Laws related to Letters of Credit

ICC Rules and Standards ICC International Court of Arbitration ICC's Uniform Customs and Practice for Documentary Credits (UCP 500 and UCP 600 from July 01, 2007) ICC Incoterms are standard international trade definitions used in business contracts globally ICC Non-government organization 123 countries as members 60 national committees Business self-regulation of e-commerce

Functions of ICC ICC Represents business communities at national and international level Harmonizes trade practices Formulates terminologies

Uniform Customs and Practices For documentary credit 1929,1933, 1962, 1974, 1983 and 1993 UCP 500 wef 1/1/94 UCP 600 wef 1/7/07 UCP IS NOT A LAW –IT HAS TO BE INVITED INTO LC CONTRACT

Uniform Customs and Practices FUNCTIONS OF UCP Defines –Roles and responsibilities Clarifications Advises

Three basic principles LCs are separate transactions from underlying commercial contracts All parties deal in documents and not in goods Doctrine of strict compliance

Article 1 – Application of UCP UCP 600 are “rules that apply to any documentary credit where there is an express indication”

Article 3 - Interpretations No revocable credit. A Credit is irrevocable even if there is no indication to that effect “from” and “ after “ means to exclude in case of maturity. In case of shipment “from”-include, “after”-exclude A document may be signed by hand writing , perforated signature, stamp , symbol or any other mechanical/electronic manner

Article 3 - Interpretations Terms such as FIRST CLASS, WELL KNOWN , QUALIFIED , INDEPENDENT , OFFICIAL to allow ISSUER ANY ONE OTHER THAN THE BENFICIARY. word like “prompt’” , “immediate” , or “ as soon as possible” will be disregarded.

Attaching pro-forma invoices or contracts to LC to be discouraged Article 4 - Credits v. Contracts Attaching pro-forma invoices or contracts to LC to be discouraged Credit is separate from sale contract even if it has been specifically referred in the LC

Article 5 - Documents v. Goods, Services or Performance BANKS DEAL WITH DOCTS AN DOCTS NOT IN GOODS

Article 9 – Advising of credit and amendments WITHOUT ANY UNDERTAKING TO HONOUR OR NEGOTIATE BY ADVISING , IT SIGNIFIES THAT THE ADV BANK HA SATISFIED ITSELF TO APPARENT AUTHENTICITY OF THE CREDIT

Article 10 – amendments CREDIT CAN NEITHER BE AMENDED OR CANCELLED WITHOUT THE AGREEMENT OF IB , CB IF ANY AND THE BENEFICIARY PARTIAL ACCEPTANCE OF AMENDMENT NOT ALLOWED NOTICE OF ACCEPTANCE OR REJECTION OF AN AMENDMENT BY THE BENEFICIARY NOT MUST. TIME LIMIT IF STIPULATED FOR REJECTION WILL BE DISREGARDED

Article 14 - Standard for Examination of Documents Reasonable time for rejection -maximum of 5 banking days following the day of presentation Data in a doct need not be identical but must not conflict with LC or any other doct. Docts other than commercial invoice ……..description can be in general terms but not in conflict with LC.

'Non-documentary conditions‘ will be ignored “ LC must state issuer of all docts other than transport doct, insurance doct and commercial invoice ,as to who has to issue and if nothing is mentioned , doct as presented will be accepted 'Non-documentary conditions‘ will be ignored Address of the bene and applicant need not to be the same as mentioned on the LC except appearing as consignee or notify party details on transport documents which must be same as per credit

SHIPPER OR CONSIGNOR OF THE GOODS INDICATED ON ANY DOCUMENT NEED NOT BE THE BENEFICIARY OF THE CREDIT

In the currency of the credit only Must be issued by the beneficiery Article 18 - Commercial Invoice In the currency of the credit only Must be issued by the beneficiery Must be in the name of applicant Same currency Need not to be signed Description must correspond with as mentioned in the lc

Article 26 - "On Deck", "Shipper's Load and Count", “Said by Shipper to Contain” and Charges Additional to Freight ( transport document evidencing GOODS ON DECK NO ALLOWED WORD LIKE “SHIPPERS LOAD AND COUNT “ AND “SAID BY SHIPPWER TO CONTAIN “will be acceptable

Article 27 - Clean Transport Document The word ‘clean’ need not appear on a transport document even if a credit calls for clean-on-board. A CLEAN DOCUMENT IS ONE BEARING NO CLAUSE OR NOTATION EXPRESSLY DECLARING A DEFECTIVE CONDITION OF GOODS OR THEIR PACKAGING

COVER NOTE NOT ACCEPTABLE Article 28 - Insurance Document and Coverage Same currency 110% of invoice value Dated before shipment UNLESS IT APPEARS FROM THE INSURANCE DOCUMENT THAT THE COVER IS EFFECTIVE FROM THE DATE NOT LATER THAN THE DATE OF SHIPMENT COVER NOTE NOT ACCEPTABLE

NO EXTENSION FOR DATE OF SHIPMENT Article 29 - Extension of Expiry Date or Last Day for Presentation WILL BE EXTENDED TO THE NEXT WORKING DAY IN CASE OF NON-FORCE MAJURE CONDITIONS NO EXTENSION FOR DATE OF SHIPMENT

Word ABOUT , APPROXIMATE -10% PLUS /MINUS Article 30 - Tolerance in Credit Amount, Quantity and Unit Prices Word ABOUT , APPROXIMATE -10% PLUS /MINUS TOLERENCE UPTO 5% ALLOWED IN QUANTITY BUT NOT IN AMOUNT PROVIDED QUANTITY IN TERMS OF FIXED NO OF UNITS DOES NOT CHANGE.THIS WILL NOT BE TREATED AS PARTIAL SHIPMENT

Article 31 - Partial Drawings or Shipments For the same means of conveyance, for the same journey and same destination not be considered to be a partial shipment More than one means of conveyance within the same mode of transport even though they depart from the same place, for the same destination, on the same date, is a partial shipment Latest date of shipment as evidenced on any set, will be regarded as the date of shipment

Article 32 - Instalment Drawings or Shipments IF ANY INSTALMENT IS NOT DRAWN OR SHIPPED WITHIN THE PERIOD ALLOWED,THE CREDIT CEASES TO BE AVAILABLE FOR THAT OR ANY SUBSEQUENT INSTALMENTS

Article 36 - Force Majeure Acts of Terrorism , act of God , riots, civil commotions ,wars ,strikes lockouts-NO EXTENSION

Contd…. Expiry dates: Article 14c – 21 days Article 36 - Force majure conditions previous working day Article 29 – Next working day for other than article 36 situations Date of shipment never gets extended

Transferable credit Article 38 – Must state transferable Can be transferred only once To be tranferred on same terms and conditions Following can be reduced: Amount/ unit price/ expiry dateperiod of shipment Following can be increased: Percentage of insurance