of introductionG c. handing over of the docu ents to an applicantG d. presentation of co plying docu ents by the beneficiary.
3.
;ho is it that underta"es to docu entary creditV a. The applicant. b. The advising ban". c. The issuing ban". d. The no inated ban".
a"e pay ent under a
9.
;hich one of the follo!ing is not a party to a docu entary creditV a. The confir ing ban". b. The beneficiary. c. The applicant. d. The issuing ban".
/.
?a e the
ain purpose of a docu entary credit.
a. To underta"e pay ent to a beneficiary. b. To give shipping instructions to a beneficiary. c. To eli inate ris" in perfor ance under the purchase or sale contract. d. To ensure the applicant receives transport docu ents.
@. ;hich of the follo!ing settle ent types are associated !ith the definition of Fhonour.V &. (ay ent. 1. &cceptance. C. 'eferred pay ent. '. ?egotiation. a. &, C and ' b. &, 1 and C c. &, 1 and ' d. 1, C and '
Re#ie.uestions
Chapter 3
:he sales contract
Learning ob ecti!es 1y the end of this chapter, students should be able to: outline the parties to a sales contractG analyse the relationship bet!een the sales contract and pay ent thereunderG e#plain the use of Incoter s 36)6 in do estic and international tradeG assess the considerations to be ade by a buyer and seller !hen using a docu entary creditG understand the differences bet!een: pay ent in advanceG docu entary creditG docu entary collectionG and open account tradingG e#plain the concept of autono y for a docu entary creditG and analyse the ris"s faced by a buyer and seller !hen using a docu entary credit.
&." $ntroduction
The ost basic agree ent in international trade is the sales contract concluded bet!een a seller and a buyer. This is often referred to as a ifs School of Finance )@
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2* /he sales contract
sales agree ent, an e#port contract or a foreign sales agree ent. For the purpose of consistency, this study te#t refers to Fsales contract.. &ll other agree ents and procedures co only used in international trade result fro the perfor ance of this contract or agree ent. For e#a ple, the t!o essential ter s of a sales contract are the seller.s underta"ing to provide the goods to a buyer and that buyer.s underta"ing to pay the agreed price in return. In the conte#t of an e#port sale, the first of these usually involves the conclusion of a contract !ith a carrier to transport the goods fro the country of the seller to that of the buyer. The buyer.s underta"ing a"es it necessary for it to arrange pay ent through the ban"ing syste . The pay ent echanis s co only used in cross-border trade transactions, including docu entary credits, are briefly e#a ined and co pared later in this chapter. Ether procedures related to the e#port sale and the pay ent operation so eti es include govern ent re%uire ents, such as custo s procedures and e#change control regulations. & docu entary credit is an underta"ing separate fro the sale or other contract on !hich it ay be based. This essential characteristic and its conse%uences !ill be covered in further detail throughout the study te#t, but in co ercial Arather than legalB ter s, docu entary credits are issued to facilitate perfor ance of the buyer.s pay ent obligation to a seller. This chapter e#plores the relationship bet!een the seller and buyer. It identifies the "ey decisions that need to be ade by both parties in a sales contract, including the decision as to the choice of pay ent echanis . It concludes !ith the assu ption that the parties choose a docu entary credit and identifies the ain %uestions to be ans!ered !hen issuing it.
&.& 7ales contract

<any sales contracts are ade bet!een a seller and a buyer located in the sa e country. In these circu stances the la!s of that country !ill govern its e#ecution and any disputes that ight arise. For an international sales contract, the situation is different. There is no general syste of international co ercial la! )8 ifs School of Finance
2013
that contract covers cross-border sales e#ecution of an international governed by provisions that !ill ne#t, reflecting the different co
Sales
contracts. This eans the sales contract is li"ely to be differ fro one country to the ercial la!s in each country.
)7
This situation provides significant scope for uncertainty in the event of a dispute bet!een a seller and a buyer. Resolving such disputes can be ti e-consu ing and costly, especially if they are to be resolved in court or via arbitration. In e#tre e cases, sales contracts can be dee ed null and void, !ith a conse%uent loss for both parties. This potential for confusion a"es it vital for a seller and buyer to reach agree ent over the precise content of the sales contract. 1an"s play no role in the negotiation of the sales contract, !hich is signed only by the seller and buyer.
&.&." Content contract
of
sales
The "ey ele ent of any sales contract is the agree ent of a buyer to pay a seller an agreed price for a specified %uantity of goods. In any countries, this si ple agree ent is sufficient to constitute an i porte#port contract. In other !ords, the contract does not need to be a lengthy or for al docu ent to be legally enforceable. Contracts also do not need to be for ally notarised. &n agree ent can e%ually be reached in a telephone conversation or via an e ail or fa# essage. In practice, a sales contract !ill contain ore detail than the %uantity of goods and the sale price. It !ill usually also cover related ite s such as the ti e period for delivery, the ethod of pay ent and the anner in !hich the goods are to be delivered, usually by reference to a trade ter Aor an ICC Incoter see section 3.9B. So e contracts !ill also specify !hich country.s la! !ill apply and !hich court or arbitration syste has Hurisdiction to hear any clai s in the event of a dispute. Rather than use a sales contract, a seller !ill often send the buyer a pro for a invoice containing the details of the goods and their unit prices, before the transaction is concluded. Si ilarly, a buyer ay send the seller a purchase order confir ing its co it ent to purchase certain goods at an agreed price and on specific ter s.
&.&.& Contract conditions

)+
terms
and
Sales contract Sales contracts are usually agreed bet!een a seller and buyer
acting in their nor al course of business, rather than bet!een private individuals. <oreover, any sellers and buyers have their o!n standard conditions of sale and purchase. These set out the ter s on
)*
!hich they nor ally conduct business and !ill typically be included by reference in a sales contract. (roble s can arise, ho!ever, because there are li"ely to be so e differences bet!een the standard ter s of the seller and those of the buyer. The t!o parties ay !ell e#change these standard ter s during precontract negotiations. If the differences are not resolved at this stage, proble s can arise later if there is a dispute. This is because it can be difficult to establish !hich set of conditions Aif eitherB applies to the transaction. In e#tre e cases, the dispute !ill be ta"en to court, !here a Hudge or arbitrator ight decide that no contract !as ever concluded because the seller and buyer did not agree on the applicable conditions. In practice, ho!ever, a Hudge is li"ely to try to see" a resolution by deter ining one or other set of conditions applies or, even, that both sets of conditions apply to the e#tent that they do not conflict.
&.&.- Law contracts
go!erning
In ost cases, sales contracts are governed, at least in part, by the la!s of the country of one of the parties involved. The seller and buyer ay the selves agree !hich la! is to apply by including a specific provision in the sales contract. If there is no such agree ent or provision then a Hudge or arbitrator, in the case of a dispute, ay first have to deter ine the governing la!. In these circu stances, a Hudge or arbitrator !ill often decide to apply the la! of the country ost connected !ith the contract, !hich ay be the country to !hich the goods are being delivered. The use of trade ter s AIncoter s, see section 3.9B deter ines the point at !hich delivery is dee ed to have occurred. For e#a ple, a seller fulfils its delivery obligation !hen the goods are loaded on board a ship at the na ed port of loading under both CIF Acost, insurance and freightB and FE1 Afree on boardB Incoter s. There have been a nu ber of atte pts to introduce an international la! for e#port sales. The latest is the )*+6 =nited ?ations Convention on Contracts for the International Sale of Goods ACISGB. It provides a standardised set of legal rules for i porte#port transactions. &s of <arch 36)9, 7* countries had ratified the Convention.
36 ifs School of Finance 2013
Use of Incoterms in trade
&.&.3 Checklist for an effecti!e sales agreement

In addition to deter ining the %uantity of goods and any unit price, a seller and buyer should agree the follo!ing points to ini ise the ris" of dispute and thereby establish the appropriate Incoter : the ter s of delivery of the goodsG the point at !hich the ris" in respect of goods passes fro seller to buyerG !ho should clear goods through custo s and up to !hat pointG !ho arranges for insurance for the carriage of goods and up to !hat pointG !hat precise ris"s to the goods need to be covered and specifically sho!n as covered on the insurance docu entG !hat co ercial docu ents are needed and !hat should be sho!n on the G and !hether any other docu ents Asuch as inspection certificatesB are needed and !ho is to issue the .
&.- #se trade
of
$ncoterms
in
Ene of the challenges in any sales contract is to ensure both parties understand their responsibilities. These include the pay ent of carriage, insurance, loading and unloading costs, i port and e#port ta#es, and any other associated costs. -ach of these !ill be the responsibility of either the seller or buyer. The buyer needs to understand these responsibilities to be able to calculate the full purchase priceG and the seller needs to be able to provide an accurate sales price. The chance of dispute is ini ised !hen the parties share the sa e understanding of their respective responsibilities. Ene of the best !ays to ini ise the chance of disputes in both do estic and international trade is to use Incoter s. The International Cha ber of Co erce AICCB first published Incoter s in )*98, and over ti e they have beco e the accepted international standard for trade ter s referred to in sales contracts. ifs School of Finance 3)
2013
The current version of Incoter s, Incoter s 36)6, ca e into effect on ) 5anuary 36)). The full version is provided in ICC (ublication ?o. 7)@. Incoter s 36)6 have been designed to reflect changes in co ercial practices that have occurred since the last revision
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in 3666. These include reference to electronic alternatives to paper docu entation, cargo insurance clauses, and also the establish ent of t!o ne! Incoter s '&T Adelivered at ter inalB and '&( Adelivered at placeB ter s.
&.-." 7cope $ncoterms
of
Incoter s deal solely !ith the rights and responsibilities of parties involved in the delivery of goods sold under a contract of sale. They do not e#tend to other contracts, such as insurance, carriage and pay ent, although the particular Incoter used ay have i plications for such contracts. For e#a ple, Incoter CFR Acost and freightB i plies carriage !ill be effected by sea. This eans that either a bill of lading, a charter party bill of lading or a non-negotiable sea !aybill should be re%uested. =nder a docu entary credit, the type of transport docu ent called for should co ply !ith the stated Incoter .
&.-.& $ncoterm categories

There are )) Incoter s, !hich are for use in do estic and international transactions. -ach one sets out the obligations of the seller and buyer under the sales contract and indicates the point at !hich responsibility is transferred fro seller to buyer. The seller.s obligations escalate fro -4; Athe ini u B to ''( Athe a#i u B. &ny obligation that does not appear in a particular Incoter is the responsibility of the buyer, unless the co ercial contract states other!ise. The )) Incoter s are divided into 3 groups: 7 are suitable for any ode or odes of transportG the re aining / apply to sea and inland !ater!ay transport only. ;hen incorporating an Incoter into a sales contract, the seller and buyer should ta"e care to ensure that the ter selected is appropriate to the agreed point of delivery and the ode of transportation to be used. The )) Incoter s are as follo!s: Group ): Rules for any transport: -4; Ae# !or"sBG ifs School of Finance FC& Afree carrierBG
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ode or
odes of
C(T Acarriage paid toBG
3/
CI( Acarriage and insurance paid toBG '&T Adelivered at ter inalBG '&( Adelivered at placeBG ''( Adelivered duty paidB. Group 3: Rules for sea and inland !ater!ay transport only: F&S Afree alongside shipBG FE1 Afree on boardBG CFR Acost and freightBG CIF Acost, insurance and freightB.
&.-.- ;n $ncoterms case study

(erhaps the best !ay of understanding the application of Incoter s 36)6 is to consider a case study. -#cro ,td of Tettun Road, 'enby, =2 is loo"ing to e#port goods to I cro Inc of Io!a Road, <ia i, Florida, =S&. 1oth -#cro ,td and I cro Inc are ne! to international trade and are loo"ing for infor ation and guidance as to the ost appropriate trade ter they could use in order to co plete their transaction. Table 3.) Table 3.)) in the follo!ing t!o sub-sections indicate so e of the ain aspects of each Incoter and should enable the parties to reach agree ent on an appropriate trade ter . The Incoter s are set out in a logical order under each grouping, starting !ith the ter that i poses the least obligation on -#cro ,td and ending !ith that !hich i poses the ost. -#cro ,td and I cro Inc !ould be !ell advised to revie! the full content of ICC (ublication ?o. 7)@ once an Incoter has been agreed, so that they understand its full i plication and the obligations it i poses. Irrespective of the chosen Incoter , I cro Inc pays for the goods according to the ter s of settle ent agreed in the sales contract, pro for a invoice or purchase order.
&.-.-." Group "4 8ules for any mode or modes of transport

These Incoter s ay be used irrespective of the ode of transport selected and ay be used !here ore than one ode ifs School of Finance 3@
2013
of transport is used.
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:able &." E<2=.8>7 E<= 0insert named +lace of deli#er!1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td places the goods at the disposal of I cro Inc at -#cro.s pre ises or at another na ed place Aie !or"s, factory, !arehouse, etcB. -#cro does not need to load the goods on any collecting vehicleG nor does it need to clear the goods for e#port. If applicable, -#cro !ill be re%uired to provide I cro, at I cro.s re%uest, ris" and e#pense: AiB assistance in obtaining any e#port licence or other official authorisation necessary for the e#port of the goodsG and AiiB any infor ation in the possession of -#cro that is re%uired for security clearance of the goods. -#cro has no obligation to I cro to a"e a contract of carriage or of insurance. If applicable, it is up to I cro to obtain at its o!n ris" and e#pense any e#port and i port licence or other official authorisation and carry out all custo s for alities for the e#port of the goods. $mcro E<= $ncoterm
Licences, authorisations, security clearances and other formalities
Contract of carriage and insurance ;llocation of costs
I cro has no obligation to -#cro to a"e a contract of carriage or of insurance.
-#cro ust pay all costs relating to the goods until Fdelivery occurs..
I cro ust pay all costs relating to the goods fro the ti e Fdelivery occurs.G and pay, if applicable, all duties, ta#es and other charges as !ell as the costs of carrying out custo s for alities payable upon e#port. I cro ust provide -#cro !ith appropriate evidence of having ta"en delivery.
Deli!ery documen t ;ssistance with information and related costs -#cro ust, if applicable, in a ti ely anner, provide to or render assistance in obtaining for I cro, at I cro.s re%uest, ris" and e#pense, any docu ents and infor ation, including security-related infor ation, that I cro needs for the e#port andMor i port of the goods andMor for their transport to the final destination.
I cro ust rei burse -#cro for all costs and charges incurred by -#cro in providing or rendering assistance in obtaining such docu ents and infor ation.
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:able &.&
FC; $ncoterm
F8EE C;88$E8 FC; 0insert named +lace of deli#er!1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td delivers the goods to the carrier or another person no inated by I cro at -#cro.s pre ises or another na ed place.FC& re%uires -#cro to clear the goods for e#port, !here applicable. -#cro has no obligation to clear the goods for i port or to pay any i port duty or for any i port or custo s for Licences, authorisations, security clearances and other formalities alities. If applicable, it is up to I cro to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country. I cro ust contract at its o!n e#pense for the carriage of the goods fro the na ed place of delivery, e#cept !hen a contract of carriage is ade by -#cro. I cro has no obligation to -#cro to a"e a contract of insurance. $mcro
If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence or other official authorisation and carry out all custo s for alities necessary for the e#port of the goods.
Contract of carriage and insurance
-#cro has no obligation to I cro to a"e a contract of carriage. $o!ever, if re%uested by I cro or if it is co ercial practice and I cro does not give an instruction to the contrary in due ti e, -#cro ay contract for carriage on usual ter s at I cro.s ris" and e#pense. In either case, -#cro ay decline to a"e the contract of carriage and, if it does, should notify I cro pro ptly.-#cro has no obligation to I cro to a"e a contract of insurance. $o!ever, -#cro ust provide I cro, at their re%uest, ris" and e#pense Aif anyB, !ith infor ation that I cro needs for obtaining insurance.
Deli!ery documen t
-#cro ust provide I cro, at -#cro.s e#pense, !ith the usual proof that the goods have been delivered.-#cro
ust provide assistance to I cro at their re%uest, ris" and e#pense in obtaining a transport docu ent.
I cro ust accept the proof of delivery provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
:able &.-.
C): $ncoterm
C;88$;GE );$D :. C): 0insert named +lace of destination1 Incoterms 2010 E%cro Deli!er y occurs ;hen -#cro ,td delivers the goods to the carrier or another person no inated by -#cro at an agreed place Aif any such place is agreed bet!een the partiesB and -#cro ust contract for and pay the cost of carriage necessary to bring the goods to the na ed place of destination.;hen C(T is used, -#cro fulfils its obligation to deliver !hen it hands the goods over to the carrier and not !hen they reach I cro Inc at the place of destination. If applicable, it is up to I cro $mcro
Licences ,
If applicable, -#cro ust obtain at its o!n ris" authorisations, and e#pense any e#port licence or other official security authorisation and carry out all custo s clearance for alities necessary for the e#port of the goods, s and and for other their transport through any country prior formalitie to delivery. s Contract of carriage and insurance
to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country.
-#cro ust contract or procure a contract for I cro has no obligation to -#cro the carriage of the goods fro the agreed point to a"e a contract of carriage of delivery, if any, at the place of delivery to the or of insurance. na ed place of destination or, if agreed, any point at that place. The contract of carriage ust be ade on usual ter s at -#cro.s e#pense and provide for carriage by the usual route and in a custo ary anner. If a specific point is not agreed or is not deter ined by practice, -#cro ay select the point of delivery and the point at the na ed place of destination that best suits its purpose.-#cro has no obligation to I cro to a"e a contract of insurance.
:able &.-. /cont.0 Deli!ery documen t
C): $ncoterm I cro ust accept the transport docu ent provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
If custo ary, or at I cro.s re%uest, -#cro ust provide I cro, at -#cro.s e#pense, !ith the usual transport docu entWsX for the agreed ode of transport. This transport docu ent is to cover the contracted goods and be dated !ithin the period agreed for ship ent. If agreed or custo ary, the docu ent ust also enable I cro to clai the goods fro the carrier at the na ed place of destination and enable it to sell the goods in transit by the transfer of the docu ent to a subse%uent buyer or by notification to the carrier. ;hen such a transport docu ent is issued in negotiable for and in several originals, a full set of originals ust be presented to I cro.
:able &.3.
C$) $ncoterm
C;88$;GE ;ND $N7#8;NCE );$D :. C$) 0insert named +lace of destination1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td delivers the goods to the carrier or another person no inated at an agreed place Aif any such place is agreed bet!een the partiesB and -#cro ust contract for and pay the cost of carriage necessary to bring the goods to the na ed place of destination.;hen CI( is used, -#cro fulfils its obligation to deliver !hen it hands the goods over to the carrier and not !hen they reach I cro Inc at the place of destination. Licences, authorisations security clearances and other formalities If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence or other official authorisation and carry out all custo s for alities necessary for the e#port of the goods, and for their transport through any country prior to delivery. If applicable, it is up to I cro to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any $mcro
country.
:able &.3. /cont.0 Contract of carriage and insurance
C$) $ncoterm -#cro ust contract or procure a contract for the carriage of the goods fro the agreed point of delivery, if any, at the place of delivery to the na ed place of destination or, if agreed, any point at that place. The contract of carriage ust be ade on usual ter s at -#cro.s e#pense and provide for carriage by the usual route and in a custo ary anner. If a specific point is not agreed or is not deter ined by practice, -#cro ay select the point of delivery and the point at the na ed place of destination that best suits its purpose.In addition, -#cro ust obtain at its o!n e#pense cargo insurance co plying at least !ith the ini u cover as provided by Clauses ACB of the Institute Cargo Clauses A,<& M I=&B or any si ilar clauses. The insurance shall be contracted !ith under!riters or an insurance co pany of good repute and entitle I cro or any other person having an insurable interest in the goods, to clai directly fro the insurer. The insurance shall cover, at a ini u , the price provided in the contract plus ten per cent Aie ))6YB and shall be in the currency of the contract. -#cro ust provide I cro !ith the insurance policy or other evidence of insurance cover. ;hen a docu entary credit is involved, the re%uire ents for the presentation of an insurance policy or certificate should be clearly e#pressed. I cro has no obligation to -#cro to a"e a contract of carriage or of insurance.
:able &.3. /cont.0 Deli!ery documen t
C$) $ncoterm If custo ary, or at I cro.s re%uest, -#cro ust provide I cro, at -#cro.s e#pense, !ith the usual transport docu entWsX for the transport contracted.This transport docu ent ust cover the contracted goods and be dated !ithin the period agreed for ship ent. If agreed or custo ary, the docu ent ust also enable I cro to clai the goods fro the carrier at the na ed place of destination and enable the to sell the goods in transit by the transfer of the docu ent to a subse%uent buyer or by notification to the carrier. ;hen such a transport docu ent is issued in negotiable for and in several originals, a full set of originals ust be presented to I cro. I cro ust accept the transport docu ent provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
:able &.?.
D;: $ncoterm
DEL$@E8ED ;: :E8A$N;L D;: 0insert named terminal at +ort or +lace of destination1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td places the goods, once unloaded fro the arriving eans of transport, at the disposal of I cro Inc at a na ed ter inal at the na ed port or place of destination. If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence and other official authorisation and carry out all custo s for alities necessary for the e#port of the goods and for their transport through any country prior to delivery other than the country of destination. If applicable, I cro ust obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country. $mcro
:able &.?. /cont.0 Contract of carriage and insurance
D;: $ncoterm -#cro ust contract at its o!n e#pense for the carriage of the goods to the na ed ter inal at the port or place of destination. If a specific ter inal is not agreed or is not deter ined by practice, -#cro ay select the ter inal at the port or place of destination that best suits its purpose.-#cro has no obligation to I cro to a"e a contract of insurance. I cro has no obligation to -#cro to a"e a contract of carriage or of insurance.
Deli!ery documen t
-#cro ust provide I cro, at -#cro.s e#pense, !ith a docu ent enabling I cro to ta"e delivery of the goods.
I cro ust accept the delivery docu ent provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
:able &.*.
D;) $ncoterm
DEL$@E8ED ;: )L;CE D;)0insert named +lace of destination1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td places the goods at the disposal of I cro Inc on the arriving eans of transport ready for unloading at the na ed place of destination. If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence and other official authorisation and carry out all custo s for alities necessary for the e#port of the goods and for their transport through any country prior to delivery other than the country of destination. If applicable, I cro ust obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country. $mcro
:able &.*. /cont.0 Contract of carriage and insurance
D;) $ncoterm -#cro ust contract at its o!n I cro has no obligation to -#cro e#pense for the carriage of the goods to a"e a contract of carriage or to the na ed place of destination or to of insurance. the agreed point, if any, at the na ed place of destination. If a specific point is not agreed or is not deter ined by practice, -#cro ay select the point at the na ed place of destination that best suits its purpose.-#cro has no obligation to I cro to a"e a contract of insurance.
Deli!ery documen t
I cro ust accept the delivery docu ent provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
:able &.B.
DD) $ncoterm
DEL$@E8ED D#:C );$D DD) 0insert named +lace of destination1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td places the goods at the disposal of I cro Inc, cleared for i port on the arriving eans of transport, ready for unloading at the na ed place of destination. Licences, authorisations, security clearances and other formalities If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port and i port licence and other official authorisation and carry out all custo s for alities necessary for the e#port of the goods, for their transport through any country and for their i port. If applicable, I cro ust provide assistance to -#cro at -#cro.s re%uest, ris" and e#pense in obtaining any i port licence or other official authorisation for the i port of the goods and for their transport through any country. $mcro
:able &.B. /cont.0 Contract of carriage and insurance
DD) $ncoterm -#cro ust contract at its o!n I cro has no obligation to -#cro e#pense for the carriage of the goods to a"e a contract of carriage or to the na ed place of destination or to of insurance. the agreed point, if any, at the na ed place of destination. If a specific point is not agreed or is not deter ined by practice, -#cro ay select the point at the na ed place of destination that best suits its purpose.-#cro has no obligation to I cro to a"e a contract of insurance.
Deli!ery documen t
&.-.-.& Group &4 8ules for sea and inland waterway transport only
These Incoter s ay be used only for sea or inland !ater!ay transport.
:able &.D. F;7 $ncoterm
F8EE ;L.NG7$DE 7E$) F;7 0insert named +ort of shi+ment1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td places the goods alongside the vessel Aeg on a %uay or a bargeB no inated by I cro Inc at the na ed port of ship Licences, authorisations, security clearances and ent. If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence or other official authorisation and carry out all custo s for alities necessary for the e#port of the $mcro
other formalities
goods.
If applicable, it is up to I cro to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country.
:able &.D. /cont.0 Contract of carriage and insurance
F;7 $ncoterm -#cro has no obligation to I cro to a"e a contract of carriage or insurance. I cro ust contract at its o!n e#pense for the carriage of the goods fro the na ed port of ship ent, e#cept !here the contract of carriage is ade by -#cro.I cro has no obligation to -#cro to a"e a contract of insurance.
Deli!ery documen t
-#cro ust provide I cro, at -#cro.s e#pense, !ith the usual proof that the goods have been delivered. =nless such proof is a transport docu ent, -#cro ust provide assistance to I cro at I cro.s re%uest, ris" and e#pense in obtaining a transport docu ent.
:able &.F.
F.B $ncoterm
F8EE .N B.;8D F.B 0insert named +lace of destination1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td delivers the goods on board the vessel no inated by I cro Inc at the na ed port of ship ent or procures the goods already so delivered. Licences, authorisations, security clearances and other formalities If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence or other official authorisation and carry out all custo s for alities necessary for the e#port of the goods. If applicable, it is up to I cro to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country. I cro ust contract at its o!n e#pense for the carriage of the goods fro the na ed port of ship ent, e#cept !here the contract of carriage is ade by -#cro. $mcro
-#cro has no obligation to I cro to a"e a contract of carriage or of insurance.
:able &.F. /cont.0 Deli!ery documen t
F.B $ncoterm -#cro ust provide I cro at -#cro.s e#pense !ith the usual proof that the goods have been delivered. =nless such proof is a transport docu ent, -#cro ust provide assistance to I cro at I cro.s re%uest, ris" and e#pense in obtaining a transport docu ent. I cro ust accept the proof of delivery provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
:able &."+.
CF8 $ncoterm
C.7: ;ND F8E$GE: CF8 0insert named +ort of destination1 Incoterms 2010 E%cro Deli!ery occurs ;hen -#cro ,td delivers the goods on board the vessel or procures the goods already so delivered.;hen CFR is used, -#cro fulfils its obligation to deliver !hen it hands the goods over to the carrier and not !hen they reach I cro Inc at the place of destination. If applicable, -#cro ust obtain at its o!n ris" and e#pense any e#port licence or other official authorisation and carry out all custo s for alities necessary for the e#port of the goods. If applicable, it is up to I cro to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport through any country. sold. -#cro has no obligation to I cro to a contract of insurance. $mcro
-#cro ust contract or procure a contract for the carriage of the goods fro the agreed point of delivery, if any, at the place of delivery to the na ed port of destination or, if agreed, any point at that port. The contract of carriage ust be ade on usual ter s at -#cro.s e#pense and provide for carriage by the usual route in a vessel of the type nor ally used for the transport of the type of goods
a"e
I c ro has no obli gati on to -#c ro to a "e a con trac t of carr iag e or of ins ura nce .
:able &."+. /cont.0 Deli!ery documen t
CF8 $ncoterm -#cro ust, at its o!n e#pense, provide I cro !ithout delay !ith the usual transport docu ent for the agreed port of destination.This transport docu ent ust cover the contract goods, be dated !ithin the period agreed for ship ent, enable I cro to clai the goods fro the carrier at the port of destination and, unless other!ise agreed, enable I cro to sell the goods in transit by the transfer of the docu ent to a subse%uent buyer or by notification to the carrier. ;hen such a transport docu ent is issued in negotiable for and in several originals, a full set of originals ust be presented to the buyer. I cro ust accept the transport docu ent provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
:able &."".
C$F $ncoterm
C.7: $N7#8;NCE ;ND F8E$GE: C$F Winsert na ed port of destinationX Incoter s 36)6 E%cro Deli!er y occurs ;hen -#cro ,td delivers the goods on board the vessel or procures the goods already so delivered.;hen CIF is used, -#cro fulfils its obligation to deliver !hen it hands the goods over to the carrier and not !hen they reach I cro Inc at the place of destination. Licences , ;here applicable, -#cro ust obtain at its o!n authorisations, ris" and e#pense any e#port licence or other security official authorisation and carry out all custo s clearance for alities necessary for the e#port of the s and goods. other formalitie s If applicable, it is up to I cro $mcro
to obtain at its o!n ris" and e#pense any i port licence or other official authorisation and carry out all custo s for alities for the i port of the goods and for their transport
through any country.
:able &."". /cont.0 Contract of carriage and insurance
C$F $ncoterm I cro has no obligation to -#cro to a"e a contract of carriage or of insurance.
-#cro ust contract or procure a contract for the carriage of the goods fro the agreed point of delivery, if any, at the place of delivery to the na ed port of destination or, if agreed, any point at that port. The contract of carriage ust be ade on usual ter s at -#cro.s e#pense and provide for carriage by the usual route in a vessel of the type nor ally used for the transport of the type of goods sold. -#cro ust obtain at its o!n e#pense cargo insurance co plying at least !ith the ini u cover provided by Clauses ACB of the Institute Cargo Clauses A,<&MI=&B or any si ilar clauses. The insurance shall be contracted !ith under!riters or an insurance co pany of good repute and entitle I cro or any other person having an insurable interest in the goods, to clai directly fro the insurer. The insurance shall cover, at a ini u , the price provided in the contract plus ten per cent Aie ))6YB and shall be in the currency of the contract.
Deli!ery documen t
-#cro ust at its o!n e#pense provide I cro, !ithout delay, !ith the usual transport docu ent for the agreed port of destination.This transport docu ent ust cover the contract goods, be dated !ithin the period agreed for ship ent, enable I cro to clai the goods fro the carrier at the port of destination and, unless other!ise agreed, enable the to sell the goods in transit by the transfer of the docu ent to a subse%uent buyer or by notification to the carrier. ;hen such a transport docu ent is issued in negotiable for and in several originals, a full set of originals ust be presented to I cro.
I cro ust accept the transport docu ent provided. In the case of a docu entary credit, the re%uired docu ent and the ter s and conditions for its issuance should be clearly specified.
&.-.3 #nderstanding rights and responsibilities when using $ncoterms
Table 3.) Table 3.)) in the previous sub-section illustrate ho! the rights and responsibilities of the seller and buyer vary depending on the Incoter used. =nderstanding the li its of each party.s responsibilities is crucial !hen negotiating the precise ter s of a
sales contract, especially !hen pay ent is due under a docu entary credit. Sellers agree to pay ent under a docu entary credit because a ban" gives an underta"ing that pay ent !ill be ade, as long as the docu ents presented confor to its re%uire ents. This underta"ing is independent of the buyer.s ability to pay. &t the outset of any contract negotiation, the seller should scrutinise the ter s of a docu entary credit to a"e sure, a ongst other aspects, that it confor s to the Incoter %uoted in the sales contract. For e#a ple, a seller should not indicate the presentation of an air !aybill if the Incoter is designed for sea ship ent. Si ilarly, a buyer should not re%uire that an insurance docu ent be presented if the Incoter identifies that the seller is not responsible for insuring the goods. &ny conflict bet!een the Incoter , the docu entary credit and the sales contract can result in delays in the issuance of, advising of or pay ent under a docu entary credit. &ny delays !ill have a financial cost as a ini u the i pact of the delay on cash flo!. In e#tre e cases, if the ter s of the docu entary credit cannot be co plied !ith because of such conflict, a ban" !ill not be in a position to honour or negotiate.
&.3 )ayment terms

1y agreeing to buy goods fro the seller, the buyer underta"es to pay for the on delivery or as other!ise agreed in the sales contract. This pay ent obligation for s part of the sales contract itself. This section outlines the ter s of pay ent co only used for e#port sales. There are four ain settle ent ter s, ranging fro pay ent in advance to open account trading. =nder pay ent in advance, the buyer is e#posed to the ost ris". In open account trading, the seller is e#posed to the ost ris". In both cases, ban"s have no role in the transaction, other than in processing the pay ent. For both docu entary collections Asee section 3./.9B and docu entary credits Asection 3./.3B, ban"s act as inter ediaries in the transaction, !ith responsibilities for channelling the docu ents bet!een the buyer and seller.
$a!ment terms
&.3." )ayment in ad!ance

& buyer ay a"e pay ent to a seller in advance before the goods are shipped. The reasons for adopting this ethod ay be su arised as follo!s: The seller ay be un!illing to ship goods to the country of the buyer for reasons of country ris". The buyer ay !ish to encourage the seller into a long-ter trade relationship. The seller ay not have finance !ith !hich to buy or prepare the goods for ship ent. The buyer feels co fortable !ith its relationship !ith the seller and !ith both the credit and country ris" of that seller.
&.3.& Documentary credits

& docu entary credit structure provides a seller !ith an independent underta"ing of a ban". The buyer, on the other hand, "no!s that pay ent !ill not be ade unless the seller presents docu entary evidence covering the goods and their ship ent. The role of a docu entary credit as a ethod of pay ent is discussed in section 3.7.
&.3.- Documentary collections

=nder a docu entary collection the seller ships the goods to the buyer in the i porting country. &t the sa e ti e, it hands over to its ban" shipping docu ents relating to the goods and their ship ent. -#a ples of co on docu ents are bills of lading, co ercial invoices, insurance docu ents and certificates of origin. The ban" for!ards these to a correspondent ban" in the buyer.s country, !hich ay be the ban"ers of the buyer, to handle the docu ents in accordance !ith the instructions of the seller, as instructed by the seller.s ban" in its collection instruction. =nder this procedure, ban"s anage the docu ent handling process, but they do not usually the selves give any pay ent underta"ing. This solution offers the seller less security than a docu entary credit but, in return, the costs are lo!er. It
contract nonetheless gives the seller a easure of security for pay ent. The seller.s interest is best served !here the buyer is not able to obtain possession of the goods !ithout
2* /he sales
$a!ment terms
the presentation of the docu ents that are sent through the ban"ing syste . The full security of a docu entary collection applies only if the transport docu ent is a negotiable bill of lading and M or if the goods are consigned to the ban" in the i porting country, !ith the consent of that ban". If the seller has agreed to supply the goods on short-ter credit, it can stipulate that the docu ents be handed over against the buyer.s acceptance of a bill of e#change or signature on a pro issory note. The seller ay be able to discount the bill or note in return for an i ediate pay ent. The international rules governing collections are the ICC Uniform Rules for Collections, (ublication ?o. @33.
&.3.3 .pen trading
account
;hen business is conducted on open account ter s, the seller dispatches goods to the buyer !ithout any guarantee of pay ent. En dispatch, the seller sends the buyer an invoice Atogether !ith other appropriate docu entsB for pay ent on an agreed date or at the end of an agreed period. For e#a ple, the agreed period ight be for pay ent to be ade at the end of the onth follo!ing the onth of ship ent. The buyer a"es arrange ents to pay on the relevant date according to the ter s of the sale contract. The buyer ay use any appropriate pay ent ethod, such as an international ban" transfer or ban" draft, absent any specific re%uest of the seller. Epen account trading is ost co only used !hen the t!o co panies concerned have a long-established trading relationship. For e#a ple, transactions bet!een sellers and buyers in countries in !estern -urope and the =S& are often conducted on this basis. Sellers ay also use open account trading to secure contracts !ith parties in so e developing countries !here docu entary credit ter s have applied in the past. Epen account trading offers several advantagesG in particular, it is si ple to ad inister and involves ini al ban"ing fees or other costs. The syste is particularly attractive to buyers because it affords the the opportunity of e#a ining the goods before they have to a"e pay ent. Sellers using open account ethods obtain no security for pay ent and have to rely entirely on the credit!orthiness and good faith of the buyer. This ay be contrasted !ith the situation under docu entary credits and docu entary collections, in !hich the seller obtains the
contract control over security of a ban" underta"ing or a ban" retaining the docu ents that relate to the ship ent. The only involve ent by ban"s in open account trading is in the transfer of funds on behalf of the buyer to the seller.
2* /he sales
$a!ment terms
&.? )ayment instruments

&longside the pay ent ter s, the parties ust also agree the pay ent instru ent. For pay ent in advance and open account trading, the buyer ay have a free choice of the instru ent to use. The buyer !ill also be able to deter ine the ti ing of the pay ent Aalthough that ay have i plications for the sales relationshipB. =nder docu entary credits and docu entary collections, the choice of instru ent is usually agreed by both the buyer and seller and often includes the use of negotiable instru ents.
&.?." Negotiable instruments

?egotiable instru ents, such as bills of e#change Aalso "no!n as draftsB and pro issory notes, are a fre%uent feature of e#port sales throughout the !orld. They are e ployed both as a eans of e#tending credit to the buyer usually on a shortter basis and as a device to provide the seller !ith a negotiable security for pay ent. =sually, these instru ents are a co it ent by the buyer to pay a specified a ount on a fi#ed date in the future A"no!n as the aturity dateB. The seller ay obtain i ediate pay ent before the aturity date by discounting the instru ent !ith a ban" or other institution that is !illing to do so. The seller does this by endorsing the instru ent and handing it over to the discounting party. Bill of e%change in open account trading or documentary collections payable at a future date & bill of e#change orders the dra!ee Athe buyerB to pay the agreed su on a stipulated date. The buyer evidences acceptance of the order to pay by accepting the bill of e#change and returning it to the seller. The specific ethod of acceptance Asignature on the front or bac", the use of acceptance sta ps and other infor ation contained on the draftB !ill be deter ined by local la! or ban" regulation. The buyer.s acceptance constitutes an unconditional pay ent underta"ing ie it is re%uired to pay the instru ent at aturity, independent of its obligation under the underlying sales contract.
&s an e#a ple, a seller in one country ay contract contract to ship achine parts to a buyer in another country. (ay ent is to ta"e place 86 days fro the date of ship ent. The seller dispatches the goods and sends the shipping docu ents to the buyer. These docu ents include a bill of e#change dra!n on the buyer, payable to the seller at the end of
2* /he sales
$a!ment instruments
the 86-day period, and signed by the seller as dra!er. The seller ay then be able to use a ban".s trade finance services to negotiate the bill of e#change for i ediate pay ent, once it has been accepted by the buyer. A&n e#a ple of a bill of e#change, or draft, is sho!n in Figure 3.).B Figure &." e%change ;n e%ample of a bill of
The above practice is co only e ployed in foreign trade and is fre%uently used for sales bet!een countries in &sia. The discounting of bills is an i portant activity for any ban"s in that region offering trade finance services. The ban"ing facility offered is often referred to as a trade bills or acceptance bills service. &lthough bills of e#change are the type of negotiable instru ent ost fre%uently encountered in international trade, pro issory notes ay also be used. These have a si ilar effect, but they are dra!n up and signed directly by the person underta"ing to a"e pay ent, in this case the buyer. & pro issory note is an independent pay ent underta"ing that can be transferred fro one person to another. Che%ues, bills of e#change and pro issory notes provide the ain e#a ples of negotiable instru ents. & third party, such as a ban", can also guarantee the pay ent underta"ing contained in these docu ents. ?egotiable instru ents drafts in particular play a "ey role in the pay ent echanis under any docu entary credits. This is because, in so e cases, the credit is ade available by acceptance or negotiation of a draft,
contract !ith the dra!ee being a ban". A&n e#a ple of a si ple pro issory note is sho!n in Figure 3.3.B
2* /he sales
$a!ment instruments
Figure &.&
;n e%ample of a simple promissory note
&.?.& Legal re9uirements go!erning negotiable instruments

In ost countries, negotiable instru ents are governed by detailed legislation. This varies fro one country to another, although a set of international conventions dra!n up in Geneva in the )*96s provide a co on for for a large nu ber of -uropean syste s. The =2 applies its o!n legislative rules, and these have influenced other countries !ith syste s based on -nglish legal principles. In the =S&, the =nifor Co ercial Code provides detailed la! on negotiable instru ents. These sources provide the ain sets of rules on negotiable instru ents. In addition, the =? Co ission on International Trade ,a! A=?CITR&,B has developed a odel la! for international negotiable instru ents. ?egotiable instru ents have special legal effects that concern the rights and obligations of third parties, as !ell as the party that originally created the . For this reason, docu ents have to confor to strict re%uire ents in order to be legally accepted
as negotiable instru ents. These re%uire ents are established in national legislation and in applicable international conventions. Typically, the re%uire ents are that they ust be in !ritten for and bear a signature, and a pay ent underta"ing or order ust be e#pressed in unconditional ter s.
&.?.&." Legal re9uirements relating to bills of e%change

=nder a bill of e#change, the dra!er !rites and signs the bill instructing the dra!ee a ban" in the case of docu entary credits to pay a specified su of oney either to a third party or to the dra!er Athe payeeB. The bill ay either call for pay ent on presentation A"no!n as a Fsight. draftB or on a specified future date or a deter inable event A"no!n as a Ftenor. or Fusance. draftB. #nconditional terms the pay ent order ust be unconditional. & tenor draft ay be presented to the dra!ee for acceptance. The dra!ee accepts the draft by signing either on the bac" or front, according to local custo and la!. &cceptance constitutes an unconditional underta"ing to pay the draft at aturity. Negotiable the payee and subse%uent holders can negotiate Aoften referred to as a discount ofB the bill. This eans that they can sell their rights in the bill to a third party, !hich then beco es the holder. In return for a"ing i ediate cash pay ent, the party buying the bill often pays less than the face value of the bill. This difference bet!een the a ount paid and the full a ount payable on the bill at a later date represents the third-party purchaser.s interest charge, opportunity costs and assu ption of ris".
:ransferable or payable to bearer drafts are nor ally ade payable to a particular party and, if so, are transferred by endorse ent and delivery. The latter is the legal ter for the physical handing over of the docu ent. They can also be ade payable to bearer that is, the person duly holding the bill at any particular ti e. In this event, they do not na e the bearer and they are transferred by delivery alone.
&.?.&.& Legal re9uirements relating to che9ues and promissory notes
$a!ment instruments The legal structure of a che%ue is si
ilar to that of a bill of e#change. =nli"e a bill of e#change, ho!ever, a che%ue ust be dra!n on a ban" and it is payable upon presentation to that ban".
& pro issory note also has ost of the sa e features as a bill of e#change. The essential difference is that it is not an order to another party to pay, but a direct pro ise of pay ent by the party !ho signs the note A"no!n as the F a"er.B. In the sa e !ay as the bill of e#change, it ust be dra!n up in unconditional ter s.
&.?.;!alisation
In so e countries, a ban" or other party can guarantee pay ent of a draft or pro issory note by giving its Faval.. 1y signing the note in this !ay on the bac", the ban" or other organisation co its itself unconditionally to pay should the a"er or dra!ee default. This practice is !ell established by legislation in ost -uropean countries in particular, those that have adopted the Geneva Convention but there is no precise e%uivalent in legal syste s based on -nglish la!. The benefit of an aval is transferred auto atically !hen the note is negotiated. &ccordingly, the use of an aval is a particularly convenient !ay of dealing !ith co ercial paper under!ritten by ban"s in the secondary ar"ets. -ach person in the chain can clai against previous holders and the dra!er if the draft is not honoured, !hether or not it has been accepted. & party negotiating a draft thus ac%uires a right of recourse in case of dishonour Aie non-pay entB against the party endorsing the draft and to previous endorsers. The ere dra!ing up of a bill of e#change does not oblige the dra!ee to pay. The dra!ee is bound by the bill only upon acceptance.
&.?.3 Concept courseH
of
Gholder
in
due
& vital concept in enforcing pay ent under negotiable instru ents is that of the holder in due course. &s entioned above, such instru ents are legally separate fro any underlying transaction. $olders ac%uire their right to clai pay ent fro endorse ent and delivery of the instru ent. Their rights are not generally affected by disputes on the rights and !rongs of any co ercial contract that led to the instru ent being granted.
To benefit fully fro the protection, the holder ust be a holder in due course. This eans that the holder ust have ta"en the instru ent in good faith !ithout notice of any defect in its title. =nder -nglish la!, for instance, the holder is fully protected only if, in addition, it gave valuable consideration nor ally oney pay ent for the instru ent. Suppose a thief steals a bill of e#change and
$a!ment instruments
forges an endorse ent on it: under -nglish la!, the dra!er and endorsers prior to the forged endorse ent are no longer liable to subse%uent holders. ,ater endorsers ay still be liable to subse%uent holders. <any other legal syste s, including those covered by the Geneva Convention, consider that the chain of title is not bro"en by the forgery provided that the subse%uent holder ta"es possession !ithout notice of the theft.
&.?.? Dishonour
&ll legal syste s establish precise for alities to be observed in case of dishonour Aie non-pay entB. -nglish la! provides for notice to be given to all parties affected. <any other countries provide a procedure called Fprotest.. ;here this applies, the act of non-pay ent has to be officially established and sta ped on the instru ent by a public notary.
&.* Forfaiting
Forfaiting is an arrange ent or agree ent bet!een a seller and a forfaiter Aa ban" or specialist institutionB under !hich the seller receives pay ent for e#port receivables fro the lender. This financing is !ithout recourse to the seller against the security of bills of e#change accepted or guaranteed AavalisedB by a ban" acceptable to the lender. This device also so eti es referred to as 2 forfait financing has a nu ber of applications. Its single greatest use is for the ediu -ter financing of e#ports of capital goods and e%uip ent in cases in !hich official e#port credit support is not available. It provides a fle#ible eans !hereby a ban" or other institution in the seller.s country can e#tend credit to a buyer, bac"ed by the guarantee of a ban" in the i porting country.
&.*." Forfaiting process
Forfaitin%
The seller and buyer agree the ter s of sale. This includes the granting of ediu -ter credit to the buyer for e#a ple, over a period of five years !ith %uarterly repay ents. &t the sa e ti e, the seller chec"s !ith the forfaiter a ban" or specialist institution in its o!n country that finance !ill be available for the transaction. The buyer accepts a series of drafts or signs a set of pro issory
notes corresponding to the instal ent dates for repay ent of the agreed credit. These bills or notes are guaranteed by the buyer.s ban". This ta"es the for either of a separate guarantee or of a special endorse ent on the bill or note, "no!n as an aval. Rights to pay ent under docu entary credits are also so eti es accepted as security in forfaiting deals. Consider an e#a ple of !here the buyer is receiving credit fro the forfaiter. The seller presents accepted bills or notes to a forfaiter. The latter buys the fro the seller for i ediate discounted cash pay ent. The discounted su received by the seller corresponds to the sale price agreed !ith the buyer. The difference bet!een that a ount and the total for !hich the bills or notes have been dra!n up is the interest pay ent to be ade by the buyer in return for being granted credit ter s. The difference bet!een the discounted price paid and the total su payable to the forfaiter under the bills or notes represents the forfaiter.s profit. The forfaiter can either hold the bills or notes and present the for pay ent on the aturity dates, or sell the in the secondary ar"ets that e#ist for trading in such instru ents. &n essential ele ent of forfaiting is that the forfaiter buys the bills or notes fro the seller !ithout recourse to the seller. This eans that the forfaiter Anot the sellerB bears the loss if the buyer and the guaranteeing ban" default or if, for any reason, funds cannot be transferred out of the buyer.s or guaranteeing ban".s country. <oreover, the seller !ill have obtained a co it ent fro a forfaiter before concluding its deal !ith the buyer. In effect, the seller has a si ilar type of ban" underta"ing to that obtainable under a confir ed docu entary credit. $o!ever, the buyer has been granted credit on a longer-ter basis than is nor ally available under a docu entary credit. The international rules governing forfaiting are the ICC Uniform Rules for Forfaitin%, (ublication ?o. +66.
&.B Choosing a documentary credit as the method of payment

& "ey decision !hen negotiating a sales contract is the selection of the ter s of pay ent. =nder a docu entary credit, both the buyer AapplicantB and seller AbeneficiaryB have independent assurance in the e#change of goods for pay ent.
Choosin% a documentar! credit as the method of +a!ment
&.B." Benefits for the beneficiary

The beneficiary receives an irrevocable underta"ing of an issuing ban" Aand the separate underta"ing of a confir ing ban", in the case of a confir ed docu entary creditB that it !ill receive pay ent, provided the follo!ing conditions are satisfied: docu ents are presented as stipulated in the docu entary creditG and all the ter s and conditions of the docu entary credit are co plied !ith. The issuing ban" or confir ing ban" underta"ing is addressed directly to the beneficiary and is legally binding. The issuing ban" or confir ing ban" effects settle ent !ithout recourse to the beneficiary, !hich eans that the settle ent is final and there can be no clai upon the beneficiary for refund or repay ent.
&.B.& Benefits applicant
for
the
The buyer, as applicant for a docu entary credit, has the underta"ing of the issuing ban" that no pay ent !ill be ade under it unless the beneficiary has: presented the docu ents as stipulated thereinG and co plied conditions. !ith all its ter s and
The applicant.s andate to the issuing ban" is on the above basis. In vie! of the co fort provided to both the beneficiary and the applicant by the independent underta"ing of a ban", docu entary credits are often a preferred ethod of pay ent in international trade.
&.B.- ;utonomy credit
of
the
documentary
'ocu entary credits are used in international trade because pay ent is ade on the basis of the presentation of co plying
contract docu ents. &n issuing ban" is only re%uired to a"e pay ent if all the ter s of the docu entary credit are et. There is no responsibility on an issuing ban" to assess !hether or not the ter s of the contract have been et. This is the autono y of the docu entary credit.
2* /he sales
This autono y of the docu entary credit has been upheld in the courts of any countries. &ny party see"ing to obtain an
inHunction preventing a ban" fro honouring its obligations under a docu entary credit often finds it very difficult. This can even be true !hen there has been fraud and the granting of an inHunction is appropriate. The autono y of docu entary credits is evidenced in #C) *++ articles &, 3, ?, B and D. These articles are e#a ined in detail in Chapter )3.
&.B.3 8oles, responsibilities and risks in!ol!ed in using documentary credits

It is i portant to recognise that, although docu entary credits provide co fort to both applicant and beneficiary, the respective interests and the ris"s they face in both the docu entary credit and the underlying transaction re ain different. Their interests differ in t!o "ey !ays: Cash flow the beneficiary usually !ants to collect pay ent as soon as possible. The applicant nor ally !ishes to delay pay ent until the latest possible ti e. Documents the applicant !ill !ant to a"e sure the docu ents received are as stipulated in the docu entary credit. This is certainly the case if the applicant has sold the i ported goods and ulti ate pay ent depends on correct docu entation. The beneficiary !ill !ant to a"e sure all the stipulated docu ents can be presented as soon as possible after the dispatch of the goods or co pletion of the transaction. The beneficiary !ill be concerned about the possibility of pay ent being delayed because of potential discrepancies in these docu ents.
These different interests are reflected in the different ris"s to !hich the t!o parties are e#posed.
&.B.3." 8isks applicant
faced
by
an
&n applicant faces the follo!ing ris"s: Non2deli!ery of goods goods ay not be delivered because of fraud by the beneficiary. In such circu stances, the applicant ay re ain liable to rei burse the issuing ban" for confor ing docu ents.
7hort2shipment or shipment of inferior goods goods ay be short-shipped Aa lesser %uantity than orderedB or the goods ay
be of inferior %uality, despite the presentation of docu ents that co ply !ith the ter s and conditions of the docu entary credit. In this event, an applicant ay suffer a loss on the eventual sale of the goods. The sa e ris" also applies if the goods are received late and the applicant is unable to sell at the price originally anticipated. To ini ise losses being sustained for these reasons, it is i portant that the applicant a"es every atte pt to establish the bona fides and the trading record of the beneficiary before entering into a docu entary credit transaction. In this respect, so e co fort ay be gained by obtaining a ban" or credit agency status report on the beneficiary. It ay also be appropriate to re%uire an independent preship ent inspection of the goods, via one of the docu ents called for in the docu entary credit. Goods recei!ed by applicant before documents recei!ed by the issuing bank if an applicant has to ta"e delivery of the goods by the use of a shipping guarantee, this !ill nor ally re%uire it to authorise pay ent under the docu entary credit not!ithstanding any discrepancy in the docu ents !hen they are received.
Loss or damage to goods in transit if goods are lost or da aged in transit, the o!ner of the goods at the ti e of such occurrence !ill loo" to its insurers for financial reco pense. 1oth parties should ensure they fully understand !hich party is responsible for arranging insurance !hen agreeing the ter s of the sales contract, for e#a ple via the use of an Incoter , !hich should be reflected in the docu ents called for under the credit. The applicant should be satisfied that the level of cover arranged provides an appropriate level of protection. Foreign e%change risk if the currency of the docu entary credit is not the applicant.s operating currency, there ay be a difference in e#change rates bet!een the ti e the docu entary credit !as issued Aor the ti e of the underlying agree entB and the ti e at !hich settle ent is re%uired. If the ove ent is unfavourable to the applicant, it ay have to pay ore than the anticipated price, reducing its profit argin or incurring a loss. &n applicant can protect against this ris" by entering into a for!ard foreign e#change contract or by buying an option. & for!ard foreign e#change contract has the effect of fi#ing the future e#change rate A!hich could be at a higher rate than the ar"et rate at the ti e of settle entB.
Failure of issuing bank in the event of the failure of the issuing ban", the applicant ay be re%uired to pay the
beneficiary directly. This paying t!ice,
contract ay result in the applicant effectively
2* /he sales
if it had already deposited funds !ith the issuing ban" to its liability under the docu entary credit.
eet
Fraud the applicant also faces the ris" that pay ent !ill be obtained for non-e#istent or !orthless erchandise against presentation of forged or falsified docu ents.
&.B.3.& 8isks faced by a beneficiary

& beneficiary faces the follo!ing ris"s: Failure to comply with documentary credit conditions a docu entary credit is a substantial safeguard of pay ent for the beneficiary. The ain ris" for the beneficiary is that the no inated ban" or issuing ban" !ill refuse pay ent because the docu ents do not co ply !ith the ter s and conditions of the docu entary credit. & beneficiary can ini ise this ris" by reading the docu entary credit carefully as soon as it is received. It should then i ediately re%uest an a end ent if any of the conditions appear to vary fro the sales contract or if the beneficiary !ould find it difficult to satisfy any of those conditions. &ny a end ent should be received before the goods are shipped, or the service or perfor ance is provided. If the beneficiary ships goods before receipt of a re%uired a end ent, it faces the ris" that, if the issuance of the a end ent is delayed, it ay not be able to a"e a co plying presentation.
Failure of, or delays in payment from, the issuing bank in the case of an irrevocable, but unconfir ed, docu entary credit, the beneficiary incurs the ris" of failure of the issuing ban" together !ith the country ris" relating to the country in !hich the issuing ban" is located. This poses a potential proble !here the country concerned lac"s ade%uate foreign e#change reserves. If an issuing ban" beco es insolvent, its underta"ing is placed in Heopardy and the beneficiary ay need to rely on pay ent for the goods being received direct fro the applicant. In the case of country ris", pay ent ay be prevented or delayed by incidents such as balance of pay ents difficulties affecting the country of the issuing ban" or by govern ent restrictions on transfer of funds outside the country. & beneficiary can itigate these ris"s by obtaining a confir ation of the docu entary credit by a ban" located in its o!n country. Credit issued by a party other than a bank the ris"s to a beneficiary, as outlined above, ay increase if the issuer of the docu entary credit is not a ban". If a beneficiary has
contract any doubts as to the status of the issuer of a docu entary credit or if it
2* /he sales
is clearly issued by a non-ban"ing institution, it should e#ercise caution before shipping the goods and placing reliance on the docu entary credit as its guarantee of pay ent. The ICC 1an"ing Co ission issued an opinion on this subHect on 96 Ectober 3663 under the reference R@6@. Fraud there is also the ris" that the docu entary credit itself ay be forged. This ight induce a beneficiary to ship goods or perfor a service against an apparent ban" underta"ing to pay that, in fact, does not e#ist. In this event, the beneficiary !ill have no enforceable clai against the na ed ban" because either that ban" did not issue the docu entary credit or the ban" does not e#ist. Foreign e%change risk if the currency of the docu entary credit is not the beneficiary.s operating currency, there ay be a difference in e#change rates bet!een the ti e the docu entary credit !as issued Aor the ti e of the underlying agree entB and the ti e at !hich settle ent is re%uired. If the ove ent is unfavourable to the beneficiary, it ay receive less than the anticipated price, reducing its profit argin or incurring a loss. & beneficiary can protect against this ris" by entering into a for!ard foreign e#change contract or by buying an option. & for!ard foreign e#change contract has the effect of fi#ing the future e#change rate A!hich could be at a lo!er rate than the ar"et rate at the ti e of settle entB.
&.B.3.- General risks

There are also ore general ris"s that affect all parties to a docu entary credit. The best !ay to avoid beco ing involved in a fraudulent transaction or falling foul of legislative and regulatory re%uire ents is si ply to F"no! your custo er.. The old a#i FIf goods are being offered for sale at a price that is too good to be true, then it probably is too good to be true. is a good yardstic": if follo!ed, it ay save a good deal of e barrass ent and financial loss that could prove disastrous to a co pany. ;ide-ranging legislation is ai ed at the prevention of oney laundering, transferring the proceeds of drug traffic"ing and the funding of terrorist activity. ,egislation varies in content and application fro country to country, but as the global co unity see"s to control and eradicate such activities, there is an increasing responsibility on ban"s to understand better !ho their custo ers are and the true nature of their businesses.
contract 1an"s that fail to underta"e the re%uired levels of due diligence run the ris" of incurring severe
2* /he sales
penalties fro e#a ined in
their local regulatory or legislative bodies. This is ore detail in Chapter )9. ris"s include the
Ether general follo!ing:
7o!ereign and regulatory risks sovereign and regulatory ris" is the ris" that perfor ance of the docu entary credit ay be prevented by govern ent action outside the control of the parties. This ay occur, for instance, if a govern ent i poses foreign pay ent restrictions or i port M e#port prohibitions after a docu entary credit has been issued, but before it has been fully perfor ed. This ris" ay also be referred to as Fcountry ris"..
Legal risks the sovereign and regulatory ris"s referred to above ay provide a disruption of the docu entary credit by events outside the fra e!or" of the docu entary credit operation itself. In contrast, legal ris"s concern the possibility that perfor ance of a docu entary credit ay be disturbed by legal action relating directly to the parties, and to their rights and obligations under the docu entary credit. Ene e#a ple of this latter type of ris" is if a dispute arises under a sales contract bet!een the applicant and beneficiary. The applicant ay start a court action against the beneficiary. In the course of these proceedings the applicant ay obtain a court order, such as an inHunction, that prevents the issuing ban" fro paying under the docu entary credit pending the resolution of the dispute. This places the issuing ban" in a situation in !hich it cannot honour its obligation. The legal ris" ay be co plicated by the fact that docu entary credit transactions invariably involve parties in t!o or ore different countries.
&.D $ssuance credit
of
documentary
It is a buyer.s responsibility to re%uest the issuance of a docu entary credit. The ti e !hen it should be opened should be detailed in the sales contract. If no date is indicated, a docu entary credit should be issued so as to be in the hands of the beneficiary prior to the earliest date of any specified ship ent date. 1eneficiaries often use docu entary credits opened in their favour as the basis for obtaining ban" finance. This finance ay
contract be necessary to enable the to ship the goods. &s a result, the beneficiary is under no obligation to do anything until the docu entary credit is issued.
2* /he sales
Students should not be concerned !ith the legal re edies that an applicant and beneficiary ay have against each other, but si ply
Issuance of a documentar! credit
!ith the fact that an applicant has a responsibility to arrange for the docu entary credit to be issued in good ti e to enable ship ent to be ade.
&.D." :ype, nature, terms and conditions of a documentary credit

&n applicant and beneficiary !ill need to agree the type, nature, and ter s and conditions of a docu entary credit. <ost proble s !ith the e#ecution of docu entary credits occur because the t!o parties have not co pletely agreed these points. In any cases, the t!o parties ay thin" they have reached agree ent, but their interpretations of that agree ent are different. This is recognised in International Standard Bankin% $ractice for the &'amination of ocuments under ocumentar! Credits AIS1(B, 36)9 revision, ICC (ublication ?o. 7/@, (reli inary Considerations, paragraph iv. $7B) &+"- re!ision, paragraph i! )reliminary Considerations,
<any of the proble s that arise at the docu ent e#a ination stage could be avoided or resolved by the respective parties through careful attention to detail in the credit or a end ent application and issuance of the credit or any a end ent thereto. The applicant and beneficiary should carefully consider the docu ents re%uired for presentation, by !ho they are to be issued, their data content and the ti e fra e in !hich they are to be presented. &n applicant and beneficiary should agree, at least, upon the ans!ers to the follo!ing %uestions relating to the issuance of a docu entary credit: Is it to be available by sight pay ent, deferred pay ent, acceptance or negotiationV ;hat a ountV is the currency and
;hat is the validity Aor e#piryB dateV ;hat is the last date for ship ent and the period for presentation of docu entsV
&re partial ship ents or dra!ings to be allo!ed or prohibited, and is tranship ent to be allo!ed or prohibitedV
Issuance of a documentar! credit
$o! are the goods, if re%uired, to be describedV ;hat is the transport docu ent and !hich Incoter ;hat are the other re%uired docu entsV &re there any special ter s and conditions, and are there docu ents to be presented to evidence co pliance !ith such ter s and conditionsV ;ho !ill pay the respective ban" charges under the creditV Is it to be confir ed or notV The details of docu entary credits are addressed in Chapter 9. is applicableV
8e!iew 9uestions
). Jour custo er is an e#porter. ;hich pay ent ter to least ris"V a. Epen account. b. 'ocu entary credit. c. (ay ent in advance. d. 'ocu entary collection. 3. Jour custo er is an i porter. ;hich pay ent ter to least ris"V a. Epen account. b. 'ocu entary credit. c. (ay ent in advance. d. 'ocu entary collection.
e#poses it
e#poses it
9. &n e#porter sells goods overseas on FE1 and CIF Incoter s respectively. ;ho is responsible for the freight charges in eachV a. I porter AFE1B M e#porter ACIFB. b. I porter AFE1B M i porter ACIFB. c. -#porter AFE1B M i porter ACIFB. d. -#porter AFE1B M e#porter ACIFB. /. =nder FE1 ter s and the =C(, a bill of lading !ould be re%uired to state: a. shipped on board and freight paidG b. received for ship ent and freight paidG c. shipped on board and freight payable at destinationG d. received for ship ent and freight payable at destination.
Re#ie.uestions
@.
Incoter
CIF
eans:
a. carriage, insurance and freightG b. cost, insurance and freightG c. cost including freightG d. charges, insurance and freight.
Chapter 9
Documentary credits4 types, uses and characteristics
Learning ob ecti!es 1y the end of this chapter, students should be able to: e#plain the ain types of docu entary creditG
evaluate the ain characteristics of different types of docu entary creditG e#plain pay ent types and settle ent Asight, deferred, acceptance, negotiationBG understand the relationship bet!een the applicant and the issuing ban"G understand the roles and responsibilities of an issuing ban"G assess the ris"s faced by an issuing ban"G describe the responsibilities that e#ist !hen issuing a docu entary creditG and assess the process of a ending a docu entary credit.
-." $ntroduction
The previous chapter addressed the relationship bet!een the buyer and seller in a trade transaction. It e#plored the sales contract Aor agree entB, and concluded !ith a decision to effect ifs School of Finance @@ settle ent through a docu entary credit.
2013
This chapter starts !ith an e#a ination of the different types of docu entary credit that are available to support such a trade
@8
/!+es of documentar! credit
transaction. It is i portant to note that, !hile docu entary credits have been categorised into types for the purpose of this chapter, it is %uite co on to find that the ter s and conditions of a docu entary credit !ill include so e fro another Ftype.. Students ust not a"e assu ptions about the ter s and conditions that a docu entary credit !ill contain si ply on the basis of its type. The chapter then e#plores the relationship bet!een the applicant AbuyerB and the issuing ban" Abuyer.s ban"B !hen the applicant applies to open a docu entary credit. It e#plains the responsibility of the applicant !hen sub itting a docu entary credit application. It also details the responsibility of an issuing ban" to e#a ine the application carefully before preparing and issuing the docu entary credit.
-.& :ypes credit
of
documentary
#C) *++, article &, in defining Fcredit., dra!s no distinction bet!een a docu entary credit and a standby letter of credit. =nder the definition, both fulfil the sa e basic purpose to facilitate the finance of trade. The beneficiary receives an underta"ing fro an independent, trusted third party that pay ent !ill be ade provided stipulated docu ents are presented Aaccording to the ter s and conditions of the docu entary credit, =C( 866 and international standard ban"ing practiceB. The applicant "no!s that pay ent !ill only be ade upon presentation of the stipulated docu ents that eet the ter s and conditions that !ere provided in its application for issuance. The use of a co ercial docu entary credit is significantly different fro that of a standby letter of credit. ?evertheless, the obligations of the issuers of a co ercial docu entary credit and a standby letter of credit are identical. 1oth issuers pay against presentation of stipulated docu ents and provided the ter s and conditions of the credit are co plied !ith. In both instances, an issuer is not concerned !ith any underlying sales contract or the goods, services or perfor ance to !hich such sales contract ay relate.
-.&." Commercial ifs School of Finance credits

2013
documentary
@7
Co ercial docu entary credits are intended to serve as a eans of pay ent for the delivery of goods or the provision of services or
3* ocumentar! credits* t!+es, uses and characteristics
@+
perfor ance. &s discussed in Chapter ), to aid their develop ent, in )*99 ICC published its first version of a set of international standards the Uniform Customs and $ractice for ocumentar! Credits A=C(B. The current version, =C( 866, ca e into effect on ) 5uly 3667. The =C( enHoys global acceptance and, today, probably all docu entary credits are issued subHect to it. The i pact of the 9* articles of =C( 866 on docu entary credit parties and operations is covered throughout this study te#t, and they are analysed in detail in Chapter )3. & co ercial docu entary credit is used as the principal pay ent echanis if perfor ance of the contract has occurred. In contrast, a standby letter of credit is typically used as a contingency pay ent echanis , !hich can be triggered if there has been so e aspect of non-perfor ance or default.
-.&.& 7tandby credit
letters
of
Standby letters of credit !ere initially developed because ban"s in the =S& had li ited legal authority to issue guarantees. Today, e#cept under li ited circu stances, the restriction on the issuance of guarantees no longer e#ists. Standby letters of credit are not legally distinct fro de and guarantees, !hich also re%uire the presentation of stipulated docu ents and co pliance !ith the ter s and conditions of the guarantee. The distinction lies in practice and ter inology. Standby letters of credit are used to under!rite a !ide variety of co ercial and financial operations. & standby letter of credit acts as a guarantee if there is a failure to perfor a contractual underta"ing, such as the obligation of a buyer to pay or that of a seller to deliver. It has the sa e basic for as a co ercial docu entary credit. $o!ever, the intention is often that the beneficiary in !hose favour a standby letter of credit is issued dra!s only in case of default on the transaction to !hich the standby letter of credit relates.
-.&.&." :ypes credit
of
standby
letter
of
Standby letters of credit can be e#tre ely fle#ible and are therefore a of suitable ifs School Finance product in a !ide range of pay ent @*
2013
scenarios. The characteristics follo!ing list provides a description of the types ost co only used: )erformance standby supports an obligation to perfor other than to pay oney and includes an obligation to pay for
3*
ocumentar! credits* t!+es, uses and
86
losses arising fro a default of the applicant in co pletion of the underlying transaction. ;d!ance payment standby supports an obligation to account for an advance pay ent ade by the beneficiary to the applicant.
Bid2bond or tender2bond standby supports an obligation of the applicant to e#ecute a contract if it is a!arded a bid. Counter standby supports the issuance of a separate standby letter of credit or other underta"ing by the beneficiary of the counter standby.
Financial standby supports an obligation to pay oney, including any instru ent evidencing an obligation to repay borro!ed oney. $nsurance standby supports an insurance or reinsurance obligation of the applicant. Commercial standby supports the obligations of an applicant to pay for goods or services in the event of nonpay ent by other ethods. Direct2pay standby is intended to be the pri ary eans of pay ent, and ay or ay not be lin"ed to a default in perfor ance or pay ent. 7ample commercial credit $77#$NG L.ND.N International ,td 9@th Floor, S%uare Connaught (lace $ong 2ong )* 5uly #### 'ear Sirs,
ifs School of Finance 2013 8)
standby )LC
letter of
B;N>
<CI
Sellers T!o -#change
;e hereby issuecharacteristics our irrevocable standby letter of credit ?o. . . . . . . . . . by order of 1uyers A=2B ,td, )66 $igh Street, ,ondon -C/, in your favour for an a ount of G1( )66,666.66 Aone hundred thousand poundsB !hich e#pires at our counters on 9) 'ece ber 4444.
3*
83
This standby letter of credit is issued in respect of the delivery of Wnature of the goods being shippedX This standby letter of credit is available by pay ent against presentation to us of the follo!ing docu ents: i. Jour sight draft dra!n on the Issuing 1an" for the a ount of your dra!ing. ii. Jour certificate stating that you have ade ship ent of the re%uired goods and have supplied the re%uired docu ents to 1uyers A=2B ,td and have not been paid !ithin 96 days of the invoice date. (artial allo!ed. dra!ings are
&ll charges under this standby letter of credit are for your account. -#cept !here other!ise e#pressly stated, this standby letter of credit is subHect to the Uniform Customs and $ractice for ocumentar! Credits A3667 RevisionB ICC (ublication ?o. 866. (lease %uote our reference nu ber on any correspondence. Jours faithfully ISS=I?G (,C 1&?2 4JZ
-.&.&.& 7tandby letters of credit and #C)

The first reference to standby letters of credit, in this conte#t, !as ade by the ICC 1an"ing Co ission in <arch )*77. It e#pressed its opinion that such credits fell !ith the =C( definition of a docu entary credit and should therefore be subHect to =C(. A&t that ti e, the current version of =C( !as (ublication ?o. 3*6.B The first reference to standby letters of credit in =C( itself !as in (ublication ?o. /66 in )*+9. & co ercial docu entary credit is issued at the re%uest of the buyer AapplicantB in favour of a seller AbeneficiaryB. Its role is to enable the beneficiary to obtain pay ent due fro the applicant, once the beneficiary.s part in the co ercial contract has been fulfilled. The beneficiary can de onstrate fulfil ent by ifs School of Finance 89 presenting stipulated docu ents.
2013
The role of thecharacteristics standby letter of credit is different, although it possesses all of the ele ents of a docu entary credit subHect to
3*
8/
=C(. Standby letters of credit can be used in a variety of scenarios, including the follo!ing: &s a perfor ance guarantee, for e#a ple, in respect of construction contracts or aHor long-ter sales. aHor
&s a for of guarantee by, for e#a ple, a parent co pany for loans granted to a subsidiary. The standby letter of credit ensures pay ent if the subsidiary fails to repay the loan !hen due. To support a beneficiary. In this case, it !ill act to ensure pay ent under the standby letter of credit if the beneficiary does not receive pay ent under the preagreed ethod. To cover a guarantee issued by a ban" in favour of the beneficiary. In this case, the standby letter of credit ay either be issued in favour of the beneficiary or in favour of a ban" in the beneficiary.s country. &ll these e#a ples sho! ho! a standby letter of credit covers a case of default, or non-perfor ance. AThis contrasts !ith a co ercial docu entary credit that ensures pay ent in a perfor ance situation ie the ship ent of goods or providing a service or perfor ance, follo!ed by the presentation of the appropriate docu ents.B This affects both the position of the issuing ban" and the type of docu entation called for. -ven if the applicant clai s that they have perfor ed, the ban" ust pay under the ter s of the standby letter of credit if the specified docu entation is presented usually a sight draft on the issuing ban", acco panied by a state ent of clai issued by the beneficiary. AThis position has been upheld in a nu ber of legal cases in !hich the courts have ruled against an applicant see"ing an inHunction to prevent an issuing ban" fro honouring its underta"ing.B 7tandby credits guarantees and demand
&lthough it is not al!ays easy to distinguish fro the basic !ording, there is a difference bet!een a standby letter of credit and a nor al de and guarantee. 'e and guarantees are usually subHect to the Uniform Rules for emand )uarantees A=R'GB, ICC (ublication ?o. 7@+. & student !ill al!ays need to chec" the transaction to ascertain the e#act set of rules under !hich the instru ent is, or is to be, issued. 'e and guarantees subHect to =R'G are not, ifs School of Finance
2013
8@
characteristics ho!ever, covered in the Certified 'ocu entary Credit Specialist AC'CSB %ualification and, as a result, are not discussed in any detail in this te#t.
3*
88
&s !as the case !ith the develop ent of =C( @66, !hich !as i ple ented in )**/, a discussion too" place at the ti e of the drafting of =C( 866 to deter ine !hether to retain reference to the applicability of standby letters of credit in =C(. The decision to do so !as e#plained in the Commentar! to UC$ (00, ICC (ublication ?o. 8+6. It !as noted: 'uring the course of the revision, a nu ber of ICC national co ittees suggested that the reference to standby letters of credit be deleted fro the =C(. Their rationale !as that !ith the introduction of IS( *+, there !ere no! specific rules for standby credits. &fter considerable discussion, the 'rafting Group felt that the reference to standby credits could not be deleted since, despite the introduction of IS( *+, there !ere still a significant nu ber of standby credits that continued to be issued subHect to =C(. The 'rafting Group also believed that even if reference !ere deleted, ban"s !ould continue to issue standby credits subHect to the =C(. =C( 866 has an e#plicit reference to standby letters of credit and they ay be issued subHect to the rules. It should also be noted, ho!ever, that, because the functions of a standby letter of credit are different fro those of a co ercial docu entary credit, any of the articles of =C( 866 Afor e#a ple, articles )+93B have no practical application to a standby letter of credit. This point is recognised in #C) *++, article " ;pplication of #C). It is often left to the concerned ban"s to deter ine !hich !ill be applicable. This is particularly so !hen an issuing ban" does not indicate the articles of =C( 866 that !ill not be applicable to the standby that has been issued. The proble of the li ited applicability of =C( to standby letters of credit has beco e ore acute !ith their increasing develop ent and the !ide variety of uses that have arisen in ore recent ti es. &s a conse%uence, the need for separate rules to deal !ith proble s specific to standby letters of credit beca e increasingly apparent to the international ban"ing co unity. In recognition of this need, the ICC obtained the approval of the international ban"ing co unity for the introduction of separate rules for standby letters of credit. These rules are "no!n as the International Standb! $ractices AIS( *+B, ICC (ublication ?o. @*6.
ifs School of Finance 2013 87
-.&.&.- $nternational 7tandby )ractices /$7) FD0

I ple ented on ) 5anuary )***, IS( *+ reflects generally accepted practice, custo and usage specifically for standby letters of credit. Eutside the =S& a nu ber of standby letters of credit continue to be issued subHect to =C(. $o!ever, there is a gro!ing a!areness internationally that IS( *+ provides a ore relevant fra e!or" for a standby letter of credit and, as a conse%uence, IS( *+ is increasingly used. IS(, in line !ith =C(, has been drafted as a set of rules intended for use in daily practice. &s ay be e#pected, so e of the rules in IS( *+ share a basic si ilarity !ith their counterpart in =C( and actually shaped so e of the drafting of =C( 866. That said, a different style and approach has been adopted in the IS( *+ construction. This is because of the need for IS( *+ to gain acceptance not only a ong the traditional parties to a docu entary credit, but also a ong a broader range of those involved in standby letter of credit la! and practice, including corporate treasurers and credit anagers, rating agencies, govern ent agencies and regulators, and e bers of the legal profession. There are a nu ber of differences in substance bet!een IS( *+ and =C( 866. These differences are due to different practices or proble s encountered in standby letter of credit use or the need for ore precision in the !ording of their articles. Eften, a party !ill only dra! on a standby letter of credit if there is a dispute over the perfor ance of the underlying sales contract and, as such, its !ording, together !ith the governing rules, is li"ely to be subHect to so e robust legal scrutiny. These differences in substance, together !ith the structural approach, can be seen in the rules %uoted belo!. The IS( *+ rules are grouped together under ten generic headings, as follo!s: ). provisions General
3. Ebligations 9. (resentation /. 8+
-#a credit ination @. ?otice, docu ents
/!+es of documentar!
preclusion
and
disposition
of
8. Transfer, assign ent and transfer by operation of la! 7. Cancellation
8*
+. obligations *. Ti ing
Rei burse ent
)6.Syndication participation.
These rules are analysed in detail in Chapter )3.
-.- Characteristics of documentary credits

So e characteristics are funda ental to all docu entary creditsG others, by the insertion of clauses or a recognised for of !ording, provide a speciality function. & nu ber of these characteristics are provided for !ithin =C( 866 and IS( *+, but others have gained their standing under the u brella of international standard ban"ing practice. This section loo"s at those characteristics that are ost co only encountered in docu entary credit operations.
-.-." 8e!ocable credit
documentary
Revocable docu entary credits are rarely used. They are not covered in =C( 866G #C) *++, article - presu es that docu entary credits are irrevocable by stating, F& credit is irrevocable even if there is no indication to that effect.. & docu entary credit !ould need to specifically state that it !as revocable and incorporate the ter s and conditions that !ill apply to the revocability. & revocable docu entary credit offers no security of pay ent to the beneficiary. &s a result it ay not be capable of being considered as a fair e#change for the goods, services or perfor ance provided by a beneficiary. & revocable docu entary credit ay be a ended or cancelled by the issuing ban" Fat any o ent. and F!ithout prior notice. to the beneficiary. &n issuing ban" is, ho!ever, liable to honour its obligations to another ban" for any honour or negotiation ifs School Finance ade before it received notice that the docu of entary credit had
2013
76
Characteristics of documentar! credits been revo"ed. This includes a liability to rei
burse such ban" for any deferred pay ent underta"ing incurred before it received a revocation notice.
7)
-.-."." Aanaging risk under re!ocable documentary credits

Should it decide to issue a revocable docu entary credit, an issuing ban" should restrict honour or negotiation to a single no inated ban". This eans that, in the event of an a end ent or cancellation notice, the issuing ban" can co unicate these changes clearly and directly, reducing the chances of error. It also re oves the possibility, if the docu entary credit !as available !ith any ban", of another ban" acting under it !hilst una!are of any a end ent or cancellation notice. If an issuing ban" receives a re%uest for cancellation fro an applicant, the issuing ban" should a"e it clear in !riting that the applicant re ains liable for any co it ent ade by the no inated ban" prior to the receipt of the cancellation re%uest. AIdeally, this should be advised to the applicant at the ti e of issuance.B The issuing ban" ust advise the no inated ban" of any cancellation. &t this point, it should also re%uest the no inated ban" to advise it of its receipt of the cancellation notice and M or the details of any obligations underta"en by the no inated ban" prior to the receipt of the cancellation notice. 1an"s should not issue revocable docu entary credits that are transferable. &lso, ban"s should not confir revocable docu entary credits. If it receives a revocable docu entary credit, a no inated ban" ust advise the beneficiary that it is subHect to cancellation at any ti e up to and including the day of presentation of docu ents. This cancellation can be ade !ithout notice to, or consent of, the beneficiary. If a no inated ban" receives notice of a cancellation fro an issuing ban", it ust advise the beneficiary of the cancellation !ithout delay. If not re%uested by the issuing ban", it ust also advise and M or clai on the issuing ban" if it has already underta"en any obligation prior to receipt of the cancellation notice.
-.-.& $rre!ocable credit
documentary
The definition of an irrevocable docu entary credit can be noted in #C) *++, article &. #C) *++, sub2article "+ /a0 indicates that an irrevocable docu entary credit cannot be a ended or cancelled !ithout the agree ent of the issuing 73 ifs the School of FinanceThis ban", the confir ing ban", if any, and beneficiary.
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credits eans the beneficiary gains
Characteristics of documentar!
79
considerable co fort fro the clear and una biguous underta"ing of the issuing ban". For standby credits subHect to IS( *+, this co fort co es fro $7) FD, rule ".+* /a0 and /b0.
-.-.&." $rre!ocable credit
confirmed
documentary
The definition of an irrevocable confir ed docu entary credit can be noted in #C) *++, article &. If the beneficiary is not co fortable !ith an irrevocable underta"ing of an issuing ban" Aas described aboveB, it ay re%uire another ban" to confir the docu entary credit. This is ost li"ely to occur !hen the issuing ban" is located in a country that the beneficiary believes represents a ris" to it receiving settle ent. It can even be !hen a beneficiary has an internal policy that dictates that docu entary credits are to be confir ed for those issued in certain countries or regions of the !orld. The beneficiary !ill then see" confir ation fro a ban" located in its o!n country. In ter s procedure: of ust Fauthorise or re%uest. a ban" to
the issuing ban" confir G
the confir ing ban".s underta"ing is in addition to that of the issuing ban", so that the beneficiary has a double assurance of pay entG the ban" authorised or re%uested to confir the docu entary credit is not obligated to do so A#C) *++, sub2 article D/d0BG if the docu entary credit has been confir ed, the confir ing ban" is not obligated to e#tend its confir ation to an a end ent A#C) *++, sub2article "+/b0B.
-.-.- :ransferable credit
documentary
Transferable docu entary credits are one of the ore co on types of docu entary credit. There are any si ilarities Aand differencesB !ith bac"-to-bac" docu entary credits A!hich are revie!ed in section 9.9./B. In its si plest for , a docu entary credit is issued in favour of the seller AbeneficiaryB, !ho ships the goods, presents the ifs Finance stipulated docu ents and clai s paySchool ent. of This scenario is
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7/
Characteristics of documentar! credits particularly applicable if the beneficiary is the
anufacturer or producer of the goods. In so e cases, ho!ever, the applicant conducts business !ith an inter ediary trader, agent or iddle an Areferred to in the study te#t as a traderB !ho obtains the goods fro one or ore other
7@
sources. In this event, the trader !ill need to buy the goods, or a"e arrange ents for their purchase, before supplying the to the applicant. Typically, traders operate on narro! argins: they do not carry stoc"s of goods and have li ited !or"ing capital. Characteristically, therefore, a trader !ill see" a eans of financing the purchases that does not place a burden on its o!n resources. In the conte#t of standby letters of credit, the underlying debt obligation is often sold, necessitating the transfer of the docu entary credit to the ne! o!ner of the debt. Transferable docu entary credits !ere devised as a response to these needs. The basic idea underlying this techni%ue is that the docu entary credit issued in favour of the trader can be used as a eans of paying the sources fro !hich the goods are obtained and act as security for pay ent for such goods. It also allo!s for the transfer of the underta"ing in the docu entary credit to another seller A!ho !ill beco e "no!n as the second beneficiaryB.
-.-.-." Basic features of a transferable documentary credit

=nder a transferable docu entary credit, the final buyer AapplicantB instructs its ban" to issue a docu entary credit, stating that it is transferable, in favour of the trader fro !ho the goods are bought A!ho !ill beco e "no!n as the first beneficiaryB. This allo!s the trader to re%uest the ban" at !hich the docu entary credit is available for honour or negotiation to transfer it in !hole or in part to the trader.s supplier Athe second beneficiaryB. If the trader is buying fro several sources, the ban" ay be re%uested to transfer parts of the docu entary credit to each such source. The value of the parts of the docu entary credit transferred to each supplier represents the price that the trader is paying for the goods. The balance represents the trader.s profit or argin. This arrange ent provides the trader.s suppliers !ith security for pay ent because part of the docu entary credit itself is transferred to each supplier. In this !ay, each supplier Asecond beneficiaryB obtains the right to clai pay ent direct fro the ban" at !hich its portion of the docu entary credit is available Aagainst presentation of co plying docu entsB. This eans the supplier obtains a large easure of control over the pay ent process, because it is able to ensure that the appropriate docu ents are presented !ithin the ti e li its established in the transferred docu entary credit. 78 ifs School of Finance
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Characteristics of documentar! credits
& transferable docu entary credit is also a convenient solution for the trader. This is because it allo!s the trader to provide its suppliers !ith the security of a docu entary credit !ithout having to use any part of its o!n ban"ing facilities.
-.-.-.& 8isks costs
and
& transferable docu entary credit can involve e#tra ris"s and costs for the original applicant Athe buyer for !ho the goods are destinedB. In particular, it accepts the ris" of receiving goods fro a third party, !ho it ay not "no! and !ith !ho there ay have been no previous business dealings. <oreover, once a docu entary credit is transferred, ore parties are involved. This eans the docu ents have to be e#a ined and, invariably, ailed t!ice before they reach the issuing ban". This increases the ris" of loss and error along the !ay. The greater difficulties involved in controlling the operation under a transferable docu entary credit ay also increase the ris" of fraud. & large part of this ris" ulti ately falls on the original applicant, !ho underta"es to rei burse the issuing ban" provided that a co plying presentation has been ade.
-.-.-.- .!er!iew of transferable documentary credit procedures

The detailed procedures applicable to transferable docu entary credits are analysed in Chapter )3. This section highlights the ain steps in a transferable docu entary credit by briefly su arising the progress of a si ple transaction. AIt should be noted that the precise details !ould not be the sa e in all cases.B ). The buyer AapplicantB and the seller AtraderB conclude their sales contract. They agree that the buyer !ill re%uest its ban" to issue a docu entary credit, in favour of the trader, that is designated as being transferable. They should also agree on the other details of the docu entary credit, including transport docu ents and other docu ents to be presented, e#piry date and last date for ship ent. 3. The buyer re%uests the issuance of an irrevocable transferable docu entary credit. 9. The issuing ban" trans its the docu entary credit details to an advising ban", usually in the trader.s country, and no School inates it Finance as the transferring ban". ifs of 77
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/. The advising ban" advises the docu entary credit to the trader Afirst beneficiaryB. @. The trader re%uests that the advising ban" transfer part of the docu entary credit to a supplier in the sa e country or in another country Asecond beneficiaryB, fro !ho the goods are to be obtained, to fulfil its contract !ith the applicant. 8. &t the re%uest of the trader, the transferring ban", if it agrees, a"es the transferred part of the docu entary credit available to the second beneficiary, by issuing a transferred credit. 7. The transferred credit is advised to the second beneficiary. +. The second beneficiary ships the goods in accordance !ith the re%uire ents of the transferred credit. *. The second beneficiary prepares and collates all of the docu ents stipulated in the transferred credit issued in its favour. The docu ents !ill include the second beneficiary.s invoice, together !ith its draft, if any. The other stipulated docu ents !ill atch those stated in the docu entary credit issued in favour of the trader. )6.The second beneficiary transferring ban". sends the docu ents to the
)).;hen the transferring ban" receives the docu ents, the trader Afirst beneficiaryB !ill be re%uested to present its o!n invoice and draft, if any. )3.The second beneficiary.s invoice and draft, if any, !ill sho! the trader.s sources of supply and the a ount that the trader has paid for the goods. To avoid the applicant obtaining this infor ation, these t!o docu ents are substituted for those of the trader. The invoice and draft Aif anyB of the trader, together !ith all of the other docu ents, are sent to the issuing ban".
-.-.-.3 Aanaging risk under transferable documentary credits

It is co on for transactions connected !ith transferable docu entary credits to involve: a first beneficiary AtraderB and one or AsupplierBG
7+
ore second beneficiaries
ore than one set of docu entsG
7*
dealing countryG and
in
ore
than
one
ore than one rei burse entG
a longer chain of ban"s than are involved in a non-transferable docu entary credit. &s a conse%uence of the features outlined above, a nu ber of challenges ay arise, as follo!s. It can prove difficult to onitor advices of a end ents to the transferable docu entary credit and the transferred docu entary credit through the chain of the applicant, first beneficiary and one or ore second beneficiaries. The onitoring of the necessary consents ight also cause concern. $o!ever, it should be noted that #C) *++, sub2 article -D/f0 allo!s for each transferred credit to be a ended individually and the acceptance or reHection of an a end ent by one second beneficiary does not bind any other second beneficiary to the sa e course of action. The ban" of the second beneficiary ight clai pay ent directly fro the issuing ban", causing difficulties for the transferring ban" and first beneficiary.
The ban" of the second beneficiary ight dispatch docu ents directly to the issuing ban", again causing proble s for the transferring ban" and first beneficiary. If there are discrepancies in the docu ents, it ay prove difficult to obtain the second beneficiary.s and first beneficiary.s agree ent to an agreed course of action. These difficulties are ade ore acute because of the tight ti e li its for honour or negotiation of docu ents bet!een the transferred credit and the transferable docu entary credit. The follo!ing steps can be ta"en to address these ris"s or proble s: The issuing ban" can restrict honour or negotiation and transfer to a single no inated ban". ;hile it is accepted that a beneficiary and applicant ay be reluctant to agree to such an arrange ent, the %uestion that the issuing ban" should as" itself is !hether it !ishes to be e#posed to the greater ris" inherent in any alternative arrange ent and to !hat e#tent, if any, the applicant !ould agree to inde nify the ban" for doing so. The transferable docu entary file of should be clearly credit ifs School Finance
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+6
Characteristics of documentar! credits ar"ed as a transferable credit.
+)
The transferred docu entary credit file should be clearly as a transferred docu entary credit. The t!o files should be cross-referenced.
ar"ed
-.-.3 Back2to2back /counter0 documentary credit

In so e circu stances, an applicant ay not be able to use a transferable credit. The ost co on reasons are: the ter s of a sales contract bet!een the ulti ate buyer and end supplier ay be substantially different, and authorised changes allo!ed under transferable docu entary credits Ain ter s of #C) *++, article -D/g0B ay not be sufficient to atch these differing needsG the applicant or beneficiary ay not !ish to be e#posed to the attendant ris"s of a transferable docu entary credit. In these circu stances, a bac"-to-bac" docu entary credit operation ay provide an acceptable alternative.
-.-.3." .!er!iew of back2to2back documentary credit procedures

& docu entary credit ACredit &B is first issued in favour of a trader M iddle an by a ban" at the re%uest of the ulti ate buyer AapplicantB. The trader uses this docu entary credit as a eans by !hich to re%uest a ban" to issue a separate docu entary credit ACredit 1B on its behalf in favour of the supplier. ;hen Credit 1 is issued by the sa e ban" that advised Credit & in favour of the trader, Credit 1 is referred to as a bac"-to-bac" docu entary credit. This is because the advising ban" of Credit & opens Credit 1 on Fthe bac" of. Credit &. ;hen Credit 1 is issued by the trader.s o!n ban" Anot being the advising ban" of Credit &B, Credit 1 is referred to as a counter docu entary credit because Credit & is the Fcounter. for Credit 1. The distinction bet!een the na es Fbac"-to-bac". or Fcounter. is not significant. The "ey ele ents are as follo!s: The t!o docu entary credits are entirely separate and each issuing ban" is liable on its o!n +3 obligation. ifs School of Finance
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The docu ents fro Credit 1 presentation under Credit &.
ay be used in part to
a"e a
+9
The trader is obligated to pay the ban" that issued Credit 1 on its behalf, irrespective of !hether proceeds are obtained under Credit &. Credit & does not provide security to the Credit 1. Credit & erely evidences the that ay be forthco ing to eet the pay Credit 1. &ccordingly, Credit & provides Fco that issued Credit 1, rather than security. ban" that issued eans of pay ent ent obligation on fort. to the ban"
If the transaction is to be co pleted successfully, then it is i portant that, before Credit 1 is opened, the issuing ban" ensures that: the docu ents stipulated in Credit 1 of Credit &G or, if they do not, that irror the re%uire ents
the trader has provided satisfactory evidence that the re%uired docu ents or a ended docu ents are capable of being sub itted outside Credit 1G and M or that the ter s and conditions of Credits & and 1 atch as far as possible, subHect to satisfactory e#planation fro the trader. It is essential that the issuance of Credit 1 is underta"en by staff capable of understanding the basic principles outlined above. They ust also be able to e#a ine the application for Credit 1 against the ter s and conditions of Credit &. They !ill also need to as" the necessary %uestions fro the trader to ensure the docu ents for presentation under Credit & can be achieved fro the presentation of docu ents ade under Credit 1 and by the trader. This can be seen by considering the circu stances that !ould arise if the issuing ban" of Credit 1 !ere unable to a"e a valid presentation under Credit &. In this case, the issuing ban" !ill be in possession of docu ents that have been refused by the issuing ban" and applicant of Credit &. So, if the trader is unable to pay, the issuing ban" of Credit 1 ay have to resort to the sale of the goods and suffer any loss that !ould result. & sale of the goods !ould not nor ally result in the a ount to be paid under the docu entary credit being recovered. It is i portant to note that transport docu ents stipulated under docu entary credits need not necessarily give title to the underlying goods, in !hich case the loss !ould be substantially higher. ifs School of Finance
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+/
-.-.3.& Aanaging risk under back2to2 back documentary credits

The issuing ban" of the bac"-to-bac" Credit 1 is e#posed to the greatest ris". It should ta"e care to ensure that: the stipulated docu ents and ter s and conditions re%uire ents of Credit &G irror the
ade%uate e#planations and assurances have been given by the traderG it consider a re%uire ent that Credit & be confir ed by it so that it ay control any a end entsG ade%uate underta"ings and other legal docu entation are e#ecuted by the trader, including a legal assign ent of proceeds under Credit &G the original of Credit & is held in safe custodyG and both docu entary credit files are ar"ed to identify the as bac"-to-bac" transactions and the t!o are cross-referenced.
-.-.? Comparing transferable and back2to2 back documentary credits

?ote that there are si ilarities bet!een transferable and bac"-tobac" docu entary credits: 1oth involve iddle an. a the trader or of
1oth involve docu ents.
substitution
1oth should be issued so that they e#pire at the counters of the no inated ban" for the transferred or bac"-to-bac" docu entary credit, so that the ban" can e#ercise control not only in the substitution of docu ents, but also in handling discrepancies. The "ey difference is that the transferred docu entary credit derives not only its e#istence fro the transferable docu entary credit fro !hich it receives its ter s and conditions Ae#cept for the per itted e#ceptionsB, but also its utilisation. In a bac"-tobac" docu entary credit, on the other hand, there are t!o separate docu entary credits !ith independent underta"ings fro the t!o issuing ban"s. It should be noted that =C( 866 provides for the transferring ban" to utilise the second ifs School of Finance +@
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beneficiary.s docu characteristics ents under the transferable credit should the first beneficiary fail to present substitute docu ents. This
3*
+8
re edy is not available under a bac"-to-bac" transaction as they are considered separate docu entary credits.
-.-.* Clean documentary credit

The follo!ing t!o definitions of a Fclean docu entary credit. provide a reasonable description: Clean credit & credit opened by a ban"er under !hich a person abroad ay dra! bills upon the ban"er, the ban"er underta"ing to accept the bills if dra!n in accordance !ith the conditions in the credit. It is called Fclean. because the bills have no docu ents attached. Such a credit is granted only to fir s of the highest standing, or against securities. A'erric" $anson A)*+@B ictionar! of Bankin% and Finance, published by (it an, ,ondon.B Clean credit & letter of credit issued by a ban" against !hich the designated foreign seller ay dra! a bill !ithout docu entary support. The issuing ban" engages to accept a clean bill, if other!ise dra!n in accordance !ith the conditions i posed by the relative letter of credit. & clean credit is granted only to concerns of the highest credit standing. AGlenn G. <unn, F.,. Garcia, Charles 5. ;oelfel A)**)B &nc!clo+aedia of Bankin% and Finance, 3th edition, published by St. 5a es (ress, Chicago.B The distinguishing features in both definitions are that the issuer of the clean docu entary credit is obligated to pay against bills of e#change dra!n on the issuer and that no other docu ents are re%uired for pay ent. $istorically, it has also been used as a eans by !hich a paying ban", !hich pays a beneficiary under a traveller.s letter of credit, obtains rei burse ent by dra!ing a bill of e#change on the ban" that issued the traveller.s letter of credit. This type of arrange ent can be, and is, used for a variety of co ercial purposes that do not envisage either the ove ent of goods or an event of default. & direct-pay standby letter of credit is a good e#a ple of such use.
-.-.B ;d!ance payment clause0 documentary credit
/red
&t the seller.s re%uest, the buyer ay agree to a"e a part of the purchase price available to the seller as a preship ent ifs School of Finance +7
2013
characteristics advance and further agree that such advance should be fro !ithin the docu entary credit !hen issued. arrange ent provides for the
3*
ade The
++
a ount of the advance to be deducted fro the a ount to be paid to the seller, as beneficiary, upon presentation of docu ents.
-.-.B." .!er!iew of ad!ance payment documentary credit

The issuing ban" incorporates a clause in the docu entary credit authorising the no inated ban" to pay a percentage of the value of the docu entary credit to the beneficiary. $istorically, this clause appeared in bold red type in order to dra! attention to the special advance and, for this reason, such docu entary credits !ere ter ed Fred clause. docu entary credits. The clause re%uire: ay
a receipt for the advance duly signed by the beneficiaryG an underta"ing fro the beneficiary to utilise the funds to purchase, pac" and ship the erchandiseG or an underta"ing of the beneficiary to present the docu ents as stipulated in the docu entary credit to the no inated ban" !ithin the e#piry date, or repay the advance in the event it does not. In rei burse ent, the no inated ban" !ill clai on the issuing ban" in ter s of the docu entary credit supported by a receipt and M or underta"ing, as indicated above. In order to provide so e easure of co fort to the issuing ban" Aand applicantB, the advance pay ent is so eti es to be ade not only against a receipt and M or underta"ing, but also against the beneficiary: providing confir ation fro a shipping agent that it has boo"ed shipping space on a particular vessel, the sailing date of !hich is consistent !ith the latest ship ent date sho!n in the docu entary creditG
providing a receipt fro an independent !arehouse that the goods are M !ill be stored and insuredG agreeing to the retention of the original docu entary credit by the no inated ban". ifses, School of because Finance of local custo So eti either
2013
or at the re%uest of +*
characteristics the issuing ban", the no inated ban" ay agree to onitor so e part of these arrange ents. $o!ever, it is under no obligation to do so.
3*
*6
-.-.B.& Aanaging risk under ad!ance payment documentary credits

&n advance pay ent guarantee is the best !ay of anaging the ris" of paying in advance, !hereby a separate underta"ing is given by a third-party ban" that in the event the beneficiary fails to perfor , a clai ay be ade thereunder. 1ecause the nu ber of advance pay ent docu entary credits handled by ban"s is relatively s all, all parties should ensure that: advance pay ent files are clearly suchG ar"ed as ore
all advices and transactions are handled by e#perienced staff. The issuing ban" should also ensure that:
honour or negotiation is restricted to a no inated ban"G The no inated ban" should ensure that: the ter s of the docu entary credit are not inoperable and are !or"ableG there is no ter or condition !ith !hich the no inated ban" is not co fortableG the advance pay ent is docu entary creditG ade strictly in ter s of the on the ade
the necessary docu entation in support of its clai issuing ban" is obtained fro the beneficiaryG the clai pro ptly.
for rei burse ent for the advance is
-.-.D 8e!ol!ing documentary credit and instalment drawings or shipments

Revolving docu entary credits are generally used bet!een an applicant and beneficiary !ho have a long-standing trading relationship and e#perience in the ship ent of the goods described in the docu entary credit. ifs School of Finance *)
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The applicant characteristics and beneficiary arrange for a docu entary credit to be issued, !hich allo!s the a ount thereof to be reinstated, usually !ithout a end ent Aie on an auto atic basisB. =nder this arrange ent the continuing availability of the docu entary credit
3*
*3
revolves upon ship ent or presentation of docu ents or at a specific ti e for instance the first of each onth and not upon the issuance of a specific a end ent. $nstalment shipments drawings or
1an"s issuing revolving docu entary credits should specifically e#clude the provisions of #C) *++, article -& AInstal ent dra!ings or ship entsB. This is because revolving credits and instal ent dra!ings or ship ents are funda entally and conceptually different. &rticle 93 refers to a docu entary credit under !hich the applicant and beneficiary specifically agree dra!ings or ship ent by instal ents !ithin given periods. AThis re%uire ent is usually set to eet the re%uire ents of applicants !ho ight need the shipped ite s at a specific ti e. For e#a ple, a anufacturing co pany !ill re%uire ite s at specific ti es in the production process.B In article 93 there is a presu ption of cancellation of any future instal ent dra!ing or ship ent should a re%uired instal ent dra!ing or ship ent not be et. &ny reinstate ent of future instal ents !ill re%uire a specific a end ent to the docu entary credit. UCP 600, article 32 states: .If a dra!ing or ship ent by instal ents !ithin given periods is stipulated in the credit and any instal ent is not dra!n or shipped !ithin the period allo!ed for that instal ent, the credit ceases to be available for that and any subse%uent instal ent..
-.-.D." .!er!iew credits
of
re!ol!ing
documentary
The revolve ent of the a ount depends on three ain features: the type of revolve entG !hether or not it is auto aticG and !hether or not it is cu ulative. :ypes re!ol!ement of
Re#ol#ement de+endent u+on time: in these circu stances, a specific a ount is allo!ed to be dra!n !ithin a defined period as stipulated in the docu entary credit and during its validity. For e#a ple, the docu entary credit ay indicate that =S[3@,666 ay be dra!n each onth during the docu entary credit.s 8- onth validity. The revolve ent of the a ount ay be either on a cu ifs School *9 ulative of or Finance non-cu ulative basis Asee belo!B.
2013
Re#ol#ement de+endent u+on #alue: so eti es, revolving docu entary credits ay indicate that the a ount is to revolve upon utilisation !ithin the overall validity of the
*/
docu entary credit. In the absence of any other indication, such an authorisation allo!s revolve ent upon each and every utilisation. So, in the above e#a ple, the beneficiary could theoretically a"e a ship ent every day for 8 onths ie )+6 revolve ents of the a ount shipped. It is al ost i possible to calculate the liability in these circu stances. For this reason, ban"s issuing revolving docu entary credits under !hich revolve ents are dependent upon value ust indicate the overall a#i u a ount for !hich the docu entary credit can be dra!n for all ship ents during its validity. =hether the re!ol!ement is automatic or not the docu entary credit ust indicate !hether the revolve ents are auto atic or not. If the revolve ents are auto atic, there is no need for any further a end ent fro the issuing ban". The issuing ban" is liable for the a#i u a ount that can be dra!n under the docu entary credit covering all revolve ents. & revolve ent is considered non-auto atic if the revolve ents are dependent upon receipt by the no inated ban" of the issuing ban".s authorisation for a further revolve ent, by !ay of a end ent. In these circu stances, the issuing ban".s a#i u liability at any one ti e is the value of the single revolve ent.
=hether the re!ol!ement is cumulati!e or not Cumulati#e re#ol#ement: the docu entary credit indicates that the revolve ent is on a cu ulative basis. For e#a ple, if =S[3@,666 can be dra!n each onth during the credit.s 8- onth validity, any a ount not used in a onth is available in each follo!ing onthG therefore the si#th instal ent ay be the cu ulative total for si# onths =S[)@6,666.
4on-cumulati#e re#ol#ement: if the docu entary credit indicates that the revolve ent of the a ount is noncu ulative, then, in the above e#a ple, it eans that if one onth.s ship ent of =S[3@,666 !ere not ade Aeither co pletely or partiallyB, it could not be carried for!ard to the succeeding onth. If, for e#a ple, no ship ents had been ade for five onths, the dra!ing for the si#th onth !ould be =S[3@,666 only. In both cases, at the ti e of issuance, and !here the revolve ent is auto atic, the a#i u liability of the issuing ifs School of Finance *@
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characteristics ban" is =S[)@6,666.
3*
*8
-.-.D.& Aanaging risks associated with re!ol!ing documentary credits

The issuing ban" should ensure that: honour or negotiation is restricted to a no inated ban"G revolve ent of a ounts Aparticularly in respect of revolving credits in !hich the revolve ent is dependent upon valueB re ains under the control of the issuing ban" or there is !ording in the docu entary credit that li its the liability to a fi#ed a ount.
-.-.F E!ergreen and annually renewable documentary credits

'ocu entary credits are ter ed evergreen or annually rene!able because they are available for longer periods than a nor al docu entary credit. They can only be cancelled or a ended if notice is given to the beneficiary by the issuer on, or before, a stipulated ti e in advance of the current e#piry. They are co only seen in standby letters of credit. 7ample wording to ensure the Ge!ergreenH of a standby letter of credit nature
This standby letter of credit !ill be auto atically e#tended for a further year, !ithout !ritten a end ent, on the first day of 5anuary of every future year fro the co ence ent date, so that it is al!ays valid for a ini u period of four years unless, at least thirty days prior to 9) 'ece ber of the first year of the current or any future validity period, notice is given in !riting, sent by registered ail, that this standby letter of credit !ill not be e#tended beyond the current e#piry date. -vergreen or annually ost co only issued: rene!able docu entary credits are
in trades !here the liability under the transaction be easily or readily deter inedG
ay not
and if, by the very nature of the transaction Aeg under!riting certain insurance ris"sB, the e#tent of the liability is not %uantifiable Aoften for a nu ber of years after the event causing the liabilityB, as described in the e#tract above. ifs School of Finance *7
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-.-.F." Aanaging risk associated with e!ergreen and annually renewable documentary credits
&n applicant should understand its liability under a docu entary credit. & beneficiary ay si ply be able to present a de and at any point during the e#tended period. &n issuing ban" therefore needs to ta"e steps to anage its e#posure. &s the liability re ains outstanding for a long period, the issuing ban" should be satisfied that it is able to recover fro the applicant any su s paid during the full period of the credit.
The issuing ban" should be satisfied that any security that has been ta"en fro the applicant to cover the ris" !ill retain its value for the full period. The internal procedures for controlling the recording of ris" and the giving of notice ust be fully understood. 'ocu entary credits should be issued only for an applicant of undoubted financial and dependable standing.
-.-."+ Documentary credits established under aid agreements

&id agencies Asuch as the ;orld 1an", International <onetary Fund, &sian 'evelop ent 1an" and International 1an" for Reconstruction and 'evelop entB ay issue letters of intent or co it ents to rei burse in favour of specific authorised ban"s. These authorised ban"s agree to issue, advise or confir docu entary credits supported by such aid agree ents. The letters of intent or co it ents to rei burse describe ho! authorised ban"s are to obtain rei burse ent for any pay ents ade. For this reason, the agree ents are often called F%ualified agree ents to rei burse.. Such %ualified agree ents to rei burse very often detail the precise procedure to be follo!ed in establishing or processing the docu entary credit. For e#a ple, they ay !ell contain re%uire ents that the goods can be sourced only fro donor countries and shipped on vessels operating in such countries. 1an"s ust e#ercise care to ensure that the andatory procedures of the lending agency are follo!ed co pletely. ifs School of Finance
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Characteristics of documentar! credits &n al ost inevitable feature of these docu
entary credits is the delay in obtaining the necessary responses fro the various depart ents
**
in the aid agencies, because they often have to follo! defined procedures before they are able to proceed. This ay !ell include delays in rei burse ent that the issuing, no inated or confir ing ban" !ill need to ta"e into account and are usually referenced in the %ualified agree ent to rei burse.
-.3 )reliminary ad!ices of documentary credits, inoperati!e documentary credits and documentary credits that re9uire an action on the part of the applicant
The international ban"ing co unity, in conHunction !ith the ICC, has al!ays discouraged atte pts by issuers of docu entary credits to !ea"en the position of the beneficiary by including conditions over !hich the beneficiary has no control or by issuing a preli inary advice of a docu entary credit unless it intends to issue the operative instru ent Asee #C) *++, sub2article ""/b0B. #C) *++, ""/b0 sub2article
& preli inary advice of the issuance of a credit or a end ent AFpre-adviceFB shall only be sent if the issuing ban" is prepared to issue the operative credit or a end ent. &n issuing ban" that sends a pre-advice is irrevocably co itted to issue the operative credit or a end ent, !ithout delay, in ter s not inconsistent !ith the pre-advice. It should be noted that there ight be occasions !hen it is necessary for a docu entary credit to be issued as inoperative or non-operative. In these circu stances, the re%uired practice is that the issuing ban" clearly indicates in the docu entary credit the action that is to occur to a"e the credit operative. -#a ples of clauses that have the effect of credits inoperative include: a"ing docu entary
pay ents are to be ade only once the goods have been cleared through custo sG the docu entary credit is to beco e operative only upon the issuance of an a end ent that an i port licence has been issuedG )6 ifs School of Finance
6 2013
the docu entary credit is to beco e operative upon the receipt of a perfor ance guarantee acceptable to the issuing ban".
)6 )
Eften, particular events ust occur to trigger the effectiveness of the docu entary credit Aespecially under standby letters of creditB. &pplicants so eti es atte pt to "eep control of the pay ent by a"ing it a condition of the docu entary credit that one of the docu ents re%uired for presentation be issued by it. It is possible that the beneficiary and applicant have both agreed to such clauses and, for this reason, it is argued that it is of no concern of the ban"s. $o!ever $7) FD, rule 3."+ and $7B), $CC )ublication No. B3?, )reliminary Considerations, paragraph !ii both atte pt to reinforce the unacceptability of this practice.
-.? :ypes payment
of
&nother "ey variant bet!een different docu entary credits is the settle ent ethod, !hich should be stated in each docu entary credit A#C) *++, sub2article */b0B. #C) *++, sub2article */b0 & credit ust state !hether it is available by sight pay ent, deferred pay ent, acceptance or negotiation.
-.?." 7ettlement methods

There are four settle ent ethods, or types of credit: sight pay ent, deferred pay ent, acceptance and negotiation.
-.?."." 7ight payment

Sight pay ent eans that pay ent should be ade !hen the presentation is seen or sighted. It also eans that pay ent should be ade on de and. In the ter s of settle ent under a docu entary credit, sight !ill ean once the no inated ban" or issuing ban" has deter ined that the docu ents co ply. 1ecause the ter s of pay ent are intended to be i ediate, the docu entary credit should indicate that the no inated ban" is authorised to effect pay ent to theSchool beneficiary by debiting ifs of Finance
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/!+es of the account of the issuing ban" that is held !ith the no +a!ment
inated ban", or to clai rei burse ent fro a rei bursing ban", or to clai rei burse ent fro the issuing ban" by S;IFT.
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The sight pay ent docu entary credit ay or ay not re%uire drafts to be presented. 1ecause drafts ay attract sta p duties, it ay be issued !ithout re%uiring drafts to be presented. #C) *++, "&/a0 sub2article
=nless a no inated ban" is the confir ing ban", an authoriIation to honour or negotiate does not i pose any obligation on that no inated ban" to honour or negotiate, e#cept !hen e#pressly agreed to by that no inated ban" and so co unicated to the beneficiary. #C) *++, sub2article "&/a0 specifically provides that the no inated ban" has no obligation to honour or negotiate unless Fe#pressly agreed to by the no inated ban" and so co unicated to the beneficiary . . .. The agree ent of the no inated ban" ust be co unicated to the beneficiary. =nless this has been done, the beneficiary should not place reliance on the no ination given in the docu entary credit. ;hether the no inated ban" accepts its no ination to honour or negotiate !ill often depend upon a variety of factors, including: the relationship, if any, that the no inated ban" has !ith the issuing ban"G the standing of the issuing ban"G the country fro issuedG !hich the docu entary credit has been
!hether the no inated ban" has a eans by !hich it can obtain rei burse ent fro the issuing ban". &s settle ent by pay ent falls under the definition of honour, any pay ent should be effected !ithout recourse to the beneficiary, unless the no inated ban" and beneficiary enter into a recourse agree ent.
-.?.".& Deferred payment

The ter s and conditions of a docu entary credit available by deferred pay ent are that: i
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pay ent ediateG
is
not
pay ent is at a ti e in the future, deter inable in accordance !ith the docu entary creditG and presentation of a draft is not re%uired.
/!+es of +a!ment
)6 @
The future deter inable date for pay ent, as defined in the docu entary credit, !ill usually fall !ithin a specific period after the date of the transport docu ent, or a specific period after the date of presentation, or other predefined event or date. 'ocu entary credits available by deferred pay ent are also subHect to the re%uire ents of no ination described earlier. 'ocu entary credits available by deferred pay ent provide a eans by !hich, if the no inated ban" has incurred a deferred pay ent underta"ing, the beneficiary ay be able to obtain finance by re%uesting the no inated ban" to prepay its underta"ing. In the case of an unconfir ed docu entary credit, a no inated ban" has no obligation to incur a deferred pay ent underta"ing, even if co plying docu ents are presented. &n issuing ban" is liable in ter s of its underta"ing to honour at aturity. #C) *++, sub2article "&/b0 states that, by a"ing a docu entary credit available !ith a no inated ban" by deferred pay ent, the issuing ban" is authorising the no inated ban" to prepay or purchase a deferred pay ent underta"ing incurred by that no inated ban", unless there is !ording to the contrary in the docu entary credit. #C) *++, "&/b0 sub2article
1y no inating a ban" to accept a draft or incur a deferred pay ent underta"ing, an issuing ban" authoriIes that no inated ban" to prepay or purchase a draft accepted or a deferred pay ent underta"ing incurred by that no inated ban".
-.?.".- By acceptance
The ter s and conditions of a docu entary credit available by acceptance are that: i pay ent ediateG is not
presentation of drafts is re%uiredG and pay ent is due on the draft. aturity date of the
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/!+es of +a!ment 'ocu entary credits available by acceptance provide a
eans by !hich the beneficiary ay be able to obtain finance by discounting the accepted draft. #C) *++, sub2article "&/b0 states that, by docu entary credit available !ith a no inated acceptance, the issuing a"ing a ban" by
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ban" is authorising the no inated ban" to prepay or purchase a draft accepted by that no inated ban", unless there is !ording to the contrary in the docu entary credit. In the case of an unconfir ed docu entary credit, a no inated ban" has no obligation to accept the draft, even if co plying docu ents are presented. &n issuing ban" is liable in ter s of its underta"ing to pay the draft at aturity. In the case of a confir ed docu entary credit, the confir ing ban" underta"es to: accept drafts not accepted by another no inated ban" !here the docu entary credit is available by acceptance !ith that ban"G pay drafts accepted by another no inated ban" and not paid by that ban" at aturityG or accept drafts dra!n by the beneficiary on the confir ing ban" and to pay the at aturity. The !ording of a confir ing ban".s advice of confir ation ay affect the scope of the above. For e#a ple, the confir ation ay only e#tend to presentations ade to the confir ing ban".
-.?.".3 Negotiation
?egotiation is defined in #C) *++, article &. #C) *++, article GnegotiationH &4 Definition of
. . . the purchase by the no inated ban" of drafts Adra!n on a ban" other than the no inated ban"B and M or docu ents under a co plying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the ban"ing day on !hich rei burse ent is due to the no inated ban". The ter s and conditions of a docu entary credit available by negotiation are that: an advance ay or no inated ban"G drafts ay or ay ay not be not be ade i re%uired ediately by a for
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+a!ment presentationG
/!+es of
pay ent, if the docu entary credit is not negotiated earlier, is ade on receipt of docu ents by the issuing ban" AsightB or the aturity date of the draft AusanceB.
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& docu entary credit available by negotiation provides a eans by !hich the beneficiary ay be able to obtain finance by having the no inated ban" negotiate earlier than the date pay ent or rei burse ent is due fro the issuing ban". In the case of an unconfir ed docu entary credit, the no inated ban" !ill invariably negotiate on a !ith-recourse basis. In the case of a confir ed docu entary credit, the confir ing ban" underta"es: to negotiate by advancing funds i ediately or by underta"ing to advance funds on a future dateG negotiating according to the re%uest of the beneficiaryG and negotiation on a !ithout-recourse basis. The te#t of #C) *++, articles *D is funda ental to the role of ban"s in docu entary credit operations. #C) *++, article *4 ;!ailability, e%piry date and place for presentation a. & credit ust state the ban" !ith !hich it is available or !hether it is available !ith any ban". & credit available !ith a no inated ban" is also available !ith the issuing ban". b. & credit ust state !hether it is available by sight pay ent, deferred pay ent, acceptance or negotiation. c. & credit ust not be issued available by a draft dra!n on the applicant. d. i. & credit ust state an e#piry date for presentation. &n e#piry date stated for honour or negotiation !ill be dee ed to be an e#piry date for presentation. ii. The place of the ban" !ith !hich the credit is available is the place for presentation. The place for presentation under a credit available !ith any ban" is that of any ban". & place for presentation other than that of the issuing ban" is in addition to the place of the issuing ban". e. -#cept as provided in sub-article 3*AaB, a presentation by or on behalf of the beneficiary ust be ade on or before the e#piry date. ifs School of Finance
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/!+es of +a!ment
#C) *++, article B4 $ssuing bank undertaking a. (rovided that the stipulated docu ents are presented to the no inated ban" or to the issuing ban" and that they constitute a co plying presentation, the issuing ban" ust honour if the credit is available by: i. ii. sight pay ent, deferred pay ent or acceptance !ith the issuing ban"G sight pay ent !ith a no inated ban" and that no inated ban" does not payG
iii. deferred pay ent !ith a no inated ban" and that no inated ban" does not incur its deferred pay ent underta"ing or, having incurred its deferred pay ent underta"ing, does not pay at aturityG iv. acceptance !ith a no inated ban" and that no inated ban" does not accept a draft dra!n on it or, having accepted a draft dra!n on it, does not pay at aturityG negotiation !ith a no inated no inated ban" does not negotiate. ban" and that
v.
b. &n issuing ban" is irrevocably bound to honour as of the ti e it issues the credit. c. &n issuing ban" underta"es to rei burse a no inated ban" that has honoured or negotiated a co plying presentation and for!arded the docu ents to the issuing ban". Rei burse ent for the a ount of a co plying presentation under a credit available by acceptance or deferred pay ent is due at aturity, !hether or not the no inated ban" prepaid or purchased before aturity. &n issuing ban".s underta"ing to rei burse a no inated ban" is independent of the issuing ban".s underta"ing to the beneficiary.
#C) *++, article D4 Confirming bank undertaking a. (rovided that the stipulated docu ents are presented to the confir ing ban" or to any other no inated ban" and that they constitute a co plying presentation, the confir ing ban" ust:
i. honour, if the credit is available by:

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a. sight pay ent, deferred pay ent or acceptance !ith the confir ing ban"G b. sight pay ent !ith another no inated ban" and that no inated ban" does not payG c. deferred pay ent !ith another no inated ban" and that no inated ban" does not incur its deferred pay ent underta"ing or, having incurred its deferred pay ent underta"ing, does not pay at aturityG d. acceptance !ith another no inated ban" and that no inated ban" does not accept a draft dra!n on it or, having accepted a draft dra!n on it, does not pay at aturityG e. negotiation !ith another no inated ban" that no inated ban" does not negotiate. and
ii. negotiate, !ithout recourse, if the credit is available by negotiation !ith the confir ing ban". b. & confir ing ban" is irrevocably bound to honour or negotiate as of the ti e it adds its confir ation to the credit. c. & confir ing ban" underta"es to rei burse another no inated ban" that has honoured or negotiated a co plying presentation and for!arded the docu ents to the confir ing ban". Rei burse ent for the a ount of a co plying presentation under a credit available by acceptance or deferred pay ent is due at aturity, !hether or not another no inated ban" prepaid or purchased before aturity. & confir ing ban".s underta"ing to rei burse another no inated ban" is independent of the confir ing ban".s underta"ing to the beneficiary. d. If a ban" is authoriIed or re%uested by the issuing ban" to confir a credit but is not prepared to do so, it ust infor the issuing ban" !ithout delay and ay advise the credit !ithout confir ation. It is also i portant to note the separate co it ent of the confir ing ban" to the beneficiary. If a standby letter of credit is issued subHect to IS( *+, reference should be ade to $7) FD, rules &.+" and ifs School of Finance &.+3.
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/!+es of +a!ment
$7) FD, rule &.+"4 #ndertaking to honour by issuer and any confirmer to beneficiary a. &n issuer underta"es to the beneficiary to honour a presentation that appears on its face to co ply !ith the ter s and conditions of the standby in accordance !ith these Rules supple ented by standard standby practice. b. &n issuer honours a co plying presentation ade to it by paying the a ount de anded of it at sight, unless the standby provides for honour: i. by acceptance of a draft dra!n by the beneficiary on the issuer, in !hich case the issuer honours by: a. ti ely accepting the draftG and b. thereafter paying the holder of the draft on presentation of the accepted draft on or after its aturity. ii. by deferred pay ent of a de and ade by the beneficiary on the issuer, in !hich case the issuer honours by: a. ti ely incurring a deferred pay ent obligationG and b. thereafter paying at aturity.
iii. by negotiation, in !hich case the issuer honours by paying the a ount de anded at sight !ithout recourse. c. &n issuer acts in a ti ely anner if it pays at sight, accepts a draft, or underta"es a deferred pay ent obligation Aor if it gives notice of dishonourB !ithin the ti e per itted for e#a ining the presentation and giving notice of dishonour. d. i. & confir er underta"es to honour a co plying presentation ade to it by paying the a ount de anded of it at sight or, if the standby so states, by another ethod of honour consistent !ith the issuer.s underta"ing. ii. If the confir ation per its presentation to the issuer, then the confir er underta"es also to honour upon the issuer.s !rongful dishonour by perfor ing as if the presentation had been ade to the confir er. iii. If the standby per its presentation to the confir er, then the of issuer underta"es also to honour upon the ifs School Finance
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confir er.s characteristics
3*
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/!+es of +a!ment
!rongful dishonour by perfor ing as if the presentation had been ade to the issuer. e. &n issuer honours by paying in i ediately available funds in the currency designated in the standby unless the standby states it is payable by: i. pay ent of a onetary unit of account, in !hich case the underta"ing is to pay in that unit of accountG or ii. delivery of other ite s of value, in !hich case the underta"ing is to deliver those ite s.
$7) FD, rule &.+34 Nomination a. & standby ay no inate a person to advise, receive a presentation, effect a transfer, confir , pay, negotiate, incur a deferred pay ent obligation, or accept a draft. b. ?o ination does not obligate the no inated person to act e#cept to the e#tent that the no inated person underta"es to act. c. & no inated person is not authoriIed to bind the person a"ing the no ination.
-.?.& ;ssignment of proceeds

?ational la! deter ines the e#tent and legal assign ent of proceeds under a docu entary credit. effect of
It is possible, in so e cases, for the beneficiary to as" the no inated ban" or issuing ban" to reserve part of the proceeds to be paid to its o!n supplier. AThis re%uest is !orded in the for of an irrevocable instruction.B The ban" then tells the supplier that it has received irrevocable instructions to a"e the relevant pay ent to the supplier out of the docu entary credit proceeds. The ban" !ill not underta"e any pay ent or guarantee obligation to!ards such supplier and this should be ade clear in the ban".s letter to it. The ban" erely acts as an agent for pay ent of the oney received on behalf of the beneficiary Athe sellerB. The ban" should e#ercise care to !ord its letter so as to avoid any ris" that it ight be called on to pay the supplier if it does not have free use of the proceeds received fro perfor ance of the docu entary credit. This situation !ould arise if, for instance, the proceeds !ere seiIed by a creditor of the beneficiary. ifs School of Finance ))
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The supplier does not receive the sa e sort of pay ent security that it !ould have if it !ere itself the beneficiary of a docu entary credit or a transferred credit. Its entitle ent to pay ent depends, first, on the beneficiary a"ing a co plying presentation under the docu entary credit and, secondly, on the ban" having free use of the reserved part of the proceeds. #C) *++, article -F covers assign ent of proceeds. It allo!s a beneficiary to assign its right to receive so e, or all, of the proceeds to a third party !hich can be a ban". The beneficiary ay do this to give security for prefinancing or the issue of a bac"-to-bac" docu entary credit, for instance. Such an assign ent ay ta"e place !hether or not the docu entary credit is transferable and the procedures to be follo!ed are governed by the applicable la!. #C) *++, proceeds article -F4 ;ssignment of
The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to !hich it ay be or ay beco e entitled under the credit, in accordance !ith the provisions of applicable la!. This article relates only to the assign ent of proceeds and not to the assign ent of the right to perfor under the credit. IS( *+ provides greater detail on assign ent of proceeds. $7) FD, rules *.+**."+ apply if a standby letter of credit is issued subHect to those rules. $7) FD, rule proceeds *.+*4 ;ssignment of
;here an issuer or no inated person is as"ed to ac"no!ledge a beneficiary.s re%uest to pay an assignee all or part of any proceeds of the beneficiary.s dra!ing under the standby these rules on ac"no!ledg ent of an assign ent of proceeds apply e#cept !here applicable la! other!ise re%uires. $7) FD, rule acknowledgment *.+B4 8e9uest for
a. =nless applicable la! other!ise re%uires, an issuer or no inated person:

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i. is not obligated to give effect to an assign ent of proceeds !hich it has not ac"no!ledgedG and ifs School of Finance
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/!+es of +a!ment ii. is not obligated to ac"no!ledge the
assign ent. b. If an assign ent is ac"no!ledged:
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i.
the ac"no!ledg ent confers no rights !ith respect to the standby to the assignee !ho is only entitled to the proceeds assigned, if any, and !hose rights ay be affected by a end ent or cancellationG and
ii. the rights of the assignee are subHect to: a. the e#istence of any net proceeds payable to the beneficiary by the person a"ing the ac"no!ledg entG b. rights of no inated persons and transferee beneficiariesG c. rights of other ac"no!ledged assigneesG and d. any other rights or interests that priority under applicable la!. ay have
$7) FD, rule *.+D4 Conditions to acknowledgment of assignment of proceeds &n issuer or no inated person ay condition its ac"no!ledg ent on receipt of: a. the original standby for e#a ination or notationG b. verification of the signature of the person signing for the beneficiaryG c. verification of the authority of the person signing for the beneficiaryG d. an irrevocable re%uest signed by the beneficiary for ac"no!ledg ent of the assign ent that includes state ents, covenants, inde nities, and other provisions !hich ay be contained in the issuer.s or no inated person.s re%uired for re%uesting ac"no!ledg ent of assign ent, such as: i. the identity of the affected dra!ings if the standby per its ultiple dra!ingsG ailing address
ii. the full na e, legal for , location, and of the beneficiary and the assigneeG iii. details of any re%uest affecting the or delivery of the standby proceedsG
ethod of pay ent
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iv. li itation on partial assign ents and prohibition of successive assign entsG ifs School of Finance
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v. state ents regarding the legality and relative priority of the assign entG or vi. right of recovery by the issuer or no inated person of any proceeds received by the assignee that are recoverable fro the beneficiaryG e. pay ent of a fee for the ac"no!ledg entG and f. fulfil ent of other reasonable re%uire ents. $7) FD, rule proceeds *.+F4 Conflicting claims to
If there are conflicting clai s to proceeds, then pay ent to an ac"no!ledged assignee ay be suspended pending resolution of the conflict. $7) FD, rule *."+4 8eimbursement for based on an assignment &n issuer or no ac"no!ledged assign entitled to rei burse the beneficiary. If ac"no!ledg ent ay co unication. payment
inated person paying under an ent pursuant to Rule 8.6+AaB and AbB is ent as if it had ade pay ent to the beneficiary is a ban", the be based solely upon an authenticated
-.* .pening credit
the
documentary
In ost cases, the beneficiary !ill choose a docu entary credit as the re%uired eans of pay ent and !ill state this to the applicant as part of their ter s of sale. Ence both parties agree, it is the dual responsibility of both applicant and beneficiary to agree on the content of the docu entary credit, as indicated in section 3.+.). The content should also detail !hen the applicant is to open the docu entary credit.
-.*." :he relationship between the applicant and the issuing bank
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1an"s, as a rule, characteristics establish docu entary credits on behalf of custo ers !ith !ho they have an established relationship. The ain reason for this is that an issuing ban" !ill need to obtain
3*
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5+enin% the documentar! credit
rei burse ent for pay ents ade under the docu entary credit. It is easier to achieve this recourse through an established relationship. In addition, there can be regulatory re%uire ents that ay discourage dealings !ith non-custo ers.
-.*."." :he facility
need
for
In this ongoing relationship, it is usual for the issuing ban" to have agreed a facility for the custo er under !hich docu entary credits ay be opened fro ti e to ti e up to an agreed li it. &s the issuing ban" needs to have recourse to its custo er in respect of the obligation it underta"es in relation to the docu entary credit, it ay try to obtain so e added security. Such security ight ta"e the for of: security provided by the applicant, independent of the docu entary credit and the associated presented docu entationG security provided by the docu ents tendered under the docu entary credit. & ban" ay obtain either or both of these for s of security, but in any event !ill al!ays try to retain any security or co fort they can fro the second of these t!o options. The only transport docu ent that provides effective security is a negotiable bill of lading. This is because it is a docu ent of title, so it ay enable the holder to ta"e possession of the goods covered by the docu entary credit and to sell the . Ether for s of transport docu ents do not, in the selves, confer such rights to a holder, although it ay nevertheless be possible to e#ercise control over the goods. The ter s of the facility agreed ay not only indicate the upper li it and security, but ay also indicate ho! docu entary credits calling for transport docu ents other than a negotiable bill of lading or for pay ent on deferred ter s should be handled. The ban" !ill also consider the credit ris" of the custo er and the nature of any security docu entation !hen agreeing a facility. This is because the insolvency of the custo er is the principal ris" to the issuing ban". Ence a facility is open, these issues are not directly relevant to the docu entary credit. $o!ever, the issuing ban" ay choose to issue the docu entary credit in such a !ay that it retains either title to the goods Afor e#a by of eans of negotiable bills of ladingB or control over ifs ple, School Finance )3
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characteristics the goods Afor e#a ple, by having goods consigned to the order of the ban", if this is possibleB. It should also
3*
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see" confir ation fro the applicant that ade%uate insurance cover has been arranged, if this is not to be arranged by the beneficiary. The issuing ban" is also e#posed to the ris" of being unable to obtain rei burse ent fro its custo er for reasons other than insolvency. These reasons ight include fraud, regulatory or legal factors, or a ore general country ris" Asuch as a lac" of available foreign e#changeB.
-.*.".& :he irre!ocable documentary credit application form

The buyer AapplicantB is re%uired to a"e an application to the issuing ban" to open a docu entary credit. Such an application ay be in paper for at, eaning that the ter s and conditions on !hich the issuing ban" agrees to establish the docu entary credit are sho!n on the for itself. &lternatively, the application ay be received electronically Ausually in a for at co patible !ith that of the outgoing S;IFT adviceB, in !hich case the applicant ay !ell need to co plete separate docu entation ac"no!ledging the ban".s standard ter s and conditions. The standard ter s and conditions usually see" to evidence the applicant.s ac"no!ledge ent of at least the follo!ing. the docu entary credit !ill be subHect to =C( 866G any necessary insurance !ill be arranged by the buyer, depending on the Incoter eg FE1G
any necessary govern ent regulations !ill be co plied !ithG the applicant !ill rei burse the issuing ban" for any pay ents ade under the creditG
the ban" assu es no liability or responsibility for the for , sufficiency, accuracy, genuineness or falsification of docu ents as detailed in =C( 866, article 9/G the applicant agrees to pay all charges and costs designated for its account and those not paid by the beneficiary. #C) *++, article of documents
2013
-34
Disclaimer
on effecti!eness the
)3 9
& ban" assu ofes no liability or ifs School Finance
responsibility for
for , sufficiency,characteristics accuracy, genuineness, falsification or legal effect of any docu ent, or for the general or particular conditions
3*
)3 /
stipulated in a docu ent or superi posed thereonG nor does it assu e any liability or responsibility for the description, %uantity, !eight, %uality, condition, pac"ing, delivery, value or e#istence of the goods, services or other perfor ance represented by any docu ent, or for the good faith or acts or o issions, solvency, perfor ance or standing of the consignor, the carrier, the for!arder, the consignee or the insurer of the goods or any other person. & docu ent chec"er should note the provisions of this article and dra! attention to the rule in discussions !ith beneficiaries and applicants, if necessary. Eften, ter s and conditions also see" to e#e pt the issuing ban" fro liability in the event of error. The effectiveness of such ter s and conditions depend not only upon the !ording of such clauses, but also upon the circu stances of each case.
-.*.".- :he responsibilities
buyerHs
&s applicant, the buyer has an overriding duty to give the issuing ban" clear and precise instructions because it is they, not the issuing ban", !ho are a!are of !hat has been agreed !ith the beneficiary. The need for an applicant to give co plete and precise instructions is contained in $7B), )ublication No. B3?, )reliminary Considerations, paragraphs /iii0, /i!0 and /!0. A?ote that although =C( @66, articles @ and )3 discussed these points, there is no e%uivalent in =C( 866 as the points are considered part of international standard ban"ing practice for the establish ent of docu entary credits and a end ents.B The applicant should be helped by the structure of the ban".s application for for the docu entary credit. These docu ents, !hether in paper or electronic for , have clearly defined fields for co pletion. These fields should pro pt the applicant to thin" in precise ter s !hen co pleting the application. In the case of foreign currency docu entary credits, the applicant should also provide instructions if the issuing ban" !ill be re%uired to arrange any foreign e#change cover for the docu entary credit. $aving agreed !ith the issuing ban" that the docu entary credit !ill be issued subHect to =C( 866, it is i portant that the applicant has a !or"ing "no!ledge of these rules and particularly of the i pact that certain articles ay have on the ter s and conditions of the docu entary credit as issued. This is covered in of $7B), ifs School Finance)ublication No. B3?, )reliminary )3
2013 @
characteristics Considerations, paragraph /!i0.
3*
)3 8
-.*.".3 :he issuing bankHs responsibilities when issuing a documentary credit

Funda entally, the issuing ban" ust follo! the applicant.s instructions. This is i plied by the definitions of applicant, credit and issuing ban" given in #C) *++, article &. #C) *++, Definitions &pplicant article &4
eans the party on !hose re%uest the credit is eans any arrange ent, ho!ever na ed or
issued. Credit
described, that is irrevocable and thereby constitutes a definite underta"ing of the issuing ban" to honour a co plying presentation. Issuing ban" eans the ban" that issues a credit at the re%uest of an applicant or on its o!n behalf. There are i portant practical applications of this concept. Error correction by buyer if the applicant has corrected the original instruction after discussion !ith the issuing ban", such correction should be authenticated by initial or signature of the authorised signatories of the applicant. ;here such a correction has been ade on an application received electronically, it is preferable to have a separate essage confir ing the correction. &ny correction ade by the issuing ban" as a result of discussions on the telephone should si ilarly be confir ed in a separate essage. Error made by issuing bank or ad!ising bank if the docu entary credit advice received by the beneficiary is different fro the application, the issuing ban" is bound to the beneficiary in ter s of the advice received by the beneficiary. This is irrespective of any inability of the issuing ban" to obtain rei burse ent fro the applicant, and not!ithstanding the provisions of #C) *++, articles -? and -B. #C) *++, article -?4 Disclaimer on transmission and translation & ban" assu es no liability or responsibility for the conse%uences arising out of delay, loss in transit, utilation or other errors of arising in the trans ission of any essages or ifs School Finance
2013
)3 7
delivery of letters or docu ents, !hen such essages, characteristics letters or docu ents are trans itted or sent according to the re%uire ents stated in the credit, or !hen the ban" ay have ta"en the initiative in the
3*
)3 +
choice of the delivery service in the absence of such instructions in the credit. If a no inated ban" deter ines that a presentation is co plying and for!ards the docu ents to the issuing ban" or confir ing ban", !hether or not the no inated ban" has honoured or negotiated, an issuing ban" or confir ing ban" ust honour or negotiate, or rei burse that no inated ban", even !hen the docu ents have been lost in transit bet!een the no inated ban" and the issuing ban" or confir ing ban", or bet!een the confir ing ban" and the issuing ban". & ban" assu es no liability or responsibility for errors in translation or interpretation of technical ter s and ay trans it credit ter s !ithout translating the . #C) *++, article instructed party -B4 Disclaimer for acts of an
a. & ban" utiliIing the services of another ban" for the purpose of giving effect to the instructions of the applicant does so for the account and at the ris" of the applicant. b. &n issuing ban" or advising ban" assu es no liability or responsibility should the instructions it trans its to another ban" not be carried out, even if it has ta"en the initiative in the choice of that other ban". c. & ban" instructing another ban" to perfor services is liable for any co issions, fees, costs or e#penses AFchargesFB incurred by that ban" in connection !ith its instructions. If a credit states that charges are for the account of the beneficiary and charges cannot be collected or deducted fro proceeds, the issuing ban" re ains liable for pay ent of charges. & credit or a end ent should not stipulate that the advising to a beneficiary is conditional upon the receipt by the advising ban" or second advising ban" of its charges. d. The applicant shall be bound by and liable to inde nify a ban" against all obligations and responsibilities i posed by foreign la!s and usages. Changes in technology and co unications have affected the ris" of errors in the process of issuing and advising docu entary credits. For e#a ple, the do!nloading of clauses fro te plates a"es it easier to a"e assu ptions regarding data content inFinance various fields in the final advice of the issuance ifs School of )3
2013 *
characteristics and for errors to be ade. This
3*
)9 6
danger is co pounded if the final docu entary credit advice is not chec"ed before sending. Students that: ust note
every application for a docu entary credit is separate fro any previous application and an issuing ban" is !ell advised to treat the as suchG the docu entary credit, as issued, instructions. ust atch the custo er.s
-.*.".? )rocessing of re9uests for amendments to the documentary credit

If the beneficiary re%uests an a end ent and the applicant agrees to such a re%uest, the applicant should issue instructions to the issuing ban" to a end the docu entary credit. The applicant ay !ish to consult the issuing ban" regarding the actual te#t of the a end ent so that both the instruction to a end and the a end ent itself are co plete, precise and do not affect the !or"ability of the docu entary credit. & end ents, si ilar to the docu entary credit, ust be issued pro ptly so that the beneficiary is able to effect the ship ent.
-.*.".* )rocessing of re9uests from nominated J confirming bank to wai!e specific discrepancies
If the issuing ban" receives a re%uest fro the no inated ban" to !aive specific discrepancies, the re%uest should be referred to the applicant pro ptly, provided the issuing ban" is !illing to accept a !aiver issued by the applicant. The applicant is e#pected to respond pro ptly. In the event that the applicant agrees to !aive discrepancies and the issuing ban" accepts such a !aiver, the issuing ban".s authorisation to a no inated ban" ust be dispatched pro ptly and should include a notation to the effect that such authority is confined to the particular transaction and the discrepancies that have been approved.
)9 )
-.*.".B E%amination of documents presented under documentary credits, the processing of such documents for payment or the re ection of such documents
The issuing ban" ust e#a ine all docu ents received in ter s of #C) *++, article "3 and other related articles of #C) *++. It ust process discrepant docu ents in ter s of #C) *++, article "* and other related articles of #C) *++. #C) *++, article "34 7tandard for e%amination of documents a. & no inated ban" acting on its no ination, a confir ing ban", if any, and the issuing ban" ust e#a ine a presentation to deter ine, on the basis of the docu ents alone, !hether or not the docu ents appear on their face to constitute a co plying presentation. & no inated confir ing ban", have a a#i u of presentation co plying. This affected by the presentation of presentation. ban" acting on its no ination, a if any, and the issuing ban" shall each of five ban"ing days follo!ing the day to deter ine if a presentation is period is not curtailed or other!ise occurrence on or after the date of any e#piry date or last day for
b.
c.
& presentation including one or ore original transport docu ents subHect to articles )*, 36, 3), 33, 39, 3/ or 3@ ust be ade by or on behalf of the beneficiary not later than 3) calendar days after the date of ship ent as described in these rules, but in any event not later than the e#piry date of the credit.
d. 'ata in a docu ent, !hen read in conte#t !ith the credit, the docu ent itself and international standard ban"ing practice, need not be identical to, but ust not conflict !ith, data in that docu ent, any other stipulated docu ent or the credit.
)9 3
e. In docu ents other than the co ercial invoice, the description of the goods, services or perfor ance, if ifs School of Finance
2013
5+enin% the documentar! ay be in general ter credit stated,
description in the credit.
s not conflicting !ith their
f.
If a credit re%uires presentation of a docu ent other than a transport docu ent, insurance docu ent or co ercial invoice, !ithout stipulating by !ho the docu ent is to be issued or its data content, ban"s !ill accept the docu ent as
)9 9
presented if its content appears to fulfil the function of the re%uired docu ent and other!ise co plies !ith subarticle )/ AdB. g. & docu ent presented but not re%uired by the credit !ill be disregarded and ay be returned to the presenter. h. If a credit contains a condition !ithout stipulating the docu ent to indicate co pliance !ith the condition, ban"s !ill dee such condition as not stated and !ill disregard it. i. & docu ent ay be dated prior to the issuance date of the credit, but ust not be dated later than its date of presentation. ;hen the addresses of the beneficiary and the applicant appear in any stipulated docu ent, they need not be the sa e as those stated in the credit or in any other stipulated docu ent, but ust be !ithin the sa e country as the respective addresses entioned in the credit. Contact details Atelefa#, telephone, e ail and the li"eB stated as part of the beneficiary.s and the applicant.s address !ill be disregarded. $o!ever, !hen the address and contact details of the applicant appear as part of the consignee or notify party details on a transport docu ent subHect to articles )*, 36, 3), 33, 39, 3/ or 3@, they ust be as stated in the credit.
H.
". The shipper or consignor of the goods indicated on any docu ent need not be the beneficiary of the credit. l. & transport docu ent ay be issued by any party other than a carrier, o!ner, aster or charterer provided that the transport docu ent eets the re%uire ents of articles )*, 36, 3), 33, 39 or 3/ of these rules.
#C) *++, article "*4 Discrepant documents, wai!er and notice a. ;hen a no inated ban" acting on its no ination, a confir ing ban", if any, or the issuing ban" deter ines that a presentation does not co ply, it ay refuse to honour or negotiate. b. ;hen an issuing ban" deter ines that a presentation does not co ply, it ay in its sole Hudge ent approach the )9 ifs School of Finance applicant for a !aiver of the discrepancies. This does /
2013
5+enin% the documentar! not, ho!ever, e#tend the period credit
)/ AbB.
entioned in sub-article
)9 @
c. ;hen confir refuse notice state:
a no inated ban" acting on its no ination, a ing ban", if any, or the issuing ban" decides to to honour or negotiate, it ust give a single to that effect to the presenter. The notice ust
i. that the ban" is refusing to honour or negotiateG and ii. each discrepancy in respect of !hich the ban" refuses to honour or negotiateG and iii. a. that the ban" is holding the docu ents pending further instructions fro the presenterG or b. that the issuing ban" is holding the docu ents until it receives a !aiver fro the applicant and agrees to accept it, or receives further instructions fro the presenter prior to agreeing to accept a !aiverG or c. that the ban" is returning the docu entsG or d. that the ban" is acting in accordance !ith instructions previously received fro the presenter.
d. The notice re%uired in sub-article )8 AcB ust be given by teleco unication or, if that is not possible, by other e#peditious eans no later than the close of the fifth ban"ing day follo!ing the day of presentation. e. & no inated ban" acting on its no ination, a confir ing ban", if any, or the issuing ban" ay, after providing notice re%uired by sub-article )8 AcB AiiiB AaB or AbB, return the docu ents to the presenter at any ti e.
f. If an issuing ban" or a confir ing ban" fails to act in accordance !ith the provisions of this article, it shall be precluded fro clai ing that the docu ents do not constitute a co plying presentation. g. ;hen an issuing ban" refuses to honour or a confir ing ban" refuses to honour or negotiate and has given notice to that effect in accordance !ith this article, it shall then be entitled to clai a refund, !ith interest, of any rei burse ent ade. The applicant ust rei burse the issuing ban" for the value of the docu ents presented under the docu entary credit, ifs School of Finance
2013
)9 8
5+enin% the documentar! provided that they are as stipulated and that the ter credit
conditions of the docu entary credit are co plied !ith.
s and
)9 7
If the issuing ban" see"s a !aiver fro discrepancies, it ust respond pro ptly.
the applicant for
If the applicant receives docu entation that it considers to be discrepant, after the issuing ban" has accepted the presentation as co pliant, it should i ediately contact the issuing ban". These *. atters are discussed ore fully in Chapter
-.*.".D 7ummary of applicantHs responsibilities in initiating documentary credits

The applicant.s obligations and responsibilities, in its role as one of the principal parties involved !ith the underlying transaction covered by the docu entary credit, and as one of the principal parties in initiating the docu entary credit, ay be su arised as follo!s: to a"e sure that it and the beneficiary have agreed on the ter s and conditions of, and the docu ents stipulated in, the docu entary credit and that their understanding is the sa eG to a"e sure that arrange ents are ade for the docu entary credit to be issued in favour of the beneficiary in sufficient ti e to enable ship ent to be effectedG to understand the application for for the docu entary credit and to co plete it in such a anner as to ensure that co plete and precise instructions are given to the issuing ban"G pro ptly pro ptly to to any any re%uest re%uest for to !aive
to respond a end entG to respond discrepanciesG
to rei burse the issuing ban" for the value of docu ents presented under the docu entary credit, together !ith any applicable charges, provided that the docu ents constitute a co plying presentationG to refrain fro e#a ining docu ents !ith the sole ai finding spurious grounds for non-pay entG of
to notify the issuing ban" i
ediately if discrepancies
are identified in docu entation that the issuing ban" has accepted as co pliant.
-.*.".F 7ummary of responsibilities of an issuing bank when issuing a documentary credit

The obligations of an issuing ban", !hich issues its irrevocable underta"ing to the beneficiary and !hich ay also be bound by such underta"ing to other parties !ho ay ta"e up docu ents, ay be su arised as follo!s: to open the docu entary credit: in accordance !ith international standard ban"ing practice and under =C( 866G strictly in accordance !ith the instructions of the applicantG in a anner that !ill enable the beneficiary to dra! under the docu entary credit by eans of docu ents that it can obtain or supply, ie the docu entary credit is !or"able for the beneficiaryG
pro ptly, thereby enabling the beneficiary to effect ship entG to select a correspondent ban" to underta"e duties of advising, honouring or negotiating, confir ing the docu entary credit as appropriateG the and
to respond pro ptly to re%uests to a end a docu entary creditG to respond discrepanciesG pro ptly to re%uests to !aive
to e#a ine docu ents and honour its underta"ing in the docu entary credit or to refuse docu ents in accordance !ith #C) *++, article "*. The issuing ban".s irrevocable underta"ing is independent of the vie!s or concerns of the applicant and independent of !hether or not it can recover oney paid under the docu entary credit fro the applicant. &ccordingly, if the issuing ban" has e#a ined docu ents and ade its deter ination to ta"e up docu ents, it has an obligation to resist any atte pts by the applicant to use the issuing ban" as a vehicle for non-pay ent.
/he role of the issuin% bank
-.B :he bank
role
of
the
issuing
This section covers the role of the student !hen issuing and a ending docu entary credits. &t this stage, the student has t!o
ain responsibilities: to co ply !ith the ban".s o!n policies and to co ply !ith the applicant.s instructions.
-.B." Compliance with the bankHs policies

The student.s pri ary obligation is to their e ployer, the ban". &ccordingly, internal operational guidelines ust be scrutinised to ensure that the issuance and a end ent of a docu entary credit are in co pliance !ith such guidelines. (articular note aspects: ust be ta"en of the follo!ing
the nature of the goods or type of underlying transaction for e#a ple, ost ban"s have policies !ith regard to the handling of docu entary credits covering ar a ents or e#plosivesG the re%uire ent, if any, for i port licences and approvalsG co pliance re%uire entsG and !ith other govern ent or central ban"
the inherent potential for fraud for e#a ple, "no!ledge or lac" of "no!ledge of the beneficiary, particularly !hen the docu entary credit a ount is large. Students ust not forget that a docu entary credit, !hen issued, carries the na e of the ban" and bears its irrevocable underta"ing to the beneficiary, !hich is independent of all considerations outside the docu entary credit. &s a result, all applications should be e#a ined to a"e sure that they co ply !ith the issuing ban".s internal operational guidelines.
-.B.& Compliance instructions
with
the
buyerHs
$7B), )ublication No. B3?, paragraphs /iii0 and /!ii0 place a responsibility on the applicant to develop clear instructions to issue or a end a docu entary credit and for the applicant to understand the provisions of =C( 866. Students !ill often be called upon to discuss details of the application !ith the applicant. Eften, the infor ation
sho!n on the docu entary credit application is not bank consistent !ith the docu entation re%uested. Students should also e#a ine the application to be able to dra! the attention of the applicant to any issues that are clearly inconsistent fro the applicant.s o!n
/he role of the issuin%
perspective. It should also be noted that, occasionally, a beneficiary !ho has been sent a copy of the application for by the applicant ay !ant to "no! !hen and ho! the docu entary credit is being advised.
-.B.- 8ecei!ing the documentary credit application

&pplications for issuance of a docu entary credit are generally received by ail ApaperB, tele# or through a ban".s o!n front-end electronic syste !ith the applicant. Irrespective of the ethod of receipt, each ban" should satisfy itself !ith regard to the authenticity of the application. The procedures for e#a ining and approving the application for issuance vary fro ban" to ban", but it is reasonable to assu e that these !ill include the ban".s o!n internal operational procedures and the i pact of the provisions of =C( 866. In arrange ents connected !ith front-end syste s, ban"s ta"e a proactive role in setting up the necessary te plates for the issuance of the application electronically. The data generally covers at least the ain, if not all of the, re%uired infor ation. The standard !ording for invoice, insurance and transport docu ents is usually stored in these te plates. The custo er selects the necessary te plate in accordance !ith the contract, co pletes the transaction and trans its it to the ban". So e of the detailed chec"ing procedures underta"en by the issuing ban" ay be eli inated if the correct data, clauses and !ording are stored !ith the custo er. The ban".s electronic syste receives the application for issuance and, subHect to its verification procedures, a"es the actual docu entary credit ready for approval, authentication and dispatch by S;IFT, tele#, ail or courier. There are t!o i portant aspects that students ind: ust bear in
that the security connected !ith the use of the electronic syste at the custo er.s pre ises is a aHor consideration, and that it is subHect to individual arrange ents and docu entation bet!een each ban" and its custo erG that there is a danger that an unintended addition or deletion at either the custo er.s end or the ban".s ay go through undetected.
Ence the docu entary credit application or re%uest is received, the follo!ing tas"s are usually perfor ed: recording and noting ti e of receiptG allocation of a uni%ue reference nu berG chec"ing authenticity of applicationG chec"ing custo er facility availabilityG updating ban".s liabilitiesG updating custo er liabilitiesG bloc"ing funds M arginal deposits, if appropriateG
recovery of charges. -ach ban" has its o!n operational guidelines and re%uire ents for these tas"s. & student ust consider each issue at this stage.
-.B.3 7electing an ad!ising bank

;herever possible, ban"s use their o!n branches, associate offices or preferred correspondent ban"s to advise a docu entary credit to a beneficiary. The reasons are that: arrange ents already e#ist for authentication of and essagesG
the lines of co unication are !ell established, !hich enables the speedy resolution of any proble s that ay arise. If the applicant.s instructions indicate an advising ban" that does not fall !ithin the above para eters, the issuing ban" !ill route the issuance in ter s of its o!n operational guidelines under advice to, and !ith the consent of, the applicant. #C) *++, sub2articles -B/a0 and /b0 act as a disclai er !hen an issuing ban" trans its instructions to another ban".
-.B.? =orkability credit
of
documentary
&s part of the docu entation e#a ination process Asee Chapter *B, the student ust chec" !hether the docu entary credit is !or"able. &t the ini u , it ust be capable of being
honoured by the presentation characteristics of stipulated docu ents and not be dependent on any other factor.
3*
-#a ination of the application for and close liaison !ith the applicant at this stage are "ey to the success of the entire docu entary credit transaction. <any of the proble s that arise !hen docu ents are presented can be avoided if students pay attention to detail and anticipate proble s that ay occur before the credit is issued. &s part of the issuing ban".s responsibility to ensure the docu entary credit is una biguous, !hile eeting the applicant.s instructions, it ay be necessary to discuss the detail !ith the applicant. The follo!ing points are the ore co on issues to be discussed.
-.B.?." E%cessi!e detail

It is not unusual for an applicant to include several pages of goods description in its application. ;hile so e !ill insist that an ite ised brea"do!n of goods is included in the docu entary credit, others are prepared, follo!ing discussion !ith the ban", to accept a ore general description, supported by a certificate in the invoice stating that Fgoods are in accordance !ith order nu ber ##. or that Fgoods are in accordance !ith pro for a invoice nu ber ## dated ##.. ;herever possible, a ban" should encourage an applicant to adopt the latter approach. This !as covered in =C( @66, sub-article @AaB, !hich stated that ban"s should Fdiscourage any atte pt to include e#cessive detail . . .. &lthough there is no e%uivalent clause in #C) *++, sub2article 3/b0, it does say it is unnecessary to include copies of other docu ents Aincluding the underlying contractB in the credit itself.
-.B.?.& :he need for conditions to be applied to documents

& student should identify any instruction or condition that is not clearly attributable to a docu ent stipulated in the docu entary credit. If such non-docu entary conditions are found, they should be rectified in liaison !ith the applicant before the docu entary credit is issued Asee #C) *++, sub2article "3/h0B.
-.B.?.- ;mbiguity as to issuers of documents and lack of precision in their data content
If an application uses a biguous ter s covered in #C) *++, article -, or is lac"ing in its data re%uire ents, a student should e#plain
to the applicant the need for clarity and precision, and the potential ris"s that ay arise fro failing to provide ore precise detail. #C) *++, $nterpretations For the rules: purpose article of these -4
;here applicable, !ords in the singular include the plural and in the plural include the singular. & credit is irrevocable even if there is no indication to that effect. & docu ent ay be signed by hand!riting, facsi ile echanical
signature, perforated signature, sta p, sy bol or any other or electronic ethod of authentication.
& re%uire ent for a docu ent to be legaliIed, visaed, certified or si ilar !ill be satisfied by any signature, ar", sta p or label on the docu ent !hich appears to satisfy that re%uire ent. 1ranches of a ban" in different countries are considered to be separate ban"s. Ter s such as Ofirst classP, O!ell "no!nP, O%ualifiedP, OindependentP, OofficialP, Oco petentP or OlocalP used to describe the issuer of a docu ent allo! any issuer e#cept the beneficiary to issue that docu ent. =nless re%uired to be used in a docu ent, !ords such as Opro ptP, Oi ediatelyP or Oas soon as possibleP !ill be disregarded. The e#pression Oon or aboutP or si ilar !ill 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. The !ords OtoP, OuntilP, OtillP, Ofro P and Obet!eenP !hen used to deter ine a period of ship ent include the date or dates entioned, and the !ords ObeforeP and OafterP e#clude the date entioned.
The !ords Ofro characteristics P and OafterP !hen used to deter ine a aturity date e#clude the date entioned. The ter s Ofirst halfP and Osecond halfP of a onth shall be construed respectively as the )st to the )@th and the )8th to the last day of the onth, all dates inclusive.
3*
The ter s ObeginningP, O iddleP and OendP of a onth shall be construed respectively as the )st to the )6th, the ))th to the 36th and the 3)st to the last day of the onth, all dates inclusive.
-.B.?.3 ;cceptable clauses regarding the condition of goods on a transport document

To those !ithout specialist "no!ledge of a particular industry, certain clauses in transport docu ents ight suggest that the goods are of a defective or unacceptable condition. &n e#a ple of this ay be a clause such as Fevidence of rusting. sho!n on a bill of lading covering a ship ent of iron bars. In fact, such clauses ight give no cause for concern to those involved in the trade. If a student is a!are of an applicant being engaged in such trading activity, they should discuss this issue and obtain the applicant.s acceptance of clauses relating to the goods that ay be evidenced on the transport docu ent. These clauses relating to the transport docu ent should then be included in the docu entary credit. This is covered in #C) *++, article &B and such clauses !ill odify the effect of this rule.
-.B.?.? ;de9uacy co!er
of
insurance
If an application re%uires presentation of an insurance docu ent, students ay !ish to contact the applicant if ris" coverage is not specific. This !ill help to establish !hether there is a need to stipulate that certain ris"s ust be included in the insurance re%uire ents of the docu entary credit. Students should also e#plain the issuing ban".s position on presentation, if such ris"s are not clearly defined. If insurance cover is to be arranged by the applicant, the issuing ban" ay !ish to see evidence, or at least receive the applicant.s confir ation, that ade%uate insurance cover has been arranged. #C) *++, co!erage article &D4 $nsurance document and
a. &n insurance docu ent, such as an insurance policy, an insurance certificate or a declaration under an open cover, ust appear to be issued and signed by an insurance co pany, an under!riter or their agents or their
characteristics pro#ies. &ny signature by an agent or pro#y indicate !hether the
3*
ust
agent or pro#y has signed for or on behalf of the insurance co pany or under!riter. b. ;hen the insurance docu ent indicates that it has been issued in ore than one original, all originals ust be presented. c. Cover notes !ill not be accepted. d. &n insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover. e. The date of the insurance docu ent ust be no later than the date of ship ent, unless it appears fro the insurance docu ent that the cover is effective fro a date not later than the date of ship ent. f. i. The insurance docu ent ust indicate the a ount of insurance coverage and be in the sa e currency as the credit. ii. & re%uire ent in the credit for insurance coverage to be for a percentage of the value of the goods, of the invoice value or si ilar is dee ed to be the ini u a ount of coverage re%uired. If there is no indication in the credit of the insurance coverage re%uired, the a ount of insurance coverage ust be at least ))6Y of the CIF or CI( value of the goods. ;hen the CIF or CI( value cannot be deter ined fro the docu ents, the a ount of insurance coverage ust be calculated on the basis of the a ount for !hich honour or negotiation is re%uested or the gross value of the goods as sho!n on the invoice, !hichever is greater. iii. The insurance docu ent ust indicate that ris"s are covered at least bet!een the place of ta"ing in charge or ship ent and the place of discharge or final destination as stated in the credit. g. & credit should state the type of insurance re%uired and, if any, the additional ris"s to be covered. &n insurance docu ent !ill be accepted !ithout regard to any ris"s that are not covered if the credit uses i precise ter s such as Ousual ris"sP or Ocusto ary ris"sP.
h. ;hen a credit re%uires insurance against Oall ris"sP and an insurance docu ent is presented containing any Oall ris"sP notation or clause, !hether or not bearing the heading Oall ris"sP, the insurance docu ent !ill be accepted !ithout regard to any ris"s stated to be e#cluded. i. &n insurance docu ent e#clusion clause. H. ay contain reference to any
&n insurance docu ent ay indicate that the cover is subHect to a franchise or e#cess AdeductibleB.
-.B.?.* $nstalment shipments

If an application re%uires the docu entary credit to stipulate that ship ent of goods should be ade in accordance !ith a defined ship ent schedule, a student ay !ish to chec" the applicant.s e#act needs !ith regard to delivery of the goods. This !ill ensure that the docu entary credit, !hen issued, accurately reflects these needs, particularly in respect of partial ship ents and the continued availability of the docu entary credit in the event of failure by the beneficiary to adhere to the instal ent schedule. This is covered in #C) *++, article -&.
-.B.?.B :ransferable credits

If an application calls for a docu entary credit to be issued as divisible, fractionable, assignable or trans issible, a student should chec" !ith the applicant that it si ply re%uires the docu entary credit to be issued as transferable. The student should e#plain that the other ter inology used has no eaning in the conte#t of =C( 866. The definition of transferable credit is contained in #C) *++, sub2article -D/b0. #C) *++, credits For the article: sub2article of -D/b04 :ransferable
purpose
this
Transferable credit is Otransferable P.
eans a credit that specifically states it
& transferable credit ay be ade available in !hole or in part to another beneficiary AOsecond beneficiaryPB at the re%uest of the beneficiary AOfirst beneficiaryPB. Transferring ban" eans a no inated ban" that transfers the credit or, in a credit available !ith any ban", a ban" that is
specifically authoriIed by the issuing ban" to transfer and that transfers the credit. &n issuing ban" ay be a transferring ban". Transferred credit eans a credit that has been ade available by the transferring ban" to a second beneficiary.
-.B.?.D ;bbre!iations
If an application indicates abbreviated ter s or uses any for of non-standard lettering or nu bering, such as horiIontal or vertical lines, virgules AMB or athe atical sy bols, co as, etc, a student should ascertain fro the applicant the intention of such ar"s, unless this is absolutely clear. &dditionally, a student should consider ho! such non-standard ar"ings !ill appear !hen incorporated into the te#t of the credit, particularly if issued in S;IFT or tele# for ats. This is included in $7B), )ublication No. B3?, paragraph ;&/a0 AFUirgules Aslash ar"s OMPB and ;&/b0 Ause of co asB as they ay have different eanings, and unless apparent in the conte#t used, should not be used as a substitute for a !ord..B. $7B) B3?, paragraph ;&/a0 a. Uirgules Ai.e., slash ar"s OMPB ay result in different eanings and should not be used as a substitute for a !ord. If, nevertheless, a virgule is used and no conte#t is apparent, this !ill allo! the use of one or ore of the options. For e#a ple, a condition in a credit stating ORedM1lac"M1lueP !ith no further clarification !ill ean only Red or only 1lac" or only 1lue or any co bination of the . b. The use of a co a !hen indicating a range of data in a credit such as ports of loading or discharge or countries of origin, ay result in different eanings and should not be used as a substitute for a !ord. If, nevertheless, a co a is used and no conte#t is apparent, this !ill allo! the use of one or ore of the options. For e#a ple, !hen a credit allo!s partial ship ent and indicates the port of loading infor ation as O$a burg, Rotterda , &nt!erpP !ith no further clarification, this !ill ean only $a burg or only Rotterda or only &nt!erp or any co bination of the .
-.B.?.F bank ;mbiguous terminology

The ter s used in $7B), )ublication No. B3?, paragraph ;"F Ashipping docu ents, stale docu ents acceptable, third party docu ents acceptable, third party docu ents not acceptable,
e#porting country, shipping co pany and docu ents acceptable as presentedB are not defined in =C(. If an application uses these ter s, a student should e#plain to the applicant that they ay cause dispute or delay if isinterpreted. The student should encourage the use of different or additional ter inology that provides clarity as to its eaning. If the applicant insists on using the stated ter s, a student should advise the eaning that !ill be applied under international standard ban"ing practice and =C( 866.
-.B.?."+ Documents to be issued or countersigned by an applicant

If an applicant insists that they ust issue or countersign docu ents, a student should e#plain that, !hile such a re%uire ent enables the applicant to aintain control over !hether a co plying presentation can be ade, it is for this very reason that the re%uire ent is unli"ely to be acceptable to the beneficiary. If an applicant insists that the re%uire ent be stipulated in the docu entary credit, a student !ill need to consider the i plications for the reputation of the ban" and be guided by internal procedures.
-.B.* $ssuing credit
documentary
-.B.*." )reparation credit
of
the
documentary
;hen a student has processed the application, the actual docu entary credit is ready for preparation. Firstly, ho!ever, the student should ensure that any changes re%uested by the applicant as the result of any discussion have been authenticated in line !ith the issuing ban".s internal procedures. If the application data is already captured in an electronic syste , the student need only co plete the additional data fields re%uired in order to produce the docu entary credit. If, ho!ever, the application is received by either ail or tele#, it is usually necessary for all of the instructions to be "eyed into the issuing ban".s syste . In addition to the details supplied by the applicant, the issuing ban" !ill include rei burse ent instructions and any other ban"-to-ban" infor ation, such as ho! docu ents are to be for!arded and !hether the no inated ban" is re%uired to add its confir ation before issuing the
/he role of the issuin% docu entary credit. bank
<ost docu entary credits are, unfortunately, not in si ple onepage for . Eften, infor ation in a particular field is %ualified by other
infor ation relating to the sa e field sho!n under additional conditions or docu ents re%uired. ,egal re%uire ents for certain stipulated docu ents can often be tedious in detail. The application for issuance and the actual docu entary credit as issued ust atch and be in accordance !ith the instructions of the applicant, and it is the responsibility of the student to ensure that this is the case before releasing the docu entary credit for trans ission. Electronic presentations &s !e reached the end of the t!entieth century, the ICC 1an"ing Co ission recognised that an increasing range of potential electronic solutions for the preparation and trans ission of docu entation !as beco ing available to the global trading co unity. &s a conse%uence of this, it follo!ed that there !as a need to e#pand the reach of =C(, to provide it !ith the fle#ibility not only to cater for traditional paper-based docu entation transactions, but also for docu entation transactions trans itted electronically. &t idnight on 9) <arch 3663, the Su++lement to the Uniform Customs and $ractice for ocumentar! Credits for &lectronic $resentations Ae=C(B !as published, as the first step in responding to this need. Regardless of the e#tent to !hich students currently !or" !ith electronic presentations, such presentations !ill undoubtedly change their role and that of ban"s involved in the traditional docu entary credit transactional flo!. ;ill beneficiaries need to receive docu entary credits in their favour via an advising ban" or present docu ents to a no inated ban"V ;ill a confir ing ban" need to receive docu entary presentationsV These are %uestions that are already being ans!ered as trade chains are established to pioneer the evolution fro a paper-based to an electronic ediu . For this reason, students !ill need to fa iliarise the selves !ith the content and structure of the )3 articles of e=C(, together !ith the relationship bet!een e=C( and =C( 866. The relationship bet!een =C( 866 and e=C( version ).) is analysed in Chapter )3.
-.B.*.& :ransmission
of
the
documentary
credit bank
=nder #C) *++, sub2article B/b0, the issuing ban" is co itted to honouring the docu entary credit fro the ti e it is issued.
Ence the docu entary credit is prepared and the issuing ban".s internal release procedures are co pleted, it !ill be trans itted to the advising ban" by S;IFT, tele#, ail or courier. & copy of the trans itted docu entary credit !ill be for!arded to the applicant, together !ith the issuing ban".s advice of charges, if applicable. The applicant should be encouraged to read carefully the docu entary credit as issued, to ensure that it atches its instructions. If it does not, the applicant should advise the issuing ban" !ithout delay. The vast aHority of docu entary credits and a end ents are issued in S;IFT or occasionally tele# for at and the teletrans itted details are considered to be the operative credit. It is e#tre ely rare for issuing ban"s to prepare a ail confir ation if details of the docu entary credit or a end ent have been trans itted in full, but students acting in an advising ban" capacity should chec" to ascertain that there is no reference to such in the essage received. This is covered in #C) *++, sub2article ""/a0. (reli inary advice of docu entary credits, so eti es "no!n as Fbrief details. or Fpre-advice., although a declining practice, ay provide early notice to a beneficiary that a docu entary credit has been issued and is being for!arded by S;IFT, tele#, ail or courier. #C) *++, sub2article ""/b0 clearly sets out the issuing ban".s position if such preli inary advice has been given. #C) *++, ad!ice sub2article ""/b04 )re2
& preli inary advice of the issuance of a credit or a end ent AOpre-advicePB shall only be sent if the issuing ban" is prepared to issue the operative credit or a end ent. &n issuing ban" that sends a pre-advice is irrevocably co itted to issue the operative credit or a end ent, !ithout delay, in ter s not inconsistent !ith the pre-advice. The flo! in Figure 9.) for issuing a docu entary credit is identical to that for a end ents, other than for the applicable S;IFT essage type. <ost S;IFT essage types are auto atically authenticated. & essage establishing a docu entary credit by tele# ust be authenticated and often the issuing ban" !ill have testing arrange ents !ith the advising ban". If such direct testing arrange ents do not e#ist, the issuing ban" !ill send the
/he role of the issuin% essage to a bank
correspondent ban" that has testing arrange ents, !ith a re%uest to pass on the docu entary credit authenticated bet!een such correspondent ban" and advising ban".
The issuing ban" should not send the tele# to the advising ban" and its correspondent !ith a re%uest to the advising ban" to verify the test !ith the correspondent. #C) *++, article " re%uires that the te#t of the docu entary credit a"es e#press reference to the rules under !hich it is dra!n up. To acco odate this, S;IFT has created the follo!ing code !ords to be used in field /6e of the <T7 series essages to denote the application of =C( 866: F=C(,&T-STU-RSIE?.G F-=C(,&T-STU-RSIE?.G F=C(=RR,&T-STU-RSIE?.G F-=C(=RR,&T-ST U-RSIE?.. #C) *++, article "4 ;pplication of #C) The =nifor Custo s and (ractice for 'ocu entary Credits, 3667 Revision, ICC (ublication ?o. 866 AO=C(PB are rules that apply to any docu entary credit AOcreditPB Aincluding, to the e#tent to !hich they ay be applicable, any standby letter of creditB !hen the te#t of the credit e#pressly indicates that it is subHect to these rules. They are binding on all parties thereto unless e#pressly odified or e#cluded by the credit. For docu entary credits issued by tele# or ail, the docu entary credit !ill need to a"e a reference such as FSubHect to =C( 866. or FSubHect to the Uniform Customs and $ractice for ocumentar! Credits, 3667 Revision, ICC (ublication ?o. 866..
Figure -."
$nformation flow
&pplicant
&1CCo pany Uienna
Sender Aissuing ban"B
CI1 1an"
Receiver Aadvising ban"B
ICC1an"
F&dvise through. ban"
IFS& 1an"
1eneficiary
& da Co pany & sterda
Source: S;IFT
-.B.B ;mending a documentary credit

The procedure follo!ed by an issuing ban" !hen issuing an a end ent is, for the ost part, identical to the steps ta"en !hen issuing a docu entary credit. $o!ever, a student !ill also need to consider the follo!ing additional factors Acovered in #C) *++, article "+B. #C) *++, article "+4 ;mendments a. -#cept as other!ise provided by article 9+, a credit can neither be a ended nor cancelled !ithout the agree ent of the issuing ban", the confir ing ban", if any, and the beneficiary. b. &n issuing ban" is irrevocably bound by an a end ent as of the ti e it issues the a end ent. & confir ing ban" ay e#tend its confir ation to an a end ent and !ill be irrevocably bound as of the ti e it advises the a end ent. & confir ing ban" ay, ho!ever, choose to advise an a end ent !ithout e#tending its confir ation and, if so, it ust infor the issuing ban" !ithout delay and infor the beneficiary in its advice. c. The ter s and conditions of the original credit Aor a credit incorporating previously accepted a end entsB !ill re ain in force for the beneficiary until the beneficiary co unicates its acceptance of the a end ent to the ban" that advised such a end ent. The beneficiary should give notification of acceptance or reHection of an a end ent. If the beneficiary fails to give such notification, a presentation that co plies !ith the credit and to any not yet accepted a end ent !ill be dee ed to be notification of acceptance by the beneficiary of such a end ent. &s of that o ent the credit !ill be a ended. d. & ban" that advises an a end ent should infor the ban" fro !hich it received the a end ent of any notification of acceptance or reHection. e. (artial acceptance of an a end ent is not allo!ed and !ill be dee ed to be notification of reHection of the a end ent. f. & provision in an a end ent to the effect that the a end ent shall enter into force unless reHected by the beneficiary !ithin a certain ti e shall be disregarded.
Ence an a end ent has been issued, the issuing ban" is irrevocably bound by the a ended ter s, although it ay be so e ti e before
it beco es a!are of !hether or not the a end ent has been accepted by the beneficiary. It is i portant, therefore, that !hen an a end ent is reducing the value of a docu entary credit, an issuing ban" does not reverse any liabilities recorded against the applicant pending notification that the beneficiary has accepted the a end ent. =sually, this evidence !ill ta"e the for of a presentation of docu ents that eets the ter s of the original credit and the a ended ter s. This is particularly relevant if an a end ent appears to be detri ental to the beneficiary for instance if the docu entary credit a ount is reduced or if the e#piry date is curtailed.
-.B.B." Consent amendments
of
the
beneficiary
to
'ocu entary credit practice has al!ays recognised that the consent of the beneficiary is re%uired for a end ents to be effective. 1eneficiaries have so eti es signified their consent in !riting, but practitioners have al!ays been a!are that, often, acceptance or reHection is not given or signified until the point !hen the docu ents are presented. The introduction of the provision in #C) *++, sub2 article "+/f0, erely incorporates established international practice. =nfortunately, so e ban"s ta"e defensive action in order to protect a perceived !ea"ening of their position. E%amples of clauses included by some banks &cceptance or reHection of any subse%uent a end entAsB under this ,etter of Credit ust be notified by the 1eneficiary to us AIssuing 1an"B through the &dvising 1an" via tele#MS;IFT !ithin 7 !or"ing days after date of a end entAsB other!ise the a end entAsB !ill co e into force. &ll a end ents ust be reHected in !riting !ithin )/ days of advice and if not reHected !ithin that ti e such a end ents !ill be dee ed to have been accepted. This ,MC is opened under the condition that all a end ents to the ,MC if any !ill be dee ed to be accepted by the 1eneficiary if the &dvising 1an" does not infor the opening ban" !ithin 7 days of non-acceptance.
Silence of the beneficiary cannot be interpreted as either acceptance or reHection, particularly because =C( 866 allo!s the beneficiary to signify acceptance or reHection up to, and including, the point at
!hich docu ents are presented. The presentation of docu ents ay indicate the beneficiary.s acceptance or reHection in the absence of any prior notification. & student should be guided by their o!n ban".s procedures and also follo! the provisions of #C) *++, sub2article "+/f0 if such clauses as indicated above are incorporated into a docu entary credit or a end ent issued by their ban". Chapter / e#plores the relationships bet!een the issuing ban" and the advising, no inated, confir ing and rei bursing ban"s.
8e!iew 9uestions
The follo!ing %uestions are designed to enable you to chec" your understanding of the topic that you have Hust studied.
).
Jour custo er i ports goods !orth \)66,666 per annu fro the sa e suppliers in 5anuary each year. Instead of buying all goods in 5anuary they !ould li"e to i port goods on a onthly basis. They !ould li"e to "no! if this is possible under a docu entary credit. Can you suggest !hat type of docu entary credit !ill suit their re%uire entsV a. Revocable letter of credit. b. Transferable letter of credit. c. Clean letter of credit. d. Revolving letter of credit.
3.
;hich type of docu entary credit provides a preship ent facility to the beneficiaryV a. Irrevocable credit. b. Confir ed credit. c. Red clause credit. d. Revolving credit.
Re#ie.uestions
9. ;hich type of docu entary credit !ill overco e the ris" to a beneficiary of default by an issuing ban"V a. Standby credit. b. Irrevocable credit. c. Confir ed credit. d. Revolving credit. /. & docu entary letter of credit is opened at the re%uest of one of your custo ers. Is the custo er: a. the e#porterG b. the beneficiaryG c. the i porterG d. the dra!erV @. ;hat is the ain benefit of an irrevocable docu entary credit to the beneficiaryV a. &ssurance of receipt of goods. b. &ssurance of receipt of pay ent. c. &ssurance of i porter.s credit!orthiness. d. &ssurance of issuing ban".s credit!orthiness.
Chapter /
$ssuing a documentary credit
Learning ob ecti!es 1y the end of this chapter, students should be able to: e#plain the relationship bet!een the issuing ban" and the advising ban" M no inated ban"G e#plain the relationship bet!een the issuing ban" and confir ing ban"G illustrate the trans ission of a docu entary credit fro the issuing ban"G assess the roles and responsibilities of the advising ban" M no inated ban" M confir ing ban" M rei bursing ban" !hen using a docu entary creditG analyse the ris"s faced by an advising ban" M no inated ban" M confir ing ban" M rei bursing ban" !hen using a docu entary credit.
3." $ntroduction
&lthough it is possible for an issuing ban" to act for both the applicant and beneficiary, this is not co on. -ven !hen an issuing ban" does act for both parties, there are a nu ber of different functions played by the ban" in a docu entary credit. This chapter identifies these roles and e#plains the relationships bet!een different ban"s, "no!n as correspondent ban"s, perfor ing these roles. ifs School of Finance )39
2013
The issuing ban" ay utilise the services of a correspondent ban" in the country in !hich the beneficiary is located. The nature of the
)3/
/he use of corres+ondent banks
relationship of the issuing ban" !ith such a correspondent ban" depends upon the services or functions that the issuing ban" !ishes the correspondent ban" to perfor and the agree ent of such a ban" to perfor accordingly: Correspondent bank as ad!ising bank only the correspondent ban" acts erely as a conduit bet!een the issuing ban" and the beneficiary. The advising ban" does not underta"e any liability for its o!n account. In such circu stances, pay ent to the beneficiary !ill often only be available by the presentation of docu ents at the counters of the issuing ban". Correspondent bank as ad!ising and nominated bank the correspondent ban" advises the docu entary credit received fro the issuing ban" and agrees to act as the no inated ban". The no inated ban" is authorised to honour Aie to pay at sight, to incur a deferred pay ent underta"ing and pay at aturity, or to accept a draft dra!n by the beneficiary and pay at aturityB or to negotiate. The no inated ban" !ould, in such circu stances, co unicate its agree ent of the no ination to the beneficiary. =sually such co unication !ould indicate that, provided the stipulated docu ents are presented and the ter s and conditions of the docu entary credit are co plied !ith, the no inated ban" ay honour or negotiate. The issuing ban" underta"es, in consideration of the no inated ban" agreeing to act according to the ter s outlined, to rei burse it for any pay ent ade to the beneficiary. Correspondent bank as ad!ising, nominated and confirming bank the correspondent ban" advises the docu entary credit to the beneficiary indicating that: it is authorised to act as no inated ban" to pay, to incur a deferred pay ent underta"ing, to accept drafts or to negotiateG the docu entary credit bears the confir ation of the correspondent ban" Aor !ould bear such confir ation if the beneficiary so re%uestsB and, by this confir ation, it underta"es or !ould underta"e to honour or negotiate under the credit !ithout recourse to the beneficiary. The issuing ban" underta"es that, in consideration of the no inated ban" agreeing to add confir ation to the docu entary credit and act according to its ter s and conditions, the issuing ban" !ill rei burse the no inated ban" for any pay ent ade to the beneficiary. These basic relationships ifs of Finance apply to School both co ercial docu entary credits and standby )3@
2013
letters of credit. It should be noted, credit ho!ever, that !here the governing rules i pact on these roles and responsibilities, the
6* Issuin% a documentar!
)38
study te#t focuses on =C( 866. Students should nevertheless be a!are of the content and i pact of the corresponding articles of IS( *+, if a standby letter of credit is issued subHect to those rules.
3.& :he banks
use
of
correspondent
This section assu es the issuing ban" no inates a ban" to perfor one or ore of the advising ban", no inated ban" and confir ing ban" functions. It is usual for the advising ban" to be the no inated ban", but here !e !ill study the functions as separately as possible. This section concentrates on the functions of advising ban" and no inated ban".
3.&." 7election of a correspondent bank as ad!ising bank

The follo!ing noted. circu stances should be
The issuing ban".s agree ent is re%uired if the applicant indicates that a na ed ban" re%uested by it is to be used as the advising ban". The issuing ban" ay not !ant to deal !ith that ban" because of previous e#perience of dealings !ith it or because there is no e#isting ban"ing relationship bet!een the . If the issuing ban" agrees to use the na ed ban" as the advising ban", it ay be possible to use the ban" additionally as a no inated or confir ing ban". If the issuing ban" does not agree to use the ban" and prefers to use another, the applicant.s agree ent should be obtained in the first instance. If the issuing ban" insisted on its o!n choice of advising ban" !ithout obtaining the applicant.s agree ent, it ay be difficult to assu e the auto atic application of #C) *++, sub2article -B/a0. If the applicant has not specified a ban", the issuing ban" can choose its o!n advising ban". Such a choice is nor ally based on !hether the ban" is a branch office, an office of an associated ban", or a ban" !ith !hich it has agency arrange ents and !ith !hich it aintains an account. The issuing ban" is ulti ately liable, as instructing party, for ifs School of Finance )37 uncollected charges of the advising ban" A#C) *++, sub2
2013
credit article -B/c0B. Rei burse ent fro the applicant for these !ill for part of the separate agree ent bet!een the issuing ban" and the
6* Issuin% a documentar!
)3+
applicant. Si ilarly, the applicant inde nifies the issuing ban" for all obligations i posed by foreign la!s and usages ie la!s and usages of the country of the beneficiary if these are different fro those of the country of the issuing ban". #C) *++, article -? Adisclai er on trans ission and translationB, provides ban"s !ith protection fro circu stances outside their control. $o!ever, it !ould be ore difficult to invo"e the protection of this article if there is negligence and M or anifest error on the part of ban"s. #C) *++, article -?4 Disclaimer on transmission and translation & ban" assu es no liability or responsibility for the conse%uences arising out of delay, loss in transit, utilation or other errors arising in the trans ission of any essages or delivery of letters or docu ents, !hen such essages, letters or docu ents are trans itted or sent according to the re%uire ents stated in the credit, or !hen the ban" ay have ta"en the initiative in the choice of the delivery service in the absence of such instructions in the credit. If a no inated ban" deter ines that a presentation is co plying and for!ards the docu ents to the issuing ban" or confir ing ban", !hether or not the no inated ban" has honoured or negotiated, an issuing ban" or confir ing ban" ust honour or negotiate, or rei burse that no inated ban", even !hen the docu ents have been lost in transit bet!een the no inated ban" and the issuing ban" or confir ing ban", or bet!een the confir ing ban" and the issuing ban". & ban" assu es no liability or responsibility for errors in translation or interpretation of technical ter s and ay trans it credit ter s !ithout translating the . It is i portant to note the circu stances under !hich the provision regarding docu ents lost in transit beco es applicable: The no inated ban" ust deter ine that the docu ents co ply !ith the ter s and conditions of the docu entary credit.
It does not atter !hether the no inated ban" has honoured or negotiated. The no inated ban" ust have sent the docu ents to the confir ing or issuing ban" according to the instructions in the docu entary credit.
ifs School of Finance 2013 )3*
6* Issuin% a documentar! credit
If docu ents are lost in transit, an issuing ban" !ill still need to deter ine !hether the docu ents, as originally presented to a no inated ban", !ere indeed in co pliance !ith the ter s and conditions of the docu entary credit. The beneficiary and no inated ban" !ill not be under any obligation to reconstitute the docu ents as a ne! set of originals, but !ill be re%uired to provide copies of docu ents for e#a ination. The issuing ban" or confir ing ban" !ill use those copies to deter ine !hether the presentation co plies !ith the ter s and conditions of the docu entary credit.
3.- 8elationship between issuing bank and ad!ising bank

This section covers the role of the correspondent ban" as advising ban" only ie if it si ply advises the docu entary credit to the beneficiary. In this role, the advice of the advising ban" to the beneficiary !ill a"e it clear that it underta"es no obligation on its o!n account. In other !ords, the advising ban" is not responsible for any honour or negotiation. In addition, !hen the docu entary credit states that it !ill only be honoured at the counters of the issuing ban", the advising ban" ay additionally indicate that any presentation !ill be for!arded directly to the issuing ban" !ithout e#a ination. In effect, the advising ban" is si ply acting to trans it docu ents. #C) *++, sub2article F4 ;d!ising of credits and amendments a. & credit and any a end ent ay be advised to a beneficiary through an advising ban". &n advising ban" that is not a confir ing ban" advises the credit and any a end ent !ithout any underta"ing to honour or negotiate.
b. 1y advising the credit or a end ent, the advising ban" signifies that it has satisfied itself as to the apparent authenticity of the credit or a end ent and that the advice accurately reflects the ter s and conditions of the credit or a end ent received. c. &n advising ban" ay utiliIe the services of another ban" AOsecond advising ban"PB to advise the credit and any a end ent to the beneficiary. 1y advising the credit or a end ent, the second advising ban" signifies that it has satisfied itself as to the apparent authenticity of the ifs School of Finance
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Relationshi+ bet-een issuin% bank and ad#isin% bank advice it has received and that the advice accurately
reflects the ter s and conditions a end ent received.
of the credit or
)9)
d. & ban" utiliIing the services of an advising ban" or second advising ban" to advise a credit ust use the sa e ban" to advise any a end ent thereto. e. If a ban" is re%uested to advise a credit or a end ent but elects not to do so, it ust so infor , !ithout delay, the ban" fro !hich the credit, a end ent or advice has been received. f. If a ban" is re%uested to advise a credit or a end ent but cannot satisfy itself as to the apparent authenticity of the credit, the a end ent or the advice, it ust so infor , !ithout delay, the ban" fro !hich the instructions appear to have been received. If the advising ban" or second advising ban" elects nonetheless to advise the credit or a end ent, it ust infor the beneficiary or second advising ban" that it has not been able to satisfy itself as to the apparent authenticity of the credit, the a end ent or the advice.
#C) *++, sub2article F/e0 allo!s an advising ban" to choose not to advise a docu entary credit. &n advising ban" is entirely free to a"e up its o!n ind, but should it elect not to advise the docu entary credit, it ust infor the issuing ban" !ithout delay. =C( 866 does not re%uire the ban" to infor the issuing ban" of the reasons for such action. If the advising ban" chooses AFelects.B to advise the docu entary credit, it has a duty to satisfy itself as to its Fapparent. authenticity. The !ord Fapparent. dra!s attention to the fact that the duty is confined to the usual chec"s ie in accordance !ith ban" policy and international standard ban"ing practice and does not e#tend to absolute verification of authenticity. The usual follo!s: chec"s are as
In a paper docu entary credit, the signatures of the officials signing the docu entary credit ust appear to correspond !ith speci ens held.
In a docu entary credit received by teletrans ission, the test "ey should be authenticated and evidenced on the file copy. ?ote that S;IFT-issued docu entary credits are auto atically authenticated bet!een the issuing ban" and advising ban" if sent using <T766, 7)6, 736 or 7**, and need no further chec"s. )93 ifs School of Finance
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If the apparent authenticity cannot be established, the advising bank ban" ust act in ter s of #C) *++, sub2article F/f0.
Relationshi+ bet-een issuin% bank and ad#isin%
)99
#C) *++, sub2articles F/b0 and /c0 re%uire the advising ban" and the second advising ban", if any, to satisfy the selves as to the apparent authenticity of the docu entary credit, a end ent or advice. These sub-articles also state that the sending of an advice of the docu entary credit or a end ent signifies that it accurately reflects the ter s and conditions of the docu entary credit or a end ent received. This position is in line !ith $7) FD, rule &.+?. $7) FD, rule &.+?4 ;d!ice of standby or amendment a. =nless an advice states other!ise, it signifies that: i. the advisor has chec"ed the apparent authenticity of the advised essage in accordance !ith standard letter of credit practiceG and
ii. the advice accurately reflects !hat has been received. b. & person !ho is re%uested to advise a standby and decides not to do so should notify the re%uesting party.
3.-." 8isks bank
to
the
ad!ising
The advising ban" underta"es no obligation to honour or negotiate and, therefore, it incurs no credit ris" by advising the docu entary credit. &s previously entioned, the advising ban".s sole obligation, if it accepts the issuing ban".s instructions, is to satisfy itself as to the apparent authenticity of the docu entary credit or a end ent and advise it to the beneficiary. &n advising ban" ust ta"e care to ensure it only advises a docu entary credit that is apparently authentic, by carrying out the chec"s outlined above. If not, an advising ban" ight find itself liable to a beneficiary that has suffered a loss due to the docu entary credit being fraudulent. The advising ban" also is to ensure that it advises the credit substantially in the for in !hich it !as received. For e#a ple, the advising ban" or second advising ban" is to ensure that the details received, by !ay of content of the docu entary credit and the nu ber of pages of that docu entary credit, are for!arded to the beneficiary. Infor ation that is considered strictly ban"-to-ban" infor ation need not for part of the advice to the beneficiary unless it ay be appropriate to another no inated ban", !here the docu entary credit is available !ith any ban". )9/ ifs School of Finance
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Relationshi+ bet-een issuin% bank and ad#isin% bank
3.3 8elationship between issuing bank and nominated bank

The relationship bet!een the issuing ban" and a no inated ban" is governed by #C) *++, articles *, B and "&. #C) *++, article "&4 Nomination a. =nless a no inated ban" is the confir ing ban", an authoriIation to honour or negotiate does not i pose any obligation on that no inated ban" to honour or negotiate, e#cept !hen e#pressly agreed to by that no inated ban" and so co unicated to the beneficiary. b. 1y no inating a ban" to accept a draft or incur a deferred pay ent underta"ing, an issuing ban" authoriIes that no inated ban" to prepay or purchase a draft accepted or a deferred pay ent underta"ing incurred by that no inated ban". c. Receipt or e#a ination and for!arding of docu ents by a no inated ban" that is not a confir ing ban" does not a"e that no inated ban" liable to honour or negotiate, nor does it constitute honour or negotiation. In the conte#t of giving effect to the obligations of the docu entary credit, #C) *++, article * a"es the follo!ing provisions. 7ub2article */b0 re%uires an issuing ban" to indicate ho! the docu entary credit is to be available to the beneficiary. In other !ords, is the docu entary credit to be available by: sight pay entG or deferred pay entG or acceptanceG or negotiationV 7ub2article */a0 re%uires the issuing ban" to indicate !hich ban" the docu entary credit !ill be ade available !ith. The docu entary credit ay be available to the beneficiary !ith:
)9@
the issuing ban"G or a ban" specifically no inated by the issuing ban" Aie a no inated ban"BG or any ban", and this !ould include the advising ban" entioned previously. In the case of a confir ed docu entary credit, the credit !ould nor ally be available !ith the confir ing ban", !hich !ould also be a no inated ban". &lthough a docu entary credit ay be confir ed by one ban", it ay be available to the beneficiary at a ban" other than the confir ing ban" ie at another no inated ban" either by specific no ination or by the docu entary credit being available for honour or negotiation !ith any ban". 7ub2article */d0 also provides that docu ents presented to the no inated ban", !hich ay be: the confir ing ban"G or a specifically no inated ban"G or any ban", if no no inated ban" is indicated and the docu entary credit is stated to be available !ith any ban". It should be noted that docu ents to the issuing ban". ay also be presented direct ust be
& no inated ban" that has not added its confir ation to the docu entary credit does not have to accept the no ination of the issuing ban" and the ere no ination does not in itself i pose an obligation. & no inated ban" should co unicate to the beneficiary !hen it agrees to act in this capacity. The receipt by the no inated ban" of docu ents, its e#a ination or its for!arding of those docu ents does not, in itself, obligate the ban" in the absence of any agree ent !ith the beneficiary. This is covered by #C) *++, sub2articles "&/a0 and /c0. The obligation of the issuing ban" to the no inated ban" that acts in this capacity is set out in #C) *++, sub2article B/c0. The issuing ban".s obligation is to underta"e Fto rei burse a no inated ban" that has honoured or negotiated a co plying presentation and for!arded the docu ents to the issuing ban".. The obligations in the relationship bet!een the issuing ban" and no inated ban" are su arised as follo!s:
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Relationshi+ bet-een issuin% bank and nominated bank
The issuing ban": ust indicate the follo!ing details in the docu entary credit: the type of settle ent A#C) *++, sub2article */b0BG the ban" to !hich the beneficiary can loo" for the obligations of the docu entary credit to be fulfilled A#C) *++, sub2article */a0B G ust rei burse any no inated ban" that honoured or negotiated a co plying presentation under the docu entary credit A#C) *++, sub2article B/c0B and pay any charges that are not recovered by an advising ban", confir ing ban" or no inated ban" A#C) *++, sub2article -B/c0B.
In the event that a ban" agrees to act as no inated ban", it should: e#a ine all docu ents received in ter s of #C) *++, sub2article "3/a0 and other related articles of =C( 866G handle discrepant docu ents in ter s of #C) *++, article "* and other related articles of =C( 866.
3.3." 8isks to a nominated bank

& no inated ban" underta"es no independent pay ent obligation to!ards the beneficiary. &ccordingly, it incurs no counterparty ris" !ith regard to the issuing ban". & different situation arises, ho!ever, if a no inated ban" a"es a pay ent to the beneficiary under a co plying presentation and is unable to obtain rei burse ent fro the issuing ban".
3.? 8elationship between issuing bank and confirming bank

The relationship bet!een the issuing ban" and the confir ing ban" is defined in #C) *++, articles B, D and "+. There are a nu ber of "ey ele ents in these articles in respect of the relationship ifs School of bet!een Finance the issuing ban" and the confir ing )97
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ban".
$rre!ocability the fact that the obligations of both the issuing ban" and the confir ing ban" are irrevocable is reiterated not only in #C) *++, article B Aissuing ban" underta"ingB and article D
)9+
Relationshi+ bet-een issuin% bank and confirmin% bank
Aconfir ing ban" underta"ingB but also in #C) *++, sub2article "+/a0. =ithout recourse obligation the fact that pay ent ade by both the issuing ban" and confir ing ban" is !ithout recourse is evidenced in #C) *++, sub2article B/a0 Fthe issuing ban" ust honour. and #C) *++, sub2article D/a0/i0 Fthe confir ing ban" ust honour. and /ii0 Fthe confir ing ban" ust negotiate, !ithout recourse, if the credit is available by negotiation !ith the confir ing ban".. Confirmation4 a separate undertaking by confir ing a docu entary credit, the confir ing ban" gives an underta"ing to the beneficiary separate fro that of the issuing ban". There is a separate and independent contract bet!een the confir ing ban" and the beneficiary.
)resentation of documents by the beneficiary in #C) *++, sub2article B/a0, the issuing ban".s underta"ing applies if the docu ents are presented to the no inated ban" or to the issuing ban". If the confir ing ban" is the no inated ban" and the beneficiary a"es a co plying presentation to the confir ing ban", the issuing ban" cannot refuse a clai ade by the beneficiary in respect of that presentation if it is not honoured or negotiated by the confir ing ban", on the basis that presentation had not been ade to the issuing ban" !ithin the validity of the credit. The presentation of docu ents is !ithin the control of the beneficiary and the last sentence of #C) *++, sub2article */d0 /i0 e phasises this: F&n e#piry date stated for honour or negotiation !ill be dee ed to be an e#piry date for presentation.. In addition, the use of the !ord For. in the te#t of #C) *++, sub2article B/a0 a"es it unnecessary for a separate presentation to be ade to the issuing ban" if the confir ing ban" is the no inated ban". In #C) *++, sub2 article D/a0, the confir ing ban".s underta"ing is to apply if docu ents are presented to the confir ing ban" or to another no inated ban". Further to the above, the follo!ing should be noted: =nless the docu entary credit indicates other!ise, the confir ing ban" cannot refuse a clai by a beneficiary in respect of a presentation ade in co pliance !ith the docu entary credit and not paid by the no inated ban", on the basis that presentation
)9*
has not been ade to the confir ing ban" !ithin the validity of the docu entary credit. If the confir ing ban" is bypassed in the presentation of docu ents, and such presentation is re%uired because it is also the no inated ban", or if the ter s of the docu entary credit or the ter s of the confir ation advice to the beneficiary re%uire such presentation, the confir ation ay not be effective. So eti es the location of the confir ing ban" ay be different fro the locations of both the issuing ban" and the beneficiary and another no inated ban". :he obligations of the issuing bank and confirming bank these are outlined in #C) *++, articles B and D respectively, and follo! the sa e pattern, because the liabilities and obligation of the t!o ban"s to third parties is identical. Special note should be ade of the obligation to honour if there has been dishonour by a no inated ban". Not prepared to confirm #C) *++, sub2article D/d0 indicates the action to be ta"en if a ban" that is authorised or re%uested by the issuing ban" to confir is not prepared to do so. ;hile there is an obligation to infor the issuing ban", there is no re%uire ent to indicate the reason for refusal. In these circu stances, the ban" re%uested to confir ay advise the docu entary credit !ithout confir ation.
There are a nu ber of reasons !hy a ban" ay not be prepared to add its confir ation. So e of the ore co on ones are as follo!s: The li it available to the ban" under its o!n guidelines for the ris" of the issuing ban" Aie issuing ban" ris"B ay already have been reached. & si ilar li it in respect of the country in !hich the issuing ban" is located ay have been reached. The ter s and conditions of the docu entary credit be acceptable to the ban". ay not
Confir ation of a end ents Hust as a ban" re%uested to confir is not obligated to do so, a ban" that has confir ed a docu entary credit is not re%uired to confir any or all subse%uent a end ents, and this aspect is ade clear in #C) *++ sub2article "+/b0. )/6 ifs School of Finance
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So e of the circu stances in !hich a confir ing ban" ay refuse to add its confir ation to an a end ent include the follo!ing: &lthough the original a ount of the docu entary credit !as !ithin the issuing ban" and country li its, the a end ent ay involve an increase that !ould e#ceed such li its. The a end ent itself ay e#tend the ris" to a third country if, for e#a ple, the a end ent !ere to per it ship ent fro such a third country, especially if the confir ing ban" had reasons for concern regarding any associated ris". The ter s and conditions of the a end ent acceptable to the ban". ay not be
3.?." .bligations of issuing bank and confirming bank

In the relationship bet!een the issuing ban" and the confir ing ban", the obligations ay be su arised as follo!s.
3.?."." $ssuing bank

1efore re%uesting a ban" to confir , the issuing ban" ay !ish to e#a ine the standing of the proposed confir ing ban", and its o!n e#perience and relationship !ith it. In certain ban"ing relationships, the confir ing ban" ay provide the issuing ban" !ith a facility letter indicating a li it on confir ation of docu entary credits issued. In such circu stances, the issuing ban" ust ensure that the re%uest to confir falls !ithin the prescribed li it. ;herever possible, the issuing ban" should advise the docu entary credit Aand any a end entsB through the confir ing ban" and a"e it available at the counters of the confir ing ban". If it is not possible to advise the docu entary credit through the confir ing ban", the docu entary credit ust indicate a place for presentation of docu ents. The issuing ban" ust indicate ho! and by !ho confir ing ban".s charges are to be paid. the
If the docu entary credit is available at the counters of another ban", copies of the docu entary credit and any a School end ents should be ade available to the confir )/) ing ifs of Finance
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ban".
)/3
The issuing ban" ust refer all re%uests for !aivers of discrepancies to the applicant A!here the issuing ban" is !illing to accept their !aiverB and ust respond pro ptly. The issuing ban" ust e#a ine docu ents received in ter s of #C) *++, sub2article "3/a0 and other related articles of =C( 866. The issuing ban" ust honour its underta"ing in respect of a co plying presentation pro ptly in ter s of #C) *++, sub2article "?/a0. The issuing ban" ust handle discrepant docu ents in ter s of #C) *++, article "* and other related articles of =C( 866.
3.?.".& Confirming bank

The confir ing ban" ust e#a ine the ter s and conditions of the docu entary credit and advise the issuing ban" pro ptly if it is: un!illing to confir the docu entary creditG
!illing to confir the docu entary credit, subHect to changes it considers necessary to a"e it !or"able. $aving agreed to confir , it ust advise the beneficiary pro ptly of this and specifically indicate: the e#act anner in !hich the docu entary credit is availableG
!here docu ents are to be presented by the beneficiaryG and the scope of the !ording of the confir ation, especially !here there is another no inated ban" or ban"s involved. It ay refer any re%uests fro the beneficiary for the !aiver of discrepancies to the issuing ban". It ust e#a ine all docu ents received in ter s of #C) *++, sub2article "3/a0 and other related articles of =C( 866. It ust handle discrepant docu ents in ter s of #C) *++, article "* and other related articles of =C( 866. =pon deter ination of a co plying presentation, it ust honour or negotiate pro ptly in ter s of #C) *++, sub2 article "?/b0.
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#C) *++, "?/b0
sub2article
;hen a confir ing ban" deter ines that a presentation is co plying, it ust honour or negotiate and for!ard the docu ents to the issuing ban".
3.?.& 8isks to confirming bank

The confir ing ban" underta"es to a"e pay ent to the beneficiary, provided that a co plying presentation is ade and the ter s of its confir ation are co plied !ith. The confir ing ban".s ain ris" is that, once it has paid the beneficiary, it ay not be able to obtain rei burse ent fro the issuing ban" because of: insolvency of the issuing ban"G or refusal of the issuing ban" to rei burse because of a dispute as to !hether or not pay ent should have been ade under the docu entary credit for e#a ple, due to discrepancies in docu entsG or govern ent restrictions on foreign e#change transfers or i port restrictions preventing the issuing ban" fro transferring funds.
3.* 8elationship between issuing bank and reimbursing bank

The rei bursing ban" is the ban" that, at the re%uest of the issuing ban", is authorised to rei burse, or accept and pay ti e drafts under a docu entary credit in accordance !ith #C) *++, article "-, or the $CC #niform 8ules for Bank2to2Bank 8eimbursements #nder Documentary Credits /#88 B&?0. #C) *++, article "-4 Bank2to2bank reimbursement arrangements a. If a credit states that rei burse ent is to be obtained by a no inated ban" AOclai ing ban"PB clai ing on another party AOrei bursing ban"PB, the credit ust ifs School of Finance
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)//
Relationshi+ bet-een issuin% bank and reimbursin% bank state if the
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rei burse ent is subHect to the ICC rules for ban"-toban" rei burse ents in effect on the date of issuance of the credit. b. If a credit does not state that rei burse ent is subHect to the ICC rules for ban"-to-ban" rei burse ents, the follo!ing apply: i. &n issuing ban" ust provide a rei bursing ban" !ith a rei burse ent authoriIation that confor s !ith the availability stated in the credit. The rei burse ent authoriIation should not be subHect to an e#piry date.
ii. & clai ing ban" shall not be re%uired to supply a rei bursing ban" !ith a certificate of co pliance !ith the ter s and conditions of the credit. iii. &n issuing ban" !ill be responsible for any loss of interest, together !ith any e#penses incurred, if rei burse ent is not provided on first de and by a rei bursing ban" in accordance !ith the ter s and conditions of the credit. iv. & rei bursing ban".s charges are for the account of the issuing ban". $o!ever, if the charges are for the account of the beneficiary, it is the responsibility of an issuing ban" to so indicate in the credit and in the rei burse ent authorisation. If a rei bursing ban".s charges are for the account of the beneficiary, they shall be deducted fro the a ount due to a clai ing ban" !hen rei burse ent is ade. If no rei burse ent is ade, the rei bursing ban".s charges re ain the obligation of the issuing ban". c. &n issuing ban" is not relieved of any of its obligations to provide rei burse ent if rei burse ent is not ade by a rei bursing ban" on first de and. Rei bursing ban"s act upon the instruction and authority of the issuing ban" and any difficulties a clai ing ban" has in respect of non-pay ent, late pay ent or interest charges should be referred to the issuing ban". The detailed operation analysed in Chapter )3. of ban"-to-ban" rei burse ents is
3.*." 8isks
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to
the
reimbursing
bank bank
Relationshi+ bet-een issuin% bank and reimbursin%
& rei bursing ban" is entitled to be rei bursed by the issuing ban", having rei bursed the clai ing ban" against a clai as specified
)/7
in the issuing ban".s instructions. $o!ever, it has no obligation to rei burse the clai ing ban" unless it has issued a rei burse ent underta"ing. The ain ris" to the rei bursing ban" is that, once it has paid the clai ing ban".s clai , it ay not be able to obtain rei burse ent fro the issuing ban" Afor the sa e reasons as a confir ing ban" ay not obtain rei burse ent fro an issuing ban"B.
8e!iew 9uestions
). & correspondent ban" to the issuing ban" has not co itted to a"e pay ent on behalf of the issuing ban". In this circu stance, the correspondent ban" is acting as: a. no inated ban"G b. confir ing ban"G c. advising ban"G d. advising, no inated and confir ing ban". 3. ;hich ban" is ulti ately responsible for charges under =C( 866V a. The advising ban". b. The confir ing ban". c. The issuing ban". d. The no inated ban".
)/+
Re#ie.uestions
9.
In !hat circu stances is it not necessary for an advising ban" to ta"e further action to chec" the apparent authenticity of a docu entary creditV a. If the docu entary credit is received on paper. b. If the docu entary credit is received via S;IFT in <T766 for at. c. If the docu entary credit is received by fa#. d. If the docu entary credit is received by e ail.
/.
& rei bursing ban" has received a rei burse ent authorisation fro the issuing ban". There is no re%uest to issue a rei burse ent underta"ing to the clai ing ban" Ano inated ban"B. 'espite not issuing a rei burse ent underta"ing, a rei bursing ban" is re%uired to honour a rei burse ent clai ade by the clai ing ban". ;hich state ent belo! describes the difference bet!een a docu entary credit available by acceptance and one that is available by deferred pay entV a. & docu entary credit available by acceptance does not re%uire presentation of a bill of e#change and a docu entary credit available by deferred pay ent re%uires a bill of e#change. b. & docu entary credit available by acceptance re%uires a bill of e#change to be presented and a docu entary credit available by deferred pay ent does not. c. & docu entary credit available by deferred pay ent can only be issued for usance ter s above 86 days, !hereas a docu entary credit available by acceptance can cover any usance period. d. & docu entary credit available by acceptance ay be discounted at the re%uest of the beneficiary and a docu entary credit available by deferred pay ent ay not be discounted at the re%uest of the beneficiary.
@.
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Chapter @
;d!ising a documentary credit
Learning ob ecti!es 1y the end of this chapter, students should be able to: e#plain the relationship bet!een the beneficiary and the advising M no inated M confir ing M transferring ban" Aand issuing ban"B.
?." $ntroduction
;here the beneficiary has re%uested that pay ent should be ade via a docu entary credit, the applicant and beneficiary !ill then agree a sales contract Adiscussed in Chapter 3B. In Chapter 9 the relationship bet!een the applicant and the issuing ban" !as discussed, and in Chapter / the different roles played by ban"s in a docu entary credit transaction !ere e#plained. This chapter e#plains the relationship bet!een the beneficiary and the ban"s participating in the transaction on receipt of the advice of the docu entary credit fro an advising ban".
?.& ;d!ising credit
documentary
The beneficiary !ill receive for al advice of the docu entary credit fro an advising ban" Anote that an issuing ban" could send an advice of a docu entary credit direct to the beneficiaryB. &lthough this for al advice !ill co e fro a ban", the applicant and beneficiary !ill also aintain a relationship. )/) ifs School of Finance
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En receipt of the docu entary credit, the beneficiary should e#a ine it carefully to ensure that they can obtain all of the stipulated
)/3
/he relationshi+ bet-een the beneficiar! and the ad#isin% bank or second ad#isin% bank
docu ents and co ply !ith all of its ter s and conditionsG the beneficiary should also chec" that it has been issued in accordance !ith the sales contract or other agree ent. <any of the difficulties faced in docu entary credit operations arise fro the beneficiary failing to scrutinise the docu entary credit on receipt and paying attention to these issues. If the docu entary credit is not issued in a for that is acceptable to the beneficiary, the beneficiary should contact the applicant and re%uest one or ore a end ents that !ill put the ter s and conditions into an acceptable for . &part fro a duty to e#a ine the docu entary credit upon receipt and to re%uest any necessary a end ents, the beneficiary is re%uired to a"e ship ent or perfor in accordance !ith the docu entary credit, and to obtain and present the stipulated docu ents. -ven if an effective agree ent and a !or"able docu entary credit are in place, it is possible for discrepancies to arise !hen the beneficiary is preparing the presentation. In such an event, the beneficiary ay !ish to contact the applicant to infor the latter of the discrepancies in order to see !hether the applicant !ould provide a !aiver of the discrepancies.
?.- :he relationship between the beneficiary and the ad!ising bank or second ad!ising bank
The advising ban" or second advising ban" advises the docu entary credit to the beneficiary, and its liability to the issuing ban" is in accordance !ith #C) *++, article F. &n advising ban" or second advising ban" that receives inco plete or unclear instructions ay provide a preli inary notification to the beneficiary for infor ation purposes only and !ithout any responsibility. The advising ban" or second advising ban" should e#pressly indicate in its letter enclosing the docu entary credit that: it underta"es no liability and gives no underta"ing in respect of honour or negotiation under the docu entary creditG !hen docu ents are presented, it ay erely pass the to the issuing ban" if so re%uired by the beneficiary.
on
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7* 8d#isin% a documentar! credit
The beneficiary has a right to e#pect to receive the docu entary credit and any a end ent in the ter s that they are received by the advising ban" or second advising ban" Asee #C) *++, sub2articles F/b0 and /c0B. If, after e#a ining the docu entary credit, the beneficiary has %uestions about it, they !ould be !ell advised to contact the advising ban" or second advising ban" for advice and assistance. The advising ban" or second advising ban" ay be !illing to provide its e#pertise at this stage. &ny advice that an advising ban" or second advising ban" gives to the beneficiary is given entirely at its o!n discretion and responsibility. The beneficiary, in consultation !ith the advising ban" or second advising ban", ay decide that a end ents are re%uired Aperhaps because circu stances have changed since the sales contract or agree ent !as adeB. The beneficiary should contact the applicant for any a end ent to the docu entary credit. The issuing ban" should then route the a end ent in e#actly the sa e !ay as for the docu entary credit. &ny a end ents !ill be passed to the beneficiary !ithout engage ent or obligation on the part of the advising ban" or second advising ban". It has no obligation to perfor any function other than advising the docu entary credit and a end ent thereto, as prescribed by the relevant =C( 866 articles.
?.-." Communication between applicant and beneficiary following ad!ice of the documentary credit
Follo!ing advice of the docu entary credit, the applicant receive the follo!ing types of co unication fro the beneficiary: ay
a re%uest for a end ent if the beneficiary has noticed ter s included in the docu entary credit that are different fro , or additional to, those agreed, particularly if it ay prove difficult for the beneficiary to co ply !ith such ter sG a re%uest for a end ent if there has been a change to the ter s of the underlying sales contractG
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notification that a presentation contains discrepancies, ifs School of Finance see"ing the applicant.s assistance in giving ti ely !aiver
2013
/he relationshi+ bet-een the beneficiar! and the ad#isin% bank or second ad#isin% bank instructions to the issuing ban".
If the applicant agrees !ith the beneficiary.s re%uest, it should respond in one of t!o !ays. It can as" the issuing ban" to issue
)/@
the re%uired a end ent or it can provide the issuing ban" !ith confir ation that the stated discrepancies are acceptable for that presentation. $o!ever, if the applicant does not agree !ith the beneficiary.s re%uest, it is still helpful for the applicant and beneficiary to co unicate !ith each other and to resolve the points at issue in a constructive and a icable anner. ?ote that the negotiating strength oves fro the beneficiary to the applicant once goods have been shipped and the ter s of the docu entary credit have not been et. The beneficiary should consider carefully any re%uest fro the applicant that the transport docu ent stipulated in the docu entary credit sho! the applicant as consignee, especially in the case of air dispatch. If the beneficiary agrees to such a re%uest, it !ould not be possible for the beneficiary, in the event of non-pay ent due to discrepancies in the presented docu ents, to atte pt to hold the issuing ban" or any other party in any !ay responsible for the delivery of goods to the applicant as consignee.
?.3 8elationship between beneficiary and nominated J confirming bank

& no inated ban" and M or confir ing ban" should advise the beneficiary precisely !hat responsibilities it underta"es to!ards it in giving effect to the docu entary credit. & no inated ban" M confir ing ban" should be careful in discussing !ith the beneficiary discrepancies or the possibility of discrepancies arising and ho! they ay be resolved, prior to a for al presentation of docu ents. If a no inated ban" M confir ing ban" does engage in such discussions, there is a danger that it ay be precluded fro refusing docu ents at the ti e of presentation. This ay be on the grounds that the beneficiary !as led to believe fro discussions that the particular discrepancy upon !hich the docu ents are refused had been Fresolved. or !as acceptable. The danger of this proble arising !as highlighted in Floatin% ock 9td # :on%kon% and Shan%hai Bankin% Cor+. It is also for this reason, a ong others, that Chapter * e phasises the i portance of recording relevant details of discussions !ith beneficiaries and the use of a docu ent e#a ination record for )/8 ifs School of Finance this purpose.
2013
Relationshi+ bet-een beneficiar! and nominated ; confirmin% bank
& no inated ban" M confir ing ban" should also: e#a ine docu ents in ter s of #C) *++, article "3 and other related articles of =C( 866G handle discrepant docu ents in ter s of #C) *++, article "* and other related articles of =C( 866G advise the beneficiary of the outco e !ithin the ti e li its sho!n in #C) *++, articles "3 and "*, and in the case of an oral refusal, dispatch a tele# M facsi ile M !ritten confir ation at the sa e ti e. ;hile it is ac"no!ledged that =C( 866 does not specifically re%uire such confir ation, it !ill protect the ban" a"ing the refusal in the event of a dispute over !hat !as actually said in the conversation. If a no inated ban" M confir ing ban" refuses a presentation and notice has been given to the beneficiary in ter s of #C) *++, sub2article "*/c0, further instructions ay be re%uired fro the beneficiary !ith regard to disposal of docu ents. The detailed responsibilities and procedures adopted by a no inated ban" M confir ing ban" !hen e#a ining docu ents are sho!n in Chapter *. ;hile ost beneficiaries ta"e the trouble to e#a ine the docu ents carefully against the docu entary credit, others a"e presentation of the docu ents in a anner that can suggest a lac" of care. The beneficiary is responsible for ensuring that: all stipulated docu ents have been gathered for presentation under the ter s re%uired by the docu entary credit, and signed and endorsed as re%uiredG presentation letter
the indicates
instructions as to ho! discrepant docu ents should be dealt !ithG !here and ho! pay ent should be effectedG a na ed contact, !ith details of telephone e#tensions, facsi ile nu bers, etcG a co plete presentation is ade and that the ban" to !hich the presentation is ade has clear instructions as to ifs School of Finance )/7
2013
credit ho! the presentation should be handled.
7* 8d#isin% a documentar!
)/+
Relationshi+ bet-een beneficiar! and nominated ; confirmin% bank
?.? 8elationship between the beneficiary and the transferring bank

The detailed operation of transferable credits is discussed in Chapter 9 and Chapter )3. The "ey points !ith respect to the relationship bet!een a beneficiary Athe first beneficiaryB and a transferring ban" are as follo!s: In a credit designated as transferable, if the beneficiary !ishes the credit to be transferred, instructions should be given to the transferring ban" and such instructions are to cover the specific re%uire ents of #C) *++, sub2article -D/g0.
& beneficiary should indicate ho! and under !hat conditions a end ents are to be advised to any second beneficiary, in ter s of #C) *++, sub2article -D/e0. #C) *++, -D/e0 sub2article
&ny re%uest for transfer ust indicate if and under !hat conditions a end ents ay be advised to the second beneficiary. The transferred credit ust clearly indicate those conditions. & beneficiary should indicate !hether the second beneficiary.s invoices and drafts, if any, are to be substituted by its o!n invoices and drafts, if any. & transferring ban" is to preserve the confidentiality of the first beneficiary.s dealings !ith the second beneficiary, in so far as this is possible and as ay be re%uired by the first beneficiary.
?.* 8elationship between the beneficiary and the issuing bank

The underta"ing of the issuing ban" is addressed to the beneficiary and isof the basis of the docu entary credit. #C) *++, )/* ifs School Finance
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credit sub2articles */a0 and B/a0 per it the presentation of docu ents by the beneficiary directly to the issuing ban". Indeed, the beneficiary and the issuing ban" are the only t!o necessary parties to any docu entary credit.
7* 8d#isin% a documentar!
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Risks to the beneficiar!
?.B 8isks to the beneficiary

?.B." Failure to comply with documentary credit conditions
& docu entary credit is a substantial safeguard of pay ent for the beneficiary. The ain ris" for the beneficiary is that a no inated ban" or issuing ban" !ill refuse the docu ents as they do not co ply !ith the ter s and conditions of the docu entary credit. & beneficiary can ini ise this ris" by reading the docu entary credit carefully as soon as it is received. It should then i ediately re%uest an a end ent if any of the ter s and conditions appear to vary fro the sales contract or agree ent, or if the beneficiary !ould find it difficult to satisfy any of the stated conditions. &ny a end ent should be received before the goods are shipped, or the service or perfor ance is supplied. If the beneficiary ships goods before receipt of a re%uested a end ent, it faces the ris" that, if the issuance of the a end ent is delayed, it ay not be able to a"e a co plying presentation.
?.B.& Failure of, or delays in payment from, the issuing bank

In the case of an irrevocable, but unconfir ed, docu entary credit, the beneficiary incurs the ris" of failure of the issuing ban" together !ith the country ris" relating to the country in !hich the issuing ban" is located. This poses a proble in cases in !hich the country concerned lac"s ade%uate foreign e#change reserves. If the issuing ban" beco es insolvent, the underta"ing contained in the docu entary credit is placed in Heopardy. The beneficiary ay instead need to rely on pay ent for the goods being received direct fro the applicant. In the case of country ris", pay ent ay be prevented or delayed by incidents such as balance of pay ents difficulties affecting the country of the issuing ban" or by govern ent restrictions on transfer of funds outside the country. The beneficiary can itigate these ris"s by obtaining a confir ation of the docu entary credit by a ban" in its o!n country, or a country !hose ris" it dee s acceptable. ifs School of Finance )@)
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?.B.- Credit issued by a party other than a bank

The ris"s to the beneficiary outlined above ay increase if the issuer of the docu entary credit is not a ban". If a beneficiary has any doubts as to the status of the issuer of a docu entary credit or if it is clearly issued by a non-ban" institution, it should e#ercise caution before shipping goods and placing reliance on the docu entary credit as its guarantee of pay ent. The ICC 1an"ing Co ission published an opinion on the ris"s posed by a docu entary credit issued by a non-ban" issuer, !hich is reproduced under reference R@6@. Chapter 8 e#a ines the beneficiary.s responsibilities to prepare docu ents and ship goods under the ter s of the docu entary credit.
8e!iew 9uestions
).
;hich of these is not the responsibility of the no inated ban" M confir ing ban"V a. To prepare docu ents for presentation. b. To e#a ine docu ents. c. To handle discrepant docu ents. d. To advise the beneficiary of any decisions !ith respect to docu ents.
3.
;hich of these is not a ris" faced by a beneficiary in a docu entary creditV a. Failure of the issuing ban". b. Failure of the applicant to pay. c. Failure of the beneficiary to prepare co pliant docu ents.
d. Failure of the issuer, in the event that the docu entary credit is issued by a ifs non-ban". )@3 School of Finance
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Re#ie.uestions
9. &ny advising ban" is responsible for !hich of the follo!ingV a. -nsuring that the credit or a end ent is genuine. b. $onour or negotiation if a co plying presentation is ade. c. -nsuring that the credit or a end ent is apparently authentic. d. Re%uesting any a end ents of the issuing ban" on behalf of the beneficiary.
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Chapter 8
7hipment of goods and preparation of documents
Learning ob ecti!es &fter studying this chapter students should be able to: understand the characteristics of transport docu entsG e#plain the presentation of docu entsG and understand ho! to handle discrepant docu ents fro the perspective of the presenter A!ho ay or ay not be the beneficiaryB, a no inated ban" and a confir ing ban".
*." $ntroduction
&n issuing ban" of a docu entary credit gives an underta"ing that it !ill honour a co plying presentation ade under that credit. & presentation !ill be ade by, or on behalf of, the beneficiary. &n issuing ban" assu es the ris" of insolvency of the applicant and is responsible for the recovery of any funds fro the applicant in respect of any pay ent to a beneficiary or a no inated ban". In order to cover these ris"s, an issuing ban" ay ta"e security fro the applicant, for e#a ple, in the for of cash deposit. <ore often, though, it !ill see" to ta"e co fort fro any security obtained fro the transport docu ents tendered under the docu entary credit. So e transport docu ents, such as bills of lading, provide transfer of title or confer o!nership of the goods to ban". In these circu stances, the issuing ban" ay have ifs School of Finance
2013
can the the )@)
eans of obtaining possession of the goods for resale in the event of a default by the applicant. ;hen an issuing ban" cannot obtain title to the goods, it ay try to e#ercise so e other easure of control over the goods in transit.
)@3
$re+aration of trans+ort documents
This chapter identifies the "ey characteristics of transport docu ents. It also focuses on title to the goods, the negotiability of the transport docu ent, !hether a ban" can e#ercise control over the goods, and ho! the carrier delivers those goods. &s !ell as transport docu ents, docu entary credits can also re%uire the presentation of the follo!ing docu ents: $nsurance documents providing cover against ris" to the goods during their carriage fro the beneficiary.s pre ises M country of e#port to the country of i port M applicant.s pre ises. Financial documents deter ining the a ount to be dra!n under a docu entary credit by !ay of honour or negotiation. Commercial documents identifying and describing the goods as stipulated in the docu entary credit.
.fficial documents evidencing co pliance !ith the re%uire ents of the country of e#port or the country of i port. The underlying characteristics of these docu ents are outlined in this chapter. Finally, the beneficiary is re%uired to arrange for the docu ents re%uired under the docu entary credit to be presented to the no inated ban" or the issuing ban". This chapter concludes !ith an e#planation of this presentation process and e#plains ho! discrepant docu ents should be treated by a no inated ban" or confir ing ban".
*.& )reparation documents
of
transport
The cycle of a transport docu ent co prises three i portant stages: ). understanding the transport docu ent re%uired under the docu entary creditG 3. creating the re%uired transport docu entG and 9. anaging the handling of a transport docu ent fro through to delivery of goods. creation
*.&." #nderstanding the transport

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document re9uired under the documents documentary credit
(* Shi+ment of %oods and +re+aration of
Fro the point of vie! of both the beneficiary and the concerned ban"s, this is by far the ost i portant stage of the cycle. It is
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$re+aration of trans+ort documents
essential that a beneficiary understand the precise nature of the transport docu ent re%uired under the docu entary credit. In order to achieve this understanding it ust carefully read the !ording of the transport docu ent re%uire ent in the docu entary credit. The beneficiary should then refer to the agree ent, sale contract or pro for a invoice agreed !ith the applicant and ensure that the docu ent re%uired under the docu entary credit atches that !hich has been agreed. If necessary, the beneficiary should clarify any apparent discrepancy !ith the applicant and see" an a end ent to the docu entary credit. If clarification or a end ent is not possible, the beneficiary should consult its for!arding agent or the proposed carrier. It can also be useful to refer to the advising ban", because the advising ban" ay be !illing to see" clarification fro the issuing ban". If issues are resolved in this !ay, there is less chance of docu ents being unnecessarily refused by any of the ban"s. The freight ay often be payable by the applicant, in !hich case the carrier is the applicant.s agent. $o!ever, the beneficiary.s vie!s ust also be considered in the creation of the docu ent, because the carrier ust sub it the transport docu ent to it.
*.&.& Creating document
the
re9uired
transport
In the case of carriage of goods by sea, traditionally !hen the ate of the vessel, on behalf of the aster, received the goods, a ate.s receipt !as issued. This docu ent provides evidence of the receipt on behalf of the vessel. It also sho!s that the goods have been received in good order and condition. The docu ent !ill also indicate the nu ber of pac"ages, ar"s and nu bers, and the na e of the shipper. ;hen a for!arding agent or carrier co pletes the docu entation for the bills of lading, Hust before or at the ti e the vessel is due to sail, the bills of lading are signed and delivered in e#change for the ate.s receipt. In the case of other transport docu ents, there is rarely, if ever, an inter ediate stage and air transport, road, rail, inland !ater!ay, courier, and parcel post transport docu ents are issued in e#change for the goods.
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(* Shi+ment of %oods and +re+aration of documents
*.&.- Aanaging the handling of a transport document from creation through to deli!ery of goods
The transport docu ent flo! is illustrated in Figure 8.). Figure *."
Shipper M seller AbeneficiaryB
:ransport document flow
*
Transport docu ents
"
Goods
?
Transport docu ent
&
Carrier or agents
3 F Transport
docu ents 'elivery of goods
?o inated ban"
Transport docu ents
'ocu entary credit issuing ban"
D
1uyer AapplicantB
Transport docu ents
For e#a ple, the flo! of docu ents for a bill of lading is fro the carrier to the beneficiary Ashipper M sellerB and then to the no inated ban". &fter handling a presentation, !hich !ould include the bill of lading, in ter s of its no ination Asuch no ination ay include the e#a ination of those docu ents against the docu entary creditB, the no inated ban" for!ards the to the issuing ban". The issuing ban" e#a ines the docu ents against the docu entary credit and, in the case of confor ing docu ents, honours in accordance !ith the ter s and conditions of the docu entary credit. The applicant receives the docu ents in e#change for rei burse ent or in ter s of any alternative arrange ent ade !ith the issuing ban".
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/!+es of trans+ort document
*.- :ypes document
of
transport
The type of transport docu ent used is deter ined by the ethod of carriage. This section outlines the characteristics of each type of docu ent.
*.-." Aultimodal document
transport
& ulti odal transport docu ent is a docu ent that covers at least t!o different odes of transport. <ulti odal transport has developed rapidly over recent decades. In particular, it allo!s goods to be sent fro the beneficiary.s pre ises to those of the applicant, using a single docu ent. In these cases, a ulti odal transport operator A<TEB or co bined transport operator ACTEB underta"es contractual responsibility for ensuring that the goods are carried to their destination. The goods can be transported by a co bination of different odes of transport for e#a ple any co bination of road, sea, air and rail. =nder #C) *++, article "F an <TE or CTE is not authorised to sign a transport docu ent in either of those capacities. ;hile they ay be transport operators, they ust sign either as an agent of a na ed carrier or of the aster, or in the capacity of carrier. The shipper Athe party sending the goods and usually the beneficiaryB concludes a single contract of carriage !ith the <TE. The <TE a"es its o!n contractual arrange ents !ith the individual carriers for each successive part of the carriage. <TEs need not operate their o!n eans of transport. For this reason, <TEs are so eti es described as contractual carriers to distinguish the fro those carriers !ho physically transport the goods. <ulti odal transport techni%ues have a nu ber of potential advantages: :hey can help to reduce transit times an <TE and the shipper are able to select the %uic"est ode of transport for each leg of the Hourney, !ithout di inishing the operator.s responsibility for the !hole Hourney. &s an <TE deals !ith transport, carriers, storage and clearing agents on a daily basis on behalf of any shippers, the various associated activities can be co pleted ore speedily at the different ports and points of despatch and arrival.
Costs can be lower an <TE ay be able to co and ore co petitive prices across all activities including loading, unloading, storage and carriage.
&t the sa e ti e, both the applicant and beneficiary !ill benefit fro having a single arrange ent to onitor. ;hen ulti odal transport involves ocean carriage, the goods are generally placed in containers. In so e cases, the goods are loaded on barges at a river point and the barge Aoften referred to as a F,&S$. bargeB is sto!ed on the ocean-going vessel at the seaport. Rollon, roll-off Aro-roB techni%ues are often e ployed on shorter voyages. In these cases, a lorry Atruc"B or trailer carrying the goods is loaded on to the vessel, or rail car or !agon.
*.-."." :itle, transfer
negotiability
and
If the carriage involves, for e#a ple, travel over land and then by sea, the transport docu ent is usually titled a co bined, through or ulti odal transport docu ent. In such circu stances, !here a vessel is the ode of transport for the last leg of the carriage, trade practice is to use it as a negotiable docu ent capable of transferring title by delivery in the sa e !ay as a bill of lading. ?egotiability and title are subHect to any previous defect in title. =nder a docu entary credit, an issuing ban" !ill usually re%uire a ulti odal transport docu ent to evidence that the goods are consigned to its order, or to the order of the shipper Aor Fto orderFB and to be endorsed by the shipper in blan" or to its order.
*.-.".& Control goods
o!er
If an issuing ban" see"s to obtain security through the goods by eans of a ulti odal transport docu ent, it ay insist that: the docu ent carriageG covers the entire
all originals of the transport docu ent are to be presented to the ban"G and there is an on-board notation subse%uent to receipt of goods and transportation to the port of loading for the sea carriage Aif applicableB.
If, ho!ever, the carriage does not involve a final leg by sea to the country of i port, the ulti odal transport docu ent ay not be classed as a negotiable docu ent capable of transferring title by delivery, or by delivery and endorse ent A!hichever
appliesB.
*.-.".- Deli!ery goods
of
If a ulti odal transport docu ent is issued in the for of a bill of lading, delivery of goods !ill be against the surrender of an original transport docu ent or against a shipping guarantee or inde nity. If a ulti odal transport docu ent is not issued in the for of a bill of lading, goods !ill be delivered to the na ed consignee against si ple identification or as described on the docu ent.
*.-.& Bill lading
of
The bill of lading first appeared in its odern for in the id-nineteenth century and beca e the principal docu ent used in ariti e transport. 1ills of lading are nor ally issued by, or on behalf of, the carrier.
*.-.&." :itle, transfer
negotiability
and
Ever the years, it has beco e trade practice to use and accept bills of lading as transferable docu ents of title. Today, their legal status as negotiable docu ents of this type is specifically set out in the legislation of ost countries. This eans that !hen a bill of lading is issued in negotiable for , o!nership of the goods to !hich the bill of lading relates can be conveyed by transferring the docu ent fro one person to another. ?egotiability and title are subHect to any previous defect in title eg if the bill of lading has been stolen or fraudulently altered. &n issuing ban" !ill usually re%uire bills of lading to be ade out to its order, or to the order of the shipper Aor Fto orderFB, and to be endorsed in blan" or to its order. Rights under such bills of lading can then be transferred by endorse ent and delivery. Regulations in certain countries re%uire that bills of lading be issued to the order of the no inated ban" and to be duly endorsed to the issuing ban". 'epending upon the for of endorse ent, a further endorse ent by the issuing ban" ay be re%uired before delivery of the docu ent to the applicant. &n issuing ban" that re%uires the issuance of bills of lading to its order should be a!are of the potential liability for charges, port dues and other e#penses.
*.-.&.& Control goods
o!er
If an issuing ban" see"s to obtain security through the goods by eans of bills of lading, it ay insist that: the bills of lading sho! that goods are on board the na ed vesselG the bills of lading cover the entire voyageG and all originals are to be presented to it.
*.-.&.- Deli!ery goods
of
;gainst an original bill of lading the carrier is entitled to effect delivery of goods to the holder of one original bill of lading Aduly endorsed !here necessaryB. If ore than one original bill of lading is issued, the carrier is not concerned !ith the !hereabouts of the others. In delivering goods to the holder of the one original bill of lading or the only original bill of lading, the carrier fulfils its pri ary obligation under its contract of carriage. ;gainst an indemnity or shipping guarantee if the goods have arrived at the port of discharge and the bills of lading have not been received, the carrier ay agree to deliver goods against an inde nity fro the consignee. The carrier !ill al ost al!ays insist upon the issuing ban" either countersigning or actually issuing the inde nity. This is because the carrier is subse%uently liable to a holder of an original bill of lading and, as such, liability is not restricted in ti e. This guarantee !ill nor ally be issued in the for at re%uired by the carrier. It is i portant to arrange to clear the goods as %uic"ly as possible after their arrival at the port of discharge, or liabilities ay be incurred to the port authorities for de urrage. 'e urrage ay be defined as a charge by the port authorities on a vessel or the goods for so e infringe ent of regulations eg for the delay in berthing, or a penalty for not re oving goods !ithin a specified ti e.
*.-.- Non2negotiable
sea
waybill
& non-negotiable sea !aybill is to be consigned to a na ed party, usually the applicant in a docu entary credit transaction. They are also referred to as straight consigned transport docu ents.
They are reasons.
used
for
the
follo!ing
& traditional bill of lading, the surrender of !hich is re%uired before the carrier !ill deliver goods, is not practical for short sea Hourneys. This is because often the goods !ill arrive at the port of discharge before the underlying bills of lading are received through ban"ing channels. &s a result, the clearance of goods can be delayed. The applicant ay then incur de urrage charges and could also suffer loss in the sale of goods as a result of such delay. & traditional bill of lading, as a negotiable docu ent, is useful if the goods are sold during the voyage. $o!ever, general erchandise, such as anufactured goods, is seldo traded during a voyage. &lso, because the beneficiary usually sells general erchandise, and ost goods under a docu entary credit, to the applicant, the transport of such goods does not depend upon the negotiability of the transport docu ent.
*.-.-." :itle, transfer
negotiability
and
& non-negotiable sea !aybill is not a negotiable docu ent and does not convey title to the underlying goods.
*.-.-.& Control goods
o!er
If an issuing ban" !ishes to e#ercise control over the goods, it can insist upon being na ed as the consignee. This is subHect to the consignor !aiving its right to change the na ed consignee prior to delivery. This can be achieved by the non-negotiable sea !aybill containing !hat is "no!n as a Flien. clause ie a clause indicating that the carrier or its agent !ill not change the na e of the consignee !ithout the sub ission of all the original nonnegotiable sea !aybills.
*.-.-.- Deli!ery goods
of
'elivery is ade by the carrier or its agent to the na ed consignee and is not dependent upon the surrender of an original non-negotiable sea !aybill.
*.-.3 Charter lading
party
bill
of
Carriers and other co panies !ill o!n their o!n vessels or hire AcharterB the fro shipo!ners. In the latter case, the hiring
arrange ent is called a charter party. $iring arrange ents of this type ay be concluded either for a period of ti e or for a single voyage. The party hiring the ship, if it is not the shipper, concludes a contract of carriage !ith a shipper and issues a charter party bill of lading. The precise legal effects of charter parties vary fro one Hurisdiction to another. & particular proble is that, in any cases, rights conferred by a charter party bill of lading ta"e second place to any rights the shipo!ner ay have against a charterer. For e#a ple, if a charterer defaults on pay ent to the o!ner, the latter ay be able to recoup losses by selling the goods. & ban" is generally not a!are of the ter s of even the ost co only used charter party docu ents and is also often not a!are !hich charter party contracts are used for !hich trades. & charterer ay also be the applicant Ain an FE1 contractB or the beneficiary Ain a CFR or CIF contractB. There is also uncertainty as to ho! clauses of the charter affect the legal rights of the holder of a charter party bill of lading. =nder =C( 866, e#cept as re%uired or per itted by a docu entary credit, bills of lading indicating that they are issued subHect to a charter party are not acceptable. If a charter party bill of lading is acceptable, ban"s !ill not e#a ine the underlying charter party contract.
*.-.? ;ir documents
transport
The transport of goods by air gives rise to air transport docu ents "no!n as air !aybills or air consign ent notes. The carrier, or its agent, issues these docu ents, !hich detail the conditions of carriage, as evidence that the carrier has received the goods.
*.-.?." :itle, transfer
negotiability
and
&ir transport docu ents are not docu ents of title and are not negotiable docu ents.
*.-.?.& Control goods
o!er
document Control over goods rests !ith the shipper as consignor and the carrier up to the point of delivery. If an issuing ban" !ishes to e#ercise control over the goods, it ust insist upon holding the consignor.s copy of the air !aybill or air consign ent note. This should prevent the shipper fro e#ercising its right to re%uest the carrier to change the destination or the consignee of the goods. In such circu stances
/!+es of trans+ort
the ban" ust also insist upon being na ed as consignee of the goods on the air transport docu ent.
*.-.?.- Deli!ery goods
of
The carrier !ill deliver goods to the consignee, as sho!n on the air transport docu ent, against proper identification or against a delivery order or release note fro the na ed consignee.
*.-.* 8oad, rail or inland waterway transport documents

Transport docu ents covering the despatch of goods by rail or by road are "no!n as rail or road consign ent notes. Road consign ent notes are also "no!n as truc" !aybills or C<R ACon#ention <erchandises RoutiersB notes. These docu ents provide evidence that the goods have been received by the carrier and the address of the consignee.
*.-.*." :itle, transfer
negotiability
and
Road, rail or inland !ater!ay transport docu ents are not docu ents of title and are not negotiable docu ents. The e#ception is !here an inland !ater!ay transport docu ent is issued in the for of a bill of lading
*.-.*.& Control goods
of
The control over the goods re ains in the care of the carrier.
*.-.*.- Deli!ery goods
of
'elivery is to the na ed consignee at the address sho!n on the docu ent or, in the case of an inland !ater!ay transport docu ent issued in the for of a bill of lading, by the surrender
/!+es of trans+ort document of an original inland !ater!ay transport docu
ent.
*.-.B Courier receipt, post receipt or certificate of posting

These docu ents serve as evidence that the goods have been received by the courier service or the post office for delivery, and sho! the na e and address of the consignee.
*.-.B." :itle, transfer
negotiability
and
Courier receipts, post receipts or certificates of posting are not docu ents of title and are not negotiable docu ents.
*.-.B.& Control goods
of
The control over the goods re ains in the care of the courier co pany or postal authority.
*.-.B.- Deli!ery goods

'elivery is addressee. to the
of
na ed
*.3 Common characteristics of transport documents

There are so e characteristics co transport docu ent. on to all types of
*.3." Consignor consignee
/shipper0
and
&ll types of transport docu ent !ill include bo#es, spaces or fields to indicate the na es of the consignor Athe party arranging for ship ent of the goodsB and the consignee Athe party receiving or controlling delivery of the goodsB. =nder a docu entary credit, the consignor is usually the beneficiary. This is not an absolute re%uire ent as any party can be na ed as the consignor, unless the docu entary credit states other!ise.
The document consignee ay be a na ed entity, in !hich case the docu ent ay be referred to as being straight consigned. If the transport docu ent is issued in negotiable for , it is to sho! that goods have been consigned Fto orderF or Fto order of Wa na ed partyXF. If the
/!+es of trans+ort
transport docu ent is consigned Fto orderF, it !ill need endorse ent by the consignor in blan" for it to be negotiable and available for transfer of title, or it is to be endorsed to a na ed entity Aas stated in the docu entary creditB. The consignee re%uire ents for each transport docu ent are detailed in IS1(, (ublication ?o. 7/@. <ulti odal transport docu ents are covered in $7B) B3?, paragraphs D"* and D"B/a0 and /b0G bills of lading are covered in paragraphs E"& and E"-/a0 and /b0G non-negotiable sea !aybills are covered in paragraphs F""/a0, /b0 and /c0G charter party bills of lading are covered in paragraphs G"" and G"&/a0 and /b0G air transport docu ents are covered in paragraphs E"-/a0 and /b0G and road, rail or inland !ater!ay transport docu ents in paragraphs KD/a0, /b0 and /c0. $7B) B3?, paragraph documents D"*4 Aultimodal transport
;hen a credit re%uires a ulti odal transport docu ent to evidence that goods are consigned to a na ed entity, for e#a ple, Oconsigned to Ana ed entityBP Aie a OstraightP ulti odal transport docu ent or consign entB rather than Oto orderP or Oto order of Ana ed entityBP, it is not to contain the e#pressions Oto orderP or Oto order ofP preceding the na ed entity, or the e#pression Oor orderP follo!ing the na ed entity, !hether typed or preprinted. $7B) B3?, paragraphs D"B/a0 and /b0 a. ;hen a ulti odal transport docu ent is issued Oto orderP or Oto order of the shipperP, it is to be endorsed by the shipper. &n endorse ent ay be ade by a na ed entity other than the shipper, provided the endorse ent is ade for Wor on behalf ofX the shipper. b. ;hen a credit re%uires a ulti odal transport docu ent to evidence that goods are consigned Oto order of Ana ed entityBP, it is not to indicate that the goods are straight consigned to that na ed entity.
Common characteristics of trans+ort documents
$7B) B3?, paragraph lading
E"&4 Bills of
;hen a credit re%uires a bill of lading to evidence that goods are consigned to a na ed entity, for e#a ple, Oconsigned to Ana ed entityBP Aie a OstraightP bill of lading or consign entB rather than
Oto orderP or Oto order of Ana ed entityBP, it is not to contain the e#pressions Oto orderP or Oto order ofP preceding the na ed entity, or the e#pression Oor orderP follo!ing the na ed entity, !hether typed or pre-printed. $7B) B3?, paragraphs E"-/a0 and /b0 a. ;hen a bill of lading is issued Oto orderP or Oto order of the shipperP, it is to be endorsed by the shipper. &n endorse ent ay be ade by a na ed entity other than the shipper, provided the endorse ent is ade for Wor on behalf ofX the shipper. b. ;hen a credit re%uires a bill of lading to evidence that goods are consigned Oto order of Ana ed entityBP, it is not to indicate that the goods are straight consigned to that na ed entity. $7B) B3?, paragraphs negotiable sea waybills F""/a0, /b0 and /c04 Non2
a. ;hen a credit re%uires a non-negotiable sea !aybill to evidence that goods are consigned to a na ed entity, for e#a ple, Oconsigned to Ana ed entityBP, it is not to contain the e#pressions Oto orderP or Oto order ofP preceding the na ed entity, or the e#pression Oor orderP follo!ing the na ed entity, !hether typed or pre-printed. b. ;hen a credit re%uires a non-negotiable sea !aybill to evidence that goods are consigned Oto order of Ana ed entityBP, it ay indicate that the goods are consigned to that entity, !ithout entioning Oto order ofP. c. ;hen a credit re%uires a non-negotiable sea !aybill to evidence that goods are consigned Oto orderP !ithout na ing the entity to !hose order the goods are to be consigned, it is to indicate that the goods are consigned to either the issuing ban" or the applicant, !ithout the need to ention the !ords Oto orderP. $7B) B3?, paragraph G""4 Charter party bills of lading ;hen a credit re%uires a charter party bill of lading to
documents evidence that goods are consigned to a na ed entity, for e#a ple, Oconsigned to Ana ed entityBP Aie a OstraightP charter party bill of lading or consign entB rather than Oto orderP or Oto order of
Common characteristics of trans+ort
Ana ed entityBP, it is not to contain the e#pressions Oto orderP or Oto order ofP preceding the na ed entity or the e#pression Oor orderP follo!ing the na ed entity, !hether typed or pre-printed.
$7B) B3?, paragraphs G"&/a0 and /b0 a. ;hen a charter party bill of lading is issued Oto orderP or Oto order of the shipperP, it is to be endorsed by the shipper. &n endorse ent ay be ade by a na ed entity other than the shipper, provided the endorse ent is ade for Wor on behalf ofX the shipper. b. ;hen a credit re%uires a charter party bill of lading to evidence that goods are consigned Oto order of Ana ed entityBP, it is not to indicate that the goods are straight consigned to that na ed entity.
$7B) B3?, paragraphs transport documents
E"-/a0
and
/b04
;ir
a. ;hen a credit re%uires an air transport docu ent to evidence that goods are consigned Oto order of Ana ed entityBP, it ay indicate that the goods are consigned to that entity, !ithout entioning Oto order ofP. b. ;hen a credit re%uires an air transport docu ent to evidence that goods are consigned Oto orderP !ithout na ing the entity to !hose order the goods are to be consigned, it is to indicate that the goods are consigned to either the issuing ban" or the applicant, !ithout the need to ention the !ords Oto orderP.
$7B) B3?, paragraphs KD/a0, /b0 and /c04 8oad, rail or inland waterway transport documents a. ;hen a credit re%uires a road or rail transport docu ent to evidence that goods are consigned Oto order of Ana ed entityBP, it ay indicate that the goods are consigned to that entity, !ithout entioning Oto order ofP.
b. ;hen a credit re%uires a road or rail transport docu ent
Common characteristics of trans+ort documents to evidence that goods are consigned Oto orderP !ithout
na ing the entity to !hose order the goods are to be consigned, it is to indicate that the goods are consigned either to the issuing
ban" or the applicant, !ithout the need to Oto orderP.
ention the !ords
c. ;hen a credit re%uires an inland !ater!ay transport docu ent, paragraphs 5+AaB and AbB !ill apply e#cept !hen the docu ent is issued in the for of a bill of lading. In such event, the consignee field is to be co pleted according to the re%uire ents of the credit.
*.3.& Notify party

<ost types of transport docu ent !ill a"e provision for a notify party to be inserted. & notify party is a party that is to be advised by the carrier, or its agent, upon receipt of goods at the na ed destination. The notify party !ill usually be the applicant, its clearing agent or the issuing ban". & docu entary credit ay or ay not re%uire the transport docu ent to indicate a na ed notify party or parties. If it does not, $7B), )ublication No. B3?, paragraphs D"D/b0/i0 and /ii0, E"3/b0/i0 and /ii0, F"&/b0/i0 and /ii0, G"-/b0/i0 and /ii0, E"3/b0/i0 and /ii0, and KF/b0/i0 and /ii0 all provide si ilar guidance !ording for the different types of transport docu ent to !hich they relate. &s an e#a ple, paragraphs D"D/b0/i0 and /ii0. the follo!ing is the te#t set out in
$7B) B3?, paragraphs D"D/b0/i0 and /ii0 i. ;hen a credit does not stipulate the details of a notify party, a ulti odal transport docu ent ay indicate the details of any notify party and in any anner Ae#cept as stated in paragraph ')+AbBAiiBB.
ii. ;hen a credit does not stipulate the details of a notify party, but the details of the applicant appear as notify party on a ulti odal transport docu ent, and these details include the applicant.s address and contact details, they are not to conflict !ith those stated in the credit. It should be noted that !henever the applicant.s address and contact details appear as part of the notify party details, !hether re%uested in the docu entary credit or not, the details ust not be in conflict !ith those stated in the docu entary credit.
*.3.- Corrections and alterations to data content

Ideally, docu ents should be presented !ith no corrections or alterations to their data content. If corrections or alterations have been ade or are re%uired to docu ents not issued by the beneficiary, it should consider the possibility of obtaining replace ents prior to their presentation, in order to ini ise the ris" of potential disputes arising, or to ensure that the proper authentication has been ade. It should be noted that corrections and alterations to docu ents issued by the beneficiary do not re%uire authentication. $7B), )ublication No. B3?, paragraphs ;B/a0, /b0 and /c0 provide a general application for a docu ent e#a iner. $7B) B3?, paragraph ;B/a0, /b0 and /c0 a. i. &ny correction of data in a docu ent issued by the beneficiary, !ith the e#ception of drafts Asee paragraph 1)8B, need not be authenticated. ii. ;hen a docu ent issued by the beneficiary has been legalised, visaed, certified, etc., any correction of data is to be authenticated by at least one of the entities that legalised, visaed or certified, etc., the docu ent. Such authentication is to indicate the na e of the entity authenticating the correction either by use of a sta p incorporating its na e, or by the addition of the na e of the authenticating entity acco panied by its signature or initials. b. i. &ny correction of data in a docu ent, other than in a docu ent issued by the beneficiary, is to appear to have been authenticated by the issuer or an entity acting as agent, pro#y or for Wor on behalf ofX the issuer. Such authentication is to indicate the na e of the entity authenticating the correction either by use of a sta p incorporating its na e, or by the addition of the na e of the authenticating entity acco panied by its signature or initials. In the case of authentication by an agent or pro#y, the capacity of acting as agent or
documents pro#y for Wor on behalf ofX the issuer is to be stated.
ii.
;hen a docu ent other than one issued by the beneficiary has been legalised, visaed, certified, etc., any correction
of data is, in addition to the re%uire ents of paragraph &7AbBAiB, to be authenticated by at least one of the entities that legalised, visaed or certified, etc., the docu ent. Such authentication is to indicate the na e of the entity authenticating the correction either by use of a sta p incorporating its na e, or by the addition of the na e of the authenticating entity acco panied by its signature or initials. c. &ny correction of data in a copy docu ent need not be authenticated. In addition, $7B), )ublication No. B3?, paragraphs D&D and D&F, E&3 and E&?, F&& and F&-, G&& and G&-, E&- and E&3, and K"D and K"F, all provide the authentication re%uire ents for the type of transport docu ent to !hich they relate. &s an e#a ple, the follo!ing is the te#t set out in paragraphs '3+ and '3*. $7B) D&D B3?, paragraph
&ny correction of data on a ulti odal transport docu ent is to be authenticated. Such authentication is to appear to have been ade by the carrier, aster AcaptainB or any one of their na ed agents, !ho ay be different fro the agent that ay have issued or signed a ulti odal transport docu ent, provided they are identified as an agent of the carrier or aster AcaptainB.
$7B) D&F
B3?,
paragraph
?on-negotiable copies of a ulti odal transport docu ent need not include authentication of any corrections that ay have been ade on the original.
*.3.3 7igning re9uirements

In Chapter )3 there is a detailed e#a ination of the different signature re%uire ents under each type of transport docu ent under the respective =C( articles )*3@. &lthough it is i portant that the transport docu ent has been signed in the
prescribed anner, this does not ean that every space or bo# documents sho!n on a transport docu ent Aas re%uiring a signatureB needs to be co pleted. This position is indicated in $7B), )ublication No. B3?, paragraph ;-B.
$7B) ;-B
B3?,
paragraph
The fact that a docu ent has a bo#, field or space for a signature does not in itself ean that such bo#, field or space is to be co pleted !ith a signature. For e#a ple, a signature is not re%uired in the space titled OSignature of shipper or their agentP co only found on an air !aybill or OSignature of shipperP on a road transport docu ent. &lso see paragraph &)7 in respect of the re%uire ents for data to appear in a bo#, field or space.
*.3.? 7hipping marks

$7B), )ublication No. B3?, paragraphs ;-&;-3/a0 and /b0 provide detail on the purpose and use of shipping ar"s and indicate the !ays in !hich a docu ent e#a iner can deter ine !hether the data is sufficient and not conflicting bet!een docu ents. $7B) ;-& B3?, paragraph
;hen a credit specifies the details of a shipping ar", docu ents entioning the shipping ar" are to sho! those details. The data in a shipping ar" indicated on a docu ent need not be in the sa e se%uence as those sho!n in the credit or in any other stipulated docu ent. $7B) ;-B3?, paragraph
& shipping ar" indicated on a docu ent ay sho! data in e#cess of !hat !ould nor ally be considered a Oshipping ar"P, or !hich is specified in the credit as a Oshipping ar"P, by the addition of infor ation such as, but not li ited to, the type of goods, !arnings concerning the handling of fragile goods or net and gross !eight of the goods. $7B) B3?, paragraph ;-3/a0 and /b0 a. Transport docu ents covering containeriIed goods
documents often only sho! a container nu ber, !ith or !ithout a seal nu ber, under the heading OShipping ar"P or si ilar. Ether docu ents that sho! a ore detailed ar"ing !ill not be in conflict for that reason.
b.
The fact that so e docu ents sho! additional infor ation as entioned in paragraphs &99 and &9/AaB, !hile others do
not, !ill not be regarded as a conflict of data under =C( 866, sub-article )/AdB.
*.3.* Goods co!ered by more than one bill of lading

(ossession of a full set of negotiable bills of lading is re%uired to ensure that the title to the goods and delivery rights are secured. If the goods loaded into a container or other pac"ing unit are subHect to the presentation of ore than one set of bills of lading, presentation of all associated sets of bills of lading ay be re%uired in order for the goods to be released to the consignee. Consider the presentation under a docu entary credit of a bill of lading, that specifically indicates that goods covered by that bill of lading !ill only be released !hen other Anu beredB bills of lading are presented to the carrier or its agent for delivery. & docu ent e#a iner should not accept the docu ent unless all the other bills of lading referred to acco pany the sa e presentation under the sa e docu entary credit. $7B), )ublication No. B3?, paragraphs D-&, E&D and G&* provide si ilar !ording to cover this eventuality for ulti odal transport docu ents, bills of lading and charter party bills of lading. &s an e#a ple, the follo!ing is the te#t set out in paragraph '93. $7B) D-& B3?, paragraph
& ulti odal transport docu ent is not to e#pressly state that goods covered by that ulti odal transport docu ent !ill only be released upon its surrender together !ith one or ore other ulti odal transport docu ents, unless all of the referenced ulti odal transport docu ents for part of the sa e presentation under the sa e credit. For e#a ple, .Container 4444 is covered by 1M, ?o. JJJ and ZZZ, and can only be released to a single erchant upon presentation of all ulti odal transport docu ents of that erchant. is considered to be an e#press state ent that one or ore other ulti odal transport docu ents, related to the referenced container or pac"ing unit, ust be surrendered prior to the goods being released.
*.3.B 7ummary of the characteristics of key transport documents

Table 8.) provides a su ary of the characteristics of the ain transport docu ents. :able *."
Name <ulti odal transport docu ent Asee #C) *++, article "FB 1ill of lading Asee #C) *++, article &+B
Characteristics of transport documents

Characteristics 'ocu ent covers t!o or ore odes of transport. 'elivery against original bill of lading if negotiable. 'eliver to consignee if non-negotiable. Eften a negotiable docu ent covering a port-to-port ship ent. Title to goods in ost cases, yes. 'elivery against an original bill of lading !hen issued to order or to order of a na ed entity. ?on-negotiable docu ent covering port-to-port ship ent. Title to goods no. 'elivery to na ed consignee. ?egotiability subHect to charter party. Title to goods subHect to charter party. 'elivery in ter s of charter party.
?on-negotiable sea !aybill Asee #C) *++, article &"B Charter party bill of lading Asee #C) *++, article &&B &ir transport docu Asee #C) *++, article &-B Road, rail or inland !ater!ay Asee #C) *++, article &3B Courier and post receipts Asee #C) *++, article &?B ent
?on-negotiable docu ent covering single no. 'elivery to na ed consignee.
ode. Title to goods
?on-negotiable docu ent covering single ode. Title to goods no, unless inland !ater!ay docu ent issued in the for of a bill of lading, ie to order or to order of a na ed entity 'elivery to na ed consignee. ?on-negotiable docu ent covering dispatch by post and courier. Title to goods
no.
'elivery to na ed addressee.
:ransport operators4 forwarders
Carriers
!ersus
freight
& basic distinction needs to be dra!n bet!een carriers and freight for!arders. This distinction is i portant for both applicant and beneficiary, and for ban"s acting under a docu entary credit.
Carriers underta"e responsibility for the carriage of the goods and they ay be liable to the shipper or to the consignee Athe person to !ho the goods are being sentB if the goods are da aged or lost in transit. Freight for!arders erely consolidate goods received fro different shippers and deliver the to transport operators or carriers responsible for their carriage. & freight for!arder handles the shipping arrange ents on behalf of its clients and strives to obtain the best rates of carriage. The for!arder does not, in every case, underta"e responsibility for the goods during that carriage. In the case of loss or da age, the shipper has to loo" to the carrier for co pensation. If it does underta"e responsibility for the carriage of goods, a freight for!arder ust be sho!n as carrier on the transport docu ent and it ust sign the docu ent as carrier. &lternatively, the freight for!arder ust sign the transport docu ent as an agent for the carrier. <odern practice tends to blur the distinctions bet!een these different categories of transport operator. For e#a ple, a for!arder ay also act as a ulti odal transport operator and underta"e the contractual responsibilities of a carrier to!ards the shipper. Carriers often issue so-called Fthrough bills of lading.. These cover transport ove ents before and after the sea voyage as !ell as the sea voyage itself, and are intrinsically ulti odal transport docu ents. Strong co petition for freight business is driving the above trends. The result is that traditional de arcation lines bet!een the different categories of party involved in the transport of goods and the types of activity that they underta"e have been disappearing. ?evertheless, !hen freight for!arders act purely as freight for!arders, they erely receive and for!ard goods. They do not underta"e any responsibility for the carriage of goods fro the beneficiary to the applicant, e#cept for for!arding the goods for dispatch or for!arding goods fro a port or airport of discharge to a point of delivery. &ccordingly, a ban" e#a ining docu ents presented under a docu entary credit ust ta"e care to ensure that transport docu ents appear on their face to have been issued by a carrier or its agent and have not been issued in the capacity of a for!arder, unless other!ise allo!ed for in the docu entary credit. This tas" is co plicated by the profusion of transport docu ents and operators described above.
*.3.D Common discrepancies in respect of transport documents

The ost co on discrepancies identified during e#a ination are as follo!s: late ship entG late presentationG ports of loading M dispatch M ta"ing in charge are not as per the docu entary creditG ports of discharge M final destination are not as per the docu entary creditG transport docu ent sho!s an intended vessel M intended port of loading but an on-board notation does not additionally evidence the na ed vessel or actual port of loadingG tranship ent is effected !hen the docu entary credit specifically prohibits it and e#cludes sub-articles 36AcBAiiB, 3)AcB AiiB or 39AcBAiiBG
absence of an on-board notation on the bill of ladingG on-board notation is not datedG goods are shipped on dec"G full set of transport docu ents not presented as re%uired by the docu entary creditG claused bills of lading presented, sho!ing defective condition of the pac"ages or goodsG transport docu ents do not identify the na e of the carrierG not signed in accordance !ith the respective =C( articleG bills of lading ade out to order of shipper or to order and not endorsed in blan"G data content in conflict !ith that sho!n on other stipulated docu entsG unauthenticated alteration to the transport docu entG goods covered by ore than one set of bills of ladingG
notify party details are incorrectly sho!n.
Ether discrepancies ight naturally arise, depending on the ter s and conditions of the docu entary credit and the docu ents presented.
*.? )reparation documents
of
other
&s !ell as transport docu ents, a docu entary credit !ill re%uire the presentation of other docu ents. These are outlined belo! and e#a ined in ore detail in Chapter 7, Chapter + and Chapter )3.
*.?." $nsurance
The decision as to !hether the beneficiary or applicant pays for and arranges the insurance of goods depends upon a nu ber of factors. <ost are beyond the scope of this te#t. If, ho!ever, the sales contract evidences that goods are sold either on a CIF basis Acost, insurance and freightB or on a CI( basis Acarriage and insurance paid toB, an insurance docu ent should be sho!n as a re%uired docu ent in the docu entary credit. This docu ent is covered in #C) *++, article &D. Insurance docu ent re%uire ents not only vary fro issuing ban" to issuing ban", depending upon the internal guidelines of each, and fro industry to industry, but also fro country to country, to co ply !ith e#port and i port regulations. The ai in the docu entary credit re%uire ent should be to provide at least basic cover in respect of the goods.
*.?.& Financial documents

Financial docu ents are legal docu ents that provide evidence of clai s for a ounts o!ed. -#a ples include bills of e#change AdraftsB and pro issory notes.
*.?.- Commercial documents

Co ercial docu ents include invoices, certificates Aof !eight, inspection, analysis etcB and pac"ing and !eight lists.
$resentation of documents
*.?.3 .fficial documents

Efficial docu ents allo! a party to the sales contract to satisfy regulatory re%uire ents. &n applicant ay need an official docu ent to satisfy i port regulations or health regulations or to evidence that boycott legislation has not been breached. & beneficiary ay need an official docu ent to satisfy e#port control authorities.
*.* )resentation documents
of
In order to receive pay ent, the beneficiary needs to prepare and present Aor arrange to presentB a set of docu ents that co plies !ith the ter s and conditions of the docu entary credit.
*.*." Aode of transmission
presentation
The vast aHority of presentations under docu entary credits are still paper-based. Ever ti e, it is li"ely that there !ill be an increasing nu ber of i#ed presentations, co prising part paper, part electronic docu entation, or entirely electronic presentations.
*.*.& )resentation *++
and #C)
#C) *++ articles and sub2articles *, "3/c0, &F and -collectively refer to !here and !hen docu ents are to be presented in order to eet the re%uire ents of a docu entary credit. AThis section relates to paper-based presentations. -lectronic presentations are covered by e=C(.B #C) *++, article &F4 E%tension of e%piry date or last day for presentation a. If the e#piry date of a credit or the last day for presentation falls on a day !hen the ban" to !hich presentation is to be ade is closed for reasons other than those referred to in article 98, the e#piry date or
the last day documents for presentation, as the case ay be, !ill be e#tended to the first follo!ing ban"ing day. b. If presentation is ade on the first follo!ing ban"ing day, a no inated ban" ust provide the issuing ban" or confir ing ban" !ith a state ent on its covering schedule that the
presentation !as ade !ithin the ti e li its e#tended in accordance !ith sub-article 3* AaB. c. The latest date for ship ent !ill not be e#tended as a result of sub-article 3* AaB. #C) *++, article --4 Eours of presentation & ban" has no obligation to accept a presentation outside of its ban"ing hours. ;hen docu ents have been presented, there are a nu ber of "ey points that !ill be considered by a docu ent e#a iner. The first %uestion is !hether all docu ents have been presented to the correct location. In a docu entary credit available by pay ent acceptance, deferred pay ent or negotiation !ith a na ed no inated ban", this is usually the counter of that no inated ban". In a docu entary credit available !ith any ban", this ay be stated ore generally for e#a ple, as any ban" in the city or the country in !hich the beneficiary is located. In either case, the beneficiary ay also present docu ents directly to the issuing ban". If a docu entary credit is available only !ith the issuing ban", the place for presentation of docu ents is the location of the issuing ban". Secondly, have all the docu ents been presented on, or before, the e#piry date of the docu entary creditV Technically, an e#pired docu entary credit is not a discrepancy, but a none#istent docu entary credit. To facilitate the docu entary credit and as an acco odation to the presenter, ho!ever, ost ban"s treat Fcredit e#pired. as a discrepancy and advise the presenter accordingly. Thirdly is the %uestion, have all docu ents been presented no later than the stated presentation period or the default period stated in =C( 866, sub-article )/AcBV If one or ore original transport docu ents for part of the presentation, they ust also be presented !ithin the latest presentation date after ship ent, as stipulated in the docu entary credit, or the default 3) calendar day period if the docu entary credit is silent on the subHect. Three further points concerning presentation are as follo!s:
documents in the docu entary credit or the If the e#piry date stipulated latest date for presentation falls on a day !hen the ban" is not open to perfor an act subHect to =C( 866, such date or dates are
auto atically e#tended to the ne#t ban"ing day. This does not apply in the case of force aHeure, !hich is e#plained in #C) *++, article -*. #C) *++, ma eure article -*4 Force
& ban" assu es no liability or responsibility for the conse%uences arising out of the interruption of its business by &cts of God, riots, civil co otions, insurrections, !ars, acts of terroris , or by any stri"es or loc"outs or any other causes beyond its control. & ban" !ill not, upon resu ption of its business, honour or negotiate under a credit that e#pired during such interruption of its business. If docu ents have been presented on an e#tended e#piry date as per article 3*, the covering schedule of the no inated ban" should be ar"ed !ith a state ent to this effect. & ban" is under no obligation to accept a presentation ade after its published ban"ing hours. If a ban" accepts such a presentation, care should be ta"en to ensure that there is an understanding as to the presentation date for the purposes of =C( 866. & docu ent e#a iner should note that a ban" ay indicate shorter hours than the ban"ing hours available at a particular centre for the presentation of docu ents and, accordingly, the presentation schedules ust be e#a ined for any evidence of co pliance !ith such li itation.
*.*.- Discrepant documents

In ost cases, a beneficiary !ill present docu ents that they believe co ply !ith the ter s of the docu entary credit. 'ocu ents !ill be e#a ined by a docu ent e#a iner at the no inated ban" A!ho ay be a confir ing ban"B, before they are for!arded to the issuing ban". The e#a ination process is considered in detail in Chapter 7, Chapter + and Chapter *. If discrepancies are found in the docu ents, the no inated ban" !ill follo! the process outlined belo!. If the beneficiary "no!ingly presents discrepant docu ents, they
should re%uest andocuments a end ent fro the applicant in advance to try and rectify so e or all of the discrepancies. If this is agreed, the issuing ban" !ill for!ard its a end ent to the no inated ban". The docu ent e#a iner should ignore any state ents fro the presenter
that discrepancies have been approved unless the issuing ban" has for!arded its agree ent or issued an a end ent that covers the discrepancies observed.
*.*.3 8ole of a nominated bank in processing discrepant documents /including where the nominated bank is a confirming bank0
& docu ent e#a iner !ill revie! the docu ents presented by the beneficiary. In this process, the e#a iner !ill be guided by a nu ber of principles: 'ocu ent e#a ination is independent of the sale or other contract upon !hich the docu entary credit ay be based A#C) *++, article 3B. 'ocu ent e#a ination is independent of the beneficiary.s relationship !ith the applicant A#C) *++, sub2article 3/a0B. 'ocu ent e#a ination is independent of the goods, services or perfor ance to !hich the docu ents relate A#C) *++, article ?B. 'ocu ent e#a ination is based upon an e#a ination on the basis of the docu ents alone and on their face. & deter ination as to !hether the docu ents co ply or not is not based on "no!ledge that ay be gained fro other sources A#C) *++, sub2article "3/a0B. This process is covered in detail in Chapter 7, Chapter + and Chapter *.
*.*.3." Gi!ing notice of refusal to a beneficiary or presenting bank

If, after e#a ination, the docu ent e#a iner decides to give notice of refusal to the beneficiary Aif the beneficiary has presented the docu ents, other!ise to the presenterB, this can be done orally, over the telephone or by tele#, facsi ile or, as a last resort, by letter. If the notice is given over the telephone, it is best practice to confir the content of the refusal in !riting.
documents It is i portant that the ban".s docu ent e#a ination record or the docu entary credit file is annotated !ith details of dates, ti e and ethods of notification. Copies of the notification should for part of these records. If presentation has been ade by a ban", the
notice of refusal should be sent to the !ithout delay via S;IFT essage. If this is not possible, the refusal notice ay be sent by other teleco unication or e#peditious eans.
*.*.3.& Discussions beneficiaries
with
1ecause the docu ents belong to the beneficiary, a docu ent e#a iner ust not initiate any further action or handling !ithout their agree ent. In particular, the issuing ban" ust not be advised of discrepancies because the beneficiary ay !ell be able to correct the . &lternatively, the beneficiary ay !ish to contact the applicant directly. &ny prior contact !ith the issuing ban" ay Heopardise the beneficiary.s position. The follo!ing are e#a ples of responses often given by beneficiaries to docu ent e#a iners advising discrepancies: they have contacted the applicant, !ho confir s that discrepancies are inor and should not be treated as reasons for refusalG
their interpretation of the ter s of the docu entary credit is the correct one and the docu ent e#a iner.s vie! is incorrectG carriers, insurers or their agents confir the stipulations of the docu entary credit have been et, even though the relative docu ent does not provide such evidence. The docu ent e#a iner is responsible for re inding the beneficiary of the guiding principles as outlined earlier. &fter preli inary discussions, a docu ent e#a iner and beneficiary ay agree that one or a co bination of the follo!ing !ould offer the best co ercial course of action. The beneficiary possible. ay sub it corrected docu ents, if
The beneficiary ay re%uest necessary a end ents to the docu entary credit. The beneficiary ay agree that a essage be sent to the issuing ban" for per ission to pay despite discrepancies as originally deter ined or as a ended in ter s of the first t!o bullet points above. & docu ent e#a iner, on behalf of their ban" and in ter s of such ban".s internal guidelines, ay accept a beneficiary
inde nity A!ithdocuments or !ithout the counter-guarantee fro the beneficiary.s ban"ersB in respect of discrepancies as originally deter ined or as a ended in ter s of the first t!o bullet points above. ?ote
that so e docu entary credits do not allo! pay ent against a beneficiary inde nity or under reserve. The beneficiary ay instruct the docu ent e#a iner to despatch docu ents to the issuing ban" for settle ent. The beneficiary.s agree ent to any of the above courses of action ust be clearly annotated on the ban".s docu ent e#a ination record and should be confir ed in !riting.
*.*.3.- Correction beneficiaries
of
documents
by
& docu ent e#a iner ay prefer to return for correction only the discrepant docu ents. If the beneficiary agrees to this, it ay be easier for a docu ent e#a iner to e#a ine the represented docu ents !ith those originally presented and that are co pliant. If the beneficiary ta"es a!ay all of the docu ents as originally presented, a docu ent e#a iner.s tas" ay beco e a little ore difficult !hen the fresh presentation is ade, because all docu ents !ill need to be re-e#a ined. & docu ent e#a iner ust treat the return of the corrected docu ents, on their o!n or as part of the !hole set of docu ents, as a ne! presentation. 'ocu ent e#a iners should be a!are that a fresh presentation ade in these circu stances often cause ore difficulties than chec"ing a ne! presentation. There is an inherent tendency to a"e assu ptions in respect of docu ents that did not re%uire correction and docu ent e#a iners ust avoid this. Fre%uently, the uncorrected docu ents create fresh discrepancies, such as late presentation or credit e#pired.
*.*.3.3 .btaining the issuing bankHs authority to accept discrepancies not corrected by a beneficiary or not co!ered by amendments recei!ed
& docu ent e#a iner ust ensure that the sending of the essage has the authorisation of the beneficiary. En receipt of the necessary authorisation fro the issuing ban", the docu ents should be honoured or negotiated and for!arded to the issuing ban". The for!arded docu ents should include a notation on the covering schedule that the docu ents have been ta"en up Fnot!ithstanding the stated discrepancies, as
authorised by the issuing ban" in its documents
essage dated ##..
*.*.3.? 8ecei!ing instructions from a beneficiary to dispatch documents to an issuing bank for honour
1ecause the docu ents belong to the beneficiary, a notice of refusal should specifically state that the docu ents are held pending their further instructions. &ccordingly, any instructions fro the beneficiary to for!ard docu ents to the issuing ban" ust be follo!ed carefully. & docu ent e#a iner ust ensure that the docu ents are despatched to the issuing ban" under the provisions of =C( and no reference ust be ade to docu ents being sent on collection ter s or in trust. The covering schedule enclosing the docu ents ust not be headed in a anner to give an indication of a docu entary collection or state that the presentation is subHect to the rules for docu entary collections Athe Uniform Rules for Collections, (ublication ?o. @33B. The relevant date for presentation is the date of presentation of the last docu entAsB re%uired to a"e a set of co pliant docu ents. It is in the interests of a docu ent e#a iner to record accurately details of discussions !ith a beneficiary on the ban".s docu ent e#a ination record, including dates and ti es.
*.*.3.* Dispatch of documents to an issuing bank

& docu ent e#a iner ust read the instructions in the docu entary credit and dispatch docu ents in accordance !ith such instructions, including any choice of courier co pany.
*.*.3.B Eandling settlement
of
documents
pending
The ter s of a refusal notice ay indicate that the docu ents are held pending the beneficiary.s further instruction or in accordance !ith instructions previously received. &ccordingly, the beneficiary should continue to be "ept advised of any develop ents !ith the issuing ban" or to see" further instructions in the absence of any authority to honour or negotiate being received fro the issuing ban". & docu ent e#a iner should follo! the operational guidelines in their ban" regarding the handling of outstanding ite s.
*.*.? 7ettlement obligations of confirming and nominated banks

The obligations and liabilities of a confir ing ban" to honour or negotiate a co plying presentation are set out in #C) *++, article D. The position of a no inated ban" in this respect is provided for in #C) *++, sub2article "&/a0. Settle ent obligations are e#a ined in Chapter )6.
8e!iew 9uestions
).
;hich type of docu ent identifies the goods in the docu entary creditV a. ,egal docu ents. b. Financial docu ents. c. Co ercial docu ents. d. Efficial docu ents.
3.
;hich of the follo!ing transport docu ents is not appropriate for any transport by seaV a. <ulti odal transport docu ent. b. 1ill of lading. c. Charter party bill of lading. d. C<R note.
9.
;hich of the follo!ing docu ents can convey title to the goodsV a. ?on-negotiable sea !aybill. b. &ir transport docu ents. c. 1ill of lading. d. C<R note.
Re#ie.uestions
/. If a no inated ban" is closed on the e#piry date of a docu entary credit, !hat action ust the presenter of the docu ents ta"e to prevent the e#piration of the creditV a. (resent the docu ents on the last day of the ban".s opening before the e#piry date. b. Renegotiate the docu entary credit !ith a ne! e#piry date. c. (resent the docu ents on the first day of the ban".s opening after the e#piry date. d. ?otify the applicant it cannot present in ti e. @. ;hat is the type of bill of lading that is not acceptable under =C(, unless specifically re%uired or per itted by the docu entary creditV a. ,iner bill of lading. b. Through bill of lading c. <arine bill of lading. d. Charter party bill of lading.
Chapter 7
$nsurance documents
Learning ob ecti!es &fter studying this chapter you should be able to: understand the use of insurance docu ents and their associated ris"s.
B." $ntroduction
This chapter addresses insurance docu ents and insurance ter s as co only seen in docu entary credits.
B.& $nsurance re9uirements

;hether it is an applicant or beneficiary that !ill arrange and pay for insurance coverage of the goods !ill depend upon a nu ber of factors that, for the purpose of this study te#t, are not discussed. $o!ever, it should be noted that if it is agreed in a sales contract that goods are to be sold on a CIF Acost, insurance and freight Wna ed port of destinationXB or CI( Acarriage and insurance paid to Wna ed place of destinationXB basis, an insurance docu ent should be listed as one of the docu ents to be presented by a beneficiary under a docu entary credit. ifs School of Finance )+@
2013
Re%uire ents for an insurance docu ent !ill vary fro issuing ban" to issuing ban", depending upon their o!n internal guidelines, and fro industry to industry. These re%uire ents can also depend on the e#port and i port regulations of the concerned country. In any event, a re%uire ent in a docu entary credit for the presentation of
)+8
Insurance re.uirements
an insurance docu ent should be !ritten so that at least basic cover in respect of the goods is achieved. &s an e#a ple, the usual arine insurance re%uire ents seen in a docu entary credit are Institute Cargo Clauses, Institute ;ar Clauses and Institute Stri"es, Riots and Civil Co otion Clauses. Insurance docu ents, in general ter s, provide basic cover in the ter s of these clauses or variations of the . The best "no!n clauses are the Institute of ,ondon =nder!riters Clauses A)*+3 or )M)M+3B, !hich !ere updated in 366* but are yet to be !idely referred to or applied, and the & erican Institute Clauses.
B.&." $nsurance policies, insurance certificates and co!er notes

& docu entary credit ay stipulate an insurance policy as the re%uired for of insurance docu ent. This is because an insurance policy Athe docu ent defined in the <arine Insurance &ct )*68B: provides evidence of the ter s and conditions of the insurance contractG and is capable of being assigned by transfer or by endorse ent and transfer. The second point is i portant in CIF or CI( Incoter s 36)6 sales, because for CIF ship ents the ris" on the goods passes to the buyer !hen the goods are on board the vessel, and for CI( ship ents !hen the goods have been delivered to the carrier or another person no inated by the seller at an agreed place. $o!ever, an insurance certificate is probably the ost co on for of insurance docu ent that is re%uired by, and presented under, a docu entary credit, and provides a snapshot or short version of the insurance policy to !hich it !ill refer. Students ay find Table 7.) of assistance !hen deter ining the correct for of docu ent that ay be presented under a docu entary credit re%uiring presentation of an insurance docu ent. :able B." $nsurance document re9uirements for documentary credits
$nsurance re9uirement in documentary credit .ther document acceptable Document not acceptable ?one ?& Cover note
(olicy Certificate
(olicy
)+7
It !ould be e#tre ely rare for a docu entary credit to re%uire the presentation of a cover note. There is generally a need for the presentation of an insurance docu ent that !ill enable the insured or holder to a"e a clai in the event of da age or loss to the cargo. & cover note erely acts as an advice that a policy !ill be issued at so e point in the future, and !ill not generally refer in any detail to the ris"s that are to be covered or, so eti es ore i portantly, those that !ill be e#cluded. To avoid the use of i precise and a biguous ter s, ost ban" docu entary credit application for s !ill be pre-printed !ith standard insurance clauses and contain reference to the nor al level of insurance coverage ie ))6 per cent of the CIF or CI( invoice value. $o!ever, an applicant should still revie! the preprinted conditions to ensure that the stated ris"s and coverage eet its needs. This !ill include the follo!ing if not already covered in the application for : the type certificateBG of docu ent Aie policy or
!hether !ar and stri"es ris"s cover should be includedG the a ount Aas a percentage of the invoice a ount, or other re%uire ent for establishing the a ountBG and any other specific ris"s that are to be covered. Students should be a!are of the content of #C) *++, sub2 article &D/f0/ii0 !hich establishes the ini u level of coverage !hen a docu entary credit is silent in this respect. #C) *++, sub2article &D/f0 /ii0 If there is no indication in the credit of the insurance coverage re%uired, the a ount of insurance coverage ust be at least ))6Y of the CIF or CI( value of the goods. ;hen the CIF or CI( value cannot be deter ined fro the docu ents, the a ount of insurance coverage ust be calculated on the basis of the a ount for !hich honour or negotiation is re%uested or the gross value of the goods as sho!n on the invoice, !hichever is greater.
B.&.& $nsurance seen
terms
as
commonly
The !idest general arine cargo cover, as seen in the ,ondon ar"et, is the Institute of ,ondon =nder!riters Cargo Clauses A&B )M)M+3, Cargo Clauses A1B )M)M+3 and Cargo Clauses ACB )M)M+3 referred to respectively as Institute Cargo Clauses A&B ACB each of !hich are
progressively ore confined in their cover. For e#a ple, Institute Cargo Clauses A&B include cover for theft, pilferage, nondelivery and short delivery AT(?'B. &s noted in section 7.3, the Institute Cargo Clauses !ere updated on ) 5anuary 366*. Institute Cargo Clauses A&B representative of Fall ris". cover ie !hen a insurance against Fall ris"s., even ris"s e#cluded in its standard ter )ublication No. B3?, paragraph >"D. $7B) >"D B3?, paragraph are considered as being
docu entary credit re%uires though there are a nu ber of s. This is e phasised in $7B),
;hen a credit re%uires Oall ris"sP coverage, this is satisfied by the presentation of an insurance docu ent evidencing any Oall ris"sP clause or notation, !hether or not it bears the heading Oall ris"sP, even !hen it is indicated that certain ris"s are e#cluded. &n insurance docu ent indicating that it covers Institute Cargo Clauses A&B or Institute Cargo Clauses A&irB, !hen dispatch is effected by air satisfies a condition in a credit calling for an Oall ris"sP clause or notation. In so e cases, the e#tent of the e#clusions ay not be consistent !ith an applicant.s needs. For this reason, an applicant should be advised to indicate the specific ris"s that are to be covered in the docu entary credit application for . ;hen e#a ining an insurance docu ent, a docu ent e#a iner is not re%uired to be an e#pert in insurance practice or to be a!are that certain ris"s are included else!here in Institute Cargo Clauses A&B. & docu ent e#a iner e#pects to see the specific ris"s individually noted on the face of the insurance docu ent, and for these to co ply !ith those stated in the docu entary credit.
B.&.&." ;!erage
F&verage. is a ter co only used in arine insurance and ay also be referred to on insurance docu ents. There are t!o concepts that apply in the event of a loss or da age sustained by a ship or its cargo: General a!erage is incurred in the co on interests of the ship and cargo and is borne by all the parties interested in the
ship and cargo, in proportion to such interests, as deter ined by persons "no!n as average adHusters. )articular a!erage a particular average applies !hen the o!ner Aor its insurerB of lost or da aged cargo has to bear the full loss.
B.&.&.& Franchise /deductible0
or
an
e%cess
The !ords Ffranchise. and Fe#cess. are often used !hen discussing or describing insurance ter s and conditions. These e#a ples illustrate their eaning: & franchise of @ per cent being applicable on a loss of \)66 eans that the insurance co pany !ill not honour any clai belo! \@. &ny clai above that a ount !ill be honoured in full. &n e#cess of @ per cent being applicable on a loss of \)66 eans that \@ !ill be deducted fro the a ount of any clai that is honoured It is because of a ounts e#cluded by both ter s that an applicant ay re%uest an insurance docu ent to evidence that clai s are payable irrespective of percentage. If such a re%uire ent is indicated in a docu entary credit, a docu ent e#a iner ust be satisfied that there is no indication on the insurance docu ent of a franchise or e#cess to be applied. &n insurance docu ent need not state FIrrespective of (ercentageF unless specifically re%uired by the docu entary credit. This is covered in #C) *++, sub2article &D/ 0 and $7B), )ublication No. B3?, paragraph >"3. #C) &D/ 0 *++, sub2article
&n insurance docu ent ay indicate that the cover is subHect to a franchise or e#cess AdeductibleB.
$7B) >"3
B3?,
paragraph
&n insurance docu ent ay indicate that cover is subHect to a franchise or e#cess AdeductibleB. $o!ever, !hen a credit re%uires the insurance cover to be irrespective of percentage, the insurance docu ent is not to contain a
clause stating that the insurance cover is subHect to a franchise or an e#cess AdeductibleB. &n insurance docu ent need not state Oirrespective of percentageP.
B.&.&.- 7hipment deck
on
&lthough containerised ship ent has reduced the ris"s associated !ith ship ents ade on dec", the ris"s are not entirely eli inated. &s a result, an applicant ay specifically re%uest insurance cover for HettisoningM!ashing overboard A5;E1B.
B.&.&.3 Claims placeM
payable
Lname
of
&n applicant ay !ish to avoid unnecessary negotiations or litigation in foreign Hurisdictions in respect of any clai s ade in respect of da aged or lost goods. In these circu stances, a docu entary credit ay stipulate that an insurance docu ent is to evidence that clai s, if any, are to be payable in the country of the applicant. In addition to a re%uire ent for clai s to be payable in the country of the applicant, it !ill also be %uite co on for a docu entary credit to re%uire the insurance docu ent to also indicate the na e and address of a clai s settling agent in that country.
B.&.&.? =arehouse2to2warehouse clause

&n applicant ay decide that standard e#tended cover does not provide sufficient or effective cover. For e#a ple, it ay !ish to ensure that insurance cover re ains effective until the goods are delivered to its pre ises or a location of its choice. In this event, a docu entary credit should re%uire coverage up to the applicable location. If so, a docu ent e#a iner ust ensure that a specific notation is sho!n on the insurance docu ent covering this re%uire ent, even if the standard policy ter s cover this ris". It should be noted by students that an insurance docu ent indicating coverage effected on a !arehouse-to-!arehouse basis ust be dated no later than the date of ship ent as evidenced on the presented transport docu ent, or, if dated later than the date of ship ent, it is to indicate that cover !as effective no later than the date of ship ent Asee $7B), )ublication No. B3?, paragraph >"+/c0B.
$7B) B3?, >"+/c0
paragraph
&n insurance docu ent that indicates coverage has been effected fro O!arehouse-to-!arehouseP or !ords of si ilar effect, and is dated after the date of ship ent, does not indicate that coverage !as effective fro a date not later than the date of ship ent.
B.&.- General re9uirements

Students should note the follo!ing: Enly one insurance docu ent should be sub itted under a docu entary credit covering the sa e ris"s for the sa e ship ent. There ay, ho!ever, be a need to spread the ris" bet!een insurers, !hich ay result in ore than one insurance docu ent being presented. This is recognised in $7B), )ublication No. B3?, paragraph >"*. $7B) >"* B3?, paragraph
Insurance covering the sa e ris" for the sa e ship ent is to be covered under one docu ent unless ore than one insurance docu ent is presented indicating partial cover, and each docu ent clearly reflects, by percentage or other!ise: a. the value of each insurer.s coverG b. that each insurer !ill bear its share of the liability severally and !ithout pre-conditions relating to any other insurance cover that ay have been effected for that ship entG and c. the respective coverage of the docu ents, !hen totalled, e%uals at least the insured a ount re%uired by the credit or =C( 866 sub-article 3+AfBAiiB.
&n insurance docu ent should not evidence cover for goods not re%uested in the docu entary credit. Insurance docu ents ust appear to have been countersigned if there is a re%uire ent for such on the face of the docu ent. Insurance docu ents ust be endorsed, !here applicable and as re%uired, to assign the rights to the applicant or other party na ed in the docu entary credit. This re%uire ent is covered by $7B), )ublication No. B3?, paragraphs >"F and >&"/a0 and /b0. $7B) >"F B3?, paragraph re%uired by the
&n insurance docu ent is to be in the for
credit and, !here necessary, be endorsed by the entity to !hose order or in !hose favour clai s are payable.
$7B) B3?, paragraph >&"/a0 and /b0 a. ;hen a credit is silent as to the insured party, an insurance docu ent is not to evidence that clai s are payable to the order of, or in favour of, the beneficiary or any entity other than the issuing ban" or applicant, unless it is endorsed by the beneficiary or that entity in blan" or in favour of the issuing ban" or applicant. b. &n insurance docu ent is to be issued or endorsed so that the right to receive pay ent under it passes upon, or prior to, the release of the docu ents.
B.&.3 $nsurance documents and #C) *++

#C) *++, article &D applies to insurance docu ents. This article is analysed in ore detail in Chapter )3.
B.&.? Common discrepancies that arise upon e%amination of an insurance document

Insurance docu ents Aas !ith other docu ents tendered under a docu entary creditB are to be e#a ined as a !hole. Insurance docu ents can be co plicated. &part fro the technical language that can appear in the te#t, an insurance policy, for e#a ple, !ill often consist of one or ore riders or attach ents to for a single docu ent. &s a result, it is not practical Anor necessaryB for a docu ent e#a iner to read and understand all the details of the te#t. Instead, a functional standard of e#a ination should be adopted. This standard should be directed to!ards focussing on the follo!ing details: a ount insuranceG of
na e of insurance co pany, agent or pro#y that issued the docu entG type of insurance docu ent presented !hen co pared to that re%uired in the docu entary credit and !hether it has been correctly signedG insured partyG
endorse ent appropriateG
or
countersignature
of
the
insured,
if
date of issueG !hether an e#piry date has been inserted for sub ission of any clai G party to !ho payableG clai s are payable and !here such clai s are
ris"s covered Ae#a ine the docu ent against the specific re%uire ents in the docu entary creditBG description of goodsG port M airport of loading M discharge M place of ta"ing in charge M place of delivery are in accordance !ith those stated in the docu entary creditG currency of the insurance docu entG and !hether the nu ber of originals stated on the docu ent have been presented Aif applicableB. Students should note that $7B), )ublication No. B3?, paragraph >&& A!hich states that F1an"s do not e#a ine general ter s and conditions in an insurance docu ent.B does not re%uire a docu ent e#a iner to revie! the printed ter s and conditions of an insurance docu ent to deter ine co pliance. This !ould include ost, if not all, of the data that !ould appear on a rider or attach ent. ;hat follo!s is a list of the ore co in respect of insurance docu ents. on discrepancies seen
The currency of the insurance docu ent is not that of the docu entary credit. The a ount insufficient. of insurance coverage is
The goods description does not correspond to or is not %uoted in general ter s !hen co pared !ith that sho!n in the docu entary credit.
The start and end point of the insurance is not in accordance !ith the docu entary credit. Specific ris"s as stipulated in the docu entary credit are not indicated on the docu ent. The insurance docu ent is not countersigned A!here such countersignature is re%uiredB.
The insurance docu ent is not endorsed in ter s of the docu entary credit. The insurance docu ent is not the one stipulated in the docu entary credit or other!ise authorised by #C) *++, sub2article &D/a0. The effective date of insurance is later than the date of ship ent. &ll of the originals sho!n on the insurance docu ent, as issued, are not presented.
8e!iew 9uestions
).
;hich of the follo!ing is acceptable as proof of insuranceV a. &dvice of insurance. b. 1ro"er.s note. c. Cover note. d. Insurance policy.
3.
=nder !hich type of average do all interested parties bear a share of a loss at seaV a. (articular average. b. General average.
9.
a ount of insurance coverage that is re%uired by =C( 866, article 3+ is: a. the invoice a ountG b. ))6 per cent of the invoice valueG c. ))6 per cent of the final invoice value after any deductions for advance pay ent or discount.
The
ini u
/. & docu entary credit re%uires the presentation of an insurance certificate. ;hich of the follo!ing are acceptableV a. Insurance certificate or policy. b. Insurance certificate or cover note. c. Insurance certificate, policy or cover note. @. In insurance practice, Ffranchise. eans:
a. the insurance co pany !ill not honour any clai belo! a certain percentage or a ount but for a greater a ount it !ill honour a clai in full. b. the insurance co pany !ill honour any clai that is ade but !ill deduct the stated percentage or a ount fro the value of any clai .
Re#ie.uestions
Chapter +
Financial, commercial and other official documents
Learning ob ecti!es &fter studying this chapter students should be able to: understand the use of financial docu ents and co ercial docu entsG and "no! !hat official docu ents are co to satisfy i port or e#port control. only re%uired
D." $ntroduction
This chapter studies financial, co ercial and other official docu ents, as co only seen in docu entary credits.
D.& Financial documents

Financial docu ents, such as bills of e#change AdraftsB and pro issory notes, are legal docu ents evidencing clai s for a ounts o!ed. In so e countries, there is a distinction bet!een bills of e#change in connection !ith the settle ent of debt !ithin a country Ainland billsB and bills of e#change in connection !ith the settle ent of debt bet!een a buyer in one country Ai porterB and a seller Ae#porterB in another country Aforeign billsB. ifs School of Finance )*7
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Foreign bills !ere used as trade settle ent instru ents before docu entary credits. They !ere incorporated as a feature of docu entary credits as the instru ent provides evidence of the clai
)*+
Financial documents
of the beneficiary for pay ent. Such bills of e#change AdraftsB and pro issory notes are negotiable, !hich eans that: co plete transfer is deliveryG ade by delivery or by endorse ent and
a full and legal title passes upon deliveryG and the title that passes is free fro e%uities ie any defect, provided it is passed to a holder !ho has given value in good faith and !ithout "no!ledge of any defect in title. This is different fro the negotiability of bills of lading, !hich is subHect to any previous defect in title.
D.&." Definition
The essential features of financial docu ents are often found in the definitions of la!s covering bills of e#change. These vary bet!een countries. For e#a ple, the follo!ing definition sho!s the ele ents of the docu ent as applicable to the =nited 2ingdo . Bill of E%change ;ct "DD&, section -/"0 & bill of e#change is an unconditional order in !riting, addressed by one person to another, signed by the person giving it, re%uiring the person to !ho it is addressed to pay on de and or at a fi#ed or deter inable future ti e a su certain in oney to or to the order of a specified person or to bearer. In the conte#t of a docu entary credit, the ele ents sho!n as follo!s: ay be
The person giving it is the beneficiary of the docu entary credit Athe dra!erB. The person to !ho it is addressed is the issuing ban", no inated ban" or rei bursing ban" Athe dra!eeB. To pay on de and or at a fi#ed or deter inable future ti e eans: at a fi#ed period after the date of the bill of e#change or at sight of the bill of e#changeG ifs or School Finance on at a of fi#ed period after the occurrence of a specified )**
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event, !hich is documents certain to happen as opposed to a ti e that ay be uncertain Aeg Fpay <ary 5ane on arrival of ship /itanic in ?e!
"* Financial, commercial and other official
366
Financial documents
Jor". is not a deter inable period because the /itanic ay never arrive in ?e! Jor"BG a su certain in oney is the a ount sho!n in !ords and figures, inclusive of any interest clauses or other ter on the bill. It should that: be noted
& docu entary credit can be issued !ith no re%uire ent for a financial docu ent. This practice has been developed in so e places to avoid sta p duty in the country of origin or country of pay ent. 'ocu entary credits generally use the ter bills of e#change. drafts rather than
'rafts dra!n payable at a future date Ausance draftsB are capable of being bought and sold after acceptance by ban"s.
#C) *++, sub2article "&/b0 allo!s a ban" to prepay or purchase under a docu entary credit available by deferred pay ent or acceptance by stating: F1y no inating a ban" to accept a draft or incur a deferred pay ent underta"ing, an issuing ban" authoriIes that no inated ban" to prepay or purchase a draft accepted or a deferred pay ent underta"ing incurred by that no inated ban"..
D.&.& Documentary re9uirement
credit
=sually, the first docu entary re%uire ent seen is that for a bill of e#change or draft. This re%uire ent, by !ay of e#a ple, ay be sho!n on a S;IFT <T766 essage as follo!s: Field /3C: 'rafts . . . at sightG at ### days. sightG at ### days. dateG ### days after bill of lading dateG ### days after invoice dateG School of Finance ifs at fi#ed date.
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36)
Field /3a: 'ra!ee issuing ban"G
"* Financial, commercial and other official documents
no inated ban"G
363
Financial documents
rei bursing ban"G Wna e of the ban" on !ho dra!nX. the draft is to be
'rafts ust al!ays be dra!n as stipulated in the docu entary credit. This is e#plained in $7B), )ublication No. B3?, paragraphs B&/a0/e0, B- and BDB"&. $7B) B3?, paragraph B& a. The tenor stated on a draft is to be in accordance !ith the ter s of the credit. b. ;hen a credit re%uires a draft to be dra!n at a tenor other than sight or a certain period after sight, it ust be possible to establish the aturity date fro the data in the draft itself. For e#a ple, !hen a credit calls for drafts at a tenor 86 days after the bill of lading date, and !hen the date of the bill of lading is )/ <ay 36)9, the tenor is to be indicated on the draft in one of the follo!ing !ays: O86 days after bill of lading date )/ <ay 36)9P, or O86 days after )/ <ay 36)9P, or O86 days after bill of lading datePand else!here on the face of the draft state Obill of lading date )/ <ay 36)9P, or O86 days dateP on a draft dated the sa e day as the date of the bill of lading, or O)9 5uly 36)9P, i.e., 86 days after the bill of lading date. c. ;hen the tenor refers to, for e#a ple, 86 days after the bill of lading date, the on board date is dee ed to be the bill of lading date even !hen the on board date is prior to or later than the date of issuance of the bill of lading. d. The !ords Ofro P and OafterP !hen used to deter ine aturity dates of drafts signify that the calculation of the aturity date co ences the day follo!ing the date of the docu ent, ship ent or the date of an event stipulated in the credit, for e#a ple, )6 days after or fro / <ay is )/ <ay. ifs School of Finance
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e.
i. ;hen a credit re%uires a bill of lading and drafts are to be dra!n, for e#a ple, at 86 days after or fro the bill of lading date and a bill of lading is presented evidencing
36/
Financial documents
unloading and reloading of the goods fro one vessel to another, and sho!ing ore than one dated on board notation and indicating that each ship ent !as effected fro a port !ithin a per itted geographical area or range of ports, the earliest of these dates is to be used for the calculation of the aturity date. For e#a ple, a credit re%uires ship ent fro any -uropean port, and the bill of lading evidences on board vessel O&P fro 'ublin on )/ <ay, !ith tranship ent effected on board vessel O1P fro Rotterda on )8 <ay. The draft should reflect 86 days after the earliest on board date in a -uropean port, i.e., )/ <ay. ii. ;hen a credit re%uires a bill of lading and drafts are to be dra!n, for e#a ple, at 86 days after or fro the bill of lading date, and a bill of lading is presented evidencing ship ent of goods on the sa e vessel fro ore than one port !ithin a per itted geographical area or range of ports, and sho!s ore than one dated on board notation, the latest of these dates is to be used for the calculation of the aturity date. For e#a ple, a credit re%uires ship ent fro any -uropean port, and the bill of lading evidences part of the goods loaded on board vessel O&P fro 'ublin on )/ <ay and the re ainder on board the sa e vessel fro Rotterda on )8 <ay. The draft should reflect 86 days after the latest on board date, i.e., )8 <ay. iii. ;hen a credit re%uires a bill of lading and drafts are to be dra!n, for e#a ple, at 86 days after or fro the bill of lading date, and ore than one set of bills of lading is presented under one draft, the on board date of the latest bill of lading !ill be used for the calculation of the aturity date.
$7B) B3?, paragraph B;hile the e#a ples in paragraphs 13B AeB Ai-iiiB refer to bill of lading dates, the sa e principles apply to any basis for deter ining a aturity date.
36@
$7B) B3?, paragraph BD a. & draft is to be dra!n and signed by the beneficiary and to indicate a date of issuance. b. ;hen the beneficiary or second beneficiary has changed its na e, and the credit entions the for er na e, a draft ay be dra!n in the na e of the ne! entity provided that it indicates Ofor erly "no!n as Ana e of the beneficiary or second beneficiaryBP or !ords of si ilar effect. $7B) B3?, paragraph BF ;hen a credit indicates the dra!ee of a draft by only stating the S;IFT address of a ban", the draft ay sho! the dra!ee !ith the sa e details or the full na e of the ban". $7B) B"+ B3?, paragraph
;hen a credit is available by negotiation !ith a no inated ban" or any ban", the draft is to be dra!n on a ban" other than the no inated ban". $7B) B"" B3?, paragraph
;hen a credit is available by acceptance !ith any ban", the draft is to be dra!n on the ban" that agrees to accept the draft and is thereby !illing to act on its no ination. $7B) B"& B3?, paragraph
;hen a credit is available by acceptance !ith: a. a no inated ban" or any ban", and the draft is to be dra!n on that no inated ban" A!hich is not a confir ing ban"B, and it decides not to act on its no ination, the beneficiary ay choose to:
Financial i. dra! the draft on the confir documents
ing ban", if any, or re%uest that the presentation be for!arded to the confir ing ban" in the for as presentedG
ii. present the docu ents to another ban" that agrees to accept a draft dra!n on it and thereby act on its no ination
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Aapplicable only !hen the credit is available !ith any ban"BG or iii. re%uest that the presentation be for!arded to the issuing ban" in the for as presented !ith or !ithout a draft dra!n on the issuing ban". b. a confir ing ban", and the draft is to be dra!n on that confir ing ban" and the presentation is non-co plying, and it decides not to reinstate its confir ation, the beneficiary ay re%uest that the presentation be for!arded to the issuing ban" in the for as presented, !ith or !ithout a draft dra!n on the issuing ban". In respect of drafts that are to be dra!n on the applicant, $7B), )ublication No. B3?, paragraph B"D states4 $7B) B3?, paragraph B"D a. & credit ust not be issued available by a draft dra!n on the applicant. b. $o!ever, !hen a credit re%uires the presentation of a draft dra!n on the applicant as one of the re%uired docu ents, it is to be e#a ined only to the e#tent e#pressly stated in the credit, other!ise according to =C( 866 sub-article )/ AfB.
D.&.- Corrections and alterations

Given the legal standing and purpose of bills of e#change, so e Hurisdictions do not allo! any alterations to their data content. 1ecause of this, a no inated ban" should ta"e care if a draft is presented, dra!n on a party other than itself, !hich sho!s alterations. In such circu stances, even if the alterations have been authenticated, it is so eti es prudent to re%uest the seller to present a replace ent, unaltered draft. This is covered in $7B), )ublication No. B3?, paragraphs B"* and B"B .
36+
Financial documents
$7B) B"*
B3?,
paragraph
&ny correction of data on a draft is to appear to have been authenticated !ith the addition of the signature or initials of the beneficiary.
$7B) B"B
B3?,
paragraph
;hen no correction of data is allo!ed in a draft, an issuing ban" should have included a suitable stipulation in its credit.
D.&.3 Calculation of maturity

;hen usance Ater B drafts are presented under a docu entary credit, calculation of the aturity date !ill depend upon: the tenor of the draft eg 86 days sightG on !ho the draft is dra!n Adra!eeBG and
!hether the presentation is clean or discrepant. This is covered in $7B), )ublication No. B3?, paragraphs B3B*. $7B) B3?, paragraph B3 ;hen a draft states a aturity date by using an actual date, that date is to reflect the ter s of the credit.
$7B) B3?, paragraph B? For drafts dra!n, for e#a ple, Oat 86 days sightP, the aturity date is established as follo!s: a. in the case of a co plying presentation, the aturity date !ill be 86 days after the day of presentation to the ban" on !hich the draft is dra!n, i.e., the issuing ban", confir ing ban" or a no inated ban" that agrees to act on its no ination AOdra!ee ban"PB. b. in the case of a non-co plying presentation:
ifs School of Finance 2013 36*
i.
!hen such dra!ee ban" has not provided a notice of refusal, the aturity date !ill be 86 days after the day of presentation to itG
ii. !hen the dra!ee ban" is the issuing ban" and it has provided a notice of refusal at the latest 86 days after the date the issuing ban" accepts the !aiver of the applicantG iii. !hen the dra!ee ban" is a ban" other than the issuing ban" and it has provided a notice of refusal, at the latest 86 days after the date of the acceptance advice of the issuing ban". ;hen such dra!ee ban" does not agree to act on the acceptance advice of the issuing ban", the underta"ing to honour on the due date is that of the issuing ban". c. The dra!ee ban" is to advise or confir to the presenter. the aturity date
$7B) B3?, paragraph B* The ethod of calculation of tenor and aturity dates, as sho!n above, also applies to a credit available by deferred pay ent or, in so e cases, negotiation, i.e., !hen there is no re%uire ent for a draft to be presented by the beneficiary. For the purposes of deter ining the aturity date of a ti e draft, the !ords Ffro . and Fafter. have the sa e effect. This is specified in #C) *++, article - and $7B), )ublication No. B3?, paragraph B&/d0. #C) *++, article The !ords Ofro P and OafterP !hen used to deter ine a aturity date e#clude the date entioned.
$7B) B3?, B&/d0
paragraph
3)6
The !ords Ofro P and OafterP !hen used to deter ine aturity dates of drafts signify that the calculation of the aturity date co ences the day follo!ing the date of the docu ent, ship ent or the date of an event stipulated in ifs School of Finance
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Financial documents the credit, for e#a
<ay.
ple, )6 days after or fro
/ <ay is )/
3))
D.&.? )ayment at maturity

The aturity date of a draft, often referred to as the due date, is the date on !hich pay ent ust be ade by the dra!ee. If this date falls on a non-ban"ing day, pay ent ust be ade on the ne#t business day. Funds should be re itted !ithout delay at aturity in accordance !ith instructions received fro the presenter. This is covered in $7B), )ublication No. B3?, paragraph BB. $7B) B3?, paragraph BB (ay ent is to be ade in i ediately available funds on the due date at the place !here the draft or docu ents are payable, provided that such due date is a ban"ing day in that place. ;hen the due date is a non-ban"ing day, pay ent is due on the first ban"ing day follo!ing the due date. 'elays in the re ittance of funds, for e#a ple grace days, the ti e it ta"es to re it funds, etc., are not to be in addition to the stated or agreed due date as defined by the draft or docu ents.
D.- Commercial documents

So e co ercial docu ents that are co only docu entary credits are set out in Table +.), !ith co the basis of the follo!ing criteria: by !ho it is issuedG the content of the docu entG and the purpose for !hich it is issued.
:able D.". Commercial documents4 issuer, content and purpose $ssued by The beneficiary of the docu entary credit or the second beneficiary !hen the Content )urpose docu enta ry credit has
seen in ents on
Document Commercial in!oice
3)3
bee n tran sfer red.
Financial & description and value of goods, ter s of documents sale and other detail as ay be stipulated in the docu entary credit. &ny additional infor ation should not be in conflict !ith such !ording.
To sho! the anner in !hich the dra!ing under the docu entary credit is ade up. To sho! the sale of goods in ter s re%uired by the docu entary credit.
3)9

:able D.". /cont.0 Certified in!oice Commercial documents4 issuer, content and purpose The beneficiary of the docu entary credit or the second beneficiary !hen the docu entary credit has been transferred. Si ilar to the co ercial invoice, together !ith certification by the beneficiary or na ed third party in ter s of the docu entary credit. For e#a ple, a beneficiary ay be re%uired to certify that the contents are correct and in the ter s of the pro for a invoice or a certification ay be re%uired by an e#ternal body such as a Cha ber of Co erce. Certificate of analysis The party as stipulated in the docu entary credit, in the absence of !hich the docu ent ay be accepted in ter s of #C) *++, sub2article "3/f0 &s stipulated by the docu entary credit. Generally, such stipulation !ill relate to the analysis of goods as re%uired by the relevant trade, for e#a ple details of te perature and che ical content. In the absence of any re%uired data, the docu ent !ill be accepted in ter s of #C) *++, sub2article "3/f0. To satisfy an applicant, end-buyer or i port control authorities. To satisfy a specific concern of the buyer in relation to the certification re%uired.
:able D.". /cont.0
Commercial documents4 issuer, content and purpose &s stipulated in the docu entary credit. Generally, such stipulation !ill relate to the gross and net !eights of pac"ages. In the absence of any re%uired data, the docu ent !ill be accepted in ter s of #C) *++, sub2 article "3/f0. To satisfy an applicant or endbuyer.
Certificate of weight The party as stipulated in the docu entary credit, in the absence of !hich the docu ent ay be accepted in ter s of#C) *++, sub2article "3/f0.
$nspection certificate The party as stipulated in the docu entary credit, in the absence of !hich the docu ent ay be accepted in ter s of #C) *++, sub2article "3/f0.
&s stipulated by the docu entary credit. Generally, such stipulation !ill relate to !hether the goods inspected by sa ple or other!ise have reached standards as described in the docu entary credit. In the absence of any such standards, the docu ent !ill be accepted in ter s of #C) *++, sub2 article "3 /f0.
To satisfy an applicant, end-buyer or i port control authorities.
)acking list
The party as stipulated in the docu entary credit, in the absence of !hich the docu ent ay be accepted in ter s of #C) *++, sub2article "3/f0.
'etails of the pac"aging of goods. In the absence of any re%uired data, the docu ent !ill be accepted in ter s of #C) *++, sub2article "3/f0 .
To satisfy the applicant, clearing agents or custo s authorities in the country of i port, and to enable spot chec"s to be ade of the content of pac"ages. e "3 /f0.
=eight list
The party as stipulated in the docu entary credit, in the absence of !hich the docu ent
ay be accepted in ter s of #C) *++, sub2 articl
'etails of the !eight of goods. In the absence of any re%uired data, the docu ent !ill be accepted in ter s of #C) *++, sub2article "3/f0.
To satisfy the applicant, clearing agents or carriers.
ocuments for official +ur+oses
If a docu entary credit indicates specific data re%uire ents, the docu ent ust co ply !ith those conditions. If the docu entary credit is silent in respect of the re%uired data, a docu ent e#a iner ust ascertain that the content fulfils the function of the docu ent. For e#a ple, if a docu entary credit re%uires presentation of a pac"ing list, the content ust contain so e ele ent of pac"ing details and therefore fulfil the function of that docu ent.
D.3 Documents purposes

The applicant satisfy:
for
official
ay re%uire such docu ents to
i port regulationsG boycott legislationG or health regulations. The beneficiary ay re%uire such docu ents to satisfy e#port control authorities. &part fro the docu ents the selves, there ay be a stipulation in the docu entary credit for such docu ents to indicate i port licence nu bers, and shipping ar"s and nu bers. These ay be essential to enable the speedy clearance and delivery of goods if this is re%uired by the applicant or endbuyer. &s !ith other docu ents, the docu ent e#a iner is concerned only !ith the stipulations in the docu entary credit. So e docu ents re%uired for official purposes are listed in Table +.3, !ith co ents on the follo!ing criteria: by !ho it is issuedG
the content of the docu entG and the purpose for !hich it is issued.

:able D.&. Document Certificate of origin Documents for official purposes4 issuer, content and purpose Issued by & party as stipulated in the docu entary credit, often a Cha ber of Co erce or other official body, and, infre%uently, the beneficiary. In the absence of a stipulation in the docu entary credit in this respect, the docu ent ay be accepted in ter s of #C) *++, sub2article "3/f0. Consular in!oice The beneficiary, in 'escribes details ter s si ilar to a of goods and co ercial invoice prices. and in line !ith the re%uire ents of the docu entary creditG and countersigned by a Cha ber of Co erce and e bassy or consulate of the i porting country often residing in the country of e#port. For the records of the country of i port, and, accordingly, this docu ent !ill often be re%uired for clearance of goods at destination. Content Certifies the country of origin of the goods. $ur+ose To enable the i porter to receive the benefit of reduction of i port duties, if this is possible, and to satisfy custo s and i port re%uire ents in the country of the applicant or end-buyer.
:able D.&. /cont.0 Legalised in!oice
Documents for official purposes4 issuer, content and purpose The beneficiary, in ter s si ilar to a co ercial invoice and in ter s of the docu entary credit. In addition, the invoice ust sho! that it has been legalised by the e bassy or consulate of the country of i port in the country of e#port or as specified in the docu entary credit, or notarised by a notary public. &s for the co ercial invoice, together !ith the legalisation notation effected either by a notary, e bassy or consulate of the country of i port. To satisfy the control authorities of the country of i port.
E%port licence
-#port licensing authority in the country of e#port or issued by the beneficiary and sta ped by such authority. The docu ent !ill be accepted in ter s stipulated in the docu entary credit, in the absence of !hich it !ill be accepted in ter s of #C) *++, sub2article "3/f0.
'escribes goods in a !ay si ilar to that of a co ercial invoice and includes certification by the e#port licensing authority allo!ing the e#port of the goods.
The docu ent enables the country of e#port to "eep records of ship ents and %uota allo!ance. It also enables the e#porting country to "eep a trac" of goods going out of the country, !ith a vie! to ensuring receipt of foreign e#change earnings relative to such goods.
:able D.&. /cont.0 Eealth certificate
Documents for official purposes4 issuer, content and purpose &s specified in the docu entary credit, in the absence of !hich the docu ent !ill be accepted in ter s of #C) *++, sub2article "3/f0. These docu ents are usually issued to cover e#port of live cargo, plants and herbs, and are generally issued by an authorised body in the country of e#port. Certification ay include state ents regarding fitness to travel, good health and freedo fro conta ination. In the absence of any re%uired data, the docu ent !ill be accepted in ter s of #C) *++, sub2article "3/f0 . To satisfy the authorities in the countries of e#port and i port or the applicant or end-buyer.
?ote that legalisation ay also be e#tended to docu ents other than legalised invoices, such as carrier or insurance co pany declarations concerning the carrier, the vessel or insurer. So e e#porters are reluctant to involve the selves in overhead e#penses on such ti e-consu ing docu entation. &s a result, they underta"e e#ports to such countries only on the basis of delivery of goods to a na ed clearing agent in the country of e#port !ho acts as agent for the applicant.
D.? #C) *++ documents
and
financial
#C) *++, sub2article B/a0 establishes the obligation of an issuing ban" under a docu entary credit that re%uires presentation of usance drafts to secure acceptance and pay ent at aturity. & si ilar obligation on the confir ing ban" is provided for in sub2article D/a0. The ter F!ithout recourse. signifies that proceeds of a draft are ade freely available to the dra!er AbeneficiaryB or bona fide holder
Agenerally, a no inated or confir ing ban"B. The only docu entary credit type that !ill definitely re%uire presentation of a draft is that under !hich a docu entary credit
is available by acceptance. 'rafts ay or ay not be re%uired if a docu entary credit is available by sight pay ent or by negotiation, and !ill definitely not be re%uired if a docu entary credit is available by deferred pay ent.
D.* #C) in!oices
*++
and
commercial
#C) *++, article "D covers the use of co ercial invoices. This is supported by $7B), )ublication No. B3?, paragraphs ;&- and C"C"?. In addition, #C) *++, article -+ covers tolerances in the credit a ount, %uantity and unit price. This is supported by $7B) )ublication No. B3?, paragraphs C"&C"3. These are analysed in ore detail in Chapter )3. $7B) B3?, paragraph C" a. ;hen a credit re%uires presentation of an OinvoiceP !ithout further description, this !ill be satisfied by the presentation of any type of invoice Aco ercial invoice, custo s invoice, ta# invoice, final invoice, consular invoice, etc.B. $o!ever, an invoice is not to be identified as OprovisionalP, Opro-for aP or the li"e. b. ;hen a credit re%uires presentation of a Oco ercial invoiceP, this !ill also be satisfied by the presentation of a docu ent titled OinvoiceP, even !hen such docu ent contains a state ent that it has been issued for ta# purposes. $7B) B3?, paragraph C& a. &n invoice is to appear to have been issued by the beneficiary or, in the case of a transferred credit, the second beneficiary. b. ;hen the beneficiary or second beneficiary has changed its na e and the credit entions the for er na e, an invoice ay be issued in the na e of the ne! entity provided that it indicates Ofor erly "no!n as Ana e of the beneficiary or second beneficiaryBP or !ords of si ilar effect.
UC$ (00 and commercial in#oices
$7B) B3?, paragraphs C-, C3 and C? C9. The description of the goods, services or perfor ance sho!n on the invoice is to correspond !ith the description sho!n in the credit. There is no re%uire ent for a irror i age. For e#a ple,
details of the goods ay be stated in a nu ber of areas !ithin the invoice !hich, !hen read together, represent a description of the goods corresponding to that in the credit. C/. The description of goods, services or perfor ance on an invoice is to reflect !hat has actually been shipped, delivered or provided. For e#a ple, !hen the goods description in the credit indicates a re%uire ent for ship ent of O)6 truc"s and @ tractorsP, and only / truc"s have been shipped, an invoice ay indicate ship ent of only / truc"s provided that the credit did not prohibit partial ship ent. &n invoice indicating !hat has actually been shipped A/ truc"sB ay also contain the description of the goods stated in the credit, i.e., )6 truc"s and @ tractors. C@. &n invoice sho!ing a description of the goods, services or perfor ance that corresponds !ith that in the credit ay also indicate additional data in respect of the goods, services or perfor ance provided that they do not appear to refer to a different nature, classification or category of the goods, services or perfor ance. For e#a ple, !hen a credit re%uires ship ent of OSuede ShoesP, but the invoice describes the goods as OI itation Suede ShoesP, or !hen the credit re%uires O$ydraulic 'rilling RigP, but the invoice describes the goods as OSecond $and $ydraulic 'rilling RigP, these descriptions !ould represent a change in nature, classification or category of the goods.
$7B) B3?, paragraph C* &n invoice indicate: is to
i. the value of the goods shipped or delivered, or services or perfor ance provided. ii. unit priceAsB, !hen stated in the credit. iii. the sa e currency as that sho!n in the credit. iv. any discount or deduction re%uired by the credit.
$7B) B3?, paragraph in#oices CB &n invoice ay indicate a deduction covering advance pay ent, discount, etc., that is not stated in the credit.
UC$ (00 and commercial
$7B) B3?, paragraph CD ;hen a trade ter is stated as part of the goods description in the credit, an invoice is to indicate that trade ter , and !hen the source of the trade ter is stated, the sa e source is to be indicated. For e#a ple, a trade ter indicated in a credit as OCIF Singapore Incoter s 36)6P is not to be indicated on an invoice as OCIF SingaporeP or OCIF Singapore Incoter sP. $o!ever, !hen a trade ter is stated in the credit as OCIF SingaporeP or OCIF Singapore Incoter sP, it ay also be indicated on an invoice as OCIF Singapore Incoter s 36)6P or any other revision.
$7B) C"+
B3?,
paragraph
&n invoice need not be signed or dated.
D.B #C) *++ and other commercial documents, and documents for official purposes
#C) *++, sub2article "3/f0 is i portant for the e#a ination of all docu ents called for by a docu entary credit, !hich are not subHect to =C( articles containing specific provisions regarding their issuance and data content, such as transport docu ents, insurance docu ents and co ercial invoices. For all these other types of docu ents, a docu entary credit should clearly state by !ho they are to be issued and their data content. For e#a ple, calling for an inspection certificate !ithout further %ualification neither guarantees that the docu ent presented !ill sho! that such inspection has been underta"en by an appropriate party, nor !ill it guarantee to sho! that the goods did, in fact, eet a desired inspection standard. In this e#a ple, presentation of an inspection certificate issued by the beneficiary certifying only that goods have been inspected to their standard !ill be sufficient to eet the docu entary credit re%uire ent. It is clear that the need for precision in this respect is vital.
UC$ (00 and other commercial documents, and documents for official $7B), +ur+oses)ublication No. B3?, paragraph ;&+ applies if a
credit clearly indicates that a docu ent is to be issued by a na ed party. $7B), )ublication No. B3?, paragraphs ;-F;3" relate to the title of docu ents and co bined docu ents.
=nless a docu entary credit stipulates that a co ercial docu ent ust be dated, the need to sho! a date !ill be deter ined by the nature and content of each specific docu ent. This is covered in $7B), )ublication No. B3?, paragraph ;""/b0. If a docu entary credit re%uires a docu ent to be dated, but does not stipulate that such date should be prior to ship ent, a docu ent that is dated after the ship ent date is acceptable. This applies as long as the docu ent is dated on or before the date of presentation to the no inated or issuing ban", even if the docu ent appears to cover an event that occurred prior to ship ent. ASee #C) *++, sub2article "3/i0 and $7B), )ublication No. B3?, paragraphs ;"& and ;"-.B Certificates of origin are fre%uently called for under docu entary credits. They are not specifically referred to in the articles of =C( 866 although they are covered in $7B), )ublication No. B3?, paragraphs L"LD. $7B) B3?, paragraph L" ;hen a credit re%uires the presentation of a certificate of origin, this !ill be satisfied by the presentation of a signed docu ent that appears to relate to the invoiced goods and certifies their origin.
$7B) B3?, paragraph L& ;hen a credit re%uires the presentation of a specific for of certificate of origin such as a GS( For &, only a docu ent in that specific for is to be presented.
$7B) B3?, paragraph La. & certificate of origin is to be issued by the entity stated in the credit. b. ;hen a credit does not indicate the na e of an issuer, any entity ay issue a certificate of origin. c. i. ;hen a credit re%uires the presentation of a certificate of origin issued by the beneficiary, the e#porter or the
UC$ (00 and other commercial documents, and documents for official anufacturer, this condition !ill also be satisfied by +ur+oses
the presentation of a certificate of origin issued by a Cha ber of Co erce or the li"e, such as, but not li ited to, Cha ber of Industry, &ssociation of Industry, -cono ic Cha ber, Custo s &uthorities and 'epart ent of Trade
or the li"e, provided it indicates the beneficiary, the e#porter or the anufacturer as the case ay be. ii. ;hen a credit re%uires the presentation of a certificate of origin issued by a Cha ber of Co erce, this condition !ill also be satisfied by the presentation of a certificate of origin issued by a Cha ber of Industry, &ssociation of Industry, -cono ic Cha ber, Custo s &uthorities and 'epart ent of Trade or the li"e.
$7B) B3?, paragraph L3 & certificate of origin is to appear to relate to the invoiced goods, for e#a ple, by: a. a goods description that corresponds to that in the credit or a description sho!n in general ter s not in conflict !ith the goods description in the creditG or b. referring to a goods description appearing in another stipulated docu ent or in a docu ent that is attached to, and for ing an integral part of, the certificate of origin.
$7B) B3?, paragraph L? Consignee infor ation, !hen sho!n, is not to conflict !ith the consignee infor ation in the transport docu ent. $o!ever, !hen a credit re%uires a transport docu ent to be issued Oto orderP, Oto the order of shipperP, Oto order of issuing ban"P, Oto order of no inated ban" Aor negotiating ban"BP or Oconsigned to issuing ban"P, a certificate of origin ay sho! the consignee as any entity na ed in the credit e#cept the beneficiary. ;hen a credit has been transferred, the first beneficiary ay be stated to be the consignee.
$7B) B3?, paragraph L* & certificate of origin ay indicate as the consignor or e#porter an entity other than the beneficiary of the credit or the shipper as sho!n on any other stipulated docu ent.
UC$ (00 and other commercial documents, and documents for official +ur+oses
$7B) B3?, paragraph LB ;hen a credit indicates the origin of the goods !ithout stipulating a re%uire ent for the presentation of a certificate of origin, any reference to the origin on a stipulated docu ent is not to conflict !ith the stated origin. For e#a ple, !hen a credit indicates Oorigin of the goods: Ger anyP !ithout re%uiring the presentation of a certificate of origin, a state ent on any stipulated docu ent indicating a different origin of the goods is to be considered a conflict of data. $7B) B3?, paragraph LD & certificate of origin ay indicate a different invoice nu ber, invoice date and ship ent routing to that indicated on one or ore other stipulated docu ents, provided the e#porter or consignor sho!n on the certificate of origin is not the beneficiary.
D.D Common discrepancies that arise on document e%amination

;hen a docu ent e#a co ercial docu ents, presented under a docu docu ents do not co are listed belo!. iner revie!s insurance, financial and and docu ents for official purposes, entary credit, they !ill often find that ply. The ore co on discrepancies
D.D." Discrepancies documents

'raft not signed by the beneficiary.
on
financial
'raft signed but no indication of the na e of the beneficiary. 'raft not endorsed as re%uired. 'raft not dra!n on the correct party. & ount is in e#cess of the docu entary credit.
documents Tenor of draft sho!n incorrectly, eg:
sho!n at sight instead of 86 days. sightG sho!n ## days after bill of lading and does not stipulate the date of the bill of lading.
Common discre+ancies that arise on document e'amination
D.D.& Discrepancies on commercial documents

D.D.&." Commercial in!oices
?ot issued by the beneficiary. ?ot signed, if so re%uired by the docu entary credit. 'escription of goods on the invoice does not correspond !ith the description of goods sho!n in the docu entary credit. Invoice not visaed or legalised as re%uired by the docu entary credit. ,egalisation not in the ter s re%uired by the docu entary credit. 1rea"do!n of charges not sho!n as re%uired by the docu entary credit. A;here the docu entary credit re%uires cost, insurance and freight charges to be sho!n separately.B ?o docu entary evidence of the separate insurance and freight costs fro insurance co panies and carriers sub itted !hen the docu entary credit stipulates this re%uire ent.
]uantity of goods shipped e#ceeds the tolerance of @ per cent in #C) *++, sub2article -+/b0. =nit price not as stipulated in the docu entary credit. (artial ship ent effected !hen the docu entary credit prohibits part-ship ent. Shipping ar"s and nu bers on the invoice in conflict !ith shipping ar"s and nu bers sho!n on the transport docu ent.
D.D.&.& Certified in!oice

&ll of the discrepancies co on to the co ercial invoice, along !ith certification is not as stipulated in the docu entary credit.
D.D.&.- Certificate of analysis

Contains data conflicting !ith the description of goods sho!n on the invoice and docu entary credit. 'oes not indicate the precise figures and detail re%uired by the docu entary credit. Issued by a party !hose na e is not as stipulated in
documents the docu entary credit.
D.D.&.3 Certificate of weight

;eight sho!n is in conflict !ith that on the invoice or transport docu ent.
The docu ent sub itted is not a certificate but a listing.
D.D.&.? $nspection certificate

Certificate not issued by the party stipulated in the docu entary credit.
Certificate sho!s data in conflict !ith the description of goods in the invoice and docu entary credit. The !ording of the certification is not as stipulated by the docu entary credit.
D.D.&.* )acking list

Indicates pac"ing of goods that is not as re%uired by the docu entary credit or sho!n on the invoice or transport docu ent Contains data in conflict !ith other docu ents.
D.D.&.B =eight list

Indicates !eight in conflict !ith other docu ents. Indicates other data in conflict !ith other docu ents.
D.D.- Discrepancies on documents re9uired for official purposes

D.D.-." Certificate of origin
Indicates the origin of goods to be other than that stipulated in the docu entary credit. Certificate not issued by the party stipulated in the docu entary credit.
Certificate does not indicate that it has been legalised and visaed as re%uired by the docu entary credit. ,egalisation not in ter s of the docu entary credit. 'ata on docu ent in conflict !ith other docu ents.
D.D.-.& Consular in!oice

'escription of goods does not correspond !ith the description sho!n on the docu entary credit. Contains data in conflict !ith other docu ents. ?ot visaed and sta ped as stipulated in docu entary credit.
D.D.-.- Legalised in!oice

,egalisation not in ter s of the docu entary credit. If legalisation is allo!ed by a consulate or cha ber of co erce in the absence of a notary, no state ent to indicate that a consulate or cha ber of co erce legalisation has been effected because there is no notary.
D.D.-.3 E%port licence

?ot issued by the authority or body na ed in the docu entary credit. Goods not in accordance !ith the description of goods on the invoice and docu entary credit. Contains data in conflict !ith other docu ents.
D.D.-.? Eealth certificate

&ll of the discrepancies co on to the e#port licence, along !ith certification is not as stipulated on the docu entary credit.
8e!iew 9uestions
).
If a draft is negotiable, !hich of the follo!ing does not applyV a. Full and legal title passes upon delivery. b. The face value of the draft can be changed by negotiation bet!een the applicant and the beneficiary. c. Transfer is ade by delivery or endorse ent and delivery.
3.
;hich one of the follo!ing is not a co a. 1lac"list certificate. b. Insurance docu ent. c. Certificate of origin. d. 1ill of e#change.
ercial docu entV
9.
$o! can an applicant of a docu entary credit ensure that it !ill only have to pay if the correct goods of the agreed standard are deliveredV a. If they as" for all docu ents together. b. If they as" for a certificate of origin. c. If they as" for an inspection certificate. d. If they as" for %uality and %uantity certificates issued by an approved authority.
/. If a usance draft is presented under a docu entary credit, !hich of the follo!ing is not considered !hen deter ining the aturity dateV a. The tenor of the draft. b. The dra!ee. c. The face value of the draft. d. ;hether the presentation is clean or discrepant. @. & docu entary credit re%uires a draft to be dra!n payable at 86 days after the date of ship ent. If the date of ship ent is )6 <ay and a draft is presented under that credit describing the due date as follo!s, !hich draft is not acceptableV a. &t 86 days after )6 <ay 36## pay this . . . b. &t 86 days after date of ship ent Adate of ship ent )6 <ay 36##B pay this . . . c. &t 86 days after date of ship ent pay this . . . d. &t * 5uly 36## pay this . . .
Re#ie.uestions
Chapter *
E%amination documents
of
Learning ob ecti!es &fter studying this chapter students should be able to: e#plain the role of ban"s in e#a ining docu entsG understand the acceptance of presented docu entsG describe preli inary e#a ination tas"s and techni%uesG e#plain the e#a ination of docu ents by a ban"G and e#plain the handling of discrepant docu ents.
F." $ntroduction
This chapter is focused on the handling and e#a ination of presentations under docu entary credits. 'ocu entary credit ban"ing is both a co petitive and a co-operative endeavour. To succeed, ban"s ust develop custo s and practices that earn their custo ers. and correspondents. trust. This chapter details the role of the docu ent e#a iner in the e#a ination of docu ents. The principles are the sa e !hether the docu ent e#a iner is !or"ing for a no inated, confir ing or issuing ban".
33@
F.& )reliminary tasks

The e#a ination tas"s perfor ed by a docu ent e#a iner !ill reflect the re%uire ents of their role specific to the designation of
338
$reliminar! tasks
their ban" in the docu entary credit transaction. In perfor ing the e#a ination, the docu ent e#a iner should consider the follo!ing.
F.&." 8ecording
Issues under this heading include receipt and ti ing of docu ents: $ndi!idual documents recei!ed /including copies0 a docu ent e#a iner should ensure that the docu ents have been received as indicated on the covering schedule or letter Aie by type, and nu ber of originals and copiesB. Date and time of receipt a docu ent e#a iner should ensure that the date and ti e of receipt have been noted on the schedule, letter or co pli ent slip and on internal co puter records. These details should also be sho!n on any ban" docu ent e#a ination record, an e#a ple of !hich is illustrated in section *.3.+.
F.&.& :he schedule or letter enclosing documents

& presentation of docu ents is usually acco panied by: a docu ent schedule issued by ban"s either overseas or locallyG a covering letter fro or the presenter, usually the beneficiaryG
co pli ent slips or unidentified slips of paper attached to docu ents. ?ote that in so e countries, legislation a"es a distinction in the protection afforded to ban"s in respect of dealings !ith custo ers and dealings !ith others. & docu ent e#a iner ust evaluate these !ith the presentation: 7chedules issued by banks a docu ent e#a iner usually has little difficulty !ith these. The covering letter fro the presenter if the presenter has no custo er relationship and is not a na e "no!n to the docu ent e#a iner, there ay be internal guidelines that need be follo!ed. ifsto School of Finance 337
2013
Co pli ent slips or unidentified slips documents of paper a docu ent e#a iner ay need to consider ho! an effective line of
3* &'amination of
33+
$reliminar! tasks
co unication can be established. Internal guidelines, including those on fraud, ay need to be follo!ed.
F.&.- :he a!ailability of the documentary credit

& docu ent e#a iner ust ascertain that the docu entary credit nu ber is correct, that the credit is available !ith the ban" for presentation Aappropriate !hen the ban" is not the issuing ban"B and that: the docu entary credit has not e#piredG the sufficientG a ount available is
previous dra!ings, if any, appear to be correctly recordedG the docu entary credit is available for the goods and prices covered by the presentation, !hich ay prove a proble if there have been a nu ber of a end ents to the goods or unit prices and dates of ship entG
all a end ents are on file. In the case of a presentation for !hich the docu entary credit has been advised through another ban", a docu ent e#a iner ust a"e in%uiries !ith that ban" to ensure that all a end ents are on file.
F.&.3 7ettlement instructions
or
payment
& docu ent e#a iner ust ascertain !hether the covering schedule, letter, co pli ent slips or unidentified slips of paper have given clear instructions regarding: settlement !here pay ent should be sent and ho!G completion of settlement !hether settle ent has already been ade as a result of a TT Ateletrans issionB rei burse ent clai G
charges
!ho is paying
33*
theseG
3* &'amination of documents
ad!ice of payment ho! this should be sentG and agentHs or other bankHs commission /if any0 !hether this is clear.
396
$reliminar! tasks
F.&.? Discrepancies noted by the presenter

& docu ent e#a iner should loo" to see !hether the presenter has noted any discrepancies. The docu ent e#a iner should ignore any additional co ents Asuch as the discrepancies have been agreed bet!een the applicant and the beneficiaryB unless the issuing ban" has already for!arded approval of such discrepancies.
F.&.* Documentary workability
credit
& docu ent e#a iner ust ascertain !hether the docu entary credit is !or"able. &t the ini u , this eans that the credit is capable of being honoured or negotiated against the presentation of the stipulated docu ents by the beneficiary and is not dependent on any other factors. $o!ever, this tas" is nor ally perfor ed at the ti e of issuance, advising or the adding of confir ation.
F.&.B Characteristics of the documentary credit and payment terms

& docu ent e#a iner should ascertain !hether the docu entary credit is available at the counters of his or her ban" and !hether it is available by: sight pay entG pay entG deferred
sight negotiationG negotiationG acceptanceG or !hether it is: a transferable creditG ifs School of Finance
2013
usance
39)
the pri e arrange entG a creditG revolving
credit
in
bac"-to-bac"
a standby letter of creditG a credit. revocable
393
$reliminar! tasks
& docu ent e#a iner ust co pare the presenter.s settle ent re%uest !ith the docu entary credit ter s in order to deter ine !hether the settle ent re%uest can be co plied !ith. In respect of the follo!ing docu entary credit types, a docu ent e#a iner should chec" any internal operational guidelines and the relevant files to ascertain !hether the settle ent ter s can be co plied !ith: transferableG bac"-to-bac" arrange entG revolvingG standbyG revocable.
F.&.D Completion of the bankHs document e%amination record

It is co on for a ban" to use a docu ent e#a ination record as part of its internal process. This record, !hich ay vary in design and the e#tent of its detail, is ai ed at providing a history of everything that happens to the presentation, fro presentation to either settle ent or refusal. For ost ban"s, these records !ill be aintained !ithin the bac" office syste s that are used for the issuance, advising and settle ent of docu entary credits. The are: essential fields
details of the docu entary credit nu ber, a ount, e#piry and latest ship ent dateG details e#a inationG of discrepancies ascertained on
brief notes on discussions !ith the beneficiary or presenting ban"G settle ent ter sG and initials or signature of the docu ent e#a iner or e#a iners. In discussions !ith third parties, senior anage ent, legal advisers, and in any possible litigation, a docu ent e#a iner ifs find School of Finance 399 can the ban".s docu ent e#a ination record of pri e
2013
i portance.
The essential fields of a docu ent e#a ination record are sho!n in Figure *.) using an e#a ple of a presentation for \33,/*@ under a docu entary credit.
39/
Figure F."
Documents received Presenter ABC Ltd Presenters Credit Amount %e& )o. 12*4+, o& credit
E%ample of a document e%amination record

22 Mar 20xx L! "L "x# 1BP 1BP ABC 100000 22+00 Amount o& 1BP 224'+ #resentation -ssuin$ Ban. 10.40am Contact 1''(2 C-B validit/ *0 A#r 20xx discre#anc/0 (examiners initial) Mr "x#ort Mana$er
Amount availa2le
34i#ment Date BL5A6B List
ex#ir/
1+ 14
A#r 20xx Mar 20xx
o& s4i#ment
)o. o& da/s &or #resentation 1+ da/s discre#anc/0
o& discre#ancies o& $oods not as #er credit (does not s4o7 )"6) #olic/ does not s#eci&icall/ indicate covera$e &or 6A% ris.
Descri#tion -nsurance BL
s4o7s $oods trans4i##ed at Du2ai noti&ied to tele#4one on 24 Mar 20xx at PM on 24 Mar xx 2/ telex 5 letter 5 &ax (stri.e t4rou$4 2 o#tions) 7it4 Mr xxxx 74o advises since rcvd 2: Mar 20xx sent 2: Mar 20xx rcvd 2: Mar 20xx
%e8ection Mr Con&irmed
"x#ort Mana$er 2/
Discussions 9sendin$ 9re;uests 9amendment 3ettlement Pa/
amended invoices &or (i) 7e contact issuin$ 2an. &or aut4orit/ &or (ii)9 comin$ &or (iii)9 terms and c4ar$es
<= Clearin$ Ban. Ltd at >>>>>>>>. c4ar$es AD? instruction
A5c ABC Ltd %e& "!P ABC 1''(2 Deduct 3#ecial
@"3 At4er details %A)3B"%ABL" %"?AL?-)1 BAC=C ACBAC=
)A ! ! !
F.- E%amination of documents

& docu ent e#a iner should e#a ine the docu ents syste atically, follo!ing a procedure that includes: e#a ination of the docu ents !ith reference to the docu entary credit, including accepted a end entsG e#a ination of the docu ents !ith reference to =C( 866G and e#a ination of the docu ents !ith reference to one another.
&'amination of documents
F.-." E%amination of documents with reference to the documentary credit

'ocu entary credits are generally trans itted as a S;IFT <T766 essage !ith, possibly, an <T76) essage !here there is a large a ount of data, although they ay also be issued either in tele# or letter for . If the docu entary credit is sent in a S;IFT essage type, it !ill be in a set for at, !ith fields designated for each type of data content. The layout of a docu entary credit issued by tele# or letter ay not be so consistent in its structure. & docu ent e#a iner should read the full content of the docu entary credit to a"e the selves a!are of the specific ter s and conditions that !ill apply to the presentation. & docu ent e#a iner should also ensure that they have covered all of the ter s and conditions in this revie! process. This re%uire ent applies to all docu entary credits, because the disciplines i posed by the S;IFT essage fields are not al!ays follo!ed, and data content or other re%uire ents are so eti es placed outside their designated fields. 2ey field data designators, as e#tracted fro the S;IFT for at specification, are sho!n in the follo!ing sub-sections, and co ent is ade on !hat a docu ent e#a iner should be revie!ing !here considered necessary.
F.-."." Form credit
of
The type and characteristics of the docu entary credit ie !hether it is irrevocable, transferable or a standby is indicated here. ;hile =C( 866 does not specifically recognise revocable docu entary credits, they ay be issued subHect to =C( 866, but the docu entary credit ust incorporate all the conditions of the revocability.
F.-.".& Documentary number
credit
?u ber assigned to the docu entary credit by the issuing ban".
F.-.".- Date of issue ifs School of Finance

2013
39)
Is there a stipulation in the docu entary credit indicating that one Aor oreB of the docu ents dated prior to the issue date is AareB not acceptableV AIf no date is indicated, the date of issue of the docu entary credit is the date of the essage.B & docu ent e#a iner should refer to #C) *++, sub2 article "3/i0 in this respect.
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F.-.".3 ;pplicable rules

The rules that are applicable to the docu entary credit ust be specified here. 'epending on !hether =C( 866, or IS( *+, or e=C( and =RR are applicable, this !ill read F=C(,&T-STU-RSIE?., F-=C(,&T-STU-RSIE?., F=C(=RR,&T-STU-RSIE?., F-=C(=RR,&T-ST U-RSIE?., FIS(,&T-STU-RSIE?. or FET$-R. Areference to F,&T-ST U-RSIE?. being the rules in operation on the date of issuance of the docu entary credit or standby creditB. =se of the !ord FET$-R. !ill signify that =C( 866 and IS( *+ do not apply to the transaction: in such case, the docu entary credit, in field /7& of the S;IFT essage, should indicate the applicable rules or la! applying thereto.
F.-.".? Date e%piry
and
place
of
Date of e%piry the docu entary credit is not available after the date stipulated other than as provided for in #C) *++, sub2article &F/a0. )lace of e%piry docu ents should be capable of being presented at the place of e#piry on or before the e#piry date.
F.-.".* ;pplicant
?a e of the party that has re%uested the issuance of the docu entary credit.
F.-.".B Beneficiary
?a e of the party in !hose favour the docu entary credit has been issued. =nless the docu entary credit stipulates other!ise, invoices ust be ade out in the na e of the applicant and be issued by the na ed beneficiary, e#cept as provided in #C) *++, sub2 articles -D /h0 and /i0.
documents #C) *++, sub2articles -D /h0 and /i04 :ransferable credits
3* &'amination of
/h0The first beneficiary has the right to substitute its o!n invoice and draft, if any, for those of a second beneficiary for an a ount not in e#cess of that stipulated in the credit, and upon such substitution the first beneficiary can dra! under
39/
the credit for the difference, if any, bet!een its invoice and the invoice of a second beneficiary. /i0 If the first beneficiary is to present its o!n invoice and draft, if any, but fails to do so on first de and, or if the invoices presented by the first beneficiary create discrepancies that did not e#ist in the presentation ade by the second beneficiary and the first beneficiary fails to correct the on first de and, the transferring ban" has the right to present the docu ents as received fro the second beneficiary to the issuing ban", !ithout further responsibility to the first beneficiary.
F.-.".D Credit amount

(ercentage tolerance and %ualifications such as Fup to., F a#i u . and Fnot e#ceeding. are sho!n in these fields. & docu ent e#a iner ust ascertain that values and %uantities are !ithin any stated tolerances, and that the dra!ing is in line !ith the docu entary credit a ount.
F.-.".F ;!ailable by
with and
This field identifies the ban" authorised to pay, accept, incur a deferred pay ent underta"ing or negotiateG it ay also indicate that any ban" is so authorised. & docu ent e#a iner is to ensure that their ban" is a no inated ban" if other than the issuing ban".
F.-."."+ Drafts
& docu ent e#a iner ust e#a ine !hether drafts, if re%uired, are dra!n as specified in the docu entary credit. The a ount should be the invoice a ount unless there is a stipulation indicating other!ise. The drafts should be endorsed, !here necessary, and evidence any additional !ording re%uired by the docu entary creditG the a ount in figures and !ords should agree. & docu ent e#a iner ust loo" out for any specific stipulation in respect of drafts.
F.-."."" ifs School )artial of Finance 2013
39@
shipments
If partial ship ents are prohibited, a docu ent e#a iner ust deter ine !hether the docu ents are consistent !ith a full ship ent and a full dra!ing, and, unless other!ise stipulated, !hether the a ount and goods are !ithin the @ per cent tolerance indicated in
398
#C) *++, sub2articles -+/b0 and -+/c0G other!ise the goods ay be short-shipped. #C) *++, article -+4 :olerance in credit amount, 9uantity and unit prices a. The !ords OaboutP or Oappro#i atelyP used in connection !ith the a ount of the credit or the %uantity or the unit price stated in the credit are to be construed as allo!ing a tolerance not to e#ceed )6Y ore or )6Y less than the a ount, the %uantity or the unit price to !hich they refer. b. & tolerance not to e#ceed @Y ore or @Y less than the %uantity of the goods is allo!ed, provided the credit does not state the %uantity in ter s of a stipulated nu ber of pac"ing units or individual ite s and the total a ount of the dra!ings does not e#ceed the a ount of the credit. c. -ven !hen partial ship ents are not allo!ed, a tolerance not to e#ceed @Y less than the a ount of the credit is allo!ed, provided that the %uantity 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 96 AbB is not applicable. This tolerance does not apply !hen the credit stipulates a specific tolerance or uses the e#pressions referred to in sub-article 96 AaB. If partial ship ents are not prohibited, the dra!ing, if it is in respect of a second or subse%uent ship ent, ust be consistent !ith the a ount and %uantity of goods that are re aining, and any unit prices, if any.
F.-."."& :ranshipment
& docu ent e#a iner ust ascertain !hether tranship ent is prohibited and, if so, the bill of lading, for e#a ple, ust not evidence unloading and reloading fro one vessel to another during the course of ocean carriage fro the port of loading to the port of discharge entioned in the docu entary credit, e#cept if ship ent is effected in containers, trailers or ,&S$ barges and the entire carriage is covered by one and the sa e bill of lading. & docu ent e#a iner ust e#a ine the transport docu ent against the rule under the applicable transport article in =C( 866.
F.-."."- )lace of taking charge J ports J airports J place of deli!ery

& docu ent e#a iner ust e#a ine the transport docu ent !ith the stipulations in the docu entary credit, !ith the detailed rules ade under the respective transport article in =C( 866 and the applicable paragraphs of IS1(, (ublication ?o. 7/@. Ter s used include place of ta"ing in charge M dispatch fro M . . . place of receipt and M or port of loading M airport of departure and M or port of discharge M airport of destination and M or place of final destination M for transportation to . . . M place of delivery. & docu ent e#a iner ust be especially vigilant regarding any reference on the transport docu ent in relation to an intended vessel or an intended port of loading. For e#a ple, if such references have been ade on a bill of lading, then a dated on-board notation is re%uired containing the na e of the vessel and the port of loading, or the !ord Fintended. is to be deleted and the correction authenticated by the carrier or its agent.
F.-."."3 Latest shipment
date
of
& docu ent e#a iner ust ensure that the transport docu ent is not dated after the date stipulated in this field or, if no date is sho!n, after the e#piry date of the docu entary credit.
F.-."."? Description goods
of
& docu ent e#a iner ust ensure that the !ording of the description of goods on the invoice corresponds !ith that sho!n on the docu entary credit A#C) *++, sub2article "D/c0B. Further, a docu ent e#a iner ust ensure that other stipulated docu ents do not contain a goods description that conflicts !ith that sho!n on the invoice or the docu entary credit. &ny ship ent ter s or Incoter s stipulated as part of the goods description should be evidenced on the invoice. & docu ent e#a iner ust e#a ine the invoices and other docu ents in line !ith the stipulations in the docu entary credit and !ith =C( 866. #C) *++ article "D4 Commercial in!oice ifs School of Finance
2013
39+
&'amination of documents a. & co ercial invoice:
39*
i. ii. iii.
ust appear to have been issued by the beneficiary Ae#cept as provided in article 9+BG ust be ade out in the na e of the applicant Ae#cept as provided in sub-article 9+ AgBBG ust be ade out in the sa e currency as the creditG
and iv. need not be signed. b. & no inated ban" acting on its no ination, a confir ing ban", if any, or the issuing ban" ay accept a co ercial invoice issued for an a ount in e#cess of the a ount per itted by the credit, and its decision !ill be binding upon all parties, provided the ban" in %uestion has not honoured or negotiated for an a ount in e#cess of that per itted by the credit.
c. The description of the goods, services or perfor ance in a co ercial invoice ust correspond !ith that appearing in the credit.
F.-."."* Documents re9uired

This field describes the docu entary re%uire entsG those for insurance and transport docu ents are fully discussed in Chapter 8 and Chapter 7. & docu ent e#a iner ust: read the re%uire ents in this field in relation to all docu entsG read any re%uire ents else!here in the docu entary creditG and revie! the co on discrepancies listed in Chapter 8, Chapter 7 and Chapter +. The follo!ing revie! points, !here appropriate, should not be overloo"ed. For the docu ent: transport
on-board notationG on-board loadingG port of 3/6 dischargeG notation to include vessel and port of loading and port of
documents %ualifications pac"agingG shipping ar"sG
&'amination of
about
defective
goods
or
3/)
tranship entG not docu entG a charter party
goods description not in conflictG ust not contain any data in conflict !ith the data sho!n !ithin that docu ent, any other stipulated docu ent or the docu entary credit. insurance
For the docu ent:
ust not be a cover noteG a policy stipulatedG ust be presented !here it is so
!hen the docu entary credit is silent as to the assured party, to be issued or endorsed in favour of the applicant or issuing ban", or endorsed in blan" by the na ed assuredG the ris"s ust be covered as stipulated in the docu entary credit and be sho!n specifically on the insurance docu entG date effectiveG on !hich cover is
ust not contain any data in conflict !ith data sho!n !ithin that docu ent, any other stipulated docu ent or the docu entary credit. other
For docu ents:
ust be e#a ined against the stipulations in the docu entary creditG ay be
ust be issued by the na ed party as stipulatedG the data content, if stipulated, !ithG
ust be co plied
ust not contain any data in conflict !ith data sho!n !ithin that docu ent, any other stipulated docu ent or the docu entary credit.
3/3
F.-."."B ;dditional
&'amination of documents conditions
& docu ent e#a iner ust revie! these conditions against the stipulated docu ents. If no docu ent is stipulated, the condition ust be considered as not stated and should be disregarded. &ttention is dra!n to #C) *++, sub2article "3/h0.
3/9
F.-."."D )eriod presentation
for
& docu ent e#a iner ust deter ine that, if a period is stipulated in this field, the presentation has been ade !ithin such period after the date of ship ent or date of a docu ent or event. &ttention is dra!n to #C) *++, sub2article "3/c0 for the default period !hen no presentation period is specified.
F.-."."F Confirmation instructions

& docu ent e#a iner ust ascertain !hether there is a re%uest or authorisation for confir ation to be added, the na e of the confir ing ban", if other than his or her ban", and !hether such ban" has added its confir ation and, if so, !hether it has e#tended its confir ation to all a end ents Asee #C) *++, article D and sub2article "+/b0B. If the docu ent e#a iner.s ban" has added confir ation to the credit, the docu ent e#a iner should revie! the advice of confir ation and any a end ents to ascertain the scope of the confir ation that has been added.
F.-.".&+ 8eimbursing bank

& docu ent e#a iner ust ascertain !hether this field features the na e of a ban" fro !hich rei burse ent is to be obtained and the anner in !hich it is to be obtained. & docu ent e#a iner should deter ine !hether the ethod is consistent !ith the pay ent that is being re%uested by the beneficiary. If reference is ade in field /6- to #88, then those rules !ill apply to the docu entary creditG other!ise, see #C) *++, sub2articles "-/b0 and /c0.
F.-.".&" Charges
The docu entary credit should stipulate fro to be recovered. !ho charges are
3//
F.-.& E%amination of documents documents with reference to any amendments

If a docu entary credit has been a ended, a docu ent e#a iner should e#a ine the docu ents against the a ended ter s, unless the beneficiary has given prior notification of the reHection of such a end entAsBG or, fro the presentation of docu ents, it can be ascertained that they have reHected one or ore a end ents.
&'amination of
3/@
If a docu ent e#a iner is acting for a confir ing ban", additional care should be ta"en to ascertain !hether or not confir ation has been e#tended to the a end ent. If it has not been e#tended, the confir ing ban" !ill not be bound by the a ended ter s, even though the docu ents presented ay be in co pliance !ith such ter s. If a docu ent e#a iner is acting for a no inated ban" and docu ents are presented under a docu entary credit that is available !ith any ban", they should contact the advising ban" Aif differentB to establish that full details of the docu entary credit and a end ents are held before perfor ing the docu ent e#a ination. #C) *++, article "+ covers a end ents. The "ey points are: the need to obtain the agree ent of all parties to a docu entary credit before it can be a ended or cancelledG
the ti ing of !hen an a end ent beco es binding on the issuing ban" and, if any, a confir ing ban"G the option of the confir ing ban" to decline to e#tend its confir ation to the ter s of an a end entG the need for the beneficiary to co or reHection of an a end entG unicate acceptance
the sufficiency of presentation of docu ents confor ing to the docu entary credit and not previously accepted a end ents as notification of such acceptanceG any notification of acceptance or reHection of a end ents to be advised to an issuing ban"G the need for acceptance or reHection of an a end ent in its entiretyG no ti e li its ay be applied !ith regard to the effectiveness of an a end ent.
F.-.- E%amination of documents with reference to #C) *++

&s !ell as e#a ining docu ents !ith reference to the ter s and conditions of the docu entary credit, a docu ent e#a iner ust also ta"e into account the relevant provisions of =C( 866. 3/8 ifs School of Finance
2013
F.-.-." 7tandard documents
for
e%amination
of
#C) *++, article "3 addresses the standard for e#a ination of docu ents. If errors occur in a presentation, there is al!ays the potential for conflict, regardless of ho! insignificant the error appears to be. It can be difficult for a docu ent e#a iner to Hudge !hether such error constitutes a valid discrepancy or not, especially if it eans e#plaining to a beneficiary that pay ent !ill be delayed. $7B), )ublication No. B3?, paragraph ;&- states that an obviously isspelled !ord or typing error does not need to be raised as a discrepancy. $7B) B3?, paragraph ;&-4 Aisspellings or typing errors & isspelling or typing error that does not affect the eaning of a !ord or the sentence in !hich it occurs does not a"e a docu ent discrepant. For e#a ple, a description of the goods sho!n as O ashineP instead of O achineP, Ofountan penP instead of Ofountain penP or O odleP instead of O odelP !ould not be regarded as a conflict of data under =C( 866 sub-article )/ AdB. $o!ever, a description sho!n as, for e#a ple, O odel )39P instead of O odel 93)P !ill be regarded as a conflict of data under that sub-article. 9.3.3.1.1 !n face# t"eir
The doctrine of e#a ination of docu ents Fon their face. is included in #C) *++, sub2article "3/a0. It eans that the decision as to !hether the docu ents co ply !ith the ter s and conditions of a docu entary credit is based e#clusively upon the ban".s visual e#a ination of the docu ents and not upon so eone else.s understanding or fro infor ation obtained outside of the data appearing on the face of the docu ents. The phrase Fon their face. is not to be interpreted as eaning either the face or the reverse of a docu ent. 9.3.3.1.2 International &ractice standard ban$in%
International standard ban"ing practice is represented by the content and the provisions of =C( 866. It is supported by the e#planations given in the ICC 1an"ing Co ission.s publication ifs School of Finance International Standard Bankin% $ractice for the &'amination of 3/7
2013
ocuments under ocumentar! Credits, documents 2013 Re#ision for UC$ (00 AIS1( (ublication ?o. 7/@B. This section outlines the ore generic aspects of docu ent e#a ination practices, !hich are not specific to any particular article
3* &'amination of
3/+
or docu ent. In this respect, a docu entary e#a iner should apply the content of the follo!ing IS1( paragraphs as and !hen re%uired by the docu entation and !here local la! does not co pel a different practice. $7B), )ublication No. B3?, paragraphs ;" and consider abbreviations and the use of virgules and co as. $7B) B3?, paragraph ;" Generally accepted abbreviations, such as, but not li ited to, OInt.lP instead of OInternationalP, OCo.P instead of OCo panyP, O"gsP or O"osP instead of O"ilogra sP or O"ilosP, OInd.P instead of OIndustryP, O,tdP instead of O,i itedP, O frP instead of O anufacturerP or O tP instead of O etric tonsP ay be used in docu ents in substitution for a !ord or vice versa. & credit that includes an abbreviation in its te#t allo!s a docu ent to sho! the sa e abbreviation or any other abbreviation that has the sa e eaning, or to sho! the co plete spelling of the !ord or vice versa. ;&
$7B) B3?, paragraph ;& a. Uirgules Aie slash ar"s OMPB ay result in different eanings and should not be used as a substitute for a !ord. If, nevertheless, a virgule is used and no conte#t is apparent, this !ill allo! the use of one or ore of the options. For e#a ple, a condition in a credit stating ORedM1lac"M1lueP !ith no further clarification !ill ean only Red or only 1lac" or only 1lue or any co bination of the .
b. The use of a co a !hen indicating a range of data in a credit such as ports of loading or discharge or countries of origin, ay result in different eanings and should not be used as a substitute for a !ord. If, nevertheless, a co a is used and no conte#t is apparent, this !ill allo! the use of one or ore of the options. For e#a ple, !hen a credit allo!s partial ship ent and indicates the port of loading infor ation as O$a burg, Rotterda , &nt!erpP !ith no further clarification, this !ill ean only $a burg or only Rotterda or only &nt!erp or any co bination of the . $7B), )ublication ifs School of Finance
2013
No.
B3?,
paragraphs
;- ;? 3/*
documents and state ents. relate to certificates, certifications, declarations
3* &'amination of
3@6
$7B) B3?, paragraphs ;-;?4 Certificates, certifications, declarations and statements &9. ;hen a certificate, certification, declaration or state ent is re%uired by a credit, it is to be signed. &/. ;hether a certificate, certification, declaration or state ent needs to be dated !ill depend on the type of certificate, certification, declaration or state ent that has been re%uested, its re%uired !ording and the !ording that appears !ithin the docu ent. For e#a ple, !hen a credit re%uires the presentation of a certificate issued by the carrier or its agent stating that the vessel is no ore than 3@ years old, the certificate ay evidence co pliance by indicating: the date or year the vessel !as built, and such date or year is no ore than 3@ years prior to the date of ship ent or the year in !hich ship ent !as effected, in !hich case a date of issuance is not necessary, or the !ording as stated in the credit, in !hich case a date of issuance is re%uired, thereby certifying that as of that date the vessel !as not ore than 3@ years old. &@. ;hen a certification, declaration or state ent is to appear in a docu ent !hich is to be signed and dated, it does not re%uire a separate signature or date !hen the certification, declaration or state ent appears to have been given by the sa e entity that issued and signed the docu ent. $7B), )ublication No. B3?, paragraph ;* e#plains the e#a ination re%uire ents !hen a docu entary credit only re%uires the presentation of a copy of a transport docu ent !ith the originals being disposed of to the applicant, issuing ban" or other na ed entity. $7B) B3?, paragraph ;*4 Copies of transport documents co!ered by #C) *++ articles "F&? a. ;hen a credit re%uires the presentation of a copy of a transport docu ent covered by =C( 866 articles )*-3@, the relevant article is not applicable, as these articles only apply to original transport docu ents. & copy of a ifs School of Finance
2013
3@)
transport docu ent
3@3
is to be e#a ined only to the e#tent e#pressly stated in the credit, other!ise according to =C( 866 sub-article )/ AfB. b. &ny data sho!n on a copy of a transport docu ent, !hen read in conte#t !ith the credit, the docu ent itself and international standard ban"ing practice, need not be identical to, but ust not conflict !ith, data in that docu ent, any other stipulated docu ent or the credit. c. Copies of transport docu ents covered by =C( 866 articles )*-3@ are not subHect to the default presentation period of 3) calendar days stated in =C( 866 sub-article )/ AcB or any presentation period stated in the credit, unless the credit e#plicitly states the basis for deter ining such presentation period. Ether!ise, a presentation ay be ade at any ti e, but in any event no later than the e#piry date of the credit. $7B), )ublication No. B3?, paragraphs ;B;D e#plain the standard practice should any docu ents contain corrections and alterations. $7B) B3?, paragraph ;B a. i. &ny correction of data in a docu ent issued by the beneficiary, !ith the e#ception of drafts Asee paragraph 1)8B, need not be authenticated. ii. ;hen a docu ent issued by the beneficiary has been legaliIed, visaed, certified, etc., any correction of data is to be authenticated by at least one of the entities that legaliIed, visaed or certified, etc., the docu ent. Such authentication is to indicate the na e of the entity authenticating the correction either by use of a sta p incorporating its na e, or by the addition of the na e of the authenticating entity acco panied by its signature or initials. i. &ny correction of data in a docu ent, other than in a docu ent issued by the beneficiary, is to appear to have been authenticated by the issuer or an entity acting as agent, pro#y or for Wor on behalf ofX the issuer. Such authentication is to indicate the na e of ifs School of Finance 3@9 the entity authenticating the correction either by use of
2013
b.
a sta p incorporating its nadocuments e, or by the addition of the na e of the authenticating entity acco panied by its signature or initials. In the case of authentication by an agent or pro#y,
3* &'amination of
3@/
the capacity of acting as agent or pro#y for Wor on behalf ofX the issuer is to be stated. ii. ;hen a docu ent other than one issued by the beneficiary has been legaliIed, visaed, certified, etc., any correction of data is, in addition to the re%uire ents of paragraph &7 AbB AiB, to be authenticated by at least one of the entities that legaliIed, visaed or certified, etc., the docu ent. Such authentication is to indicate the na e of the entity authenticating the correction either by use of a sta p incorporating its na e, or by the addition of the na e of the authenticating entity acco panied by its signature or initials.
c. &ny correction of data in a copy docu ent need not be authenticated.
$7B) B3?, paragraph ;D ;hen a docu ent other than one issued by the beneficiary contains ore than one correction, either each correction is to be authenticated separately, or one authentication is to indicate that it applies to all the corrections. For e#a ple, !hen a docu ent issued by 444 sho!s three corrections nu bered ), 3 and 9, one state ent such as OCorrection nu bers ), 3 and 9 authenticated by 444P or si ilar, together !ith the signature or initials of 444, !ill satisfy the re%uire ent for authentication.
$7B) B3?, paragraph ;F The use of ultiple type styles, font siIes or hand!riting !ithin the sa e docu ent does not, by itself, signify a correction.
3@@
$7B), )ublication No. B3?, paragraphs ;"";"* relate to dates. $7B) B3?, paragraphs ;"";"*4 Dates &)). a. -ven !hen a credit does not e#pressly so re%uire: i. drafts are to indicate a date of issuanceG ii. insurance docu ents are to indicate a date of issuance or effectiveness of the insurance coverage as reflected in paragraphs 2)6 AbB and 2)).G and
iii. original transport docu ents, subHect to e#a ination under =C( 866 articles )*-3@, are to indicate a date of issuance, a dated on board notation, a date of ship ent, a date of receipt for ship ent, a date of dispatch or carriage, a date of ta"ing in charge or a date of pic" up or receipt, as applicable. b. & re%uire ent that a docu ent, other than a draft, insurance docu ent or original transport docu ent, be dated !ill be satisfied by the indication of a date of issuance or by reference in the docu ent to the date of another docu ent for ing part of the sa e presentation Afor e#a ple, by the !ording Odate as per bill of lading nu ber ###P appearing on a certificate issued by a carrier or its agentB or a date appearing on a stipulated docu ent indicating the occurrence of an event Afor e#a ple, by the date of inspection being indicated on an inspection certificate that other!ise does not contain a date of issuanceB. &)3. a. & docu ent, such as, but not li ited to, a certificate of analysis, inspection certificate or fu igation certificate, ay indicate a date of issuance later than the date of ship ent. b. ;hen a credit re%uires a docu ent to evidence a preship ent event Afor e#a ple, Opre-ship ent inspection certificatePB, the docu ent, either by its title, content or date of issuance, is to indicate that the event Afor e#a ple, inspectionB too" place on or prior to the date of ship ent. c. ;hen a credit re%uires a docu ent such as, but not li ited to, an Oinspection certificateP, this does not ifs School of Finance
2013
3@8
&'amination of documents constitute a
3@7
re%uire ent that the docu ent is to evidence a preship ent event, and it need not be dated prior to the date of ship ent. &)9. & docu ent indicating a date of issuance and a later date of signing is dee ed to have been issued on the date of signing. &)/. a. ;hen a credit uses phrases to signify ti e on either side of a date or an event, the follo!ing shall apply: i. Onot later than 3 days after Adate or eventBP eans a latest date. If an advice or docu ent is not to be dated prior to a specified date or event, the credit should so state.
ii. Oat least 3 days before Adate or eventBP eans that an act or event is to ta"e place not later than 3 days before that date or event. There is no li it as to ho! early it ay ta"e place. b. i. For the purpose of calculation of a period of ti e, the ter O!ithinP !hen used in connection !ith a date or event e#cludes that date or the event date in the calculation of the period. For e#a ple, O!ithin 3 days of Adate or eventBP eans a period of @ days co encing 3 days prior to that date or event until 3 days after that date or event. ii. The ter O!ithinP !hen follo!ed by a date or a reference to a deter inable date or event includes that date or event date. For e#a ple, Opresentation to be ade !ithin )/ <ayP or Opresentation is to be ade !ithin credit validity Aor credit e#piryBP !here the e#piry date of the credit is )/ <ay, eans )/ <ay is the last day upon !hich presentation is allo!ed, provided that )/ <ay is a ban"ing day. &)@. The !ords Ofro P and OafterP !hen used to deter ine a aturity date or period for presentation follo!ing the date of ship ent, the date of an event or the date of a docu ent, e#clude that date in the calculation of the period. For e#a ple, )6 days after the date of ship ent or )6 days fro the date of ship ent, !here the date of ship ent !as / <ay, 3@+ !ill be )/ <ay. ifs School of Finance
2013
documents &)8. (rovided that the date intended can be deter ined fro the docu ent or fro other docu ents included in the presentation, dates ay be e#pressed in any for at. For e#a ple, the )/th of <ay 36)9 could be e#pressed as )/ <ay )9, )/.6@.36)9, )/.6@.)9, 36)9.6@.)/, 6@.)/.)9, )96@)/, etc. To avoid any ris"
&'amination of
3@*
of a biguity, it is reco in !ords.
ended that the
onth be stated
$7B), )ublication No. B3?, paragraph ;"B e#plains that although a docu ent ay have a bo#, field or space for data to be inserted, it need not be co pleted. $7B) B3?, paragraph ;"B4 Documents and the need for completion of a bo%, field or space The fact that a docu ent has a bo#, field or space for data to be inserted does not necessarily ean that such bo#, field or space is to be co pleted. For e#a ple, data are not re%uired in the bo# titled O&ccounting Infor ationP or O$andling Infor ationP co only found on an air !aybill. &lso see paragraph &97 in respect of the re%uire ents for a signature to appear in any bo#, field or space. $7B), )ublication No. B3?, paragraph ;"D refers to a transport docu ent other than those entioned in articles )*3@, and the e#a ination re%uire ents for those docu ents including the deter ination of a presentation period. $7B) B3?, paragraph ;"D4 Documents for which the #C) *++ transport articles do not apply a. 'ocu ents co only used in relation to the transportation of goods, such as but not li ited to, 'elivery ?ote, 'elivery Erder, Cargo Receipt, For!arder.s Certificate of Receipt, For!arder.s Certificate of Ship ent, For!arder.s Certificate of Transport, For!arder.s Cargo Receipt and <ate.s Receipt are not transport docu ents as defined in =C( 866 articles )*-3@. These docu ents are to be e#a ined only to the e#tent e#pressly stated in the credit, other!ise according to =C( 866 sub-article )/ AfB. i. For docu ents referred to in paragraph &)+ AaB, a condition of a credit that presentation is to occur !ithin a certain nu ber of days after the date of ship ent !ill be disregarded, and presentation ay be ade at any ti e, but in any event no later than the e#piry date of the credit.
b.
386
&'amination of documents ii. The default presentation period of 3) calendar
days stated in =C( 866 sub-article )/ AcB only applies to a
38)
presentation including one or ore original transport docu ents covered by =C( 866 articles )*3@. c. For a presentation period to apply to a docu ent referred to in paragraph &)+ AaB, the credit should specify that presentation is to be ade !ithin a certain nu ber of days after the issuance date of the respective docu ent, or a date that is to be entioned in the docu ent Afor e#a ple, !hen a credit re%uires the presentation of a docu ent titled cargo receipt, Odocu ents to be presented no later than )6 days after the date of the cargo receiptPB. $7B), )ublication No. B3?, and e#pressions that should credits but that, in practice, e#a iner. There is no definition paragraph ;"F not be used in are still seen by of their eaning in covers !ords docu entary a docu ent =C(.
$7B) B3?, paragraph ;"F4 E%pressions not defined in #C) *++ The e#pressions Oshipping docu entsP, Ostale docu ents acceptableP, Othird party docu ents acceptableP, Othird party docu ents not acceptableP, Oe#porting countryP, Oshipping co panyP and Odocu ents acceptable as presentedP should not be used in a credit, as they are not defined in =C( 866. If, nevertheless, they are used, and their eaning is not defined in the credit, they shall have the follo!ing eaning under international standard ban"ing practice: a. Oshipping docu entsP all docu ents re%uired by the credit, e#cept drafts, teletrans ission reports and courier receipts, postal receipts or certificates of posting evidencing the sending of docu ents. b. Ostale docu ents acceptableP docu ents ay be presented later than 3) calendar days after the date of ship ent as long as they are presented no later than the e#piry date of the credit. This !ill also apply !hen the credit specifies a period for presentation together !ith the condition Ostale docu ents acceptableP.
c. Othird party docu ents acceptableP all docu ents for !hich the credit or =C( 866 do not indicate an issuer, e#cept drafts, ay be issued by a na ed person or entity other than the beneficiary. 383 ifs School of Finance
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d. documents Othird party docu ents not acceptableP has no and is to be disregarded.
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e. Oe#porting countryP one of the follo!ing: the country !here the beneficiary is do iciled, the country of origin of the goods, the country of receipt by the carrier or the country fro !hich ship ent or dispatch is ade. f. Oshipping co panyP !hen used in the conte#t of the issuer of a certificate, certification or declaration relating to a transport docu ent any one of the follo!ing: carrier, aster or, !hen a charter party bill of lading is presented, the aster, o!ner or charterer, or any entity identified as an agent of any one of the afore entioned, regardless of !hether it issued or signed the presented transport docu ent. g. Odocu ents acceptable as presentedP a presentation ay consist of one or ore of the stipulated docu ents provided they are presented !ithin the e#piry date of the credit and the dra!ing a ount is !ithin that !hich is available under the credit. The docu ents !ill not other!ise be e#a ined for co pliance under the credit or =C( 866, including !hether they are presented in the re%uired nu ber of originals or copies. $7B), )ublication No. B3?, paragraph ;&+ describes the practice for identifying that a docu ent has been issued by the entity na ed in a docu entary credit. $7B) B3?, documents paragraph ;&+4 $ssuer of
;hen a credit re%uires a docu ent to be issued by a na ed person or entity, this condition is satisfied !hen the docu ent appears to be issued by the na ed person or entity by use of its letterhead, or !hen there is no letterhead, !hen the docu ent appears to have been co pleted or signed by, or for Wor on behalf ofX, the na ed person or entity. $7B), )ublication No. B3?, paragraph ;&" provides guidance regarding the language in !hich docu ents are issued. $7B) B3?, Language paragraph ;&"4
a. ;hen a credit stipulates the language of the docu ents to be presented, the data re%uired by the credit or =C( 866 are to be in that language.
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&'amination of documents docu ents to be presented, the docu
in any language.
ents
ay be issued
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c.
i. ;hen a credit allo!s t!o or ore acceptable languages, a confir ing ban" or a no inated ban" acting on its no ination ay restrict the nu ber of acceptable languages as a condition of its engage ent in the credit, and in such a case the data contained in the docu ents are only to be in the acceptable language or languages. ii. ;hen a credit allo!s a docu ent to contain data in t!o or ore acceptable languages and a confir ing ban" or a no inated ban" acting on its no ination does not restrict the language or the nu ber of acceptable languages as a condition of its engage ent in the credit, it is re%uired to e#a ine the data in all of the acceptable languages appearing in the docu ents.
d. 1an"s do not e#a ine data that have been inserted in a language that is additional to that re%uired or allo!ed in the credit. e. ?ot!ithstanding paragraphs &3) AaB and AdB, the na e of a person or entity, any sta ps, legaliIation, endorse ents or si ilar, and the pre-printed te#t sho!n on a docu ent, such as, but not li ited to, field headings, ay be in a language other than that re%uired in the credit. $7B), )ublication No. B3?, paragraph ;&& states that a docu ent e#a iner is not responsible for verifying the accuracy of any athe atical calculation evidenced by docu ents, but !ill rely solely on the totals sho!n as being produced fro the outco e of such calculation. $7B) B3?, paragraph ;&&4 Aathematical calculations ;hen the presented docu ents indicate athe atical calculations, ban"s only deter ine that the stated total in respect of criteria such as a ount, %uantity, !eight or nu ber of pac"ages, does not conflict !ith the credit or any other stipulated docu ent. $7B), )ublication No. B3?, paragraphs ;&3 and ;&? state ho! standard practice should be applied !hen docu ents are presented !ith ultiple pages, attach ents or riders, and the signing or endorsing of such docu ents.
$7B) B3?, paragraphs ;&3 and ;&?4 Aultiple pages and attachments or riders &3/. ;hen a docu ent consists of ore than one page, it ust be possible to deter ine that the pages are part of the sa e docu ent. =nless a docu ent provides other!ise, pages !hich are physically bound together, se%uentially nu bered or contain internal cross references, ho!ever na ed or titled, !ill eet this re%uire ent and are to be e#a ined as one docu ent, even if so e of the pages are regarded as an attach ent or rider. &3@. ;hen a signature or endorse ent is re%uired to be on a docu ent consisting of ore than one page, and the credit or the docu ent itself does not indicate !here a signature or endorse ent is to appear, the signature or endorse ent ay appear any!here on that docu ent. $7B), )ublication No. B3?, paragraph ;&* refers to non- docu entary conditions and the fact that if a nondocu entary condition is ignored by the beneficiary, the data appearing on the stipulated docu ents ust not conflict !ith the non-docu entary condition. $7B) B3?, paragraph ;&*4 conditions and conflict of data Non2documentary
;hen a credit contains a condition !ithout stipulating a docu ent to indicate co pliance there!ith AOnondocu entary conditionPB, co pliance !ith such condition need not be evidenced on any stipulated docu ent. $o!ever, data contained in a stipulated docu ent are not to be in conflict !ith the non- docu entary condition. For e#a ple, !hen a credit indicates Opac"ing in !ooden casesP !ithout indicating that such data is to appear on any stipulated docu ent, a state ent in any stipulated docu ent indicating a different type of pac"ing is considered to be a conflict of data. $7B), )ublication No. B3?, paragraphs ;&B;-" cover the issue of deter ining an original docu ent, the nu ber of originals that need to be presented and the re%uire ents for copy docu ents. $7B) B3?, paragraphs copies
;&B;-"4
.riginals
and
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documents &37. & docu ent bearing an apparently original signature, ar", sta p or label of the issuer !ill be considered to be an original unless it states that it is a copy. 1an"s do not deter ine
3* &'amination of
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!hether such a signature, ar", sta p or label of the issuer has been applied in a anual or facsi ile for and, as such, any docu ent bearing such ethod of authentication !ill satisfy the re%uire ents of =C( 866 article )7. &3+. 'ocu ents issued in ore than one original ay be ar"ed OEriginalP, O'uplicateP, OTriplicateP, OFirst EriginalP, OSecond EriginalP, etc. ?one of these ar"ings !ill dis%ualify a docu ent as an original. &3*. a. The nu ber of originals to be presented is to be at least the nu ber re%uired by the credit or =C( 866. b. ;hen a transport docu ent or insurance docu ent indicates ho! any originals have been issued, the nu ber of originals stated on the docu ent is to be presented, e#cept as stated in paragraphs $)3 and 57 AcB. c. ;hen a credit re%uires presentation of less than a full set of original transport docu ents, Afor e#a ple, O3M9 original bills of ladingPB, but does not provide any disposal instructions for the re aining original bill of lading, a presentation ay include 9M9 original bills of lading. d. ;hen a credit re%uires, for e#a ple, presentation of: i. OInvoiceP, OEne InvoiceP, OInvoice in ) copyP or OInvoice ) copyP, it !ill be understood to be a re%uire ent for an original invoice. ii. OInvoice in / copiesP or OInvoice in / foldP !ill be satisfied by the presentation of at least one original invoice and any re aining nu ber as copies. iii. Ophotocopy of invoiceP orP copy of invoiceP !ill be satisfied by the presentation of either a photocopy, copy or, !hen not prohibited, an original invoice. iv. Ophotocopy of a signed invoiceP !ill be satisfied by the presentation of either a photocopy or copy of the original invoice that !as apparently signed or, !hen not prohibited, a signed original invoice. &96. a. ;hen a credit prohibits the presentation of original docu ent by stating, for e#a ple, Ophotocopy invoice original docu ent not acceptable in lieu photocopyP or the li"e, only a photocopy of an invoice or invoice ar"edof copy is to be presented. ifs School Finance
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b. ;hen a credit re%uires the presentation of a copy of a transport docu ent and indicates a disposal instruction for all originals of that docu ent, a presentation is not to include any original of such docu ent. &9). a. Eriginal docu ents are to be signed !hen re%uired by the credit, the docu ent itself Ae#cept as stated in paragraph &97B or =C( 866. b. Copies of docu ents need not be signed nor dated. $7B), )ublication No. B3?, paragraphs ;-&;-3 e#plain ho! docu ents !ill be e#a ined !ith regard to shipping ar"s. $7B) B3?, marks paragraphs ;-&;-34 7hipping
&93. ;hen a credit specifies the details of a shipping ar", docu ents entioning the shipping ar" are to sho! those details. The data in a shipping ar" indicated on a docu ent need not be in the sa e se%uence as those sho!n in the credit or in any other stipulated docu ent. &99. & shipping ar" indicated on a docu ent ay sho! data in e#cess of !hat !ould nor ally be considered a Oshipping ar"P, or !hich is specified in the credit as a Oshipping ar"P, by the addition of infor ation such as, but not li ited to, the type of goods, !arnings concerning the handling of fragile goods or net and gross !eight of the goods. &9/. a. Transport docu ents covering containeriIed goods often only sho! a container nu ber, !ith or !ithout a seal nu ber, under the heading OShipping ar"P or si ilar. Ether docu ents that sho! a ore detailed ar"ing !ill not be in conflict for that reason. b. The fact that so e docu ents sho! additional infor ation as entioned in paragraphs &99 and &9/ AaB, !hile others do not, !ill not be regarded as a conflict of data under =C( 866 sub-article )/ AdB.
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$7B), )ublication No. B3?, paragraphs ;-?;-D cover the signature re%uire ents for docu ents presented under a docu entary credit. $7B) B3?, 7ignatures paragraphs ;-?;-D4
&9@. a. & signature, as referred to in paragraph &9) AaB, need not be hand!ritten. 'ocu ents ay also be signed !ith a facsi ile signature Afor e#a ple, a pre-printed or scanned signatureB, perforated signature, sta p, sy bol Afor e#a ple, a chopB or any echanical or electronic ethod of authentication. b. & re%uire ent for a docu ent to be Osigned and sta pedP or a si ilar re%uire ent is satisfied by a signature in the for described in paragraph &9@ AaB and the na e of the signing entity typed, sta ped, hand!ritten, preprinted or scanned on the docu ent, etc. c. & state ent on a docu ent such as OThis docu ent has been electronically authenticatedP or OThis docu ent has been produced by electronic eans and re%uires no signatureP or !ords of si ilar effect does not, by itself, represent an electronic ethod of authentication in accordance !ith the signature re%uire ents of =C( 866 article 9. d. & state ent on a docu ent indicating that authentication ay be verified or obtained through a specific reference to a !ebsite A=R,B constitutes a for of electronic ethod of authentication in accordance !ith the signature re%uire ents of =C( 866 article 9. 1an"s !ill not access such !ebsites to verify or obtain authentication. &98. a. & signature on the letterhead paper of a na ed person or entity is considered to be the signature of that na ed person or entity unless other!ise stated. The na ed person or entity need not be repeated ne#t to the signature. b. ;hen a signatory indicates it is signing for Wor on behalf ofX a branch of the issuer, the signature !ill be considered to be that of the issuer. &97. The fact that a docu ent has a bo#, field or space for a signature does not in itself ean that such bo#, field or space is to be co pleted !ith a signature. For e#a ple, a signature is not re%uired in the space titled OSignature of shipper or their agentP co only found on an air !aybill or OSignature of shipperP on a road transport docu ent. &lso see ifs School of Finance
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paragraph &)7 in respect of the re%uire ents for data to documents appear in a bo#, field or space.
3* &'amination of
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&9+. ;hen a docu ent includes !ording such as OThis docu ent is not valid unless countersigned Wor signedX by Ana e of the person or entityBP or !ords of si ilar effect, the applicable bo#, field or space is to contain a signature and the na e of the person or entity that is countersigning the docu ent. $7B), )ublication No. B3?, paragraphs ;-F2;3" relate to the title of docu ents and the situation if co bined docu ents are presented or re%uired. $7B) B3?, paragraphs ;-F;3"4 :itle of documents and combined documents &9*. 'ocu ents ay be titled as called for in the credit, bear a si ilar title or be untitled. The content of a docu ent ust appear to fulfil the function of the re%uired docu ent. For e#a ple, a re%uire ent for a O(ac"ing ,istP !ill be satisfied by a docu ent containing pac"ing details !hether it is titled O(ac"ing ,istP, O(ac"ing ?oteP, O(ac"ing and ;eight ,istP, etc., or bears no title. &/6. 'ocu ents re%uired by a credit are to be presented as separate docu ents. $o!ever, and as an e#a ple, a re%uire ent for an original pac"ing list and an original !eight list !ill also be satisfied by the presentation of t!o original co bined pac"ing and !eight lists, provided that such docu ents state both pac"ing and !eight details. &/). & docu ent re%uired by a credit that is to cover ore than one function ay be presented as a single docu ent or separate docu ents that appear to fulfil each function. For e#a ple, a re%uire ent for a Certificate of ]uality and ]uantity !ill be satisfied by the presentation of a single docu ent or by a separate Certificate of ]uality and Certificate of ]uantity provided that each docu ent appears to fulfil its function and is presented in the nu ber of originals and copies as re%uired by the credit.
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9.3.3.1.3 Documents not to be in conflict 'it" one anot"er The need for docu ents to contain data not in conflict !ith one another is e#plained belo!. 9.3.3.1.( Documents not sti&ulated by t"e documentary credit If additional docu ents are presented to those stipulated in the docu entary credit, they are not to be e#a ined and ay be returned to the presenter. The no inated ban" ay choose or agree to send such docu ents to the issuing ban" !ithout any responsibility on its part. 9.3.3.1.) *on+documentary conditions & condition should not be stipulated in a docu entary credit if it is not specific to a docu ent. If such a condition is stipulated, it should be disregarded by a docu ent e#a iner. =nder #C) *++, sub2article "3/h0 a non-docu entary condition !ill be disregarded. This non-docu entary data in the docu entary credit if indicated on any stipulated and presented docu ent !ill, ho!ever, be subHect to revie!, according to sub2 article "3/d0.
F.-.-.& Determination of compliance on documents alone

It is the docu ent e#a iner.s revie! of the docu ents alone that deter ines !hether or not the presentation is co pliant according to #C) *++, sub2article "3/a0. & docu ent e#a iner ust not be influenced by any other factor, !ith the e#ception of established fraud, in their e#a ination of docu ents. If docu ents are found to co ply, the ban", if acting as a confir er or issuer, is obligated to ta"e up the presentation and to provide rei burse ent or settle ent in accordance !ith instructions as received. If docu ents are found not to be co pliant, a docu ent e#a iner ay choose to refuse the docu ents and their actions in such circu stances are covered in section *./ of this te#t and by #C) *++, article "*.
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F.-.-.- Disclaimer documents
on
effecti!eness
of
#C) *++, article -3 provides a disclai er for ban"s in respect of the content and issuer of docu ents presented.
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F.-.-.3 Determination of acceptability re issuer, originality and authentication of documents

#C) *++, article - per its any issuer e#cept the beneficiary to issue a docu ent under the conditions specified therein. #C) *++, $nterpretations article -4
. . . Ter s such as Ofirst classP, O!ell "no!nP, O%ualifiedP, OindependentP, OofficialP, Oco petentP or OlocalP used to describe the issuer of a docu ent allo! any issuer e#cept the beneficiary to issue that docu ent . . . #C) *++, article "B relates to the originality of docu ents. #C) *++, article "B4 .riginal documents and copies a. &t least one original of each docu ent stipulated in the credit ust be presented. b. & ban" shall treat as an original any docu ent bearing an apparently original signature, ar", sta p, or label of the issuer of the docu ent, unless the docu ent itself indicates that it is not an original. c. =nless a docu ent indicates other!ise, a ban" !ill also accept a docu ent as original if it: i. appears to be !ritten, typed, perforated or sta ped by the docu ent issuer.s handG or ii. appears to be on the docu ent issuer.s original stationeryG or iii. states that it is original, unless the state ent appears not to apply to the docu ent presented. d. If a credit re%uires presentation of copies of docu ents, presentation of either originals or copies is per itted. e. If a credit re%uires presentation of ultiple docu ents by using ter s such as Oin duplicateP, Oin t!o foldP or Oin t!o copiesP, this !ill be satisfied by the presentation of at least one original and the re aining nu ber in copies, e#cept !hen the docu ent itself indicates other!ise.
&'amination of documents Reference should also be
ade to $7B), )ublication No. B3?, paragraphs ;&B;-". It should be noted by a docu ent e#a iner
377
that the ICC 'ecision on Eriginal 'ocu ents no longer appears as an appendi# to the IS1(, nor is it referred to in the individual paragraphs of IS1(. The content of $7B), )ublication No. B3?, paragraph ;&B is no! the for al guidance for the deter ination of an original docu ent.
F.-.3 E%amination of documents with reference to one another

This is the third part of the e#a ination process that is underta"en by a docu ent e#a iner. It is perfor ed in conHunction !ith the e#a ination of docu ents !ith reference to the ter s and conditions of the docu entary credit and to the application of international standard ban"ing practice, as provided by the relevant articles of =C( 866 and any e#planatory IS1( paragraphs. #C) *++, sub2article "3/d0 re%uires that data appearing in a docu ent not be in conflict !ith other data appearing on that docu ent, any other stipulated docu ent or the docu entary credit. If data in docu ents is found to be in conflict, the docu ents are to be regarded as discrepant. For e#a ple, consider an analysis certificate that sho!s potassiu content at @ per cent, as re%uired by the docu entary credit, and a transport docu ent that provides evidence of potassiu content at + per cent Aeven though the docu entary credit does not re%uire this detail to be sho!n on the transport docu entB. In such circu stances, the data on the transport docu ent !ill be considered to be in conflict !ith that sho!n on the analysis certificate.
F.-.? E%amination checklist

The chec"list set out belo! is not e#haustive, but is provided as a general guide to help in the preparation and e#a ination of docu ents that ay be presented under a docu entary credit. It is not to be construed as being other than solely for guidance and each docu ent e#a iner is re%uired to co plete a full revie! of all the stipulated docu ents presented under a docu entary credit in order to deter ine !hether or not they co ply. 37+ ifs School of Finance
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F.-.?." For the bank that recei!es the documents

9.3.).1.1 ,"e co-erin% letter or sc"edule -nsure: that it is addressed to your ban"G that it has a current dateG that it relates to the docu entary credit nu ber referencedG that all the docu ents enu erated are attachedG that the value of the docu ents and the value entioned in the cover letter are the sa e Aor provide so e e#planation for the difference eg only *6 per cent is payable against the docu ents and )6 per cent is payable laterBG that the ban" Aif anyB re itting the docu ents has honoured or negotiated, or is acting solely as a presenting ban"G that the settle ent instructions are clear and understoodG and !hether any discrepancyAiesB has AhaveB been noted and !hether honour or negotiation !as effected against an inde nity or under reserve.
F.-.?.& For the bank and the beneficiary

9.3.).2.1 ,"e documentary credit -nsure: that it is the correct docu entary creditG that it is still valid Anot e#pired M cancelledBG that the available balance is sufficient to cover the value of the dra!ingG that all the re%uired docu ents have been presentedG and that no a end ents or previous dra!do!ns are subHect to ongoing discussions or co unications.
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9.3.).2.2 ,"e draft -nsure: that it appears to be signed by the dra!erG that the na e of the dra!er corresponds !ith the na e of the beneficiaryG that it is dra!n on the correct dra!eeG that the a ount in figures and !ords correspondG that the tenor is as re%uired by the docu entary creditG that the na e of the payee is identified or is issued Fto order.G that it is properly endorsed, if re%uiredG that there are no restricted endorse entsG that it contains any necessary clauses as re%uired by the docu entary creditG that the a ount of the draft does not e#ceed the balance available in the docu entary creditG that the values of the draft and invoice correspondG and that it is not dra!n F!ithout recourse. unless authorised by the docu entary credit. 9.3.).2.3 ,"e in-oice -nsure: that it is issued by the beneficiaryG that the applicant Athe buyerB is indicated as the invoiced party, unless other!ise stated in the docu entary creditG that it is not titled Fpro for a., Fprovisional. or si ilarG that the description of the goods corresponds !ith the description in the docu entary creditG that no additional detri ental description of the goods appears that ay %uestion their condition or valueG that the details of the goods, prices and ter s as entioned in the docu entary credit are included in the invoiceG
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that any other infor ation supplied in the invoice, such as ar"s, nu bers, transportation infor ation, etc, does not conflict !ith that of any other stipulated docu entG that the currency of the invoice is the sa e as that of the docu entary creditG that the values of the invoice and of the draft correspondG that the value of the invoice does not e#ceed the available balance of the docu entary creditG that the invoice covers the co plete ship ent as re%uired by the docu entary credit Aif no part ship ents are allo!edBG that, if re%uired by the docu entary credit, the invoice appears to be signed, notarised, legalised, certified, etcG that the infor ation relative to the ship ent, pac"aging, !eight, freight charges or other related transport charges does not conflict !ith that appearing on any other stipulated docu entG and
that the correct nu ber of originals and copies are presented.
F.-.?.- .ther documents

9.3.).3.1 Certificate of ori%in -nsure: that it appears to be signed, notarised, legalised and visaed as re%uired by the docu entary creditG that the data does not conflict !ith that appearing on any other stipulated docu entG and that the country of origin is specified and that it re%uire ents of the docu entary credit. 9.3.).3.2 .ei%"t list / certificate -nsure: that it is signed, if a certificate is called for, or as other!ise stated in the docu entary creditG and that the data does not conflict !ith that appearing on any other stipulated docu ent.
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eets the
9.3.).3.3 Pac$in% list -nsure: that it and eets !ith the re%uire ents of the docu entary creditG
that the data does not conflict !ith that appearing on any other stipulated docu ent. 9.3.).3.( Ins&ection certificate -nsure: that the inspection co pany Aif anyB no inated in the docu entary credit issued the certificateG that it is signedG and that the certificate co plies !ith any re%uire ents stated in the docu entary credit. inspection
9.3.).3.) !t"er miscellaneous documents #C) *++, sub2article "3/f0 covers the concept of docu ents other than invoices, transport docu ents or insurance docu ents needing to fulfil their function. If a docu entary credit specifies a re%uire ent for a docu ent, !ithout indication of the issuer or content of that docu ent, it ust appear to fulfil its function. For e#a ple, a re%uest for a pac"ing list !ill be satisfied by the presentation of a docu ent that provides any data that provides pac"ing infor ation. The docu ent !ill still be subHect to revie! of its data according to #C) *++, sub2article "3/d0.
;hen a docu entary credit re%uires a docu ent to be issued as a certificate, the docu ent ust be signed. 9.3.).3.6 Insurance document -nsure: that the policy, certificate or declaration under open cover, as re%uired by the docu entary credit, is presentedG that the full set of originals as docu ent are presentedG ay be evidenced on the
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that it is issued and signed by the insurance co pany or under!riter, or by their agent or pro#y, and endorsed or countersigned by the assured, if so re%uired by the insurance docu entG that the date of issuance or date fro !hich cover is effective is, at the latest, fro the date of ship ent of the goods, as the case ay beG that the insurance coverage is as re%uired by the docu entary credit or as defined in #C) *++, sub2article &D/f0/ii0G
that it is issued in the sa e currency as the docu entary creditG that the goods description does not conflict !ith that in the docu entary creditG that it covers the erchandise at least fro the designated port of e bar"ation or point of ta"ing in charge to the port of discharge or point of deliveryG that it covers the specified ris"s as stated in docu entary credit and that the ris"s are clearly definedG the
that the ar"s, nu bers, etc do not conflict !ith those on the transport docu entG that, if the assured is other than the no inated ban", issuing ban" or applicant, it bears an appropriate endorse entG that all other infor ation appearing on the docu ent does not conflict !ith that of any other docu entG and that, if any alteration is authenticated. ade in the docu ent, it is properly
9.3.).3.0 ,rans&ort documents -nsure: that the full set of originals issued is presented unless there are instructions in the docu entary credit for the disposal of one or ore originalsG that it is not a Fcharter party. transport docu ent, unless authorised or per itted in the docu entary creditG that it eets the conditions of the respective transport article of =C( 866 and, if applicable, has been issued according to #C) *++, sub2article ifs School of Finance 3+9
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"3/l0G
3+/
that the na e of the consignee is as re%uired in the docu entary creditG that, if the transport docu ent re%uires endorse ent, it is appropriately endorsedG that it bears the na e of the carrier A!hen re%uired by the respective transport article of =C( 866BG that the na e and address, if any, of the notify party is as specified in the docu entary credit and #C) *++, sub2 article "3/ 0G that the description of the goods does not conflict !ith the description of the goods stated in the docu entary credit, and that the ar"s and nu bers, as !ell as any other specifications, are not in conflict !ith those appearing on any other stipulated docu entG that it indicates freight prepaid or freight collect, as re%uired by the ter s of the docu entary creditG that there are no clauses on the transport docu ent that ay render it unclean Asee #C) *++, article &BBG and that all other conditions stipulated in the appropriate transport article of =C( 866 are co plied !ith, including that the docu ents are correctly signed.
F.-.* ;n e%amination logic

& docu ent e#a iner ust be guided by the provisions of =C( 866 and international standard ban"ing practice in the tas" of e#a ining docu ents. 1ut a docu ent e#a iner ust also be guided by any internal operational procedure !ithin his or her o!n ban" and ust ta"e a co on sense approach. The follo!ing conclusion to 1ernard ;heble.s Introduction to ICC (ublication ?o /)), UC$ 13=6;13"3 Re#isions Com+ared and &'+lained, published in &pril )*+/, re ains relevant: It still has to be appreciated, ho!ever, that =C( is not and cannot be intended to give a precise ans!er to each and every proble arising in practice. Those concerned !ith international trade, !hether in ban"ing, co erce and industry, transport or insurance, should not act li"e robots. ;hilst ta"ing full advantage of the overall guidance given by =C(, they should still apply their o!n intelligence and e#perience to finding the solution to the ifs School of Finance
2013
3+@
occasional essentially individual proble documents . 1etter
3* &'amination of
3+8
:andlin% discre+ant documents
still if they can avoid the proble ever arising, by the early use of co on sense unfortunately the least co on of the senses. 1an"ers, for e#a ple, as e#perts in this ethod of pay ent, could help their custo ers and the selves by ti ely advice to the applicant so that he or she gives instructions that produce a !or"able credit at the outset and to the beneficiary so that he or she "no!s precisely !hat he or she has to do to get pay ent under that credit. In fact, =C( needs to be supple ented by !hat can be described as a for of education, !ith a constant readiness on the part of those !ho have the "no!ledge to i part it, and a atching !illingness on the part of all concerned to receive it and act on it.
F.3 Eandling documents
discrepant
Ence e#a ination has been co pleted, and after ta"ing account of any regulatory or legislative re%uire ents, a docu ent e#a iner !ill decide !hether or not the docu ents co ply. If the docu ents co ply, the docu ent e#a iner !ill ta"e up the docu ents and arrange settle ent. If the docu ents do not co ply, they are discrepant and the docu ent e#a iner !ill refuse the . This section loo"s at ho! docu ents that are discrepant should be handled.
F.3." ;n $CC o!er!iew e%amination of documents, wai!er of discrepancies and notice under #C)
Follo!ing presentation, the activities perfor ed by a docu ent e#a iner in the co pletion of the e#a ination and settle ent or refusal of docu ents are pri arily governed by the provisions of #C) *++, articles "3"*. To assist in understanding and interpreting these articles, and to re ind issuing and confir ing ban"s that deviation fro these procedures ay result in the loss of their protection, in &pril 3663 the ICC 1an"ing Co ission issued an educational paper, E%amination of Documents, =ai!er of Discrepancies and Notice under #C). ;hile originally !ritten for application under =C( of @66, articles )9 and )/, the paper has been ifs School Finance 3+7
2013
documents reproduced here in section *./.).) to section *./.).+, !ith suitable a end ents, to facilitate its use under =C( 866.
3* &'amination of
3++
F.3."." $ntroduction
#C) *++, articles "3 and "* specifically prescribe the actions of an issuing, confir ing or no inated ban" in the e#a ination of docu ents presented under a docu entary credit. The process outlined in =C( 866 specifically dictates the process of e#a ination of docu ents, the decision as to !hether to ta"e up or refuse the docu ents, the process of see"ing !aiver of discrepancies by the issuing ban", providing notice of discrepancies and the a#i u ti e for the perfor ance of the steps prescribed. Several variations on the perfor ance of the prescribed procedures in =C( have evolved over the years, any of !hich are not in accordance !ith the =C(. The develop ent of these practices is invariably outside the scope of the =C( and could place an issuing ban" or confir ing ban" at ris" for not co plying !ith the ter s of the =C(. Note: The follo!ing te#t only addresses the obligations of the issuing ban" because it is the only ban" authorised to see" a !aiver fro the applicant. Si ilar obligations ay apply to the confir ing ban" !ith the e#ception of the see"ing of a !aiver fro the applicant.
F.3.".& 8e9uirements *++
of
#C)
=C( 866 specifically details the steps to be ta"en !hen docu ents are presented under a docu entary credit and the actions that ust be ta"en by the issuing ban". These steps are contained in #C) *++, articles "3 and "*, !hich prescribe in detail the process for e#a ining docu ents and deter ining if there are discrepancies in the docu ents presented, providing the option for the issuing ban" to see" a !aiver of the discrepancies fro the applicant and the specific process of providing notice of refusal of the docu ents. In order to understand this process, #C) *++, articles "3 and "* ust be read together and not in isolation. &lso, to understand the specific steps outlined in the =C( it is necessary to follo! the process of e#a ination of docu ents specifically as it is prescribed by =C( 866, and to e#a ine each step and the individual re%uire ents. This process is referenced !ithin the descriptions detailed belo!.
ifs School of Finance 2013 3+*
F.3.".- 7tep documents
"4
E%amine documents
3* &'amination of
The first step in the process !hen docu ents are presented is to e#a ine the .
3*6
9.(.1.3.1 1a2imum &eriod days
of fi-e ban$in%
#C) *++, sub2article "3/b0 states that the ban" has a a#i u of five ban"ing days follo!ing the day of presentation to e#a ine and deter ine !hether a presentation is co plying. Specifically, standards: this sub-article establishes t!o of five
i. docu ents ust be e#a ined !ithin a ban"ing daysG and ii. notice of refusal period.
a#i u
ust be sent !ithin that
The a#i u of five ban"ing days should not be seen as auto atically giving a period of five ban"ing days for every transaction. Specific circu stances !ithin an issuing ban" or the nu ber or type of re%uired docu ents presented ay re%uire that it ta"es the entire five-day period to e#a ine the docu ents, a"e a decision !hether to ta"e up or refuse the docu ents, and infor the presenter accordingly. $o!ever, this period is not auto atically e#pected for each presentation of docu ents. In ost cases, the e#a ination !ill be co pleted in fe!er than five ban"ing days follo!ing the day of presentation.
F.3.".3 7tep &4 Documents comply or do not comply

Ence docu ents have been e#a ined, the issuing ban" has to deter ine !hether or not they appear on their face to be in co pliance !ith the ter s and conditions of the docu entary credit. 9.(.1.(.1 Documents com&ly If the issuing ban" deter ines that the docu ents co ply !ith the ter s and conditions of the docu entary credit, it ust ta"e up the docu ents and effect settle ent. See #C) *++, sub2 article "? /a0. 9.(.1.(.2 Documents com&ly
2013
do
not
If issuingof ban" deter ines that the docu ents do not co 3*) ply the ifs School Finance
documents !ith the docu entary credit, it is not re%uired to ta"e up the docu ents and effect settle ent.
3* &'amination of
3*3
F.3.".? 7tep -4 Decide to refuse or seek a wai!er

If the issuing ban" deter ines that the docu ents do not co ply, it has t!o options: i. it ay refuse the docu ents and provide notice of refusalG ay see" the applicant.s !aiver of the discrepancies. notice of
or ii. it
9.(.1.).1 3i-e refusal
If the issuing ban" decides to refuse the docu ents, it ust provide a notice in accordance !ith #C) *++, sub2article "*/c0. This ust be a single notice. 9.(.1.).2 4e5uirements refusal of a notice of
#C) *++, sub2article "*/d0 prescribes the process if the ban" decides to refuse the docu ents. It states that the ban" ust give notice to that effect by teleco unication or other e#peditious eans, but no later than the close of the fifth ban"ing day follo!ing the day of presentation. 7ub2article "*/c0 re%uires that the notice of refusal give notice to that effect and ust state all discrepancies in respect of !hich the issuing ban" is refusing the docu ents. In addition, the notice ust state: i. that the ban" is holding the docu ents pending further instructions fro the presenterG or ii. that the issuing ban" is holding the docu ents until it receives a !aiver fro the applicant and agrees to accept it, or receives further instructions fro the presenter prior to agreeing to accept a !aiverG or iii. that the ban" is returning the docu entsG or iv. that the ban" is acting in accordance !ith instructions previously received fro the presenter. 9.(.1.).3 6ee$ 'ai-er a&&licant
3*9
#C) *++, sub2article "*/b0 gives the issuing ban" the option, documents in its sole Hudge ent, to approach the applicant for a !aiver of the discrepancies. There is no re%uire ent on the part of the issuing ban" to see" a !aiver and any decision to do so is co pletely
3* &'amination of
3*/
!ithin its discretion. If the issuing ban" decides to see" a !aiver, it ust still co ply !ith the =C(.s re%uire ent !ith regard to the a#i u of five ban"ing days as described in sub2article "3/b0. The issuing ban" is not bound by an applicant.s decision to !aive the discrepancies. ;hen issuing ban"s have deferred giving notice of refusal, they usually i pose conditions on the applicant. These prescribe the a ount of ti e the applicant has to a"e the decision to !aive the discrepancies and provide this infor ation to the issuing ban". In order to avoid a refusal of docu ents by the issuing ban", any applicant !aiver should be provided to the issuing ban" !ithin the ti e fra e established by the issuing ban".
F.3.".* 7tep 34 /Depending on receipt wai!er0 take up or refuse and gi!e notice
9.(.1.6.1 Determine if t"e issuin% ban$ 'ill 'ai-e t"e discre&ancies
of
If the applicant has not provided its !aiver of discrepancies !ithin the ti e period prescribed by the issuing ban", the issuing ban" ust a"e a decision as to !hether it !ill ta"e up or refuse the docu ents. The fact that the issuing ban" could !aive the discrepancies despite not having received a !aiver fro the applicant is often overloo"ed. $aving placed the applicant on notice of discrepancies, and then !aiving the , an issuing ban" should consider the possible i plications !ith regard to its rei burse ent agree ent !ith the applicant. 9.(.1.6.2 If t"e issuin% ban$ discre&ancies ta$e u& t"e documents 'ai-es t"e
If the issuing ban" decides on its o!n to !aive the discrepancies, it ust ta"e up the docu ents. The decision to ta"e up nonco plying docu ents does not a end the docu entary credit. It also does not bind the issuing ban" to honour subse%uent dra!ings !ith the sa e discrepancies under that or any other docu entary credit. 9.(.1.6.3 If t"e issuin% ban$ documents ifs School of Finance refuse and %i-e notice
2013
re7ects
t"e
3*@
If the ban" decides to refuse the docu ents it ust send a notice of refusal in accordance !ith #C) *++, sub2articles "*/c0 and /d0.
3*8
F.3.".B 7tep ?4 $f wai!er recei!ed, determine whether or not to accept applicant wai!er
9.(.1.0.1 Determine if t"e issuin% ban$ 'ill 'ai-e t"e discre&ancies If the applicant conveys its !aiver of discrepancies, the issuing ban" ust then a"e its decision as to !hether it !ill agree to accept it. -ven if an applicant !aives the discrepancies, the issuing ban" is not re%uired to !aive the discrepancies. This applies even if the issuing ban" re%uested such !aiver. In so e cases, local la! ay have a bearing, if an issuing ban" declines to act after re%uesting, and receiving, a !aiver fro the applicant. 9.(.1.0.2 If t"e issuin% ban$ a%rees to acce&t t"e a&&licant#s 'ai-er of t"e discre&ancies ta$e u& t"e documents If the issuing ban" deter ines that it !ill accept the !aiver, it ust ta"e up the docu ents despite the discrepancies it ay have found. 9.(.1.0.3 If t"e issuin% ban$ re7ects t"e a&&licant#s 'ai-er refuse and %i-e notice If the issuing ban" receives the applicant.s !aiver and decides to refuse the docu ents despite the !aiver, it ust send notice to that effect in accordance !ith #C) *++, sub2articles "*/c0 and /d0. 9.(.1.0.( Performance rules under t"e
;hen the ban" perfor s under the rules there is no ris" for the ban" under =C( providing that it confor s specifically to the steps outlined for e#a ination, !aiver and notice.
F.3.".D Conclusion
ifs School of Finance =C( 866 prescribes the process for e#a ination, see"ing a 3*7
2013
!aiver and providing notice of refusal. Issuing ban"s should documents follo! these rules or understand the ris"s they ay be ta"ing !hen they deviate fro the .
3* &'amination of
3*+
F.3.& )rocessing discrepant documents in the role of the issuing bank

F.3.&." 8ecei!ing prior re9uests from nominated banks for authority to honour or negotiate
If a no inated ban" finds discrepancies in presented docu ents, it is co on for it to as" the issuing ban" for authority to honour or negotiate, despite such discrepancies. These re%uests are often received in the for of an authenticated teletrans ission and sho! !ording si ilar to the follo!ing: E%ampl e <ay !e negotiate docu ents for =S' )3/@89 under your Credit 'C no. 7+*)6 despite the follo!ing discrepancies: i. ,ate ship ent 1, dated 3@M7M## ii. Credit e#pired iii. Inspection certificate issued by &1C ,td, Singapore instead of &1C' Co. ,td, $ong 2ong 1ecause the applicant.s andate to the issuing ban" is to debit its account only !ith respect to confor ing docu ents, the issuing ban" ay refer such re%uests to the applicant for approval Aalthough there is no obligation to do soB. If the applicant gives approval in the for of a !aiver and the issuing ban" agrees to accept the !aiver, the issuing ban" ay reply to the re%uest in the follo!ing ter s: E%ampl e Jou ay negotiate =S' )3/@89 against our Credit 'C no. 7+*)6 despite the discrepancies stated in your essage of . . . WdateX if other!ise in order. The !ords Fif other!ise in order. infor the no inated ban" that approval is conditional upon there being no other discrepancies found upon receipt of docu ents by the issuing ifs School of Finance 3**
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ban".
F.3.&.& ;pproaching applicant
the
If the docu ent e#a iner has found discrepancies Aincluding those noted by the no inated ban"B, #C) *++, sub2article "*/b0 indicates
966
that the issuing ban" ay, in its sole Hudge ent, approach the applicant for a !aiver of the discrepancies. In practice, the beneficiary ay have previously consulted the applicant independently of the issuing ban" about possible discrepancies. In any cases, the applicant ay have given approval of such discrepancies to the beneficiary. In such circu stances, if the issuing ban", as a atter of rigid procedure, !ere to advise the presenting ban" of its refusal of the docu ents !ithout any consultation !ith the applicant, such a procedure could da age the reputation of the applicant and be contrary to ar"et practice. #C) *++, sub2article "*/b0 recognises this reality of the ar"etplace. ?evertheless, the purpose of approaching the applicant is confined to consultation. It is not intended to allo! the applicant any part in the decision to accept or refuse docu ents or to allo! the applicant to e#a ine docu ents in order to find further discrepancies. The deter ination of !hether or not docu ents co ply !ith the ter s and conditions of the docu entary credit is one for the issuing ban" alone.
F.3.&.- Gi!ing refusal
notice
of
If an applicant Aif they have been approachedB has indicated an inability to approve any noted discrepancy, the issuing ban" ust give notice to the ban" fro !hich the docu ents !ere received Aor the beneficiary, if docu ents !ere received directlyB of its decision to refuse the docu ents. The re%uire ents and the for at of the notice are stated in #C) *++, sub2articles "*/c0 and /d0, and are as follo!s. The notice state: ust
i. that the ban" is refusing to honour or negotiateG and ii. each discrepancy in respect of !hich the ban" refuses to honour or negotiateG and iii. a. that the ban" is holding the docu ents further instructions fro the presenterG or ifs School of Finance
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pending
96)
t h a t t h e i s s u i n g b a n " i s h o l d i n g t h e d o c u e n t s u
963
ntil it receives a !aiver fro the applicant documents and agrees to accept it, or receives further instructions fro the presenter prior to agreeing to accept a !aiverG or
3* &'amination of
c. that the ban" is returning the docu entsG or d. that the ban" is acting in accordance !ith instructions previously received fro the presenter. ?otice ust be given by teleco unication or, if that is not possible, by other e#peditious eans, but no later than the close of the fifth ban"ing day follo!ing the day of presentation. The notice is invalid if these re%uire ents are not satisfied. If presentation has been received fro a ban", the refusal notification is usually trans itted by S;IFT <T79/ essage. If a ban" has issued a refusal notice indicating options AaB or AbB as the status of the docu ents, it ay return the docu ents to the presenter at any ti e.
F.3.&.3 Disposal applicants
of
documents
to
&fter the issuing ban" has given notice of refusal of docu ents, it is not unco on for a presenting ban" to dispute the discrepancies !ith the issuing ban". & docu ent e#a iner !ho has ade the deter ination to refuse ust be in a position to respond to the presenting ban". In the eanti e, the beneficiary ay !ell have contacted the applicant and a settle ent ay be effected, possibly, on the basis of a price reduction or other consideration. In such circu stances, either the applicant !ill eventually agree to !aive the discrepancies or the presenter ay indicate that a reduced a ount !ill be accepted in settle ent. In either case, the presenter ust agree to any course of action. There !ill usually be a relatively short interval bet!een refusal and eventual pay ent. ?evertheless, a docu ent e#a iner ust be able to Hustify their action to a presenter or applicant. To do so, a docu ent e#a iner ust not only have a thorough "no!ledge of =C( and docu entary credit procedure, but also of co ercial practice. In all cases, a docu ent e#a iner should "eep a record of !ith !ho discussions !ere held and of the content of such discussions. It is prudent ban"ing practice for a docu ent e#a iner to retain docu ents securely and to "eep applicants and presenters advised by for al teleco unication or letter. =pon for al authorisation of pay ent or acceptance by the applicant, the docu ents should be delivered against i ediate pay ent or, in the case of usance dra!ings, an agree ent fro the applicant for their account to be debited on the due date.
Students should be fully a!are of the procedures outlined above. There is a real ris" to ban"s if these procedures are not follo!ed.
F.3.&.? Eandling of pending dishonoured documents

If an applicant does not agree for the discrepant docu ents to be ta"en up !ithin any period set out in the issuing ban".s guidelines, a docu ent e#a iner ay be as"ed to transfer the docu ents to a separate area of the ban" that has responsibility for further develop ents in respect of such past due ite s. The funda ental principles here are as follo!s: i. ?otice of dishonour ust have been given, and the docu ents ust be held pending further instructions of the presenter. ii. 'evelop ents ust be recorded on the ban".s docu ent e#a ination record and history files, !here appropriate. iii. The presenter ust be "ept advised at regular ust be securely stored.
intervals. iv. The docu ents
&t so e stage, a decision ay be ta"en to return the docu ents to the presenter, to the issuing ban".s co plete discharge. This !ill be set out in the issuing ban".s guidelines and is covered by #C) *++, sub2article "*/e0.
8e!iew 9uestions
).
;hen an issuing ban" decides to refuse docu ents due to discrepancies under a docu entary credit subHect to =C( 866, !hich of the follo!ing is the ban" not re%uired to doV a. Contact the applicant and see !hether the applicant !ill grant a !aiver of the discrepancies. b. ?otify the presenter of the docu ents of every discrepancy on !hich the refusal is based. c. ?otify the presenter either that they are holding the docu ents at the disposal of the presenter or that
they are returning the . d. Send notice of refusal to the presenter upon deciding to refuse the docu ents.
Re#ie.uestions
3. & docu entary credit has been issued and a ongst the docu ents re%uired is a certificate of origin. The docu entary credit re%uires that the docu ent be certified by a cha ber of co erce in the e#porting country. Fro the ter s of the docu entary credit, it is clear that the beneficiary is do iciled in France, the origin of the goods is stated to be Ger any and the country fro !hich ship ent is to be ade is 1elgiu . In !hich country should the certificate of origin be certifiedV a. France. b. Ger any. c. 1elgiu . d. &ny of the above. 9. 'ocu ents have been presented to ?o inated 1an" in $ong 2ong !ho has sent the to Issuing 1an" in 1eiHing. Issuing 1an" received the on / 5anuary AFridayB and gave their refusal essage on )) 5anuary as follo!s: 7=$F: <T7** 7ender 1an" 1eiHing 8ecei!er 1an" $ong 2ong &+4 :8N 1-I7*63 / &"4 )resenting 8ef -4(978@M)6 BBK4 Discrepancies Jour presentation of docu ents for =S')78@69,*8 Bank 7enders : ?o inated : .utput: Issuing
under your schedule dated 3 documents 5anuary 36## refers. ;e have observed the follo!ing discrepancies: AaB 1ill of ,ading does not indicate the capacity in !hich it is signed
3* &'amination of
Re#ie.uestions
AbB ,ate presentation docu ents not presented !ithin 3) days after the date of ship ent AcB Invoice does not sho! deduction in respect of delay penalty. BBB4 Disposal of Documents ;e are holding docu ents pending your further instructions. 1ased on the infor ation provided, the te#t of the refusal essage is co pliant !ith =C( 866, article )8. /. & docu entary credit re%uires the presentation of a pac"ing list. The beneficiary ay present a docu ent: a. Fpac"ing slip or note. !ith pac"ing details being sho!nG b. F!eight list and pac"ing list. !ith pac"ing details being sho!nG c. !ith no title or any title !ith pac"ing details being sho!nG d. Fpac"ing list. !ith pac"ing details being sho!nG e. any of the above. @. &n issuing ban" has sent an <T79/ essage to a no inated ban" advising discrepancies and indicating that the docu ents are being held pending the further instructions of the no inated ban". Ene !ee" after sending this essage, the issuing ban" is still !aiting to hear fro the no inated ban" and therefore decides to return the docu ents. This course of action is not acceptable as the refusal notice indicated that the docu ents !ere being held pending the further instructions of the no inated ban".
Chapter )6
7ettleme nt
Learning ob ecti!es &fter studying this chapter, students should be able to: e#plain the different settle ent ter sG understand settle ent flo!sG e#plain Fpay ent., Fnegotiation., and Fdiscount and purchase., and understand ho! these ter s are usedG e#plain trans ission of proceedsG and describe the process of ban"-to-ban" rei burse ents under docu entary credits.
"+." $ntroduction
This chapter process. focuses on the settle ent ;ith a docu entary credit, the settle ent process is driven by the presentation of co plying docu ents. If co plying docu ents are presented, the =C( re%uires that a ban" act according to its o!n defined and agreed role and M or underta"ing that ay have been given under that docu entary credit. The delivery of docu ents to the applicant, and the control over the goods those docu ents ay have, is si ilarly driven by the presentation of co plying docu ents. This aspect !as e#plored in Chapter 8. ifs School of Finance 3)
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"+.& 7ettlement
In si ple ter s, if a presentation has been e#a ined and found to be co plying, or if a !aiver of discrepancies has been obtained fro
33
Settlemen t
an applicant and is acceptable to the issuing ban", settle ent should be ade to the presenter !ithout delay and in accordance !ith the availability conditions e#pressed in the docu entary credit. ;hether or not a no inated ban" or a confir ing ban" accept the issuing ban".s advice of acceptance of discrepancies !ill deter ine !hich ban" !ill a"e such settle ent to the beneficiary. This covers: section
!hen settle ent is dueG fro and and to !ho settle ent should be received and givenG is
ho! effected.
settle ent
"+.&." Complying documents

;hen a co plying presentation has been can receive settle ent: ade, a beneficiary
Fro a no inated ban" that is !illing to act on a no ination for it to honour or negotiate. The no inated ban" !ill be rei bursed in accordance !ith the ter s and conditions e#pressed in the docu entary credit. Fro a confir ing ban", if any, that !ill honour or negotiate in accordance !ith the underta"ing given in its advice of confir ation. The confir ing ban" !ill be rei bursed in accordance !ith the ter s and conditions e#pressed in the docu entary credit. Fro the issuing ban", that !ill honour a presentation ade directly to it.
These principles are covered in #C) *++, article "?. ?ote that a no inated and confir ing ban" ay be one and the sa e ban". The issuing ban" !ill see" rei burse ent fro the applicant for any settle ent ade to a confir ing ban", no inated ban" or beneficiary.
10* Settlement
"+.&.& Non2complying documents

If the presented docu ents do not co ply, and they are not capable of being corrected or replaced, no ban" is under any obligation to honour or negotiate.
3/
Settlemen t
If the docu ents apparently co ply in the vie! of one ban", but not of another, the position, in si ple ter s Aand assu ing the docu ents are discrepantB, is as follo!s. If docu ents are considered to be co pliant by a no inated ban", but not by the confir ing ban": the confir ing ban" need not rei burse the no inated ban"G and the no inated ban" ay be able to recover funds fro the beneficiary if settle ent !as ade on a F!ith-recourse. basis. If docu ents are considered to be co pliant by a no inated ban", but not by the issuing ban": the issuing ban" need not rei burse the no inated ban" or ay see" refund of any a ount that the no inated ban" has already received fro the issuing ban" or a rei bursing ban"G and the no inated ban" ay be able to recover funds fro the beneficiary if settle ent !as ade on a F!ith-recourse. basis. If docu ents are considered to be co pliant by the confir ing ban", but not by the issuing ban": the issuing ban" need not rei burse the confir ing ban" or ay see" refund of any a ount that the confir ing ban" has already received fro the issuing ban" or a rei bursing ban"G and the cannot: confir ing ban" a no inated ban" or beneficiaryG or
recover funds fro
see" to cancel any deferred pay ent underta"ing, acceptance of a draft, or agree ent to advance funds on a specified date because its settle ent !as ade on a F!ithout-recourse. basis.
If docu ents are considered to be co pliant by the issuing ban", but not by the applicant: the applicant need not rei burse the issuing ban" or !ill see" refund of any a ount that has already been debited to its accountG and the issuing ban" cannot recover funds fro the confir ing ban", a no inated ban" or the beneficiary because its ifs School of Finance 3@
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settle ent !as
Settlement ade on a F!ithout-recourse. basis.
10*
38
Settlemen t
"+.&.- 7ettlement terms

#C) *++, sub2article */b0 re%uires a docu entary credit to clearly indicate !hether it is available by sight pay ent, by deferred pay ent, by acceptance or by negotiation. The settle ent re%uire ents for these for s of availability !hen a co plying presentation has been ade, are as follo!s. A?ote that, for the purposes of this section, the docu entary credit is to be considered as e#piring at the counters of a no inated ban".B
"+.&.-." By payment
sight
Confirming bank ust honour by effecting pay ent and such honour is !ithout recourse. Nominated bank ay or ay not honour. &ny honour of the dra!ing, by effecting pay ent to the beneficiary, is generally !ithout recourse unless the no inated ban" has entered into a recourse agree ent !ith that beneficiary. $ssuing bank ust honour by effecting pay ent and such honour is !ithout recourse. The docu entary credit for a sight draft. ay or ay not stipulate a re%uire ent
"+.&.-.& By payment
deferred
incurring a aturity, and
Confirming bank ust honour by deferred pay ent underta"ing and paying at such honour is !ithout recourse.
Nominated bank ay or ay not incur a deferred pay ent underta"ing. ;hen incurred, a deferred pay ent underta"ing and its pay ent at aturity is !ithout recourse. $ssuing bank ust honour by incurring a deferred pay ent underta"ing and paying at aturity, and such honour is !ithout recourse.
The docu entary credit !ill not stipulate a re%uire ent for a draft. Students should note that an issuing ban" or
37
confir ing ban" ifs School of Finance

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Settlement are re%uired to incur a deferred pay ent underta"ing and M or pay at aturity !hen another no inated ban" does not incur
10*
3+
Settlemen t
a deferred pay ent underta"ing or, having incurred deferred pay ent underta"ing, does not pay at aturity.
"+.&.-.- By acceptance
Confirming bank on it and paying at recourse. ust honour by accepting a draft dra!n aturity, and such honour is !ithout
Nominated bank ay or ay not accept a draft that is to be dra!n on it. ;hen accepted, a draft and its pay ent at aturity are !ithout recourse. $ssuing bank ust honour by accepting a draft dra!n on it and paying at aturity, and such honour is !ithout recourse. Students should note that an issuing ban" or confir ing ban" are re%uired to accept a draft and M or pay at aturity !hen another no inated ban" does not accept a draft or, having accepted a draft, does not pay at aturity.
"+.&.-.3 By negotiation
Confirming bank !ill advance funds or agree to advance funds to the beneficiary on or before the ban"ing day on !hich rei burse ent is due to it. ?egotiation is effected on a F!ithout-recourse. basis. Nominated bank ay advance funds or agree to advance funds to the beneficiary on or before the ban"ing day on !hich rei burse ent is due to it. ?egotiation is effected on a F!ith-recourse. or F!ithout-recourse. basis. $ssuing bank a docu entary credit cannot be ade available by negotiation !ith an issuing ban". ?ote that an issuing ban" can only pay at sight, accept a draft and pay at aturity, or incur a deferred pay ent underta"ing and pay at aturity. &n issuing ban" does not negotiate.
&n issuing ban", by the ter s of its docu entary credit, ay allo! a no inated ban" to obtain rei burse ent by sending to it a S;IFT essage or tele# essage clai ing rei burse ent for a co plying presentation that has been ade. The danger to such an issuing ban" is that funds are paid to the ifs School of Finance 3*
2013
Settlement no inated ban" before the issuing ban" has had an opportunity to e#a ine the docu ents. The procedures for obtaining a refund can often prove to be difficult and arduous. The ris" is increased if any
10*
96
Settlemen t
refund by the no inated ban" is subHect to local e#change control approval. If a docu ent e#a iner finds discrepancies upon receipt of docu ents for !hich the no inated ban".s covering schedule indicates that pay ent has already been obtained, he or she ust provide a notice of refusal and consider !hether a re%uest for a refund is !arranted at that ti e. If not ade as part of the refusal essage, a re%uest for a refund ay be ade at a later date if the discrepancies are not !aived by the applicant or the issuing ban".
"+.&.-.? $mportant considerations
checking
;hen deter ining settle ent ter s, a docu ent e#a iner ust chec" !hether or not any of the follo!ing considerations apply. These issues !ill deter ine the precise nature and a ount of settle ent. ; mi% of settlement terms occasionally, a docu entary credit !ill stipulate that part of the settle ent is to be ade on a sight basis and part on a usance or tenor basis. ;ssignment of proceeds a docu ent e#a iner chec" the follo!ing: ust
Is there any instruction fro the beneficiary authorising the pay ent of all or any part of the proceeds to a third partyV $as the signatoryAiesB on such an instruction been authenticated and the authorityAiesB verifiedV If the beneficiary is a custo er, there should be evidence of an in-house verification of the signature. If the beneficiary is not a custo er, the signatureAsB and authorities should be verified by its ban"ers. $as the beneficiary !ithdra!n a prior instruction ie is the instruction still in forceV 7pecial credits documentary
8e!ocable documentary credits it ust be established !hether the presentation has been affected by any a end ent that gives notice of revocation, and !hich ay have been received prior to the docu ents being presented. & docu ent e#a iner should refer to the ter s of the docu entary credit to establish the basis for the revocability. ifs School of Finance 9)
2013
8e!ol!ing documentary credit if it is a revolving docu entary credit, a docu ent e#a iner chec":
10* Settlement
ust
that the docu entary credit stipulates that #C) *++, article -& Ainstal ent dra!ings or ship entsB does not
93
Settlemen t
apply Abecause the non-availability of instal ents, in the event of default of ship ent, ay not be co patible !ith the re%uire ents of the revolve entBG that the a ount dra!n under the presentation is in accordance !ith the revolving clause stipulated in the docu entary credit Aie the ter s under !hich it revolvesBG and any stipulation regarding reinstate ent of a ounts and !hether any undra!n balances are to be reinstated on a cu ulative or non-cu ulative basis. 8efinancing it can be the case that an issuing ban" ay see" to use a docu entary credit as a eans of financing either for its o!n purposes or those of the applicant. In such circu stances, the docu entary credit !ill re%uire settle ent to be effected on a sight or usance basis but the rei burse ent condition !ill indicate that the no inated ban" is re%uested to provide finance for a period beyond sight or the stated usance period. For e#a ple, the docu entary credit ay be payable 86 days after the date of ship ent but the rei burse ent condition is for the no inated ban" to clai )36 days after the date of ship ent, thus providing an additional 86 days credit. Refinancing can also occur !hen a draft has been accepted or a deferred pay ent underta"ing has been given and shortly prior to the due date the issuing ban" re%uests an e#tension for a further period. Such re%uests are subHect to the agree ent of the ban" that has accepted the draft or incurred the deferred pay ent underta"ing. If such instru ents have been prepaid or purchased, an agree ent !ill also need to be ade as to !ho !ill pay for the additional interest period. ;d!ance payment documentary credit a docu ent e#a iner ust chec" !hether the presentation is in respect of an advance pay ent or !hether part of the proceeds are to be applied against any outstanding advance. :ransferable documentary e#a iner ust chec" !hether: the presentation is first beneficiaryG and fro credit the a docu ent
second beneficiary or
the settle ent is to be of the transfer. ifs School of Finance

2013
ade in accordance !ith the ter s

99
10* Settlement
8eimbursement by telegraphic transfer if rei burse ent by telegraphic transfer Aeg a S;IFT essageB is stipulated in the docu entary credit, the issuing ban" docu ent e#a iner ust ensure that the applicant has available funds in settle ent of the clai . In any event, the issuing ban" has no option but to honour its obligations under the docu entary credit. Collection of charges to deter ine the settle ent a ount, a docu ent e#a iner should establish !hich party is responsible for the pay ent of charges under the docu entary credit and !hether any charges have already been collected. =sually, !hen charges are for the account of the beneficiary, they are deducted fro the proceeds paid to it. If charges are for the account of the applicant, they are collected by the issuing ban" in addition to the dra!ing a ount, and distributed accordingly. The beneficiary and the applicant often agree to apportion the charges, !ith the beneficiary being responsible for those other than those of the issuing ban". #C) *++, article -B states the position regarding charges that have been incurred by a party under a docu entary credit that cannot be collected as instructed ie through non-utilisation of the docu entary credit !ith a no inated ban".
"+.&.3 )ayment, negotiation, discount and purchase

;hen a docu entary credit has not been confir ed, it is !idely understood that any negotiation thereunder ay be ade !ith recourse to the beneficiary. For a docu entary credit that has not been confir ed and is available !ith a no inated ban" by pay ent, any pay ent to the beneficiary should be ade on a !ithout-recourse basis unless a recourse agree ent has been ade !ith that beneficiary. Students should note that =C( 866 does not provide any guidance !ith regard to the scope of recourse that ay be available and a no inated ban" !ould be !ell advised to docu ent the basis under !hich recourse !ill occur and a"e this available to the beneficiary.
"+.&.3." )ayment recourse
negotiation
with
SubHect to the co ents in section )6.3./, if co plying 9/ School of has Finance docu ents have been presented to a ifs ban" that agreed
2013
t to act on its no ination to honour or negotiate, and such ban" has co unicated the e#tent of this agree ent to the beneficiary, the ban" !ill often
Settlemen
9@
10* Settlement
agree to advance funds on the basis that it is !ith recourse to the beneficiary. Recourse entitles a no inated ban" to reclai the funds in the event that rei burse ent is not forthco ing fro either the issuing ban" or a confir ing ban", if applicable. 1ecause a no inated ban" is effectively providing a period of short-ter finance to the beneficiary, such pay ents are generally recorded as a ris" against the beneficiary and M or the issuing ban" and M or the confir ing ban". It is only reversed upon receipt of rei burse ent. Rei burse ent ade by the issuing ban" or the confir ing ban" is !ithout recourse. & no inated ban" ay also be prepared to pay or negotiate a discrepant presentation on a !ith-recourse basis, either against a for al inde nity or under an arranged negotiation facility established up to an agreed li it for the beneficiary. To deter ine that its ban" is acting !ithin its andate, and before a"ing pay ent to the beneficiary, a docu entary e#a iner ust be a!are of: the e#tent to !hich its ban" has agreed to act in the role of no inated ban"G !hether an inde nity has been provided for a nonco plying presentation or a recourse agree ent is in placeG and !hether the beneficiary has a separate negotiation facility.
"+.&.3.& )ayment recourse
negotiation
without
(ay ent ade by an issuing ban" and pay ent or negotiation effected by a confir ing ban", in settle ent of a co plying presentation, is al!ays !ithout recourse to the presenter. This eans that, once paid, the funds cannot be reclai ed. Si ilarly, once a draft has been accepted or a deferred pay ent underta"ing incurred by an issuing ban", confir ing ban" or no inated ban", this cannot be undone, e#cept possibly in the circu stances of fraud. ?o inated ban"s !ill usually negotiate !ith recourse and ay loo" to reach an agree ent !ith the beneficiary for recourse to apply !hen honouring under a docu entary credit available by ifs School of Finance
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98
Settlemen t pay ent.
In so e cases, a no inated ban" ay provide a co it ent to the beneficiary that has a si ilar effect to adding a confir ation to the docu entary credit. Such co it ents go under a nu ber of
97
10* Settlement
na es, including co it ents to honour or negotiate, but the ost fre%uently used ter inology is Fsilent confir ation.. 1ecause silent confir ations are given by ban"s, students need to understand the "ey issues. The essence of the arrange ent is that a third ban" or a no inated ban" provides a silent confir ation to honour or negotiate, at the re%uest of the beneficiary. & ban" that provides a silent confir ation is not recognised as a confir ing ban" in the conte#t of #C) *++, article D. &n issuing ban" that has neither re%uested nor authorised such co it ent or confir ation is not infor ed of the silent confir ation Athus the reference to silentB. 1ecause the ban" giving the co it ent or silent confir ation has no recognition !ithin the =C(, such ban" !ould nor ally insist upon the beneficiary assigning its rights under the docu entary credit to the ban". The beneficiary !ould also usually be re%uired to obtain the prior approval of the ban" to all a end ents.
"+.&.? )ro!ision of short2term finance

'ocu entary credits provide a echanis for a beneficiary and an applicant to anage their cash flo!s better. &n applicant ay re%uest that a docu entary credit be ade available by acceptance, usance negotiation or deferred pay ent. This can give the ti e to sell the goods into the local ar"et before being re%uired to rei burse the issuing ban" under the ter s of their counter-inde nity or agree ent to issue the docu entary credit. & beneficiary ay be able to obtain i ediate pay ent fro a no inated ban" by re%uesting that co plying docu ents be negotiated, prepaid or purchased.
"+.&.?." Negotiation /ad!ancing0

Interest and charges are usually deducted up front and settle ent is ade after such deductions. The no inated ban" !ill receive rei burse ent fro the issuing ban" or fro a confir ing ban", if applicable, for the face value of the dra!ing.
9+ ifs School of Finance 2013
Settlemen t
"+.&.?.& Discount purchase
and
It is co on for discount and purchase procedures to usually re%uire drafts Aor bills of e#changeB because these, as negotiable instru ents, have legal rights attached to the in their o!n right. In docu entary credit operations, drafts are dra!n on the issuing, no inated, confir ing or rei bursing ban"s. If accepted, they provide the eans by !hich the beneficiary or its ban"ers ay be able to obtain finance prior to the due date. In discounting drafts, interest and charges are deducted up front and pay ent is ade after such deductions. En aturity, the holder e#pects to receive pay ent for the face value of the draft. &ny draft should be chec"ed to ensure that it has been properly accepted. These chec"s should include verification of the authenticity of the acceptance. Students should note that in ost cases the sending of a S;IFT essage fro the accepting ban" to the presenter or no inated ban" serves as the advising of an acceptance. Care also needs to be ta"en that aturity dates are recorded and noted to ensure either that clai s are ade or that sufficient funds are available to eet clai s at aturity. #C) *++, sub2article "&/b0 provides a specific authorisation for a no inated ban" to prepay or purchase under a docu entary credit that is available !ith it by acceptance or deferred pay ent. #C) *++, "&/b0 article
1y no inating a ban" to accept a draft or incur a deferred pay ent underta"ing, an issuing ban" authoriIes that no inated ban" to prepay or purchase a draft accepted or a deferred pay ent underta"ing incurred by that no inated ban". Students should note that this authorisation only e#tends to situations !here the no inated ban" has accepted a draft dra!n on it or !here it has incurred a deferred pay ent underta"ing. It does not e#tend to situations !here a no inated ban" ay be re%uested by a beneficiary, and so agrees, to prepay or purchase AdiscountB a deferred pay ent underta"ing incurred by another ban" ifs School of Finance 9*
2013
Settlement ie the issuing ban", confir ing ban" or another no inated ban". The discounting of accepted drafts is covered in applicable bill of e#change la! and local la! practices.
10*
/6
Settlemen t
"+.- :ransmission proceeds
of
$aving established the a ount that is to be paid in settle ent of clai s ade in respect of a co plying presentation, the ne#t stage is to identify the ethod by !hich pay ent is to be ade. (ay ent procedures are discussed fro the perspective of a na ed no inated ban", a confir ing ban", any ban" in a freely available docu entary credit and the issuing ban".
"+.-." Claims bank
by a named nominated
&n issuing ban" !ill na e a specific no inated ban" for a variety of reasons for e#a ple, due to the issuing ban" aintaining accounts !ith it. The na ed no inated ban" ay be re%uired to pay the beneficiary and then clai fro the issuing ban". &n established relationship bet!een the no inated ban" and the issuing ban" !ill assist in this tas". If a docu entary credit is in the currency of the country in !hich both the no inated ban" and the beneficiary are located, the ban" ay be able to debit the account of the issuing ban" and effect pay ent in ter s of the beneficiary.s instructions. If a docu entary credit is in another currency and stipulates that clai s are to be ade directly to the issuing ban", the no inated ban".s clai !ill indicate the details of !here pay ent should be ade by the issuing ban". If the docu entary credit is dra!n in a currency other than that of the locations of the issuing ban" and the no inated ban", it ay indicate the details of the na e of a rei bursing ban" Ausually do iciled in the country of the currencyB to !hich clai s should be directed. T!o significant proble s for a no inated ban" and a beneficiary are: the atching of the value date of funds to be received by the no inated ban" !ith the value date re%uire ents of the beneficiaryG and delays in rei burse ent. the no inated ban" receiving ore fully later in
1an"-to-ban" rei burse ent is ifs School of Finance

2013
covered
/)
this chapter in section )6./.
10* Settlement
/3
/ransmission of +roceeds
"+.-.& Claims by a confirming bank

<ost of the co ents ade in respect of a na ed no inated ban" !ill also apply to a confir ing ban". The ain difference is that the confir ing ban" is re%uired to effect settle ent to the beneficiary in accordance !ith the ter s and conditions of the credit, and in doing so it !ill atte pt to atch the value date of the pay ent to the beneficiary !ith that on !hich it e#pects to receive rei burse ent fro the issuing ban" or a rei bursing ban". & confir ing ban", as part of its decision process to confir the credit, ay insist upon a specific for of rei burse ent instruction to be put in place.
"+.-.- Claims by any bank in a freely a!ailable documentary credit

The clai s procedures by a ban" no inated in the circu stances of a freely available docu entary credit are also the sa e as those for a na ed no inated ban". The one e#ception is that there ay be no ability to debit the account of an issuing ban", unless such no inated ban" is also the advising ban" and therefore the holder of any accounts in the na e of the issuing ban".
"+.-.3 Claims bank
recei!ed
by an issuing
The issuing ban" is re%uired to rei burse the no inated ban" and, so eti es, to honour a presentation ade directly by or on behalf of the beneficiary. In these circu stances, the issuing ban" cannot escape liability for any delay in effecting settle ent.
"+.-.? :he method of transmitting claims, effecting payment and ad!ising beneficiaries or nominated banks
<ost of the proble s related to pay ent of proceeds are caused by the use of non-standard essages and advices. In order to ini ise these proble s, the international practice A!here possibleB is to use S;IFT, the advantages of !hich are: ifs School of Finance /9
2013
ost auto aticallyG
essages
are
authenticated
10* Settlement
there are specific essage for ats for specific tas"s associated !ith paying a beneficiary and a no inated ban"G
//
/ransmission of +roceeds
the for ats used have uni%ue fields for each ele ent of the essageG and the fields that are essential are andatory, !hich eans that the essage cannot be sent !ithout its co pletion. <ore infor ation can be obtained fro operating guidelines. the S;IFT
& docu ent e#a iner ust ta"e special care in the co pletion of fields to ensure accuracy and co pliance !ith any internal guidelines.
"+.-.?." 7=$F: message types

Infor ation flo! charts e#tracted fro the S;IFT operating guidelines are sho!n for the follo!ing essage types: A:B?3 advice of pay entMacceptanceMnegotiation AFigure )6.)BG and A:B?* advice of rei burse ent or pay ent AFigure )6.3B. Figure "+." $nformation flow chart for A:B?3 ad!ice of payment J acceptance J negotiation
)aying bank
C$B Bank Aunich
8eimbursem ent bank
$F7; Bank Frankfurt
$ssuing bank
$F7; Bank New Cork
Source: S;IFT
/@
10* Settlement
Figure "+.& $nformation flow chart for A:B?* ad!ice of reimbursement or payment
C$B Bank London
$ssuing bank
7enderHs corresponde nt
$F7; Bank London
)aying bank
Source: S;IFT
$F7; Bank .saka
?ote that the nu ber codes in Figures )6.) and )6.3 refer to the S;IFT <T essage types. For e#a ple, the reference to 7/6 refers to the S;IFT <T essage that is sent by the issuing ban" to the rei bursing ban" to provide a rei burse ent authorisation. @9a refers to the field in the <T766 !here the na e of the rei bursing ban" !ill be indicated. FS. refers to the sender and FR. to the recipient.
"+.3 Bank2to2bank reimbursements under documentary credits

&lthough only one ban" Aan issuing ban"B is necessary for the operation of a docu entary credit, in any cases an issuing ban" !ill no inate another ban" to a"e settle ent on its behalf. These ban"s are "no!n as rei bursing ban"s. &lthough the =C( provisions !ere developed to standardise the operation of docu entary credits, the practice of interban" currency rei burse ent !as typically carried out in line !ith local ar"et
Bank-to-bank reimbursements under documentar! credits practice.
&s the volu e of international trade increased, beca e a significant cause of additional ris" rei bursing ban"s
this for
in docu entary credits. The ICC developed a set of rules for ban"-to-ban" rei burse ents to help ban"s anage this ris". The current version is ICC Uniform 4ules for 8an$+to+ 8an$ 4eimbursements under Documentary Credits 9U44 02):. #C) *++, article "- covers the basic arrange ents for ban"-toban" rei burse ents. #88 B&? provides additional clarification and ore detailed rules to be follo!ed in such circu stances. #C) *++, sub2article "-/a0 re%uires a docu entary credit to state !hether =RR 73@ is to apply to it. =RR 73@ re%uires that the rei burse ent authorisation, issued by the issuing ban", a"e it clear that the =RR 73@ is to apply to it. If the docu entary credit is silent in this respect and a ban"-to-ban" rei burse ent is to occur, then the contents of #C) *++, sub2 articles "-/b0 and /c0 !ill apply. =RR 73@ does not apply !hen rei burse ent is sought directly fro the issuing ban".
"+.3." 7tep2by2step guide B&?
to #88
The step-by-step guide that follo!s is intended as an aid to students and, unless other!ise stated, the sub-articles %uoted are fro =RR 73@. The guide is not intended in any !ay to act as a substitute for follo!ing the content of =RR 73@.
"+.3."." 7tep "4 $ssuance

"." The issuing ban" sends docu entary credit to the advising ban". It states that rei burse ent is subHect to =RR 73@ and specifies any re%uire ents for prenotification of clai s, predebit instructions and the party responsible for charges, as applicable.
The issuing ban" sends to rei bursing ban" an authenticated rei burse ent authorisation, stating that it is subHect to =RR 73@ and specifying the details as entioned in sub2articles */d0/i0/!0. If the rei burse ent authorisation re%uires the rei bursing ban" to accept and pay a ter draft, it ust additionally specify the details as entioned in sub2articles */e0/i0/iii0.
If the rei burse ent authorisation is irrevocable and re%uires the rei bursing ban" to issue its rei burse ent underta"ing, it ust specify the details as entioned in sub2articles F/b0/i0 /!i0. If the rei burse ent authorisation is irrevocable, and re%uires the rei bursing ban" to issue its rei burse ent underta"ing and also to accept and pay a ter draft, it ust additionally specify the details as entioned in sub2articles F/c0/i0/iii0.
".& The advising ban" receives the authenticated docu entary credit and logs details !here clai s are to be ade.
The rei bursing ban" receives authenticated rei burse ent authorisation, logs and revie!s details and: if it is not prepared to act, it advises the issuing ban" !ithout delayG if it is prepared to act, it files the rei burse ent authorisation pending receipt of any clai G it has been re%uested to issue its rei burse ent underta"ing, the rei bursing ban" either advises the issuing ban", !ithout delay, if it is not prepared to do so or it sends its authenticated rei burse ent underta"ing to the na ed clai ing ban", specifying its ter s and conditions, and including the details as re%uired by sub2articles F/e0/i0/!i0.
if
". The issuing ban" receives notification fro the rei bursing ban" if it is not prepared to act and is re%uired to provide ne! rei burse ent instructions to the advising ban". The clai ing ban" Aadvising ban"B receives the authenticated rei burse ent underta"ing Aif re%uired and issuedB, !hich it logs and files pending receipt of presentation under the docu entary credit.
"+.3.".& 7tep &4 ;mendment

&." The issuing ban" sends authenticated docu entary credit to the advising ban". a end ent to
The issuing ban" sends rei burse ent a end ent to the
rei bursing ban" rei burse ent
if
details
in
the
original
authorisation have changed as a result of the a end ent to the docu entary credit. &.& The advising ban" receives authenticated a end ent trans ission, and logs and revie!s details, noting any changes to rei burse ent instructions. The rei bursing ban" receives authenticated rei burse ent a end ent, logs and revie!s details, and: if rei burse ent a end ent is to a revocable rei burse ent authorisation, the rei bursing ban" files it for receipt of clai s in a ended ter sG rei burse ent a end ent is to an irrevocable rei burse ent authorisation, the rei bursing ban" decides !hether or not to a end its rei burse ent underta"ing and either sends its authenticated rei burse ent underta"ing a end ent to the clai ing ban" or advises the issuing ban", !ithout delay, that the rei burse ent a end ent is not acceptable.
if
&. The clai ing ban" receives authenticated rei burse ent underta"ing a end ent, logs and revie!s details. It then either files the a ended rei burse ent underta"ing under advice to the rei bursing ban" Aif the rei burse ent underta"ing a end ent is acceptableB or co unicates its reHection of the rei burse ent underta"ing a end ent to the rei bursing ban", !ithout delay. &.3 The rei bursing ban" receives rei burse ent underta"ing a end ent co unication fro the clai ing ban"G and if the clai ing ban" accepts the ter s of rei burse ent underta"ing a end ent, the rei bursing ban" notifies the issuing ban" that its rei burse ent a end ent is acceptableG if the clai ing ban" reHects the ter s of the rei burse ent underta"ing a end ent, the rei bursing ban" notifies the issuing ban" that its rei burse ent a end ent is not acceptable and the ter s of the una ended or previously accepted a ended
rei burse ent underta"ing re ain in place.
&.? Issuing ban" receives rei burse ent a end ent co unication fro the rei bursing ban". If the ter s have been reHected, it revie!s the need to provide additional rei burse ent guidance or ne! instructions to the advising ban".
"+.3.".- 7tep -4 Claiming

-." The clai ing ban" sends its rei burse ent clai to the rei bursing ban", usually by teletrans ission, but possibly in the for of an original letter, specifying the details as re%uired by sub2articles "+/a0/ii0 and /iii0, together !ith instructions of !here funds are to be paid. If a ter draft is to be for!arded pay ent, the draft, together !ith any, specified in sub2articles "+/b0/i0/!0, by either the docu entary credit or underta"ing. for acceptance and or all, of the details if these are re%uired the rei burse ent
If the rei burse ent is due on a future date, the predeter ined date should not be ore than ten ban"ing days later.
-.& The rei bursing ban" receives and logs the rei burse ent clai and: If the rei burse ent clai is acceptable, it pays funds to the clai ing ban" !ithout delay, in accordance !ith instructions received. It also sends an advice to either the clai ing ban" or the issuing ban", or both, if so re%uired. If the rei burse ent clai is refused, the rei bursing ban" sends notice of its refusal to both the clai ing ban" and the issuing ban" by teletrans ission, or other e#peditious eans, !ithout delay. If such refusal is under a rei burse ent underta"ing, the rei bursing ban" ust state the reason for its non-pay ent of the rei burse ent clai . If it disregards a rei burse ent clai because the clai has been presented ore than ten ban"ing days prior to the predeter ined rei burse ent date, the rei bursing ban" sends a co unication to this effect to
the clai ing ban" !ithout delay.
-. The issuing ban" receives advice of rei burse ent or refusal fro the rei bursing ban". If the rei burse ent clai has been refused, it !ill need to provide alternative rei burse ent to the clai ing ban" !ithout delay. The clai ing ban" receives ti ely pay ent of funds in accordance !ith its instructions or a non-pay ent notification fro the rei bursing ban" and: if non-pay ent is o!ing to its rei burse ent clai being sub itted too early, the clai ing ban" re-presents its clai !ithin ten ban"ing days of the predeter ined rei burse ent dateG if non-pay ent is for any other reason, the clai ing ban" contacts the issuing ban", !ithout delay, see"ing i ediate rei burse ent of funds together !ith interest, if applicable.
"+.3.".3 7tep 34 Cancellation while documentary credit still !alid

3." The issuing ban" sends authenticated trans ission to the advising ban" revising the docu entary credit rei burse ent instructions. If appropriate, it sends a ne! rei burse ent authorisation. issuing ban" sends an authenticated rei burse ent authorisation cancellation rei bursing ban". to the
The
3.& The advising ban" receives authenticated trans ission revising the rei burse ent instructions, !hich it logs and files pending presentation under the docu entary credit. If a rei burse ent underta"ing has been issued, an advising ban", !hich is also the clai ing ban", ay diarise for receipt of the rei burse ent underta"ing cancellation re%uest fro the rei bursing ban".
The rei bursing ban" receives authenticated rei burse ent authorisation cancellation trans ission fro the issuing ban", !hich it logs, and notes that, if the rei burse ent authorisation is revocable, it is cancelled for any future clai s received.
If the rei burse ent authorisation is irrevocable and the rei bursing ban" has issued its rei burse ent underta"ing, it
sends a rei burse ent underta"ing cancellation to the clai ing ban" !ithout delay. 3. Clai ing ban" receives authenticated rei burse ent underta"ing cancellation fro the rei bursing ban". It sends its co unication of acceptance or refusal of cancellation to the rei bursing ban" !ithout delay. 3.3 The rei bursing ban" receives rei burse ent underta"ing cancellation ac"no!ledg ent fro the clai ing ban". It advises the issuing ban", !ithout delay, of its acceptance or refusal of the rei burse ent authorisation cancellation. 3.? Issuing ban" receives rei burse ent authorisation cancellation ac"no!ledg ent fro the rei bursing ban". If cancellation is refused, it revie!s the need to provide additional rei burse ent guidance or ne! instructions to the advising ban".
"+.3.".? 7tep ?4 Cancellation after e%piry of documentary credit

?." The issuing ban" sends authenticated rei burse ent authorisation cancellation to the rei bursing ban". ?.& The rei bursing ban" receives authenticated rei burse ent authorisation cancellation fro the issuing ban", !hich it logs, and notes that, if the rei burse ent authorisation is revocable, it is cancelled for any future clai s received. If a rei burse ent underta"ing has been issued, it chec"s that the ter s of the rei burse ent underta"ing have e#pired before accepting or refusing the rei burse ent authorisation cancellation and advises the issuing ban", !ithout delay.
"+.3.".* )roblems
The ost fre%uent proble s and issues that arise during transactions in respect of rei burse ents under
docu entary credits are
su arised belo!. The na e of the partyAiesB !ith pri ary o!nership of each proble or issue is also indicated Ain parenthesesB: rei bursing ban" has received no rei burse ent authorisation fro issuing ban" Aissuing ban"BG !ithdra!al M cancellation of the rei burse ent authority Aissuing ban"BG rei burse ent authorisation does not Aclai ing ban" and M or issuing ban"BG atch the clai
inade%uate funds to effect rei burse ent Aissuing ban"BG operations of la! eg international boycotts M govern ent freeIing of assets M court action Ainternational bodies M central ban"s M govern ents M courtsBG
late pay ent Aissuing ban" and M or clai ing ban" and M or rei bursing ban"BG charges Aissuing ban" and M or clai ing ban"B.
"+.3.& Disciplines prompted by 7=$F: message types

S;IFT essage types and operating guidelines i pose an additional discipline on students !ith respect to ban"-to-ban" rei burse ents. Three essage types apply, in particular: A:B3+ rei burseG A:B3B rei burseG A:B3& clai . authorisation to
a end ent to an authorisation to rei burse ent
Figure )6.9 Figure )6.@ illustrate the infor ation flo! in each caseG again, the nu ber codes refer to the different types of S;IFT essage codes.
Figure "+.- $nformation flow chart for A:B3+ 2 authorisation to reimburse

7ender /$ssuing bank0 C$B Bank 7tockholm
Claiming bank /a!ailable with0
$CCBank Brussels
$F7; Bank New Cork 8ecei!er /reimbursem ent bank0

Source* S;IFT
Figure "+.3 $nformation flow chart for A:B3B 2 amendment to an authorisation to reimburse
7ender /issuing bank0
S o u r c e * S ; IF T
8ecei!er /reimbursem ent bank0
C$B Bank 7tockholm
$F7; Bank New Cork
Figure "+.? $nformation flow chart for A:B3& 2 reimbursement claim /incorporating A: B++ and A: B3+0
$ssuing bank
$F7; Bank New Cork
)aying bank
C$B Bank Aunich
8eimburseme nt bank
$F7; Bank Frankfurt
;ccount with bank
C$B Bank Frankfurt
Beneficiary bank
Source* S;IFT
C$B Bank Aunich
Re#ie.uestions
8e!iew 9uestions
). ;hat type of availability is being described belo!V & docu entary credit e#pires in the country of the beneficiary and the advising ban". The advising ban" is na ed as the no inated ban" and the a ount of the docu entary credit is available to the beneficiary against presentation of drafts dra!n on the issuing ban" at 96 days after ship ent, acco panied by specified docu ents in field /8&. a. &cceptance. b. 'eferred pay ent. c. ?egotiation. d. (ay ent. 3. In a ban"-to-ban" rei burse ent transaction, an issuing ban" is re%uired to send a rei burse ent authorisation to the rei bursing ban". ;hether or not the rei bursing ban" is as"ed to issue a rei burse ent underta"ing, the rei burse ent authorisation is irrevocable on the part of the issuing ban". 9. & custo er of your ban", !ho is the beneficiary of a docu entary credit available by negotiation and confir ed by your ban", presents a set of docu ents to you. The pay ent is due *6 days after date of ship ent. The beneficiary re%uests you to advance funds to the . If the docu ents eet the re%uire ents of the docu entary credit, !hat is this type of negotiationV a. ?egotiation under reserve. b. ?egotiation at sight. c. ?egotiation !ith recourse. d. ?egotiation !ithout recourse. /. ;hen a docu entary credit is ade available !ith a no inated ban" by pay ent, !hich of the follo!ing
Settlement rei burse ent instructions is not appropriateV
10*
Re#ie.uestions
a. 'ebit the account of the issuing ban" held !ith the no inated ban". b. Clai rei burse ent fro a na ed rei bursing ban". c. The issuing ban" !ill rei burse the no inated ban" on receipt of docu ents by the issuing ban". d. The issuing ban" !ill rei burse the no inated ban" upon receipt of a S;IFT essage indicating the presentation of co plying docu ents to the no inated ban". @. & docu entary credit is available !ith a no inated ban" by acceptance of a draft dra!n at *6 days after the date of ship ent. The docu entary credit has not been confir ed. The beneficiary presents co plying docu ents to the no inated ban" and re%uests the no inated ban" to accept the draft and to advance the funds to the less the charges and interest costs of the no inated ban". The no inated ban" agrees. En the due date, the issuing ban" is not in a position to rei burse the no inated ban" due to insolvency. The no inated ban", as it had not confir ed the credit, has the right to see" recourse fro the beneficiary.
Chapter ))
.ther products relating to a documentary credit
Learning ob ecti!es &fter studying this chapter students should be able to: e#plain the follo!ing products that a docu entary credit ay be seen under
shipping guarantees and inde nitiesG letters of inde nity A,EIBG and participation and syndicationG understand ho! they are used and the ris"s that are associated !ith the .
""." $ntroduction
In this chapter !e discuss the follo!ing products that can apply to a docu entary credit: release of goods by carriers against a shipping guarantee or inde nity issued or countersigned by an issuing ban"G the use of a letter of inde nity A,EIB as an instru ent, either as part of a docu entary credit or on its o!nG and participation and syndication of ris" in the issuance or confir ation of a docu entary credit.
/7
11* 5ther +roducts relatin% to a documentar! credit
"".& 8elease of goods by carriers against indemnity issuedJ countersigned by issuing bank
It is i portant to understand ho! an inde nity differs fro guarantee. For a guarantee, there ust be three parties: the principal creditorG the principal debtor, !ho is pri arily liableG and the guarantor, !ho is secondarily liable if the principal debtor fails to pay. For an inde nity, there are only t!o parties the issuer and the beneficiary. The ban" that issues an inde nity is pri arily liable. &s discussed in previous chapters, an issuing ban" ust honour under a docu entary credit !hen docu ents are found to co ply !ith its ter s and conditions. $o!ever, #C) *++, articles 3 and ? indicate that: a docu entary credit is separate fro the sales or other contract on !hich it ay be basedG and ban"s deal !ith docu ents and not !ith goods, services or perfor ance. The protection that these principles provide to an issuing ban" ay be endangered by such ban" issuing a shipping guarantee or an inde nity AFinde nityFB to a carrier to facilitate the release of the goods. In the absence of pay ent to a beneficiary, an issuing ban" ay also face the ris" of dispute regarding conversion. Conversion is a legal ter signifying !rongful interference !ith another person.s property, inconsistent !ith the o!ner.s right of possession. It has been defined as follo!s: &ny person !ho, ho!ever innocently, obtains possession of goods the property of another !ho has been fraudulently deprived of the possession of the and disposes of the !hether for his o!n benefit or that of another person is guilty of a conversion. & ban"er !ill be liable for conversion if he delivers to an unauthoriIed person articles left !ith hi by a custo er for safe custody.
/+ ifs School of Finance 2013
bank Source : 'erric" $anson A)*+@B, Finance, (it an (ublishing ,td.
Release of %oods b! carriers a%ainst indemnit! issued; countersi%ned b! issuin%
ictionar! of Bankin% and
/*
"".&." 7hipping guarantee and indemnity

&n issuing ban" ay not receive docu ents under its docu entary credit prior to the goods arriving at their destination. This ay happen %uite often if the for!arding of docu ents by a no inated ban" is delayed due to the docu ents being found discrepant on first presentation or, aybe, !here they have not been despatched by courier service. This eans, for e#a ple, that an applicant ay not be in possession of an original bill of lading !hen the vessel arrives at the port of discharge. =nless the goods are cleared fro the port of discharge !ith the ini u of delay the port authorities ay: levy charges, and the rate of charge ay increase !ith the period for !hich the goods re ain at the portG and in a !orst-case scenario, confiscate goods after the e#piration of a stated statutory period.
"".&."." :ransaction
In the circu stances described in section )).3.), an applicant !ill !ish to clear the goods despite the absence of an original bill of lading. To do this, it !ill as" the carrier for its standard inde nity for against !hich the carrier ay be !illing to release goods despite the absence of an original bill of lading. Carriers !ill usually not accept an inde nity directly fro an applicant and !ill usually re%uire the inde nity to be countersigned or issued by the issuing ban" of the docu entary credit. If the carrier does not aintain a standard inde nity for and is !illing to accept a ban" issued inde nity, an applicant ay re%uest its ban" to issue the inde nity in a for at that !ill be satisfactory to the carrier.
"".&.".& :he indemnity
form
of
&lthough ost carriers aintain a standard inde nity for , they re ain different fro carrier to carrier and often fro country to country. They do, ho!ever, have a nu ber of co on features: The for is pre-printed !ith the heading of the carrier. It !ill indicate that it is an inde nity containing an underta"ing in connection !ith delivery of the described goods !ithout production of an original bill of lading. ifs School of Finance
2013
@6
The applicant and issuing ban", both of !hich ay sign the inde nity Ain the case of an inde nity issued directly by the ban", only the ban" !ill signB, !ill underta"e:
Release of %oods b! carriers a%ainst indemnit! issued; countersi%ned b! issuin% bank
@)
to inde nify the carrier and hold it har less in respect of any liability, loss or da age of !hatsoever nature that it ay sustain by delivering the goods as re%uestedG to provide funds to defend any action brought against the carrierG to pay on de and any freight and M or charges due on the goods Ain so e cases, the ban" ay insist that the goods be released only after pay ent of freight or other chargesBG and to surrender an original bill of lading as soon as it is received, and ac"no!ledge that the liability of each and every person is Hoint and several and shall not be conditional upon proceeding first against any person.
& carrier.s inde nity for ay indicate that the incorporation of an e#piry date or any %ualifying re ar"s is not acceptable. The follo!ing particulars are typically sho!n: consigneeG vessel nu berG and voyage
bill of lading nu berG %uantity and description of goods M container nu bersG and a ount. To countersign or issue an inde nity, an issuing ban" !ill nor ally re%uire the applicant to sign its o!n for of inde nity in favour of the ban". This inde nity !ill usually see" to protect the ban" as fully as possible. It should include the applicant.s underta"ing to accept docu ents irrespective of any discrepancies and contain an irrevocable authority for the ban" to debit the applicant.s account, or an underta"ing that the applicant !ill transfer funds to the issuing ban" on first de and A!here no account is held !ith the issuing ban"B.
"".&.".- :he risks

The ris"s to an issuing ban", in addition to those detailed above, are that:
@3
there !ill
ost li"ely be no date li itation of the ban".s ifs School of Finance

2013
bank liabilityG and
Release of %oods b! carriers a%ainst indemnit! issued; countersi%ned b! issuin%
the liability a ount.
ay be unli ited in
@9
&ccordingly, an issuing ban" ay insist upon a cash deposit to cover at least the invoice value plus a argin, and !ill often record the a ount of liability against the custo er.s credit facility. ,ocal ban" regulations ay dictate the specific procedure for establishing the ban".s liability, li itation on its duration and specific accounting re%uire ents. In ost Hurisdictions, the applicable statute of li itations ay apply to the e#piry period for the inde nity, !hich for ost countries !ould be a ini u of 87 years. It is not unco on for carriers to insist that the inde nity be issued for at least 366 per cent of the invoice value.
"".&.& ;irway orders
releases
and
deli!ery
&ir!ay releases deal !ith the delivery of goods despatched by air. 'elivery orders deal !ith the delivery of goods despatched by odes other than sea and air, and they are generally seen in respect of goods despatched by road. $o!ever, it should be noted that ban"s !ill often refer to the issuance of a delivery order for the release of air cargo. Goods despatched by air or road generally arrive sooner than the underlying docu ents. Therefore, an issuing ban" is often called upon to issue an air!ay release or delivery order to the respective carrier holding the goods, enabling the to be released to the applicant of the docu entary credit or its no inee.
"".&.&." Form of airway releases and deli!ery orders

&ir!ay releases and delivery orders are usually in the for of letters, tele#es, facsi ile or electronic essages. They are issued by the issuing ban" of the docu entary credit, addressed to the carrier, and !ill sho! so e, or all, of the follo!ing features: air !aybill nu ber or truc" !aybill nu berG consignorG carton nu bersG
@/
detail
or
container
description of goodsG
docu entary nu berG
credit
@@
invoice nu ber and invoice a ountG and an instruction to release the goods to the applicant. These releases or orders do not al!ays include an inde nity to the carrier because, in the case of air despatch, the goods are often consigned to the issuing ban". In these circu stances, the release or order serves as an instruction to deliver goods to the applicant or its no inee.
"".&.&.& Counter2 indemnity

&n applicant.s counter-inde nity to an issuing ban" !ill usually indicate that the applicant: underta"es to accept the docu ents, !hen presented, irrespective of any discrepanciesG inde nifies the ban" against all actions, proceedings, da ages or costs in relation to the issue of the release or orderG underta"es that, should the goods released for part of a larger consign ent, it !ill accept such larger consign ent and pay the full value thereofG and gives the issuing ban" irrevocable authority to debit its account or an underta"ing that it !ill transfer funds to the issuing ban" on first de and A!here no account is held !ith the issuing ban"B.
"".&.&.- 8isks
The are: ris"s
the issuing ban" ta"es on a pri ary responsibility by instructing a carrier to release goods to the applicantG
the issuing ban" is dealing !ith goods, contrary to the position of =C( 866G and, unless the beneficiary has been paid, the issuing ban" is instru ental in delivering goods of an unpaid beneficiary to the applicant.
@8 ifs School of Finance 2013
"".- Letter /L.$0
of
indemnity
&n ,EI is usually seen in co odity trades, such as oil, !here the cargo can be sold any ti es during its voyage up to 3@ ti es
@7
has been seen. The follo!ing describes the circu stances in !hich an ,EI could be used in a transaction covering a ship ent of oil: Individual oil transactions typically have high values. They can be in e#cess of =S[)66 . Inter ediary buyers and sellers are often bro"ers !ho have no interest in the oil as end-users, but !ho si ply a"e a profit on each sale. & particular seller in the chain ay !ell be a subse%uent buyer of the sa e oil. Eriginal charter party bills of lading are issued upon ship ent, but the proble is that prior intervening parties ay ta"e their ti e to release and deliver the charter party bills of lading Aduly endorsed to the ne#t buyerB and, therefore, the final seller has little option but to use a letter of inde nity to fulfil its transaction.
"".-." Liabilities
& transaction using an ,EI, !here the buyers and sellers are involved in t!o docu entary credits, can be described as follo!s: &pplicant ) establishes a docu entary credit in favour of 1eneficiary ), allo!ing for pay ent against usual shipping docu ents including charter party bills of lading. The docu entary credit !ill also state that if certain docu ents are not available at the ti e of pay ent, an invoice and ,EI ay be presented. The docu entary credit ay allo! for these t!o docu ents to be presented via S;IFT, tele# or fa#, instead of in a paper for . The docu entary credit ay also provide the !ording of the ,EI that is to be presented. If 1eneficiary ) is re%uired to issue an ,EI addressed to &pplicant ), due to the non-availability of certain docu ents including the original charter party bills of lading, the ,EI ay Aby the ter s of the docu entary creditB re%uire countersignature by the ban"ers of 1eneficiary ), if not issued by that ban". 1eneficiary ).s ban"ers accordingly underta"e a liability under the ,EI issued in favour of &pplicant ), !hich is to be recorded against the facility of 1eneficiary ). ?ote that the recording of liability, the level of such liability and the fees that !ill be levied vary fro ban" to ban" and are usually subHect to ban" policy. 1eneficiary ) receives pay ent under the docu entary credit.
@+
&pplicant ) rei burses the issuing ban" under its ifs School of Finance
2013
9etter of indemnit! >95I? docu entary credit.
@*
&pplicant ) is no! 1eneficiary 3 in a docu entary credit opened by &pplicant 3. &pplicant ), as 1eneficiary 3, receives pay ent under the docu entary credit established by &pplicant 3, by presenting its o!n invoice and ,EI. Its ,EI has been issued based on the content and underta"ing of the ,EI issued by 1eneficiary ). This transaction can be repeated as often as necessary. Consider the position of 1eneficiary ): It has been paid under the docu entary credit AcreditB. It has a liability under the ,EI it issued AdebitB. ?o! consider the position of &pplicant ): It has rei bursed docu entary credit AdebitB. the issuing ban" under the first
It has received pay ent under the second docu entary credit AcreditB. It has an ,EI in its favour fro AcreditB. the first docu entary credit
It has issued an ,EI in favour of &pplicant 3 of the second docu entary credit, countersigned by its ban"ers AdebitB. 1oth parties have rei bursed the respective issuing ban"s and also received pay ent under the docu entary credit issued in their favour. 1oth parties have a liability outstanding under the ,EI each has issued, that ay have been countersigned by their respective ban"ers.
"".-.& :he L.$
form
of the
The ,EI is generally a one-page docu ent that: confir s the issuer.s o!nership rights over the goodsG inde nifies the party to !ho it is addressed against the absence of an original charter party bill of ladingG 86 ifs School of Finance
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underta"es to surrender such bill of lading as soon as it is receivedG and agrees to hold the addressee har less and inde nified against all conse%uences resulting fro the sale and the absence of an original charter party bill of lading.
9etter of indemnit! >95I?
8)
&s previously stated, an ,EI is usually issued by the beneficiary of the docu entary credit and, if re%uired, countersigned by its ban"ers.
"".-.- Counter2indemnities
The beneficiary.s ban"er that is re%uested to countersign or issue an ,EI ay obtain a counter-inde nity fro the beneficiary. Its for at !ill try to protect the ban" as co prehensively as possible. In addition, the ban" ay also see" tangible security in the for of cash or ar"etable securities because: the a ounts involved are largeG the surrender of an original charter party bill of lading that is necessary to effect the cancellation of an ,EI ay ta"e a significant a ount of ti e depending on the nu ber of inter ediary buyers and sellers that are involvedG and, in the interi , there is a ris" that one of the buyers or sellers in the chain !ill be ade ban"rupt or cease to trade, causing even further, une#pected delays in obtaining an original charter party bill of lading.
"".3 )articipation syndication
and
(articipations and syndications are handled in different !ays depending upon: the ban"sG the involvedG concerned countries
legal issues and adviceG and the approval of each ban".s legal advisers on docu entation. Increasingly, the values of
83
any transactions are beco ing so
large that individual ban"s are less !illing to of underta"e ifs School Finance these
2013
$artici+ation and s!ndication transactions on their o!n. &s a result, ban"s
ay prefer to share the ris", and arrange ents are ade to participate in loan M facility M docu entary credit ris". These arrange ents are described in general ter s as participation and syndication.
89
The ost co on instances of participation and syndication are described belo!: the establish ent of a docu entary credit on behalf of an applicant A!ho is often a ultinationalB on a syndicated basis and the process that follo!s fro doing so ie the e#a ination of docu ents and effecting pay ent thereunderG and the confir ing of a large-value docu entary creditG it should be noted that arrange ents ay ta"e either of t!o for s silent or disclosed: as a one-off transaction, under !hich the lead ban" adds its confir ation and e#a ines docu ents, and then honours or negotiates on behalf of the syndicateG the lead ban" is the public voice of the syndicate, !hich eans that third parties are una!are of the participation of the other ban"sG or the sharing of a facility a ong ban"s in the syndicate, under !hich each ban" in turn confir s its o!n portion of the docu entary credit and e#a ines docu ents, and then honours or negotiates up to the a ount for !hich it added its confir ation.
"".3." Establishing documentary credits and follow2up operations

& group of ban"s ay, at the re%uest of an applicant, arrange a facility on a syndicated basis under !hich the ris" of an applicant.s inability to repay is shared bet!een the in AagreedB percentage ter s. (art of such a facility ay be available to open docu entary credits. Such docu entary credits ay be opened by one ban", !ith the others sharing in the ris", as described in section ))./ or by each ban" up to the percentage of the facility or ris" agreed by it.
"".3."." 7yndication agreement

&n agree ent signed by all participating ban"s is central to any participation or syndication. Ene ban" !ill be appointed as the lead ban", either because such ban" is to ta"e the largest proportion of the ris", or si ply by co on agree ent of all ban"s that are involved. 8/ ifs School of Finance
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The s!ndication lead ban" !ill, in consultation !ith the other ban"s Aand the applicant, !hen the syndicate is in respect of the issuance of one or ore docu entary
$artici+ation and
8@
creditsB, dra! up a syndication agree ent and such agree ent should cover so e or all of the follo!ing aspects: The total value of the docu entary creditAsB. The type and nature of the goods. ,ength of validity for ship ent and e#piry. The ini u docu entary re%uire ents to be stipulated in each docu entary credit and re%uired for presentation for honour or negotiation. ;hat type of a end ent !ill or !ill not be per itted. ;hether the other ban"s !ish to approve the te#t of each docu entary credit and any a end ent thereto prior to issuance. $o! docu ents are to be handled !hether the lead ban".s e#a ination of docu ents !ill be acceptable and !hether the other ban"s !ill accept the lead ban".s decisions !ith regard to confor ing docu ents. ;ill such acceptance be %ualified by e#clusion of liability of the other ban"s in respect of anifest error or negligence on the part of the lead ban"V If docu ents presented under the docu entary credit are discrepant: 'o the other ban"s need to be advised of such discrepanciesV 'oes the reHection of docu ents in ter s of =C( 866, article )8 end the liability of all ban"sV If discrepant docu ents re%uire a !aiver of the applicant, do the other ban"s need to be consulted and do they need to approve such !aiver prior to reinstate ent of their liabilityV
&re there any circu stances Aeg ban"ruptcy or li%uidationB in !hich ban"s !ill !ish to retain their rights to: Refuse docu ents !ithout reference to the applicantV Refuse to reinstate their liability even if the applicant has subse%uently accepted the discrepant docu entsV issions and fees.
The basis for sharing of co

88
$artici+ation and s!ndication
The docu entary re%uire ents the syndication agree ent.
for
any
clai s
under
The sharing of any security that the applicant ay have surrendered, including the sharing of the sale proceeds of the underlying goods. These points illustrate so e aspects that need to be considered in drafting a syndication agree ent, although not all the points !ill apply in every situation and so e ay involve additional issues. -ach syndication arrange ent needs to be e#a ined separately and an agree ent relevant to each ust be drafted separately.
"".3.& Confirming a large2!alue documentary credit when a single bank is unwilling to take all the risk
The aspects of the syndication agree ent listed in section ))./.).) have e%ual application to the syndication of a confir ation of a docu entary credit. In order to aintain control in handling such confir ations, ban" operations staff should: ar" the file clearly to ensure that anyone can see that it relates to a syndicated transactionG and that the file
ensure contains:
a copy of the syndication agree entG the na es and telephone nu bers of contacts in the participating ban"s Ain each case, the ban".s in-house legal advisers and relationship anagerBG
ensure that the file is handled by senior staff !ith sufficient e#perience in =C(, docu entary credits and syndicated transactions, !ho are able to have eaningful conversations !ith participating ban"s, legal advisers and the relationship anagerG and ensure that all develop ents are docu ented, including conversations !ith participating ban"s, legal advisers and relationship anagers. In vie! of the large a ounts of ifs School of Finance
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oney involved, the speed at 87
credit !hich transactions need to be handled and the involve ent of other ban"s, students should involve senior anage ent or ore e#perienced personnel !hen there is the slightest doubt or difficulty !ith a syndicated transaction.
11* 5ther +roducts relatin% to a documentar!
8+
Re#ie.uestions
8e!iew 9uestions
). &n inde nity for signed by an applicant and a ban" does not co it to !hich of the follo!ingV a. To pay on receipt of an original bill of lading. b. To surrender an original bill of lading on receipt. c. To inde nify the carrier. d. To pay freight charges. 3. & letter of inde nity A,EIB inde nifies the holder against !hatV a. & failure of the applicant to pay. b. & failure of the issuing ban" to pay. c. The absence of a co ercial invoice. d. The absence of an original charter party bill of lading. 9. In ost Hurisdictions, shipping guarantees and inde nities !ill e#pire after: a. 8 onthsG
b. 87 yearsG c. /@ yearsG d. )3 years. /. ;hich of the follo!ing !ill not nor ally be included in a syndication agree entV a. Ualidity for ship ent and e#piry. b. Type of a end ents that ay be issued. c. & list of all re%uired docu ents. d. The type and nature of the goods.
8*
@.
;hich of the follo!ing infor ation !ill not nor ally be sho!n on a shipping guarantee or inde nityV a. Consignee.s na e. b. Shipper.s na e. c. & ount. d. Uessel and voyage nu ber.
76
Chapter )3
;nalysis rules
of
$CC
Learning ob ecti!es &fter studying this chapter students should be able to: analyse the ain features of =C( 866, e=C(, IS1( 7/@, IS( *+ and =RR 73@.
"&." $ntroduction
This chapter analyses the ain features of five ICC publications =C( 866, e=C(, IS1( (ublication ?o. 7/@, IS( *+ and =RR 73@. <uch of the analysis of these publications is included in Chapter 3 to Chapter )). &dditional analysis is provided in this chapter !here necessary.
"&.& #C) *++

ICC Uniform Customs and $ractice for ocumentar! Credits A=C( 866B ca e into force on ) 5uly 3667. Refer to Chapter ) for an e#planation of the develop ent of =C(.
ifs School of Finance 2013 8)
"&.&." #C) *++, article "34 7tandard for e%amination of documents

The standard for e#a ination of docu ents is set out in #C) *++, article "3. If no ti e li it is stipulated, a period of 3) calendar days after the date of ship ent is auto atically applied should an original
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transport docu ent for part of the presentation. =ncertain ter s, such as Fstale bills of lading are acceptable., should not be included in the ter s of a docu entary credit. $7B), )ublication No. B3?, paragraph ;"F/b0 provides an interpretation if such ter is used. $7B) B3?, ;"F/b0 paragraph
OStale docu ents acceptableP docu ents ay be presented later than 3) calendar days after the date of ship ent as long as they are presented no later than the e#piry date of the credit. This !ill also apply !hen the credit specifies a period for presentation together !ith the condition Ostale docu ents acceptableP. ?ote that #C) *++, sub2article "3/c0 only applies to a docu entary credit that re%uires presentation of an original transport docu ent. The content of #C) *++, sub2article "3/e0 is further a plified in $7B), )ublication No. B3?, paragraphs D&*, E&&, F&+, G&+, E&& and K"B. $7B) D&* B3?, paragraph
& goods description indicated on a ulti odal transport docu ent ay be in general ter s not in conflict !ith the goods description in the credit. $7B) E&& B3?, paragraph
& goods description indicated on a bill of lading ay be in general ter s not in conflict !ith the goods description in the credit. $7B) F&+ B3?, paragraph
& goods description indicated on a non-negotiable sea !aybill ay be in general ter s not in conflict !ith the goods description in the credit.
$7B) G&+
B3?,
paragraph
12* 8nal!sis of ICC rules
& goods description indicated on a charter party bill of lading ay be in general ter s not in conflict !ith the goods description in the credit.
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$7B) E&&
B3?,
paragraph
& goods description indicated on an air transport docu ent ay be in general ter s not in conflict !ith the goods description in the credit. $7B) K"B B3?, paragraph
& goods description indicated on a road, rail or inland !ater!ay transport docu ent ay be in general ter s not in conflict !ith the goods description in the credit. The content of sub2article "3/l0 is further a plified in $7B), )ublication No. B3?, paragraphs D-/b0, E-/b0 and F&/b0. $7B) D-/b0 B3?, paragraph
;hen a credit indicates OFreight For!arder.s <ulti- odal Transport 'ocu ent is acceptableP or O$ouse <ulti odal Transport 'ocu ent is acceptableP or !ords of si ilar effect, a ulti odal transport docu ent ay be signed by the issuing entity !ithout it being necessary to indicate the capacity in !hich it has been signed or the na e of the carrier. $7B) E-/b0 B3?, paragraph
;hen a credit indicates OFreight For!arder.s 1ill of ,ading is acceptableP or O$ouse 1ill of ,ading is acceptableP or !ords of si ilar effect, a bill of lading ay be signed by the issuing entity !ithout it being necessary to indicate the capacity in !hich it has been signed or the na e of the carrier. $7B) F&/b0 B3?, paragraph
;hen a credit indicates OFreight For!arder.s non-negotiable sea !aybill is acceptableP or O$ouse non-negotiable sea !aybill is acceptableP or !ords of si ilar effect, a nonnegotiable sea !aybill ay be signed by the issuing entity ifs School of Finance 8@
2013
!ithout it being necessary to indicate rules the capacity in !hich it has been signed or the na e of the carrier. $7B), )ublication No. B3?, paragraphs D3, E3 and F- also provide the practice that is to be applied !hen a docu entary
12* 8nal!sis of ICC
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credit states that a freight for!arder type transport docu ent is not allo!ed. $7B) B3?, paragraphs D3, E3 and F'/. & stipulation in a credit that OFreight For!arder.s <ulti odal Transport 'ocu ents are not acceptableP or O$ouse <ulti odal Transport 'ocu ents are not acceptableP or !ords of si ilar effect has no eaning in the conte#t of the title, for at, content or signing of a ulti odal transport docu ent unless the credit provides specific re%uire ents detailing ho! the ulti odal transport docu ent is to be issued and signed. In the absence of these re%uire ents, such a stipulation is to be disregarded, and the ulti odal transport docu ent presented is to be e#a ined according to the re%uire ents of =C( 866, article )*. -/. & stipulation in a credit that OFreight For!arder.s 1ills of ,ading are not acceptableP or O$ouse 1ills of ,ading are not acceptableP or !ords of si ilar effect has no eaning in the conte#t of the title, for at, content or signing of a bill of lading unless the credit provides specific re%uire ents detailing ho! the bill of lading is to be issued and signed. In the absence of these re%uire ents, such a stipulation is to be disregarded, and the bill of lading presented is to be e#a ined according to the re%uire ents of =C( 866, article 36. F9. & stipulation in a credit that OFreight For!arder.s non-negotiable sea !aybill is not acceptableP or O$ouse non-negotiable sea !aybill is not acceptableP or !ords of si ilar effect has no eaning in the conte#t of the title, for at, content or signing of a non-negotiable sea !aybill unless the credit provides specific re%uire ents detailing ho! the non-negotiable sea !aybill is to be issued and signed. In the absence of these re%uire ents, such a stipulation is to be disregarded, and the non- negotiable sea !aybill presented is to be e#a ined according to the re%uire ents of =C( 866, article 3).
"&.&.& #C) *++, article "D4 Commercial in!oice

The definition of an invoice is found in $7B), )ublication No. B3?, paragraphs C"/a0 and /b0. $7B) B3?, paragraphs C"/a0 and /b0 ifs School of Finance
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a. ;hen a credit re%uires presentation of rules an OinvoiceP !ithout further description, this !ill be satisfied by the presentation
12* 8nal!sis of ICC
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of any type of invoice Aco ercial invoice, custo s invoice, ta# invoice, final invoice, consular invoice, etc.B. $o!ever, an invoice is not to be identified as OprovisionalP, Opro-for aP or the li"e. b. ;hen a credit re%uires presentation of a Oco ercial invoiceP, this !ill also be satisfied by the presentation of a docu ent titled OinvoiceP, even !hen such docu ent contains a state ent that it has been issued for ta# purposes. & co ercial invoice ust be ade out in the na e of the applicant, e#cept in the conte#t of a transferable docu entary credit. ?ote that #C) *++, sub2article "3/e0 states that if a goods description is indicated in a docu ent other than a co ercial invoice it ay be stated in general ter s not conflicting !ith the description of the goods in the docu entary credit. The re%uire ents for a co ercial invoice are covered in $7B), )ublication No. B3?, paragraphs C-CF. There is no re%uire ent for a goods description to appear in every stipulated docu ent. The issue of isspelling or typing errors is covered in $7B), )ublication No. B3?, paragraph ;&-. It should be noted that the definition of a isspelling or typing error ay be open to Hudge ent. ;herever possible and practical, replace ent or corrected docu ents should be obtained.
"&.&.- #C) *++, article "F4 :ransport document co!ering at least two different modes of transport
The detailed =C( 866 provisions for this type of transport docu ent are sho!n belo!. The nu bers in s%uare brac"ets refer to the e#planatory sections nu bered )-)6 that follo!. ;rticle "F :ransport Document Co!ering at Least :wo Different Aodes of :ransport a. & transport docu ent covering at least t!o different odes of transport W)X A ulti odal or co bined transport docu entB, ho!ever na ed W3X, ust appear to:
8*
rulesbe signed W9X i. indicate the na e of the carrier and by:
12* 8nal!sis of ICC
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the carrier or a na ed agent for or on behalf of the carrier, or the aster or a na ed agent for or on behalf of the aster.
&ny signature by the carrier, aster or agent ust be identified as that of the carrier, aster or agent. &ny signature by an agent ust indicate !hether the agent has signed for or on behalf of the carrier or for or on behalf of the aster. ii. indicate that the goods have been dispatched, ta"en in charge or shipped on board at the place stated in the credit W/X, by: pre-printed !ording, or a sta p or notation indicating the date on !hich the goods have been dispatched, ta"en in charge or shipped on board.
The date of issuance of the transport docu ent !ill be dee ed to be the date of dispatch, ta"ing in charge or shipped on board, and the date of ship ent W@X. $o!ever, if the transport docu ent indicates, by sta p or notation, a date of dispatch, ta"ing in charge or shipped on board, this date !ill be dee ed to be the date of ship ent W@X. iii. indicate the place of dispatch, ta"ing in charge or ship ent and the place of final destination W8X stated in the credit, even if: the transport docu ent states, in addition, a different place of dispatch, ta"ing in charge or ship ent or place of final destination, or
the transport docu ent contains the indication OintendedP or si ilar %ualification in relation to the vessel, port of loading or port of discharge. iv. be the sole original transport docu ent or, if issued in ore than one original, be the full set W7X as indicated on the transport docu ent. v. contain ter s and conditions of carriage W+X or a"e reference to another source containing the ter s and conditions of carriage Ashort for or blan" bac" transport docu entB. Contents of ter s and conditions of carriage ifs School of Finance
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7)
!ill not be e#a ined. vi. contain no indication that it is subHect to a charter party W*X. b. For the purpose of this article, tranship ent W)6X eans unloading fro one eans of conveyance and reloading to another eans of conveyance A!hether or not in different odes of transportB during the carriage fro the place of dispatch, ta"ing in charge or ship ent to the place of final destination stated in the credit. c. i. & transport docu ent ay indicate that the goods !ill or ay be transhipped provided that the entire carriage is covered by one and the sa e transport docu ent. ii. & transport docu ent indicating that tranship ent !ill or ay ta"e place is acceptable, even if the credit prohibits tranship ent. There is further detail on !hen #C) *++, article "F !ill apply in $7B), )ublication No. B3?, paragraph D". $7B) B3?, paragraph D" a. & re%uire ent in a credit for the presentation of a transport docu ent, ho!ever na ed, covering ove ent of goods utiliIing at least t!o different odes of transport eans that =C( 866, article )* is to be applied in the e#a ination of that docu ent. i. & ulti odal or co bined transport docu ent is not to indicate that ship ent or dispatch has been effected by only one ode of transport, but it ay be silent regarding so e or all of the odes of transport utiliIed. ii. & ulti odal or co bined transport docu ent is not to contain any indication of a charter party as described in paragraphs G3 AaB and AbB. c. ;hen a credit re%uires the presentation of a transport docu ent other than a ulti odal or co bined transport docu ent, and it is clear fro the routing of the goods stated in the credit that ore than one ode of transport is to be utiliIed, for e#a ple, !hen an inland place of receipt or final destination are indicated, or the port of loading or discharge field is co pleted but !ith a place !hich is in fact an inland
b.
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place and not a port, =C( 866, article )* is to be applied in the e#a ination of that docu ent. & ulti odal transport docu ent is a docu ent that covers the transport of goods by ore than one Aie a ultiB ode Aor ethodB. The funda ental difference bet!een a ulti odal transport docu ent and others, such as a bill of lading, is that the ulti odal transport docu ent issuer underta"es responsibility for the entire Hourney fro and M or to an inland place. The ulti odal transport operator ay not carry the goods physically during any stage of the Hourney. Instead, the carriage of goods !ill be sub-contracted to actual carriers. &s !ith other docu ents, the "ey under a docu entary credit is that the presented docu ent co plies. There are a nu ber of rules in article "F that are i portant for the docu ent e#a iner. These are analysed belo!.
" G. . . two different transportH

& docu ent e#a iner follo!ing conditions are
modes
of
ust deter ine !hether either of the et:
The docu entary credit stipulates, or, by its ter s and conditions re%uires, the presentation of a transport docu ent covering ore than one ode of transport or identifies the docu ent to be presented !ith si ilar !ording, such as Fco bined transport docu ent..
The docu entary credit does not e#pressly describe the docu ent to be presented as a ulti odal, co bined or through transport docu ent. Instead, it calls for or re%uires the presentation of a transport docu ent covering t!o or ore specified Hourneys that !ill involve different odes of transport.
& G. . namedH
howe!er
SubHect to the ter s and conditions of the docu entary credit, a docu ent co plying !ith the re%uire ents of article )* !ill be accepted irrespective of the title sho!n on the docu ent. The title of the docu ent is not a criterion.
The criteria that:
are
the ter s and conditions of the docu entary credit have been satisfiedG and the docu ent co plies !ith the re%uire ents of article )*.
- Gindicate the name of the carrier and be signedH

The docu ent ust clearly indicate the na e of the carrier. This ay be by a specific reference to a co pany na e therein as being the carrier or as part of the anner in !hich the docu ent is signed. The docu ent by: ust appear to have been signed
the carrier or a na ed agent for or on behalf of the carrierG or the aster or a na ed agent for or on behalf of the Asee #C) *++, sub2article "F/a0/i0B. aster
&ny signature by the carrier, aster or agent ust be identified as that of the carrier, aster or agent. &ny signature by an agent ust indicate !hether it has signed for or on behalf of the carrier or for or on behalf of the aster. This is also covered in $7B), )ublication No. B3?, paragraph D?. $7B) B3?, paragraph D? a. & ulti odal transport docu ent is to be signed in the for described in =C( 866, sub-article )* AaB AiB and to indicate the na e of the carrier, identified as the carrier. b. ;hen a ulti odal transport docu ent is signed by a na ed branch of the carrier, the signature is considered to have been ade by the carrier. c. ;hen an agent signs a ulti odal transport docu ent for Wor on behalf ofX the carrier, the agent is to be na ed and, in addition, to indicate that it is signing as Oagent for Ana eB, the carrierP or as Oagent on behalf of Ana eB, the carrierP or !ords of si ilar effect. ;hen the carrier is identified else!here in the docu ent as the OcarrierP, the ifs School of Finance
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na ed agent ay sign, for e#a ple, as Oagent for Wor on behalf ofX the carrierP !ithout na ing the carrier again. AcaptainB signs a ulti odal the signature of the aster
d. ;hen the aster transport docu ent, AcaptainB is to be
7@
identified as the O asterP AOcaptainPB. The na e of the AcaptainB need not be stated.
aster
e. ;hen an agent signs a ulti odal transport docu ent for Wor on behalf ofX the aster AcaptainB, the agent is to be na ed and, in addition, to indicate that it is signing as Oagent for the aster Aor captainBP or as Oagent on behalf of the aster Aor captainBP or !ords of si ilar effect. The na e of the aster AcaptainB need not be stated.
3 G. . . dispatched, taken in charge or shipped on board at the place stated in the creditH
The ulti odal transport docu ent ust indicate Fthat the goods have been dispatched, ta"en in charge or shipped on board at the place stated in the credit.. This indication ust be in one of t!o for s: pre-printed docu entG a sta p docu ent. or !ording notation on on the the
(re-printed !ording ay be used in cases in !hich the docu ent is issued after the goods have been dispatched, ta"en in charge or shipped. & separate notation Aadded after the docu ent is issuedB is re%uired in cases in !hich it is issued before dispatch, ta"ing in charge or ship ent. The docu ent ust contain clear evidence that any dispatch, ta"ing in charge or shipped on board date relates to the place stated in the credit.
? G. . . shipmentH
date
of
ay be indicated
'ispatch, ta"ing in charge or shipped on board by either: !ording to that effect on the or by sta p or notation.
ulti odal transport docu entG
In the first situation A!ording on the ulti odal transport docu entB, the date of issuance of the docu ent is dee ed to be the date of dispatch, ta"ing in charge or loading on board, and the date of ship ent. In the second situation Aby sta p or 78 ifs School of Finance
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notationB, the date of the sta p or notation is dee ed to be the date of ship ent. This is covered in $7B), )ublication No. B3?, paragraph D*.
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$7B) B3?, D*
paragraph
The issuance date of a ulti odal transport docu ent !ill be dee ed to be the date of receipt, dispatch, ta"ing in charge or ship ent on board and the date of ship ent, unless it bears a separate dated notation evidencing receipt, dispatch, ta"ing in charge or ship ent on board fro the place, port or airport stated in the credit. In the latter event, such date !ill be dee ed to be the date of ship ent !hether that date is before or after the issuance date of the ulti odal transport docu ent. & separate dated notation ay also be indicated in a designated field or bo#.
* G. . . place of dispatch, taking in charge or shipment and the place of final destinationH
The ulti odal transport docu ent ust indicate the place of ta"ing in charge and the place of final destination stipulated in the docu entary credit Asee #C) *++, sub2article "F/a0/iii0B. This rule also specifically provides that the place of ta"ing in charge ay be different fro the port, airport or place of loading. The above provisions reflect nor al practice in ulti odal transport operations. For e#a ple, the <TE ay ta"e the goods in charge at a !arehouse in the beneficiary.s location Aan inland cityB, for ship ent by sea and deliver the finally to another !arehouse in the applicant.s ho e city. In this case, the docu entary credit ay indicate that the starting point is the port of loading, !ith the final destination as the applicant.s !arehouse. The ulti odal transport docu ent !ill also indicate both of these places, but it ay also sho! the ta"ing in charge at the beneficiary.s !arehouse. This infor ation has no bearing on the docu entary credit. The transport docu ent ust evidence an on-board notation at the port of loading stated in the credit, if that is the point of co ence ent of the Hourney under the docu entary credit. $7B), )ublication No. B3?, paragraph D"+ covers the situation !hen the docu entary credit indicates a geographical area or range of places or ports for the co ence ent of the Hourney. $7B) D"+ B3?, paragraph
7+
;hen a credit indicates a geographical area or range of places of receipt, dispatch, ta"ing ports of loading in ifscharge, School of Finance
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or airports of departure Afor e#a ple, O&ny -uropean CountryP or O$a burg, Rotterda , &nt!erp (ortPB, a ulti odal transport docu ent is to indicate the actual place of receipt, dispatch, ta"ing in charge,
7*
port of loading or airport of departure, !hich is to be !ithin that geographical area or range of places. & ulti odal transport docu ent need not indicate the geographical area.
B G. . . full setH
Eriginal transport docu ents rules have been established: ust be presented. The follo!ing
if a ulti odal transport docu ent A<<T'B is issued in one original only, that sole original ust be presentedG if a <<T' is issued in indicated on the <<T' This eans deter ine: that a ore than one original, the full set as ust be presented. e#a iner ust
docu ent
!hether the <<T' has been issued as a sole original or as a setG if the <<T' has been issued as a set in several originals, ho! any originals constitute the full setG in the case of a sole original, !hether or not the docu ent presented is the original in %uestionG and in the case of an <<T' issued in a set, !hether or not all of the originals co prising the set have been presented. It is nor al practice for an <<T' to include an indication of the nu ber of originals that have been issued. This usually appears ne#t to the space for signature of the docu ent, at the botto of the page. & docu entary credit ay re%uire one original <<T' to be sent directly to the applicant or to a na ed third party. In this event, and in the case of an <<T' issued as a sole original, no original <<T' could be sub itted !ith the docu ents. In the case of an <<T' issued in ore than one original, the nu ber of original <<T's sub itted !ith the docu ents !ould be less by one of the nu ber of originals sho!n as issued. $7B) D"? a.
+6b.
B3?,
paragraph
& ulti odal transport docu ent is to indicate the nu ber of originals that have been issued. <ulti odal transport ifs School of Finance docu ents ar"ed OFirst
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EriginalP, OSecond EriginalP, OThird EriginalP, or OEriginalP, O'uplicateP, OTriplicateP or si ilar e#pressions are all originals.
+)
D G. . . terms and conditions carriageH
of
In ost cases, the ter s and conditions of carriage !ill be stated on the transport docu ent. It can be that the detailed ter s and conditions of carriage are set out in a aster docu ent held by the carrier for convenience. The transport docu ent !ill then incorporate these conditions by reference, but !ill not %uote the on the docu ent itself. 'ocu ents of this type are often referred to as Fshort for . or Fblan" bac". docu ents. #C) *++, sub2article "F/a0/!0 specifically provides that short for or blan" bac" transport docu ents are acceptable. This rule applies !henever such docu ent appears to F a"e reference to another source containing the ter s and conditions of carriage.. & docu ent e#a iner is re%uired to e#a ine the details on the transport docu ent against those re%uired by the docu entary credit and by article )*. There is no obligation to find out !hat the detailed ter s and conditions of carriage are and they do not need to be e#a ined.
F G. . partyH
charter
& ulti odal transport docu ent is not acceptable if it contains any indication that it is subHect to a charter party.
"+ G. . transhipmentH
& prohibition of tranship ent, as defined in $7B), )ublication No. B3?, paragraph D&", is ineffective in the case of carriage conducted solely under a single ulti odal transport docu ent. $7B) D&" B3?, paragraph
+3
In ulti odal transport tranship ent !ill occur. Tranship ent is the unloading and reloading of goods fro one eans of conveyance to another eans of conveyance A!hether or not in different odes of transportB during the carriage of those goods fro the place of receipt, dispatch or ta"ing in charge, port of loading or airport of departure to the place of final destination, port of discharge or airport of destination stated in the credit. ifs School of Finance
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Should tranship ent be prohibited, ban"s !ill accept a ulti odal transport docu ent sho!ing that tranship ent has occurred, as long as the entire Hourney is covered by one and the sa e ulti odal transport docu ent. Figures )3.) and )3.3 provide an annotated e#a ple of a ulti odal transport docu ent.
+9
Figure "&."
Shipper (Complete name, address and phone number
Aultimodal transport document $
1. Bill of Lading For Combined Transport or Port to Port Shipment

Consi!nee (Not ne!otiable unless "onsi!ned to order B/L No.: Boo ing !ef: Shipper&s !ef: 134 "BC#$% '()*#$
Noti#$ noti#$
part$
(Carrier not to be responsible #or #ailure to
Titani+ Line
"n-to.n/ "n-.here
o# re"eipt0
%re-"arria!e b$0 &oad )essel C+CS ,-press %ort o# dis"har!e )o$* No*
%la"e
'o(loon %ort o# loadin!
.on! 'on! %la"e o# deli/er$ 0
Southampton 0ar5s and Nos* Container Nos*6Seals No* o# pa"5a!es
0an"hester +es"ription o# pa"5a!es and !oods
12ppli"able onl$ (hen this do"ument is used as a Combined 3ransport Bill o# 4adin!
7ross (ei!ht (5! 0easurement ("bm
1e- Criteria: 2o+3mentar- +redit re43ires the presentation of a m3ltimodal transport do+3ment +o5ering shipment from 6ong 1ong to 7an+hester. 1. 6o.e5er named 8 do+3ment +an be titled m3ltimodal transport do+3ment/ +ombined transport do+3ment/ thro3gh bill of lading/ et+. 9. Name of +arrier 8 at the signat3re line/ the +arrier :Titani+ Line; is identified. 3. Signed 8 the do+3ment is signed b- <FS Shipping Ltd as agents of the +arrier 4. =5iden+e of shipment from 6ong 1ong 8 there is a dated on board notation indi+ating that the goods .ere shipped from 6ong 1ong port on 3* 7a- 9*>> #. 2ate of shipment 8 the do+3ment is iss3ed on 9? 7a- 9*>> b3t the on board date is 3* 7a9*>>. The date of shipment is 3* 7a- 9*>>.
"B@A= P"!T<CBL"!S 2=CL"!=2 B( S6<PP=!: C"!!<=! N@T !=SP@NS<BL= 8rei!ht and "har!es (indi"ate (hether prepaid or "olle"t Shipped on Board C+CS ,-press 9: 0a$ ;:-- at .on! 'on!
&,C,I),+
4. #.
b$ the Carrier #rom the shipper in apparent !ood order and "ondition (unless
<ri!in Inland .aula!e "har!es <ri!in terminal .andlin!6 4C4 Ser/i"e "har!es <"ean 8rei!ht +estination 3erminal .andlin!6 4C4 Ser/i"e "har!es +estination Inland haula!e "har!es
** **
other(ise noted herein the total numbers or =uantit$ o# Containers or other pa"5a!es or units indi"ated abo/e stated b$ the shipper to "omprise the "ar!o spe"i#ied abo/e, #or transportation sub>e"t to all the terms hereo# (in"ludin! the terms on the re/erse hereo# #rom the pla"e o# re"eipt or the port o# loadin!, (hi"he/er appli"able, to the port o# dis"har!e or the pla"e o# deli/er$, (hi"he/er appli"able* +eli/er$ o# the 7oods (ill onl$ be made on pa$ment o# all #rei!ht and "har!es* <n presentation o# this do"ument (dul$ endorsed to the Carrier, b$ or on behal# o# the holder, the ri!hts and liabilities arisin! in a""ordan"e (ith the terms hereo# shall ((ithout pre>udi"e to an$ rule o# "ommon la( or statute renderin! them bindin! upon the shipper, holder and Carrier be"ome bindin! in all respe"ts bet(een the "arrier and holder as thou!h the "ontra"t "ontained herein or e/iden"ed hereb$ had been made bet(een them* In (itness (hereo# three (9 ori!inal Bills o# 4adin! unless other(ise stated belo( ha/e been issued, one o# (hi"h bein! a""omplished, the others to be /oid* 8rei!ht, "har!es and prima!e (hether prepa$able or not and (hether paid or not shall be "onsidered as #ull$ earned upon shipment and shall be paid /essel and6or "ar!o lost or not lost* (C<N3IN?,+ <N &,),&S, SI+, %la"e and date o# issue 'o(loon ;8 0a$ ;:--
** ***
#.
+e"lared /alue b$ shipper (see "lause 5*C*4 and tari## &eleasin! 2!ent
0o/ement 8rei!ht pa$able at .on! 'on!
Si!ned B$@ 9. I8S Shippin! as a!ent #or the Carrier, 3itani" 4ine
3.
George Hyhams
Number o# ori!inal Bs64
+/
Figure "&.& Aultimodal transport document $$

Bill of Lading For Combined Transport or Port to Port Shipment

Noti#$ noti#$
part$
Titani+ Line
"n-to.n/ "n-.here
o# re"eipt0
%re-"arria!e b$0 &oad )essel C+CS %ort ,-press )o$* No*
%la"e
'o(loon %ort o# loadin!
$.
.on! 'on! %la"e o# deli/er$0
o# dis"har!e
Southampton 0ar5s and Nos* Container Nos*6Seals No* o# pa"5a!es
0an"hester +es"ription o# pa"5a!es and !oods
1e- Criteria: %$. . "ltho3gh the do+3mentar- +redit re43ired shipment from 6ong 1ong to 7an+hester/ the $.$. do+3ment indi+ates that the goods .ere re+ei5ed b- the agent or the +arrier in 1o.loon. The +arriage bet.een 1o.loon and 6ong 1ong port is o3tside the terms of the do+3mentar- +redit. " do+3ment e>aminer is onl- interested in the +arriage from 6ong 1ong and .hen this o++3rred. %. . F3ll set 8 the do+3ment indi+ates that three originals ha5e been ?%. iss3ed. "lso note the follo.ing: C Terms and +onditions of +arriage 8 either the f3ll terms .ill be indi+ated on the re5erse of this page or the- .ill be referen+ed b- an address/ .eb address/ lo+ation .here the- ma- be 5ie.ed :short form or blan ba+ ; C Charter part- 8 there is not anindi+ation that the shipment .as s3bDe+t to a +harter part-. C Transhipment 8 this do+3ment +o5ers the +arriage from 1o.loon to 7an+hester 5ia 6ong 1ong and So3thampton ports.
"B@A= P"!T<CBL"!S 2=CL"!=2 B( S6<PP=!: C"!!<=! N@T !=SP@NS<BL=
8rei!ht and "har!es (indi"ate (hether prepaid or "olle"t <ri!in Inland .aula!e "har!es <ri!in terminal .andlin!6 4C4 Ser/i"e "har!es <"ean 8rei!ht +estination 3erminal .andlin!6 4C4 Ser/i"e "har!es +estination Inland haula!e "har!es ** *** ** **
Shipped on Board C+CS ,-press 9: 0a$ ;:-- at .on! 'on!
&,C,I),+
b$ the Carrier #rom the shipper in apparent !ood order and "ondition (unless other(ise noted herein the total numbers or =uantit$ o# Containers or other pa"5a!es or units indi"ated abo/e stated b$ the shipper to "omprise the "ar!o spe"i#ied abo/e, #or transportation sub>e"t to all the terms hereo# (in"ludin! the terms on the re/erse hereo# #rom the pla"e o# re"eipt or the port o# loadin!, (hi"he/er appli"able, to the port o# dis"har!e or the pla"e o# deli/er$, (hi"he/er appli"able* +eli/er$ o# the 7oods (ill onl$ be made on pa$ment o# all #rei!ht and "har!es* <n presentation o# this do"ument (dul$ endorsed to the Carrier, b$ or on behal# o# the holder, the ri!hts and liabilities arisin! in a""ordan"e (ith the terms hereo# shall ((ithout pre>udi"e to an$ rule o# "ommon la( or statute renderin! them bindin! upon the shipper, holder and Carrier be"ome bindin! in all respe"ts bet(een the "arrier and holder as thou!h the "ontra"t "ontained herein or e/iden"ed hereb$ had been made bet(een them* In (itness (hereo# three (9 ori!inal Bills o# 4adin! unless other(ise stated belo( ha/e been issued, one o# (hi"h bein! a""omplished, the others to be /oid* 8rei!ht, "har!es and prima!e (hether prepa$able or not and (hether paid or not shall be "onsidered as #ull$ earned upon shipment and shall be paid /essel and6or "ar!o lost or not lost* (C<N3IN?,+ <N &,),&S, SI+, %la"e and date o# issue 'o(loon ;8 0a$ ;:--
Si!ned B$@ I8S Shippin! as a!ent #or the Carrier, 3itani" 4ine
George Hyhams
%.
"&.&.3 #C) *++, article &+4 Bill of lading

The detailed =C( provisions are set out in #C) *++, article &+, as follo!s. ?u bers in s%uare brac"ets relate to the e#planatory sections nu bered )-7 that follo!. #C) *++, article &+4 Bill of lading a. & bill of lading, ho!ever na ed W)X, ust appear to:
i. indicate the na e of the carrier and be signed W3X by: the carrier or a na ed agent for or on behalf of the carrier, or the the aster or a na ed agent for or on behalf of aster.
&ny signature by the carrier, aster or agent ust be identified as that of the carrier, aster or agent. &ny signature by an agent ust indicate !hether the agent has signed for or on behalf of the carrier or for or on behalf of the aster. ii. indicate that the goods have been shipped on board W9X a na ed vessel at the port of loading stated in the credit by: pre-printed !ording, or an on board notation indicating the date on !hich the goods have been shipped on board. The date of issuance of the bill of lading !ill be dee ed to be the date of ship ent unless the bill of lading contains an on board notation indicating the date of ship ent W/X, in !hich case the date stated in the on board notation !ill be dee ed to be the date of ship ent. If the bill of lading contains the indication Ointended vesselO or si ilar %ualification in relation to the na e of the vessel, an on board notation indicating the date of ship ent and the na e of the actual vessel is re%uired. iii. indicate ship ent fro the port of loading to the port of discharge stated in the credit. If the bill of lading does not indicate the port of loading stated in the credit as the port of loading W@X, or if
it contains %ualification
the
indication
OintendedO
or
si ilar
in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of ship ent and the na e of the vessel is re%uired. This provision applies even !hen loading on board or ship ent on a na ed vessel is indicated by pre-printed !ording on the bill of lading. iv. be the sole original bill of lading or, if issued in ore than one original, be the full set W8X as indicated on the bill of lading. v. contain ter s and conditions of carriage or a"e reference to another source containing the ter s and conditions of carriage Ashort for or blan" bac" bill of ladingB. Contents of ter s and conditions of carriage !ill not be e#a ined.
vi. contain no indication that it is subHect to a charter party. b. For the purpose of this article, tranship ent W7X eans unloading fro one vessel and reloading to another vessel during the carriage fro the port of loading to the port of discharge stated in the credit. i. & bill of lading ay indicate that the goods !ill or ay be transhipped provided that the entire carriage is covered by one and the sa e bill of lading. ii. & bill of lading indicating that tranship ent !ill or ay ta"e place is acceptable, even if the credit prohibits tranship ent, if the goods have been shipped in a container, trailer or ,&S$ barge as evidenced by the bill of lading. d. Clauses in a bill of lading stating that the carrier reserves the right to tranship !ill be disregarded. Further infor ation is provided in $7B), )ublication No. B3?, paragraph E&. $7B) B3?, paragraph E& & bill of lading need not be titled O arine bill of ladingP, Oocean bill of ladingP, Oport-to-port bill of ladingP or !ords of si ilar effect even !hen the credit so na es the re%uired
c.
docu ent. There is further detail on !hen #C) *++, article &+ !ill apply in $7B), )ublication No. B3?, paragraph E"/a0.
$7B) E"/a0
B3?,
paragraph
a. & re%uire ent in a credit for the presentation of a transport docu ent, ho!ever na ed, only covering a port-to-port ship ent, i.e., a credit that contains no reference to a place of receipt or ta"ing in charge or place of final destination eans that =C( 866, article 36 is to be applied in the e#a ination of that docu ent. <any of the ter s are used in the sa e !ay as under article "F. ;here there are additional re%uire ents specific to article &+, these are indicated belo!.
" G. . namedH
howe!er
The re%uire ents are the sa e as under article "F. In addition, the docu ent ust eet the re%uired ethod of transport ie by sea.
& G. . . indicate the name of the carrier and be signedH

The re%uire ent is the sa e as under article "F. If an agent signs for or on behalf of the aster, there is no need for the na e of the aster to be stated. The =C( does not define the ter s Fcarrier. or F aster. for this purpose. It should also be noted that a aster or an agent acting on the aster.s behalf does not need to indicate the na e of the carrier !hen signing the docu ent, as long as the na e of the carrier is indicated else!here on the face of the bill of lading. This is covered paragraph E?. in $7B), )ublication No. B3?,
$7B) B3?, paragraph E? a. & bill of lading is to be signed in the for described in =C( 866, sub-article 36 AaB AiB and to indicate the na e of
the carrier, identified as the carrier. b. ;hen a bill of lading is signed by a na ed branch of the carrier, the signature is considered to have been ade by the carrier. c. ;hen an agent signs a bill of lading for Wor on behalf ofX the carrier, the agent is to be na ed and, in addition, to indicate that it is signing as Oagent for Ana eB, the carrierP or as Oagent on behalf of Ana eB, the carrierP or !ords of si ilar effect.
;hen the carrier is identified else!here in the docu ent as the OcarrierP, the na ed agent ay sign, for e#a ple, as Oagent for Wor on behalf ofX the carrierP !ithout na ing the carrier again. d. ;hen the aster AcaptainB signs a bill of lading, the signature of the aster AcaptainB is to be identified as the O asterP AOcaptainPB. The na e of the aster AcaptainB need not be stated. e. ;hen an agent signs a bill of lading for Wor on behalf ofX the aster AcaptainB, the agent is to be na ed and, in addition, to indicate that it is signing as Oagent for the aster Aor captainBP, or as Oagent on behalf of the aster Aor captainBP or !ords of si ilar effect. The na e of the aster AcaptainB need not be stated.
- G. . . shipped boardH
on
The re%uire ents are clearly outlined in $7B), )ublication No. B3?, paragraph E*. This paragraph includes the content of the ICC Reco endation (aper for on-board notations that !as issued by the ICC 1an"ing Co ission in 36)6. $7B) B3?, paragraph E* a. ;hen a pre-printed OShipped on boardP bill of lading is presented, its issuance date !ill be dee ed to be the date of ship ent unless it bears a separate dated on board notation. In the latter event, such date !ill be dee ed to be the date of ship ent !hether that date is before or after the issuance date of the bill of lading. The on board date ay also be indicated in a designated field or bo#. b. ?ot!ithstanding that a credit ay re%uire a bill of lading to evidence a port-to-port ship ent: i. !hen a bill of lading indicates a place of receipt that is the sa e as the port of loading, for e#a ple, place of receipt Rotterda CJ and the port of loading Rotterda , and there is no indication of a eans of pre-carriage Aeither in the pre-carriage field or the place of receipt fieldBG or
ii. !hen a bill of lading indicates a place of receipt different fro the port of loading, for e#a ple, place of receipt & sterda and port of loading Rotterda , and there is
no indication of a eans of pre-carriage Aeither in the pre-carriage field or the place of receipt fieldB, then: a. !hen a bill of lading is pre-printed Oshipped on boardP, the date of issue !ill be dee ed to be the date of ship ent, and no further on board notation is re%uired. b. !hen a bill of lading is pre-printed Oreceived for ship entP, a dated on board notation is re%uired, and the date appearing in the notation !ill be dee ed to be the date of ship ent. The on board date ay also be indicated in a designated field or bo#. c. ?ot!ithstanding that a credit ay re%uire a bill of lading to evidence a port-to-port ship ent, !hen a bill of lading: i. indicates a place of receipt different fro the port of loading, for e#a ple, place of receipt & sterda and port of loading Rotterda , and there is an indication of a eans of pre-carriage Aeither in the precarriage field or the place of receipt fieldB, regardless of !hether it is pre-printed Oshipped on boardP or Oreceived for ship entP, it is to bear a dated on board notation !hich also indicates the na e of the vessel and the port of loading stated in the credit. Such notation ay also appear in a designated field or bo#. The date appearing in the on board notation or designated field or bo# !ill be dee ed to be the date of ship ent.
ii. indicates a eans of pre-carriage Aeither in the precarriage field or the place of receipt fieldB, no atter if no place of receipt is stated or !hether it is pre-printed Oshipped on boardP or Oreceived for ship entP, it is to bear a dated on board notation !hich also indicates the na e of the vessel and the port of loading stated in the credit. Such notation ay also appear in a designated field or bo#. The date appearing in the on board notation or designated field or bo# !ill be dee ed to be the date of ship ent. d. ;hen a bill of lading indicates !ording such as O;hen the place of receipt bo# has been co pleted, any notation on this bill of lading of Oon boardP, Oloaded on boardP or !ords of si ilar effect shall be dee ed to be on board the eans of transportation perfor ing the carriage fro the place of receipt to the port of loadingP
or !ords of si ilar effect, and if, in addition, the place of receipt bo# is co pleted, a bill of lading is to bear a dated on board notation. The dated on board notation is also to indicate the na e of the vessel and the port of loading stated in the credit. Such notation ay
also appear in a designated field or bo#. The date appearing in the on board notation or designated field or bo# !ill be dee ed to be the date of ship ent. e. The na ed port of loading, as re%uired by the credit, should appear in the port of loading field on a bill of lading. $o!ever, it ay also be stated in the field headed O(lace of receiptP or !ords of si ilar effect, provided there is a dated on board notation evidencing that the goods !ere shipped on board a na ed vessel at the port stated under O(lace of receiptP or !ords of si ilar effect. f. & bill of lading is to indicate the port of loading stated in the credit. ;hen a credit indicates the port of loading by also stating the country in !hich the port is located, the na e of the country need not be stated. g. ;hen a credit indicates a geographical area or range of ports of loading Afor e#a ple, O&ny -uropean (ortP or O$a burg, Rotterda , &nt!erp (ortPB, a bill of lading is to indicate the actual port of loading, !hich is to be !ithin that geographical area or range of ports. & bill of lading need not indicate the geographical area. h. ;hen a bill of lading indicates ore than one port of loading, it is to evidence an on board notation !ith the relevant on board date for each port of loading, regardless of !hether it is pre-printed Oreceived for ship entP or Oshipped on boardP. For e#a ple, !hen a bill of lading indicates that ship ent has been effected fro 1risbane and &delaide, a dated on board notation is re%uired for both 1risbane and &delaide.
3 G. . . date of shipmentH
There are t!o possibilities: G. . . date of issuanceH in the case of a bill of lading bearing pre-printed !ording that the goods have been shipped on board, the date of issuance of the bill of lading !ill be dee ed to be the date of ship ent. G. . . date of on2board notationH if a pre-printed received-for-ship ent bill of lading is presented, it ust contain an on-board notation indicating the date of ship ent. In this event, the date stated in the on board notation !ill be dee ed to be the date of ship ent.
? G. . . does not indicate the port of loading stated in the credit as the port of loadingH
In transportation by sea, it is co on for goods to be transhipped bet!een the ports of loading and discharge stated in the docu entary credit. In these circu stances, bills of lading ay sho! the port of loading stated in the docu entary credit as the place of receipt. The port of loading on the bill of lading !ill represent the port of tranship ent. If this situation occurs, the bill of lading re%uires an on board notation sho!ing the port of loading stated in the docu entary credit, the na e of the vessel leaving that port and the date of ship ent. The re%uire ent to na e the vessel applies even if the goods have been loaded on the vessel na ed in the bill of lading. $7B), )ublication No. B3?, paragraph E* Asee aboveB covers this, and paragraphs EDE"+ other issues relating to the port of discharge. $7B) B3?, paragraph ED a. The na ed port of discharge, as re%uired by the credit, should appear in the port of discharge field !ithin a bill of lading. b. $o!ever, the na ed port of discharge ay be stated in the field headed O(lace of final destinationP or !ords of si ilar effect provided there is a notation evidencing that the port of discharge is that stated under O(lace of final destinationP or !ords of si ilar effect. For e#a ple, !hen a credit re%uires ship ent to be effected to Feli#sto!e, but Feli#sto!e is sho!n as the place of final destination instead of the port of discharge, this ay be evidenced by a notation stating O(ort of discharge Feli#sto!eP.
$7B) B3?, paragraph EF & bill of lading is to indicate the port of discharge stated in the credit. ;hen a credit indicates the port of discharge by also stating the country in !hich the port is located, the na e of the country need not be stated.
$7B) E"+
B3?,
paragraph
;hen a credit indicates a geographical area or range of ports of discharge Afor e#a ple, O&ny -uropean (ortP or O$a burg, Rotterda , &nt!erp (ortPB, a bill of lading is to indicate the actual port of discharge, !hich is to be !ithin that geographical area or range of ports. & bill of lading need not indicate the geographical area.
* G. . . full setH
The re%uire ents are the sa e as under #C) *++, article "F. This is covered in $7B), )ublication No. B3?, paragraph E"". $7B) E"" B3?, paragraph
a. & bill of lading is to indicate the nu ber of originals that have been issued. b. 1ills of lading ar"ed OFirst EriginalP, OSecond EriginalP, OThird EriginalP, or OEriginalP, O'uplicateP, OTriplicateP or si ilar e#pressions are all originals.
B G. . . transhipmentH
Tranship ent is defined as Funloading fro one vessel and reloading to another vessel during the carriage fro the port of loading to the port of discharge stated in the credit. Asee #C) *++, sub2article &+/b0B . =nless tranship ent is prohibited by the ter s of the docu entary credit ie by e#clusion of #C) *++, sub2article &+/c0 ban"s !ill accept a bill of lading that indicates the goods !ill be transhipped, as long as the entire ocean carriage is covered by one and the sa e bill of lading. -ven if the docu entary credit prohibits tranship ent, a bill of lading indicating that tranship ent !ill ta"e place is still to be accepted provided that:
the bill of lading evidences that the relevant cargo has been shipped in a container, trailer or ,&S$ bargeG and that the entire ocean carriage is covered by one and the sa e bill of lading Asee #C) *++, sub2article &+/c0/i0B.
If tranship ent is prohibited, ban"s !ill nonetheless accept a bill of lading that incorporates clauses stating that the carrier reserves the right to tranship Asee #C) *++, sub2article &+/d0B. & docu ent e#a iner !ill, ho!ever, still need to e#a ine the other provisions of the bill of lading in the nor al !ay to ensure that the docu ent contains no other indication that tranship ent has ta"en, or !ill definitely ta"e place. This is covered in $7B), )ublication No. B3?, paragraph E"B. $7B) E"B B3?, paragraph
Tranship ent is the unloading and reloading of goods fro one vessel to another during the carriage of those goods fro the port of loading to the port of discharge stated in the credit. ;hen a bill of lading does not indicate unloading and reloading bet!een these t!o ports, it is not tranship ent in the conte#t of the credit and =C( 866, sub-articles 36 AbB and AcB. Figures )3.9 and )3./ provide an annotated e#a ple of a bill of lading.
Figure "&.- Aarine J ocean port2to2port bill of lading $

1. Bill of Lading For Combined Transport or Port to Port Shipment

Noti#$ noti#$
part$
Titani+ Line
"n-to.n/ "n-.here
%re-"arria!e b$0
%la"e o# re"eipt0 'o(loon
)essel C+CS ,-press %ort o# dis"har!e
)o$* No*
%ort .on! %la"e
o# loadin! 'on! o# deli/er$ 0
Southampton 0ar5s and Nos* Container Nos*6Seals No* o# pa"5a!es +es"ription o# pa"5a!es and !oods
1e- Criteria: 2o+3mentar- +redit re43ires the presentation of a bill of lading +o5ering shipment from 6ong 1ong to So3thampton. 1. 6o.e5er named 8 do+3ment +an be titled bill of lading/ ho3se bill of lading/ for.arder&s bill of lading/ et+. 9. Name of +arrier 8 at the signat3re line/ the +arrier :Titani+ Line; is identified. 3. Signed 8 the do+3ment is signed b- <FS Shipping Ltd as agents of the +arrier 4. =5iden+e of shipment from 6ong 1ong 8 there is a dated on board notation indi+ating that the goods .ere shipped from 6ong 1ong port on 3* 7a- 9*>>. The addition of a pla+e of re+eipt that is different to the port of loading re43ires no additional information to appear as part of the on board notation. #. 2ate of shipment 8 the do+3ment is iss3ed on 9? 7a- 9*>> b3t the on board date is 3* 7a9*>>. The date of shipment is 3* 7a- 9*>>.
"B@A= P"!T<CBL"!S 2=CL"!=2 B( S6<PP=!: C"!!<=! N@T !=SP@NS<BL= 8rei!ht and "har!es (indi"ate (hether prepaid or "olle"t Shipped on Board C+CS ,-press 9: 0a$ ;:-- at .on! 'on! ** **
&,C,I),+
4. #.
b$ the Carrier #rom the shipper in apparent !ood order and "ondition (unless
<ri!in Inland .aula!e "har!es <ri!in terminal .andlin!6 4C4 Ser/i"e "har!es <"ean 8rei!ht +estination 3erminal .andlin!6 4C4 Ser/i"e "har!es +estination Inland haula!e "har!es
other(ise noted herein the total numbers or =uantit$ o# Containers or other pa"5a!es or units indi"ated abo/e stated b$ the shipper to "omprise the "ar!o spe"i#ied abo/e, #or transportation sub>e"t to all the terms hereo# (in"ludin! the terms on the re/erse hereo# #rom the pla"e o# re"eipt or the port o# loadin!, (hi"he/er appli"able, to the port o# dis"har!e or the pla"e o# deli/er$, (hi"he/er appli"able* +eli/er$ o# the 7oods (ill onl$ be made on pa$ment o# all #rei!ht and "har!es* <n presentation o# this do"ument (dul$ endorsed to the Carrier, b$ or on behal# o# the holder, the ri!hts and liabilities arisin! in a""ordan"e (ith the terms hereo# shall ((ithout pre>udi"e to an$ rule o# "ommon la( or statute renderin! them bindin! upon the shipper, holder and Carrier be"ome bindin! in all respe"ts bet(een the "arrier and holder as thou!h the "ontra"t "ontained herein or e/iden"ed hereb$ had been made bet(een them* In (itness (hereo# three (9 ori!inal Bills o# 4adin! unless other(ise stated belo( ha/e been issued, one o# (hi"h bein! a""omplished, the others to be /oid* 8rei!ht, "har!es and prima!e (hether prepa$able or not and (hether paid or not shall be "onsidered as #ull$ earned upon shipment and shall be paid /essel and6or "ar!o lost or not lost* (C<N3IN?,+ <N &,),&S, SI+, %la"e and date o# issue 'o(loon ;8 0a$ ;:--
** ***
#.
Si!ned B$@ 9. I8S Shippin! as a!ent #or the Carrier, 3itani" 4ine
3.
George Hyhams
Figure "&.3
Aarine J ocean port2to2port bill of lading $$
Bill of Lading For Combined Transport or Port to Port Shipment

Noti#$ noti#$
part$
Titani+ Line
"n-to.n/ "n-.here
%re-"arria!e b$0
%la"e o# re"eipt0 'o(loon
)essel C+CS ,-press %ort o# dis"har!e
)o$* No*
%ort .on! %la"e
o# loadin! 'on! o# deli/er$ 0
Southampton 0ar5s and Nos* Container Nos*6Seals No* o# pa"5a!es +es"ription o# pa"5a!es and !oods
1e- Criteria: $. F3ll set 8 the do+3ment indi+ates that three originals ha5e been iss3ed. <n addition note the follo.ing: C Terms and +onditions of +arriage 8 either the f3ll terms .ill be indi+ated on the re5erse of this page or the- .ill be referen+ed b- an address/ .eb address/ lo+ation .here the- ma- be 5ie.ed :short form or blan ba+ ; C Charter part- 8 there is not anindi+ation that the shipment .as s3bDe+t to a +harter part-. C Transhipment 8 this do+3ment +o5ers the +arriage from 1o.loon to So3thampton 5ia 6ong 1ong b3t there is no indi+ation of transhipment o++3rring bet.een 6ong 1ong and So3thampton. <n an- e5ent/ pro5ided the goods .ere shipped in +ontainers/ trailers or L"S6 barges/ anindi+ation of transhipment .o3ld be a++eptable pro5ided the entire +arriage .as +o5ered b- one and the same bill of lading.
"B@A= P"!T<CBL"!S 2=CL"!=2 B( S6<PP=!: C"!!<=! N@T !=SP@NS<BL= 8rei!ht and "har!es (indi"ate (hether prepaid or "olle"t <ri!in Inland .aula!e "har!es <ri!in terminal .andlin!6 4C4 Ser/i"e "har!es <"ean 8rei!ht +estination 3erminal .andlin!6 4C4 Ser/i"e "har!es +estination Inland haula!e "har!es ** *** ** ** Shipped on Board C+CS ,-press 9: 0a$ ;:-- at .on! 'on!
&,C,I),+
b$ the Carrier #rom the shipper in apparent !ood order and "ondition (unless other(ise noted herein the total numbers or =uantit$ o# Containers or other pa"5a!es or units indi"ated abo/e stated b$ the shipper to "omprise the "ar!o spe"i#ied abo/e, #or transportation sub>e"t to all the terms hereo# (in"ludin! the terms on the re/erse hereo# #rom the pla"e o# re"eipt or the port o# loadin!, (hi"he/er appli"able, to the port o# dis"har!e or the pla"e o# deli/er$, (hi"he/er appli"able* +eli/er$ o# the 7oods (ill onl$ be made on pa$ment o# all #rei!ht and "har!es* <n presentation o# this do"ument (dul$ endorsed to the Carrier, b$ or on behal# o# the holder, the ri!hts and liabilities arisin! in a""ordan"e (ith the terms hereo# shall ((ithout pre>udi"e to an$ rule o# "ommon la( or statute renderin! them bindin! upon the shipper, holder and Carrier be"ome bindin! in all respe"ts bet(een the "arrier and holder as thou!h the "ontra"t "ontained herein or e/iden"ed hereb$ had been made bet(een them* In (itness (hereo# three (9 ori!inal Bills o# 4adin! unless other(ise stated belo( ha/e been issued, one o# (hi"h bein! a""omplished, the others to be /oid* 8rei!ht, "har!es and prima!e (hether prepa$able or not and (hether paid or not shall be "onsidered as #ull$ earned upon shipment and shall be paid /essel and6or "ar!o lost or not lost* (C<N3IN?,+ <N &,),&S, SI+, %la"e and date o# issue 'o(loon ;8 0a$ ;:--
Si!ned B$@ I8S Shippin! as a!ent #or the Carrier, 3itani" 4ine
George Hyhams
$.
"&.&.? #C) *++, article &"4 Non2negotiable sea waybill

The provisions of article 3) are the sa e substantive re%uire ents as those for bills of lading under article 36. #C) *++, article &"4 Non2negotiable sea waybill a. & non-negotiable sea !aybill, ho!ever na ed, appear to: ust
i. indicate the na e of the carrier and be signed by: the carrier or a na ed agent for or on behalf of the carrier, or the the aster or a na ed agent for or on behalf of aster.
&ny signature by the carrier, aster or agent ust be identified as that of the carrier, aster or agent. &ny signature by an agent ust indicate !hether the agent has signed for or on behalf of the carrier or for or on behalf of the aster. ii. indicate that the goods have been shipped on board a na ed vessel at the port of loading stated in the credit by: pre-printed !ording, or an on board notation indicating the date on !hich the goods have been shipped on board. The date of issuance of the non-negotiable sea !aybill !ill be dee ed to be the date of ship ent unless the non-negotiable sea !aybill contains an on board notation indicating the date of ship ent, in !hich case the date stated in the on board notation !ill be dee ed to be the date of ship ent. If the non-negotiable sea !aybill contains the indication Ointended vesselO or si ilar %ualification in relation to the na e of the vessel, an on board notation indicating the date of ship ent and the na e of the actual vessel is re%uired.
iii. indicate ship ent fro the port of loading to the port of discharge stated in the credit. If the non-negotiable sea !aybill does not indicate the port of loading stated in the credit as the port of loading, or if it contains the indication OintendedO or si ilar %ualification in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of ship ent and the na e of the vessel is re%uired. This provision applies even !hen loading on board or ship ent on a na ed vessel is indicated by pre-printed !ording on the non-negotiable sea !aybill. iv. be the sole original non-negotiable sea !aybill or, if issued in ore than one original, be the full set as indicated on the non-negotiable sea !aybill. v. contain ter s and conditions of carriage or a"e reference to another source containing the ter s and conditions of carriage Ashort for or blan" bac" non-negotiable sea !aybillB. Contents of ter s and conditions of carriage !ill not be e#a ined.
vi. contain no indication that it is subHect to a charter party. b. For the purpose of this article, tranship ent eans
unloading fro one vessel and reloading to another vessel during the carriage fro the port of loading to the port of discharge stated in the credit. c. i. & non-negotiable sea !aybill ay indicate that the goods !ill or ay be transhipped provided that the entire carriage is covered by one and the sa e non-negotiable sea !aybill. ii. & non-negotiable sea !aybill indicating that tranship ent !ill or ay ta"e place is acceptable, even if the credit prohibits tranship ent, if the goods have been shipped in a container, trailer or ,&S$ barge as evidenced by the non-negotiable sea !aybill.
d. Clauses in a non-negotiable sea !aybill stating that the carrier reserves the right to tranship !ill be disregarded.
"&.&.* #C) *++, article &&4 Charter party bill of lading

'etailed =C( provisions are set out in #C) *++, article &&, as follo!s. ?u bers in s%uare brac"ets relate to the e#planatory sections nu bered )-8 that follo!. #C) *++, article &&4 Charter party bill of lading a. & bill of lading, ho!ever na ed, containing an indication W)X that it is subHect to a charter party Acharter party bill of ladingB, ust appear to: i. be signed W3X by: the the aster or a na ed agent for or on behalf of aster, or
the o!ner or a na ed agent for or on behalf of the o!ner, or the charterer or a na ed agent for or on behalf of the charterer. &ny signature by the aster, o!ner, charterer or agent ust be identified as that of the aster, o!ner, charterer or agent. &ny signature by an agent ust indicate !hether the agent has signed for or on behalf of the aster, o!ner or charterer. &n agent signing for or on behalf of the o!ner or charterer ust indicate the na e of the o!ner or charterer. ii. indicate that the goods have been shipped on board W9aX a na ed vessel at the port of loading stated in the credit by: pre-printed !ording, or an on board notation indicating the date on !hich the goods have been shipped on board. The date of issuance of the charter party bill of lading !ill be dee ed to be the date of ship ent W9bX unless the charter party bill of lading contains an on board notation indicating the date of ship ent, in !hich case the date stated in the on board notation
!ill be dee ed to be the date of ship ent.
iii. indicate ship ent fro the port of loading to the port of discharge W/X stated in the credit. The port of discharge ay also be sho!n as a range of ports or a geographical area, as stated in the credit. iv. be the sole original charter party bill of lading or, if issued in ore than one original, be the full set W@X as indicated on the charter party bill of lading. b. & ban" !ill not e#a ine charter party contracts W8X, even if they are re%uired to be presented by the ter s of the credit. There is further detail on !hen #C) *++, article && !ill apply in $7B), )ublication No. B3?, paragraphs G" and G&. $7B) B3?, paragraph G" ;hen there is a re%uire ent in a credit for the presentation of a charter party bill of lading, or !hen a credit allo!s presentation of a charter party bill of lading and a charter party bill of lading is presented, =C( 866, article 33 is to be applied in the e#a ination of that docu ent. $7B) B3?, paragraph G& a. & transport docu ent, ho!ever na ed, containing any indication that it is subHect to, or any reference to, a charter party is dee ed to be a charter party bill of lading. b. & transport docu ent, ho!ever na ed, indicating e#pressions such as Ofreight payable as per charter party dated A!ith or !ithout entioning a dateBP, or Ofreight payable as per charter partyP, !ill be an indication that it is subHect to a charter party.
<any of the ter s are used in the sa e !ay as under article )*. ;here there are additional re%uire ents specific to article 33, these are indicated belo!.
" G. . . indicationH
& docu entary credit ay also allo! for, or call for, a charter party bill of lading to be presented. If the credit does not call for a charter party bill of lading, ban"s !ill refuse a bill of lading if it contains any indication that it is subHect to a charter party. Table )3.) su arises the application presentation of a charter party bill of lading. of =C( 866 to
:able "&." of lading
;pplication of #C) *++ to presentation of charter party bill

Document presented Charter party bill of lading ;rticle applicable =C( 866, article 33
Credit stipulation AiB Charter party bill of lading re%uired 1ill of lading ?on-negotiable sea !aybill <ulti odal transport docu ent In each case, the credit -ill not sho- that a charter +art! bill of ladin% is acce+table@
AiiB
1ill of lading ?on-negotiable sea !aybill <ulti odal transport docu ent
=C( 866, article 36 =C( 866, article 3) =C( 866, article )*
&ach document not subAect to a charter +art! and therefore acce+table in its o-n ri%ht under the rele#ant article 1ill of lading =C( 866, article 33
AiiiB as in AiiB
1ill of lading
?on-negotiable sea !aybill <ulti odal transport docu ent. In each case, the credit -ill sho- that a charter +art! bill of ladin% is acce+table@
?on-negotiable sea !aybill <ulti odal transport docu ent
&ach document sho-n to be subAect to a charter +art!B if not so sho-n, the article a++licable is as indicated in >ii?
;hen deter ining !hether a bill of lading contains an indication that it is subHect to a charter party, this cannot al!ays be ascertained fro the title of the docu ent. It !ill be the content that deter ines !hether the docu ent is e#a ined under article 33 or not. This is covered in $7B), )ublication No. B3?, paragraph G-. $7B) B3?, paragraph G& transport docu ent, ho!ever na ed, containing a code na e or for na e usually associated !ith a charter party bill of lading, for e#a ple, OCongenbillP or OTan"er 1ill of ,adingP !ithout any further indication or reference to a charter party, is not by itself an indication of, or reference to, a charter party.
& G. . signedH
.
ust appear to have been signed asterG
The charter party bill of lading by: the or
aster or a na ed agent for or on behalf of the
the o!ner or a na ed agent for or on behalf of the o!nerG or the charterer or a na ed agent for or on behalf of the signature by the aster, o!ner, charterer or
charterer. &ny
agent ust be identified as that of the aster, o!ner, charterer or agent. &ny signature by an agent ust indicate !hether the agent has signed for or on behalf of the aster, o!ner or charterer. ;hen signing for or on behalf of the aster, the agent need not na e the aster. This is covered in $7B), )ublication No. B3?, paragraph G3. $7B) B3?, paragraph G3 a. & charter party bill of lading is to be signed in the for described in =C( 866, sub-article 33 AaB AiB. b. ;hen the aster AcaptainB, o!ner or charterer signs a charter party bill of lading, the signature of the aster AcaptainB, o!ner or charterer is to be identified as O asterP AOcaptainPB, Oo!nerP or OchartererP. c. ;hen an agent signs a charter party bill of lading for Wor on behalf ofX the aster AcaptainB, o!ner or charterer, the agent is to be na ed and, in addition, to indicate that it is signing as agent for Wor on behalf ofX the aster AcaptainB, o!ner or charterer as the case ay be. i. ;hen a charter party bill of lading is signed by an agent for Wor on behalf ofX the aster AcaptainB, the na e of the aster AcaptainB need not be stated.
ii. ;hen a charter party bill of lading is signed by an agent for Wor on behalf ofX the o!ner or charterer, the na e of the o!ner or charterer is to be stated.
- a G. . . shipped on boardH and -b G. . . date of shipmentH

This is covered in $7B), )ublication No. B3?, paragraph G? and substantially follo!s that in paragraph E* Asee under F1ill of lading. section )3.3./B.
3 . . . port of dischargeH
This ust be as stated in the docu entary credit. This is e#panded upon in $7B), )ublication No. B3?, paragraphs GBGF and #C) *++, sub2article &&/a0/iii0. $7B) B3?, GBGF paragraphs
G7. a. The na ed port of discharge, as re%uired by the credit, should appear in the port of discharge field !ithin a charter party bill of lading. b. $o!ever, the na ed port of discharge ay be stated in the field headed O(lace of final destinationP or !ords of si ilar effect provided there is a notation evidencing that the port of discharge is that stated under O(lace of final destinationP or !ords of si ilar effect. For e#a ple, !hen a credit re%uires ship ent to be effected to Feli#sto!e, but Feli#sto!e is sho!n as the place of final destination instead of the port of discharge, this ay be evidenced by a notation stating O(ort of discharge Feli#sto!eP. G+. & charter party bill of lading is to indicate the port of discharge stated in the credit. ;hen a credit indicates the port of discharge by also stating the country in !hich the port is located, the na e of the country need not be stated. G*. ;hen a credit indicates a geographical area or range of ports of discharge Afor e#a ple, O&ny -uropean (ortP or O$a burg, Rotterda , &nt!erp (ortPB, a charter party bill of lading ay indicate the actual port of discharge, !hich is to be !ithin that geographical area or range of ports, or it ay sho! the geographical area or range of ports as the port of discharge.
? G. . . full setH
The re%uire ents are the sa e as under article )*. This is covered in $7B), )ublication No. B3?, paragraph G"+. $7B) G"+ B3?, paragraph
a. & charter party bill of lading is to indicate the nu ber of originals that have been issued.
b. Charter party bills of lading ar"ed OFirst EriginalP, OSecond EriginalP, OThird EriginalP, or OEriginalP, O'uplicateP, OTriplicateP or si ilar e#pressions are all originals.
* G. . . contractsH
charter
party
Charter party contracts are essentially atters for the applicant and beneficiary, or their agents, !ho arrange the contract, hiring of vessels, ti e and purpose of the hire Aand any other attersB in order to ensure that the cargo is delivered according to their agree ent. It !ould be unfair and burdenso e for ban"s to be as"ed to scrutinise such contracts and, accordingly, a docu ent e#a iner is not re%uired to perfor this tas". Students should also B3?, paragraph G&B. refer to $7B), )ublication No.
=nless #C) *++, sub2article &&/b0 is specifically e#cluded and the credit specifically indicates the data that are to be e#a ined and to !hat e#tent, ban"s do not e#a ine any content of a charter party contract, even !hen such contract is re%uired as a stipulated docu ent under the credit. Figure )3.@ provides an annotated e#a ple of a charter party bill of lading.
Figure "&.? Charter party bill of lading

C@2= N"7=: EC@NF=NB<LLG.
1.
Page B/L No. 1
Shipper
B<LL @F L"2<NF
T@ B= BS=2 H<T6 C6"!T=!IP"!T<=S
9.
!eferen+e No: =FF 93?J
Consignee
Notif-
address
Aessel
Port of loading
Sea Largo
Port of dis+harge
Dammam $.
$.
Mumbai
Shipper&s des+ription of goods
Fross
.eight:
>ey Criteria4
Documentary credit calls for or permits the presentation of a charter party bill of lading ". Eowe!er named N document is called a Bill of Lading &. $ndication of charter party N reference appears in the heading and in the freight Oeld below -. 7igned N the document is signed by an agent of the master of the named !essel 3. Loading on board N there is pre2printed wording that the goods ha!e been shipped at the port of loading ?. Date of shipment N the date of issue will be deemend to be the date of shipment *. )ort of loading and port of discharge N these are to be those stated in the documentary credit B. Full set N the document indicates that three originals ha!e been issued D. Charter party contract N e!en if attached or re9uested under the documentary credit, it will not be e%amined.
:of .hi+h on de+ at Shipper&s ris K the Carrier
not being responsible for loss or damage ho.soe5er arising;
Freight pa-able as per C6"!T=!IP"!T( dated F!=<F6T "2A"NC=. !e+ei5ed on a++o3nt of freight:
S6<PP=2
1# Febr3ar- 9*>>
.. ..
4.
at the Port of Loading in apparent good order
?.
and +ondition on board the Aessel for +arriage to the Port of 2is+harge or so near thereto as she ma- safel- get the goods spe+ified abo5e. Height/ meas3re/ 43alit-/ 43antit-/ +ondition/ +ontents and 5al3e 3nI no.n.
..
Time
3sed for loading
..
..
da-s
ho3rs.
<N H<TN=SS .hereof the 7aster or "gent of the said Aessel has signed the n3mber of Bills of Lading indi+ated belo. all of this tenor and date/ an- one of .hi+h being a++omplished the others shall be 5oid. F@! C@N2<T<@NS @F C"!!<"F= S== @A=!L="F
Freight
pa-able at
Pla+e and date of iss3e
+ammam A 0a$ 4, ;:--
#.
N3mber
of original Bs/L
Signat3re
%.
For and on behalf of the Master of the MV Sea Largo Speedy Shipping as agents George Hyams 3.
"&.&.B #C) *++, article &-4 ;ir transport document

The detailed =C( provisions on air transport docu ents are set out in #C) *++, article &-, sho!n belo!. ?u bers in s%uare brac"ets relate to the e#planatory sections nu bered )-+ that follo!. #C) *++, article &-4 ;ir :ransport Document a. &n air transport docu ent, ho!ever na ed W)X, appear to: ust
i. indicate the na e of the carrier W3X and be signed W9X by: the carrier, or a na ed agent for or on behalf of the carrier. &ny signature by the carrier or agent as that of the carrier or agent. ust be identified
&ny signature by an agent ust indicate that the agent has signed for or on behalf of the carrier. ii. indicate that the goods have been accepted for carriage W/X. iii. indicate the date of issuance. This date !ill be dee ed to be the date of ship ent unless the air transport docu ent contains a specific notation W@X of the actual date of ship ent, in !hich case the date stated in the notation !ill be dee ed to be the date of ship ent W8X. &ny other infor ation appearing on the air transport docu ent relative to the flight nu ber and date !ill not be considered in deter ining the date of ship ent. iv. indicate the airport of departure and the airport of destination W7X stated in the credit. v. be the original for consignor or shipper W+X, even if the credit stipulates a full set of originals. vi. contain ter s and conditions of carriage or a"e reference to another source containing the ter s and conditions of carriage. Contents of ter s and conditions of carriage !ill not be e#a ined. b. For the purpose of this article, tranship ent eans
unloading fro one aircraft and reloading to another aircraft during
the carriage fro the airport of departure to the airport of destination stated in the credit. c. i. &n air transport docu ent ay indicate that the goods !ill or ay be transhipped, provided that the entire carriage is covered by one and the sa e air transport docu ent. ii. &n air transport docu ent indicating that tranship ent !ill or ay ta"e place is acceptable, even if the credit prohibits tranship ent.
There is further detail on !hen #C) *++, article &- !ill apply in $7B), )ublication No. B3?, paragraphs E" and E&. $7B) B3?, E" paragraph
& re%uire ent in a credit for the presentation of an air transport docu ent, ho!ever na ed, covering an airport-to-airport ship ent eans that =C( 866, article 39 is to be applied in the e#a ination of that docu ent. $7B) B3?, E& paragraph
&n air transport docu ent need not be titled Oair !aybillP, Oair consign ent noteP or !ords of si ilar effect even !hen the credit so na es the re%uired docu ent. <any of the ter s are used in the sa e !ay as under #C) *++, article "F. ;here there are additional re%uire ents specific to #C) *++, article &-, these are indicated belo!.
" G. . namedH
howe!er
The re%uire ents are the sa e as under #C) *++, article "F. ;hen freight for!arders act as contractual carriers on air
ship ents, they so eti es group together the goods received fro several different shippers and obtain a single air !aybill Aa aster air !aybill, or <&;1B fro the carrier covering the full load being shipped. The <&;1 is issued in favour of the for!arding co pany. The for!arder then issues its o!n separate air !aybills Ahouse air !aybill $&;1B in favour of each of the shippers concerned. For purposes of identification, the for!arder.s air !aybill ay then indicate a nu ber referred to in the docu ent as the F$&;1 ?o.. For
internal ad inistrative indicate a <&;1 ?o.
purposes,
the
docu ent
ay
also
The use of a $&;1 does not preHudice its acceptability, as long as the for!arding agent issuing it appears to be na ed as the carrier or agent of a na ed carrier on the face of the docu ent and that the air !aybill has been signed in one of the !ays stipulated in #C) *++, article &-. Therefore, an air !aybill is not to be refused only because it indicates a $&;1 andMor a <&;1 ?o., unless the docu entary credit does not allo! house air !aybills.
& G. . . name of the carrierH

The docu ent presented ust appear to indicate the na e of the carrier. &n I&T& code for an airline !ithout the na e of the carrier !ould not be acceptable. Freight for!arders often issue air !aybills in the capacity of contractual carriers. & contractual carrier is a co pany that underta"es responsibility for the carriage of the goods !ithout being the actual carrier that operates the eans of transport. &n air !aybill Aor other transport docu entB is not to be refused on the grounds that it is issued by a for!arder acting as a contractual carrier in ter s of #C) *++, sub2article "3/l0 as long as the docu entary credit does not prohibit a transport docu ent issued by a freight for!arder and the docu entary credit indicates the type of docu ent that !ill or !ill not be acceptable under such a condition. ;hen a docu entary credit prohibits the issuance of an air transport docu ent by a freight for!arder, a docu ent e#a iner should consider the content of $7B), )ublication No. B3?, paragraph E3. $7B) B3?, E3 paragraph
& stipulation in a credit that OFreight For!arder.s air !aybill is not acceptableP or O$ouse air !aybill is not acceptableP or !ords of si ilar effect has no eaning in the conte#t of the title, for at, content or signing of an air transport docu ent unless the credit provides specific re%uire ents detailing ho! the air transport docu ent is to be issued and signed. In
the absence of these re%uire ents, such a stipulation is to be disregarded, and the air transport docu ent presented is to be e#a ined according to the re%uire ents of =C( 866, article 39.
G. . signedH
The docu ent by:
.
ust appear to have been signed
the carrierG or a na ed agent for or on behalf of the carrier Asee $7B), )ublication No. B3?, paragraph E?B. $7B) B3?, paragraph E? a. &n air transport docu ent is to be signed in the for described in =C( 866, sub-article 39 AaB AiB and to indicate the na e of the carrier, identified as the carrier. b. ;hen an air transport docu ent is signed by a na ed branch of the carrier, the signature is considered to have been ade by the carrier. c. The carrier is to be identified by its na e instead of an I&T& airline code, for e#a ple, 1ritish &ir!ays instead of 1&, ,ufthansa instead of ,$. & carrier signing the docu ent ust indicate that it signs as carrier. &n agent ust indicate the na e and capacity of the party on !hose behalf it signs Athe carrierB, as !ell as its o!n na e. =nder #C) *++, article &- the na e of the carrier ust appear on the air transport docu ent.
3 G. . . carriageH
accepted
for
&n air transport docu ent ust indicate that the goods have been accepted for carriage. =nless there is a contrary stipulation on the docu entary credit, this indication is sufficient by itself. This is covered in $7B), )ublication No. B3?, paragraph EB. $7B) B3?, paragraph EB &n air transport docu ent is to indicate that the goods have been accepted for carriage or !ords of si ilar effect.
? G. . . notationH
specific
If the docu entary credit calls for an actual date of dispatch, a specific notation or sta p indicating that date ust appear on the
air transport docu ent. &n indication of an intended flight date is not sufficient. It is also custo ary for air transport docu ents to include a bo# headed !ith the phrase Ffor carrier use only., Fre%uired flight date., Frouting and destination. or a si ilar e#pression. The flight nu ber and date contained in any such bo# is not considered as a specific notation of the actual date of dispatch. This position applies to any other flight infor ation that ay appear on the air transport docu ent that is outside a notation or flight sta p.
* G. . . shipmentH
date
of
If the docu entary credit calls for an actual date of dispatch, the date of ship ent is dee ed to be the actual date of dispatch appearing !ithin a specific notation or flight sta p on the air transport docu ent. -ven !hen not called for by the docu entary credit, a docu ent e#a iner !ill al!ays ta"e the date in a notation or flight sta p as the date of ship ent. In all other cases, the date of issuance of the air transport docu ent !ill be dee ed to be the date of ship ent.
B G. . . airport destinationH
of departure
and airport
of
&n air transport docu ent ust indicate the airport of departure and the airport of destination stipulated in the docu entary credit. This is covered paragraphs EFE"". $7B) B3?, EF in $7B), )ublication No. B3?,
paragraph
&n air transport docu ent is to indicate the airport of departure and airport of destination stated in the credit. ;hen a credit indicates either of these airports by also stating the country in !hich the airport is located, the na e of the country need not be stated.
$7B)
B3?,
paragraph
E"+ The airport of departure and airport of destination ay also be indicated by the use of I&T& codes instead of evidencing the airport na e in full Afor e#a ple, ,&4 instead of ,os &ngelesB.
$7B) E""
B3?,
paragraph
;hen a credit indicates a geographical area or range of airports of departure or destination Afor e#a ple, O&ny Chinese &irportP or OShanghai, 1eiHing, GuangIhou airportPB, an air transport docu ent is to indicate the actual airport of departure or destination, !hich is to be !ithin that geographical area or range of airports. &n air transport docu ent need not indicate the geographical area.
D G. . . original shipperH
for consignor
or
&ir transport docu ents are custo arily dra!n up in sets of three originals. The set of originals issued by the carrier or its agent are distributed as follo!s: one original for the consignor or shipper Aincluding ulti odal transport operatorB, !hich entrusts the goods to the airline for despatch. This original is usually ar"ed for the consignor or shipperG one original for the consignee as the recipient of the goodsG and one original retained by the airline. This is covered in $7B), )ublication No. B3?, paragraph E"&. $7B) E"& B3?, paragraph
&n air transport docu ent is to appear to be the original for consignor or shipper. ;hen a credit re%uires a full set of originals, this is satisfied by the presentation of an air transport docu ent indicating that it is the original for consignor or shipper. ;hen in possession of an air transport docu ent that is ar"ed for shipper or consignor, the shipper or consignor has the right to re%uest a change in the na e and address of the consignee up to the point of actual delivery of goods to the
consignee. The =C( refers to the presentation of the docu ent being the one designated for the consignor or shipper to ini ise any chance of isdirection of goods on the Hourney. Figure )3.8 provides an e#a ple of an air transport docu ent.
Figure "&.*
106
ShipperBs Name and 2ddress
;ir transport document

106-34567389
ShipperBs 2""ount Number Not ne!otiable
"ir Ha-bill
Issued b$ 0ember o# I232
Titanic Air Cargo

"n-to.n/ "n-.here
Copies 1, ; and 9 o# this 2ir Ca$bill are ori!inals and ha/e the same /alidit$
Consi!neeBs Name and 2ddress
Consi!neeBs 2""ount Number
It is a!reed that the !oods des"ribed herein are a""epted in apparent !ood order and "ondition (e-"ept as noted #or "arria!e S?BD,C3 3< 3., C<N+I3I<NS <8 C<N3&2C3 <N 3., &,),&S, .,&,<8* 244 7<<+S 02E B, C2&&I,+ BE 2NE <3.,& 0,2NS INC4?+IN7 &<2+ <& 2NE <3.,& C2&&I,& ?N4,SS S%,CI8IC C<N3&2&E INS3&?C3I<NS 2&, 7I),N .,&,<N BE 3., S.I%%,&* 3., S.I%%,&BS 233,N3I<N IS +&2CN 3< 3., N<3IC, C<NC,&NIN7 C2&&I,&SB 4I0I323I<N <8 4I2BI4I3E* Shipper ma$ in"rease su"h limitation o# liabilit$ b$ de"larin! a hi!her /alue #or "arria!e and pa$in! a supplemental "har!e i# re=uired* ISS?IN7 C2&&I,& 02IN32INS C2&7< 2CCI+,N3 4I2BI4I3E INS?&2NC,
Issuin! CarrierBs 2!ent Name and Cit$
2""ountin! In#ormation
2!entBs I232 Code
2""ount No*
2irport o# +eparture (2ddr* o# 8irst Carrier and &e=uested &outin!
3o
B$ 8irst Carrier
&outin! and +estination
to
b$
to
b$
Curren"$
C.7S Code
C36)24 %%+ C<44
<ther %%+ C<44
+e"lared )alue #or Carria!e
+e"lared )alue #or Customs
2irport o# +estination
8li!ht6+ate
8or Carrier ?s e onl$
8li!ht6+ate
.andlin! In#ormation
No* o# %ie"es &C%
7ross Cei!ht
5! lb
&ate Class
Commodit$ Item No*
Char!eable Cei!ht
&ate
3otal
Nature and Fuantit$ o# 7oods (in"l* +imensions or )olume
Char!e
Prepaid Cei!ht Char!e Colle+t
<ther Char!es
)aluation Char!e
3a-
3otal <ther
Char!es +ue 2!ent
3otal <ther
Char!es +ue Carrier
Shipper "erti#ies that the parti"ulars on the #a"e hereo# are "orre"t and that insofar as an- part of the +onsignment +ontains dangero3s goods/ s3+h part is properl- des+ribed b- name and is in proper +ondition for +arriage b- air a++ording to the appli+able 2angero3s Foods !eg3lations.
Si!nature o# Shipper or his 2!ent

3otal %repaid 3otal Colle"t
Curren"$ Con/ersion &ates
CC Char!es in +est* Curren"$
,-e"uted on (date
3otal Colle"t Char!es
at (pla"e
Si!nature o# Issuin! Carrier or its 2!ent
8or Carriers ?se onl$ 2t +estination
Char!es at +estination
106 I34#$%3?J
@!<F<N"L 3 :F@! S6<PP=!;
"&.&.D #C) *++, article &34 8oad, rail or inland waterway transport documents
The detailed =C( provisions on road, rail or inland !ater!ay transport docu ents are set out in #C) *++, article &3, sho!n here. ?u bers in s%uare brac"ets relate to the e#planatory sections nu bered )-+ that follo!. #C) *++, article &34 8oad, rail or inland waterway transport documents a. & road, rail or inland !ater!ay transport docu ent, ho!ever na ed, ust appear to: i. indicate the na e of the carrier W)X and: be signed by the carrier W3aX or a na ed agent for or on behalf of the carrier, or indicate receipt W3bX of the goods by signature, sta p or notation by the carrier or a na ed agent for or on behalf of the carrier.
&ny signature, sta p or notation of receipt of the goods by the carrier or agent ust be identified as that of the carrier or agent. &ny signature, sta p or notation of receipt of the goods by the agent ust indicate that the agent has signed or acted for or on behalf of the carrier. If a rail transport docu ent does not identify the carrier, any signature or sta p of the rail!ay co pany !ill be accepted as evidence of the docu ent being signed by the carrier. ii. indicate the date of ship ent or the date the goods have been received for ship ent, dispatch or carriage W9X at the place stated in the credit. =nless the transport docu ent contains a dated reception sta p, an indication of the date of receipt or a date of
ship ent, the date of issuance of the transport docu ent !ill be dee ed to be the date of ship ent W/X. iii. indicate the place of ship ent and the place of destination W@X stated in the credit. b. i. & road transport docu ent ust appear to be the original for consignor or shipper or bear no ar"ing indicating for !ho the docu ent has been prepared. ii. & rail transport docu ent be accepted as an original. ar"ed OduplicateO !ill
iii. & rail or inland !ater!ay transport docu ent !ill be accepted as an original !hether ar"ed as an original or not W8X. c. In the absence of an indication on the transport docu ent as to the nu ber of originals issued, the nu ber presented !ill be dee ed to constitute a full set W7X. d. For the purpose of this article, tranship ent W+X eans unloading fro one eans of conveyance and reloading to another eans of conveyance, !ithin the sa e ode of transport, during the carriage fro the place of ship ent, dispatch or carriage to the place of destination stated in the credit. e. i. & road, rail or inland !ater!ay transport docu ent ay indicate that the goods !ill or ay be transhipped provided that the entire carriage is covered by one and the sa e transport docu ent. ii. & road, rail or inland !ater!ay transport docu ent indicating that tranship ent !ill or ay ta"e place is acceptable, even if the credit prohibits tranship ent. There is further detail on !hen #C) *++, article &3 !ill apply in $7B), )ublication No. B3?, paragraph K". $7B) B3?, paragraph K" & re%uire ent in a credit for the presentation of a transport docu ent covering ove ent of goods by either road or rail or inland !ater!ay eans that =C( 866, article 3/ is to be
applied in the e#a ination of that docu ent.
<any of the ter s are used in the sa e !ay as under =C( 866, article )*. ;here there are additional re%uire ents specific to article 3/, these are indicated belo!.
" G. . . name of the carrierH

The na e of the carrier ust be sho!n on the face of the docu ent.
&a G. . . signedH and &b G. . . indicate receiptH

The docu ent ust appear: to have been signed by the carrier or a na ed agent for, or on behalf of, the carrierG or indicate receipt of the goods by signature, sta p or notation by the carrier or a na ed agent for or on behalf of the carrier Asee #C) *++, sub2article &3/a0/i00. This is covered in $7B), paragraphs K&K3. $7B) B3?, paragraph K& a. & road, rail or inland !ater!ay transport be signed in the for described in =C( 3/ AaB AiB and to indicate the na e identified as the carrier Ae#cept as stated AbBB. docu ent is to 866, sub-article of the carrier, in paragraph 5/
b. ;hen a road, rail or inland !ater!ay transport docu ent is signed by a na ed branch of the carrier, the signature is considered to have been ade by the carrier. c. The ter OcarrierP includes ter s such as Oissuing carrierP, Oactual carrierP, Osucceeding carrierP and Ocontracting carrierP.
$7B) B3?, paragraph K&ny signature, sta p or notation of receipt of the goods is to appear to indicate that it has been ade by: a. the carrier, identified as the carrierG or
b. a na ed agent acting or signing for Wor on behalf ofX the carrier and indicating the na e of the carrier, identified as
the carrier, on !hose behalf that agent is acting or signingG or c. a rail!ay co pany or rail!ay station of departure. $7B) B3?, paragraph K3 a. The ter OcarrierP need not appear on the signature line provided the transport docu ent appears to be signed by the carrier or a na ed agent for Wor on behalf ofX the carrier, and the carrier is other!ise identified else!here in the transport docu ent as the OcarrierP. b. & rail transport docu the rail!ay co pany !ithout indicating the agent signing for Wor on ent ay bear a date sta p by or rail!ay station of departure na e of the carrier or a na ed behalf ofX the carrier.
- G. . . recei!ed for shipment, dispatch or carriageH

The transport docu ent ust indicate that the goods have been received for ship ent, dispatch or carriage Asee #C) *++, sub2article &3/a0/ii0B.
3 G. . . shipmentH
date
of
If the transport docu ent contains a dated reception sta p, the date of that sta p !ill be dee ed to be the date of ship ent. If not, the date of issuance of the docu ent !ill be dee ed to be the date of ship ent Asee #C) *++, sub2article &3/a0/ii0B.
? G. . . place of shipment and the place of destinationH

The transport docu ent ust indicate the place of ship ent and the place of destination stated in the docu entary credit.
* G. . . marked as an original or notH

=nless the docu entary credit stipulates that the transport docu ent should be specifically ar"ed as original, a docu ent
e#a iner ay accept docu ents as presented as originals even if they are not ar"ed as such Abut see e#ceptions in #C) *++, sub2article &3/b0 and $7B), )ublication No. B3?, paragraph KBB.
$7B) B3?, paragraph KB a. & rail or inland !ater!ay transport docu ent is to be considered as an original !hether or not it is so ar"ed. b. & road transport docu ent is to indicate that it is the original for consignor or shipper Acopy for senderB or bear no ar"ing indicating for !ho the docu ent has been prepared. c. (resentation of the original for consignor or shipper Acopy for senderB of a road transport docu ent or duplicate rail transport docu ent shall suffice even !hen the credit re%uires presentation of a full set of the relevant transport docu ents. d. & duplicate Aoften a carbon copyB of a rail transport docu ent, authenticated by the signature or sta p of the rail!ay co pany or the rail!ay station of departure, is considered to be an original.
B G. . . full setH
If there is no indication of the nu ber of original docu ents issued, a docu ent e#a iner ay accept the docu ents as presented as representing a full set.
D G. . . transhipmentH
& transport docu ent that indicates that tranship ent occurs fro one transport ode to a different one for e#a ple, road to rail, river to rail, or road to air is subHect to revie! under article "F. #C) *++, sub2article &3/d0 applies only if the entire carriage is covered by one and the sa e transport docu ent. & presentation of ultiple transport docu ents !ill not co ply !ith the docu entary credit ter s unless, together, they cover the entire carriage stipulated in the docu entary credit and the docu entary credit allo!s the presentation of ore than one transport docu ent. In the case of international road transport, the transport docu ent issued is ost often "no!n as a C<R consign ent
note. AThis !ording derives fro the intergovern ental conventions on carriage by road: C<R stands for Con#ention <erchandises Routiers.B Characteristically, C<R consign ent notes are dra!n up as a set of several originals. Ene original only typically bearing the printed indication Foriginal for shipper., Fcopy for sender. or si ilar !ording is handed to the shipper Athe beneficiary or other person sending the goodsB. Ether originals in the set are used for the internal
ad inistrative procedures of the road carrier issuing the note and for other parties involved in the goods ove ent. If a credit calls for a C<R consign ent note !ithout specifically stipulating the original for shipper, copy for sender or si ilar, ban"s are not concerned to see that !ording to this effect appears on the docu ent presented to the . This results fro the fact that #C) *++, sub2article &3/b0/i0 refers to a docu ent so ar"ed or one that bears no ar"ing for !ho the docu ent is intended. Figure )3.7 provides an e#a ple of a road transport docu ent.
Figure "&.B 8oad transport document

L=TT!= 2= A@<TB!= <NT=!N"T<@N"L=
Sender (Name, 2ddress, Countr$ ,-pGditeur (Nom, 2ddresse, %a$s 1
C7!
<NT=!N"T<@N"L C@NS<FN7=NT N@T=

&G#Gren"e6dGsi!nation pour mise en douane &G#Gren"e delBe-pGditeur6de lBa!ent ; 9
Customs &e#eren"e6Status Senders62!ents re#eren"e
Consi!nee (Name, 2ddress, Countr$
+estinaire (Nom, 2ddresse, %a$s
Carrier (Name, 2ddress, Countr$
3ransporteur (Nom, 2ddresse, %a$s
%la"e H date o# ta5in! o/er the !oods (pla"e, "ountr$, date 4ieu et date de la prise en "har!e des mar"handises (4ieu, pa$s, date
Su""essi/e Carriers
3ransporteurs Su""essi#s
C@P( 1 S= N2=! C@P( 9 C@NS<FN == C@P( 3 C"!! <=!
%la"e desi!nated #or deli/er$ o# !oods (pla"e, "ountr$ 4ieu prG/u pour la li/raison des mer"handises (lieu, pa$s
8 3his "arria!e is sub>e"t, not(ithstandin! an$ "lause to the "ontrar$, to the Con/ention on the Contra"t #or the International Carria!e o# 7oods b$ &oad (C0& Ce transport est soumis nonobstant toute "lause "ontraire I la Con/ention &elati/e au Contrat de 3ransport International de 0ar"handises par &oute (C0& 0ar=ues et NosJ No et nature des "olisJ +esi!nation des 0ar"handises1 9 7ross (ei!ht (5! 1: %oids Brut (5! )olume (m 9 Cuba!e (m
9
0N B F@! 2"NF=!@BS F@@2 S <N2<C"T= 1 C@!! =CT T=C6N<C"L N"7= :P!@P=! S6<PP <NF N"7=; 9 3 6")"!2 B.N. CL"SS
0ar5s H NosJ No H 'ind o# %a"5a!esJ +es"ription o# 7oods1
11
NB7B=!
4 FL"S6IP@<NT :<F "N(; <N C.
Carria!e Char!es
%ri- de 3ransport
1;
Senders Instru"tions #or Customs, et"
Instru"tions de lB,-pGditeur (optional
19
&eser/ations
&Gser/es
14
+o"uments 2tta"hed Spe"ial a!reements
+o"uments 2nne-Gs (optional Con/entions parti"uliKres (optional
15 16
7oods &e"ei/ed60ar"handises &e"ues
17
Si!nature and stamp o# Carrier6Si!nature et timbre du 3ransporteur 18
Compan$ "ompletin! this note
So"iGtG Gmettri"e
19
%la"e and +ateJ Si!nature
4ieu et +ateJ Si!nature
;:
"&.&.F #C) *++, article &?4 Courier receipt, post receipt or certificate of posting
There are a nu ber of ter s in #C) *++, article &? that
are i portant for the docu ent e#a iner. These are analysed belo!.
The nu bers in the subheadings relate to the annotations on Figures )3.+ and )3.*.
" G. . namedH
howe!er
& courier docu ent need not be called a Fcourier receipt..
& G. . . name of the courierH

This ust be sho!n so that there is no doubt about !ho is carrying the goods. If a docu entary credit calls for despatch by a na ed courier co pany, its na e ust appear on the docu ent.
- G. . . signedH
stamped
or
The docu ent ust appear to have been sta ped or signed by a na ed courier service.
3 G. . . ser!iceH
named
courier
=nless the docu entary credit specifically calls for a docu ent issued by a na ed courier service, ban"s !ill accept a docu ent issued by any courier service.
? G. . . receiptH
pick2up or of
The docu ent ust indicate a date of pic"-up or of receipt, or ust use !ording to this effect. F(ic"-up. applies if the courier service collects the goods fro the sender. FReceipt. is the situation in !hich the sender ta"es the goods to the courier service.
* G. . . shipmentH
date
of
The date of pic"-up or of receipt is dee ed to be the date of ship ent or dispatch of the goods.
B G. . . a post receipt or certificate of postingH

& docu ent need not be called a Fpost receipt. or Fcertificate of posting..
D G. . . signedH
stamped
or
The docu ent ust sho! that it !as issued by a post office, usually by post office sta p so eti es follo!ed by an initial or signature at the botto of the docu ent.
F G. . . at the place from which the credit statesH

There ust be evidence on the docu ent that it !as issued fro the place re%uired in the docu entary credit as being the place of dispatch.
"+ G. . . shipmentH
the
date
of
The date of ship ent !ill be the date sho!n on the sta p and, if not, the date as evidenced else!here on the receipt or certificate. Figures )3.+ provides an e#a ple of a post receipt or certificate of posting, !hile Figure )3.* is an e#a ple of a speci en courier receipt.
Figure "&.D
)ost receipt or certificate of posting

9 8
1 1 9
Stamped or signed
8
!"#
Figure "&.F 7pecimen courier receipt

1 ! "
$o%e&er named
3 # '
"&.&."+ #C) *++, article &B4 Clean transport document

These provisions are a plified by $7B), )ublication No. B3?, paragraphs D&3 and D&?, E&+ and E&", F"D and F"F, G"D and G"F, E&+ and E&", and K"? and K"*, all of !hich provide a si ilar !ording for the type of transport docu ent to !hich they relate. The te#t of '3/ and '3@ is sho!n here. $7B) D&3 B3?, paragraph
& ulti odal transport docu ent is not to include a clause or clauses that e#pressly declare a defective condition of the goods or their pac"aging. For e#a ple: a. & clause on a ulti odal transport docu ent such as Opac"aging is not sufficient for the sea HourneyP or !ords of si ilar effect is an e#a ple of a clause e#pressly declaring a defective condition of the pac"aging. b. & clause on a ulti odal transport docu ent such
as Opac"aging ay not be sufficient for the sea HourneyP or !ords of si ilar effect does not e#pressly declare a defective condition of the pac"aging.
$7B) B3?, paragraph D&? a. It is not necessary for the !ord OcleanP to appear on a ulti odal transport docu ent even !hen the credit re%uires a ulti odal transport docu ent to be ar"ed Oclean on boardP or OcleanP. b. 'eletion of the !ord OcleanP on a ulti odal transport docu ent does not e#pressly declare a defective condition of the goods or their pac"aging. The applicant is assu ed to !ant a clean transport docu ent. This is defined as being a docu ent that bears no clause or notation that e#pressly declares a defective condition of the goods or its pac"aging. =nless the docu entary credit stipulates other!ise, ban"s !ill refuse transport docu ents bearing such clauses or notations. So eti es, !hat appears to be a defect ay be acceptable in a particular trade, in !hich case the docu entary credit should specifically allo! the notation.
"&.&."" #C) *++, article &D4 $nsurance document and co!erage

The application of this article is confir ed in $7B), )ublication No. B3?, paragraph >". $7B) B3?, paragraph >" & re%uire ent in a credit for the presentation of an insurance docu ent, such as an insurance policy, insurance certificate or declaration under an open cover, eans that =C( 866, article 3+ is to be applied in the e#a ination of that docu ent. 7ub2article &D/a0 specifically provides for the acceptance of open cover certificates and declarations, and ban"s !ill accept a presigned insurance certificate or declaration under an open cover provided that: it has been presigned by an insurance co pany, under!riter
or their agent or pro#yG and the docu entary other!ise. credit does not stipulate
The above provision applies to cases in !hich the insurance is ta"en out on open cover ter s, !hether or not the docu entary credit
e#pressly refers to open cover insurance. Epen cover insurance does not need to be specifically authorised by the docu entary credit. This is because it concerns the internal procedure !hereby the cover is granted, rather than the cover itself as stipulated in the docu entary credit. If a docu entary credit specifically calls for an insurance certificate or a declaration under an open cover, ban"s !ill accept, in lieu thereof, an insurance policy Asee #C) *++, sub2 article &D/d0B. It is the responsibility of the applicant to indicate in its docu entary credit application for the type and e#tent of cover re%uired, and to ensure that such instructions in this respect accord !ith the sale contract. #C) *++, sub2articles &D/g0 and /h0 a"e it clear that ban"s assu e no responsibility for ensuring that the cover is ade%uate or appropriate for the needs of the co ercial parties if the docu entary credit fails to indicate precisely !hat type of cover is re%uired. E!ing to the general incorporation of e#clusion clauses relating to terroris ris"s, etc, #C) *++, sub2article &D/i0 refers to the acceptability of insurance docu ents that contain any e#clusion clause. <any insurance docu ents e#clude cover for clai s of less than a specified threshold a ount and for loss up to that a ount on larger clai s. The ain purpose is to offer cover at a lo!er pre iu in return for the insured retaining a s all part of the ris" for its o!n account. The loss e#cluded fro cover in the above !ay is referred to by different ter s in different countries, including a Ffranchise., an Fe#cess. or a Fdeductible.. For the purposes of certainty, #C) *++, sub2 article &D/ 0 e#pressly provides that an insurance docu ent ay indicate that cover is subHect to such a franchise or e#cess AdeductibleB. This is covered in $7B), )ublication No. B3?, paragraph >"3. $7B) >"3 B3?, paragraph
&n insurance docu ent ay indicate that cover is subHect to a franchise or e#cess AdeductibleB. $o!ever, !hen a credit re%uires the insurance cover to be irrespective of percentage, the insurance docu ent is not to contain a clause stating that the insurance cover is subHect to a franchise or an e#cess AdeductibleB. &n insurance docu ent
need not state Oirrespective of percentageP.
"&.&."& #C) *++, article &F4 E%tension of e%piry date or last day for presentation
The latest ship ent date is auto atically ta"en to be the sa e date as the e#piry date of a docu entary credit if no separate latest ship ent date is specified. If the e#piry date falls on a non-ban"ing day, the e#piry date is e#tended to the ne#t ban"ing day Athis does not apply to the ship ent dateB. The re%uire ent of #C) *++, sub2article &F/b0 is for a no inated ban" receiving docu ents on such an e#tended e#piry date to provide a state ent to this effect !hen for!arding the docu ents to the issuing ban".
"&.&."- #C) *++, article -+4 :olerance in credit amount, 9uantity and unit prices
$7B), )ublication No. B3?, paragraphs C""C"3 provides further detail on the application of #C) *++, article -+. $7B) C"" B3?, paragraph
&ny total %uantity of goods and their !eight or easure ent sho!n on the invoice is not to conflict !ith the sa e data appearing on other docu ents.
$7B) C"&
B3?,
paragraph is not to
&n invoice indicate:
a. over-ship ent Ae#cept as provided in =C( 866 sub-article 96 AbBB, or b. goods, services or perfor ance not called for in the credit. This applies even !hen the invoice includes additional
%uantities of goods, services or perfor ance as re%uired by the credit or sa ples and advertising aterial and are stated to be free of charge.
$7B) C"-
B3?,
paragraph
The %uantity of goods re%uired in the credit ay be indicated on an invoice !ithin a tolerance of ^M-@Y. & variance of up to ^@Y in the %uantity of the goods does not allo! the a ount de anded under the presentation to e#ceed the a ount of the credit. The tolerance of ^M-@Y in the %uantity of the goods !ill not apply !hen: a. a credit states that the %uantity is not to be e#ceeded or reducedG or b. a credit states the %uantity in ter s of a stipulated nu ber of pac"ing units or individual ite s. $7B) C"3 B3?, paragraph
;hen no %uantity of goods is stated in the credit, and partial ship ents are prohibited, an invoice issued for an a ount up to @Y less than the credit a ount !ill be considered to cover the full %uantity and not a partial ship ent.
"&.&."3 #C) *++, article -"4 )artial drawings or shipments

The provisions of #C) *++, article -" Abelo!B are a plified by $7B), )ublication No. B3?, paragraphs D&& and D&-, E"D and E"F, F"* and F"B, G"* and G"B, E"D and E"F, and K"- and K"3, all of !hich provide a si ilar !ording for the type of transport docu ent to !hich they relate. The te#t of '33 and '39 is set out here for reference. (artial dra!ings or ship ent are not allo!ed if the docu entary credit specifically prohibits partial dra!ing or ship ent. #C) *++, article -"4 )artial drawings or shipments a. (artial dra!ings or ship ents are allo!ed. b. & presentation consisting of ore than one set of
transport docu ents evidencing ship ent co encing on the sa e eans of conveyance and for the sa e Hourney, provided they indicate the sa e destination, !ill not be regarded as covering
a partial ship ent, even if they indicate different dates of ship ent or different ports of loading, places of ta"ing in charge or dispatch. If the presentation consists of ore than one set of transport docu ents, the latest date of ship ent as evidenced on any of the sets of transport docu ents !ill be regarded as the date of ship ent. & presentation consisting of one or ore sets of transport docu ents evidencing ship ent on ore than one eans of conveyance !ithin the sa e ode of transport !ill be regarded as covering a partial ship ent, even if the eans of conveyance leave on the sa e day for the sa e destination. c. & presentation consisting of ore than one courier receipt, post receipt or certificate of posting !ill not be regarded as a partial ship ent if the courier receipts, post receipts or certificates of posting appear to have been sta ped or signed by the sa e courier or postal service at the sa e place and date and for the sa e destination.
$7B) D&&
B3?,
paragraph
Ship ent on ore than one eans of conveyance A ore than one truc" WlorryX, vessel, aircraft, etc.B is a partial ship ent, even !hen such eans of conveyance leaves on the sa e day for the sa e destination.
$7B) D&-
B3?,
paragraph
a. ;hen a credit prohibits partial ship ent, and ore than one set of original ulti odal transport docu ents are presented covering receipt, dispatch, ta"ing in charge or ship ent fro one or ore points of origin Aas specifically allo!ed, or !ithin a geographical area or range of places stated in the creditB, each set is to indicate that it covers the carriage of goods on the sa e eans of conveyance and sa e Hourney and that the goods are destined for the sa e destination. b. ;hen a credit prohibits partial ship ent, and ore than one set of original ulti odal transport docu ents are presented in accordance !ith paragraph '39 AaB and
incorporate different dates of receipt, dispatch, ta"ing in charge, or ship ent, the latest of these dates is to be used for the calculation of any presentation period and ust fall on or
before the latest date of receipt, dispatch, ta"ing in charge or ship ent stated in the credit. c. ;hen partial ship ent is allo!ed, and ore than one set of original ulti odal transport docu ents are presented as part of a single presentation ade under one covering schedule or letter and incorporate different dates of receipt, dispatch, ta"ing in charge or ship ent, on different eans of conveyance, the earliest of these dates is to be used for the calculation of any presentation period, and each of these dates ust fall on or before the latest date of receipt, dispatch, ta"ing in charge or ship ent stated in the credit.
"&.&."? #C) *++, article -B4 Disclaimer for acts of an instructed party
=nder #C) *++, sub2article -B/c0, the issuing ban" is ulti ately liable for charges and uncollected charges. Rei burse ent fro the applicant for these !ill for part of the separate agree ent bet!een the issuing ban" and the applicant.
"&.&."* #C) *++, article -D4 :ransferable credits

#C) *++, sub2article -D/a0 gives the transferring ban" total control over the transfer decision and it atte pts to e#clude any possibility of the beneficiary ac%uiring a legally enforceable right to have the docu entary credit transferred. The Hustification for this !ording is that, !hen the no inated ban" Aor na ed transferring ban"B accepts the issuing ban".s instructions to a"e the docu entary credit available to the first beneficiary, it "no!s nothing about the transfers that it ay later be re%uested to effect. The =C( provisions accordingly protect that ban" against any possibility of being forced to carry out a transfer that it ay find unacceptable for co ercial or other reasons. This position applies e%ually to an issuing ban" that ay be approached by a first beneficiary to transfer the docu entary credit if the no inated transferring ban" has declined to act. #C) *++, sub2article -D/b0 re%uires the issuing ban" to indicate the na e of the transferring ban" !hen the docu entary credit is available !ith any ban". In all other cases,
the ban" that is no inated to honour or negotiate !ill be dee ed to be the transferring ban".
#C) *++, sub2article -D/d0 e#pressly provides that a transferable docu entary credit can be transferred only once. Conse%uently, the docu entary credit cannot be transferred at the re%uest of a second beneficiary to any subse%uent third beneficiary, and so on unless specifically authorised in the docu entary credit. IS( *+ treats transfer of standby letters of credit differently: $7) FD, rule *.+& applies if a standby letter of credit is issued subHect to IS( *+. $7) FD, rule *.+&4 =hen drawing rights are transferable a. & standby is not transferable unless it so states. b. & standby that states that it is transferable !ithout further provision eans that dra!ing rights: i. ii. iii. ay be transferred in their entirety ay not be partially transferredG and ay not be transferred unless the issuer Aincluding the confir erB or another person specifically no inated in the standby agrees to and effects the transfer re%uested by the beneficiary. ore than onceG
In so e cases, the first beneficiary ay !ish to reserve the possibility of re%uesting a end ents to the docu entary credit for its o!n benefit, but e#clude the application of those a end ents to a second beneficiary, pending issuance of specific instructions by the first beneficiary. ASee #C) *++, sub2 article -D/e0B. The first beneficiary is, ho!ever, entitled to a"e this re%uest only if it has given advance notice to this effect to the transferring ban". This notice has to be given at the o ent !hen the first beneficiary re%uests that a transfer be ade and before any transfer has ta"en place. The notice has to ta"e the for of an instruction, !ithin the re%uest for transfer, and it is to indicate that the first beneficiary retains the right to refuse to allo! the transferring ban" to advise any a end ents that ay be ade to that second beneficiary. If the transferring ban" consents to the transfer, it ust advise the second beneficiary of the first beneficiary.s instruction at the ti e of a"ing the transfer. The rules and procedures docu entary credits naturally credits Asee #C) *++, sub2article -D/f0B. #C) the first beneficiary to re%uest a concerning a end ents of apply e%ually to transferable *++, sub2article -D/g0 allo!s nu ber of specific alterations to
the original docu entary credit ter s !hen a transfer is carried out. The transferring ban" has the po!er to decide !hether or not it !ill accept a transfer re%uest and, if it !ill, on !hat ter s. The listing
eUC $
of per itted alterations in #C) *++, sub2article -D/g0 !ill usually ensure that all of the relevant parties to the docu entary credit are bound by any alterations that are ade !ithin the scope of that provision. This includes parties, such as the issuing ban", !ho are not directly involved in the transfer procedure and !ho therefore do not give their specific consent to the particular alterations re%uested by the first beneficiary. In circu stances under !hich a docu entary credit has been confir ed, the transferred docu entary credit ust also bear the confir ation of the confir ing ban". In the specific conte#t of transferable docu entary credits, #C) *++, sub2article -D/g0 provides that, on transfer, the percentage for !hich insurance cover ust be effected ay be increased to provide the a ount of cover stipulated in the original docu entary credit or in the =C(. The rationale for this is that the first beneficiary !ill be buying the goods fro a second beneficiary or beneficiaries at a lo!er price than the sale price that the first beneficiary is charging to the applicant. Thus, a higher percentage insurance cover ay be re%uired under the transferred credit in order to cover the a ount of insurance re%uired under the original credit. It is i perative that the transferring ban" obtains the specific instructions of the first beneficiary in respect of insurance Aif insurance is applicableB and that these instructions are clearly sho!n in any re%uest to transfer, together !ith instructions in relation to the other per itted alterations. &s far as practical, and as re%uired by the parties, confidentiality on the transferred docu entary credit transaction should be preserved. ;hen the docu entary credit is transferred, the na e of the first beneficiary can be substituted in the transferred docu entary credit for that of the applicant. This provision a"es it ore difficult for the parties fro !ho the first beneficiary is buying the goods to find out to !ho the first beneficiary is supplying the goods. If they obtain this infor ation, they ay be able to avoid the first beneficiary in subse%uent transactions by going direct to the ulti ate buyer. If the na e of the applicant is specifically re%uired by the original docu entary credit to appear in any docu ent other than the invoice, that re%uire ent ust be reflected in the transferred credit.
"&.e#C)
The Su++lement to the Uniform Customs and $ractice for ocumentar! Credits for &lectronic $resentations Ae=C(B !as
eUC $
published on 9) <arch 3663. It represented the first ove by the ICC 1an"ing Co ission to e#pand the reach of =C( to cater for de aterialised docu entation transactions trans itted electronically.
"&.-." >ey e#C)
features
of
There are a nu ber of i portant features of e=C(: e=C( version ).) is a supple ent to, and in conHunction !ith, =C( 866. It is fle#ible and ay be used to facilitate and part electronic presentations, or presentations. ust be used
i#ed, part paper fully electronic
It is intended to be dyna ic. The current version ).) represents the second version and a foundation for future revisions that !ill be needed to "eep pace !ith changes to technology and practice.
It is structured to align !ith =C( 866 and its rules follo! a logical se%uence of activities underta"en in an electronic presentation. It provides definitions of ter inology used !ithin its te#t. The provisions of its articles, in relation to =C( 866, categorised into four groupings: ay be
(rovisions of =C( 866 that have no parallel in the e=C( and are applicable to an e=C( docu entary credit. For e#a ple, the provisions regarding the underta"ing and obligations of the issuing ban", confir ing ban", advising ban", and the li itation on the obligations of a no inated ban" that does not act pursuant to its no ination contained in #C) *++, articles &, 3, ?, *, B, D, F and "& re ain unchanged. (rovisions of the e=C( that add to, but do not contradict, =C( 866 rules !ith respect to an electronic record and that do not i pact the =C( 866 provisions !ith respect to paper docu ents Ae#C), article e-/a0, for e#a pleB. (rovisions of the e=C( that differ fro the treat ent of paper docu ents under =C( 866, but that only relate to an
electronic record so that there is rules no change to the provisions of =C( 866 as to paper docu ents under an e=C( docu entary credit Ae#C), articles "" and "&, for e#a pleB. (rovisions of the e=C( that change the =C( 866 rule under !hich the docu entary credit is subHect to e=C( and that are
12* 8nal!sis of ICC
IS$ 3"
applicable !hether or not they apply to an electronic record or a paper docu ent presented under an e=C( docu entary credit Ae#C), articles e&, e?/c0 and /e0, eB/a0 and /b0, and eD, for e#a pleB. 'ocu entary credits issued subHect to e=C( version ).) are auto atically subHect to =C( 866 !ithout specific reference. =nder a docu entary credit issued subHect to e=C(, its provisions prevail over those of =C( 866 in the event of their application providing different results.
"&.3 $7B)
The International Standard Bankin% $ractice AIS1(B !as first approved in 3663 to support the previous revision of =C( A=C( @66B. The docu ent !as designed to provide a plification of the general principles contained in the =C( @66 articles to a"e the ore suitable for daily operations. The ICC International Standard Bankin% $ractice for the &'amination of ocuments under UC$ (00 2013 Re#ision is the current version of IS1(, !hich !as revised to reflect practice under =C( 866. In 3667 the ICC published an updated version for use !ith =C( 866 under publication nu ber 8+). It is this publication that has been updated in 36)9. This docu ent should be read !ith the references in Chapters 3 to )).
"&.? $7) FD
The first reference to standby letters of credit !as ade by the ICC 1an"ing Co ission in <arch )*77. Follo!ing this, the ICC 1an"ing Co ission !or"ed to develop separate rules for standby letters of credit. 2no!n as International Standb! $ractices AIS( *+B, these rules, i ple ented on ) 5anuary )***, reflect generally accepted practice, custo and usage specifically for standby letters of credit. The differences in substance, together !ith the structural approach, bet!een IS( *+ and =C( 866 can be seen in the
rules analysed belo!. The IS( *+ rules are grouped together rules under nine generic rule headings.
12* 8nal!sis of ICC
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"&.?." General pro!ision

8ules ".+""."" establish so e basic criteria in !hich the IS( *+ is to be considered: the scope and application of the rules ie to standby letters of credit of any for , ho!ever na ed or described, and !hether for international or do estic useG an underta"ing AstandbyB subHect to IS( *+ ay odify or e#clude any rule therein Anote the si ilarity !ith #C) *++ article "BG
should a standby be issued subHect to IS( *+ and another set of rules, IS( *+ !ill prevail and they !ill supple ent the applicable la! to the e#tent not prohibited by that la!. 8ule ".+- establishes a for al international ban"ing practice for standbys subHect to IS( *+. standard
Students should note that a beneficiary is only a party to a standby to the e#tent that they use the standby and that an applicant is a recognised party under IS( *+ Asee 8ule ".+3B. 8ules ".+3 and ".+? outline the nature of a standby Aie the irrevocable and binding nature of the underta"ing !hen issuedB and that the underta"ing cannot be a ended or cancelled e#cept as ay be provided for in a standby or as consented to by the party to !ho an a end ent or cancellation re%uest !as asserted Anote the content of 8ule ".+? !ith #C) *++ sub2 article "+ /a0BG the IS( *+ do not define or provide for defences to honour based on fraud, abuse or si ilar attersG and the obligation of the issuer does not depend on any ability to obtain rei burse ent fro an applicant, but does depend on the presentation of a co plying de and. ,i itations of responsibility are e#plained in 8ule ".+D and include not being responsible for any perfor ance or breach of the underlying transaction, accuracy or genuineness of any docu ent presented Asee si ilar rule in #C) *++ article -3B, any action or o ission of other persons chosen Asee si ilar rule in #C) *++ sub2article -B /b0B. 8ules ".+F, "."+ and "."" provide, respectively, a definition of ter s used in IS( *+, redundant or undesirable
ter s, and interpretations of the rules. Si ilar coverage can be rules found in #C) *++ articles & and -.
12* 8nal!sis of ICC
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"&.?.& .bligations
There are strong si ilarities in intent to be found in #C) *++, articles & and *"". The "ey differences are: the introduction of the concept of Fti ely., !ith $7) FD, rule &.+"/c0 defining !hen an issuer acts in such a annerG the obligations of the sa e issuing entity !hen operating fro another location in a different capacity A$7) FD, rule &.+&BG the e#clusion of a no inated person fro binding the person a"ing the no ination A$7) FD, rule &.+3/c0BG the state ent that the applicant is separate to the parties of the standby A$7) FD, rule &.+*/c0/iii0B. $7) FD, &.+"/c0 rule
&n issuer acts in a ti ely anner if it pays at sight, accepts a draft, or underta"es a deferred pay ent obligation Aor if it gives notice of dishonourB !ithin the ti e per itted for e#a ining the presentation and giving notice of dishonour.
$7) FD, rule &.+&4 .bligation branches, agencies, or other offices
of
different
For the purposes of these Rules, an issuer.s branch, agency, or other office acting or underta"ing to act under a standby in a capacity other than as issuer is obligated in that capacity only and shall be treated as a different person.
$7) FD, &.+3/c0
rule
& no inated person is not authoriIed to bind the person a"ing the no ination.
$7) FD, rule &.+*/c0 /iii0 an a end ent does not re%uire the applicant.s consent to be binding on the issuer, the confir er, or the beneficiary.
"&.?.- )resentation
$7) FD, rule -.+F addresses one of the ore difficult proble s !ith !hich issuers of standby letters of credit and guarantees have to contend, !hich is as follo!s: ). &pplicants and beneficiaries are in contact !ith each other in order to resolve proble s !ith the underlying contract and to e#tend the standby letter of credit or guarantee. 3. In the eanti e, !hile such discussions are ta"ing place, a beneficiary A!ith or !ithout the "no!ledge of the applicantB a"es a clai under the standby letter of credit or guarantee, in order to protect their position. 9. =pon receipt of notification of the clai fro the issuer, the applicant often leaves the issuer !ith the i pression that there is no urgency !ith regard to the clai . /. 1ut the issuer is an#ious to e#a ine the clai in the light of the irrevocable underta"ing given and this an#iety is heightened if there is not uch ti e re aining for the e#piry of the standby letter of credit and M or guarantee. $7) FD, rule -.+F4 E%tend or pay & beneficiary.s re%uest to e#tend the e#piration date of the standby or, alternatively, to pay the a ount available under it: a. is a presentation de anding pay ent under the standby, to be e#a ined as such in accordance !ith these RulesG and b. i plies that the beneficiary: i. consents to the a end ent to e#tend the e#piry date to the date re%uestedG ii. re%uests the issuer to e#ercise its discretion to see" the approval of the applicant and to issue that a end ent iii. upon issuance of that a end ent, retracts its de and for pay entG and iv. consents to the a#i u ti e available under these Rules for e#a ination and notice of dishonour. These circu stances often also cloud genuine clai s ade
by beneficiaries and, further, a standby letter of credit or guarantee itself so eti es provides for the presentation of an Fe#tend or pay.
IS$ 3"
de and. & student ay contrast the proble covered in IS( *+ !ith the anner in !hich it is addressed in the #niform 8ules on Demand Guarantees, $CC )ublication No. B?D. In ter s of #C) *++, article -*, ban"s need not honour their obligations under docu entary credits upon resu ption of business due to an act of force aHeure. This type of provision !ould not be e%uitable in default situations, !hich are the rationale for the issuance of standby letters of credit. &ccordingly, $7) FD, rule -."3/a0 a"es provision for presentation to be ade up to 96 calendar days after the issuer reopens for business. $7) FD, -."3/a0 rule
If on the last business day for presentation the place for presentation stated in a standby is for any reason closed and presentation is not ti ely ade because of the closure, then the last day for presentation is auto atically e#tended to the day occurring thirty calendar days after the place for presentation re-opens for business, unless the standby other!ise provides.
"&.?.3 E%amination
Students should co pare $7) FD, rules 3.+"3.+- !ith #C) *++, sub2articles "3/a0, /d0 and /g0. $7) FD, rule compliance 3.+"4 E%amination for
a. 'e ands for honour of a standby ust co ply !ith the ter s and conditions of the standby. b. ;hether a presentation appears to co ply is deter ined by e#a ining the presentation on its face against the ter s and conditions stated in the standby as interpreted and supple ented by these Rules !hich are to be read in the conte#t of standard standby practice. $7) FD, rule 3.+&4 Non2e%amination of e%traneous
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documents 'ocu ents presented !hich are not re%uired by the standby need not be e#a ined and, in any event, shall be disregarded for purposes of deter ining co pliance of the presentation. They ay !ithout responsibility be returned to the presenter or passed on !ith the other docu ents presented.
$7) FD, rule inconsistency
3.+-4
E%amination
for
&n issuer or no inated person is re%uired to e#a ine docu ents for inconsistency !ith each other only to the e#tent provided in the standby. Students !ill also note that $7) FD, rule 3.+- represents a distinct difference to the re%uire ents of #C) *++, sub2 article "3/d0 !ith regard to the e#a ination of docu ents for inconsistency Anot conflictingB. This eans that, unless other!ise specified in the standby letter of credit, a docu ent e#a iner need only establish that the docu ents presented are those called for in the credit. These !ill be acceptable, not!ithstanding that so e of their data content ay be in conflict fro one to another. Students !ill !ish to co pare the !ording of $7) FD, rules 3.+?3.+B !ith their counterparts in #C) *++, particularly articles -, "3 and "D. $7) FD, rule documents 3.+?4 $ssuer of
&ny re%uired docu ent ust be issued by the beneficiary unless the standby indicates that the docu ent is to be issued by a third person or the docu ent is of a type that standard standby practice re%uires to be issued by a third person.
$7) FD, rule documents
3.+*4
Date
of ay be earlier but
The issuance date of a re%uired docu ent not later than the date of its presentation.
$7) FD, rule 3.+B4 document
8e9uired
signature
on a
a. & re%uired docu ent need not be signed unless the standby indicates that the docu ent ust be signed or the docu ent is of a type that standard standby practice
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re%uires be signed. ade in any anner in !hich the signed
b. & re%uired signature ay be that corresponds to the ediu docu ent is presented. c. =nless specifies: a standby
i. the na e of a person !ho ust sign a docu ent, any signature or authentication !ill be regarded as a co plying signature. ii. the status of a person !ho of status is necessary. ust sign, no indication ust be ade by:
d. If a standby specifies that a signature i.
a na ed natural person !ithout re%uiring that the signer.s status be identified, a signature co plies that appears to be that of the na ed personG
ii. a na ed legal person or govern ent agency !ithout identifying !ho is to sign on its behalf or its status, any signature co plies that appears to have been ade on behalf of the na ed legal person or govern ent agencyG or iii. a na ed natural person, legal person, or govern ent agency re%uiring the status of the signer be indicated, a signature co plies !hich appears to be that of the na ed natural person, legal person, or govern ent agency and indicates its status.
Co parisons should also be ade bet!een the !ording of $7) FD, rules 3."" and 3."& and their counterparts in #C) *++, particularly article - and sub2article "3/h0. $7) FD, rule 3.""4 Non2documentary terms or conditions a. & standby ter or condition !hich is non-docu entary ust be disregarded !hether or not it affects the issuer.s obligation to treat a presentation as co plying or to treat the standby as issued, a ended, or ter inated. b. Ter s or conditions are non-docu entary if the standby does not re%uire presentation of a docu ent in !hich they are to be evidenced and if their fulfil ent cannot be deter ined by the issuer fro the issuer.s o!n records or !ithin the issuer.s nor al operations. c. 'eter inations fro the issuer.s o!n records or !ithin the issuer.s nor al operations include deter inations of:
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i. !hen, !here, and ho! docu ents are presented or other!ise delivered to the issuerG ii. !hen, !here, and ho! co unications affecting the standby are sent or received by the issuer, beneficiary, or any no inated personG iii. a ounts transferred into or out of accounts !ith the issuerG and iv. a ounts deter inable fro a published inde# Aeg, if a standby provides for deter ining a ounts of interest accruing according to published interest ratesB. d. &n issuer need not re-co pute a beneficiary.s co putations under a for ula stated or referenced in a standby e#cept to the e#tent that the standby so provides.
$7) FD, rule 3."&4 Formality of statements in documents a. & re%uired state ent need not be acco panied by a sole nity, officialiIation, or any other for ality. b. If a standby provides for the addition of a for ality to a re%uired state ent by the person a"ing it !ithout specifying for or content, the state ent co plies if it indicates that it !as declared, averred, !arranted, attested, s!orn under oath, affir ed, certified, or the li"e. c. If a standby provides a state ent to be !itnessed by another person !ithout specifying for or content, the !itnessed state ent co plies if it appears to contain a signature of a person other than the beneficiary !ith an indication that the person is acting as a !itness. d. If a standby provides for a state ent to be countersigned, legaliIed, visaed, or the li"e by a person other than the beneficiary acting in a govern ental, Hudicial, corporate, or other representative capacity !ithout specifying for or content, the state ent co plies if it contains the signature of a person other than the beneficiary and includes an indication of that person.s representative capacity and the organiIation on !hose behalf the person has acted. $7) FD, rules 3."*3.&" indicate the difference in usage bet!een standby letters of credit and co ercial docu entary credits.
$7) FD, rule payment
3."*4
Demand
for
a. & de and for pay ent need not be separate fro the beneficiary.s state ent or other re%uired docu ent. b. If a separate de and is re%uired, it contain: ust
i. de and for pay ent fro the beneficiary directed to the issuer or no inated personG ii. a date indicating !hen the de and !as issuedG iii. the a ount de andedG and iv. the beneficiary.s signature. c. & de and ay be in the for of a draft or other instruction, order, or re%uest to pay. If a standby re%uires presentation of a OdraftO or Obill of e#changeO, that draft or bill of e#change need not be in negotiable for unless the standby so states.
$7) FD, rule 3."B4 drawing e!ent
7tatement
of default or other
If a standby re%uires a state ent, certificate, or other recital of a default or other dra!ing event and does not specify content, the docu ent co plies if it contains: a. a representation to the effect that pay ent is due because a dra!ing event described in the standby has occurredG
b. a date indicating !hen it !as issuedG and c. the beneficiary.s signature.
3."D4
Negotiable
If a standby re%uires presentation of a docu ent that is transferable by endorse ent and delivery !ithout stating !hether, ho!, or to !ho endorse ent ust be ade, then the docu ent ay be presented !ithout
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endorse ent, or, if endorsed, the endorse ent ay be in blan" and, in any event, the docu ent ay be issued or negotiated !ith or !ithout recourse.
3."F4
Legal
or
udicial
If a standby re%uires presentation of a govern ent-issued docu ent, a court order, an arbitration a!ard, or the li"e, a docu ent or a copy is dee ed to co ply if it appears to be: i. issued by a govern ent agency, court, tribunal, or the li"eG ii. suitably na edG iii. signedG iv. and datedG titled or
v. originally certified or authenticated by an official of a govern ent agency, court, tribunal, or the li"e.
3.&+4
.ther
a. If a standby re%uires a docu ent other than one !hose content is specified in these Rules !ithout specifying the issuer, data content, or !ording, a docu ent co plies if it appears to be appropriately titled or to serve the function of that type of docu ent under standard standby practice. b. & docu ent presented under a standby is to be e#a ined in the conte#t of standby practice under these Rules even if the docu ent is of a type Asuch as a co ercial invoice, transport docu ents, insurance docu ents or the li"eB for !hich the =nifor Custo s and (ractice for 'ocu entary Credits contains detailed rules.
$7) FD, rule undertaking
3.&"4
8e9uest
to
issue
separate
If a standby re%uests that the beneficiary of the standby issue its o!n separate underta"ing to another A!hether or not the standby recites the te#t of that underta"ingB: a. the beneficiary receives no rights other than its rights to dra! under the standby even if the issuer pays a fee to the beneficiary for issuing the separate underta"ingG
IS$ 3"
b. neither the separate underta"ing nor any docu ents presented under it need be presented to the issuerG and c. if originals or copies of the separate underta"ing or docu ents presented under it are received by the issuer
although not re%uired to be presented as a condition to honour of the standby: i. the issuer need not e#a ine, and, in any event, shall disregard their co pliance or consistency !ith the standby, !ith the beneficiary.s de and under the standby, or !ith the beneficiary.s separate underta"ingG and ii. the issuer ay !ithout responsibility return the to the presenter or for!ard the to the applicant !ith the presentation.
"&.?.? Notice, preclusion and disposition of documents

The nine rules covered under this heading set out the re%uire ents and responsibilities if a presentation under a standby letter of credit is refused. & parallel can be dra!n !ith #C) *++, article "*, but so e !ording is again included in order to provide precision in the rules. eaning and application. $7) FD, rule &.+"/c0 defines !hen an issuer is dee ed to act in a ti ely anner ie F!ithin the ti e per itted for e#a ining the presentation and giving notice of dishonour.. $7) FD, rule ?.+" designates that this ti e should not be unreasonable A!ithin three business days is never unreasonable, !hereas beyond seven business days is al!ays unreasonableB. This can be co pared !ith #C) *++, sub2article "3/b0, !hich gives each ban" five ban"ing days follo!ing the date of presentation to deter ine !hether a presentation co plies. $7) FD, rule ?.+"4 :imely notice of dishonour a. ?otice of dishonour ust be given !ithin a ti e after presentation of docu ents !hich is not unreasonable. i. ?otice given !ithin three business days is dee ed to be not unreasonable and beyond seven business days is dee ed to be unreasonable. .
ii. ;hether the ti e !ithin !hich notice is given is unreasonable does not depend upon an i inent deadline for presentation.
IS$ 3"
iii. The ti e for calculating !hen notice of dishonour ust be given begins on the business day follo!ing the business day of presentation. iv. =nless a standby other!ise e#pressly states a shortened ti e !ithin !hich notice of dishonour ust be given, the issuer has no obligation to accelerate its e#a ination of a presentation.
b.
i. The eans by !hich a notice of dishonour is to be given is by teleco unication, if available, and, if not, by another available eans !hich allo!s for pro pt notice. ii. If notice of dishonour is received !ithin the ti e per itted for giving the notice, then it is dee ed to have been given by pro pt eans.
c. ?otice of dishonour ust be given to the person fro !ho the docu ents !ere received A!hether the beneficiary, no inated person, or person other than a delivery personB e#cept as other!ise re%uested by the presenter. $7) FD, rule ?.+F recognises the fact that applicants so eti es raise obHections or discrepancies after pay ent by the issuer. $7) FD, rules ?.+F/a0 and /c0 use the !ords Fti ely notice., !hich is defined in rule ?.+". The t!o paragraphs together indicate that any obHections by the applicant should not be ade after seven business days follo!ing presentation, although it is the issuer alone !ho has to decide !hether to honour a presentation in ter s of its irrevocable, independent and binding underta"ing. $7) FD, rule ?.+F4 ;pplicant notice of ob ection a. &n applicant ust ti ely obHect to an issuer.s honour of a non-co plying presentation by giving ti ely notice by pro pt eans. b. &n applicant acts ti ely if it obHects to discrepancies by sending a notice to the issuer stating the discrepancies on !hich the obHection is based !ithin a ti e after the applicant.s receipt of the docu ents !hich is not unreasonable. c. Failure to give a ti ely notice of obHection by pro pt
eans precludes assertion by the applicant against the rules issuer of any discrepancy or other atter apparent on the face of the docu ents received by the applicant, but does not preclude
12* 8nal!sis of ICC
IS$ 3"
assertion of that obHection to any different presentation under the sa e or a different standby.
"&.?.* :ransfer, assignment and transfer by operation of law

IS( *+ rules on transferability of a standby letter of credit differ significantly fro #C) *++, article -D. The pri e differences are contained in $7) FD, rule *.+&/b0/i0 and /ii0, !hich provides for the standby letter of credit to be transferred in its entirety ore than once and prohibits partial transfer, unless other!ise stated in the ter s of the standby letter of credit. The IS( *+ rules on the assign ent of proceeds provide greater detail than the corresponding #C) *++, article -F, !ith regard to the responsibilities and obligations of an issuer or no inated party !hen ac"no!ledging assign ent of proceeds re%uests.
"&.?.B Cancellation
Given the nature of standby letter of credit usage, and the Fe#tend or pay. practice as defined in $7) FD, rule -.+F, it is of vital i portance that the issuer is able to deter ine !ith absolute certainty that the beneficiary has agreed to any re%uest for cancellation of the standby letter of credit. $7) FD, rules B.+" and B.+& cover cancellation. $7) FD, rule B.+"4 =hen an irre!ocable standby is cancelled or terminated & beneficiary.s rights under a standby ay not be cancelled !ithout its consent. Consent ay be evidenced in !riting or by an action such as return of the original standby in a anner !hich i plies that the beneficiary consents to cancellation. & beneficiary.s consent to cancellation is irrevocable !hen co unicated to the issuer.
$7) FD, rule B.+&4 $ssuerHs discretion regarding a decision to cancel
1efore acceding to a beneficiary.s authoriIation to cancel and treating the standby as cancelled for all purposes, an issuer ay re%uire in a anner satisfactory as to for and substance: a. the standbyG original
b. verification of the signature of the person signing for the beneficiaryG c. verification of the authoriIation of the person signing for the beneficiaryG d. legal opinionG e. an irrevocable authority signed by the beneficiary for cancellation that includes state ents, covenants, inde nities, and si ilar provisions contained in a re%uired for G f. satisfaction that the obligation of any confir er has been cancelledG g. satisfaction that there has not been a transfer or pay ent by any no inated personG and h. any easure. other reasonable
"&.?.D 8eimbursement obligations

The four rules collated under this heading cover the right to rei burse ent not only of a no inated party fro the issuer, but also of the issuer fro the applicant. In this regard, $7) FD, rule D.+"/b0 also builds into the rules obligations of the applicant, !hich !ill invariably be covered to differing degrees in a separate agree ent or facility letter bet!een the issuer and applicant. 1y !ay of rule D.+3, IS( *+ adopts the incorporation of the ICC Rules for Bank-to-Bank Reimbursements into its ter s !ithout specific reference in the standby. $7) FD, D.+"/b0 rule
&n applicant ust inde nify the issuer against all clai s, obligations, and responsibilities Aincluding attorney.s feesB arising out of: i. the i position of la! or practice other than that chosen in
IS$ 3"
the standby or applicable at the place of issuanceG
ii. the fraud, forgery, or illegal action of othersG or iii. the issuer.s perfor ance of the obligations of a confir er that !rongfully dishonours a confir ation.
$7) FD, rule reimbursement
D.+34
Bank2to2bank
&ny instruction or authoriIation to obtain rei burse ent fro another ban" is subHect to the International Cha ber of Co erce standard rules for ban"-to-ban" rei burse ents.
"&.?.F :iming
The separation of presentation under $7) FD, section - fro e#piry in section F contrasts !ith their provisions under #C) *++, articles *, "3, &F and --. & further point that should be noted is the reinforce ent, as provided in $7) FD, rule F.+? of the fact that retention of the standby letter of credit by the beneficiary post e#piry does not preserve any rights to de and pay ent. This is to establish the position of a standby letter of credit, subHect to IS( *+, !here the la!s of certain countries per it de ands to be ade against guarantees, in so e cases long after their e#piry date. $7) FD, rule F.+?4 8etention of standby Retention of the original standby does not preserve any rights under the standby after the right to de and pay ent ceases.
"&.* $CC #niform 8ules for Bank2to2 Bank 8eimbursements under Documentary Credits
#C) *++, sub2article "-/a0 re%uires the docu entary credit to state !hether =RR 73@ rules are to apply. If the docu entary credit is silent in this respect and a ban"-to-ban" rei burse ent is to occur, then the contents of #C) *++, sub2articles "-/b0 and /c0 !ill apply. 7ub2article "-/c0 also applies if the =RR rules are to apply. =RR rules do not cover transactions under !hich rei burse ent is obtained fro the issuing ban".
ICC Uniform Rules for Bank-to-Bank Reimbursements under Credits
ocumentar!
"&.*." ;rticles -, 3 and ?

The "ey points are: & rei burse ent docu entary credit. authorisation is separate fro the
-#cept under its o!n separate underta"ing, a rei bursing ban" has no liability to pay under the docu entary credit such liability rests !ith the issuing and confir ing ban", if any.
It is only the issuing ban" that can and should provide the necessary and correct infor ation.
"&.*.& ;rticle *4 $ssuance and receipt of a reimbursement authorisation or reimbursement amendment

It is not unco on for issuing ban"s to stipulate a t!o or three day notice re%uire ent Aso eti es oreB prior to clai s being et. This is pri arily for cash anage ent purposes, to enable the issuing ban" to provide covering funds to be transferred to its account !ith the rei bursing ban".
"&.*.- ;rticle "+4 7tandards for a reimbursement claim

In order to avoid any delay in the processing rei burse ent clai s under rei burse ent underta"ings, rei bursing ban" should state in the ter s of rei burse ent underta"ing if it re%uires clai s to authenticated. Si ilarly, upon receipt of a rei burse authorisation, the rei bursing ban" ay !ish to advise issuing ban" of its re%uire ent, !hich ight then incorporated into future docu entary credit instructions. of the its be ent the be
8e!iew 9uestions
The follo!ing revie! %uestions are designed to enable you to assess your understanding of the topic that you have Hust studied.
). ;hich one of the follo!ing credit types is referred to specifically in =C( 866V a. Red-clause. b. 1ac"-to-bac". c. Transferable. d. Revolving. 3. goods description that appears on an air transport docu ent is to be: a. e#actly the sa e as that stated in the docu entary creditG b. in general ter s not in conflict !ith the description stated in the docu entary creditG c. one that corresponds !ith that stated in the docu entary creditG d. the sa e as that sho!n on the invoice. 9. & docu entary credit contains the condition that FFreight For!arders <ulti odal Transport 'ocu ent is not acceptable.. This eans: a. the ulti odal transport docu ent by the carrierG b. the ulti odal transport docu ent and signed by the carrierG ust be issued ust be issued
c. the ulti odal transport docu ent ust be issued by the carrier but ay be signed by a na ed agent for or on behalf of the carrierG d. the ulti odal transport docu ent ay be issued according to article )* and sub-article )/AlB and the condition is to be disregarded.
Re#ie.uestions
/.
The bill of lading that has been presented under a docu entary credit is pre-printed FShipped on board.. It sho!s the port of loading and discharge as stated in the docu entary credit. In addition, it sho!s an inland place of receipt and an indication of pre-carriage fro that place to the port of loading by truc". ;hich of the follo!ing is correctV a. &n additional dated on-board notation is re%uired. b. &n additional dated on-board notation is re%uired !ith the na e of the vessel. c. &n additional dated on-board notation is re%uired !ith the na e of the vessel and the port of loading. d. ?o further dated on-board notation is re%uired.
@.
;hich of the follo!ing is not in itself an indication that a bill of lading is subHect to a charter partyV a. Freight payable as per charter party dated Wbut no date addedX. b. Freight payable as per charter party nu ber Wbut no nu ber addedX. c. & bill of lading bearing the heading FCongenbill..
Chapter )9
Aoney laundering and terrorist financing
Learning ob ecti!es &fter studying this chapter students should be able to: e#plain the i pact of rules and regulations to prevent oney laundering and terrorist financing on trade and on the use of docu entary creditsG and
identify the i pact of sanctions.
"-." $ntroduction
Rules and econo ic sanctions designed to prevent oney laundering and terrorist financing can all place restrictions on the operation of a docu entary credit. This chapter e#plains the i pact of rules to prevent oney laundering and terrorist financing. It also identifies ho! econo ic sanctions can affect the pay ent obligations that e#ist under a docu entary credit.
"-.& Aoney laundering and terrorist financing

"-.&." :he laundering
2013
practice
of
money
ifs School of Finance <oney laundering eans all techni%ues used to conceal )/) the
origin of oney that has been illegally obtained or is being used for illegal purposes. It gets its na e fro the process of turning Fdirty. oney
)/3
$re#ention of mone! launderin% and terrorist financin%
into Fclean.. This can be achieved in a variety of !ays, !here the underlying obHective is to disguise or confuse any audit trail that could lin" the Fclean. funds to the illegally obtained oney. Ene techni%ue is to use the proceeds of cri e to purchase real estate, potentially at an inflated price. The oney launderer then resells the real estate in the open ar"et, !ith the proceeds seen as clean oney. <oney launderers use a variety of techni%ues to achieve their obHectives. These include the follo!ing: Cash transactions cash can be deposited into ban" accounts in Hurisdictions !ith greater ban" secrecy or a less rigorous oney laundering environ ent. 1usinesses that receive cash pay ents can deposit both legal and illegal cash receipts in ban" accounts, clai ing all to be legiti ate earnings. They can also pay e ployees partly or fully in cash to avoid having to record illegal cash receipts. #nder!aluing or o!er!aluing in!oices deflating or inflating the true value of an invoice can disguise the ove ent of illegal funds.
7hell companies and trusts these can disguise the true o!ner of funds, especially if the Hurisdiction in !hich they are located does not re%uire the disclosure of the beneficial o!ner. The use of shell ban"s is e#plicitly prohibited by the =S& (&TRIET &ct 366). Bank capture in e#tre e cases, oney launderers have a controlling interest in a ban", allo!ing the ove funds !ithout scrutiny. ay to
&ll of these have i plications for ban"s involved in a docu entary credit. In each case, a oney launderer.s priority is to a"e a transaction loo" nor al. To achieve this, the oney launderer ay try to use all the nor al trade finance services offered by a ban" to legiti ise i porte#port businesses.
"-.&.& :he financing
practice
of
terrorist
&lthough terrorist financing ay involve oney laundering, in principle the t!o activities are distinct. Financial support for terrorist activities ay co e direct fro certain states or Hurisdictions, or fro organisations large enough to be able to collect and a"e the funds available to the terrorist organisation. ifs School of Finance )/9
2013
Terroris
financin% ay also be funded
13* <one! launderin% and terrorist
)//
fro sources channelled ore directly through the financial syste . & terrorist organisation ay also engage in revenue generating activities of its o!n, !hich often ay be, or certainly ay appear to be, legiti ate businesses. =nli"e other cri inal organisations, ho!ever, terrorist groups ay also derive so e of their funding fro inco e individuals or entities have legiti ately earned. Fro the true that the perspective of ban"s engaged in a docu entary credit, ain challenge is to "no! its custo er, to try to identify the beneficial o!ners of the parties involved and to ascertain the transaction is in line !ith its nor al course of business.
"-.- )re!ention of money laundering and terrorist financing

Ever recent years, legislation and regulations have been introduced at both national and international levels to try to co bat oney laundering and terrorist financing. The lead international body in the fight against oney laundering and terrorist financing is the Financial &ction Tas" Force AF&TFB. F&TF !as established in )*+* and has developed a set of guidelines for national govern ents and regulators to follo!. 2no!n as the F;:F 8ecommendations, these !ere first introduced in )**6 and ost recently updated in 36)3. &lthough the F&TF Reco endations apply internationally, each country is responsible for developing its o!n legislation to put the into practice. &s a result, specific legal re%uire ents vary fro country to country. That said, it is possible to identify general rules for a ban" to follo! !hen engaged in a docu entary credit transaction. These rules place a responsibility on ban"s and other financial institutions to e#ercise due diligence !hen establishing relationships !ith custo ers, to carry out occasional revie! of transactions and identify any suspicion of oney laundering or terrorist financing. 1an"s therefore need to adopt procedures to ensure that they: "no! custo ersG their
"no! the beneficial o!ners of parties to any transactionG and understand the nature of any underlying business relationship ifs School of Finance )/@
2013
and transaction.
13* <one! launderin% and terrorist financin%
-ach ban" involved in a docu entary credit !ill have its o!n operating procedures for each of these issues, !hich need to be follo!ed carefully.
)/8
In ost cases, ban"s !ill not have a direct relationship !ith both the applicant and the beneficiary in a docu entary credit. AThere are so e instances !here only one ban" is involved as the issuing ban", but these are often confined to docu entary credits covering do estic or local trade.B &s a result, ban"s !ill !or" !ith correspondent ban"s to both trans it docu ents and a"e pay ents, so each ban" !ill also need to scrutinise the controls set in place by its correspondent ban"s to address the three points above. This applies !hether the correspondent ban" is a foreign subsidiary or branch in the sa e ban"ing group or a separate institution. In addition, F&TF aintains a list of higher-ris" countries A!here it assesses that rules to prevent oney laundering and terrorist financing are insufficiently robustBG if a correspondent ban" is located in one of these countries, ban"s have a greater responsibility to conduct enhanced scrutiny of its counterpart. These easures are designed to avoid illegal transactions ta"ing place. $o!ever, it is still possible that a student ay have a suspicion of oney laundering or terrorist financing. ?ational legislation places a personal responsibility on each individual !ithin a ban" Aas !ell as on the ban" or financial institution e ployerB. It is an offence to assist so eone to control assets that an individual "no!s or has reasonable grounds to suspect are the proceeds of cri e or are intended to support terroris . This assistance includes a failure to report this suspicion. Individuals are also prevented fro disclosing to a custo er or any other outside party that they are, or ay be, under investigation. To avoid co itting offences under these rules, students should follo! their ban".s operating procedures. They should file suspicion reports at the earliest opportunity. In so e circu stances, this ay be after a transaction has ta"en place. To avoid disclosure to a custo er, it ay be appropriate to avoid contacting the . $o!ever, if the student has ongoing business !ith that custo er involving routine contact, continuing !ith custo er contact !ill not usually constitute an offence as long as only routine atters are discussed. In su rules: ary, students ust follo! these
>now your customer />CC0 this eans follo!ing identity verification procedures designed to establish the identity of the people in control of the custo er.
>now
your
customerHs
business
this
eans
)/7
understanding the li"ely financin% transactional re%uire ents in ter s of docu entary
13* <one! launderin% and terrorist
)/+
Sanction s
credits, !hich !ill help to identify possible illegal transactions. This ay involve as"ing about the source of the custo er.s funds, the type of transactions to e#pect, their siIe and fre%uency, their dealings !ith foreign countries, the purpose of transactions or the services the ban" is to provide. >now your business /obligations0 a student also needs to understand its and their ban".s obligations under a docu entary credit, given the role the ban" is perfor ing. This includes follo!ing the correct procedures. >eep records each ban" ust record the detail of all transactions, including siIe and currency of transactions. Ether infor ation that ust be recorded includes accountopening details, docu ents of verification of identity and changes of signatories. F&TF Reco endations re%uire that this infor ation is held for five years, although so e Hurisdictions ay have ore onerous re%uire ents. ;here the oney laundering ris" is at its greatest, ban"s !ill re%uire ore e#tensive records that ay include the purpose of specific arrange ents, the identities of parties to a transaction, and other relevant infor ation. &s !ell as these details, a student should also "eep records of any contact !ith custo ers, and other en%uiries they ay a"e in connection !ith custo ers. arrange ents. 8eport suspicions a student ust al!ays be alert for custo ers, arrange ents, assets and transactions that give rise to a suspicion of oney laundering or terrorist financing. &ny suspicions ust be reported in a suspicion report. The procedures for filing a suspicion report !ill be in a ban".s operating procedures. Such reports usually have to be filed !ith a no inated officer or tea . & student has no responsibility for deciding !hether the report is sub itted to e#ternal authorities. -ach ban".s procedures specify !hat a student ust do. This !ill depend on various factors including the e#tent of its custo er contact and the degree of oney laundering M terrorist financing ris" attached to the services they and the ban" are providing. Failure to follo! these procedures ay result in da age to the ban".s reputation, and cri inal proceedings against both the ban" and the individual concerned.
"-.3
7anctions
)/*
13* <one! launderin% and terrorist financin%
International sanctions can have a significant i pact on the pay ent obligation under a docu entary credit. -cono ic sanctions, in the
)@6
Sanction s
for of trade restrictions, are so eti es i posed on countries or individuals by the =nited ?ations, the -uropean =nion or govern ents Aeither acting alone or !ith othersB. These sanctions can be i posed !ithout notice and !ith i ediate effect, !ith the result that, even !hen a co plying presentation is ade, the beneficiary !ill not receive pay ent. There is no ention in =C( 866 of the i pact of sanctions. Certainly, if sanctions are i posed and a ban" thin"s the transaction is subHect to those sanctions, the ban" !ill not pay. This applies !hether or not a sanctions clause is included in the docu entary credit. 1an"s operating procedures are li"ely to include a provision to screen individual transactions for potential sanctions breaches. 1ecause the application of sanctions is not al!ays clear, any ban"s are see"ing to incorporate sanctions clauses into docu entary credits to protect their o!n position. &n $CC Guidance paper /3B+ J ""&F, Aarch &+"+0 advised against the use of sanctions clauses by ban"s, especially !here such clauses can cast doubt on the underta"ing given by the ban" in its credit or in an advice of confir ation. Fro a beneficiary.s perspective, such clauses can add uncertainty as they can give the ban" so e discretion !hether or not to pay if sanctions are i posed. Sanctions are a force of la!, !hich !ill override the rules of =C( 866. Sanctions should not give ban"s discretion !hether or not to pay. I posed sanctions ay direct ban"s not to underta"e business, or ay i pose a duty on ban"s to refuse pay ents for transactions already in e#istence .
)@)
&ppendi# &
Bibliograph y
The follo!ing represents a list of ICC publications consulted by the authors or %uoted fro in the course of the study te#t. For ease of reference, these are listed under the follo!ing headings: ). publications 1an"ing Co ission or docu ents approved by the ICC
3. publications or docu ents !ritten by recognised e#perts but not ratified by the ICC 1an"ing Co ission. & docu entary credit specialist should consult their local ICC office for an indication of the publications that are still available should they !ish to purchase copies.
)ublications or documents appro!ed by the $CC Banking Commission

The follo!ing titles are publications or docu ents, such as rules, policy state ents and 'ecisions that have been discussed and approved by the ICC 1an"ing Co ission.
:itle No. ICC =nifor Custo s and (ractice for 'ocu entary Credits A=C( 866B International Standard 1an"ing (ractice for the -#a ination of 'ocu ents under 'ocu entary Credits A36)9 Revision for =C( ifs School of Finance
2013
)ublication 866B AIS1(B
)/7
866 ICC =nifor Rules for Collections
7/@ @33
)/+
8* Biblio%ra+h!
International Standby (ractices AIS( *+B ICC =nifor Rules for 'e and Guarantees A=R'G /@+B ICC =nifor Rules for 1an"-to-1an" Rei burse ents =nder 'ocu entary Credits A=RR 73@B ICC Rules for 'ocu entary Instru ents 'ispute Resolution -#perise A'EC'-4B Epinions of the 1an"ing Co ission )*+/+8 ission ission ission on Epinions of the ICC 1an"ing Co )*+7++ Epinions of the ICC 1an"ing Co )*+**) Epinions of the ICC 1an"ing Co =C( @66 A)**@*8B
@*6 /@+ 73@ +)) /9/ /8* /*/ @8@ @*8
<ore ]ueries and Responses on 'ocu entary Credits Epinions of the ICC 1an"ing Co ission )**7 <ore ]ueries and Responses on =C( @66 Epinions of the ICC 1an"ing Co ission )**+** ICC 1an"ing Co )**@366) ICC 1an"ing Co ICC 1an"ing Co ICC 1an"ing Co ission Collected Epinions ission Epinions )**@366/ ission Epinions 366@366+ ission Epinions 366*36))
8)9
893 886 8*7 793 79* @69 /7 6M* /* rev 'oc
Collected 'EC'-4 'ecisions 366*36)3 ICC <odel For s for Issuing 'e and Guarantees ICC 1an"ing Co ission guidelines for dealing !ith %ueries that could be the subHect of court action -#a ination of 'ocu ents, ;aiver of 'iscrepancies and ?otice under =C( 866 Aoriginal version odified for this publicationB The deter ination of an FEriginal. docu ent in the conte#t of =C( @66 sub-article 36 AbB AICC 'ecision on Eriginal 'ocu entsB 'oc
'oc
/76M *@3 rev 9
/76M+7) rev
8* Biblio%ra+h!
5ther +ublications
ICC endorse ent of the =?CITR&, Convention on Independent Guarantees and Stand-by ,etters of Credit The i pact of the -uropean single currency AeuroB on onetary obligations related to transactions involving ICC rules
'oc
/76M +8/ rev 3
'oc /76M+33 The docu entary credit specialist !ill also a"e use of the follo!ing publications of the 1an"ing Co ission on International Co erce:
Title Incoter s 3666 Incoter s 36)6
)ublication No. @86 7)@
.ther publications
The follo!ing titles are publications or docu ents that have been !ritten by either an e#pert individual or by a drafting group of recognised e#perts in the relevant field. These publications have not been sub itted to, or approved by, the full ICC 1an"ing Co ission but contain useful infor ation for the docu entary credit specialist.
:itle No. 'ocu entary Credits: =C( @66 and /66 Co pared )**9 revision Case Studies on 'ocu entary Credits under =C( @66 ICC Guide to 1an"-to1an" Rei burse ents ICC Guide to the e=C(
)ublication @)) @9@ @7@ 89* 899 *@3 @/7
'ocu entary Credit ,a! Throughout the ;orld & 1an"er.s Insights on International Trade 1an" Guarantees in International Trade
=ser.s $andboo" to the =nifor on 'e and Guarantees
Rules
89)
8* Biblio%ra+h!
=nifor
Rules for Collections a Co
entary
@@6 @8)
ICC Guide to Collection Eperations for =RC @33 'ocu entary Credits Insight >-ith the e'ce+tion of those articles in the ne-sletter that re+roduce official ICC documents;+ublications? Guide to 'ocu entary Credit Eperations The 'ocu entary Credits $andboo" The Co plete =C( $istory =C( 866 ,egal &nalysis and Case Studies Guide to ICC =R'G 7@+
/)@ /@/ 8+9 8@+ 763
)@6
&ppendi# 1
;nswers to re!iew 9uestions
Chapter " Chapter & Chapter Chapter Chapter Chapter Chapter Chapter 3 ? * B D
Chapter F Chapter "+ Chapter "" Chapter "&
Basic principles of documentary credits :he sales contract Documentary credits4 types, uses and characteristics $ssuing a documentary credit ;d!ising a documentary credit 7hipment of goods and preparation of documents $nsurance documents Financial, commercial and other official documents E%amination of documents 7ettlement .ther products relating to a documentary credit ;nalysis of $CC rules
/6 7 /6 + /6 * /6 * /) 6 /) 6 /) ) /) ) /) 3 /) 3 /) 9 /) /
Chapter " Basic principles of documentary credits

). The correct ans!er is d. It is only !hen a co plying presentation is ade to a no inated ban", confir ing ban" or issuing ban" that honour or negotiation ay or !ill ta"e place. See =C( 866 subarticles 7 AaB and + AaB, and article )3. 3. The correct ans!er is c. It is the issuing ban" that underta"es to honour a co plying presentation that is ade by or on behalf of the beneficiary. See =C( 866 sub-article 7 AaB. 9. The correct ans!er is c. &n applicant is not a party to a docu entary credit. & docu entary credit constitutes an underta"ing of a ban"
Aissuing
B* 8ns-ers to re#ie.uestions
ban"B and once issued cannot be a ended or cancelled !ithout the agree ent of the beneficiary. /. The correct ans!er is a. The docu entary credit acts as an underta"ing addressed to the beneficiary and re oves the pay ent ris" of the applicant. The correct ans!er is b. =C( 866 article 3 defines .honour. as .to pay at sight if the credit is available by sight pay ent.G .to incur a deferred pay ent underta"ing and pay at aturity if the credit is available by deferred pay ent.G and .to accept a bill of e#change A_draft_B dra!n by the beneficiary and pay at aturity if the credit is available by acceptance..
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Chapter &
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:he sales contract
The correct ans!er is c. To receive pay ent in advance re oves all pay ent ris" fro the beneficiary. The correct ans!er is a. In an open account transaction, an i porter is not re%uired to a"e any pay ent until the goods and docu ents are received by it. The correct ans!er is a. In an FE1 transaction, freight !ill be payable at destination Aby the i porterBG in a CIF transaction, freight !ill be paid before ship ent Aby the e#porterB. The correct ans!er is c. =C( 866 article 36 re%uires that a bill of lading indicate that the goods have been shipped on board. =nder FE1 ter s, the bill of lading !ill be ar"ed freight payable at destination. The correct ans!er is b. The definition of CIF in Incoter s 36)6 is that it stands for the WCXost of goods, WIXnsurance of the goods and the WFXreight cost for the goods.
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Cha+ter 6
Issuin% a documentar! credit
Chapter - Documentary credits4 types, uses and characteristics

). The correct ans!er is d. ;hat is being described is a revolving credit, ie one that revolves for a si ilar a ount on certain stated conditions. 3. The correct ans!er is c. & credit ay provide for the beneficiary to receive an advance pay ent for part of the credit value. This !as traditionally "no!n as a red clause due to the fact that it !as typed onto a letter of credit in red in". Today, !ith docu entary credits being trans itted pri arily by S;IFT essage, a clause in red in" is not possible but the ter is still referred to by any ban"ers. 9. The correct ans!er is c. 1y having a docu entary credit confir ed by a ban" that is local to the beneficiary, it re oves the pay ent ris" of the issuing ban" and places it !ith a ban" that is !ell "no!n to the beneficiary and considered to be financially sound. /. The correct ans!er is c. The instructing party is the i porter or buyer of the goods, services or perfor ance, and they !ill be "no!n as the applicant. @. The correct ans!er is b. If the beneficiary provides docu ents that co ply !ith the ter s and conditions of the docu entary credit, a confir ing ban" Aif anyB or an issuing ban" !ill have an obligation to honour or negotiate.
Chapter 3 $ssuing a documentary credit

). The correct ans!er is a. & no inated ban" has no obligation to honour or negotiate under a docu entary credit. &n advising ban" ay or ay not be a no inated ban" See =C( 866 article )3 regarding the role of the no inated ban". 3. The correct ans!er is c. If the charges of an advising or confir ing ban" are not recoverable fro the beneficiary, the issuing ban" re ains ifs School of=C( Finance )@9 liable. See 866 article 97.
2013
9.
The correct ans!er is b. &n <T766 essage is auto atically authenticated bet!een the sending and receiving ban"s. & rei bursing ban" is under no obligation to honour any clai unless a rei burse ent underta"ing has been issued by it and the clai sub itted by the clai ing ban" is in confor ity !ith that underta"ing. The correct ans!er is b. &cceptance re%uire the place ent of an indication acceptance by the dra!ee on the face of a draft Abill e#changeB. The deferred pay ent product !as developed cover transactions !here a draft !as not re%uired appropriate, ie due to sta p duty fees applying to a draft. of of to or
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Chapter ? ;d!ising a documentary credit

). The correct ans!er is a. The preparation of docu ents is a tas" for the beneficiary and other entities that are re%uired to produce docu ents on their behalf, ie transport and insurance docu ents. &lthough so e ban"s provide a docu ent preparation service to their clients, this is not a pri ary function of a no inated or confir ing ban". The correct ans!er is b. &s a ban" has issued a docu entary credit, it is that ban".s pay ent ris" that ust be considered by the beneficiary. The issuing ban" has, effectively, replaced the pay ent ris" of the applicant !ith its o!n. The correct ans!er is c. This aspect is covered in =C( 866 article *.
3.
9.
Chapter * 7hipment of goods and preparation of documents

). The correct ans!er is c. It !ill be the co ercial docu ents invoices, pac"ing lists, transport docu ents that !ill identify the goods.
3.
The correct ans!er is d. & C<R note covers the ship ent of goods by road. )@/ ifs School of Finance
2013
Cha+ter "
9. The correct ans!er is c. & bill of lading can, if issued in negotiable for , convey title to the goods. /. The correct ans!er is c. This allo!ance is covered in =C( 866 sub-article 3* AaB. @. The correct ans!er is d. =C( 866 articles )*, 36 and 3) state that the respective transport docu ent should not contain any indication that it is subHect to a charter party.
Chapter B
$nsurance documents
). The correct ans!er is d. =C( 866 sub-article 3+ AaB refers to .an insurance docu ent, such as an insurance policy, an insurance certificate or a declaration under an open cover.. 3. The correct ans!er is b. General average is described as .incurred in the co on interests of the ship and cargo and is borne by all the parties interested in the ship and cargo, in proportion to such interests, as deter ined by persons "no!n as average adHusters. 9. The correct ans!er is b. This ini u re%uire ent is e#pressed in =C( 866 subarticle 3+ AfB. /. The correct ans!er is a. & certificate ay be replaced by an insurance policy but a cover note is not acceptable. see =C( 866 sub-article 3+ AcB. @. The correct ans!er is a.
Chapter D Financial, commercial and other official documents

). The correct ans!er is b. Ence accepted by a ban", the a ount Aor due dateB cannot be changed !ithout a for of reacceptance by the accepting ban" that indicates an agree ent to such action. 3. The correct ans!er is d. ifs School of Finance
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.uestions & bill of e#change is considered to be a financial docu ent.
B* 8ns-ers to re#ie-
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Cha+ter "
9.
The correct ans!er is d. $aving an independent organisation assess the %uality and M or %uantity of the goods being shipped provides a level of co fort to an applicant. The correct ans!er is c. ;hile the a ount is an i portant aspect, it does not for part of the process to deter ine the date. The correct ans!er is c. The draft does not indicate the date of ship ent, therefore fro the data on the face of the draft it is i possible to deter ine the due date.
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Chapter F
).
E%amination of documents
The correct ans!er is a. &n issuing ban" is under no obligation to contact the applicant for a !aiver. See =C( 866 sub-article )8 AbB. The correct ans!er is d. The ter .e#porting country. has no eaning under =C( 866. Therefore IS1( 7/@, paragraph &)* AeB !ould per it certification to occur in any one of the three stated countries. There is no indication that the issuing ban" is refusing the docu ents. This is a pri ary re%uire ent of =C( 866 sub-article )8 AcB AiB. The correct ans!er is e. & docu ent ay bear the sa e title, a si ilar title or have no title provided it fulfils the function of the na ed docu ent. See IS1( 7/@, paragraph <). $aving issued a refusal notice according to =C( 866 sub-articles )8 AcB AiiiB AaB or AbB Aand the %uestion indicates option AaB !as usedB, the ban" ay return the docu ents at any ti e thereafter. See =C( 866 sub-article )8 AeB.
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Chapter "+ 7ettlement

). The correct ans!er is c. ;hen a credit is available !ith a ban" other than the issuing
ifs School of Finance 2013 )@7
ban" and the draft is to be dra!n on the issuing ban", it ust be available by negotiation. 3. & rei burse ent authorisation is not irrevocable and it can be cancelled at any ti e. If cancelled, the issuing ban" is e#pected to provide fresh rei burse ent instructions. 9. The correct ans!er is d. &ny negotiation effected by a confir ing ban" is !ithout recourse to the beneficiary. See =C( 866 sub-article + AaB AiiB. /. The correct ans!er is c. The rei burse ent condition that is described is to be seen in a credit available by negotiation and not by pay ent. @. &lthough the no inated ban" had not added its confir ation to the credit it agreed to accept the draft. Ence the draft !as accepted, the no inated ban" has honoured under the credit. $onour is ade !ithout recourse to the beneficiary.
Chapter "" .ther products relating to a documentary credit

). The correct ans!er is d. The issue of freight charges is otuside the scope of an inde nity bet!een a ban" and its client. 3. The correct ans!er is d. &n ,EI is issued !hen the original bills of lading, usually charter party bills of lading, are not available at the ti e of presentation of docu ents under the credit. 9. The correct ans!er is b. Si# to seven years is the usual period associated !ith Fstatute of li itations. that applies in any countries. /. The correct ans!er is c. The docu ents that are to be re%uested do not for part of any syndication agree ent. This agree ent is ore concerned !ith the a ount, e#piry period, goods and pay ent ter s. @. The correct ans!er is b. The shipper.s na e is of no concern !hen see"ing the release of the cargo !ithout production of an original bill of lading. )@+ ifs School of Finance
2013
Cha+ter 11
5ther +roducts relatin% to a documentar! credit
Chapter "& ;nalysis of $CC rules

). The correct ans!er is c. Transferable credits are covered in =C( 866 article 9+. The correct ans!er is b. =C( 866 sub-article )/ AeB states that for docu ents other than a co ercial invoice, a goods description, if stated, need only be given in general ter s not in conflict !ith the description sho!n in the credit. The correct ans!er is d. Such a condition is not precise and does not describe ho! the docu ent is to be issued or signed. IS1( 7/@, paragraph '/ states that the docu ent !ill be e#a ined under =C( 866 li"e any other and the condition disregarded. The correct ans!er is c. ;hen a bill of lading indicates a eans of pre-carriage, !ith or !ithout stating a place of receipt, a dated on-board notation is re%uired that indicates the na e of the vessel and the port of loading stated in the credit. The correct ans!er is c. IS1( 7/@, paragraph G9, states that a ere indication of FCongenbill. is not, in itself, an indication that the bill of lading is subHect to a charter party.
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Guide to Documentary Credits

Contributing editor: Gary Collyer

ICC Uniform ocumentar! Credits Re#ision

ifs School of Finance 2013

Copyright Note to students acknowledgements

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Basic principles of documentary credits

describe the a beneficiaryG

"." Brief history

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1* Basic +rinci+les of documentar!

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versiKn ).)G and

1* Basic +rinci+les of documentar! credits

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".& Definici'n documentario

1* Basic +rinci+les of documentar! credits

".- )artes inter!inientes en un cr(dito documentario, funciones y responsabilidades

".-." .rdenante /tambi(n conocido como comprador o importador0

-stas cuestiones se analiIan con este te#to de estudio.

$arties in#ol#ed in a documentar! credit, and their roles and res+onsibilities

".-.& Beneficiario /tambi(n conocido como !endedor o e%portador0

1* Basic +rinci+les of documentar!

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$arties in#ol#ed in a documentar! credit, and their roles and res+onsibilities

".-.&." $ssuing bank /also referred to as the opening bank0

1* Basic +rinci+les of documentar! credits

".-.&.& Banco a!isador

".-.&.- Nominated bank

".-.&.3 Confirming bank

$arties in#ol#ed in a documentar! credit, and their roles and

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1* Basic +rinci+les of documentar! credits

".-.3 Documents, reimbursement

is o artLculo define el ter ino OnegociaciKnP. ifs School of Finance

$arties in#ol#ed in a documentar! credit, and their roles and res+onsibilities

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1* Basic +rinci+les of documentar! credits

".3 7tructure of a basic documentary credit transaction

$arties in#ol#ed in a documentar! credit, and their roles and

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1* Basic +rinci+les of documentar! credits

7tructure of a basic documentary credit transaction

@. Ship entM dispatch

)3. T a"es delivery

1anco avisadorMconfir ador

+. 'ocu entos *. Ree bolso 9. Credito docu entario

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a"e pay ent under a

ain purpose of a docu entary credit.

:he sales contract

2* /he sales contract

&.& 7ales contract

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2* /he sales contract

&.&." Content contract

&.&.& Contract conditions

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2* /he sales contract