International Payments UCP500 – PAGE 6.10 1. WHEN DOES UCP 500 Apply? Art 1 - For the UCP500 to apply, it must be incorporated into the text of the credit. (ie Actual Reference within the contract for it to be applicable) If it has not been included within the contract, it may be possible to argue it as the “general” set of rules in relation to trade (ie can it be implied). 2. WHAT IS A LETTER OF CREDIT (under UCP500)? Art 2 - Definition of a letter of credit: “Any arrangement, however named or described, whereby a bank (the “issuing Bank”) acting at the request and on the instructions of a customer (the “Applicant”) or on its own behalf, Issuing Bank = Buyers Bank Seller = Beneficiary Collecting/Advising Bank = Sellers Bank Buyer = Applicant/Account Party is to make a payment to, or; to the order of a 3rd party (the “Beneficiary”), or; is to accept and pay bills of exchange (Draft(s)) drawn by the Beneficiary authorises another bank to effect such payment, or; to accept and pay such bills of exchange (Draft(s)) another bank to negotiate, against stipulated document(s), provided that the and conditions of the Credit are complied with
DOCUMENTS ARE DISCREPANT? Summary Bank does not owe a duty of care to the beneficiary to discover all the documents, as in Skandinaviska Aktiebolaget v Barclays Bank whereby it was rejected that banks must raise further reasons to reject documents, after it has rejected documents for some other reason. If the issuing, confirming or nominated bank decides to rejected the documents then there is an obligation on the bank to notify the bank from which the documents were received as per Art 14(d) within 7 days. The notice must also identify all discrepancies as to why the bank has refused the documents and whether it is holding or returning them to the presenter Art 14(d)(ii). Failure to do so may result in the bank being precluded from rejected the documents Art 14(e). Art 14 Upon receiving documents Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf must determine on face value if they comply. If NOT in compliance banks MAY REFUSE to take up the documents Southland Rubber v Bank of Name of carrier only appeared on letterhead of the BOL and not in the appropriate place – deemed INSUFFICIENT PAYMENT REFUSED!!! If Bank find NOT in compliance, it may in its sole judgment approach the Applicant for a waiver of the discrepancy i) If banks refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible by other expeditious means, WITHOUT delay but NO later than the close of the 7th banking day following the day of receipt of the documents. This notice is to be given to the bank from which it received the documents, OR to the Beneficiary if it received the documents directly from him. ii) This notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is refusing them to, the presenter iii) Issuing/Confirming Bank shall be entitled to claim from the remitting bank refund, with interest, any reimbursement which has been made to that bank If the issuing/Confirming Bank fails to act in accordance with the provisions, or fails to hold the documents at their disposal, or return them to the presenter, they CANNOT claim the documents are NOT in compliance