L6 on UCP600 Article 06 April 2018 intake.pdf - UCP 600 Article 6 Availability Expiry Date and Place for Presentation a A credit must state the bank

L6 on UCP600 Article 06 April 2018 intake.pdf - UCP 600...

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Unformatted text preview: UCP 600 - Article 6: Availability, Expiry Date and Place for Presentation a. A credit must state the bank with which it is available or whether it is available with any bank. A credit available with a nominated bank is also available with the issuing bank. b. A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation. 2 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] THREE interrelated but completely separate things 1. Availability: The additional counter for beneficiary to get payment other than the issuing bank. 1. Expiry Date: the last day within which the claim for payment i.e. presentation must be made. 2. Place for presentation: presentation the place/counter where the claim for Payment i.e. presentation is to be made. 3 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Types of Availability: For Example: 1. Available with Any Bank (Absolutely unrestricted Credit) Available with Any Bank of China (Restricted with a region) Available with JP Morgan Chase Bank (Restricted Credit but…) 2. Available by sight payment Available by 120 days sight Available by Acceptance Available by 90 days deferred 01. SWIFT Field 41D is a PURE reflection of Sub Article 6(a) & 6(b). 02. It is a mandatory field in line with the wording ‘MUST’ in the article. 4 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] A credit must state AVAILABLE WITH through one of the two way: A. By mentioning a name of Specific Bank B. By mentioning available with any bank. 5 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] A credit must state AVAILABLE BY through choosing one from following four options: 1. By Sight Payment or By Payment 2. By Deferred Payment 3. By Acceptance 4. By Negotiation 6 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Is mixture of payment methods allowed under UCP600? How?? Allowed… F41D: Available with…. : ABC Bank By : By Mixed payment F42M: Mixed payment details 20% By sight payment against presentation of original shipping documents 30% By Acceptance under Draft on ABC Bank at 180 days sight 50% By Deferred payment at 180 days from the shipment date 7 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] There are four settlement methods, or types of credit under UCP600: Acceptance Deferred Payment Payment/ Negotiation Sight payment Availability of Credit 8 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] A Credit always available with “Issuing Bank” There is no requirement for mentioning the same rather mere issuance of the credit is all sufficient. UCP600, Article 6 (a): ……………………………………………………………………….. A credit available with a nominated bank is also available with the issuing bank. bank. 9 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 6 Availability, Expiry Date and Place for Presentation Sub-article (a) also states the general rule that whilst a documentary credit may be made available with a nominated bank, it is always available with the issuing bank. As a result, a beneficiary always has the right to present documents either to the nominated bank or directly to the issuing bank. Comments of UCP600 Drafting Group 10 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Through adding confirmation a bank become a nominated bank i.e. automatically the credit available with that confirming bank by honour or negotiation. 11 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Case 01: SWIFT MT700: F41D: F41D: Available with…. : ABC Bank Case 02: SWIFT MT700: F41D: F41D: Available with…. : Any Bank Case 03: SWIFT MT700: F41D: F41D: Available with…. : Any Bank in China Case 04: SWIFT MT700: F41D: F41D: Available with…. : Issuing Bank Please mention the counters through which beneficiary can get payment??? 12 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] When a credit is available by negotiation, what will the confirming bank do (honor or negotiate)? negotiate)? Answer: Must negotiate, when the confirming is also a nominated bank & Must honor, honor, if the confirming bank is not a nominated bank 13 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Sight payment o Sight payment means that payment should be made when the presentation is seen or sighted. o In the terms of settlement under a documentary credit, sight means once the nominated bank or issuing bank has determined that the documents comply. o It also means that payment should be made on demand. o The sight payment documentary credit may or may not require drafts to be presented. o Because drafts may attract stamp duties, it may be issued without requiring drafts to be presented. 14 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Sight payment o What will be the role played by the 1. Nominated Bank? 2. Confirming Bank? 3. Issuing Bank? With or Without Recourse??? Answer: 1. Nominated Bank: May or May not honor 2. Confirming Bank: Must honor by effecting Payment 3. Issuing Bank: Must honor by effecting Payment 15 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Deferred payment The terms and conditions of a documentary credit available by deferred payment are that: • • Payment is not immediate; Payment is at a time in the future, determinable date in accordance with the documentary credit; and • presentation of a draft is not required/Prohibited. The future determinable date for payment will usually fall within a specific period after the date of the transport document or a specific period after the date of presentation or other predefined event or date. 16 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Deferred payment Documentary Credit issued as deferred payment basis PROHIBIT presentation of DRAFT. WHY??? 17 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Deferred payment o What will be the role played by the 1. Nominated Bank? 2. Confirming Bank? 3. Issuing Bank? With or Without Recourse??? Answer: 1. Nominated Bank: May or May not honor 2. Confirming Bank: Must honor by incurring DPU & paying at maturity Issuing Bank: Must honor by incurring DPU & paying at maturity 18 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Acceptance The terms and conditions of a documentary credit available by acceptance are that: o Payment is not immediate; o Presentation of drafts is required/MUST; and o Payment is due on the maturity date of the draft. Documentary credits available by acceptance provide a means by which the beneficiary may be able to obtain finance by discounting the accepted draft. 19 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Acceptance o What will be the role played by the 1. Nominated Bank? 2. Confirming Bank? 3. Issuing Bank? With or Without Recourse??? Answer: 1. Nominated Bank: May or May not honor 2. Confirming Bank: Must honor by accepting draft & paying at maturity Issuing Bank: Must honor by accepting draft & paying at maturity 20 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Negotiation A documentary credit available by negotiation provides a means by which the beneficiary may be able to obtain finance by having the nominated bank negotiate earlier than the date payment or reimbursement is due from the issuing bank. The terms and conditions of a documentary credit available by negotiation are that:  an advance may or may not be made immediately by a nominated bank;  Drafts may or may not be required for presentation;  Payment/HONOR, if the documentary credit is not negotiated earlier by the nominated bank, is made on receipt of documents by the issuing bank (sight) or the maturity date of the draft (usance). 21 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Negotiation o What will be the role played by the 1. Nominated Bank? 2. Confirming Bank? 3. Issuing Bank? With or Without Recourse??? Answer: 1. Nominated Bank: May or May not negotiate 2. Confirming Bank: must advance fund or must agree to advance fund if specifically available with the confirming bank by negotiation. Otherwise MUST Honor. 3. Issuing Bank: must honor. Issuing bank does not negotiate. 22 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion R666 This position is stated in ICC Opinion R666, R666 which includes the following in its conclusion to an enquiry concerning a credit available by sight negotiation: “A letter of credit stated to be available with a nominated bank, by negotiation, should not include any reference to claiming reimbursement from a reimbursing bank or, indeed, any reference to the debiting of the issuing bank’s account held with the nominated bank. This form of structure is a payment letter of credit. A negotiation letter of credit should specify that the nominated bank is to send the documents to the issuing bank and, upon the issuing bank’s ascertaining that it complies with the terms and conditions of the credit, the issuing bank will reimburse in accordance with the instructions of the negotiating bank.” 23 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] ICC Banking Commission Opinion R666 For a documentary credit that is available by negotiation on usance (Deferred) basis, basis the reimbursement instruction should indicate that a nominated bank is authorised to claim reimbursement, on the due date, by debiting an account of the issuing bank that is held with the nominated bank, or by claiming reimbursement from a named reimbursing bank, or by claiming reimbursement from the issuing bank, by sending a SWIFT message with details of where the issuing bank is to remit the covering funds, or by instructing the issuing bank to remit funds to the correspondent of the nominated bank at the time of sending the documents to the issuing bank. 24 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 6: Availability, Expiry Date and Place for Presentation c. A credit must not be issued available by a draft drawn on the applicant. 25 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 6: Availability, Expiry Date and Place for Presentation It should be keep in mind that a documentary credit constitutes an irrevocable undertaking of a bank. Having a documentary credit available by a draft drawn on the applicant can bring the applicant into the documentary credit settlement process and influence the point at which the issuing bank’s undertaking comes into force. Whilst sub-article 6 (c) states specifically that a documentary credit must not be made available by a draft drawn on the applicant, it is possible for a documentary credit to demand a draft drawn on the applicant as a required document under the documentary credit. This draft would be treated as any other required document, and it would be necessary for the issuing bank to specifically indicate the requirements and content for such a draft. draft. Comments of UCP600 Drafting Group 26 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 6: Availability, Expiry Date and Place for Presentation d. i. A credit must state an expiry date for presentation. An expiry date stated for honour or negotiation will be deemed to be an expiry date for presentation. ii. ii. The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank. 27 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected]  “Issuing Bank” is always the place for presentation  There is no requirement for mentioning the same rather mere issuance of the credit is all sufficient. 28 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] A Credit available with nominated bank means presentation can be made to that nominated bank.  Through adding confirmation a bank becomes a nominated bank i.e. automatically the credit available with that confirming bank by honour or negotiation and presentation can be made to that confirming bank. 29 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Summary of UCP 600 Article 6 • Mention of Expiry date for presentation is MUST • Mention of Available with which Bank is MUST • Mention of Available by which payment term is MUST • Draft drawn on Applicant is prohibited (MUST NOT) 30 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] The expiry place and date of expiry The position adopted by UCP 600, article 6, is that the place of expiry and that of the bank(s) with which the documentary credit is available will be the same. Any deviation from this structure can have a significant impact on a nominated bank or confirming bank, and ultimately on the beneficiary. For example, a documentary credit that expires at the counters of the issuing bank, but is available with a nominated bank by payment, acceptance, deferred payment or negotiation does not provide for the expiry date to be a latest date for presentation of documents to that nominated bank by, or on behalf of, the beneficiary, as described in UCP 600, 600, subsub-article 6(d)(i). (d)(i) An expiry date that applies at the counters of the issuing bank requires that the issuing bank must receive the documents no later than that expiry date. It also requires that the documents must be presented to the issuing bank within the applicable presentation period. 31 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] The expiry place and date of expiry As another example, a documentary credit that expires in the country of the beneficiary, but which is available only with the issuing bank, allows for the beneficiary to present its documents to any bank in its country on or before the expiry date. There is no nominated bank, and the issuing bank is the only bank authorised to pay, accept a draft or incur a deferred payment undertaking. Provided complying documents are presented to a bank in the beneficiary’s country no later than the expiry date, the issuing bank will be required to honour that presentation even if received by them after the expiry date. 32 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 6: Availability, Expiry Date and Place for Presentation e. Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date. 33 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP600 UCP600, 600, Article 06, 06, e. Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date. What is the time of the last day within which a presentation must be made? made? UCP 600 - Article 33 Hours of Presentation A bank has no obligation to accept a presentation outside of its banking hours. 34 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Banking Hour means the published hour of the bank or the non-bank in question. The bank in question may refuse to receive documents that are arrived after it’s published office hour. The bank in question includes: includes: - Issuing Bank - Nominated Bank - Confirming Bank Documents will be treated as received if the bank in question receives the documents instead of refusing it after it’s banking hour. 35 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Document received on a non-banking day means that the documents are received on that day whether or not the related department was open on that day. For the ‘receiving’ to occur, the day of presentation need not be a banking day. A presentation may also be made on a non banking day. 36 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Document receiving date is not only associated with ‘presentation’ but also with ‘document checking’. Article 14 (b) says “A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.” ‘Document checking’ time starts from the first following banking day after receipt of the presentation. 37 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Document received by central dispatch on a non banking day means that the examination time starts straight from the first following banking day when the related trade service desk may still be fully unaware of it. Banks should take precautions to avoid any type of delayed start of document checking to avoid risks. 38 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] “Presentation by or on behalf of the beneficiary” allows presentation by someone other than the beneficiary that is acting on its behalf, such as another bank or freight forwarder. 39 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] UCP 600 - Article 6 (e) e. Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date. UCP 600 Article 29(a): 29(a): a. If the expiry date of a credit or the last day for presentation falls on a day when the bank to which presentation is to be made is closed for reasons other than those referred to in article 36, the expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day. UCP 600 Article 36: Force Majeure A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control. A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business. 40 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] • If Last day for presentation is Banking day: No extension • If Last day for presentation is under Force majeure: No extension • If Last day for presentation is closed due to other reasons except Force majeure: Auto extended to the first following banking day 41 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] What will be the situation where as Latest Shipment date fall on a nonnon-banking day????? Answer yourself 42 CDCS MENTOR, MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: [email protected] Query: Query: Can we issue a letter of credit available with any bank by deferred payment? Suggested answer: answer: YES. There is no reason why it cannot be made available with any bank. If there is a reimbursing bank involved, the reimbursement authorization would allow the reimbu...
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