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Letters of Credit 2004 - IsP98 - Final

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Letters of Credit 2004 - IsP98 - Final

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King Kingsley

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An Introduction to

Letters of Credit

Citigroup® Global Transaction Services

INTRODUCTION

TO LETTERS

OF CREDIT

Bridging the
challenges
associated
with trade
finance
Ta b l e o f C o n t e n t s

Preface
Chapter 1 Letters of Credit – An Introduction 1
Trade Payment Methods 2
What Is a Letter of Credit? 2
Advantages and Risk to the Buyer 3
Advantages and Risk to the Seller 3
Letters of Credit and Contracts 3
The Parties 5
Chapter 2 Letters of Credit – The Language 7
Types of Letters of Credit 8
Revocable versus Irrevocable 8
Confirmed versus Unconfirmed 8
Recognizing Letters of Credit 12
Straight Letters of Credit 12
Letter of Credit Terms and Conditions 12
Draft 12
Expiration Date 16
Latest Shipping Date 16
Latest Date for Presentation 16
Amendments 16
Chapter 3 Letters of Credit – Avoiding Problems 19
Problem Resolution 20
Documentary Requirements 20
Chapter 4 Letters of Credit – In Action 23
Export Letters of Credit 24
Import Letters of Credit 24
Foreign Currency Letters of Credit 24
Chapter 5 Letters of Credit – Special Types 29
Revolving Letters of Credit 30
Installment Letters of Credit 30
Advance Payment Letters of Credit 30
Red Clause Letters of Credit 31
Transferable and Back-to-Back Letters of Credit 31
Transferable Letters of Credit 31
Back-to-Back Letters of Credit 34
Assignment of Proceeds 35
Simplified Letters of Credit 35
Chapter 6 Letters of Credit–
Export Credit Agencies and International Development Banks 37
Export Credit Agencies 38
International Development Banks 38
The World Bank 38
Other Development Banks 38
List of National Export Credit Agencies and International Development Banks 39
Export Credit Agencies 39
International Development Banks 39
Chapter 7 Letters of Credit – U.S. Dollar Banker’s Acceptance Financing 41
Eligible Banker’s Acceptances 42
Eligible Transactions 42
U.S. Exports and Imports 43
Time Draft Export Letter of Credit 43
Time Draft Import Letter of Credit 43
Refinancing “Sight” Draft Letters of Credit 43
Pre-Export Financing 44
Shipments within the United States 44
Storage within the United States or Overseas 44
Collections 44
Ineligible Banker’s Acceptances 44
Chapter 8 Letters of Credit – Standby 49
Guarantee and Payment 50
Guarantee (“Default”) Type 50
Payment (“Direct Pay”) Type 50
What Are the Risks? 50
Examples of Typical Standby Letters of Credit 56
Bid and Performance Standbys 56
Overseas Bank Guarantees 56
Letter of Credit Support for Surety Bonds 59
Standby Letters of Credit as a Payment Mechanism 59
Escrow Arrangements 59
Security Purchases 59
Municipal Bonds 59
Reinsurance 59
Revocable Letters of Credit 59
Chapter 9 Letters of Credit – The Rules 65
The Uniform Customs and Practice for Documentary Credits (UCP) 66
Supplement to UCP 500 for Electronic Presentation - Version 1.0 78
Rules of Arbitration - International Center for Letter of Credit Arbitration, Inc. (ICLOCA) 87
International Standard Banking Practice for the Examination of Documents
under Documentary Credits (ISBP) 98
ICC Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits 111
ICC Uniform Rules for Collection 115
International Standby Practices - ISP 98 119
Glossary 133
Illustrations

Commercial Letters of Credit

1. Application and Agreement for Commercial Letter of Credit 4
2. Revocable Letter of Credit 9
3. Irrevocable Negotiation Letter of Credit 10
4. Advice of Credit 11
5. Confirmed Irrevocable Straight Letter of Credit 13
6. Irrevocable Negotiation Letter of Credit 14
7. Irrevocable Straight Letter of Credit 15
8. Confirmed Irrevocable Straight Letter of Credit – Export Letter of Credit 25
9. Irrevocable Negotiation Letter of Credit – Import Letter of Credit 26
10. Confirmed Irrevocable Straight Letter of Credit – Transferable (Master Credit) 32
11. Confirmed Irrevocable Straight Letter of Credit – Transferred 33
Banker’s Acceptance Financing
12. Export Letter of Credit – Acceptance Financing 45
13. Export Letter of Credit – Banker’s Acceptance 46
14. Import Letter of Credit – Acceptance Financing 47
Standby Letters of Credit
15. Application and Agreement for Irrevocable Standby Letter of Credit 51
16. Standby Letter of Credit – In Lieu of a Contract Performance Guarantee 52
17. Standby Letter of Credit – As a Payment Mechanism 53
18. Standby Letter of Credit – In Lieu of a Bid Performance Guarantee 54
19. Standby Letter of Credit – Protection for a Bank’s Local Undertaking
With an Automatic Extension Clause 55
20. Standby Letter of Credit – Protection for a Surety Company’s Undertaking or Bond 57
21. Standby Letter of Credit – Escrow Arrangement 58
22. Standby Letter of Credit – Purchase or Sale of Securities 60
23. Standby Irrevocable Letter of Credit – Reinsurance 61
24. Revocable Standby Letter of Credit – Scheduled Payment 62
25. Summary of Standby Letters of Credit 64
PREFACE

Letters of Credit are a time-tested instrument

of international trade. They have been used
effectively to expand markets for goods and
services and to facilitate a variety of financial
transactions, either as a method of payment or as
a credit enhancement, within as well as across the
borders of sovereign states.
Financing the flows of goods and services has
become a key component of maximizing profit from
trade. Letters of Credit efficiently reduce payment
risk, making the task of the corporate treasury
staff less difficult.
Citibank provides comprehensive cash and trade
services to major global corporations and lead-
ing financial institutions. With a direct presence in
more than 100 countries, Citibank’s global reach
and local market knowledge provide powerful
leverage for our importing and exporting custom-
ers. Solutions are customized to our customers’
needs, integrating Letters of Credit and other cash
and trade finance alternatives to form a truly
end-to-end trade proposition.
This reference booklet has been developed by
Citibank professionals to provide a review of
Letters of Credit and their various types and
usages, with many examples of the documenta-
tion employed. A glossary of terms has been
appended to familiarize anyone new to the fasci-
nating world of trade with its unique terminology.
For more information on Citibank’s products,
please contact a Citibank specialist.

This booklet is not a comprehensive textbook

on the subject, nor do we intend to provide
sample documents that can be used as models
for your business transactions, or advice on the
laws or practices of any particular jurisdiction.
You should consult your legal counsel or a trade
expert before entering into the business trans-
actions discussed in this publication.
LETTERS OF CREDIT
An Introduction

Nations, companies and individuals have

C H A P T E R
engaged in trade for centuries and from the
beginning have searched for the best financing
alternative. Today a seller has five basic alter-
natives for obtaining payment for goods shipped

1
to a buyer. Each alternative addresses certain
risks for the buyer and the seller.
This chapter will compare the advantages and
disadvantages of each alternative and introduce
Letters of Credit.
2
Trade Payment Methods

1. CASH IN ADVANCE - The seller receives cash from 2. OPEN ACCOUNT - Goods are shipped to the buyer
the buyer prior to shipment. and payment is made on terms negotiated in advance
ADVANTAGE TO BUYER ADVANTAGE TO SELLER with the seller.
None Goods shipped when ADVANTAGE TO BUYER ADVANTAGE TO SELLER
convenient Control over the goods None
Use of buyer’s funds Pays when convenient

RISK TO BUYER RISK TO SELLER RISK TO BUYER RISK TO SELLER

No control over the goods None None No control over the
Use of the funds is lost goods or payment
Seller may refuse to ship Buyer may refuse to pay

3. ON CONSIGNMENT - The seller ships goods to the 4. COLLECTION - The goods are shipped to the buyer.
buyer, but retains ownership. Payment is made if and The seller’s draft and documents covering the shipment
when the buyer sells the goods. are presented through the buyer’s bank for payment.
ADVANTAGE TO BUYER ADVANTAGE TO SELLER ADVANTAGE TO BUYER ADVANTAGE TO SELLER
Pays only as goods are Retains ownership of May refuse to pay or Title documents controlled
sold the goods accept the draft through the banking system

RISK TO BUYER RISK TO SELLER RISK TO BUYER RISK TO SELLER

None Limited control of goods Goods may not be as Buyer may refuse to pay
Payment contingent represented in the or accept the draft
upon sale of goods documentation

5. LETTER OF CREDIT - This important payment method What Is a Letter of Credit?

is covered in detail below and in the following chapters.
A Letter of Credit is an undertaking issued by a bank
If a seller selects one of the first three payment in favor of a Beneficiary, which substitutes the bank’s
methods, documents covering shipment of the merchan- creditworthiness for that of the Applicant. In a broad
dise are handled outside banking channels. The sense, a Letter of Credit is simply a letter of instruction
banking system is only involved in the remittance of issued to a Beneficiary (seller) by a Bank at the request
funds. However, if the seller selects payment under a of its customer (buyer). In a narrower sense, it is a spe-
Collection or a Letter of Credit, a bank adds its service in cialized, technical instrument used to pay for a shipment
handling documents as well as payment. of goods or services from one party to another.
With the numerous alternative payment methods Trade involves buyers and sellers seeking to exchange
available to buyers and sellers of goods or services goods or services despite their differences in language,
today, why choose a Letter of Credit as the payment national custom, credit procedures, and accounting
vehicle? A simple answer may be that the seller will not practices. Historically, merchants have sought ways of
ship without a bank’s assurance of payment. While this minimizing these differences and facilitating trade. The
is a major factor, Letters of Credit provide other special protection and opportunities offered by Letters
advantages for the buyer and seller. of Credit apply to both domestic and international trade.
Advantages to the Buyer Risk to the Seller
1. The buyer is assured that its bank will refuse
payment to the seller unless the seller’s documents
1. The seller’s documents must comply strictly with the
terms and conditions of the Letter of Credit to entitle
3
comply with the terms and conditions of the Letter of the seller to payment.
Credit. 2. The seller is exposed to the commercial risk that the
2. If the seller is willing to grant extended terms to the bank providing its undertaking is willing and able to
buyer, the buyer may arrange for a Letter of Credit perform.
which is payable at a future date (i.e., 60 or 90 days 3. The seller assumes any political and foreign exchange
after presentation of complying documents). Chapter risk affecting the issuing bank’s obligation.
7 (U.S. Dollar Banker’s Acceptance Financing)
discusses why a seller may be willing to grant
Letters of Credit and Contracts
extended payment terms under a Letter of Credit.
A sale of merchandise between a buyer and seller
3. Through the use of Banker’s Acceptances, a buyer
may be evidenced by a written or oral contract of sale.
who has purchased goods under a Letter of Credit
Business wisdom recommends written contracts of sale.
may finance the goods until they are marketed (see
The contract of sale establishes the method of payment.
Chapter 7).
If it designates a Letter of Credit as the payment method,
4. By the documents called for, the Buyer can seek to
the buyer must apply to its bank for a Letter of Credit in
minimize the risks in not receiving the goods ordered.
favor of the seller.
The Buyer may also impose conditions on the man-
The Application and Agreement for a Commercial
ner and dates in which the goods are to be shipped.
Letter of Credit (Illustration 1, page 4), is a contractual
agreement between the buyer and its bank. It is separate
Risk to the Buyer and distinct from the underlying contract of sale
In Letters of Credit, banks deal only with documents, between the buyer and seller. The contract between the
not with goods. The merchandise might not be as it is buyer (as Applicant) and its bank evidences the buyer’s
represented in the documents. reimbursement obligation and responsibility to its bank
and sets forth the terms and conditions to be included
Advantages to the Seller in the Letter of Credit.
The Applicant is obligated to the bank for any amount
1. The seller may rely on a bank’s creditworthiness rather
paid under the Letter of Credit. Therefore, the Applicant
than the buyer’s. The seller is more confident when it
must use sound business judgment when entering into
has a bank's commitment to pay upon presentation of
a contract with a party in whose favor the Letter of Credit
complying documents.
will be issued—judgment that the Beneficiary will
2. The seller can reduce the risk that payment for the perform honestly, ethically and legally. The need for
goods might be delayed or otherwise jeopardized by integrity exists in every business transaction. It is the
political or foreign exchange problems in the buyer’s
Applicant that assumes this risk.
country.
Citibank specialists can assist a customer in complet-
3. The seller may be able to obtain financing for the ing the Application and Agreement form. However, it
purchase or manufacture of goods that will be shipped remains the responsibility of the customer to establish
under the Letter of Credit. the terms and conditions in the Letter of Credit that are
4. Under Banker’s Acceptance financing, the seller may satisfactory to it.
receive funds shortly after shipment despite having By issuing its Letter of Credit, the buyer’s bank
granted credit terms to the buyer, or the seller (Issuing Bank) provides a specialized form of undertak-
may receive funds prior to export. The decision is ing to the Beneficiary (seller).
typically based on the seller’s cash flow position. As such, a seller who presents documents that on
Illustration 1 – Application and Agreement for Commercial Letter of Credit1

4 Application for Commercial Letter of Credit

Citibank, N.A., New York, NY 10043 Letter of Credit Reference No. ____________________

Attn: Letter of Credit Dept., FLA–1, 2 / A Applicant (Name and Address)

Advising Bank (Name and Address)

Beneficiary (Name and Address)

Amount (In specific currency): _____________________

Expiry Date and Place: _____________________

This Application is for the issuance of a commerical letter of credit under and subject to the terms and conditions of (select one):

N
The Agreement for Commercial Letter of Credit attached hereto:

E
❏ The Continuing Agreement for Commercial and Standby Letters of Credit dated _____________. ❋

IM
❏ Other (describe)

C
SPE
Subject to the following terms and conditions, please issue your irrevocable Letter of Credit (hereinafter called the "Credit") to be available by
the beneficiary's draft(s):

Drawn at: ❏ Sight ❏ Days After Sight ❏ Days After Date Of: ( ❏ Bill of Lading ❏ Invoice )
❏ Other: ________________________________________________________________________________
Drawn on: ❏ Citibank, N.A., New York, N.Y. for ________________% invoice cost.
Drawn on: ❏ ______________________________________________ for __________% invoice cost.
(Name and Address of paying bank, if any)

Accompanied by the following documents which are indicated by an "X"

❏ Commercial invoice(s) ______ original(s) and copies.

❏ Invoice(s) _______________original(s) and ___________ copies (if applicable).
❏ Insurance to be effected by: ❏ Beneficiary ❏ Applicant.
❏ Insurance Policy and/or Certificate to include (list coverage): _________________________________________________
_______________________________________________________________________________________________________
❏ Transport Document (select one): ❏ Marine ❏ Multimodal
❏ Air ❏ Other (define) __________________________________________
__________________________________________
Dated Latest _______________ issued in full set consigned (select one): ❏ To
❏ To the order of ____________________________
marked; Freight (select one): ❏ Collect or ❏ Paid and notify _______________________________
❏ Other Documents (see attached listing.)

Covering: Merchandise described in the invoice(s) as (brief description): ____________________________________________________

_________________________________________________________________________________________________________________

❋ If a Continuing Agreement is already in place, submit only this Application, with customer's signature and relationship manager's approvals
reflect on page 2 of this form.
Page 1 of 2

1
Reimbursement agreement on the reverse is not shown
The Parties
5
their face comply strictly with the terms of the Letter of
Credit has a right to receive payment from the bank. The various parties involved with a Letter of Credit are
This right is not contingent upon the seller’s actual described below, using Letter of Credit terminology.
compliance with the underlying contract of sale but rather Applicant -The party that arranges for the Letter of Credit
upon the bank’s determination of complying documents. to be issued, usually the buyer or importer in a commer-
Briefly summarized, there are typically three distinct cial transaction or the borrower in a financial transaction.
agreements binding the various parties:
Beneficiary - The party named in the Letter of Credit
1. Sales contract – a contract between the buyer and in whose favor the Letter of Credit is issued, usually
the seller; the seller or exporter in a commercial transaction or the
2. Application and Agreement for Commercial Letter creditor in a financial transaction.
of Credit – a contract between the Applicant (buyer) Issuing Bank - The Applicant’s bank that issues its
and its bank; undertaking to the Beneficiary in the form of a Letter of
3. Letter of Credit – a specialized form of undertaking Credit.
from the bank to the Beneficiary (seller). Advising Bank - The bank, usually in the Beneficiary’s
While both Applicants and Beneficiaries benefit from country, which informs the Beneficiary that another bank
the unique characteristics of a Letter of Credit, it is has issued a Letter of Credit in its favor.
important for Applicants and Beneficiaries to recognize Nominated Bank - A bank named in or otherwise
what a Letter of Credit is not: permitted by the terms and conditions of the Letter of
1. It is not an unconditional guarantee of payment Credit to receive a presentation of documents and, if
to anyone. A Letter of Credit assures payment to a it complies, to give value to the Beneficiary for the
Beneficiary only if its terms and conditions are presentation against a right to obtain reimbursement from
fulfilled through the presentation of strictly comply- the Issuing Bank. A Nominated Bank is not obligated to
ing documents. The value of such assurance act unless it also confirms the Letter of Credit.
ultimately depends upon the commercial stability of Paying Bank - A Nominated Bank authorized to give
the bank providing its undertaking and the political value by paying the Beneficiary’s presentation of
and foreign exchange stability of the country in which documents. Customarily, a bank nominated to pay is
the bank is located. also authorized to reimburse itself in advance of
2. It is not a promise that the goods described in the sending documents.
presentation documents have, in fact, been delivered. Negotiating Bank - A Nominated Bank authorized to
Banks deal with documents, not goods/services and/ give value by negotiating the Beneficiary’s draft drawn
or performances. The quantity and quality of goods on another, typically the Issuing Bank.
shipped ultimately depend upon the honesty and
Confirming Bank - The Nominated Bank which, at the
integrity of the seller which has manufactured or
request or with the consent of the Issuing Bank, adds
packaged the goods and arranged for delivery.
its own undertaking to that of the Issuing Bank.
At the buyer’s request, the Letter of Credit may
A bank may play several roles in a single transaction,
require that the seller present laboratory testing certifi-
e.g. Advising and Confirming Bank.
cates or inspection certificates along with the other
In most export or import transactions, there are at least
documents to verify the quality or quantity of goods.
two banks involved—a bank in the buyer’s country and
Since this involves some expense, the buyer and seller
a bank in the seller’s country. Citibank, because of its
typically agree beforehand on the responsibility for
global network, can be the bank on both sides of the
payment of these services.
transaction.
The buyer’s and seller’s integrity, of course, are
paramount in any exchange of goods or services
regardless of payment method.
LETTERS OF CREDIT
The Language

This chapter will familiarize you with the

C H A P T E R
language used in Letters of Credit. This language
has evolved over many years and some of the
terms are unique to Letters of Credit. This
section will help you understand the words

2
which may later become a standard part of your
vocabulary.
8
Types of Letters of Credit without the consent of the Issuing Bank, the
All Letters of Credit are issued in either a “revocable” Confirming Bank (if the Letter of Credit is confirmed)
or an “irrevocable” form and are either “confirmed” and the Beneficiary.
or “unconfirmed.” They should be read carefully to Illustration 3 on page 10 depicts an Irrevocable Letter
determine who must or, at its option, may receive a of Credit. Citibank’s obligation to pay is set forth at
presentation or give value under a Letter of Credit for a the bottom of the undertaking. The Beneficiary holds
presentation made to it or to another. the undertaking of Citibank (in addition to that of the
Revocable versus Irrevocable Applicant), but does not hold the undertaking of any
The Applicant (buyer), usually with the prior other bank.
agreement of the Beneficiary (seller), requests its bank Confirmed versus Unconfirmed
to issue the Letter of Credit in either a revocable or When using a Letter of Credit, it is important to know
irrevocable form. A Revocable Letter of Credit may be which bank is giving its irrevocable undertaking. Some
amended or canceled by the Issuing Bank at any time Advising Banks attach a letter (Illustration 4 as shown
with or without prior notice to, or agreement of, the on page 11) to the Issuing Bank’s Letter of Credit
Beneficiary. An Irrevocable Letter of Credit cannot be stating whether the Advising Bank is merely advising or
amended or canceled without the agreement of the is advising and also confirming the Letter of Credit. Other
Issuing Bank, the Confirming Bank (if the Letter of Credit Advising Banks advise the irrevocable undertaking of
is confirmed), and the Beneficiary. an overseas Issuing Bank to the Beneficiary by incor-
Illustration 2 on page 9 depicts a revocable letter of porating it into the text of the Advising Bank’s
credit. In its function, the Revocable Letter of Credit is advice as shown on page 13 (Illustration 5).
not an assurance of payment, but rather provides the If the Advising Bank is merely advising, the advice,
buyer and the seller with a means of settling payments. whether it attaches or incorporates the overseas
Because a Revocable Letter of Credit may be canceled issuing banks undertaking, will likely bear a notation by
or amended without prior notice to the Beneficiary, the such Advising Bank that it makes “no engagement” or
Beneficiary should not depend on a Revocable Letter of words to that effect.
Credit for financial protection. The Beneficiary must have An unconfirmed Advice of a Correspondent Bank’s
faith that the Applicant will abide by the underlying con- Irrevocable Letter of Credit is shown in Illustration 4 on
tract of sale or other agreement, and will not instruct the page 11. Beneficiaries of such advices are dependent on
Issuing Bank to revoke its Letter of Credit. the commercial stability of the Issuing Bank and the
The convenience afforded the Beneficiary under a political and foreign exchange stability of the country in
revocable letter of credit is that payment to the which the Issuing Bank is located. Beneficiaries are not
Beneficiary will be made by the bank nominated to pay always willing to rely on the stability of an Issuing
in the Letter of Credit and on which the draft is drawn Bank—particularly when that bank is in another
(Paying Bank), provided that the documents comply country or is unknown to the Beneficiary. Consequently,
strictly with the Letter of Credit and that the Letter of a Beneficiary may request that the Applicant instruct
Credit has not been revoked. the Issuing Bank to have its Irrevocable Letter of Credit
Once the payment is made by the Paying Bank, the confirmed by a bank in the Beneficiary’s country. A
obligation of the Issuing Bank to reimburse the Paying Confirming Bank is the bank which, at the request or
Bank, if not previously revoked, becomes irrevocable. with the consent of the Issuing Bank, adds its own
The Paying Bank is thus protected and will receive funds irrevocable undertaking to that of the Issuing Bank.
from the Issuing Bank in accordance with the Letter If an overseas bank (buyer ’s bank) issues its
of Credit. Irrevocable Letter of Credit and requests that Citibank,
An Irrevocable Letter of Credit is a definite New York, add its confirmation and advise the Benefi-
undertaking by the Issuing Bank to pay, provided the ciary, then Citibank, as Advising and Confirming Bank,
Beneficiary complies strictly with the Letter of Credit. could use its own form of advice and confirmation. An
The Letter of Credit cannot be amended or canceled example of Advice and Confirmation of Correspondent
Illustration 2 – Revocable Letter of Credit

Citibank, N.A.
9
New York, New York

Authority to Pay April 11, 20_

Mail To: American Export Corporation

100 Elm Lane Citibank Ref. 30020005
Dallas, TX 12323 Issuer’s Ref. 2114

Ladies and Gentlemen:

We hereby advise you that Banco Royale De Milano, Milan, Italy, has authorized us to honor your
draft(s) under this Revocable Letter of Credit Number 2114 issued at the request and for the account
of the Milan Import Co., Milan, Italy, for a sum not exceeding a total of U.S. $30,000.00, available
by payment of your draft(s) drawn at sight on us subject to the following:

Expiration Date: June 22, 20_ Latest Shipping Date: June 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: U.S.A. port Shipment to: Port of Genoa, Italy

and accompanied by the following documents:

1) Full set original On Board Ocean Bills of Lading issued to order, blank endorsed, notify the
buyer, marked “Freight Prepaid.”
2) Full set Marine Insurance Policy or Certificates, including War Risks, losses payable to the
order of the assured and endorsed in blank.
3) Commercial invoice, original and two copies, stating that it covers: “50,000 lbs. U.S. Raw
Cotton, C.I.F. Genoa.”

This Letter of Credit must accompany all draft(s) and documents and must be presented to us
within 21 days after the date of shipment shown on the Bill of Lading but within the expiry date
mentioned above, unless sooner revoked. All draft(s), documents and communications to us must
mention our reference number shown above.

This advice, which is subject to revocation or modification at any time without notice to
you, conveys no engagement on our part or on the part of the above-mentioned issuer and is
simply for your guidance in preparing and presenting drafts and documents. All presenta-
tions and communications to us must be sent to: Citicorp North America, Inc., Servicer for
Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or
such other address as we may advise from time to time.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our advice to
you is subject to the UCP and, as to matters not addressed by the UCP, is subject to and governed
by New York State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
Illustration 3 – Irrevocable Negotiation Letter of Credit

10 Citibank, N.A.
New York, New York

Irrevocable Negotiation Letter of Credit February 9, 20_

Mail To: Citibank, N.A.

Sao Paulo, Brazil Citibank Ref. 10040000

Ladies and Gentlemen:

At the request and for the account of The Coffee Importers, Inc., New York, New York we hereby
issue our Irrevocable Letter of Credit in favor of The Brazilian Coffee Growers Corp., Sao Paulo,
Brazil for a sum or sums not exceeding a total of U.S. $90,000.00, available with any bank by
negotiation of the beneficiary’s draft(s) drawn at sight on us subject to the following:

Expiration Date: June 30, 20_ (Brazil) Latest Shipping Date: June 20, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: Port of Brazil Shipment to: Port of New York, New York

and accompanied by the following documents:

This Letter of Credit is to accompany all draft(s) and documents and must be presented for
negotiation within l0 days after the date of shipment shown on the Bill of Lading but not later than
the expiration date. All draft(s), documents and communications to us must mention our reference
number shown above.

We hereby undertake with the beneficiary and any nominated bank that gives value that
presentations made in compliance with the terms of this Letter of Credit will be duly hon-
ored if presented to us at Citicorp North America, Inc., Servicer for Citibank, N.A., 3800
Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or such other address as
we may advise from time to time.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication 500 (the “UCP”) and, as to
matters not addressed by the UCP, is subject to and governed by New York State and applicable U.S.
federal law.

Sample Letter of Credit

Authorized Signature
Illustration 4 – Advice of Credit

Citibank, N.A.
11
New York, New York

NAME OF BENEFICIARY DATE

ADDRESS
ADDRESS

Issuing Bank’s Reference Number: Citibank Reference Number:

Issuing Bank Letter of Credit Amount:

Ladies and Gentlemen:

At the request of the Issuing Bank, we are pleased to enclose a Letter of Credit issued in your favor
which has been authenticated by us in accordance with UCP 500 Article 7 and, in accordance with our
service standards, is being sent to you within one working day of our being in a position to provide our
formal advice. The enclosed Letter of Credit, together with any subsequent amendments thereto, and
Advice of Credit must accompany all presentations made under the Letter of Credit.

Our examination of the documents will be in accordance with the terms of the Letter of Credit and the
appropriate provisions of UCP 500. In accordance with our service standards, we will endeavor to
examine documents by the close of the next business day following receipt and advise you of the
outcome.

The Letter of Credit indicates that our charges are for your account. Please remit payment for the
following charges (alternatively, these charges will be deducted from the proceeds of drawings presented
under the Letter of Credit): Advising Fee @USD XX.XX and DHL/Handling @USD XX.XX.

The following additional charges may apply: Payment/Negotiation Commission @USD XX.XX per-
cent (minimum USD XX.XX); Acceptance/Deferred Payment Commission @USD XX.XX percent
(minimum USD XX.XX) for each quarter or part thereof; and/or Discrepant Presentation Fee @USD
XX.XX.

If the Letter of Credit calls for time drafts or authorizes Citibank to negotiate, we shall be pleased to
consider purchasing and/or discounting conforming drafts/bills of exchange and/or documents presented
under the Letter of Credit. Negotiation shall be “with recourse” to you.

This Advice of Credit conveys no engagement or responsibility on our part. All presenta-
tions and communications to us must be sent to: Citicorp North America, Inc., Servicer for
Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or
such other address as we may advise from time to time, and must mention our reference
number shown above. Please direct all telephone inquiries to 1-800-568-6283.

You are instructed to review the terms and conditions of the Letter of Credit upon receipt. If any term
or condition is unacceptable to you, contact the Applicant or Issuing Bank to request an amendment. All
amendments must be advised through us mentioning our reference number shown above.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our advice to you is
subject to the UCP and, as to matters not addressed by the UCP, is subject to and governed by New York
State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
12
Bank’s Irrevocable Letter of Credit is shown in documents to the Issuing Bank for reimbursement. For
Illustration 5 on page 13. Based on the language of this example, the Irrevocable Negotiation Letter of Credit
undertaking, Citibank commits to pay under the terms (Illustration 6, page 14) undertakes to anyone who
and conditions of the Issuing Bank’s Letter of Credit. “negotiates” (gives value to the Beneficiary against
The Beneficiary has an irrevocable undertaking from a complying documents) that when the documents are
bank in its country on which it may rely without regard presented to Citibank (Issuing Bank), they will be
to the ability or willingness of the Issuing Bank to fulfill honored. Thus, a Negotiating Bank becomes directly
its irrevocable obligation. entitled to reimbursement under the Letter of Credit.
Failure of the Issuing Bank to fulfill its irrevocable As a practical matter, a local bank is unlikely to
obligation (because of political restraint, war, insolvency, give value for documents unless nominated. Even if it is
or other reasons) will not relieve the Confirming Bank nominated, it is not obligated to give value. Even if it
of its irrevocable obligation to pay the Beneficiary. gives value, it may have a right of recourse against the
Therefore, before adding its confirmation, the Confirm- beneficiary (which right is not available to an issuing or
ing Bank must be satisfied that the Issuing Bank’s confirming bank that gives value), particularly if it is
financial stability and the political stability of the nominated to “negotiate” rather than “pay”.
country in which the bank resides justify confirmation The many different types of Letters of Credit were
of its Irrevocable Letter of Credit. The Confirming Bank developed to meet the needs and requirements of
must also be satisfied that the Issuing Bank’s under- buyers and sellers and their banks throughout the world.
taking provides for presentation of documents to the Those utilizing Letters of Credit will find that they are
Confirming Bank. issued in various forms: revocable or irrevocable,
confirmed or unconfirmed, straight or available at a
Recognizing Letters of Credit nominated bank for payment or for negotiation of the
Beneficiary’s documents. Since each type of Letter of
In addition to learning the formal language of Letters
Credit meets a different need, it is important that all
of Credit, it is equally important to recognize variations
parties understand their needs with respect to their
in the types of instruments used. The illustrations that
particular Letters of Credit.
follow resemble the standard forms used by Citibank
and illustrate the distinctions among Letters of Credit. The entire Letter of Credit—not merely the introductory
language—must be read and any incorporated practice
Straight Letters of Credit
rules must be considered to determine what banking
Irrevocable Letters of Credit, as shown in Illustration 6
obligations have been created and what rights have been
on page 14 and Illustration 7 on page 15, may extend to
provided to the Beneficiary and any nominated bank.
another bank nominated to receive documents and give
value or may run to the beneficiary only. In the case of
Letter of Credit Terms and Conditions
an Irrevocable Straight Letter of Credit (Illustration 7,
The following terms and conditions are basic to most
page 15), the undertaking of the Issuing Bank extends
letters of credit:
directly to the named Beneficiary only. If a bank or other
intermediary gives value to the Beneficiary and forwards Draft - Letters of Credit usually require that the Benefi-
documents to the Issuing Bank, it does so at its own risk ciary draw a draft on the Issuing Bank. The period of
and acquires no rights of its own against the Issuing time from the date on which either complying documents
Bank. are presented or the draft is drawn, to the date on which
Unconfirmed Letters of Credit Available at a Local Bank payment is due, is the “tenor” of the draft. If the draft is
Irrevocable Letters of Credit issued by overseas banks payable upon presentation, the draft will be drawn
in favor of U.S. exporters are usually issued payable in payable at “sight.”
U.S. dollars and permit presentation of documents to a If the draft is payable, for example, 30 days after
nominated bank located in the United States. At the representation of complying documents (“30 days sight”)
quest of the Beneficiary, the nominated bank may or 30 days after the date the draft is drawn (“30 days
advance funds to the Beneficiary and then forward the date”), the draft is a time draft. Time drafts may be drawn
Illustration 5 – Confirmed Irrevocable Straight Letter of Credit

Citibank, N.A.
13
New York, New York

Confirmed Irrevocable Straight Letter of Credit March 11, 20_

Mail To: USA Corporation

100 Broadway Citibank Ref. 30020001
New York, NY 10018 Opener’s Ref. 316

Ladies and Gentlemen:

At the request and for the account of The Overseas Bank, Paris, France we are advising you that it
has issued this Irrevocable Letter of Credit in your favor at the request and for the account of the
French Importing Co. Inc., for a sum or sums not exceeding a total of U.S. $11,512.00, available by
your draft(s) drawn at sight on us subject to the following:

Expiration Date: July 22, 20_ Latest Shipping Date: July 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: Port of New York, NY Shipment to: Port of Le Havre, France

and accompanied by the following documents:

This Letter of Credit must accompany all draft(s) and documents. All draft(s), documents and
communications to us must mention our reference number shown above.

The issuer of the Letter of Credit engages with you that each presentation made in compliance with
the terms of the Letter of Credit will be honored if presented on or before the expiration date.

We confirm this Letter of Credit and hereby undertake with you to honor each complying
presentation made to us at Citicorp North America, Inc., Servicer for Citibank, N.A., 3800
Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or such other address as
we may advise from time to time. Please direct telephone inquiries to 1-800-568-6283.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our confirma-
tion to you is subject to the UCP and, as to matters not addressed by the UCP, is subject to and
governed by New York State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
Illustration 6 – Irrevocable Negotiation Letter of Credit

14 Citibank, N.A.
New York, New York

Irrevocable Negotiation Letter of Credit January 11, 20_

Mail To: The Western Corporation

100 Day Street Citibank Ref. 30020004
Los Angeles, CA 45850

Ladies and Gentlemen:

At the request and for the account of J. Garcia and Company, San Juan, Puerto Rico, we hereby
issue in your favor our Irrevocable Letter of Credit for a sum or sums not exceeding a total of U.S.
$72,146.00 available with any bank by negotiations of your draft(s) drawn at sight on us subject to
the following:

Expiration Date: March 22, 20_ (USA) Latest Shipping Date: March 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: Port of San Francisco Shipment to: Port of San Juan

and accompanied by the following documents:

This Letter of Credit must accompany all draft(s) and documents. All draft(s), documents and
communications to us must mention our reference number shown above.

We hereby undertake with you and any nominated bank that gives value that presentations
made in compliance with the terms of this Letter of Credit will be duly honored if PRE-
SENTED FOR NEGOTIATION on or before the stated expiration date. All presentations and
communications to us must be sent to: Citicorp North America, Inc., Servicer for Citibank,
N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or such other
address as we may advise from time to time. Please direct telephone inquiries to 1-800-568-6283.

Sample Letter of Credit

Authorized Signature
Illustration 7 – Irrevocable Straight Letter of Credit

Citibank, N.A.
15
New York, New York

Irrevocable Straight Letter of Credit May 11, 20_

Mail To: The New Englander Co.

10 West Street Citibank Ref. 30020003
Boston, MA 23490

Ladies and Gentlemen:

At the request and for the account of The Australian Buyers Association of New York, we hereby
issue in your favor our Irrevocable Letter of Credit for a sum or sums not exceeding a total of U.S.
$100,214.00, available by payment of your draft(s) drawn at sight on us subject to the following:

Expiration Date: October 22, 20_ Latest Shipping Date: October 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: U.S.A. port Shipment to: Port of Sydney, Australia

and accompanied by the following documents:

1) Full set original On Board Ocean Bills of Lading issued to order, blank endorsed, notify the
buyer, marked “Freight Prepaid.”
2) Full set Marine Insurance Policy or Certificates, including War Risks, losses payable to the
order of the assured and endorsed in blank.
3) Australian Customs invoice, original and two copies, combined with Certificate of Origin
stating that it covers: “Spare Parts for Looms, C.I.F. Sydney.”

This Letter of Credit must accompany all draft(s) and documents. All draft(s), documents and
communications to us must mention our reference number shown above.

We hereby undertake with you to honor each presentation made in compliance with the
terms of this Letter of Credit, if presented on or before the stated expiration date to us at
Citicorp North America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st
Floor, Sort 3000, Tampa, Florida 33610, or such other address as we may advise from time to
time. Please direct telephone inquiries to 1-800-568-6283.

Sample Letter of Credit

Authorized Signature
16
for any number of days. For ease in financing, days are Latest Date for Presentation - Unless the credit
usually expressed in 30 day increments, i.e., 30, 60, 90, stipulates otherwise, the UCP requires that documents
120, 150, 180 days. The accepted draft is the uncondi- be presented within 21 days after the date of shipment
tional obligation of the Accepting Bank to pay at or other such period stated in the Letter of Credit.
maturity. When drafts are accepted by a U.S. Accepting For Marine Bills of Lading, the “on board” date is
Bank they take on special properties. These properties considered the shipment date.
will be discussed in Chapter 7, Banker’s Acceptance Fi- Commercial Letters of Credit are frequently issued with
nancing. a latest shipping date which is more than 21 days prior
Expiration Date - A Letter of Credit should contain a to the Letter of Credit expiration date. This is because
stated expiration date. The Beneficiary will be required the most common amendment to a commercial Letter of
to present the draft(s) and documents to the Issuing Credit is to extend the shipping date. The additional
Bank or a Nominated Bank on or before that date. Under period permits the shipping date to be amended without
the Uniform Customs and Practice for Documentary requiring the expiration date be extended. The additional
Credits (UCP), published by the International Chamber time is not a “cure” period for discrepant documents.
of Commerce (and incorporated by reference in most
commercial letters of credit), if the expiration date falls Amendments
on a day when banks at the place of presentation are
If the Beneficiary believes that it will be unable to meet
closed, the expiration date is extended to the next
any term or condition, it should contact the Applicant
business day. Letters of Credit expire at the times and
locations specified in the Letter of Credit. promptly to request an amendment to the Letter of Credit.
Any term or condition in a Letter of Credit can be
Latest Shipping Date - Most Commercial Letters of
amended if the relevant parties agree. Amendments are
Credit contain a latest shipping date. The documents
typically initiated by an Applicant’s request that the is-
evidencing shipment must not be dated after that date.
suing bank prepare and send an amendment. An amend-
When “on board” transport documents are required,
the date indicated in the “on board” notation on the ment becomes effective as against the Issuing Bank when
transport documents is considered the date of shipment. in its discretion it sends the amendment. The amend-
ment becomes effective as against the Confirming Bank
Marine Bills of Lading are issued in either “Shipped
(if any) when it consents and as against the Beneficiary
on Board” or “Received for Shipment” form. When a
when it consents.
Letter of Credit specifies marine or ocean “on board”
It is possible for a Confirming Bank to advise an amend-
bills of lading, “on board” may be evidenced by: 1) a bill
of lading being issued using an “on board” form; or 2) ment without consenting to be bound by it. It is
a bill of lading bearing an “on board” notation. This possible for a beneficiary to withhold its consent to an
notation (sometimes a superimposed stamp) must be amendment until the beneficiary presents documents
dated. The “on board” date (the shipping date) may not that comply with the letter of credit as amended. It
be later than the “latest shipping date” indicated in the is also possible for a letter of credit to provide for an
Letter of Credit. amendment that becomes binding automatically,
Unless the Letter of Credit otherwise provides, the without beneficiary consent, upon the occurrence of an
UCP requires that marine bills of lading show that the event, such as the issuing bank’s sending or not send-
goods are on board. This means that the Beneficiary ing a timely notification of extension or non-extension.
must either provide an “on board” bill of lading or have
the carrier’s “on board” notation added on the bill of
lading.
17
LETTERS OF CREDIT
Avoiding Problems

This chapter discusses how to avoid problems,

C H A P T E R
resolve problems and meet typical documentary
requirements.

3
20
The first step in avoiding problems is for the Drafts should:
Beneficiary to read the Letter of Credit to ensure that 1. be drawn by the Beneficiary on the party specified in
they are able to fulfill the terms and conditions of the the Letter of Credit;
Letter of Credit. The Issuing Bank has established the
2. not exceed the Letter of Credit amount or its remain-
Letter of Credit on the terms and conditions requested
ing balance;
by the Applicant, and neither the Issuing Bank nor any
3. not be payable or endorsed to parties other than to
Confirming Bank is obligated to honor documents that
do not strictly comply. Sometimes the Letter of Credit the Beneficiary or to the issuing or a nominated bank;
specifically describes the data that must be contained in 4. be in negotiable form, endorsed by the Beneficiary as
the documents. In these cases, specified documents must necessary; and
be exactly as required in the Letter of Credit. 5. reference the Letter of Credit.
Problems are avoided in Letter of Credit transactions if
the Beneficiary meets the terms precisely. The bank will Invoices should:
be unaware if the terms differ from the purchase order or
1. be issued by the Beneficiary named in the credit;
sales contract and unable to recognize such differences.
2. be issued to the Applicant;
If the Beneficiary requires a change in the Letter of Credit,
it must contact the Applicant and arrange to have the 3. describe the merchandise and state prices and terms
term(s) amended by the Issuing Bank. It is best if the as specified in the Letter of Credit; and
Beneficiary takes this action when the Letter of Credit is 4. not exceed the Letter of Credit amount or its remain-
received, not after the documents have been prepared ing balance, except as provided in Article 37(b)
and presented under the Letter of Credit. of UCP500.

Insurance documents should:

Problem Resolution
What may the Beneficiary do if it discovers that it 1. cover the risks mentioned in the Letter of Credit;
is unable to comply with the Letter of Credit after 2. cover, at a minimum, 110% of the cost, insurance and
preparing its documents? freight (CIF), or carriage and insurance paid (CIP) value
The Beneficiary may contact the Applicant requesting of the shipment;
an amendment permitting the specific discrepancy. 3. be countersigned and if the assured is other than the
Alternatively, the Beneficiary may present the Confirming, Issuing Bank or buyer, be appropriately
discrepant documents under the Letter of Credit with or endorsed, or endorsed in blank;
without a request that the Issuing Bank approach the 4. be presented in full set(s); and
Applicant for a waiver of all discrepancies.
5. be in force as of a date not later than the date appear-
Finally, the Beneficiary may request that the documents
ing on the transport document or “on board”
be submitted to the Applicant outside the Letter of Credit
notation. See UCP500 Articles 34, 35 and 36.
on a Documentary Collection basis.
Occasionally, a Beneficiary is notified of a
discrepancy after presentation under the Letter of Credit Marine Bills of Lading should be:
and is able to correct the discrepancy and present again. 1. presented in full set(s);
2. endorsed when applicable;
Documentary Requirements 3. marked “freight prepaid,” “freight collect,” or other
notation indicated in the Letter of Credit;
To facilitate handling of documents presented under a
Commercial Letter of Credit subject to the UCP, unless 4. dated “on board” no later than the stipulated latest
otherwise stipulated: shipment date; and
5. “clean” i.e. bear no notations expressly declaring a
defective condition of the goods and/or packaging.
21
Ocean Bills of Lading are the most common transport documents, unless otherwise stated, must appear to be
document required in Commercial Letters of Credit and original, and documents required to be certified or the
are representative of the other transport documents like must appear to be signed or otherwise appropriately
defined in the UCP500. authenticated.
In the event other documents are required such as Strictly complying drafts and other documents must
consular invoices, weight lists, certificates of quality, be presented under the Letter of Credit on or before the
quantity, etc., they must be issued and presented in expiration date and within the presentation period stated
accordance with the Letter of Credit. All documents in the Letter of Credit. If no period is stated, documents
must appear, on their face, to comply with the Letter of must be presented within 21 days of the date of issu-
Credit and not to be inconsistent with each other. All ance of the bills of lading or other transport documents.
LETTERS OF CREDIT
In Action

To supplement the material covered in previ-

C H A P T E R
ous chapters, this chapter reviews a typical
export Letter of Credit and a typical import
Letter of Credit. In international trade every
Commercial Letter of Credit facilitates both an

4
import and an export since it operates on both
sides of the transaction. In this chapter, for ease
of illustration, an export Letter of Credit refers
to a Letter of Credit covering the export of goods
and/or services from the U.S. (payable in U.S.
dollars) and an import Letter of Credit refers to
a Letter of Credit covering the import of goods
and/or services to the U.S. (payable in U.S.
dollars).
Export Letters of Credit
24
authorization to pay. If customer approval is granted
L.B. Importer Company, Brazil, arranges to purchase and Citibank itself also agrees to waive the discrepan-
100 television sets from H.K. Exporter Corporation, cies, payment is made. If the importer or Citibank does
New York City. The transaction begins with a sales not agree to waive the discrepancies, the Japanese
agreement which includes a requirement that the Negotiating Bank will be notified of the discrepancies
$25,000.00 purchase price be payable at “sight” under a and that the unpaid documents are either being returned
confirmed Letter of Credit. L.B. Importer Company then to it or held at its disposal.
requests that its bank, Banco de Sugar Loaf, Rio de
Janeiro, Brazil, issue an Irrevocable Letter of Credit, to
Foreign Currency Letters of Credit
be advised and confirmed by Citibank, New York.
Illustration 8 on page 25 illustrates the type of instru- Letters of Credit may also be issued in foreign curren-
ment which Citibank would provide to the Beneficiary, cies, but exporters and importers should be aware of the
H.K. Exporter Corporation. foreign exchange risk arising from rate fluctuations
The next step is for H.K. Exporter Corporation to ship between currencies. Letters of Credit illustrated in this
the goods and present a $25,000.00 draft along with the publication are used to pay for exports from or imports
specified documents to Citibank, New York on or before to the U.S., and are issued in U.S. dollars. Most
the expiration date of the Letter of Credit. Once Citibank transactions with U.S. importers and exporters are
examines the documents and determines that they denominated in U.S. dollars. The procedures under
comply with the Letter of Credit, payment is made Letters of Credit issued in another currency may differ.
without recourse to H.K. Exporter Corporation. Citibank If the U.S. importer requests a Letter of Credit in the
then forwards the documents to the Brazilian bank which currency of the exporter’s country, payment to the
examines them, reimburses Citibank, and obtains exporter is made in that country’s currency. When
payment from, and releases the documents to, the documents complying with the Letter of Credit terms are
Brazilian importer. received by the U.S. Issuing Bank, the U.S. importer
must pay the bank an amount equal to the foreign
currency paid. The Issuing Bank normally requires the
Import Letters of Credit importer to execute a “foreign exchange contract”, which
Illustration 9 on page 26 illustrates an import may be a separate agreement or part of the Issuing Bank’s
transaction. In this case Citibank in New York is the standard reimbursement agreement with a U.S. importer
Issuing Bank, having issued the Letter of Credit for the applying for a letter of credit. The bank sells the
account of the U.S. importer. Citibank’s Tokyo branch is importer the required foreign currency at the bank’s
the Advising Bank. The Letter of Credit is freely selling rate on that day (spot rate). The exchange cost—
negotiable. The Japanese Beneficiary (exporter) of the the amount the importer must pay in U.S. dollars—is
Letter of Credit may have the draft negotiated by dependent on the rate when the foreign exchange
Citibank’s Tokyo branch or another bank in Japan. As a contract is executed. The importer is subject to exchange
result, the exporter receives funds (typically on a “with rate risk since the exchange rate can fluctuate substan-
recourse” basis) after presenting complying documents. tially between the time the contract of sale is made and
The Japanese Negotiating Bank will, in turn, forward the the date of actual payment under the Letter of Credit.
draft and documents to Citibank, New York. If the Although foreign exchange rates vary constantly, U.S.
documents comply, Citibank will charge its customer, importers can eliminate unfavorable exchange risk by
the U.S. importer (Applicant), for the value of the draft arranging a “forward foreign exchange contract” with
and simultaneously pay the Japanese Negotiating Bank the bank. This establishes in advance the exchange rate
and release the documents to the U.S. importer. to be used at the time of payment. Thus, the importer
If the documents do not comply, Citibank may, in its will know the exact cost in dollars at the beginning of
sole discretion, contact its customer for approval of the the transaction and the Issuing Bank will cover the
specific discrepancy or discrepancies or for a general foreign exchange risk.
Illustration 8 – Confirmed Irrevocable Straight Letter of Credit – EXPORT LETTER OF CREDIT

Citibank, N.A.
25
New York, New York

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: H. K. Exporter Corporation

125 Broadway Citibank Ref. 20020001
New York, NY 10022 Issuer’s Ref. 318

Ladies and Gentlemen:

At the request and for the account of Banco De Sugar Loaf, Rio de Janeiro, Brazil, we are advising
you that it has issued this Irrevocable Letter of Credit in your favor for the account of L. B. Importer
Company, for a sum or sums not exceeding a total of U.S. $25,000.00, available by payment of your
draft(s) drawn at sight on us subject to the following:

Expiration Date: July 22, 20_ Latest Shipping Date: July 1, 20_
Transshipment not allowed Partial shipment not allowed

Shipment from: Port of New York Shipment to: Port of Sao Paulo, Brazil

and accompanied by the following documents:

This Letter of Credit must accompany all draft(s) and documents. When presenting your draft(s)
and documents or when communicating with us you must mention our reference number shown
above.

The issuer of the Letter of Credit engages with you that each presentation made in compliance with
the terms of the Letter of Credit will be duly honored on delivery of documents as specified, if
presented on or before the expiration date.

We confirm this Letter of Credit and hereby undertake with you to honor each presentation made
in compliance with the terms of this Letter of Credit if presented on or before the stated expiration
date to us at Citicorp North America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F,
1st Floor, Sort 3000, Tampa, Florida 33610, or such other address as we may advise from time to time.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our confirma-
tion to you is subject to the UCP and, as to matters not addressed by the UCP, is subject to and
governed by New York State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
Illustration 9 – Irrevocable Negotiation Letter of Credit – IMPORT LETTER OF CREDIT

26 Citibank, N.A.
New York, New York

Irrevocable Negotiation Letter of Credit February 2, 20_

Mail To: Citibank, N.A.

Tokyo, Japan Citibank Ref. 10020000

Ladies and Gentlemen:

We hereby issue our Irrevocable Letter of Credit in favor of The Japan Textile Exporters Corp.,
Tokyo, Japan, by order and for the account of the Asian Textile Importers, Inc., Des Moines, Iowa.
for a sum or sums not exceeding a total of U.S. $116,000.00, available with any bank by negotiation
of the beneficiary’s draft(s) drawn at sight on us subject to the following:

Expiration Date: June 22, 20_(Japan) Latest Shipping Date: June 1, 20_
Transshipment not allowed Partial shipment not allowed

Shipment from: Japan port Shipment to: Port of San Francisco, CA

and accompanied by the following documents:

This Letter of Credit must accompany all draft(s) and documents and must be presented for
negotiation within 21 days after the date of shipment shown on the Bill of Lading but no later than
the expiration date.

We hereby undertake with the beneficiary and any nominated bank that gives value that
presentations made in compliance with the terms of this Letter of Credit will be duly hon-
ored if PRESENTED FOR NEGOTIATION on or before the stated expiration date. All pre-
sentations and communications to us must be sent to: Citicorp North America, Inc., Servicer
for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610,
or such other address as we may advise from time to time.

Sample Letter of Credit

Authorized Signature
27
If the Beneficiary of a Letter of Credit denominated a “forward foreign exchange contract” with its bank.
in a foreign currency wishes to receive payment in Generally, Beneficiaries and importers are not anxious
U.S. dollars, it may arrange for the Paying Bank or the to speculate in the foreign exchange market. They will
Negotiating Bank to exchange (sell) the foreign currency protect their position in Letter of Credit transactions by
realized from the transaction. Here, the foreign exchange arranging forward foreign exchange contracts through
rate risk is assumed by the Beneficiary, since international bankers qualified to provide guidance and
conversion to U.S. dollars is made at the rate existing at expertise in foreign currency dealings.
the time the foreign exchange contract (spot contract) is Citibank foreign exchange traders maintain constant
executed. To avoid this risk, the Beneficiary may arrange contact with foreign exchange markets throughout the
world to provide expert support for such transactions.
LETTERS OF CREDIT
Special Types

Most Commercial Letters of Credit are issued

C H A P T E R
to meet the needs of typical shipment transac-
tions in which the Letter of Credit is used to pay
the purchase price for a single sale and ship-
ment of goods. Some, however, are “special”

5
because they meet the needs of less common
transactions. This chapter discusses some
special types of Letters of Credit.
Revolving Letters of Credit
30
Non-Cumulative: If the Letter of Credit states it is
If an Applicant and a Beneficiary agree to ship goods “non-cumulative” or if it does not specify “cumulative,”
on a continuing basis, it may be more efficient and cost- amounts not utilized in any period may not be carried
effective if the Applicant establishes one Letter of Credit forward to succeeding periods. The options selected
for all shipments, rather than one Letter of Credit for will vary depending upon the needs of the Applicant
each shipment. A special Letter of Credit for handling and the Beneficiary.
multiple shipments, renewable over an extended period
of time, is a “Revolving Letter of Credit.” A Revolving
Installment Letters of Credit
Letter of Credit may operate automatically or by amend-
ment and can be either cumulative or non-cumulative. These Letters of Credit incorporate a schedule or
otherwise provide for shipments or drawings by
Example: An Applicant expects to purchase approxi-
installments. Under the UCP, if the Beneficiary fails to
mately $120,000.00 in merchandise from the same
present complying documents for an installment
supplier during the next year. Each shipment is not to
shipment or drawing, the Beneficiary will not be entitled
exceed $10,000.00. Each $10,000.00 shipment covers the
to draw under the Letter of Credit for that or any future
purchase of 500 units. The Applicant has the following
shipment or drawing.
options:
Automatic: The Applicant may arrange for a Letter of
Credit for a one-year term in the amount of $10,000.00 Advance Payment Letters of Credit
providing that the amount available under the Letter of When a Beneficiary must create special order
Credit is reinstated for future drawings in an aggregate merchandise for which there may be no other buyer, a
amount not to exceed $120,000.00. If the Letter of Credit Beneficiary may instruct an Applicant to request that
reinstates the amount automatically upon each payment, the Issuing Bank issue an Advance Payment Letter of
the total amount of the bank’s exposure is $120,000.00 Credit. These Letters of Credit contain language which
upon issuance. permits the Beneficiary to receive certain funds in
By Amendment: This procedure operates the same as advance of presenting commercial documents evidenc-
above except that availability is reinstated only upon ing the shipment of goods.
specific authorization and amendment to the Letter of Typically the Letter of Credit specifies that the Benefi-
Credit. If the Letter of Credit revolves by amendment, ciary is permitted to present to a local Nominated Bank
the bank’s exposure is $10,000.00 upon issuance because a draft and a statement that funds will be used for the
the bank must approve each amendment. purposes of fulfilling the terms of the contract of sale.
Given the above example, the Applicant expects to pur- If these documents comply with the Letter of Credit, the
chase 500 units at a cost of $10,000.00 per month, for a Beneficiary is entitled to receive the amount specified
one-year period (a total of 6,000 units for $120,000.00). at that time and the Nominated Bank is entitled to debit
The transaction could be structured as follows: the account of the Issuing Bank.
Cumulative: The Applicant may request a Revolving These Letters of Credit are typically used in
Letter of Credit to permit the quantity and value of goods transactions where the Applicant and Beneficiary are
not shipped within any month to be carried forward and well known to each other. Under these circumstances,
added to the quantity and value for the following month. the Applicant is at risk because the Beneficiary, once
For example, if the Beneficiary shipped only 400 units having received an advance of funds, might not subse-
for $8,000.00 in January, when the Letter of Credit quently ship the goods. To protect against this risk, one
revolved in February the Beneficiary could ship 600 units of the documents required to receive the advance could
for $12,000.00 (i.e., the February shipment of 500 units be a standby Letter of Credit assuring repayment.
plus the 100 units not shipped in January). The bank’s Standby Letters of Credit are discussed in Chapter 8.
exposure is $120,000.00 because all shipments could be
deferred to the last month of the Letter of Credit.
Red Clause Letters of Credit
31
“transferable,” the Beneficiary has the right to request
If an Applicant wants to advance cash to the Benefi- the named Transferring Bank to make the Letter of Credit
ciary (possibly the Applicant’s purchasing agent) to available to one or more other parties. Transferable
finance the purchase of the goods before shipment Letters of Credit may be transferred either in whole or in
under the Letter of Credit, the Applicant may apply for a part to second Beneficiaries (Transferees). However,
Red Clause Letter of Credit. Transferable Letters of Credit may be transferred only
The “red clause” in a Letter of Credit authorizes the once. If partial shipments are not prohibited, portions of
Issuing Bank or, more typically, a Nominated Bank to the Transferable Letter of Credit may be transferred sepa-
make a cash advance (loan). It is referred to as a “red rately, but the total amount transferred cannot exceed
clause” simply because the clause is sometimes printed the amount of the original Letter of Credit (Master Credit).
or typed in red ink. Letters of Credit issued with a “red Under the UCP Letters of Credit may be transferred
clause” should restrict negotiation or payment to a only on the same conditions as the original Letter of
specific bank. The specified bank charges interest to Credit except that amount, unit price, expiration date,
the Beneficiary at the local rate, unless the Letter of period after shipping date for the presentation of
Credit provides otherwise. If the Beneficiary fails to pay documents, and the latest shipping date may be reduced
the interest charged or principal advanced, the or curtailed as to the second beneficiary. If insurance is
Nominated Bank may look to the Issuing Bank, which required by the original Letter of Credit, the percentage
will look to the Applicant, for reimbursement. for which insurance must be effected under the Trans-
A “red clause” is typically used when there is a close ferred Letter of Credit may be increased in such a way as
business relationship between the Applicant and the to provide the amount of insurance coverage required
Beneficiary. The following is a typical “red clause.” by the Master Credit. In addition, the name of the first
“To enable the Beneficiary to pay for the merchandise Beneficiary can be substituted for that of the Applicant,
for the purchase and shipment of which this Letter of but if the name of the Applicant is specifically required
Credit is issued, [Named Nominated Bank] may make by the Master Credit to appear in any document(s) other
cash advances, at any time or times during the life of than the invoice, such requirement must be fulfilled.
the Letter of Credit, to the Beneficiary not exceeding, in An example of a Master Credit is shown on page 32
the aggregate, 1) “X” percent, 2) a fixed amount, or 3) (Illustration 10). The Letter of Credit is issued by Banco
the remaining unused balance of this Letter of Credit, Monrovia and advised and confirmed by Citibank with a
whichever is less, repayable with interest out of value of $100,000.00. In Illustration 11 on page 33, the
proceeds of drafts which may later be drawn under this Letter of Credit has been partially “transferred” at the
Letter of Credit by the Beneficiary. Any advances request of the Beneficiary to one of the four other
not so repaid during the validity of this Letter of Credit Beneficiaries (Transferees) for $24,000.00. In this case,
shall be reimbursed by the Issuing Bank against the Citibank would issue four separate transfers of $24,000.00
Nominated Bank’s tested Telex demand.”
each under the Master Credit, one in favor of each
Beneficiary designated by the Transferor (original
Transferable and Back-to-Back Letters of Credit Beneficiary), each calling for shipment of one quarter of
Sometimes the Beneficiary of a Letter of Credit may the merchandise.
not be the actual manufacturer of the goods, but may be The terms and conditions of the four separate Trans-
playing the role of a middleman, matching buyers’ needs ferred Letters of Credit would be the same as the Master
with sellers’ products. If it is desirable to conceal the Credit, except for the following differences permitted
manufacturer’s unit price or the identity of one party under the UCP transfer provision.
from another, a Transferable Letter of Credit or a Back- Amount - The Transferred Credit amount may be less
to-Back Letter of Credit may permit the transaction to go than the amount of the Master Credit.
forward. Invoice from/to - The second beneficiary may present
Transferable Letters of Credit – When a Letter of Credit its own invoice addressed to the first beneficiary.
issued subject to the UCP is specifically designated Unit Price - If the Master Credit contains a unit price
Illustration 10 – Confirmed Irrevocable Straight Letter of Credit – TRANSFERABLE (MASTER CREDIT)

32 Citibank, N.A.
New York, New York

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: USA Corporation

1000 Broad Street Citibank Ref. 40020001
New York, NY 10021 Issuer’s Ref. 328

Ladies and Gentlemen:

At the request and for the account of Banco Monrovia, Monrovia, Liberia we are advising you that
it has issued this Irrevocable TRANSFERABLE Letter of Credit in your favor for the account
of French Monrovian Import Co., for a sum or sums not exceeding a total of U.S. $100,000.00,
available by payment of your draft(s) drawn at sight on us subject to the following:

Expiration Date: July 22, 20_ Latest Shipping Date: July 1, 20_
Transshipment not allowed Partial shipment allowed
Shipment from: Port of New York, NY Shipment to: Port of Monrovia, Liberia

and accompanied by the following documents:

1) Full set original On Board Ocean Bills of Lading issued to order, blank endorsed, notify the Issuing
Bank, marked “Freight Prepaid.”
2) Full set Marine Insurance Policy or Certificates, including War Risks, for a minimum of 110% of
the invoice value, losses payable to the order of the assured and endorsed in blank.
3) Commercial invoice, original and two copies, stating that it covers: “Air Conditioning Parts, C.I.F.
Monrovia.”

This Letter of Credit must accompany all draft(s) and documents. When presenting your draft(s) and
documents or when communicating with us you must mention our reference number shown above.

We confirm this Letter of Credit and hereby undertake with you to honor each draft drawn and
presented, together with the documents specified, in compliance with the conditions hereof if presented
to us at Citicorp North America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st
Floor, Sort 3000, Tampa, Florida 33610, or such other address as we may advise from time to time.

The issuer of this Letter of Credit engages with you that each draft drawn under and in compliance with
the terms of the Letter of Credit will be duly honored on delivery of documents as specified, if presented
at to us at the address stated in the preceding paragraph on or before the expiration date.

In the event this Letter of Credit is transferred, you must complete and return in form and substance
satisfactory to us your transfer instructions. Such transfer instructions must be accompanied by the
original Letter of Credit, as well as our transfer fee.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our confirmation to you
is subject to the UCP and, as to matters not addressed by the UCP, is subject to and governed by New York
State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
Illustration 11 – Confirmed Irrevocable Straight Letter of Credit – TRANSFERRED

Citibank, N.A.
33
New York, New York

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: Supply Company Ltd.

Broad Street Citibank Ref. 40020009
Paterson, NJ 23412 Issuer’s Ref. 328

Ladies and Gentlemen:

At the request of USA Corporation we hereby transfer in your favor Banco Monrovia, Monrovia,
Liberia Irrevocable Letter of Credit number 328 available up to an aggregate amount of
U.S. $24,000.00, available by payment of your draft(s) drawn at sight on us subject to the
following:

Expiration Date: July 11, 20_ Latest Shipping Date: June 25, 20_
Transshipment not allowed Partial shipment allowed
Shipment from: Port of New York, NY Shipment to: Port of Monrovia, Liberia

and accompanied by the following documents:

1) Full set original On Board Ocean Bills of Lading issued to order, blank endorsed, notify the Issuing
Bank, marked “Freight Prepaid.”
2) Full set Marine Insurance Policy or Certificates, including War Risks, for 115% of invoice value,
losses payable to the order of the assured and endorsed in blank.
3) Commercial invoice, original and two copies, stating that it covers: “Air Conditioning Parts,
C.I.F. Monrovia.”

In accordance with the sub-article 48(d) of the UCP500, USA Corporation has retained the right to
refuse the Transferring Bank to advise amendments to you.

This Letter of Credit must accompany all draft(s) and documents. When presenting your draft(s) and
documents or when communicating with us you must mention our reference number shown above.

We confirm this Letter of Credit and hereby undertake with you to honor each draft drawn and
presented as specified if presented to us at Citicorp North America, Inc., Servicer for Citibank, N.A.,
3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or such other address as we
may advise from time to time.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our confirmation to you
is subject to the UCP and, as to matters not addressed by the UCP, is subject to and governed by New York
State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
34
and the transferee beneficiary is charging the original the middleman to protect himself from the buyer going
beneficiary a lesser unit price, then the unit price would directly to the supplier for future orders—however, it is
be reduced accordingly on the Transferred Letter of not always possible to conceal the identity of the actual
Credit. supplier from the end user or vice versa. Therefore,
Expiration Date - The expiration date of the a Beneficiary seeking to keep the identities of buyers
Transferred Letter of Credit may be adjusted to expire and sellers disguised through the use of Transferable
Letters of Credit should review the proposed transac-
before the Master Credit to give the original Beneficiary
tion carefully with a trade expert.
an opportunity to substitute its draft and invoice
It is important to note that the substituted draft and
for those presented by the Transferee. If a Letter of
invoice from the original Beneficiary must comply with
Credit has been transferred in its entirety, substitution
the terms of the Master Credit and not conflict with the
of the draft and invoice is not necessary and, thus, the documents of the other Beneficiaries. If, in our example,
expiration date need not be adjusted. the original Beneficiary fails on first demand to present
Presentation Date - The period between the shipping its draft and invoice for substitution, Citibank has the
date and the presentation date may be curtailed. right to deliver to the Issuing Bank the Transferee’s
Latest Shipment Date - In addition, the shipping documents without further responsibility to the original
date may also be adjusted to avoid any conflict with the Beneficiary.
curtailed expiration date or the latest date for presenta- In Illustration 11 on page 33, the first Beneficiary,
tion of documents. If a Letter of Credit has been trans- USA Corporation, has retained the right to refuse the
ferred in its entirety, the latest shipment date need not Transferring Bank to advise amendments directly to the
be adjusted. second Beneficiary, Supply Company Ltd. in accordance
Percentage of Insurance Coverage - The minimum with sub-article 48(d) of the UCP500. There are many
acceptable percentage of insurance coverage is 110% of reasons the first Beneficiary might decide to retain this
right—for example, the amendment might pertain to only
the CIP or CIF value, unless stated otherwise in the
one of the four second Beneficiaries.
Letter of Credit. Assuming the Master Credit value was
$100,000.00, the minimum coverage (if there was one Back-to-Back Letters of Credit – On occasion a
shipment) would be $110,000.00. Beneficiary of a nontransferable Letter of Credit seeks
However, if the Master Credit was transferred for to use it as a basis for requesting a bank to issue a
second, parallel Irrevocable Letter of Credit in favor of
$96,000.00 ($24,000 x 4), the percentage of insurance
the manufacturer or supplier of those goods needed for
coverage required under the Transferred Credits must
shipment under the first Letter of Credit. In this case, the
be increased to satisfy the terms of the Master Credit.
Beneficiary of the Irrevocable Letter of Credit (generally
The insurance documents presented by the transferee
a broker or middleman) will become the Applicant of the
must equal the minimum $110,000.00 ($27,500 x 4)
second Letter of Credit, utilizing the first as a source of
coverage specified in the Master Credit. payment to the issuer of the second Letter of Credit.
If the four Beneficiaries (Transferees) in our example The two Letters of Credit used to facilitate the purchase
each present a draft for $24,000.00, accompanied by the and resale of the same goods are called Back-to-Back
required documents, and the original Beneficiary Letters of Credit.
presents its conforming draft and invoice for $100,000.00 Coordinating two Letters of Credit to cover both the
in substitution thereof, Citibank, as confirming bank purchase and resale of the same goods is a complicated
to whom each Transferee Beneficiary presented its process. A Beneficiary seeking back-to-back financing
documents, would make four separate examinations of should ask its bank if this type of accommodation is
the documents and four separate $24,000.00 payments available prior to requesting a Letter of Credit in its
to the Transferees and one payment of $4,000.00 to the favor. In order to rely on the benefits of the first Letter of
original Beneficiary for a total of $100,000.00. Credit, the issuer of the second Letter of Credit will likely
Thus, the original Beneficiary assumes the role of insist that it be the Confirming Bank under the first, so
a middleman and, as such, receives $4,000.00. The sub- as to have a right to receive and to accept or reject
stitution of documents (draft and invoice) may permit amendments in its discretion.
Assignment of Proceeds
35
The advantage to the Applicant is that it will receive
If the Letter of Credit is not transferable, the Beneficiary the original shipping documents sooner than it would
in search of financing may request the Issuing or a have had the original documents been presented under
Nominated Bank to pay to a third party some or all of the the Letter of Credit. Since the Applicant may be unable
amounts drawn under the Letter of Credit that would to claim the goods upon their arrival in port without
otherwise go to the Beneficiary. The third party presenting original shipping documents, having the
(Assignee) is not entitled to the proceeds of the Letter documents in hand on the arrival date is a convenience
of Credit unless the bank paying the proceeds acknowl- to the Applicant and may save demurrage (storage)
edges the assignment and the Beneficiary (Assignor) charges imposed by the port authority.
presents complying documents. If the Beneficiary fails The disadvantage to the Applicant is that it must rely
to submit complying documents under the Letter of more heavily on the integrity of the Beneficiary.
Credit, the Assignee will not be paid. Although nothing in any Letter of Credit assures the
Applicant that the goods shipped are in fact the goods
for which it contracted, in a typical commercial Letter of
Simplified Letters of Credit Credit the bank’s receipt of original shipping documents
A Simplified Letter of Credit imposes fewer documen- provides the bank and the Applicant with evidence prior
tary requirements than a typical Letter of Credit. to payment under the Letter of Credit that a shipment
Unlike a typical commercial Letter of Credit, it may has occurred. In a Simplified Letter of Credit this
not require the Beneficiary to present original shipping evidence is not provided prior to payment.
documents. Instead, the Simplified Letter of Credit may Whether a Simplified Letter of Credit is appropriate in
require the Beneficiary to present either: each case is a decision for the Applicant. Whether the
1) its signed statement that the shipment has been made bank will agree to issue a Simplified Letter of Credit
according to the Applicant’s order and that the depends upon the creditworthiness of the Applicant.
shipping documents have been sent directly to the The Applicant’s creditworthiness will be of increased
Applicant; or importance to the bank to the extent that the bank
2) copies of the original shipping documents and its will not have control over a bill of lading or other title
signed statement that the original shipping document that controls the goods described in that
documents have been sent directly to the Applicant. document.
LETTERS OF CREDIT
Export Credit Agencies and
International Development Banks

Many government agencies provide financial

C H A P T E R
assistance in the form of grants, loans, subsi-
dies and guarantees to facilitate the export of
goods and services to emerging markets. When
these exports are financed by Letters of Credit,

6
banks become intermediaries. In this chapter is
a list of key export credit agencies and interna-
tional development banks.
Export Credit Agencies
38
The World Bank - The World Bank is a multinational
Importers, exporters and commercial banks often organization based in Washington, D.C. It is owned by
participate in export credit agency programs established its member nations which consist of the major devel-
to facilitate the export of goods and services to oped countries. Originally founded as the International
emerging markets. The agency programs provide Bank for Reconstruction and Development (IBRD), it
financial assistance in the form of grants, loans, was later expanded with the creation of the International
subsidies and guarantees. Grants, loans and subsidies Finance Corporation (IFC), which focuses on stimulat-
are forms of direct agency assistance. Guarantees are a ing private sector investment, and the International
form of indirect assistance used to induce a commercial Development Agency (IDA), which focuses on the least-
bank to provide a direct loan to the importer or confirm a developed countries in the developing world.
Letter of Credit issued by the importer’s local bank. In The World Bank is the predominant international
either case, whether the agency assistance is direct or agency devoted to providing financial assistance to the
indirect, the agencies typically insist upon Letters of developing world. A major portion of this assistance is
Credit—as opposed to advance cash payments—as the disbursed directly to the recipients via special accounts
method for disbursing proceeds of the loan or other opened by them with international commercial banks.
financial assistance. The disbursements are frequently used to establish cash-
The Beneficiary’s right to payment under the Letter of collateralized Letters of Credit. The World Bank also
Credit will be subject to the terms and conditions of the issues commitment letters to induce commercial banks
agency-approved Letter of Credit, which will typically to issue or confirm Letters of Credit. Payments made by
include special conditions of the agency’s commitment commercial banks under World Bank commitments are
letter (or guarantee, as the case may be), and the agency’s reimbursable to them via telex claims to the World Bank.
regulations. Copies of the agency’s regulations can be No special documents are normally required to obtain
obtained by writing directly to the agency. Importers reimbursement.
and exporters using agency programs should become Other Development Banks - Similar to the World
familiar with the requirements of the programs and Bank, there are a number of banks outside of the United
may wish to contact Citibank’s trade specialists for States whose ownership and focus are regional, such as
assistance. the Asian Development Bank, the InterAmerican
Development Bank, and the African Development Bank.
These banks also issue various forms of reimbursement
International Development Banks
commitments and guarantees. Specific information can
Importers, exporters and commercial banks also be obtained by writing directly to them or by contacting
participate in international development bank programs Citibank.
established to provide assistance to lesser-developed
countries.
List of National Export Credit Agencies and
39
Mexico
International Development Banks Export Credit Fondo Para El Fomento De Las Exportaciones De
Agencies Productos Manufacturados (BANCOMEXT)
Following are some of the most frequently used Gov-
Netherlands
ernment Financing Sources. Nederlandsche Credietverzekering Maatschappij
Australia (NCM)
Export Finance and Insurance Corporation (EFIC) De Nederlandsche Bank (DNB)

Austria New Zealand

Oesterreichische Kontrollbank Aktiengesellschaft Export Guarantee Office (EXGO)
(OEKB) Spain
Belgium Compania Espanola De Seguros de Credito a la
Office National Du Ducroire Creditexport Exportacion (CESCE)
Export Finance
Brazil
Instituto De Ressequros Do Brasil (IRB) Sweden
Carterira Do Comerico Exterior-Banco Do Brazil S/A Exportkreditnamnden (EKN)
(CACEX) A/B Svensk Exportkredit (SEK)

Canada Switzerland
Export Development Corporation (EDC) Export Risiko Garantie (ERG)

Denmark Taiwan
Eksportkreditradet (EKR) Export-lmport Bank of the Republic of China (Taiwan)
Dansk Eksportfinansieringsfond (EF) United Kingdom
France Export Credits Guarantee Department (ECGD)
Compagnie Francaise D’Assurance Pour Le Commerce United States
Exterieur (COFACE) Export-Import Bank of the United States (Eximbank)
Germany Private Export Funding Corporation (PEFCO)
Hermes Kreditversicherungs A.G. Overseas Private Investment Corporation (OPIC)
Ausfuhrkredit-Gesellschaft mbh (AKA) U.S. Agency for International Development (AID)
Kreditanstalt Fur Wiederaufbau (KFW) U.S. Department of Agriculture-Commodity Credit
Corporation (CCC)
India
Export-lmport Bank of India
Italy International Development Banks
Sezione Speciale Per L'Assicurazione Del Credito All African Development Bank (ADB)
Esportazione (SACE) Inter-American Development Bank (IDB)
Mediocredito Centrale International Bank for Reconstruction and
Japan Development (IBRD) (The World Bank)
Ministry of International Trade and Industry (MITI) International Finance Corporation (IFC)
Export-Import Bank of Japan (J-Eximbank) Multilateral Investment Guarantee Agency (MIGA)

Korea
Export-Import Bank of Korea
LETTERS OF CREDIT
U.S. Dollar Banker’s
Acceptance Financing

U.S. Dollar Banker’s Acceptances, normally

C H A P T E R
used for short-term financing of goods in
the Channels of Trade, are discussed in this
chapter.

7
42
The Beneficiary’s ultimate objective in requesting a is an Eligible Banker’s Acceptance. If it does not grow
Letter of Credit is to receive funds of and from a bank out of an eligible transaction or if it involves a draft with
rather than the applicant. The previous chapters dealt a tenor of more than six months, it is an Ineligible Banker’s
with transactions payable at “sight” where the bank Acceptance.
makes payment against presentation of conforming
“sight” drafts and/or documents under a Letter of Credit.
However, drafts may also be drawn payable in the future Eligible Banker’s Acceptances
(normally anywhere from 30 to 180 days “sight” or Banker’s Acceptances of either type are permissible.
“date”). Such drafts are “accepted”, rather than paid, by However, Eligible Banker’s Acceptances are favored by
the Drawee Bank upon determination that documents the Board. Both types are freely negotiable. The Board
comply. A bank “accepts” a draft drawn on it by placing does not require the Accepting Bank to post reserves
the word “Accepted” on the face of the draft, dating against Eligible Banker’s Acceptances. This makes them
and signing the notation. This type of draft, payable in more appealing to banks, increases the size of the
U.S. dollars, drawn on and accepted by a bank, is a Eligible Banker’s Acceptance market and lowers the
Banker’s Acceptance. The accepted draft is the overall cost to the Beneficiary. The Banker’s Acceptance
unconditional obligation of the Accepting Bank to pay market is comprised of banks, brokers, other institutions
at maturity. and private investors who both buy and sell Banker’s
When the Beneficiary (exporter) of a Letter of Credit Acceptances. The cost of a Banker’s Acceptance is equal
agrees to Letter of Credit terms stating that payment will to the discount rate determined by the market. The dis-
be available by acceptance of drafts drawn at “60 days counting bank deducts the charge from the face amount
sight,” the Beneficiary is extending credit terms to the of the draft. The balance of the draft is paid to the Ben-
Applicant (buyer), by agreeing to wait 60 days for pay- eficiary. Alternatively, the charge may be paid by the
ment. Thus, when the Beneficiary presents conforming Applicant if the Beneficiary and Applicant agree in ad-
draft(s) and documents to the Paying-Accepting Bank, vance.
it does not expect payment at “sight” but rather it
expects the bank to “accept” the draft and to receive
payment 60 days later. Eligible Transactions
A Banker’s Acceptance is a time draft drawn on a An Eligible Banker’s Acceptance must grow out of
bank which is accepted by the bank and is payable at a one of the following eligible transactions:
predetermined future date. Once “accepted,” the draft • The import or export of goods;
becomes a marketable instrument which the Beneficiary • The domestic shipment of goods; or
may sell at a discount to any bank. A Banker’s Accep-
• The storage of readily marketable staples. (A “readily
tance can provide an immediate source of funds for the
marketable staple” is defined by the Board to mean
Beneficiary and can simultaneously defer payment by
manufactured goods or raw materials which are non-
the Applicant.
perishable, generally produced, well-established in
Banker’s Acceptances are regulated in the U.S. by the
commerce and have an easily ascertainable price.)
Board of Governors of the Federal Reserve System (the
The transaction underlying the Banker’s Acceptance
“Board”). A time draft drawn on and accepted by any
must meet the following requirements of the Board:
member bank of the Federal Reserve System (or any
foreign bank subject to the International Banking Act 1) The transaction must involve a draft (drawn on and
reserve requirements) is a “Banker's Acceptance.” There accepted by any member bank of the Federal Reserve
are two types of Banker’s Acceptances—“Eligible System or any foreign bank subject to the International
Banker’s Acceptances” and “Ineligible Banker’s Accep- Banking Act reserve requirements) with a tenor of six
tances.” If a Banker’s Acceptance grows out of an months or less.
eligible transaction, as defined by the Board, and 2) The transaction must be self-liquidating. This means
involves a time draft with a tenor of six months or less, it that the borrower is to apply the proceeds from the sale
43
or resale of the goods toward payment of the accepted would have paid the Beneficiary the net proceeds (face
draft. amount of the draft less the discount calculated at
3) The transaction must not involve dual financing. the then current market discount rate). The amount of
4) The goods covered by the transaction must be in the the discount is calculated at Citibank’s discount rate for
“Channels of Trade.” Goods in the “Channels of Trade” the discount period, i.e., the number of days from the
means goods which are being manufactured, packaged, date of purchase to the date of the draft’s maturity. If
shipped, received, stored or resold. the accepted draft had been discounted on August 5,
for 90 days, at a rate of 8% per annum, the discount
Eligible Banker’s Acceptance financing has been put
would be equal to two thousand dollars ($2,000.00). The
to a variety of uses. Any individual, corporation or firm
calculation is the amount of the draft, times the discount
involved in the shipment of goods payable in U.S.
rate, times the number of days until maturity, divided by
dollars should consider Banker’s Acceptance financing
360 equals the discount ($100,000.00 x 8% x 90 ÷ 360 =
as a short-term financing tool. The following illustrates
$2,000.00). The net amount paid to the Beneficiary would
how Banker’s Acceptance financing may be used.
be ninety eight thousand dollars ($98,000.00). Both the
Beneficiary and the Applicant would receive financing:
U.S. Exports and Imports the Applicant because it does not have to pay until the
Time Draft Export Letter of Credit: maturity date; the Beneficiary because it receives
payment by discounting the draft immediately.
Financing to the importer in connection with a
U.S. export—In Illustration 12 on page 45 a Missouri
Beneficiary presents documents together with a 90 day Time Draft Import Letter of Credit:
“sight” draft drawn on Citibank, New York, and requests Financing to the Beneficiary and the importer in
the draft be accepted. Upon examination, Citibank connection with an overseas export—In Illustration 14
determines that the documents conform to the Letter of on page 47 an overseas Beneficiary extends credit to
Credit and also that the transaction meets the Board’s its U.S. importer by using a Banker’s Acceptance. (In
requirements for Eligible Banker’s Acceptances. It places the previous illustration, a U.S. Beneficiary extends
an “acceptance” stamp and also an “eligibility” stamp credit to its overseas importer by using a Banker’s
on the face of the draft, thus creating an Eligible Banker’s Acceptance.) A Banker’s Acceptance in U.S. dollars
Acceptance (as illustrated on page 46, Illustration 13), enables the overseas Beneficiary to sell the accepted
returns the accepted draft to the payee-drawer-benefi- draft and receive discounted funds immediately either
ciary, and forwards the documents to the Issuing Bank. from Citibank or from one of the dealers in the U.S.
Since the Beneficiary did not request that Citibank banker’s acceptance market.
Illustrations 12 and 14 demonstrate that Banker’s
discount the draft upon acceptance, the Beneficiary
Acceptance Financing in U.S. dollars operates similarly
holds the accepted draft and presents it at maturity to
for U.S. exports and imports. For exports to the U.S., the
Citibank for payment. The draft matures and becomes
overseas Beneficiary draws a draft on a U.S. bank. The
payable on November 3, which is 90 days from the date
procedure for discounting drafts or paying at maturity
on which the draft was accepted. By agreeing to ship on
is the same for U.S. exports and imports. It is also the
90-day terms the Beneficiary has granted credit terms to
same for domestic shipments and for shipments between
the importer. On an acceptance Letter of Credit, the
foreign countries in U.S. dollars.
issuer’s and confirmer’s duty to honor is to accept and,
at maturity, to pay.
Financing to the Beneficiary and the importer in Refinancing “Sight” Draft Letters of Credit
connection with a U.S. export—Had the Beneficiary Financing to importers—Importers can use Banker’s
requested that Citibank discount the draft upon Acceptance financing in connection with “sight” draft
acceptance, Citibank would have purchased the accepted Letters of Credit. For example, a U.S. importer can
draft from the Beneficiary at the time of acceptance and arrange for a Letter of Credit involving a draft payable at
44
“sight.” After payment under the Letter of Credit is made Collections
to the Beneficiary and the Issuing Bank has debited the Import “sight” collections may be refinanced in the
importer’s account, the importer may arrange for the same manner as “sight” draft Letters of Credit, as
bank to “refinance” the import for a specific period, for discussed above. Export collections may be financed as
example 60 days, by using a Banker’s Acceptance. discussed in Pre-Export Financing.
Under this arrangement, the importer draws a draft on
its bank payable at 60 days “sight.” The bank accepts
the draft, discounts it, and pays the face value of the Ineligible Banker’s Acceptances
draft, less the discount, to the importer. At maturity, the Although generally less attractive than Eligible
importer is required to pay the full face value of the draft Banker’s Acceptances, Ineligible Banker’s Acceptance
from the sale of the imported goods. financing may be an attractive alternative to direct
borrowing during periods when bank funds are limited
and customers’ borrowing needs are extraordinary.
Pre-Export Financing An “Ineligible Banker’s Acceptance” involves a
A U.S. exporter with a firm contract of sale may draw draft(s) drawn on and accepted by any member bank of
a time draft on its bank. The bank accepts the draft, the Federal Reserve System or any foreign bank subject
discounts it, and pays the face value of the draft, less to the International Banking Act reserve requirements
the discount, to the exporter. The exporter uses the funds and has the following characteristics:
to secure and prepare the goods for export. The • the transaction does not meet the Board’s requirements
proceeds from the sale of the exported goods are used i.e., the draft has a tenor longer than six months or
to pay off the Banker’s Acceptance at maturity. does not involve the import or export of goods, the
domestic shipment of goods, or the storage of readily
Shipments within the United States marketable staples;
Shipments by land, rail, or other means of transporta- • the drafts are typically discounted at a higher rate;
tion from one point to another within the U.S. may be • the discounting bank may be required to post reserves;
financed by Banker’s Acceptances in a manner similar and
to international shipments. • the drafts are marked “Ineligible” on their face.
Importers and exporters needing to finance
merchandise, internationally or within the U.S., should
Storage within the United States or Overseas
investigate Banker’s Acceptance financing. At times,
Eligible Banker’s Acceptances created to finance such financing may be more advantageous than direct
the storage of goods must cover merchandise defined borrowing. During periods of “tight money” (when banks
as a “readily marketable staple” (i.e., coal, natural gas, have limited funds to meet all customer borrowing needs),
petroleum, grain, precious metals, etc.). Title to any banks may be willing to provide Banker’s Acceptance
financed staple must be in the name of the accepting financing despite a limited availability of funds for
bank at the time the Banker’s Acceptance is created. direct loans.
Title to the goods is represented by a third party ware-
house receipt or other document giving the accepting
bank clear title at the time the Banker’s Acceptance is
created.
Illustration 12 – Export Letter of Credit – ACCEPTANCE FINANCING

Citibank, N.A.
45
New York, New York

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: The Missouri Corporation

1000 Broadway Citibank Ref. 30030029
St. Louis, MO 91230 Issuer’s Ref. 1500

Ladies and Gentlemen:

At the request and for the account of The Royale German Bank, Frankfurt, Germany we are
advising you that it has issued this Irrevocable Letter of Credit in your favor for the account of The
German Export Co., for a sum or sums not exceeding a total of U.S. $100,000.00, available with
Citibank, N.A. by acceptance of your draft(s) at 90 DAYS AFTER SIGHT on us subject to the
following:

Expiration Date: August 22, 20_ Latest Shipping Date: August 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: Port of New York, NY Shipment to: Port of Bremen, Germany

and accompanied by the following documents:

This Letter of Credit must accompany all draft(s) and documents. When presenting your draft(s)
and documents or when communicating with us you must mention our reference number shown
above.

The issuer of this Letter of Credit engages with you that each draft drawn under and in compliance
with the terms of the Letter of Credit will be duly if presented on or before the expiration date.

We confirm this Letter of Credit and hereby undertake with you to honor each draft drawn and
presented with the above specified documents if presented to us at Citicorp North America, Inc.,
Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida
33610, or such other address as we may advise from time to time.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our confirma-
tion to you is subject to the UCP and, as to matters not addressed by the UCP, is subject to and
governed by New York State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
Illustration 13 – Export Letter of Credit – BANKER'S ACCEPTANCE

46 Citibank, N.A.
New York, New York

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: The Missouri Corporation

1000 Broadway Citibank Ref. 30030029
St. Louis, MO 91230 Issuer’s Ref. 1500

Ladies and Gentlemen:

Expiration Date: August 22, 20_ Latest Shipping Date: August 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: Port of New York, NY Shipment to: Port of Bremen, Germany

and accompanied by the following documents:

1) Full set original On Board Ocean Bills of Lading issued to order, blank endorsed, notify the
buyer, marked “Freight Prepaid.”
2) Full set negotiable Marine Insurance Certificates, including War Risks.
3) Commercial invoice, original and two copies, stating that it covers: “5000 yds. window
screening, C.I.P. Bremen.”
4) Packing list in triplicate showing goods packed in plastic containers.

This Letter of Credit must accompany all draft(s) and documents. When presenting your draft(s)
and documents or when communicating with us you must mention our reference number shown
above.

The issuer of this Letter of Credit engages with you that each draft drawn under and in compliance
with the terms of the Letter of Credit will be duly if presented on or before the expiration date.

This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication 500 (the “UCP”). Our confirma-
tion to you is subject to the UCP and, as to matters not addressed by the UCP, is subject to and
governed by New York State and applicable U.S. federal law.

Sample Letter of Credit

Authorized Signature
Illustration 14 – Import Letter of Credit – ACCEPTANCE FINANCING

Citibank, N.A.
47
New York, New York

Irrevocable Negotiation Letter of Credit December 10, 20_

Mail To: Citibank, N.A.

Sao Paulo, Brazil Citibank Ref. 10020000

Ladies and Gentlemen:

At the request and for the account of The City Coffee Servers, Inc., New York we hereby issue our
Irrevocable Letter of Credit in favor of The Brazilian Coffee Growers Inc., Sao Paulo, Brazil for a
sum or sums not exceeding a total of U.S. $190,000.00, available with you by negotiation of the
beneficiary’s draft(s) drawn at 90 DAYS SIGHT on us subject to the following:

Expiration Date: June 22, 20_ Latest Shipping Date: June 1, 20_
Transshipment not allowed Partial shipment not allowed
Shipment from: Brazil Shipment to: New York, New York

and accompanied by the following documents:

This Letter of Credit must accompany all draft(s) and documents and must be presented for
negotiation within 21 days after the date of shipment shown on the Bill of Lading but within the
expiration date. The negotiating bank is to forward all drafts and documents listed herein by airmail
in a single lot to us at Citicorp North America, Inc., Servicer for Citibank, N.A., 3800 Citibank
Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, stating our reference number above.

We hereby undertake with you and the beneficiary that drawings presented in conformity with the
terms of this Letter of Credit will be honored if presented for negotiation on or before expiration and
accepted drafts will be paid at maturity.

Sample Letter of Credit

Authorized Signature
LETTERS OF CREDIT
Standby

The banking industry has found it useful to

C H A P T E R
distinguish between Commercial Letters of Credit,
used to pay the purchase price for the shipment
of goods, and Standby Letters of Credit, used
for other purposes as discussed in this chapter.

8
What Are the Risks?
50
Commercial Letters of Credit issued to pay for
shipments normally require that the Beneficiary There are risks in any commercial or financial transac-
present current bills of lading, insurance certificates, tion. With a Standby Letter of Credit, the Issuing Bank
commercial invoices, etc. Standby Letters of Credit, on substitutes its creditworthiness for that of its customer,
the other hand, are not typically used to pay for a the Applicant. The Standby Letter of Credit entitles the
current shipment of goods and, therefore, documents Beneficiary to payment from the Issuing Bank, up to a
evidencing a sale and shipment of goods are not stated amount, on presentation of strictly complying
required. Standby Letters of Credit are frequently used documents required by the Standby Letter of Credit.
as a form of payment guarantee in the case of non- The primary risks for the Beneficiary are whether the
performance by the Applicant of a contractual or other irrevocable commitment is given by a reputable and
obligation owed by the Applicant to the Beneficiary. financially sound bank, and whether the Beneficiary can
Standby letters of credit are also frequently used to comply with the Standby Letter of Credit terms and
effect direct payment to the beneficiary. An example of conditions in every contingency for which payment
the face of an Application form for a Standby Letter of might be owed by the Applicant to the Beneficiary.
Credit is shown on page 51 (Illustration 15).
The Applicant is obligated to the bank for any amount
paid under the Standby Letter of Credit. The primary
“Guarantee” and “Payment” risks for the Applicant arise from the fact that the
Before discussing the variety of purposes served by documents to be presented under a standby Letter of
Standby Letters of Credit, let us review the two basic Credit typically lack intrinsic value. They are frequently
types—the guarantee type (sometimes called “default”) statements signed by the Beneficiary. Therefore, the
and the payment type (sometimes called “direct-pay”). Applicant must use sound business judgment when
entering into a contract with a party in whose favor the
Guarantee (“Default”) Type Standby Letter of Credit will be issued —judgment that
Standby Letters of Credit may be issued to provide the Beneficiary will use the Standby Letter of Credit in a
funds following a default by the bank’s customer of its manner consistent with the underlying agreement and
contractual or other obligations. They typically provide understanding of the Applicant. The need for integrity
for payment against receipt of the Beneficiary’s state- exists in every business transaction. It is the Applicant
ment that the Applicant is in default of its obligation to that assumes this risk.
the Beneficiary and that the amount demanded is owed Whether a Standby Letter of Credit is intended to
as a consequence of that default. Illustration 16 on page function as a guarantee or as a payment mechanism, the
52 is a guarantee type Standby Letter of Credit. Because terms and conditions of the Issuing Bank’s relationship
a letter of credit is independent of the underlying with its customer are established by the Application and
contract, the bank’s obligation to pay under a standby Agreement, shown on page 51 (Illustration 15).
letter of credit does not depend on whether there has in Citibank specialists can assist a customer in complet-
fact been a default. ing the Application and Agreement form. However, the
customer must establish the terms and conditions that
Payment (“Direct Pay”) Type are satisfactory to it.
Illustration 17 on page 53 is a payment type Standby When the bank’s customer applies for credit, the bank
Letter of Credit. In this case, the Beneficiary is expected must decide whether it will assume the credit risk and
to draw under the Standby Letter of Credit to obtain other risks arising from the issuance of the Standby
payment when due on the underlying contract. The Letter of Credit for the account of that customer. Once
payment type Standby Letter of Credit functions as an the application is signed by the customer and the risks
immediate, no-default payment mechanism, under which to Citibank are accepted by Citibank in reliance on the
the beneficiary receives the funds of the Issuing Bank, application form, the Standby Letter of Credit is issued
rather than the Applicant. according to the application’s specifications.
Illustration 15 – Application and Agreement for Irrevocable Standby Letter of Credit1

Application for Standby Letter of Credit

51
Citibank, N.A., New York, NY 10043 Letter of Credit Reference No. ____________________

Attn: Standby Letter of Credit Dept., FLA–1, 2 / A Applicant (Name and Address)

Advising Bank (Name and Address)

Beneficiary (Name and Address)

Amount (In specific currency): _____________________

Expiry Date and Place: _____________________

This Application is for the issuance of a standby letter of credit under and subject to the terms and conditions of (select one):

❏ The Agreement for Standby Letter of Credit attached hereto:

❏ The Continuing Agreement for Commercial and / or Standby Letters of Credit dated _____________. ❋
❏ Other (describe):
_________________________________________________________________________________________________________________

Subject to the following terms and conditions, please issue your irrevocable Letter of Credit (hereinafter called the "Credit") to be available by
the beneficiary's draft(s):

Drawn at sight on:

❏ Citibank, N.A., New York, NY

❏ _____________________________________________________________________________________________________________
(Name and Address of Paying Bank, if any)

Accompanied by Beneficiary’s written statement that the amount of any drafts(s) drawn hereunder represent funds due and payable because
of the following reasons (select one):

❏ Applicant of the Credit has failed to comply with terms or conditions of a contract described as: _________________________________

_____________________________________________________________________________________________________________

❏ Applicant of the Credit has been awarded a contract under an offer to bid and has failed to become a party to the contract related thereto
describe): _____________________________________________________________________________________________________

_____________________________________________________________________________________________________________

❏ It has become necessary for the Beneficiary bank or other financial entity to make payment under its undertaking issued on behalf of
Applicant of this Credit, with an expiration date of _________________________, at its counters, in favor of _____________________

_________________________________________, in relation to _

_____________________________________________________________________________________________________________.

❋ If a Continuing Agreement is already in place, submit only this Application, with customer's signature and account manager's approvals on page 2
of this form.
Page 1 of 2

Front page only.

1
Illustration 16 – Standby Letter of Credit – IN LIEU OF A CONTRACT PERFORMANCE GUARANTEE

52 Citibank, N.A.
New York, New York

Irrevocable Standby Letter of Credit November 26, 20_

Archer Construction Associates

456 South Street N.W.
London, England

Sirs:
At the request and for the account of Construction Associates, Milwaukee, Wisconsin, we hereby
issue our Irrevocable Standby Letter of Credit No. 5499, in your favor, for an amount(s) not to
exceed in the aggregate U.S. $100,000.00, effective immediately and expiring on December 31, 20_.

Funds under this Letter of Credit are available to you against your sight draft(s) drawn on us,
mentioning thereon our Letter of Credit No. 5499. Each such draft must be accompanied by your
signed written statement that “Construction Associates has failed to comply with the terms and
conditions of contract #56-71A dated December 15, 20_, for the construction of an Office Complex,”
specifying the paragraph(s) and/or clause(s) in default.

We hereby undertake with you to honor each presentation made in compliance with the terms of
this Letter of Credit, if presented to us at Citicorp North America, Inc., Servicer for Citibank, N.A.,
3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or such other address as
we may advise from time to time on or before the stated expiration date.

This Letter of Credit is subject to the International Standby Practices 1998, International Cham-
bers of Commerce Publication No. 590 (“ISP98”), and as to matters not addressed by ISP98 is
subject to and governed by New York State and applicable US federal law.

Sample Letter of Credit

Authorized Signature
Illustration 17 – Standby Letter of Credit – AS A PAYMENT MECHANISM

Citibank, N.A.
53
New York, New York

Irrevocable Standby Letter of Credit January 3, 20_

Construction Associates
456 South 8th Street
Milwaukee, Wl 12345

Sirs:
At the request and for the account of Archer Construction Associates, London, England we hereby
issue our Irrevocable Standby Letter of Credit No. 5656, in your favor, for an amount(s) not to
exceed in the aggregate U.S. $200,000.00, effective immediately and expiring on December 31, 20_.

Funds under this Letter of Credit are available to you against your sight draft(s) drawn on us,
mentioning thereon our Letter of Credit No. 5656. Each such draft must be accompanied by your
signed written statement that “The amount of the draft being presented represents the full payment
for unpaid invoices in accordance with the terms and conditions of Purchase Order No. 345-62.”

We hereby undertake with you to honor each draft drawn under and in compliance with the terms
of this Letter of Credit, if duly presented together with the documents specified to us at Citicorp
North America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000,
Tampa, Florida 33610 on or before the stated expiration date.

This Letter of Credit is subject to the International Standby Practices 1998, International Cham-
bers of Commerce Publication No. 590 ("ISP98"), and as to matters not addressed by ISP98 is
subject to and governed by New York State and applicable US federal law. International Chamber of
Commerce’s Uniform Customs and Practice for Documentary Credits in effect on the date this Letter
of Credit is issued.

Sample Letter of Credit

Authorized Signature
Illustration 18 – Standby Letter of Credit – IN LIEU OF A BID PERFORMANCE GUARANTEE

54 Citibank, N.A.
New York, New York

Irrevocable Standby Letter of Credit January 3, 20_

Archer Construction Associates

456 South Street N.W.
London, England

Sirs:
At the request and for the account of Construction Associates, Milwaukee, Wisconsin, we hereby
issue our Irrevocable Standby Letter of Credit No. 5401, in your favor, for an amount(s) not to
exceed in the aggregate U.S. $224,000.00, effective immediately and expiring on December 31, 20_.

Funds under this Letter of Credit are available to you against your sight draft(s) drawn on us,
mentioning thereon our Letter of Credit No. 5401. Each such draft must be accompanied by your
signed written statement that “Construction Associates was duly tendered a contract for its signa-
ture under bid invitation No. 789-10 for the construction of a steel mill and failed to become a party
thereto.”

We hereby undertake with you to honor each presentation made in compliance with the terms of
this Letter of Credit if presented to us at Citicorp North America, Inc., Servicer for Citibank, N.A.,
3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610 on or before the stated
expiration date.

Sample Letter of Credit

Authorized Signature
Illustration 19 – Standby Letter of Credit
– PROTECTION FOR A BANK'S LOCAL UNDERTAKING WITH AN AUTOMATIC EXTENSION CLAUSE

Citibank, N.A.
55
New York, New York

Irrevocable Standby Letter of Credit January 3, 20_

The Saudi Central Bank

Jeddah, Saudi Arabia

Sirs:
Associated T.V. Suppliers, St. Louis, Missouri, requests you to issue and deliver your undertaking
in favor of The Overseas Imports Co. PLC, Jeddah, for an amount(s) not to exceed in the aggregate
U.S. $500,000.00, effective immediately and expiring at your office on December 20, 20_. The
undertaking is relative to Associated T.V. Suppliers’ performance under contract No. 75642A for the
supply of three hundred model 24A color television sets.

In reimbursement of your payments under your above-mentioned undertaking, we hereby issue

our Irrevocable Standby Letter of Credit No. 76123 in your favor for an amount(s) not to exceed in
the aggregate U.S. $500,000.00 effective immediately and expiring at your office on December 31,
20_. You are authorized to draw on us by authenticated telecommunication, indicating thereon our
Letter of Credit No. 76123, indicating the amount drawn and stating that “It has become necessary
for us to make payment under our undertaking issued on behalf of Associated T.V. Supplies, dated
[insert date of Saudi Central Bank undertaking] in favor of The Overseas Imports Co., PLC.”

It is a condition of this Letter of Credit that it will be automatically extended without

amendment for periods of one year from the then relative stated expiry date, unless at least
thirty (30) days prior to the relative stated expiry date we notify you by authenticated cable
that we elect not to extend this Letter of Credit. At that time, you may draw your one sight
draft on us for an amount not exceeding the unused balance of this Letter of Credit, mention-
ing our Letter of Credit No. 76123, accompanied by your signed statement that the funds so
drawn will be utilized to cover any liability or expense incurred by you, as a result of your
issuance of the above-mentioned undertaking and that you will refund to us the unused
balance upon cancellation of your relative undertaking.

We hereby undertake with you to honor each authenticated telecommunication presented under
and in compliance with the terms of this Letter of Credit, if presented to us by S.W.I.F.T. at
CITIUS33 or by tested telex to Citibank, N.A. – NYLCE on or before the stated expiration date.

Sample Letter of Credit

Authorized Signature
Examples of Typical Standby Letters of Credit
56
Overseas Bank Guarantees
The terms and conditions contained in a Standby Occasionally foreign laws and regulations require an
Letter of Credit vary based on the transaction. Standby overseas bank guarantee, which is a guarantee or other
Letters of Credit can be adapted to meet specific needs. undertaking issued by one of the country’s local banks
The variety of illustrations shown below demonstrates in favor of one of its nationals (a citizen, company, or
the versatility of Standby Letters of Credit. government agency).
Each Standby Letter of Credit illustrated is addressed To meet this requirement a U.S. firm could request that
to a Beneficiary. The opening paragraph provides basic Citibank issue a Standby Letter of Credit in favor of a
details, including the name of the Applicant, the amount, correspondent bank or branch located overseas. This
the expiration date, and the place of presentation. type of Standby Letter of Credit, depicted in Illustration
The second and succeeding paragraphs contain the 19 on page 55, serves to protect the overseas bank or
Standby Letter of Credit’s documentary requirements. branch in the issuance of its local guarantee or other
Each documentary requirement must be met exactly undertaking. The overseas bank will be entitled to draw
before the Beneficiary is entitled to payment. under the Standby Letter of Credit by presenting its
The closing paragraphs state the Issuing Bank’s own statement that it was required to disburse the amount
undertaking to honor, e.g. by paying the Beneficiary or drawn under its local guarantee or undertaking.
reimbursing a nominated bank, incorporate practice Care must be exercised in negotiating contracts
rules such as the UCP or the more recent and targeted requiring overseas bank guarantees. In some countries,
International Standby Practices (ISP98), and choose the local laws may provide that a guarantee or other under-
desired law governing the undertaking and forum for taking covering a contract cannot be terminated prior to
resolving disputes. the termination of the contract itself, or, in many cases,
prior to the Beneficiary’s formal acceptance of the
Bid and Performance Standbys product or service to which the guarantee relates.
It is a common business practice for firms to bid on Consequently, a Standby Letter of Credit issued to
projects and material purchases and to accompany each protect a local bank’s issuance of its guarantee or other
bid with some form of collateral or assurance covering undertaking may not expire on the stated expiration date.
a percentage of the bid price. A Standby Letter of This means that the Applicant cannot be released from
Credit may serve to assure that the bidder, if successful, its obligation until all the intermediary banks have been
will either become party to the contract or pay the released.
percentage of the bid price available under the Standby A Standby Letter of Credit of this type should have an
Letter of Credit. expiration date not earlier than the expiration date of
Illustration 18 on page 54 is an example of a bid the underlying contract, or if the expiry of the Standby
guarantee Standby Letter of Credit. It enables the Letter of Credit precedes the expiry of the contract, it
Applicant-Bidder to use the bank’s credit instead of cash should outline provisions for the local Beneficiary bank
or other form of collateral to support the bid. to draw. If the local guarantee or other undertaking has
Some contracts require that the successful bidder also not been terminated, the Standby Letter of Credit in
submit a performance guarantee. A Standby Letter of favor of the local bank may need to be extended for one
Credit in favor of the purchaser protects the purchaser or more additional periods. If not extended, the terms of
against a default by the bidder. It is similar to a bid the Standby Letter of Credit may permit the local bank to
guarantee Standby Letter of Credit (Illustration 18), draw on the Standby Letter of Credit to ensure itself
except that its required form of Beneficiary statement sufficient funds to cover potential future drawings
covers performance completion under the contract under its local guarantee or other undertaking.
instead of the bid, as shown on page 52 (Illustration 16). Although a U.S. bank may not be willing to issue a
Standby Letter of Credit on a long-term basis (covering
contracts continuing for a year or more), Standby Letter
of Credit terms can permit extensions of the expiration
Illustration 20 – Standby Letter of Credit – PROTECTION FOR A SURETY COMPANY'S UNDERTAKING OR BOND

Citibank, N.A.
57
New York, New York

Irrevocable Standby Letter of Credit January 3, 20_

The Standard Surety Co.

Sullivan Street
Newtown, VA 66534

Sirs:
At the request and for the account of Norman Steamship Lines, Newport, Rhode Island, we hereby
issue our Irrevocable Standby Letter of Credit No. 34692 in your favor for an amount(s) not to
exceed in the aggregate U.S. $500,000.00, effective immediately and expiring at our office on
December 31, 20_.

This Letter of Credit relates to the issuance of your bond(s) or undertaking(s) in favor of Drydock
Piers Ltd., San Diego, California, on behalf of our client Norman Steamship Lines, concerning to any
damages which may occur to Drydock Piers Ltd., pier #97 by the tanker S.S. Butane.

Funds under this Letter of Credit are available to you against your sight draft(s) drawn on us,
mentioning thereon our Letter of Credit number 34692. Each such draft must be accompanied by
your signed statement to the effect that you have incurred a loss, liability, expense and/or legal fees
as a result of your issuing said bond(s) or undertaking(s) as described above.

It is a condition of this Letter of Credit that it will be automatically extended without amendment
for periods of one year from the then relative stated expiry date, unless at least thirty (30) days prior
to the relative stated expiry date we notify you by registered mail that we elect not to extend this
Letter of Credit. At that time, you may draw your one sight draft on us for an amount not exceeding
the unused balance of this Letter of Credit, mentioning our Letter of Credit No. 34692, accompanied
by your signed statement that the funds so drawn will be utilized to cover any loss, liability, expense
and/or legal fees incurred by you as a result of your issuance of the above-mentioned bond or
undertaking and that you will refund to us the unused balance upon cancellation of your relative bond
or undertaking.

We hereby undertake with you to honor each draft drawn under and in compliance with the terms
of this Letter of Credit, if presented on or before the stated expiration date at Citicorp North
America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000,
Tampa, Florida 33610.

Sample Letter of Credit

Authorized Signature
Illustration 21 – Standby Letter of Credit – ESCROW ARRANGEMENT

58 Citibank, N.A.
New York, New York

Irrevocable Standby Letter of Credit January 3, 20_

The Finer Realty Corp.

456 South Wacker Drive
Chicago, IL 30012

Sirs:
At the request and for the account of Hotel Enterprise Corporation, New York, we hereby issue our
Irrevocable Standby Letter of Credit No. 84563 in your favor, for an amount(s) not to exceed in the
aggregate U.S. $2,000,000.00, effective immediately and expiring on October 31, 20_.

Funds under this Letter of Credit are available to you against your sight draft(s) drawn on us,
mentioning thereon our Letter of Credit No. 84563, in accordance with the following schedule of
payments:

1) U.S. $1,000,000.00 beginning on April 1, 20_ and up to and including April 20, 20_, accompa-
nied by your signed statement that “the amount of said draft represents the first installment for
the purchase of the Hotel Dixie, New Orleans.”
2) U.S. $1,000,000.00 beginning on October 1, 20_ and up to and including October 20, 20_,
accompanied by your signed statement that “the amount of said draft represents the final
installment for the purchase of the Hotel Dixie, New Orleans.”

We hereby undertake with you to honor each draft drawn under and in compliance with the terms
of this Letter of Credit, if presented to us together with the documents specified on or before the
stated expiration date at Citicorp North America, Inc., Servicer for Citibank, N.A., 3800 Citibank
Center, Bldg. F, 1st Floor, Sort 3000, Tampa, Florida 33610, or such other address as we may advise
from time to time.

Sample Letter of Credit

Authorized Signature
59
date on a year-to-year basis. This extension clause Securities Purchases
is known as an “automatic extension clause” or an The sale of securities is frequently a cash transaction
“evergreen clause.” An example of an automatic with delivery against payment. However, there are trans-
extension clause appears in Illustration 19 on page 55. actions where the securities holder wishes to contract
for the sale at a selling price established today—with
Letter of Credit Support for Surety Bonds delivery and payment to be made at a future date. Thus,
Contracts, government regulations, and court proceed- if the Beneficiary presents conforming documents, the
ings sometimes require one party to post a surety or Standby Letter of Credit assures that payment for the
indemnity bond. The primary issuers of the bonds securities will be made. Illustration 22 on page 60 shows
are insurance and surety companies. The party required the use of a Standby Letter of Credit covering a
to post bond applies for the bond. If the Applicant’s purchase of securities.
financial status is unknown to the bonding company, it
may require that the Applicant obtain a Standby Letter Municipal Bonds
of Credit issued in its favor as protection. This step Standby Letters of Credit are used to enhance the credit
shifts financial risk associated with the bond amount rating of municipal and other bonds and notes and may
from the surety company to the bank issuing the Standby be structured as either a guarantee type or payment type
Letter of Credit. A Standby Letter of Credit issued Standby Letter of Credit. By substituting the bank’s
in favor of a surety company is shown on page 57, stronger credit rating for that of the bond issuer, the
Illustration 20. bonds will receive an enhanced credit rating and may be
marketed at lower rates.
Standby Letters of Credit as a Payment Mechanism
Standby Letters of Credit used as payment mecha- Reinsurance
nisms can be tailored to meet almost any need to Standby Letters of Credit are frequently used to meet
provide a Beneficiary with funds with or without insurance industry requirements. The precise form
complicated terms and conditions. These Letters of Credit of such undertakings may be dictated by the insurer’s
may be used to provide for progress payments, salary regulators. Illustration 23 on page 61 is a typical Standby
payments or payment of other business expenses. Letter of Credit supporting the obligations of a reinsurer
Drawings typically require a signed statement by the to an insurer.
Beneficiary attesting to the fact that it has complied with
the conditions necessary to qualify for the payment. Revocable Letters of Credit
Illustration 17 on page 55 is a payment type Standby Most Standby Letters of Credit are issued in irrevo-
Letter of Credit issued in an irrevocable form in which cable form. However, there are instances where the bank’s
the Issuing Bank has committed to pay the Beneficiary customer wants to retain a termination privilege. In this
upon presentation of a simple statement and a draft. event the revocable form, Illustration 24 on page 62,
is suitable. If payment is restricted to the office of the
Escrow Arrangements issuing bank, then it incurs no obligation to pay before
The use of escrow accounts to segregate cash or it receives a presentation and decides in its discretion
securities in which more than one party has an interest to pay. From the Beneficiary’s perspective, a Standby
is a familiar device for certain types of business transac- Letter of Credit issued in revocable form is not actually
tions. Standby Letters of Credit such as Illustration 21 a bank credit, but rather a payment arrangement which
on page 58 can often be adapted to serve in lieu of an can be terminated at the Issuing Bank’s option (or, more
escrow account. likely, its customer’s). The Beneficiary’s consent to the
cancellation of a Revocable Letter of Credit is not
required.
Illustration 22 – Standby Letter of Credit – PURCHASE OR SALE OF SECURITIES

60 Citibank, N.A.
New York, New York

Irrevocable Standby Letter of Credit October 3, 20_

The Securities Sales Corp.

100 Wall Street
New York, NY 10018

Sirs:
At the request and for the account of Peter Brown Associates, New York, NY, we hereby issue our
Irrevocable Standby Letter of Credit No. 30012 in your favor, for an amount(s) not to exceed in the
aggregate U.S. $3,500,000.00, effective immediately and expiring at our office on January 6, 20_.

Funds under this Letter of Credit are available to you, from time to time, against a receipt for the
amount being drawn, under Letter of Credit Number 30012. Accompanying this receipt must be your
signed statement that “the amount being drawn does not exceed the product resulting from multiply-
ing the number of Shares then being presented by $35.00.”

Each receipt must also be accompanied by one or more certificates for shares of common stock,
$1.00 par value, of the “Amblac Corporation” (the shares purportedly represented by such certifi-
cates being herein called “Shares”), each certificate bearing an endorsement in blank by the registered
owner thereof, such signature or signatures, in the event, to appear to be guaranteed by a commercial
bank or trust company having an office or correspondent in New York City or by a purported
member of the New York Stock Exchange.

We hereby undertake with you to honor each presentation made in compliance with the terms of
this Letter of Credit, if presented to us on or before the stated expiration date at Citicorp North
America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000,
Tampa, Florida 33610, or such other address as we may advise from time to time.

Sample Letter of Credit

Authorized Signature
Illustration 23 – Standby Irrevocable Letter of Credit – REINSURANCE

Citibank, N.A.
61
111 Wall Street, New York, New York 10043

Irrevocable Standby Letter of Credit May 10, 20_

FOR INTERNAL IDENTIFICATION

ONLY
Quinn Kelly Insurance Co. Citibank Ref. No. 12345678
3 Park Avenue Issuer’s Reference No. 0001234
New York, New York 10005
By order of:
Citibank London
Insurance Dept.
London, England
At the request of:
Fan Smith Limited
Transaction Reference No.: 7171947

Dear Sirs:
We hereby establish this irrevocable and unconditional Standby Letter of Credit in favor of the
aforesaid addressee (“Beneficiary”) for drawings up to U.S.$96,239.92, effective immediately. This
Letter of Credit is issued, presentable and payable at our office shown above or such other office as
we may advise from time to time, and expires with our close of business on August 31, 20_.
The term “Beneficiary” includes any successor by operation of law of the named Beneficiary,
including, without limitation, any liquidator, rehabilitator, receiver, or conservator.
We hereby undertake to promptly honor your sight draft(s) drawn on us, indicating our Letter of
Credit No. 12345678, for all or any part of this Letter of Credit, if presented at our office specified
in paragraph one or such other office as we may advise from time to time, on or before the expiry date
or any automatically extended expiry date.
Except as expressly stated herein, this undertaking is not subject to any agreement, condition or
qualification. The obligation of Citibank, N.A. under this Letter of Credit is the individual obligation
of Citibank, N.A., and is in no way contingent upon reimbursement with respect thereto.
It is a condition of this Letter of Credit that it is deemed to be automatically extended without
amendment for one year from the expiry date hereof, or any future expiration date, unless thirty (30)
days prior to any expiration date we notify you by Registered Mail that we elect not to
consider this Letter of Credit renewed for any such additional period.
This Letter of Credit is subject to and governed by the laws of the State of New York and the
Uniform Customs and Practice for Documentary Credits (1993 Revision) Publication 500 (the
“UCP”) and, in the event of any conflict, the laws of the State of New York will control. If this Letter
of Credit expires during an interruption of business as described in Article 17 of the UCP, we hereby
specifically agree to effect payment if this Letter of Credit is drawn against within thirty days after
the resumption of our business.

Sample Letter of Credit

Authorized Signature
Illustration 24 – Revocable Standby Letter of Credit – SCHEDULED PAYMENT

62 Citibank, N.A.
New York, New York

Revocable Standby Letter of Credit November 3, 2000

Mr. John Doe

3115 First Boulevard
Kansas City, KS 72320

Sirs:
At the request and for the account of John Smith, New York, NY, we hereby issue our Revocable
Standby Letter of Credit No. 10354 in your favor, for an amount(s) not to exceed in the aggregate
U.S. $12,000.00, available at the rate of $1,000.00 per calendar month, non-cumulative effective
January 1, 2001 and expiring on December 31, 2001, unless sooner revoked.

Funds under this Letter of Credit are available to you, from time to time, against your sight draft(s)
drawn on us, mentioning thereon our Letter of Credit No. 10354 presented to us at Citicorp North
America, Inc., Servicer for Citibank, N.A., 3800 Citibank Center, Bldg. F, 1st Floor, Sort 3000,
Tampa, Florida 33610.

This Letter of Credit is subject to revocation or modification at any time without notice to you and
conveys no engagement on our part.

Sample Letter of Credit

Authorized Signature
Illustration 25 – Summary of Standby Letters of Credit

63
Payment of Principal, Purchase
Price and/or Interest on Bonds

In Lieu of Stock
Transfer Contracts
Payment Type
To Pay Progress
Payments

To Pay Promissory
Notes
Irrevocable
n

In Lieu of Bid, Performance

and Surety Bonds

Guarantee Type In Lieu of

Bank Guarantees

To Support Another Bank's

Standby Guarantee or Undertaking
Letters of Credit

To Pay Salaries Abroad

n
Revocable Payment Type Intercompany Payments

To Pay Expense Accounts

LETTERS OF CREDIT
The Rules

This booklet has referred throughout to rules or

C H A P T E R
guidelines adhered to by banks internationally. The
following publications can be obtained by contacting
the International Chamber of Commerce, either ICC
Publishing Inc. at 156 Fifth Avenue, Suite 417, New

9
York, NY 10010, e-mail: info@iccpub.net, or ICC Pub-
lishing S.A. at 38 Cours Albert 1er, 75008 Paris, France,
e-mail: pub@iccwbo.org or its Web site: www.iccwbo.org:
• Uniform Customs and Practice for Documentary
Credits - (ICC Publication 500) - This is the 1993
revision of the compilation of international customs
and practice relating to commercial letters of credit
known as “UCP 500.”
• International Standard Banking Practice - (ICC
Publication 645) – This explains how the practices
articulated in ICC’s Uniform Customs and Practice
for Documentary Credits are applied in everyday
practice by documentary credit practitioners around
the world and is known as “ISBP.”
• International Standby Practices - (ICC Publication
590) - This is the 1998 compilation of international
customs and practice relating to standby letters of
credit known as “ISP98.”
• Uniform Rules for Bank-to-Bank Reimbursements -
(ICC Publication 525) - This is a compilation of
international rules for bank-to-bank reimbursements
relating to letters of credit known as “URR 525.”
• Uniform Rules for Collections – (ICC Publication
522) – This is a practical set of rules to aid bankers,
buyers, and sellers in the collections process. The
rules have been prepared to resolve problems that
practitioners have experienced in their everyday
operations and are known as “URC 522.”
The following publication can be obtained by con-
tacting the International Center for Letter of Credit
Arbitration, Inc., 9158 Rothbury Drive, No. 189,
Gaithersburg, MD 20886:
• International Center for Letter of Credit Arbitra-
tion, Inc. Rules of Arbitration - This is a booklet of
rules to be followed in letter of credit arbitrations
administered by the Center. The rules are based on
the UNCITRAL Rules of Arbitration.
The following publications are copyrighted by the International Chamber of Commerce
and are used by permission:
UCP 500, URC 522, URR 525, ISBP 645, and ISP98.
The following publication is copyrighted by the International Center for Letter of Credit
Arbitration, Inc. and used by permission:

66 International Center for Letter of Credit Arbitration, Inc. (ICLOCA) Rules of Arbitration.

THE UNIFORM CUSTOMS AND PRACTICE FOR banks are in no way concerned with or bound by such
DOCUMENTARY CREDITS (UCP) contract(s), even if any reference whatsoever to such
contract(s) is included in the Credit.
This updated and expanded version first published in Jan 2002.
Consequently, the undertaking of a bank to pay, accept and
The Uniform Customs and Practice for Documentary Credits
pay Draft(s) or negotiate and/or to fulfil any other obliga-
(UCP) were first published by ICC in 1933. Revised versions
tion under the Credit, is not subject to claims or defences by
were issued in 1951, 1962, 1974, 1983 and 1993. This edition
the Applicant resulting from his relationships with the
includes the full text of the 1993 revision, which was adopted
Issuing Bank or the Beneficiary.
by the ICC Executive Board in April 1993 and first published
as ICC Publication No. 500 in May 1993. It also includes for b A Beneficiary can in no case avail himself of the contractual
the first time the Supplement to UCP 500 for Electronic Pre- relationships existing between the banks or between the
sentation (eUCP). Applicant and the Issuing Bank.

A. GENERAL PROVISIONS AND DEFINITIONS Article 4

Article 1 Documents v. Goods/Services/Performances
Application of UCP In Credit operations all parties concerned deal with docu-
The Uniform Customs and Practice for Documentary Cred- ments, and not with goods, services and/or other performances
its, 1993 Revision, ICC Publication No. 500, shall apply to to which the documents may relate.
all Documentary Credits (including to the extent to which
they may be applicable, Standby Letter(s) of Credit) where
Article 5
they are incorporated into the text of the Credit.
Instructions to Issue/Amend Credits
They are binding on all parties thereto, unless otherwise ex-
pressly stipulated in the Credit. a Instructions for the issuance of a Credit, the Credit itself,
instructions for an amendment thereto, and the amendment
itself, must be complete and precise. In order to guard against
Article 2 confusion and misunderstanding, banks should discourage
Meaning of Credit any attempt:
For the purposes of these Articles, the expressions “Docu- i. to include excessive detail in the Credit or in any amend-
mentary Credit(s)” and “Standby Letter(s) of Credit” (here- ment thereto;
inafter referred to as “Credit(s)”), mean any arrangement, ii. to give instructions to issue, advise or confirm a Credit
however named or described, whereby a bank (the “Issuing by reference to a Credit previously issued (similar Credit)
Bank”) acting at the request and on the instructions of a cus- where such previous Credit has been subject to accepted
tomer (the “Applicant”) or on its own behalf, amendment(s), and/or unaccepted amendment(s).
i. is to make a payment to or to the order of a third party b All instructions for the issuance of a Credit and the Credit
(the”Beneficiary”), or is to accept and pay bills of itself and, where applicable, all instructions for an amend-
exchange (Draft(s)) drawn by the Beneficiary, ment thereto and the amendment itself, must state precisely
or the document(s) against which payment, acceptance or
ii. authorises another bank to effect such payment, or to negotiation is to be made.
accept and pay such bills of exchange (Draft(s)),
or B. FORM AND NOTIFICATION OF CREDITS
iii. authorises another bank to negotiate, Article 6
against stipulated document(s),provided that the terms and Revocable v. Irrevocable Credits
conditions of the Credit are complied with. a A Credit may be either
For the purposes of these Articles, branches of a bank in i. revocable,
different countries are considered another bank.
or
ii. irrevocable.
Article 3
b The Credit, therefore, should clearly indicate whether it is
Credits v. Contracts
revocable or irrevocable.
a Credits, by their nature, are separate transactions from the
c In the absence of such indication the Credit shall be deemed
sales or other contract(s) on which they may be based and
to be irrevocable.
Article 7 iv. if the Credit provides for negotiation – to pay without
Advising Bank’s Liability recourse to drawers and/or bona fide holders, Draft(s)
a A Credit may be advised to a Beneficiary through another drawn by the Beneficiary and/or document(s) presented
bank (the “Advising Bank”) without engage-ment on the under the Credit. A Credit should not be issued available
part of the Advising Bank, but that bank, if it elects to by Draft(s) on the Applicant. If the Credit nevertheless
advise the Credit, shall take reasonable care to check the calls for Draft(s) on the Applicant, banks will consider
apparent authenticity of the Credit which it advises. If the such Draft(s) as an additional document(s).
bank elects not to advise the Credit, it must so inform the b A confirmation of an irrevocable Credit by another bank
Issuing Bank without delay.
b If the Advising Bank cannot establish such apparent
authenticity it must inform, without delay, the bank from
(the “Confirming Bank”) upon the authorisation or request
of the Issuing Bank, constitutes a definite undertaking of
the Confirming Bank, in addition to that of the Issuing Bank,
67
which the instructions appear to have been received that it provided that the stipulated documents are presented to
has been unable to establish the authenticity of the Credit the Confirming Bank or to any other Nominated Bank and
and if it elects nonetheless to advise the Credit it must that the terms and conditions of the Credit are complied
inform the Beneficiary that it has not been able to establish with:
the authenticity of the Credit. i. if the Credit provides for sight payment – to pay at
sight;
Article 8 ii. if the Credit provides for deferred payment – to pay on
Revocation of a Credit the maturity date(s) determinable in accordance with the
a A revocable Credit may be amended or cancelled by the stipulations of the Credit;
Issuing Bank at any moment and without prior notice to the iii. if the Credit provides for acceptance:
Beneficiary. a) by the Confirming Bank – to accept Draft(s) drawn
b However, the Issuing Bank must: by the Beneficiary on the Confirming Bank and pay
i. reimburse another bank with which a revocable Credit them at maturity,
has been made available for sight payment, acceptance or
or negotiation – for any payment, acceptance or negotia- b) by another drawee bank – to accept and pay at
tion made by such bank – prior to receipt by it of notice maturity Draft(s) drawn by the Beneficiary on the
of amendment or cancellation, against documents which Confirming Bank, in the event the drawee bank stipu-
appear on their face to be in compliance with the terms lated in the Credit does not accept Draft(s) drawn on
and conditions of the Credit; it, or to pay Draft(s) accepted but not paid by such
ii. reimburse another bank with which a revocable Credit drawee bank at maturity;
has been made available for deferred payment, if such a
iv. if the Credit provides for negotiation – to negotiate with-
bank has, prior to receipt by it of notice of amendment
or cancellation, taken up documents which appear on out recourse to drawers and/or bona fide holders, Draft(s)
their face to be in compliance with the terms and condi- drawn by the Beneficiary and/or document(s) presented
tions of the Credit. under the Credit. A Credit should not be issued available
by Draft(s) on the Applicant. If the Credit nevertheless
calls for Draft(s) on the Applicant, banks will consider
Article 9 such Draft(s) as an additional document(s).
Liability of Issuing and Confirming Banks c i. If another bank is authorised or requested by the Issuing
a An irrevocable Credit constitutes a definite undertaking of Bank to add its confirmation to a Credit but is not
the Issuing Bank, provided that the stipulated documents prepared to do so, it must so inform the Issuing Bank
are presented to the Nominated Bank or to the Issuing Bank without delay.
and that the terms and conditions of the Credit are complied ii. Unless the Issuing Bank specifies otherwise in its
with: authorisation or request to add confirmation, the Advis-
i. if the Credit provides for sight payment – to pay at ing Bank may advise the Credit to the Beneficiary with-
sight; out adding its confirmation.
ii. if the Credit provides for deferred payment – to pay on d i. Except as otherwise provided by Article 48, an irrevo-
the maturity date(s) determinable in accordance with the cable Credit can neither be amended nor cancelled with-
stipulations of the Credit; out the agreement of the Issuing Bank, the Confirming
Bank, if any, and the Beneficiary.
iii.if the Credit provides for acceptance:
ii. The Issuing Bank shall be irrevocably bound by an
a) by the Issuing Bank – to accept Draft(s) drawn by the
amendment(s) issued by it from the time of the issuance
Beneficiary on the Issuing Bank and pay them at of such amendment(s). A Confirming Bank may extend
maturity, its confirmation to an amendment and shall be irrevoca-
or bly bound as of the time of its advice of the amendment.
b) by another drawee bank – to accept and pay at matu- A Confirming Bank may, however, choose to advise an
rity Draft(s) drawn by the Beneficiary on the Issuing amendment to the Beneficiary without extending its
Bank in the event the drawee bank stipulated in the confirmation and if so, must inform the Issuing Bank and
Credit does not accept Draft(s) drawn on it, or to pay the Beneficiary without delay.
Draft(s) accepted but not paid by such drawee bank
at maturity;
iii. The terms of the original Credit (or a Credit incorporat- sent. Should a mail confirmation nevertheless be sent, it
ing previously accepted amend-ment(s)) will remain in will have no effect and the Advising Bank will have no
force for the Beneficiary until the Beneficiary communi- obligation to check such mail confirmation against the
cates his acceptance of the amendment to the bank that operative Credit instrument or the operative Credit
advised such amendment. The Beneficiary should give instrument or the operative amendment received by
notification of acceptance or rejection of amendment(s). teletransmission.
If the Beneficiary fails to give such notification, the ii. If the teletransmission states “full details to follow” (or
tender of documents to the Nominated Bank or Issuing words of similar effect) or states that the mail confirma-

68 Bank, that conform to the Credit and to not yet accepted

amendment(s), will be deemed to be notification of
acceptance by the Beneficiary of such amendment(s)
tion is to be the operative Credit instrument or the
operative amendment, then the teletransmission will not
be deemed to be the operative Credit instrument or the
and as of that moment the Credit will be amended. operative amendment. The Issuing Bank must forward
iv. Partial acceptance of amendments contained in one and the operative Credit instrument or the operative amend-
the same advice of amendment is not allowed and conse- ment to such Advising Bank without delay.
quently will not be given any effect. b If a bank uses the services of an Advising Bank to have the
Credit advised to the Beneficiary, it must also use the
services of the same bank for advising an amendment(s).
Article 10
c A preliminary advice of the issuance or amendment of an
Types of Credit irrevocable Credit (pre-advice), shall only be given by an
a All Credits must clearly indicate whether they are available Issuing Bank if such bank is prepared to issue the operative
by sight payment, by deferred payment, by acceptance or Credit instrument or the operative amendment thereto.
by negotiation. Unless otherwise stated in such preliminary advice by the
b i. Unless the Credit stipulates that it is available only with Issuing Bank, an Issuing Bank having given such pre-advice
the Issuing Bank, all Credits must nominate the bank shall be irrevocably committed to issue or amend the Credit,
(the “Nominated Bank”) which is authorised to pay, to in terms not inconsistent with the pre-advice, without
incur a deferred payment undertaking, to accept Draft(s) delay.
or to negotiate. In a freely negotiable Credit, any bank is
a Nominated Bank.
Article 12
Presentation of documents must be made to the Issuing
Incomplete or Unclear Instructions
Bank or the Confirming Bank, if any, or any other Nomi-
nated Bank. If incomplete or unclear instructions are received to advise,
confirm or amend a Credit, the bank requested to act on such
ii. Negotiation means the giving of value for Draft(s) and/or instructions may give preliminary notification to the Benefi-
document(s) by the bank authorised to negotiate. Mere ciary for information only and without responsibility. This
examination of the documents without giving of value preliminary notification should state clearly that the notifica-
does not constitute a negotiation. tion is provided for information only and without the respon-
c Unless the Nominated Bank is the Confirming Bank, nomi- sibility of the Advising Bank. In any event, the Advising Bank
nation by the Issuing Bank does not constitute any under- must inform the Issuing Bank of the action taken and request
taking by the Nominated Bank to pay, to incur a deferred it to provide the necessary information.
payment undertaking, to accept Draft(s), or to negotiate. The Issuing Bank must provide the necessary information
Except where expressly agreed to by the Nominated Bank without delay. The Credit will be advised, confirmed or
and so communicated to the Beneficiary, the Nominated amended, only when complete and clear instructions have
Bank’s receipt of and/or examination and/or forwarding of been received and if the Advising Bank is then prepared to act
the documents does not make that bank liable to pay, to on the instructions.
incur a deferred payment undertaking, to accept Draft(s),
or to negotiate.
d By nominating another bank, or by allowing for negotiation C. LIABILITIES AND RESPONSIBILITIES
by any bank, or by authorising or requesting another bank Article 13
to add its confirmation, the Issuing Bank authorises such Standard for Examination of Documents
bank to pay, accept Draft(s) or negotiate as the case may a Banks must examine all documents stipulated in the Credit
be, against documents which appear on their face to be in with reasonable care, to ascertain whether or not they
compliance with the terms and conditions of the Credit and appear, on their face, to be in compliance with the terms
undertakes to reimburse such bank in accordance with the and conditions of the Credit. Compliance of the stipulated
provisions of these Articles. documents on their face with the terms and conditions of
the Credit, shall be determined by international standard
Article 11 banking practice as reflected in these Articles. Documents
which appear on their face to be inconsistent with one
Teletransmitted and Pre-Advised Credits
another will be considered as not appearing on their face to
a i. When an Issuing Bank instructs an Advising Bank by an be in compliance with the terms and conditions of the Credit.
authenticated teletransmission to advise a Credit or an
Documents not stipulated in the Credit will not be exam-
amendment to a Credit, the teletransmission will be
deemed to be the operative Credit instrument or the op- ined by banks. If they receive such documents, they shall
erative amendment, and no mail confirmation should be return them to the presenter or pass them on without
responsibility.
b The Issuing Bank, the Confirming Bank, if any, or a Nomi- Bank, if any, shall be precluded from claiming that the docu-
nated Bank acting on their behalf, shall each have a reason- ments are not in compliance with the terms and conditions
able time, not to exceed seven banking days following the of the Credit.
day of receipt of the documents, to examine the documents f If the remitting bank draws the attention of the Issuing
and determine whether to take up or refuse the documents Bank and/or Confirming Bank, if any, to any discrepancy(ies)
and to inform the party from which it received the in the document(s) or advises such banks that it has paid,
documents accordingly. incurred a deferred payment undertaking, accepted Draft(s)
c If a Credit contains conditions without stating the or negotiated under reserve or against an indemnity in
document(s) to be presented in compliance therewith, banks
will deem such conditions as not stated and will disregard
them.
respect of such discrepancy(ies), the Issuing Bank and/or
Confirming Bank, if any, shall not be thereby relieved from
any of their obligations under any provision of this Article.
69
Such reserve or indemnity concerns only the relations
Article 14 between the remitting bank and the party towards whom
Discrepant Documents and Notice the reserve was made, or from whom, or on whose behalf,
the indemnity was obtained.
a When the Issuing Bank authorises another bank to pay,
incur a deferred payment undertaking, accept Draft(s), or
negotiate against documents which appear on their face to Article 15
be in compliance with the terms and conditions of the Credit, Disclaimer on Effectiveness of Documents
the Issuing Bank and the Confirming Bank, if any, are bound: Banks assume no liability or responsibility for the form, suf-
i. to reimburse the Nominated Bank which has paid, ficiency, accuracy, genuineness, falsification or legal effect of
incurred a deferred payment undertaking, accepted any document(s), or for the general and/or particular condi-
Draft(s), or negotiated, tions stipulated in the document(s) or superimposed thereon;
nor do they assume any liability or responsibility for the
ii. to take up the documents.
description, quantity, weight, quality, condition, packing,
b Upon receipt of the documents the Issuing Bank and/or delivery, value or existence of the goods represented by any
Confirming Bank, if any, or a Nominated Bank acting on document(s), or for the good faith or acts and/or omissions,
their behalf, must determine on the basis of the documents solvency, performance or standing of the consignors, the car-
alone whether or not they appear on their face to be in riers, the forwarders, the consignees or the insurers of the
compliance with the terms and conditions of the Credit. If goods, or any other person whomsoever.
the documents appear on their face not to be in compliance
with the terms and conditions of the Credit, such banks
may refuse to take up the documents. Article 16
c If the Issuing Bank determines that the documents appear Disclaimer on the Transmission of Messages
on their face not to be in compliance with the terms and Banks assume no liability or responsibility for the conse-
conditions of the Credit, it may in its sole judgment quences arising out of delay and/or loss in transit of any
approach the Applicant for a waiver of the discrepancy(ies). message(s), letter(s) or document(s), or for delay, mutilation
This does not, however, extend the period mentioned in or other error(s) arising in the transmission of any telecom-
sub-Article 13 (b). munication. Banks assume no liability or responsibility for
d i. If the Issuing Bank and/or Confirming Bank, if any, or a errors in translation and/or interpretation of technical terms,
Nominated Bank acting on their behalf, decides to refuse and reserve the right to transmit Credit terms without trans-
the documents, it must give notice to that effect by lating them.
telecommunication or, if that is not possible, by other
expeditious means, without delay but no later than the Article 17
close of the seventh banking day following the day of Force Majeure
receipt of the documents. Banks assume no liability or responsibility for the conse-
Such notice shall be given to the bank from which it quences arising out of the interruption of their business by
received the documents, or to the Beneficiary, if it Acts of God, riots, civil commotions, insurrections, wars or
received the documents directly from him. any other causes beyond their control, or by any strikes or
ii. Such notice must state all discrepancies in respect of lockouts. Unless specifically authorised, banks will not, upon
which the bank refuses the documents and must also resumption of their business, pay, incur a deferred payment
state whether it is holding the documents at the disposal undertaking, accept Draft(s) or negotiate under Credits which
of, or is returning them to, the presenter. expired during such interruption of their business.
iii. The Issuing Bank and/or Confirming Bank, if any, shall
then be entitled to claim from the remitting bank refund, Article 18
with interest, of any reimbursement which has been made Disclaimer for Acts of an Instructed Party
to that bank. a Banks utilizing the services of another bank or other banks
e If the Issuing Bank and/or Confirming Bank, if any, fails to for the purpose of giving effect to the instructions of the
act in accordance with the provisions of this Article and/or Applicant do so for the account and at the risk of such
fails to hold the documents at the disposal of, or return Applicant.
them to the presenter, the Issuing Bank and/or Confirming b Banks assume no liability or responsibility should the
instructions they transmit not be carried out, even if they
have themselves taken the initiative in the choice of such i. by reprographic, automated or computerized systems;
other bank(s).
ii. as carbon copies;
c i. A party instructing another party to perform services is
liable for any charges, including commissions, fees, costs provided that it is marked as original and, where necessary,
or expenses incurred by the instructed party in connec- appears to be signed.
tion with its instructions. A document may be signed by handwriting, by facsimile
ii. Where a Credit stipulates that such charges are for the signature, by perforated signature, by stamp, by symbol,
account of a party other than the instructing party, and or by any other mechanical or electronic method of

70 charges cannot be collected, the instructing party remains

ultimately liable for the payment thereof.
authentication.
c i. Unless otherwise stipulated in the Credit, banks will
accept as a copy(ies), a document(s) either labelled copy
d The Applicant shall be bound by and liable to indemnify
the banks against all obligations and responsibilities or not marked as an original – a copy(ies) need not be
imposed by foreign laws and usages. signed.
ii. Credits that require multiple document(s) such as
Article 19 “duplicate”, “two fold”, “two copies” and the like, will
be satisfied by the presentation of one original and the
Bank-to-Bank Reimbursement Arrangements
remaining number in copies except where the document
a If an Issuing Bank intends that the reimbursement to which itself indicates otherwise.
a paying, accepting or negotiating bank is entitled, shall be
d Unless otherwise stipulated in the Credit, a condition under
obtained by such bank (the “Claiming Bank”), claiming on
a Credit calling for a document to be authenticated,
another party (the “Reimbursing Bank”), it shall provide
validated, legalised, visaed, certified or indicating a similar
such Reimbursing Bank in good time with the proper
requirement, will be satisfied by any signature, mark, stamp
instructions or authorisation to honour such reimbursement
or label on such document that on its face appears to satisfy
claims.
the above condition.
b Issuing Banks shall not require a Claiming Bank to supply a
certificate of compliance with the terms and conditions of
the Credit to the Reimbursing Bank. Article 21
c An Issuing Bank shall not be relieved from any of its obliga- Unspecified Issuers or Contents of Documents
tions to provide reimbursement if and when reimbursement When documents other than transport documents, insurance
is not received by the Claiming Bank from the Reimbursing documents and commercial invoices are called for, the Credit
Bank. should stipulate by whom such documents are to be issued
d The Issuing Bank shall be responsible to the Claiming Bank and their wording or data content. If the Credit does not so
for any loss of interest if reimbursement is not provided by stipulate, banks will accept such documents as presented,
the Reimbursing Bank on first demand, or as otherwise provided that their data content is not inconsistent with any
specified in the Credit, or mutually agreed, as the case may other stipulated document presented.
be.
e The Reimbursing Bank’s charges should be for the account Article 22
of the Issuing Bank. However, in cases where the charges Issuance Date of Documents v. Credit Date
are for the account of another party, it is the responsibility
Unless otherwise stipulated in the Credit, banks will accept a
of the Issuing Bank to so indicate in the original Credit and
document bearing a date of issuance prior to that of the Credit,
in the reimbursement authorisation. In cases where the
subject to such document being presented within the time
Reimbursing Bank’s charges are for the account of another
limits set out in the Credit and in these Articles.
party they shall be collected from the Claiming Bank when
the Credit is drawn under. In cases where the Credit is not
drawn under, the Reimbursing Bank’s charges remain the Article 23
obligation of the Issuing Bank. Marine/Ocean Bill of Lading
a If a Credit calls for a bill of lading covering a port-to-port
shipment, banks will, unless otherwise stipulated in the
D. DOCUMENTS
Credit, accept a document, however named, which:
Article 20
i. appears on its face to indicate the name of the carrier and
Ambiguity as to the Issuers of Documents
to have been signed or otherwise authenticated by:
a Terms such as “first class”, “well known”, “qualified”,
“independent”, "official”, “competent”, “local” and the like, – the carrier or a named agent for or on behalf of the
shall not be used to describe the issuers of any document(s) carrier, or
to be presented under a Credit. If such terms are incorpo- – the master or a named agent for or on behalf of the
rated in the Credit, banks will accept the relative document(s) master.
as presented, provided that it appears on its face to be in Any signature or authentication of the carrier or master
compliance with the other terms and conditions of the Credit must be identified as carrier or master, as the case may
and not to have been issued by the Beneficiary. be. An agent signing or authenticating for the carrier or
b Unless otherwise stipulated in the Credit, banks will also master must also indicate the name and the capacity of
accept as an original document(s), a document(s) produced the party, i.e. carrier or master, on whose behalf that
or appearing to have been produced: agent is acting, and
ii. indicates that the goods have been loaded on board, or c Unless transhipment is prohibited by the terms of the
shipped on a named vessel. Loading on board or Credit, banks will accept a bill of lading which indicates that
shipment on a named vessel may be indicated by the goods will be transhipped, provided that the entire ocean
pre-printed wording on the bill of lading that the goods carriage is covered by one and the same bill of lading.
have been loaded on board a named vessel or shipped on d Even if the Credit prohibits transhipment, banks will
a named vessel, in which case the date of issuance of the accept a bill of lading which:
bill of lading will be deemed to be the date of loading on i. indicates that transhipment will take place as long as the
board and the date of shipment. relevant cargo is shipped in Container(s), Trailer(s) and/
In all other cases loading on board a named vessel must
be evidenced by a notation on the bill of lading which
or “LASH” barge(s) as evidenced by the bill of lading,
provided that the entire ocean carriage is covered by one
and the same bill of lading,
71
gives the date on which the goods have been loaded on
board, in which case the date of the on board notation and/or
will be deemed to be the date of shipment. ii. incorporates clauses stating that the carrier reserves the
If the bill of lading contains the indication “intended right to tranship.
vessel”, or similar qualification in relation to the vessel,
loading on board a named vessel must be evidenced by
Article 24
an on board notation on the bill of lading which, in
addition to the date on which the goods have been loaded Non-Negotiable Sea Waybill
on board, also includes the name of the vessel on which a If a Credit calls for a non-negotiable sea waybill covering a
the goods have been loaded, even if they have been loaded port-toport shipment, banks will, unless otherwise
on the vessel named as the “intended vessel”. stipulated in the Credit, accept a document, however named,
which:
If the bill of lading indicates a place of receipt or taking in
charge different from the port of loading, the on board i. appears on its face to indicate the name of the carrier and
notation must also include the port of loading stipulated to have been signed or otherwise authenticated by:
in the Credit and the name of the vessel on which the – the carrier or a named agent for or on behalf of the
goods have been loaded, even if they have been loaded carrier, or
on the vessel named in the bill of lading. This provision – the master or a named agent for or on behalf of the
also applies whenever loading on board the vessel is master, Any signature or authentication of the carrier
indicated by pre-printed wording on the bill of lading, or master must be identified as carrier or master, as the
and case may be. An agent signing or authenticating for the
iii. indicates the port of loading and the port of discharge carrier or master must also indicate the name and the
stipulated in the Credit, notwithstand-ing that it: capacity of the party, i.e. carrier or master, on whose
a) indicates a place of taking in charge different from behalf that agent is acting, and
the port of loading, and/or a place of final destination ii. indicates that the goods have been loaded on board, or
different from the port of discharge, and/or shipped on a named vessel.
b) contains the indication “intended” or similar qualifi- Loading on board or shipment on a named vessel may be
cation in relation to the port of loading and/or port of indicated by pre-printed wording on the non-negotiable
discharge, as long as the document also states the sea waybill that the goods have been loaded on board a
ports of loading and/or discharge stipulated in the named vessel or shipped on a named vessel, in which
Credit, case the date of issuance of the non-negotiable sea way
and bill will be deemed to be the date of loading on board and
iv. consists of a sole original bill of lading or, if issued in the date of shipment.
more than one original, the full set as so issued, In all other cases loading on board a named vessel must
and be evidenced by a notation on the non-negotiable sea
waybill which gives the date on which the goods have
v. appears to contain all of the terms and conditions of
been loaded on board, in which case the date of the on
carriage, or some of such terms and conditions by
board notation will be deemed to be the date of ship-
reference to a source or document other than the bill of
ment.
lading (short form/blank back bill of lading); banks will
not examine the contents of such terms and conditions, If the non-negotiable sea waybill contains the indication
and “intended vessel”, or similar qualification in relation to
the vessel, loading on board a named vessel must be
vi. contains no indication that it is subject to a charter party
evidenced by an on board notation on the non-negotiable
and/or no indication that the carrying vessel is propelled
sea waybill which, in addition to the date on which the
by sail only,
goods have been loaded on board, includes the name of
and the vessel on which the goods have been loaded, even if
vii. in all other respects meets the stipulations of the Credit. they have been loaded on the vessel named as the
b For the purpose of this Article, transhipment means “intended vessel”.
unloading and reloading from one vessel to another vessel If the non-negotiable sea waybill indicates a place of
during the course of ocean carriage from the port of loading receipt or taking in charge different from the port of
to the port of discharge stipulated in the Credit. loading, the on board notation must also include the port
of loading stipulated in the Credit and the name of the Article 25
vessel on which the goods have been loaded, even if they Charter Party Bill of Lading
have been loaded on a vessel named in the non-negotiable a If a Credit calls for or permits a charter party bill of lading,
sea waybill. This provision also applies whenever banks will, unless otherwise stipulated in the Credit, accept
loading on board the vessel is indicated by pre-printed a document, however named, which:
wording on the non-negotiable sea waybill,
i. contains any indication that it is subject to a charter
and
party,
iii.indicates the port of loading and the port of discharge

72
and
stipulated in the Credit, notwithstand-ing that it:
ii. appears on its face to have been signed or otherwise
a) indicates a place of taking in charge different from the
authenticated by:
port of loading, and/or a place of final destination
different from the port of discharge, – the master or a named agent for or on behalf of the
master, or
and/or
– the owner or a named agent for or on behalf of the
b) contains the indication “intended” or similar qualifica-
owner.
tion in relation to the port of loading and/or port of
discharge, as long as the document also states the ports Any signature or authentication of the master or owner
of loading and/or discharge stipulated in the Credit, must be identified as master or owner as the case may
be. An agent signing or authen-ticating for the master
and
or owner must also indicate the name and the capacity
iv. consists of a sole original non-negotiable sea waybill, or of the party, i.e. master or owner, on whose behalf
if issued in more than one original, the full set as so that agent is acting,
issued, and
and
iii. does or does not indicate the name of the carrier,
v. appears to contain all of the terms and conditions of
and
carriage, or some of such terms and conditions by
reference to a source or document other than the non- iv. indicates that the goods have been loaded on board or
negotiable sea waybill (short form/blank back non- shipped on a named vessel.
negotiable sea waybill); banks will not examine the Loading on board or shipment on a named vessel may be
contents of such terms and conditions, indicated by pre-printed wording on the bill of lading
and that the goods have been loaded on board a named vessel
or shipped on a named vessel, in which case the date of
vi. contains no indication that it is subject to a charter party
issuance of the bill of lading will be deemed to be the date
and/or no indication that the carrying vessel is propelled
of loading on board and the date of shipment.
by sail only,
In all other cases loading on board a named vessel must
and
be evidenced by a notation on the bill of lading which
vii. in all other respects meets the stipulations of the Credit. gives the date on which the goods have been loaded on
b For the purpose of this Article, transhipment means board, in which case the date of the on board notation
unloading and reloading from one vessel to another vessel will be deemed to be the date of shipment,
during the course of ocean carriage from the port of loading and
to the port of discharge stipulated in the Credit.
v. indicates the port of loading and the port of discharge
c Unless transhipment is prohibited by the terms of the
stipulated in the Credit,
Credit, banks will accept a non-negotiable sea waybill which
indicates that the goods will be transhipped, provided that and
the entire ocean carriage is covered by one and the same vi. consists of a sole original bill of lading or, if issued in
non-negotiable sea waybill. more than one original, the full set as so issued,
d Even if the Credit prohibits transhipment, banks will and
accept a nonnegotiable sea waybill which:
vii. contains no indication that the carrying vessel is pro-
i. indicates that transhipment will take place as long as the
pelled by sail only,
relevant cargo is shipped in Container(s), Trailer(s) and/
or “LASH” barge(s) as evidenced by the non-negotiable and
sea waybill, provided that the entire ocean carriage is viii. in all other respects meets the stipulations of the Credit.
covered by one and the same non-negotiable sea waybill, b Even if the Credit requires the presentation of a charter
and/or party contract in connection with a charter party bill of
ii. incorporates clauses stating that the carrier reserves the lading, banks will not examine such charter party contract,
right to tranship. but will pass it on without responsibility on their part.
Article 26 vi. contains no indication that it is subject to a charter party
Multimodal Transport Document and/or no indication that the carrying vessel is propelled
a If a Credit calls for a transport document covering at least by sail only,
two different modes of transport (multimodal transport), and
banks will, unless otherwise stipulated in the Credit, accept
vii. in all other respects meets the stipulations of the Credit.
a document, however named, which:
b Even if the Credit prohibits transhipment, banks will
i. appears on its face to indicate the name of the carrier or accept a multimodal transport document which indicates
multimodal transport operator and to have been signed
73
that transhipment will or may take place, provided that the
or otherwise authenticated by: entire carriage is covered by one and the same multimodal
– the carrier or multimodal transport operator or a named transport document.
agent for or on behalf of the carrier or multimodal
transport operator,
Article 27
or Air Transport Document
– the master or a named agent for or on behalf of the a If a Credit calls for an air transport document, banks will,
master. unless otherwise stipulated in the Credit, accept a
Any signature or authentication of the carrier, document, however named, which:
multimodal transport operator or master must be i. appears on its face to indicate the name of the carrier and
identified as carrier, multimodal transport operator or to have been signed or otherwise authenticated by:
master, as the case may be. An agent signing or authen- – the carrier, or
ticating for the carrier, multimodal transport operator
or master must also indicate the name and the capacity – a named agent for or on behalf of the carrier.
of the party, i.e. carrier, multimodal transport operator Any signature or authentication of the carrier must be
or master, on whose behalf that agent is acting, identified as carrier. An agent signing or authenticating
and for the carrier must also indicate the name and the
capacity of the party, i.e. carrier, on whose behalf that
ii. indicates that the goods have been dispatched, taken in agent is acting,
charge or loaded on board.
and
Dispatch, taking in charge or loading on board may be
ii. indicates that the goods have been accepted for carriage,
indicated by wording to that effect on the multimodal
transport document and the date of issuance will be and
deemed to be the date of dispatch, taking in charge or iii. where the Credit calls for an actual date of dispatch,
loading on board and the date of shipment. However, if indicates a specific notation of such date, the date of
the document indicates, by stamp or otherwise, a date of dispatch so indicated on the air transport document will
dispatch, taking in charge or loading on board, such date be deemed to be the date of shipment.
will be deemed to be the date of shipment, For the purpose of this Article, the information appear-
and ing in the box on the air transport document (marked
iii. a) indicates the place of taking in charge stipulated in the “For Carrier Use Only” or similar expression) relative to
Credit which may be different from the port, airport or the flight number and date will not be considered as a
place of loading, and the place of final destination specific notation of such date of dispatch.
stipulated in the Credit which may be different from the In all other cases, the date of issuance of the air transport
port, airport or place of discharge, document will be deemed to be the date of shipment,
and/or and
b) contains the indication “intended” or similar qualifi- iv. indicates the airport of departure and the airport of
cation in relation to the vessel and/or port of loading and/ destination stipulated in the Credit,
or port of discharge,
and
and
v. appears to be the original for consignor/shipper even if
iv. consists of a sole original multimodal transport the Credit stipulates a full set of originals, or similar
document or, if issued in more than one original, the full expressions,
set as so issued,
and
and
vi. appears to contain all of the terms and conditions of
v. appears to contain all of the terms and conditions of carriage, or some of such terms and conditions, by
carriage, or some of such terms and conditions by reference to a source or document other than the air
reference to a source or document other than the transport document; banks will not examine the
multimodal transport document (short form/blank back contents of such terms and conditions,
multimodal transport document); banks will not
and
examine the contents of such terms and conditions,
vii. in all other respects meets the stipulations of the Credit.
and
b For the purpose of this Article, transhipment means Article 29
unloading and reloading from one aircraft to another aircraft Courier and Post Receipts
during the course of carriage from the airport of departure a If a Credit calls for a post receipt or certificate of posting,
to the airport of destination stipulated in the Credit. banks will, unless otherwise stipulated in the Credit, accept
c Even if the Credit prohibits transhipment, banks will a post receipt or certificate of posting which:
accept an air transport document which indicates that i. appears on its face to have been stamped or otherwise
transhipment will or may take place, provided that the
authenticated and dated in the place from which the Credit
entire carriage is covered by one and the same air transport
stipulates the goods are to be shipped or dispatched and
74 document.

Article 28
such date will be deemed to be the date of shipment or
dispatch,
and
Road, Rail or Inland Waterway Transport Documents
ii. in all other respects meets the stipulations of the Credit.
a If a Credit calls for a road, rail, or inland waterway trans-
port document, banks will, unless otherwise stipulated in b If a Credit calls for a document issued by a courier or
the Credit, accept a document of the type called for, expedited delivery service evidencing receipt of the goods
however named, which: for delivery, banks will, unless otherwise stipulated in the
Credit, accept a document, however named, which:
i. appears on its face to indicate the name of the carrier and
to have been signed or otherwise authenticated by the i. appears on its face to indicate the name of the courier/
carrier or a named agent for or on behalf of the carrier service, and to have been stamped, signed or otherwise
and/or to bear a reception stamp or other indication of authenticated by such named courier/service (unless the
receipt by the carrier or a named agent for or on behalf of Credit specifically calls for a document issued by a named
the carrier. Courier/Service, banks will accept a document issued by
any Courier/Service),
Any signature, authentication, reception stamp or other
indication of receipt of the carrier, must be identified on and
its face as that of the carrier. An agent signing or authen- ii. indicates a date of pick-up or of receipt or wording to
ticating for the carrier, must also indicate the name and this effect, such date being deemed to be the date of
the capacity of the party, i.e. carrier, on whose behalf shipment or dispatch,
that agent is acting, and
and iii. in all other respects meets the stipulations of the Credit.
ii. indicates that the goods have been received for ship-
ment, dispatch or carriage or wording to this effect. The
date of issuance will be deemed to be the date of Article 30
shipment unless the transport document contains a Transport Documents issued by Freight Forwarders
reception stamp, in which case the date of the reception Unless otherwise authorised in the Credit, banks will only
stamp will be deemed to be the date of shipment, accept a transport document issued by a freight forwarder if
and it appears on its face to indicate:
i. the name of the freight forwarder as a carrier or
iii. indicates the place of shipment and the place of destina-
multimodal transport operator and to have been signed
tion stipulated in the Credit,
or otherwise authenticated by the freight forwarder as
and carrier or multimodal transport operator,
iv. in all other respects meets the stipulations of the Credit. or
b In the absence of any indication on the transport document ii. the name of the carrier or multimodal transport operator
as to the numbers issued, banks will accept the transport and to have been signed or otherwise authenticated by
document(s) presented as constituting a full set. Banks will the freight forwarder as a named agent for or on behalf of
accept as original(s) the transport document(s) whether the carrier or multimodal transport operator.
marked as original(s) or not.
c For the purpose of this Article, transhipment means
unloading and reloading from one means of conveyance to Article 31
another means of conveyance, in different modes of trans- “On Deck”, “Shipper’s Load and Count”, Name of
port, during the course of carriage from the place of ship- Consignor
ment to the place of destination stipulated in the Credit. Unless otherwise stipulated in the Credit, banks will accept a
d Even if the Credit prohibits transhipment, banks will transport document which:
accept a road, rail, or inland waterway transport document i. does not indicate, in the case of carriage by sea or by
which indicates that transhipment will or may take place, more than one means of conveyance including carriage
provided that the entire carriage is covered by one and the by sea, that the goods are or will be loaded on deck.
same transport document and within the same mode of Nevertheless, banks will accept a transport document
transport. which contains a provision that the goods may be
carried on deck, provided that it does not specifically
state that they are or will be loaded on deck,
and/or
ii. bears a clause on the face thereof such as “shipper’s load d Unless otherwise stipulated in the Credit, banks will accept
and count” or “said by shipper to contain” or words of an insurance certificate or a declaration under an open cover
similar effect, presigned by insurance companies or underwriters or their
agents. If a Credit specifically calls for an insurance certifi-
and/or
cate or a declaration under an open cover, banks will accept,
iii. indicates as the consignor of the goods a party other in lieu thereof, an insurance policy.
than the Beneficiary of the Credit. e Unless otherwise stipulated in the Credit, or unless it
appears from the insurance document that the cover is
Article 32
Clean Transport Documents
effective at the latest from the date of loading on board or
dispatch or taking in charge of the goods, banks will not
accept an insurance document which bears a date of
75
a A clean transport document is one which bears no clause or
issuance later than the date of loading on board or dispatch
notation which expressly declares a defective condition of
or taking in charge as indicated in such transport document.
the goods and/or the packaging.
f i. Unless otherwise stipulated in the Credit, the insurance
b Banks will not accept transport documents bearing such
document must be expressed in the same currency as the
clauses or notations unless the Credit expressly stipulates
Credit.
the clauses or notations which may be accepted.
c Banks will regard a requirement in a Credit for a transport ii. Unless otherwise stipulated in the Credit, the minimum
document to bear the clause “clean on board” as complied amount for which the insurance document must indicate
with if such transport document meets the requirements of the insurance cover to have been effected is the CIF
this Article and of Articles 23, 24, 25, 26, 27, 28 or 30. (cost, insurance and freight (... “named port of destina-
tion”)) or CIP (carriage and insurance paid to (...”named
place of destination”)) value of the goods, as the case
Article 33 may be, plus 10%, but only when the CIF or CIP value
Freight Payable/Prepaid Transport Documents can be determined from the documents on their face.
a Unless otherwise stipulated in the Credit, or inconsistent Otherwise, banks will accept as such minimum amount
with any of the documents presented under the Credit, banks 110% of the amount for which payment, acceptance or
will accept transport documents stating that freight or trans- negotiation is requested under the Credit, or 110% of the
portation charges (hereafter referred to as “freight”) have gross amount of the invoice, whichever is the greater.
still to be paid.
b If a Credit stipulates that the transport document has to Article 35
indicate that freight has been paid or prepaid, banks will Type of Insurance Cover
accept a transport document on which words clearly
a Credits should stipulate the type of insurance required and,
indicating payment or prepayment of freight appear by
if any, the additional risks which are to be covered. Impre-
stamp or otherwise, or on which payment or prepayment
cise terms such as “usual risks” or “customary risks” shall
of freight is indicated by other means. If the Credit requires
not be used; if they are used, banks will accept insurance
courier charges to be paid or prepaid banks will also accept
documents as presented, without responsibility for any
a transport document issued by a courier or expedited
risks not being covered.
delivery service evidencing that courier charges are for the
account of a party other than the consignee. b Failing specific stipulations in the Credit, banks will accept
insurance documents as presented, without responsibility
c The words “freight prepayable” or “freight to be prepaid”
for any risks not being covered.
or words of similar effect, if appearing on transport docu-
ments, will not be accepted as constituting evidence of the c Unless otherwise stipulated in the Credit, banks will accept
payment of freight. an insurance document which indicates that the cover is
subject to a franchise or an excess (deductible).
d Banks will accept transport documents bearing reference
by stamp or otherwise to costs additional to the freight,
such as costs of, or disbursements incurred in connection Article 36
with, loading, unloading or similar operations, unless the All Risks Insurance Cover
conditions of the Credit specifically prohibit such Where a Credit stipulates “insurance against all risks”, banks
reference. will accept an insurance document which contains any “all
risks” notation or clause, whether or not bearing the heading
Article 34 “all risks”, even if the insurance document indicates that cer-
Insurance Documents tain risks are excluded, without responsibility for any risk(s)
not being covered.
a Insurance documents must appear on their face to be issued
and signed by insurance companies or underwriters or their
agents. Article 37
b If the insurance document indicates that it has been issued Commercial Invoices
in more than one original, all the originals must be presented a Unless otherwise stipulated in the Credit, commercial
unless otherwise authorised in the Credit. invoices;
c Cover notes issued by brokers will not be accepted, unless i. must appear on their face to be issued by the Beneficiary
specifically authorised in the Credit. named in the Credit (except as provided in Article 48),
and b Transport documents which appear on their face to indicate
that shipment has been made on the same means of convey-
ii. must be made out in the name of the Applicant (except
ance and for the same journey, provided they indicate the
as provided in sub-Article 48 (h)),
same destination, will not be regarded as covering partial
and shipments, even if the transport documents indicate
iii. need not be signed. different dates of shipment and/or different ports of
b Unless otherwise stipulated in the Credit, banks may refuse loading, places of taking in charge, or despatch.
commercial invoices issued for amounts in excess of the c Shipments made by post or by courier will not be regarded

76 amount permitted by the Credit. Nevertheless, if a bank

authorised to pay, incur a deferred payment undertaking,
accept Draft(s), or negotiate under a Credit accepts such
as partial shipments if the post receipts or certificates of
posting or courier’s receipts or dispatch notes appear to
have been stamped, signed or otherwise authenticated in the
invoices, its decision will be binding upon all parties, place from which the Credit stipulates the goods are to be
provided that such bank has not paid, incurred a deferred dispatched, and on the same date.
payment undertaking, accepted Draft(s) or negotiated for
an amount in excess of that permitted by the Credit. Article 41
c The description of the goods in the commercial invoice must Instalment Shipments/Drawings
correspond with the description in the Credit. In all other If drawings and/or shipments by instalments within given
documents, the goods may be described in general terms not periods are stipulated in the Credit and any instalment is not
inconsistent with the description of the goods in the Credit. drawn and/or shipped within the period allowed for that in-
stalment, the Credit ceases to be available for that and any
Article 38 subsequent instalments, unless otherwise stipulated in the
Credit.
Other Documents
If a Credit calls for an attestation or certification of weight in
the case of transport other than by sea, banks will accept a Article 42
weight stamp or declaration of weight which appears to have Expiry Date and Place for Presentation of Documents
been superimposed on the transport document by the carrier a All Credits must stipulate an expiry date and a place for
or his agent unless the Credit specifically stipulates that the presentation of documents for payment, acceptance, or with
attestation or certification of weight must be by means of a the exception of freely negotiable Credits, a place for
separate document. presentation of documents for negotiation. An expiry date
E. MISCELLANEOUS PROVISIONS stipulated for payment, acceptance or negotiation will be
construed to express an expiry date for presentation of
Article 39 documents.
Allowances in Credit Amount, Quantity and Unit Price b Except as provided in sub-Article 44(a), documents must
a The words “about”, “approximately”, “circa” or similar be presented on or before such expiry date.
expressions used in connection with the amount of the Credit c If an Issuing Bank states that the Credit is to be available
or the quantity or the unit price stated in the Credit are to be “for one month”, “for six months”, or the like, but does not
construed as allowing a difference not to exceed 10% more specify the date from which the time is to run, the date of
or 10% less than the amount or the quantity or the unit issuance of the Credit by the Issuing Bank will be deemed to
price to which they refer. be the first day from which such time is to run. Banks
b Unless a Credit stipulates that the quantity of the goods should discourage indication of the expiry date of the Credit
specified must not be exceeded or reduced, a tolerance of in this manner.
5% more or 5% less will be permissible, always provided
that the amount of the drawings does not exceed the amount
Article 43
of the Credit. This tolerance does not apply when the Credit
stipulates the quantity in terms of a stated number of Limitation on the Expiry Date
packing units or individual items. a In addition to stipulating an expiry date for presentation of
c Unless a Credit which prohibits partial shipments documents, every Credit which calls for a transport
stipulates otherwise, or unless sub-Article (b) above is document(s) should also stipulate a specified period of time
applicable, a tolerance of 5% less in the amount of the after the date of shipment during which presentation must
drawing will be permissible, provided that if the Credit be made in compliance with the terms and conditions of the
stipulates the quantity of the goods, such quantity of goods Credit. If no such period of time is stipulated, banks will
is shipped in full, and if the Credit stipulates a unit price, not accept documents presented to them later than 21 days
such price is not reduced. This provision does not apply after the date of shipment. In any event, documents must
when expressions referred to in sub-Article (a) above are be presented not later than the expiry date of the Credit.
used in the Credit. b In cases in which sub-Article 40(b) applies, the date of
shipment will be considered to be the latest shipment date
on any of the transport documents presented.
Article 40
Partial Shipments/Drawings
a Partial drawings and/or shipments are allowed, unless the
Credit stipulates otherwise.
Article 44 d The terms “beginning”, “middle”, or “end” of a month shall
Extension of Expiry Date be construed respectively as the 1st to the 10th, the 11th to
a If the expiry date of the Credit and/or the last day of the the 20th, and the 21st to the last day of such month, all
period of time for presentation of documents stipulated by dates inclusive.
the Credit or applicable by virtue of Article 43 falls on a day
on which the bank to which presentation has to be made is
closed for reasons other than those referred to in Article 17, F. TRANSFERABLE CREDIT
the stipulated expiry date and/or the last day of the period Article 48
of time after the date of shipment for presentation of docu-
ments, as the case may be, shall be extended to the first
following day on which such bank is open.
Transferable Credit
a A transferable Credit is a Credit under which the Benefi- 77
ciary (First Beneficiary) may request the bank authorised
b The latest date for shipment shall not be extended by to pay, incur a deferred payment undertaking, accept or
reason of the extension of the expiry date and/or the period negotiate (the “Transferring Bank”), or in the case of a freely
of time after the date of shipment for presentation of negotiable Credit, the bank specifically authorised in the
documents in accordance with sub-Article (a) above. If no Credit as a Transferring Bank, to make the Credit available
such latest date for shipment is stipulated in the Credit or in whole or in part to one or more other Beneficiary(ies)
amendments thereto, banks will not accept transport (Second Beneficiary(ies)).
documents indicating a date of shipment later than the b A Credit can be transferred only if it is expressly designated
expiry date stipulated in the Credit or amendments thereto. as “transferable” by the Issuing Bank. Terms such as
c The bank to which presentation is made on such first “divisible”, “fractionable”, “assignable”, and “transmissible”
following business day must provide a statement that the do not render the Credit transferable. If such terms are used
documents were presented within the time limits extended they shall be disregarded.
in accordance with sub-Article 44(a) of the Uniform c The Transferring Bank shall be under no obligation to effect
Customs and Practice for Documentary Credits, 1993 such transfer except to the extent and in the manner
Revision, ICC Publication No. 500. expressly consented to by such bank.
d At the time of making a request for transfer and prior to
Article 45 transfer of the Credit, the First Beneficiary must irrevoca-
Hours of Presentation bly instruct the Transferring Bank whether or not he retains
Banks are under no obligation to accept presentation of docu- the right to refuse to allow the Transferring Bank to advise
ments outside their banking hours. amendments to the Second Beneficiary(ies). If the
Transferring Bank consents to the transfer under these
conditions, it must, at the time of transfer, advise the
Article 46 Second Beneficiary(ies) of the First Beneficiary’s instruc-
General Expressions as to Dates for Shipment tions regarding amendments.
a Unless otherwise stipulated in the Credit, the expression e If a Credit is transferred to more than one Second
“shipment” used in stipulating an earliest and/or a latest Beneficiary(ies), refusal of an amendment by one or more
date for shipment will be understood to include expressions Second Beneficiary(ies) does not invalidate the acceptance(s)
such as, “loading on board”, “dispatch”, “accepted for by the other Second Beneficiary(ies) with respect to whom
carriage”, “date of post receipt”, “date of pick-up”, and the the Credit will be amended accordingly. With respect to the
like, and in the case of a Credit calling for a multimodal Second Beneficiary(ies) who rejected the amendment, the
transport document the expression “taking in charge”. Credit will remain unamended.
b Expressions such as “prompt”, “immediately”, “as soon as f Transferring Bank charges in respect of transfers including
possible”, and the like should not be used. If they are used commissions, fees, costs or expenses are payable by the
banks will disregard them. First Beneficiary, unless otherwise agreed. If the Transfer-
c If the expression “on or about” or similar expressions are ring Bank agrees to transfer the Credit it shall be under no
used, banks will interpret them as a stipulation that obligation to effect the transfer until such charges are paid.
shipment is to be made during the period from five days g Unless otherwise stated in the Credit, a transferable Credit
before to five days after the specified date, both end days can be transferred once only. Consequently, the Credit
included. cannot be transferred at the request of the Second Benefi-
ciary to any subsequent Third Beneficiary. For the purpose
Article 47 of this Article, a retransfer to the First Beneficiary does not
constitute a prohibited transfer.
Date Terminology for Periods of Shipment
Fractions of a transferable Credit (not exceeding in the
a The words “to”, “until”, “till”, “from” and words of similar
aggregate the amount of the Credit) can be transferred
import applying to any date or period in the Credit
separately, provided partial shipments/drawings are not
referring to shipment will be understood to include the date
prohibited, and the aggregate of such transfers will be
mentioned.
considered as constituting only one transfer of the Credit.
b The word “after” will be understood to exclude the date
h The Credit can be transferred only on the terms and
mentioned.
conditions specified in the original Credit, with the excep-
c The terms “first half”, “second half” of a month shall be tion of:
construed respectively as the 1st to the 15th, and the 16th
to the last day of such month, all dates inclusive. – the amount of the Credit,
– any unit price stated therein, SUPPLEMENT TO UCP 500 FOR ELECTRONIC
PRESENTATION – VERSION 1.0
– the expiry date,
– the last date for presentation of documents in accordance
with Article 43, Article e1
– the period for shipment, Scope of the eUCP
any or all of which may be reduced or curtailed. a The Supplement to the Uniform Customs and Practice for
Documentary Credits for Electronic Presentation (“eUCP”)
The percentage for which insurance cover must be effected
78
supplements the Uniform Customs and Practice for
may be increased in such a way as to provide the amount of Documentary Credits (1993 Revision ICC Publication No.
cover stipulated in the original Credit, or these Articles. 500,) ( “UCP”) in order to accommodate presentation of
In addition, the name of the First Beneficiary can be substi- electronic records alone or in combination with paper
tuted for that of the Applicant, but if the name of the Appli- documents.
cant is specifically required by the original Credit to appear b The eUCP shall apply as a supplement to the UCP where
in any document(s) other than the invoice, such the Credit indicates that it is subject to eUCP.
requirement must be fulfilled. c This version is Version 1.0. A Credit must indicate the
i The First Beneficiary has the right to substitute his own applicable version of the eUCP. If it does not do so, it is
invoice(s) (and Draft(s)) for those of the Second subject to the version in effect on the date the Credit is
Beneficiary(ies), for amounts not in excess of the original issued or, if made subject to eUCP by an amendment
amount stipulated in the Credit and for the original unit accepted by the Beneficiary, on the date of that amendment.
prices if stipulated in the Credit, and upon such substitu-
tion of invoice(s) (and Draft(s)) the First Beneficiary can
draw under the Credit for the difference, if any, between his Article e2
invoice(s) and the Second Beneficiary’s(ies’) invoice(s). Relationship of the eUCP to the UCP
When a Credit has been transferred and the First Benefi- a A Credit subject to the eUCP (“eUCP Credit”) is also
subject to the UCP without express incorporation of the
ciary is to supply his own invoice(s) (and Draft(s)) in
UCP.
exchange for the Second Bene-ficiary’s(ies’) invoice(s) (and
Draft(s)) but fails to do so on first demand, the Transferring b Where the eUCP applies, its provisions shall prevail to the
Bank has the right to deliver to the Issuing Bank the extent that they would produce a result different from the
documents received under the transferred Credit, including application of the UCP.
the Second Beneficiary’s(ies’) invoice(s) (and Draft(s)) c If an eUCP Credit allows the Beneficiary to choose
without further responsibility to the First Beneficiary. between presentation of paper documents or electronic
j The First Beneficiary may request that payment or negotia- records and it chooses to present only paper documents,
tion be effected to the Second Beneficiary(ies) at the place the UCP alone shall apply to that presentation. If only
to which the Credit has been transferred up to and including paper documents are permitted under an eUCP Credit, the
the expiry date of the Credit, unless the original Credit UCP alone shall apply.
expressly states that it may not be made available for
payment or negotiation at a place other than that stipulated Article e3
in the Credit. This is without prejudice to the First Definitions
Beneficiary’s right to substitute subsequently his own a Where the following terms are used in the UCP, for the
invoice(s) (and Draft(s)) for those of the Second purposes of applying the UCP to an electronic record
Beneficiary(ies) and to claim any difference due to him. presented under an eUCP Credit, the term:
i. “appears on its face” and the like shall apply to examina-
tion of the data content of an electronic record.
G. ASSIGNMENT OF PROCEEDS
ii. “document” shall include an electronic record.
Article 49
Assignment of Proceeds iii. “place for presentation” of electronic records means an
electronic address.
The fact that a Credit is not stated to be transferable shall not
affect the Beneficiary’s right to assign any proceeds to which iv. “sign” and the like shall include an electronic signature.
he may be, or may become, entitled under such Credit, in v. “superimposed”, “notation” or “stamped” means data
accordance with the provisions of the applicable law. This content whose supplementary character is apparent in
Article relates only to the assignment of proceeds and not to an electronic record.
the assignment of the right to perform under the Credit itself. b The following terms used in the eUCP shall have the
following meanings:
i. “electronic record” means
• data created, generated, sent, communicated, received,
or stored by electronic means
• that is capable of being authenticated as to the appar-
ent identity of a sender and the apparent source of the
data contained in it, and as to whether it has remained
complete and unaltered, and
• is capable of being examined for compliance with the paper document and will be deemed timely, provided that it
terms and conditions of the eUCP Credit. is sent before the bank is able to receive an electronic record.
ii. “electronic signature” means a data process attached to f An electronic record that cannot be authenticated is deemed
or logically associated with an electronic record and not to have been presented.
executed or adopted by a person in order to identify that
person and to indicate that person’s authentication of Article e6
the electronic record. Examination
iii. “format” means the data organisation in which the
electronic record is expressed or to which it refers.
iv. “paper document” means a document in a traditional
a If an electronic record contains a hyperlink to an external
system or a presentation indicates that the electronic record
may be examined by reference to an external system, the
79
paper form. electronic record at the hyperlink or the referenced system
v. “received” means the time when an electronic record shall be deemed to be the electronic record to be examined.
enters the information system of the applicable recipi- The failure of the indicated system to provide access to the
ent in a form capable of being accepted by that system. required electronic record at the time of examination shall
Any Supplement to UCP 500 for Electronic Presenta- constitute a discrepancy.
tion acknowledgement of receipt does not imply b The forwarding of electronic records by a Nominated Bank
acceptance or refusal of the electronic record under an pursuant to its nomination signifies that it has checked the
eUCP Credit. apparent authenticity of the electronic records.
c The inability of the Issuing Bank, or Confirming Bank, if
any, to examine an electronic record in a format required by
Article e4 the eUCP Credit or, if no format is required, to examine it in
Format the format presented is not a basis for refusal.
An eUCP Credit must specify the formats in which elec-
tronic records are to be presented. If the format of the elec-
tronic record is not so specified, it may be presented in any Article e7
format. Notice of Refusal
a i. The time period for the examination of documents
commences on the banking day following the banking
Article e5 day on which the Beneficiary’s notice of completeness
Presentation is received.
a An eUCP Credit allowing presentation of: ii. If the time for presentation of documents or the notice of
i. electronic records must state a place for presentation of completeness is extended, the time for the examination
the electronic records. of documents commences on the first following banking
ii. both electronic records and paper documents must also day on which the bank to which presentation is to be
state a place for presentation of the paper documents. made is able to receive the notice of completeness.
b Electronic records may be presented separately and need b If an Issuing Bank, the Confirming Bank, if any, or a
not be presented at the same time. Nominated Bank acting on their behalf, provides a notice of
c If an eUCP Credit allows for presentation of one or more refusal of a presentation which includes electronic records
electronic records, the Beneficiary is responsible for and does not receive instructions from the party to which
providing a notice to the Bank to which presentation is notice of refusal is given within 30 calendar days from the
made signifying when the presentation is complete. The date the notice of refusal is given for the disposition of the
notice of completeness may be given as an electronic record electronic records, the Bank shall return any paper
or paper document and must identify the eUCP Credit to documents not previously returned to the presenter but
which it relates. Presentation is deemed not to have been may dispose of the electronic records in any manner deemed
made if the Beneficiary’s notice is not received. appropriate without any responsibility.
d i. Each presentation of an electronic record and the presen-
tation of paper documents under an eUCP Credit must Article e8
identify the eUCP Credit under which it is presented. Originals and Copies
ii. A presentation not so identified may be treated as not Any requirement of the UCP or an eUCP Credit for presenta-
received. tion of one or more originals or copies of an electronic record
e If the Bank to which presentation is to be made is open but is satisfied by the presentation of one electronic record.
its system is unable to receive a transmitted electronic record
on the stipulated expiry date and/or the last day of the Article e9
period of time after the date of shipment for presentation,
Date of Issuance
as the case may be, the Bank will be deemed to be closed
and the date for presentation and/or the expiry date shall be Unless an electronic record contains a specific date of issu-
extended to the first following banking day on which such ance, the date on which it appears to have been sent by the
Bank is able to receive an electronic record. If the only issuer is deemed to be the date of issuance. The date of receipt
electronic record remaining to be presented is the notice of will be deemed to be the date it was sent if no other date is
completeness, it may be given by telecommunications or by apparent.
Article e10 1. Background
Transport Over a period of several years there have been a number of
If an electronic record evidencing transport does not indicate queries raised with the ICC Banking Commission as to the
a date of shipment or dispatch, the date of issuance of the determination, by banks, of what is an “original” document
electronic record will be deemed to be the date of shipment or under a letter of credit and the necessity, if any, for such a
dispatch. However, if the electronic record bears a notation document to be so marked.
that evidences the date of shipment or dispatch, the date of For ease of reference the text of sub-Article 20(b) reads:
the notation will be deemed to be the date of shipment or “Unless otherwise stipulated in the Credit, banks will also

80 dispatch. A notation showing additional data content need

not be separately signed or otherwise authenticated.
accept as an original document(s), a document(s) produced
or appearing to have been produced
• by reprographic, automated or computerized systems
Article e11 • as carbon copies;
Corruption of an Electronic Record after Presentation provided that it is marked as original and, where necessary,
a If an electronic record that has been received by the Issuing appears to be signed.
Bank, Confirming Bank, or another Nominated Bank A document may be signed by handwriting, by facsimile
appears to have been corrupted, the Bank may inform the signature, by perforated signature, by stamp, by symbol,
presenter and may request that the electronic record be or by any other mechanical or electronic method of
re-presented. authentication.”
b If the Bank requests that an electronic record be re-pre-
sented: 2. Determination of originality
i. the time for examination is suspended and resumes when In documentary credit operations, the document checker is
the presenter re-presents the electronic record; and faced with a number of issues pertaining to originality includ-
ii. if the Nominated Bank is not the Confirming Bank, it ing:
must provide the Issuing Bank and any Confirming Bank Apparent originality
with notice of the request for re-presentation and inform Banks undertake to determine whether a document appears
it of the suspension; but on its face to be an original document, as distinguished from a
iii. if the same electronic record is not re-presented within copy. Except as expressly required by a letter of credit in-
thirty (30) calendar days, the Bank may treat the cluding an incorporated term – such as UCP 500 sub-Articles
electronic record as not presented, and 23(a)(iv) or 34(b) – banks do not undertake to determine
whether an apparent original is the sole original. Banks rely
iv. any deadlines are not extended.
on the apparent intent of the issuer of the document that it be
treated as an original rather than a copy.
Article e12 In this regard, a person sending a telefax or making a photo-
Additional Disclaimer of Liability for Presentation of copy on plain paper or pressing through carbon paper pre-
Electronic Records under eUCP sumably intends to produce a copy. On the other hand, a
By checking the apparent authenticity of an electronic record, person printing a document on plain paper from a text that
Banks assume no liability for the identity of the sender, source that person created and electronically stored presumably in-
of the information, or its complete and unaltered character tends to produce an original. Accordingly, documents bearing
other than that which is apparent in the electronic record facsimile signatures or printed in their entirety (even includ-
received by the use of a commercially acceptable data process ing the issuer’s letterhead and/or signature) from electroni-
for the receipt, authentication, and identification of electronic cally stored text are presumably intended by the document
records. issuer to be original and in practice are accepted by banks as
original.
Documents that appear to be original but are not
ICC Banking Commission Decisions & Policy Statements Banks do not undertake to determine whether a document is
THE DETERMINATION OF AN “ORIGINAL” original in fact. Under UCP 500 Article 15, banks are not
DOCUMENT IN THE CONTEXT OF responsible for the genuineness or falsification of any docu-
UCP 500 SUB-ARTICLE 20(b) ment. If a document appears to be original or to have been
marked as original but is in fact not original, then its presenta-
Commission on Banking Technique and Practice, 12 July 1999
tion may give rise to exceptional defences, rights, or obliga-
Original documents tions under the law applicable to forged or fraudulent presen-
This Decision emphasizes the need to correctly interpret and tations and is beyond the scope of UCP 500.
apply sub-Article 20(b) of UCP 500. Consequently, ICC na- UCP 500 requirements
tional committees and associated organizations are strongly
The UCP neither requires nor permits an examination beyond
urged to distribute this Decision as widely as possible to help
the face of a document to determine how the document was in
ensure the correct interpretation in the evaluation of docu-
fact produced, unless the document was produced by the
ments issued under letters of credit. This Decision does not
bank, e.g. on a telefax, telex, e-mail, or other system that
amend sub-Article 20(b) of UCP 500 in any way, but merely
prints out messages received by the bank. The “produced or
indicates the correct interpretation thereof which has been
appearing to have been produced” language in sub- Article
adopted unanimously by the ICC Commission on Banking
20(b) does not override UCP 500 sub-Articles 13(a), 13(c),
Technique and Practice on 12 July 1999.
or 14(b), or other practice and law that prohibit issuers and signature. Accordingly, a document that appears to bear the
confirmers from determining compliance on the basis of ex- document issuer’s facsimile signature is also treated as an
trinsic facts. original document.
As indicated by inclusion of the word “also” (“ ... banks will Photocopies
also accept as original(s) ...”), sub-Article 20(b) is neither Banks treat as non-original any document that appears to be
comprehensive nor exclusive in its provisions that distin- a photocopy of another document. If, however, a photocopy
guish originals from copies. For example, a document printed appears to have been completed by the document issuer’s
on plain paper from electronically stored text is acceptable, hand marking the photocopy, then, consistent with sub-para-
without regard to 20(b), if it appears to be an original.
Sub-Article 20(b) does not apply to documents that appear
to be only partially produced by reprographic, automated, or
graph (A) above, the resulting document is treated as an origi-
nal document unless it indicates otherwise. If a document
appears to have been produced by photocopying text onto
81
computerized systems or as carbon copies. In this regard, a original stationery rather than onto blank paper, then, consis-
photocopy ceases to be “reprographically produced” within tent with sub-paragraph (B) above, it is treated as an original
the meaning of sub-Article 20(b) when it is also manually document unless it indicates otherwise.
stamped, dated, completed, or signed by the issuer of the Telefaxed presentation of documents
document. Banks treat as non-original any document that is produced at
The “marked as original” proviso in sub-Article 20(b) is sat- the bank’s telefax machine. A letter of credit that permits
isfied by any marking on a document or any recital in the text presentation by telefax waives any requirement for presenta-
of a document that indicates that the issuer of the document tion of an original of any document presented by telefax.
intends it to be treated as an original rather than a copy. Statements indicating originality
Accordingly, a document that appears to have been printed Consistent with either or both of sub-paragraphs (A) and (C)
on plain paper from electronically stored text is “marked as above, a document on which the word “original” has been
original” under sub-Article 20(b) if it also states that it is stamped is treated as an original document. A statement in a
original or includes letterhead or is hand marked. document that it is a “duplicate original” or the “third of
Sub-Article 13(a) of UCP 500 refers to compliance of the three” also indicates that it is original. Originality is also indi-
presented documents being determined by international stan- cated by a statement in a document that it is void if another
dard banking practice as defined in the articles of UCP. Inter- document of the same tenor and date is used.
national standard banking practice in relation to determina- Statements indicating non-originality
tion of “original” documents could be described as follows:
A statement in a document that it is a true copy of another
document or that another document is the sole original indi-
3. Correct interpretation of sub-Article 20(b) cates that it is not original.
General approach A statement in a document that it is the “customer’s copy” or
Banks examine documents presented under a letter of credit “shipper’s copy” neither disclaims nor affirms its originality.
to determine, among other things, whether on their face they
appear to be original. Banks treat as original any document 4. What is not an “Original”?
bearing an apparently original signature, mark, stamp, or label
A document indicates that it is not an original if it
of the issuer of the document, unless the document itself
indicates that it is not original. Accordingly, unless a docu- • appears to be produced on a telefax machine;
ment indicates otherwise, it is treated as original if it: • appears to be a photocopy of another document which
(A) appears to be written, typed, perforated, or stamped has not otherwise been completed by hand marking the
by the document issuer’s hand; or photocopy or by photocopying it on what appears to be
original stationery; or
(B) appears to be on the document issuer’s original statio-
• states in the document that it is a true copy of another
nery; or
document or that another document is the sole original.
(C) states that it is original, unless the statement appears
not to apply to the document presented (e.g. because it
appears to be a photocopy of another document and 5. Conclusion
the statement of originality appears to apply to that Based upon the comments received from ICC national com-
other document). mittees, members of the ICC Banking Commission and other
Hand signed documents interested parties, the statements in clauses 3 and 4 above
Consistent with sub-paragraph (A) above, banks treat as origi- reflect international standard banking practice in the correct
nal any document that appears to be hand signed by the is- interpretation of UCP 500 sub-Article 20(b).
suer of the document.
For example, a hand signed draft or commercial invoice is ICC ENDORSEMENT OF THE UNCITRAL
treated as an original document, whether or not some or all CONVENTION ON INDEPENDENT GUARANTEES
other constituents of the document are preprinted, carbon AND STAND-BY LETTERS OF CREDIT
copied, or produced by reprographic, automated, or comput-
Commission on Banking Technique and Practice, 21 June 1999
erized systems.
On the unanimous consent of its Commission on Banking
Facsimile signed documents
Technique and Practice, the International Chamber of Com-
Banks treat a facsimile signature as the equivalent of a hand
merce endorses the United Nations Convention on Indepen- This Decision does not amend any articles of ICC Rules in
dent Guarantees and Stand-by Letters of Credit. any way, but merely indicates the correct interpretation
Since its earliest years, ICC has provided important interna- thereof which has been adopted unanimously by the ICC
tional leadership in the field of international banking opera- Commission on Banking Technique and Practice, on 6 April
tions, particularly as a forum for developing rules of practice. 1998.
Since 1933, the Uniform Customs and Practice for Documen-
tary Credits (UCP), in its various revisions, has become a 1. General
universally recognized standard, stating and establishing cus-

82
1.1 As of 1 January 1999, the euro will be substituted for
tom and practice for letters of credit.
the national currency unit of those European Union mem-
In this process, the United Nations Commission on Interna- ber states participating in European Economic and Mon-
tional Trade Law (UNCITRAL), by its endorsement of the etary Union (hereinafter, “EMUParticipating States”)
subsequent UCP versions, provided an important bridge to which are to be designated in May 1998.
those countries who were at the time unable to participate
directly in the work of ICC. Other ICC rules, such as During the transitional period running from 1 January
Incoterms, have also been endorsed by UNCITRAL, which 1999 to 31 December 2001, the euro (1 euro = 100 cents)
has contributed to their international acceptance. will also be divided into the national currency unit of the
ICC rules cannot be fully effective in all countries without EMU-Participating States according to conversion rates
their being recognized under local law. In this respect, the which are to be irrevocably fixed by the Council of the
recent work of UNCITRAL on the United Nations Conven- European Union as of 1 January 1999 (“conversion
tion on Independent Guarantees and Stand-by Letters of Credit rates”). The term “national currency unit” as used below
provides an important impetus to attain this objective. The refers to the currency of any EMU-Participating State
Convention sets forth the basic principles of law for indepen- before 1 January 1999.
dent undertakings in a manner which fully assures their inde- During the transitional period persons are free to use
pendent nature, which guarantees widest possible party au- either the euro or the national currency unit, but will not
tonomy and which establishes a uniform international legal (unless otherwise agreed) be obliged to receive or make
standard for limits to the exception for fraudulent or abusive payment in euro. Any amount denominated either in
drawings. euro or in a national currency unit of a given EMU-
ICC appreciates that the Convention was drafted in full rec- Participating State and payable within that state by
ognition of the role of the various ICC rules in this field, that crediting an account of the creditor, may be paid by the
the UNCITRAL Working Group was directly and indirectly debtor either in euro or in that national currency unit,
influenced by, and in turn influenced, the revision of the UCP, with any necessary conversion being effected at the
ICC’s Uniform Rules for Demand Guarantees (URDG) and conversion rate.
its recently adopted rules on International Standby Practices As of 1 January 1999 the ECU will be replaced by the
(ISP 98). ICC also notes that the UN Convention expressly euro at the rate of one euro to one ECU.
defers to international banking practice as represented by 1.2 As from 1 January 2002 the national currency unit will
ICC rules. cease to exist and the euro will be the only legal currency
in the EMUParticipating States; all payments must be in
THE IMPACT OF THE EUROPEAN SINGLE CURRENCY euro.
(euro) ON MONETARY OBLIGATIONS RELATED TO 1.3 Continuity of contract will not be affected by the
introduction of the euro.
TRANSACTIONS INVOLVING ICC RULES
1.4 The above principles affecting national currency unit are
Commission on Banking Technique and Practice, 6 April 1998
legally binding in all EMU-Participating States, and
The International Chamber of Commerce (ICC) is the world
apply equally to payment to be made in a national
business organization, based in Paris. The ICC Commissions
currency unit by persons located outside the European
on Banking Technique & Practice, International Commercial
Union, due to the generally accepted legal principle that
Practice, and Insurance, develop and maintain uniform rules
the definition of what constitutes legal tender is
for international trade, including the Uniform Rules for Con-
governed by the law of the country whose currency is
tract Guarantees (URCG 325), Uniform Rules for Demand
involved (sometimes referred to as the lex monetae
Guarantees (URDG 458), Uniform Customs and Practice for
principle).
Documentary Credits (UCP 500), Uniform Rules for Collec-
tions (URC 522), Uniform Rules for Contract Bonds (URCB 2. Consequences of the introduction of the euro on practice
under various ICC rules
524), and Uniform Rules for Bank-to-Bank Reimbursements
(URR 525) (hereinafter referred to collectively as “ICC 2.1 UCP 500 for Documentary Credits (including standby
Rules”). letters of credit). Below are the different possible cases
The Introduction of the European single currency (euro), shall and the relevant rules of interpretation:
not have the effect of altering, discharging or excusing perfor- 2.1.1 Documentary credits issued and payable before 1 Janu-
mance under any instrument subject to ICC Rules. This De- ary 1999 in a national currency unit.
cision emphasizes the need to correctly interpret and apply Payment must be made and documents denominated in
ICC Rules. Consequently, ICC national committees and as- the currency of the credit.
sociated organizations are strongly urged to distribute this 2.1.2 Documentary credits issued before 1 January 1999 and
Decision as widely as possible to help ensure the future payable between 1 January 1999 and 1 January 2002 in
smooth running of the instruments issued under ICC Rules. a national currency unit.
Payment must be made in the currency of the credit, transferred during the transitional period, the transfer-
but documents issued between 1 January 1999 and 1 ring bank may convert the currency and amount of the
January 2002 may be presented either in the currency credit into the euro equivalent.
of the credit or in the euro equivalent or in the equiva- 2.2 URCG 325 / URDG 458 / URCB 524 — Guarantees and
lent cross-value in the national currency unit of the bonds
beneficiary’s place of business; however, where The principles set forth above also apply to guarantees
payment is to be made in the currency of an EMU- and bonds.
Participating State and by crediting an account located 2.3 URC 522 Collections
in such member state, payment may at the debtor’s
(e.g. issuing bank’s) option be effected in the euro
equivalent.
Collections must be made in the currency stipulated in
the collection instructions. However, if a collection
83
instruction stipulates a national currency unit of an EMU-
2.1.3 Documentary credits issued in a national currency unit Participating State, as of 1 January 1999 payment may
before 1 January 1999 and payable on or after 1 be made in the euro equivalent and as of 1 January 2002,
January 2002. payment must be made and accepted in the euro
Payment must be made in euro, but documents issued equivalent.
between 1 January 1999 and 1 January 2002 may be 2.4 URR 525 Bank-to-Bank Reimbursements
presented either in the currency of the credit or in the Reimbursement claims must be made and honoured in
euro equivalent or in the equivalent cross-value in the the currency of the reimbursement authorization or
national currency unit of the beneficiary’s place of reimbursement undertaking.
business; documents issued on or after 1 January 2002 However, if such currency is the national currency unit
must be denominated in euro.
of an EMUParticipating State, from 1 January 1999 they
2.1.4 Documentary credits issued and payable on or after 1 may be made and honoured in the euro equivalent, and as
January 1999 and before 1 January 2002 in a national from 1 January 2002 they must be made and honoured in
currency unit or in euro. the euro equivalent.
Payment must be made in the currency of the credit,
but documents issued between 1 January 1999 and 1
Selected Opinions of the ICC Banking Commission on
January 2002 may be presented in the currency of the
credit or in the euro equivalent or in the equivalent UCP 500
cross-value in the national currency unit at the SUB-ARTICLE 9(d)(iii) R 315
beneficiary’s place of business; however, where the Whether an issuing bank and/or advising bank can give a dead-
currency of the credit is a national currency unit and line for the notification of an amendment Query We would
payment is to be made in the currency of a particular like to have an interpretation of sub-Article 9(d) of UCP 500.
EMU-Participating State by crediting an account Bank I issued an irrevocable L/C to the beneficiary through
located in such member state, payment may at the the advising/negotiating bank, Bank A, and subsequently is-
debtor’s (e.g. issuing bank’s) option be effected in euro. sued an amendment to the original terms.
2.1.5 Documentary credits issued on or after 1 January 1999 The beneficiary failed to give notification of acceptance or
but before 1 January 2002 in a national currency unit or rejection of the amendment. The documents received by Bank
in euro and payable on or after 1 January 2002. A were in full compliance with the terms and conditions of the
Payment must be made in euro, but documents may be original L/C.
presented either in the currency of the credit or, as the The questions are:
case may be, in euro or in the national currency unit of 1) In this situation, should we deem that the beneficiary has
the beneficiary’s place of business, provided always that rejected the amendment?
documents issued on or after 1 January 2002 must be
2) Could the issuing bank and/or advising bank give a
denominated in euro.
deadline to such notification, for example 15 days, i.e. if
2.1.6For purposes of examples 2.1.2, 2.1.3, 2.1.4 and 2.1.5 they have not received any message from the beneficiary
above, documents (including insurance documents within 15 days of the date of the amendment they could
mentioned in UCP Art. 34 f) are not considered as being deem that it has been accepted by the beneficiary?
inconsistent with one another, if, within a single presen-
Analysis
tation of documents, any documents are denominated in
the currency of the credit and/or in euro and/or in the Sub-Article 9(d)(iii) states that the beneficiary should give
national currency unit of the beneficiary’s place of notification of acceptance or rejection of amendment(s). But
business. it then goes on to state that if he fails to give such notification,
the tender of documents to the nominated bank or issuing
2.1.7 Documentary credits issued and payable on or after 1
bank that conform to the credit and to not-yet-accepted
January 2002.
amendment(s), will be deemed to be notification of accep-
Credits cannot be issued in a national currency unit and tance by the beneficiary of such amendment(s), and, as of
must be issued in euro and payment must be made and that moment, the credit will be amended.
documents (issued on or after 1 January 2002) denomi- ICC Position Paper No. 1 of 1 September 1994 states: “The
nated in euro. Banking Commission strongly disagrees with the wrong prac-
2.1.8 The guidelines set forth in this Decision apply equally tice adopted by:
to transferable credits. With regard to transferable a) certain Issuing Banks, of issuing irrevocable documentary
credits issued in a national currency unit and to be
credits, or amendments to irrevocable documentary credits, 1) Is the pre-printed wording ‘Shipped on board the vessel’
incorporating a provision to the effect that any amendment of the bill of lading, the ‘pre-printed wording’ of the first
will become automatically effective unless formally rejected paragraph of sub-Article 23(a)(ii) of UCP 500? Can this
by the beneficiary within a specified period of time, or by a be considered as ‘notation on the bill of lading’ of the
specified date; second paragraph of the same Article?
b) certain Advising Banks, of adding a provision of the nature 2) Is the fine print showing the terms and conditions of the
set out bill of lading to be considered as making the named vessel
on the bill of lading as ‘an intended vessel’ although such

84 SUB-ARTICLE 14(d) R 332

Does accepting discrepant documents mean that a bank has
wording is not present on the bill of lading?
3) If the fine print of the above makes the named vessel on
the bill of lading as ‘an intended vessel’ and the pre-printed
to accept similar discrepancies on future drawings?
wording ‘Shipped on board the vessel’ an on board nota-
Query tion, then should the name of the vessel already stated
Documents that we had previously presented to an overseas under ‘ocean vessel’ on the top left hand of the bill of
bank were rejected due to the fact that an insurance certificate lading be somehow typed after the pre-printed wording
was presented in lieu of an insurance policy. This discrep- "Shipped on board the vessel’ to make the bill of lading
ancy was accepted by the applicant for the first two ship- truly conforming to the condition of sub-Article 23 (a)(ii)
ments. third paragraph which states that if the bill of lading
We have now presented a third set of documents which con- contains the indication ‘intended vessel’ the on board
tained the same discrepancy. The overseas bank has notified notation must include the name of the vessel?
us that the applicant refuses to accept the documents on the The following are questions on the Opinion rendered under
basis of a certificate instead of a policy of insurance being Document 470/TA18:
presented. 1) Does the reply say that the fine print such as the above on
We seek your expert advice as to whether this course of ac- the bill of lading make the named vessel ‘an intended
tion is acceptable. vessel’?
Analysis and conclusion 2) Does it consider the pre-printed wording ‘Shipped on board
The fact that a bank may have previously accepted discrep- the vessel’ an on board notation?
ant documents, with or without an applicant waiver, does not 3) Does the reply say that because the fine print makes the
bind that bank to accepting a similar discrepancy(ies) on any named vessel ‘an intended vessel’ and the pre-printed
future drawing(s) unless local law states otherwise. wording ‘an on board notation’, the name of the vessel has
in (a) above when advising an irrevocable documentary credit, to be somehow typed or written by the carrier after the
or an amendment to an irrevocable documentary credit. pre-printed wording ‘Shipped on board the vessel’ to
The practices referred to above are seen as changing the irre- comply with sub-Article 23(a)(ii)?
vocable nature of the documentary credit irrevocable under- The following are my own observations for your reference:
taking.” 1) The fine print does not make the named vessel an
Conclusion ‘intended vessel’.
1) Yes. 2) The pre-printed wording on the bill of lading is not an ‘on
2) This is against the principle of an irrevocable documen- board notation’.
tary credit as stated in UCP and ICC Position Paper No.1. 3) Therefore, in the present bill of lading, the name of the
Selected Opinions on UCP 500 vessel does not have to be repeated after the ‘Shipped on
board the vessel’ since it is already stated under ‘ocean
vessel’ in the bill of lading.
SUB-ARTICLES 23(a)(ii) and 23(a)(v) R 349
Whether the phrase “substitute vessel” constitutes a “similar
qualification” under sub-Article 23(a)(ii) Analysis and conclusion
Query Questions:
We would refer to Document 470.TA18 and request further 1) The pre-printed wording “Shipped on board the vessel” is
comment on the basis of a bill of lading which we have ac- not the reference to loading on board as mentioned within
cepted in our capacity as negotiating bank. the context of sub-Article 23(a)(ii). This is merely the
The bill of lading in question is worded, on its face, as fol- shipping company’s style of inclusion of an on board
lows: ‘Received from the shipper in apparent good order and notation as mentioned in the second paragraph of the above
condition unless otherwise indicated herein, the goods or the sub-Article. Reference in the sub-Article to “Loading on
container(s) or package(s) said to contain the cargo herein board or shipment on a named vessel may be indicated by
mentioned to be carried subject to all the terms and conditions pre-printed wording ...” occurs where the bill of lading
provided for on the face and back of this bill of lading, by the states, for example, “Shipped in apparent good order and
vessel named herein or by any additional or substitute vessel condition ...” instead of (and as in your case) “Received
or means of transport chosen at the ... ’. from the shipper in apparent good order ... “.
The bill of lading has a pre-printed box with the words 2) Sub-Article 23(a)(ii) states that: “If the bill of lading
‘Shipped on Board the Vessel’ and a place for date and signa- contains the indication ‘intended vessel’, or similar
ture. qualification in relation to the vessel, loading on board a
named vessel must be evidenced by an on board notation
Questions:
on the bill of lading which, in addition to the date on which
the goods have been loaded on board, also includes the tant to note that if a named vessel has been agreed upon,
name of the vessel on which the goods have been loaded, then a right of substitution must have been expressly agreed
even if they have been loaded on the vessel named as the upon if the carrier is going to perform with a vessel differ-
‘intended vessel’ “. ent from that named in the contract of carriage.
3) Sub-Article 23(a)(v) also states: “ … appears to contain Where contracts of carriage provide a substitution clause,
all of the terms and conditions of carriage, or some of such the clause will normally be considered an option in the
terms and conditions by reference to a source or document carrier’s favour, i.e. although the carrier has the right to
other than the bill of lading (short form/blank back bill of substitute the vessel the charterers cannot force him to do
lading); banks will not examine the contents of such terms
and conditions … “. Reference in sub-Article 23(a)(v) to
terms and conditions relate to those terms of carriage stated
so. However, if the carrier does substitute, he is under the
obligation to perform the carriage with a vessel of similar
type and characteristics as the originally named vessel.
85
on the bill of lading, usually on the reverse of the bill of Should the named vessel suffer a total loss, or be consid-
lading. The reference to a possible “additional” vessel within ered a constructive total loss, before the owner has
your bill of lading did not appear within those terms and exercised his right of substitution, the carrier has no right
conditions, but within the general acceptance notice the to perform with the substitute vessel. This is simply
carrier gives regarding the cargo and the terms of its deliv- because the carrier, without a very specific agreement to
ery. Use of the words “by any additional (vessel)” is the the contrary, has no discretionary right to unilaterally
equivalent of “intended vessel”. decide whether or not a particular voyage is to be
Where the pre-printed statement “Shipped on board the performed. If this were the case, the carrier might be
vessel” appears, this should also have incorporated the inclined to take into account market conditions before
name of the actual vessel even if this is the same vessel considering whether or not to use his right to substitute.
which appears under the heading “ocean vessel”. The legal position is, therefore, that either with or without
Following extensive deliberations between the ICC substitution clauses there is only one vessel linked to the
Banking Commission and the ICC Commission on contract of carriage.
Maritime Transport, we are able to reply to the questions If the vessel is lost, so is the contract of carriage and thus
on Document 470/TA.18 as follows: the right for the carrier to substitute.
1) Yes, but in the context of the inclusion of “by an This points to the fact that the mere existence of a substi-
additional” in the pre-printed text. Use of the words “by tution clause does not involve the risk of banks that the
any additional (vessel)” would be considered to be a ‘intended vessel’ does, as long as the right to substitute
similar qualification to intended vessel in the context of has not been exercised and as long as the vessel is clearly
sub-Article 23(a)(ii). named in the bill of lading.
2) Yes. The named vessel is therefore a firm choice vessel and any
3) The ICC Commission on Maritime Transport has equation of a substitution clause with ‘intended vessel’ is
provided the following definition on how reference to unfounded.”
“substitute vessel” or a “substitute clause” in the
In the light of this clarification, we would confirm that a
pre-printed wording on the face of a bill of lading is to be
bill of lading which in its pre-printed form uses the words
interpreted: “Without knowing the intention of the
“or substitute vessel” is not to be considered as a qualifica-
drafters of UCP 500, an ‘intended vessel’ equates a ‘vessel
tion similar to “intended vessel”, in the context of
to be nominated’ or ‘vessel to be named’ clause. This means
sub-Article 23(a)(ii). This Opinion replaces that given in
that at the time of entering into the contract of carriage no
Document 470.TA.18 and Opinion No. R.283 appearing
named vessel has been agreed upon. Thus, the carrier may
in ICC Publication No. 596.
at a late stage nominate the particular vessel with which he
wishes to perform the contract of carriage. While it is rare However, due to the inconsistent approach adopted by
for the carrier to be left with the flexibility to single- various shipping lines to the use of phrases such as
handedly decide with which vessel he wishes to perform “substitute vessel” or the like, we are unable to give a
the contract of carriage after it has been entered into, such definitive opinion that ALL bills of lading incorporating a
situations do occasionally occur in long term contracts. substitution clause will be acceptable.
“A substitution clause is something entirely different. In For the purposes of this and any future issue(s), a bill of
the absence of a specific agreement to the contrary, the lading using the words “or substitute vessel” or “or any
carrier must perform the contract of carriage using the substitute vessel” will not be considered discrepant under
named vessel. Should the carrier, for some reason, not be the conditions stated in sub-Article 23(a)(ii).
able to perform the voyage with that vessel (for instance,
because of a total loss), he is not entitled to replace it with SUB-ARTICLES 20(b), ARTICLES 23 AND 26 AND THE
another one. On the other hand, even if the charterers want
ICC DECISION ON ORIGINAL DOCUMENTS R 433
the vessel replaced, the carrier is under no obligation to do
so. Where bill of lading and signatures thereon are produced by
imaging technology and sent via the Internet, can they qualify
Because a vessel’s individual characteristics are less as original documents under sub-Article 20(b)?
important in the liner trade than in the ‘freelance’ seagoing
Query
trade, there has been a long-standing practice giving
owners the right to substitute the vessel named in liner The purpose of this query is to clarify whether sub-Article
bills of lading with another vessel. However, it is impor-
20(b)(ii) applies in relationship to Company A’s bills of lad- quire the presentation of a sole original bill of lading or
ing. As background, Company A has used imaging technology multimodal transport document.
to produce our bills of lading since 1996. Such documents either specify on their face that the docu-
The bills of lading are distributed by direct printing and sub- ment is original or within the printed text on the face that “in
sequently sent by courier to our customers; or, for approved witness whereof X original bills of lading have been signed ...
customers, we send them via the Internet. The documents are “, or similar wording.
identical whether they are printed internally or via the Web as The signature on the bill of lading is classified as being a
the signature is imaged onto the document. facsimile one and as such is acceptable under the terms of

86 As we expand our bills of lading into other markets, some

banks have raised the question as to whether or not the fac-
simile signature qualifies under sub-Article 20(b), which reads:
sub-Article 20(b).
In the context of the printed wording which appears on the
face of the bill of lading or multimodal transport document,
‘b. Unless otherwise stipulated in the Credit, banks will also “originality” can be established. The signature on the bill of
accept as an original document(s), a document(s) produced or lading is classified as being a facsimile one and as such is
appearing to have been produced: acceptable under the terms of sub-Article 20(b).
i. ... by reprographic, automated or computerized systems; ii. The document, issued as described above, would be accept-
... as carbon copies, provided that it is marked as original and, able under UCP 500.
where necessary, appears to be signed.
A document may be signed by handwriting, by facsimile sig- SUB-ARTICLES 34(f)(ii), 34(e) AND 35(b) R 458
nature, by perforated signature, by stamp, by symbol, or by
Questions concerning whether insurance must be precisely
any other mechanical or electronic method of authentication.’
110% or whether it can be rounded up; if the credit is silent
It is my understanding that International Financial Services regarding the insurance coverage, must the insurance cover
Association (IFSA, formerly known as USCIB) has previ- the entire voyage reflected in the transport document?
ously supported the fact that Company A’s bill of lading is in
Query
compliance with sub-Article 20(b) as stated above. Further-
more, we have issued in excess of 500,000 bills of lading in A bank has made the following enquiries regarding interna-
North America, signed with the facsimile signature since 1996. tional standard banking practice with regard to insurance re-
quirements in a letter of credit subject to UCP500:
I believe the confusion lies in our ability to deliver the afore-
mentioned bill of lading via the Internet, which may be incor- Questions:
rectly interpreted as an electronic document. Any opinion 1) If the credit is silent regarding the amount of insurance
regarding this matter is appreciated. coverage required, and the invoice amount is USD 99.00
Analysis and conclusion CIF or CIP, must the insurance be precisely 110% (i.e.
USD 108.00) or may it be for a larger percentage? If a
The text of the query includes the wording of sub-Article
larger percentage is permitted, is there an upper limit?
20(b) which is relevant to this issue. In addition, the content
of the ICC Decision on Original Documents dated 12 July 2) If the credit stipulates “Insurance for 110% invoice value”
1999 needs to be recognized. and the invoice is USD 99.00, must the insurance coverage
be precisely 110% (i.e. USD 108.00) or may it be rounded
In that Decision, Section 2, Determination of Originality, states:
up to USD 110.00 (which is actually 111.1111%) for
“Banks undertake to determine whether a document appears
example? If it may not be rounded up by such a small
on its face to be an original document, as distinguished from a
percentage, why is 110% a minimum in number 1 above
copy. Except as expressly required by a letter of credit (in-
and why should this same 10 % addition not be permitted
cluding an incorporated term such as UCP 500 sub-Articles
here?
23(a)(iv) or 34b), banks do not undertake to determine whether
an apparent original is the sole original. Banks rely on the 3) If in question number 2 the amount may be rounded up, is
apparent intent of the issuer of the document that it be treated there a percentage, for example 5% or 10%, which may be
as an original rather than a copy. In this regard, a person applied?
sending a telefax or making a photocopy on plain paper or 4) If the credit is silent regarding the insurance coverage (sub-
pressing through carbon paper presumably intends to pro- Article 35(b)), must the insurance cover the entire voyage
duce a copy. On the other hand, a person printing a document reflected in the transport document, or is it sufficient to
on plain paper from a text that that person created and elec- evidence an effective date of coverage as in sub-Article
tronically stored presumably intends to produce an original. 34(e)? – i.e. cover may be effective on the proper date but
Accordingly, documents bearing facsimile signatures or printed may only cover a portion of the voyage reflected in the
in their entirety (even including the issuer’s letterhead and/or transport document.
signature) from electronically stored text are presumably in- 5) In sub-Article 34(f)(ii), what do the words “100% of the
tended by the document issuer to be original and in practice gross amount of the invoice” mean in practice? For
are accepted by banks as original.” example, do they mean an invoice reflecting a payment
Section 3.3 of the Decision looks at documents which bear a schedule for goods or an invoice reflecting prepayments
facsimile signature and states: “Banks treat a facsimile signa- or other deductions?
ture as the equivalent of a hand signature. Accordingly, a docu- Analysis
ment that appears to bear the document issuer’s facsimile Sub-Article 34(e) reads: “Unless otherwise stipulated in the
signature is also treated as an original document.” Credit, or unless it appears from the insurance document that
The issue of originality with regard to bills of lading is cov- the cover is effective at the latest from the date of loading on
ered in the context that Articles 23 and 26, for example, re- board or dispatch or taking in charge of the goods, banks will
not accept an insurance document which bears a date of issu- RULES OF ARBITRATION - INTERNATIONAL CENTER
ance later than the date of loading on board or dispatch or FOR LETTER OF CREDIT ARBITRATION, INC. (ICLOCA)
taking in charge as indicated in such transport document.”
Sub-Article 34(f)(ii) reads: “Unless otherwise stipulated in I. Introduction
the Credit, the minimum amount for which the insurance docu- Letters of credit have achieved their status as a universally
ment must indicate the insurance cover to have been effected recognized means of assurance of payment because their
is the CIF (cost, insurance and freight (… “named port of documentary character lends itself to summary payment or,
destination”)) or CIP (carriage and insurance paid to (… in the event of a dispute, summary resolution. Because letter
“named place of destination”)) value of the goods, as the case
may be, plus 10%, but only when the CIF or CIP value can be
determined from the documents on their face. Otherwise, banks
of credit law and practice is highly specialized and often
counter-intuitive to the general commercial lawyer, the
judicial process has not generally afforded the speedy, final,
87
will accept as such minimum amount 110% of the amount for certain and sound relief desired by parties to a letter of credit
which payment, acceptance or negotiation is requested under dispute. For similar reasons, this observation also applies to
the Credit, or 110% of the gross amount of the invoice, which- independent guarantees, documentary collections, funds
ever is the greater.” transfers and other mechanisms for the assurance of payment
Sub-Article 35(b) reads: “Failing specific stipulations in the in trade and commerce.
Credit, banks will accept insurance documents as presented, It is the goal of these Rules and the arbitration system with
without responsibility for any risks not being covered.” which they are linked to provide an expedited, principled, and
final resolution of disputes involving trade finance by recog-
nized experts in law and practice in a cost efficient manner.
Conclusion
These Rules are modelled upon the highly successful
Question 1 and time-tested UNCITRAL Arbitration Rules with
Where the credit is silent as to the (minimum) amount of modifications necessitated by the use of expert arbitrators,
coverage, sub-Article 34(f)(ii) states the insurance document the frequent possibility of summary disposition, and the use
must be issued for a minimum of 110% of the CIF or CIP of an administrative center.
value. The UCP does not provide for any maximum percent-
age (ICC opinion under reference TA.111). International Center for Letter of Credit Arbitration
Question 2 The International Center for Letter of Credit Arbitration (the
The inclusion in an L/C of a term such as “Insurance for 110% “Center”) was founded as a result of an initiative from within
invoice value” is a bank’s way of trying to mirror the UCP the letter of credit community. The Center has been created
requirement of 110%. However, it has not always been trans- after extensive consultation with corporate, legal and banking
lated as such. Consistent with the UCP construction, banks representatives throughout the United States and the world.
that issue credits with such a clause are generally looking for The Center was formally established in September of 1996
a minimum coverage rather than an exact one. If a bank re- and is located in metropolitan Washington, D.C.
quires the insurance document to be issued for exactly ICC The Center has two main purposes, namely, to act as an
Uniform Customs and Practice for Documentary Credits 87 administrative authority and a resource center for informa-
X% or X amount or words to similar effect, then the credit tion, training, and research for letter of credit related disputes.
must expressly state this requirement. This opinion overrides
Issue 2 of query R195 which appears in ICC Publication No. ICLOCA Arbitration Council
565. The ICLOCA Arbitration Council is composed of representa-
Question 3 tives of the private and public sectors. Its role is to provide
advice and make recommendations to the Center on matters
Not applicable.
of planning and policy.
Question 4
Unless otherwise stipulated in the credit, the insurance docu- ICLOCA Consultative Council
ment must cover the entire journey between the place from The ICLOCA Consultative Council is composed of leading
which the credit stipulates the goods are to be shipped or experts in the fields of arbitration and letters of credit. The
dispatched and the place to which the credit stipulates the principal function of this body is to provide advisory opin-
goods are to shipped/delivered. ions to the Center on non-routine issues where the Rules
Question 5 require a decision by the Center during the course of the
100% of the gross amount of the invoice is the value of the administration of an arbitration, such as, the challenge, release
goods before any deduction. For example, a credit which is or replacement of an arbitrator and certain questions concern-
issued for USD 100,000.00 and allows for 80% to be drawn ing arbitrator fees. When this is required, the Center will
against shipping documents with 20% having been paid in convene an ad hoc committee composed of members of the
advance. This would entail the beneficiary producing an in- Consultative Council. In special circumstances the Center may
voice for 100% of the goods value (USD 100,000.00) and also appoint an outside expert who is not a member of the
showing a deduction in respect of the advance payment – Consultative Council to serve on an ad hoc committee.
resulting in a bottom line figure of USD 80,000.00
In this case, the insurance must be for a minimum of 110% of II. ICLOCA Services
the gross amount of the goods (goods value USD 100,000.00 What type of disputes may be referred to the Center under
plus minimum 10%) and not a minimum of 110% of USD these Rules?
80,000.00. The Center was created to assist in the resolution of disputes
arising out of international banking operations including
letters of credit, confirmations or advices, documentary Arbitrators. If an arbitrator is appointed from outside the
collections, funds transfers, and similar matters. List, the appointment must be confirmed by the Center in
order to ensure that ICLOCA arbitrations are conducted
What are the available means of dispute resolution? by internationally recognized experts. (Article 8). Even if
The Rules provide for one type of dispute resolution, appointed by one party, the arbitrator does not represent
arbitration. Arbitration is designed to lead to a binding and that party. (Articles 4, 9 &10)
enforceable resolution of the dispute outside the court 4. Challenges to Arbitrators
system. The Center will, upon request, provide assistance in The Rules provide that their arbitrator may be challenged

88 conciliation and other ADR methods.

Who may refer disputes to the Center?

if circumstances exist that give rise to justifiable doubts
concerning his or her independence or impartiality (see
Articles 10 to 13).
The services of the Center are available to all persons. There Before deciding on a challenge, the Center may seek the
is no requirement that a person be affiliated in any way with advice of any member or members of the Consultative
any State, business sector or organization. Individuals and Council.
entities having a recognized legal personality may submit 5. The Dispute Resolution Procedure
disputes to the Center for arbitration.
Arbitration is a procedure whereby a dispute is submitted
to a non judicial arbitral tribunal composed of one or more
How to refer disputes to the arbitration?
arbitrators who render a decision that is binding on the
There are two circumstances in which a dispute might
parties. With regard to letters of credit and similar
be referred to arbitration under the ICLOCA Rules and
undertakings, arbitration arises by the incorporation of
administered by the Center.
an arbitration clause into a letter of credit or other
1) A clause may be inserted into the undertaking or undertaking or by the submission of an existing dispute by
agreement providing that all future disputes arising out of, agreement of the parties. If the clause adopts the ICLOCA
in connection with or relating to that undertaking or Rules, the Rules set forth the procedure to be followed
agreement be submitted to the Center for resolution under including selection of the arbitral tribunal, its powers, the
these Rules. rights and obligations of the parties, and the role of the
2) An existing dispute may also be referred to the Center for Center.
resolution by agreement of the parties, even if there was
no advance agreement to arbitration. Are arbitral awards final?
Recommended clauses are contained in section VI. Decisions rendered by the arbitral tribunal in the form of an
Under either circumstance, once a dispute has arisen, a party award are final and binding on the parties and not subject to
desiring arbitration gives written notice to the Center and the an appeal on the merits to a court of law. In the majority of
other party in the form of a “Notice of Arbitration.” (See cases involving international arbitration, the parties comply
article 3) with the award without the need to seek court enforcement.
Where court enforcement is necessary, the procedure is
What is the system of arbitration established under these relatively straightforward by virtue of the 1958 New York
Rules? Convention on the Recognition and Enforcement of Foreign
The primary characteristic of this system is that the Arbitral Awards. More than 110 Countries (including the U.S.)
arbitration is conducted by experts from the relevant fields of are party to the New York Convention, which obliges
international banking operations under procedures which contracting States to recognize and enforce foreign arbitral
facilitate summary disposition with the assistance of an awards, with a few very limited and specified exceptions.
established administrative center.
What administrative services are provided by the Center?
What is the role of the Center under the Rules? In addition to its role in the appointment process, the Center
The Center serves as administrative resource for the arbitra- • receives the various papers filed until the creation of the
tion, an appointing authority for he arbitral tribunal, and arbitral tribunal (Article 15)
an administrator for any challenges to the appointment of • determines the place of arbitration unless agreed upon by
an arbitrator. the parties (Article 16)
• will assist with the logistical support for arbitration.
How is the arbitral tribunal constituted? • receives the award, promulgates it, and makes any neces-
1. Number of arbitrators sary filing.
Unless the parties agree otherwise, the arbitral tribunal
will consist of one arbitrator. (Article 5) Stenographic Transcripts and Interpretation
2. How are the arbitrators appointed? At the request of the parties or the arbitral tribunal, the
If there is one arbitrator, he or she will be appointed by the Center will assist the arbitral tribunal in making arrangements
Center unless the parties agree on an appointment (Article 6) for stenographic transcripts or interpretation of hearings.
3. Mechanism for Appointment from the List of Accredited These costs are not included in the administrative fee and will
Arbitrators be billed separately.
In order to ensure the expertise of the arbitrator in
international banking operations and his or her training in Fees and Deposits
arbitration matters, the Center maintains a list of Accredited The Center will make all arrangements concerning the amounts
of arbitrator’s fees and administrative fees and costs, includ- 3. Should the amount at issue increase during the pendency
ing advance deposits for those fees and costs (see articles 38 of the arbitration, the administrative fee will be recalcu-
and 41). All fees are collected by and paid to the Center. For lated accordingly.
complete details regarding the schedules for registration, 4. Where the amount of the claim is expressed in a currency
administrative and arbitrator’s fees, see section V. other than United States Dollars, for the purposes of
calculating the administrative fee, the claimed amount will
Other Services be converted into an amount specified in United States
The Center will consider providing other appropriate admin- Dollars on the basis of the official United Nations’
istrative services upon request. exchange rate prevailing on the date of submission of the
Notice of Arbitration.
Amount of Claim Administrative Fee
89
III. Conferences and Training Programs
The Center organizes conferences and seminars designed for Up to $100,000 $1,500
the letter of credit community introducing the ICLOCA $100,001 - $500,000 $1,500 + 1.25%
system and on specific issues related to the resolution of $500,001 - $1,000,000 $6,500 + 0.80%
letter of credit disputes. It also conducts training programs $1,000,001 - $2,000,000 $10,500 + 0.40%
specifically designed for arbitrators, so as to perfect their $2,000,001 - $5,000,000 $14,500 + 0.10%
skills in conducting proceedings and writing awards. The train- $5,000,001 - $10,000,000 $17,500 + 0.05%
ing programs are designed for a limited number of partici- Over $10,000,000 $20,000 + 0.03%
pants and are intended to teach skills and provide valuable (maximum of $40,000)
insight into the arbitration of disputes under the ICLOCA Arbitrator Fees In addition to the Administrative fees, the
Rules. Details regarding these conferences and training fees of the arbitrators must be paid. These fees are to be paid
programs are available from the Center. directly to the Center:
1. For the purpose of calculating the amount of the claims,
IV. ICLOCA List of Accredited Arbitrators the value of any counter-claim is added to the amount of
The Center maintains a list of persons who are specially the claim.
qualified to act as arbitrators under its Rules (see Article 8). 2. For the purpose of calculating the amount of the arbitrator’s
This List contains information on each person’s experience fee, the percentage figure is applied to each successive
and specialized expertise in the various aspects of letter of part of the amount of the claim or counter-claim.
credit law, practice and related areas. 3. Where a claim or counter-claim is not for a monetary
This List is the primary source used by the Center when it is amount, the Center shall, after consultation with the
called upon to make recommendations or appointments. The arbitrator(s) and the parties, determine an appropriate value
parties can appoint an arbitrator from outside the Center’s for the claim and counter-claim for the purpose of
List, but any such appointment is subject to confirmation by determining the arbitrator’s fee.
the Center. Parties may obtain a copy of the ICLOCA List of 4. Arbitrator fees will be fixed within the range indicated in
Accredited Arbitrators from the Center. this schedule by the Center in consultation with the
arbitrator(s) and parties based upon the amount in
V. Fee Schedules for ICLOCA Arbitration dispute, the complexity of the subject-matter, the time
spent by the arbitrators and any other relevant circum-
Note: Unless otherwise stated, all fees are expressed and
stances of the case (see article 39).
payable in United States dollars.
5. Where the amount of the claim is expressed in a currency
Registration Fees to be paid by the Claimant when filing
other than United States Dollars, for the purposes of
(non refundable): To cover the cost of initiating the arbitra-
calculating the administrative fee, the claimed amount will
tion, a registration fee of $1,000 shall be payable. For this
be converted into an amount specified in United States
purpose, counterclaims are treated separately.
Dollars on the basis of the official United Nations
Administrative Fees The administrative fees are the costs exchange rate prevailing on the date of submission of the
of administering the arbitration in addition to the registration Notice of Arbitration.
fee. They are fixed at the end of the proceedings in the Award
(Articles 38-40). As a rule, the Center will request from the
parties in accordance with Article 41 deposits as advance VI. Model Clauses for Arbitration Under ICLOCA Rules
payments of the likely cost of the arbitration as estimated at of Arbitration
the beginning of the proceedings and supplemented as neces- A. Arbitration Clause for Future Disputes
sary during the course of the arbitration. 1. To be inserted into a letter of credit, confirmation, advice,
1. Where the amount of the claim or counter-claim is not or other independent guarantee, counter-guarantee,
specified, the Center shall determine an appropriate collection letter, or reimbursement instructions:
administrative fee. Suggested form:
2. The amount of a counterclaim will be added to the amount Any dispute, controversy or claim arising out of or relat-
of the claim for the purpose of calculating the administra- ing to this undertaking or the dishonor, termination or
tive fee only if the portion of the deposit assessed to the invalidity thereof shall be finally settled by arbitration
respondent is paid within 30 days of the assessment. administered by the International Center for Letter of Credit
Otherwise the counterclaim shall be stricken from the Arbitration, Inc., under its Rules of Arbitration (1996).
proceeding and must be filed separately. Abbreviated form:
The Center encourages the parties at the time of drafting INTERNATIONAL CENTER FOR LETTER OF CREDIT
their arbitration clause to use and where appropriate elabo- ARBITRATION, INC. (ICLOCA)
rate on the form suggested. If it is absolutely necessary to
utilize a shorter form, the following language is suggested: Rules of Arbitration for Letter of Credit Disputes
All disputes subject to arbitration under ICLOCA Rules August 1996
of Arbitration (1996). These Rules are based on the UNCITRAL Arbitration Rules
2. To be inserted into a reimbursement agreement/application: and are primarily designed for arbitration of disputes
Any dispute, controversy or claim arising out of or in involving letters of credit and similar mechanisms for the

90 relation to this reimbursement agreement or application

or the letter of credit issued pursuant to it, or the breach,
assurance of payment such as independent guarantees,
documentary collections and funds transfers, under the
auspices of the International Center for Letter of Credit
dishonor, termination or invalidity thereof, shall be finally
settled by arbitration administered by the International Arbitration, Inc.
Center for Letter of Credit Arbitration, Inc., under its Rules
of Arbitration (1996). Preample
Letters of credit have achieved their status as a universally
B. Submission of Existing Dispute (Submission Agreement) recognized means of assurance of payment because their
3. To be inserted into a signed agreement to arbitrate a documentary character lends itself to summary payment or,
currently existing dispute: in the event of a dispute, summary resolution. Because letter
We, the undersigned, hereby agree to submit to arbitration of credit law and practice is highly specialized and often
administered by the International Center for Letter of Credit counter-intuitive to the general commercial lawyer, the
Arbitration, Inc., under its Rules of Arbitration (1996), the judicial process has not generally afforded the speedy, certain
following controversy: and sound relief desired by parties to a letter of credit dispute.
[insert a description of the dispute]. For similar reasons, this observation also applies to indepen-
dent guarantees, documentary collections, funds transfers and
We further agree to perform this agreement to arbitrate and
other mechanisms for the assurance of payment in trade and
to observe these Rules.
commerce.
It is the goal of these Rules and the arbitration system with
which they are linked to provide an expedited, principled
resolution of disputes involving trade finance by recognized
experts in law and practice in a cost efficient manner.
These Rules are modelled upon the highly successful and
time-tested UNCITRAL Arbitration Rules with modifications
necessitated by the expert arbitrators, the frequent
possibility of summary disposition based upon documentary
and stipulated evidence common in this field, and the use of
an administrative center.

Article 1
Scope of Appication
1. Where a letter of credit, independent guarantee, collection
instruction, reimbursement undertaking, or other agree-
ment or undertaking (whether independent or not) (herein-
after called the “undertaking”) provides that it is subject to
arbitration under these Rules or that disputes shall be
submitted to arbitration by the International Center for
Letter of Credit Arbitration, Inc. (hereinafter called the
“Center”), disputes, controversies or claims relating to the
undertaking, whether domestic or international, between
any two or more persons causing it to be issued, issuing it
or acting upon it shall be settled in accordance with these
Rules subject to any modification.
2. These Rules shall govern the arbitration except that where
any of these Rules is in conflict with a provision of the law
applicable to the arbitration from which the parties cannot
derogate, that provision shall prevail.
3. The Center shall act as appointing authority and adminis-
ter arbitrations conducted under these Rules.

Article 2
Notice, Calculation of Periods of Time
1. For the purposes of these Rules, any notice, including a
notification, communication or proposal, is deemed to have
Arbitrator Fees

Sole Arbitrator Fees

Amount of Claim Minimum Arbitrators Fee Maximum Arbitrators Fee

Up to $50,000 $1,000 10%

(of amount but not below minimum) 91
$50,001 - $100,000 $1,000 + 1.50% $4,000 + 2.50%
(of amount over $50,000) (of amount over $50,000)

$100,001 - $500,000 $1,750 + 0.80% $5,250 + 2%

(of amount over $100,000) (of amount over $100,000)

$500,001 - $1,000,000 $4,950 + 0.50% $13,250 + 1.50%

(of amount over $500,000) (of amount over $500,000)

$1,000,001 - $2,000,000 $7,450 + 0.30% $20,750 + 1%

(of amount over $1,000,000) (of amount over $1,000,000)

$2,000,001 - $5,000,000 $10,450 + 0.20% $30,750 + 0.50%

(of amount over $2,000,000) (of amount over $2,000,000)

$5,000,001 - $10,000,000 $16,450 + 0.10% $45,750 + 0.30%

(of amount over $5,000,000) (of amount over $5,000,000)

Over $10,000,000 $21,450 + 0.05% $60,750 + 0.10%

(of amount over $10,000,000) (of amount over $10,000,000)

Three Arbitrators’ Fees (The fee will be divided between the three arbitrators according to a formula set by the Center.)

Amount of Claim Minimum Arbitrators Fee Maximum Arbitrators Fee

Up to $50,000 $1,000 20%

(of amount but not below minimum)

$50,001 - $100,000 $2,500 + 3.75% $10,000 + 6.25%

(of amount over $50,000) (of amount over $50,000)

$100,001 - $500,000 $4,375 + 2.00% $13,125 + 5.00%

(of amount over $100,000) (of amount over $100,000)

$500,001 - $1,000,000 $12,375 + 1.25% $33,125 + 3.75%

(of amount over $500,000) (of amount over $500,000)

$1,000,001 - $2,000,000 $18,625 + 0.75% $51,875 + 2.50%

(of amount over $1,000,000) (of amount over $1,000,000)

$2,000,001 - $5,000,000 $26,125 + 0.50% $76,875 + 1.25%

(of amount over $2,000,000) (of amount over $2,000,000)

$5,000,001 - $10,000,000 $41,125 + 0.25% $114,375 + 0.75%

(of amount over $5,000,000) (of amount over $5,000,000)

Over $10,000,000 $53,625 + 0.125% $151,875 + 0.25%

(of amount over $10,000,000) (of amount over $10,000,000)
been received if it is physically delivered to the addressee 2. If, within thirty days after the commencement of the
or if it is delivered at its place of business, mailing address arbitration, the parties have not agreed upon the
or habitual residence, or, if none of these can be found after arbitrator, the appointment shall be made by the Center as
making reasonable inquiry, then at the addressee’s last- promptly as possible.
known place of business or residence. Notice shall be 3. In making the appointment, the Center shall have due
deemed to have been received on the day it is so delivered. regard to the expertise and competence required and, for
2. For the purposes of calculating a period of time under that reason, to the advisability of selecting an arbitrator
these Rules, such period shall begin to run on the day from the List of Accredited Arbitrators established by it.

92 following the day when a notice, notification, communica-

tion or proposal is received. If the last day of such period
is an official holiday or a non-business day at the place of
Article 7
Appointment of Three Arbitrators
business or residence of the addressee, the period is 1. If three arbitrators are to be appointed, each party shall
extended until the first business day which follows. appoint one arbitrator. The two arbitrators thus appointed
Official holidays or non-business days occurring during shall choose the third arbitrator who will act as the presid-
the running of the period of time are included in calculating ing arbitrator of the tribunal.
the period. 2. If a party within thirty days after the commencement of
3. The Center or the arbitral tribunal may, at the request of the arbitration has not appointed an arbitrator, the
the parties or on its own motion, extend the periods of arbitrator shall be promptly appointed by the Center in
time referred to in these Rules or set by it in accordance accordance with article 6, paragraph 3.
with these Rules. 3. If within thirty days after the appointment of the second
arbitrator the two arbitrators have not agreed on the choice
Article 3 of the presiding arbitrator, the presiding arbitrator shall be
Notice of Arbitration promptly appointed by the Center in accordance with
1. The party initiating recourse to arbitration (hereinafter article 6, paragraph 3.
called the “claimant”) shall give a notice of arbitration in 4. If there is more than one claimant or respondent and three
writing to the Center and to the other party (hereinafter arbitrators are to be appointed, the claimants or
called the “respondent”). In these Rules the terms “claim- respondents, as the case may be, shall jointly appoint an
ant”, “respondent”, “person” and “party” used in the arbitrator. If within thirty days after the commencement
singular include the plural as the context may require. of the arbitration, they have not made a joint appointment
2. Arbitral proceedings shall be deemed to commence on the for whatever reason, any appointment previously made
date on which the notice of arbitration is received by the by the other party shall be deemed to be void, and the
Center. Center shall promptly appoint all three arbitrators in
accordance with article 6, paragraph 3 and designate the
3. The notice of arbitration shall include the following: presiding arbitrator.
a) A demand that the dispute be referred to arbitration;
b) A reference to the arbitration clause or the separate Article 8
arbitration agreement that is invoked;
Confirmation of Appointment
c) A proposal as to the number of arbitrators (i.e. one or 1. The Center shall maintain a List of Accredited Arbitrators
three) if the parties have not previously agreed thereon; (hereinafter called the “List”).
d) The statement of claim referred to in article 18. 2. Where a person not listed in the Center’s List is appointed
4. The notice of arbitration shall be accompanied by under article 6 paragraph 1 or article 7, paragraph 1, the
payment of the registration fee set by the Center. appointment is subject to confirmation by the Center which
shall be provided by an appointing person with the full
Article 4 name, address and qualifications of the appointee and with
Representation the appointee’s acceptance of appointment.
The parties may be represented by persons of their choice. 3. If the Center does not confirm the appointment of an
The names and addresses of such persons must be communi- arbitrator, it shall notify the appointing person or persons
cated in writing to the other party, the Center and, after its who shall have ten days to appoint another arbitrator from
establishment, the arbitral tribunal. the Center List. In the case of a failure to do so, the Center
shall appoint an arbitrator in the same way as a sole
arbitrator would be appointed under article 6, paragraph 3.
Section II: Composition of the Arbitral Tribunal
4. The Center shall notify the parties of the establishment of
Artical 5 the arbitral tribunal.
Number of Arbitrators
If the parties have not agreed on whether the arbitral tribunal
Article 9
shall be composed of one or three arbitrators within fifteen
Disclosure
days after the commencement of the arbitration, there shall be
Prospective arbitrators shall disclose to those who approach
a sole arbitrator.
them in connection with their possible appointment any
circumstances likely to give rise to justifiable doubts as to
Article 6 their impartiality or independence. Arbitrators, once
Appointment of a Sole Arbitrator appointed or chosen, shall disclose such circumstances to the
1. Where a sole arbitrator is to be appointed, the arbitrator parties and to the Center unless they have already been
shall be appointed jointly by the parties. informed of these circumstances.
Article 10 Article 14
Challenge of Arbitrators Repetition of Hearings in the Event of the
1. Any arbitrator may be challenged if circumstances exist Replacement of an Arbitrator
that give rise to justifiable doubts as to the arbitrator’s If under articles 11 to 13 the sole or presiding arbitrator is
impartiality or independence. replaced, any hearings held previously shall be repeated; if
2. A party may challenge an arbitrator whom it has appointed any other arbitrator is replaced, such prior hearings may be
or to whose appointment it has agreed only for reasons of repeated at the discretion of the arbitral tribunal.
which it becomes aware after the appointment has been
made.
3. Decisions of the Center as to the appointment, confirma-
tion, challenge or replacement of an arbitrator shall be final.
Section III: Arbitral Proceedings
Article 15 93
General Provisions
1. Subject to these Rules, the arbitral tribunal may conduct
Article 11 the arbitration in such manner as it considers appropriate,
Procedure for Challenge provided that the parties are treated with equality and that
1. A party who intends to challenge an arbitrator shall send at any stage of the proceedings each party is given a full
notice of its challenge within fifteen days after the opportunity of presenting its case.
appointment of the challenged arbitrator has been notified 2. The arbitral tribunal shall decide whether to hold hearings
to the challenging party or within fifteen days after the for the presentation of evidence by witnesses, including
circumstances mentioned in articles 9 and 10 became known expert witnesses, or oral argument, or whether the
to that party. proceedings shall be conducted on the basis of documents
2. The challenge shall be notified to the other party, to the and other materials.
arbitrator who is challenged, to the other members of the 3. All documents or information supplied to the arbitral
arbitral tribunal and to the Center. The notification shall be tribunal by one party shall at the same time be communi-
in writing and shall state the reasons for the challenge. cated by that party to the other party and the Center. The
3. When an arbitrator has been challenged by one party, the arbitral tribunal shall send a copy of any communication
other party may agree to the challenge. The arbitrator may with the parties to the Center.
also, after the challenge, withdraw from office. In neither 4. Except as otherwise provided in these Rules or permitted
case does this imply acceptance of the validity of the by the arbitral tribunal, no party or anyone acting on its
grounds for the challenge. In both cases the procedure behalf may have any ex parte communication with any
provided in article 6 or 7 shall be used in full for the arbitrator with respect to any matter of substance relating
appointment of the arbitrator being replaced, even if to the arbitration, it being understood that nothing in this
during the process of appointing the challenged arbitrator paragraph shall prohibit ex parte communications which
a party had failed to exercise its right to appoint or to concern matters of a purely organizational nature, such as
participate in the appointment. the physical facilities, place, date or time of the hearings.

Article 12 Article 16
Release from Appointment Place of Arbitration
1. If the other party does not agree to the challenge and the 1. Unless the parties have agreed upon the place where the
challenged arbitrator does not withdraw, the decision on arbitration is to be held, such place shall be determined by
the challenge will be made by the Center. the Center having due regard to the circumstances of the
arbitration. However, the arbitral tribunal may meet at
2. If the Center sustains the challenge, a substitute arbitrator
any place it considers appropriate for consultation among
shall be appointed or chosen pursuant to the procedure
its members, for hearing witnesses, experts or the parties,
applicable to the appointment or choice of an arbitrator as
or for the inspection of goods, other property or
provided in article 6 or 7.
documents. The parties shall be given sufficient notice to
enable them to be present at such place.
Article 13 2. The award shall be deemed to be made at the place of
Replacement of an Arbitrator arbitration.
1. In the event of the death or resignation of an arbitrator
during the course of the arbitral proceedings, a substitute Article 17
arbitrator shall be appointed or chosen pursuant to
Language
the procedure provided for in articles 6 to 9 that was
1. The language to be used in the proceedings is the one
applicable to the appointment or choice of the arbitrator
chosen by the parties. Failing such choice, the language to
being replaced.
be used is that of the undertaking at issue unless and
2. In the event that an arbitrator fails to act or in the event until the arbitral tribunal determines otherwise. This
of the de jure or de facto impossibility of him or her determination shall apply to the notice of arbitration, the
performing their functions, the procedure in respect of the statement of claim, the statement of defence, and any
challenge and replacement of an arbitrator as provided in further written statements and, if oral hearings take place,
the preceding articles shall apply. to the language to be used in such hearings.
2. The arbitral tribunal may order that any documents existence or validity of the undertaking of which an
annexed to the statement of claim or statement of defence, arbitration clause forms a part. For the purposes of this
and any supplementary documents or exhibits submitted article, an arbitration clause which forms part of an under-
in the course of the proceedings, delivered in their original taking and which provides for arbitration under these Rules
language, shall be accompanied by a translation of the shall be treated as independent of the other terms of the
entire document, or any part thereof, into the language undertaking. A decision by the arbitral tribunal that the
agreed upon by the parties or determined by the arbitral undertaking is null and void shall not entail ipso jure the
tribunal. invalidity of the arbitration clause.

94 Article 18
3. A plea that the arbitral tribunal does not have jurisdiction
shall be raised not later than in the statement of defence or,
with respect to a counter-claim, in the reply to the counter-
Statement of Claim
The statement of claim shall include the following particulars: claim. A plea that the arbitral tribunal is exceeding the
scope of its authority shall be raised as soon as the matter
a) The names and addresses of the parties;
alleged to be beyond the scope of its authority is raised
b) A statement of the facts supporting the claim; during the arbitral proceedings. The arbitral tribunal may,
c) The points at issue; in either case, admit a later plea if it considers the delay
d) The relief or remedy sought; justified.
e) A copy, if applicable, of the undertaking upon which 4. In general, the arbitral tribunal should rule on a plea
the claim is based. The claimant may annex other concerning its jurisdiction as a preliminary question.
relevant documents relied upon in its claim, or may add However, the arbitral tribunal may proceed with the
a reference to the documents or other evidence to be arbitration and rule on such a plea in its final award.
submitted.
Article 22
Article 19 Further Written Statements
Statement of Defence The arbitral tribunal shall decide which further written state-
1. Within thirty days after the commencement of the arbitra- ments, in addition to the statement of claim and the statement
tion, the respondent shall communicate its statement of of defence, shall be required from the parties or may be
defence in writing to the claimant and the Center. presented by them and shall fix the period of time for commu-
2. The statement of defence shall reply to the particulars (b), nicating such statements.
(c) and (d) of the statement of claim (article 18). The
respondent may annex to the statement of defence the Article 23
documents relied upon for its defence. Periods of Time
3. In the statement of defence, or at a later stage in the arbitral The periods of time fixed by the arbitral tribunal for the
proceedings if the arbitral tribunal decides that the delay communication of written statements should not exceed
was justified under the circumstances, the respondent may twenty-one days. However, the arbitral tribunal may extend
make a counter-claim arising out of or relating to the same the time limits if it concludes that an extension is justified.
or related undertaking or rely on a claim arising out of or
relating to the same or related undertaking for the purpose Article 24
of a set-off. Evidence
4. The provisions of article 18 shall apply to a counter-claim 1. Each party shall have the burden of proving the facts
and a claim relied on for the purpose of a set-off. relied upon to support its claim or defence.
2. The arbitral tribunal may, if it considers it appropriate,
Article 20 require a party to deliver to the tribunal and to the other
Amendments to the Claim or Defence party, within such a period of time as the arbitral tribunal
During the course of the arbitral proceedings any party may shall decide, a summary of the documents and other
amend or supplement its claim or defence unless the arbitral evidence which that party intends to present in support
tribunal considers it inappropriate to allow such amendment of the facts in issue set out in its statement of claim or
having regard to the delay in making it or prejudice to the statement of defence.
other party or any other circumstances. However, a claim 3. At any time during the arbitral proceedings the arbitral
may not be amended in such a manner that the amended claim tribunal may require the parties to produce documents,
falls outside the scope of the arbitration clause or separate exhibits, or other evidence within such a period of time as
arbitration agreement. the tribunal shall determine.

Article 21 Article 25
Pleas as to Jurisdication and Powers of the Oral Hearings
Arbitral Tribunal 1. In the event of a preparatory conference or an oral hearing,
1. The arbitral tribunal shall have the power to rule on objec- the arbitral tribunal shall give the parties adequate advance
tions that it has no jurisdiction, including any objections notice of the date, time and place thereof. The arbitral
with respect to the existence or validity of the arbitration tribunal may conduct a preparatory conference or a
clause or of the separate arbitration agreement. hearing in any manner it deems appropriate including by
2. The arbitral tribunal shall have the power to determine the teleconference, video conference or similar means of
communication.
2. If witnesses are to be heard, at least fifteen days before the shall have the opportunity to be present and to interrogate
hearing each party shall communicate to the arbitral the expert. At this hearing either party may present expert
tribunal and to the other party the names and addresses of witnesses in order to testify on the points at issue.
the witnesses it intends to present, the subject upon and The provisions of article 25 shall be applicable to such
the languages in which such witnesses will give their proceedings.
testimony.
3. The Center shall make arrangements for the translation of Article 28
oral statements made at a hearing and for a record of the Default
hearing if either is deemed necessary by the arbitral
tribunal under the circumstances of the case, or if the
parties have agreed thereto and, in either case, such
1. If, within the period of time provided for in article 19
paragraph 1, the respondent has failed to communicate the 95
statement of defence without showing sufficient cause for
request is communicated to the Center at least fifteen days
such failure, the arbitral tribunal shall order that the
before the hearing.
proceedings continue.
4. Hearings shall be held in camera unless the parties agree
otherwise. The arbitral tribunal may require the retirement 2. If one of the parties, duly notified under these Rules, fails
of any witness or witnesses during the testimony of other to appear at a hearing without showing sufficient cause for
witnesses. The arbitral tribunal may determine the manner such failure, the arbitral tribunal may proceed with the
in which witnesses are examined. arbitration.
5. Evidence of witnesses may also be presented in the form 3. If one of the parties, duly invited to produce documentary
of written statements signed by them. evidence, fails to do so within the established period of
6. The arbitral tribunal shall determine the admissibility, time, without showing sufficient cause for such failure,
relevance, materiality and weight of the evidence offered. the arbitral tribunal may make the award on the evidence
before it.
Article 26
Interim Measures of Protection Article 29
1. At the request of any party, the arbitral tribunal, in its sole Closure of Hearings
discretion may take any interim measures it deems 1. The arbitral tribunal may inquire of the parties if they
necessary in respect of the subject matter of the dispute, have any further proof to offer or witnesses to be heard or
including measures for conservation of the funds, disposi- submissions to make and, if there are none, it may declare
tion of documents or goods forming the subject matter in the hearings closed.
dispute, such as ordering their deposit with a third person 2. The arbitral tribunal may, if it considers it necessary
or the delivery and/or sale of time sensitive goods or owing to exceptional circumstances, decide, on its own
documents or ordering that presentation of documents or motion or upon application of a party, to reopen the
payment be made or withheld. hearings at anytime before the award is made.
2. Such interim measures may be established in the form of
an interim award. The arbitral tribunal shall be entitled to
Article 30
require security for such measures.
3. A request for interim measures addressed by any party Waiver of Rules
to a judicial authority shall not be deemed incompatible A party who knows that any provision of, or requirement
with the agreement to arbitrate, or as a waiver of that under, these Rules has not been complied with and yet
agreement. proceeds with the arbitration without promptly stating its
objection to such non-compliance, shall be deemed to have
waived its right to object.
Article 27
Experts
1. The arbitral tribunal may appoint one or more experts to Section IV: The Award
report to it, in writing, on specific issues to be determined Article 31
by the arbitral tribunal. A copy of the expert’s terms of Decisions
reference, established by the arbitral tribunal, shall be 1. When there are three arbitrators, any award or other
communicated to the parties. decision of the arbitral tribunal shall be made by a majority
2. The parties shall give the expert any relevant information of the arbitrators.
or produce for his or her inspection any relevant docu- 2. In the case of questions of procedure, when there is no
ments or goods required of them. Any dispute between a majority or when the arbitral tribunal so authorizes, the
party and such expert as to the relevance of the required presiding arbitrator may decide on his or her own, subject
information or production shall be referred to the arbitral to revision, if any, by the arbitral tribunal.
tribunal for decision.
3. Upon receipt of the expert’s report, the arbitral tribunal
Article 32
shall communicate a copy of the report to the parties who
shall be given the opportunity to express, in writing, their Form and Effect of the Award
opinion on the report. A party shall be entitled to examine 1. In addition to making a final award, the arbitral tribunal
any document on which the expert has relied in his or her shall be entitled to make interim, interlocutory or partial
report. awards.
4. At the request of either party the expert, after delivery of 2. The award shall be made in writing and shall be final and
the report, may be heard at a hearing where the parties binding on the parties. By submitting the dispute to
arbitration by the Center, the parties shall be deemed to if requested by both parties and accepted by the arbitral
have undertaken to carry out the resulting award without tribunal, record the settlement in the form of an arbitral
delay and to have waived their right to any form of appeal award on agreed terms. The arbitral tribunal is not obliged
insofar as such waiver can validly be made. to give reasons for such an award.
3. The arbitral tribunal shall state the reasons upon which 2. If, before the award is made, the continuation of the
the award is based, unless the parties have agreed that no arbitral proceedings becomes unnecessary or impossible
reasons are to be given. for any reason not mentioned in paragraph 1, the arbitral
4. The arbitral tribunal may consult the Center with regard to tribunal shall inform the parties of its intention to issue an

96 matters of form particularly to ensure the enforceability

of the award.
order for the termination of the proceedings. The arbitral
tribunal shall have the power to issue such an order unless
a party raises justifiable grounds for objection.
5. An award shall be signed by the arbitrator and it shall
contain the date on which it was made and the place of 3. Copies of the order for termination of the arbitral proceed-
arbitration in accordance with article 16 paragraph 1. Where ings or of the arbitral award on agreed terms, signed by the
there are three arbitrators and one of them fails to sign, the arbitrators, shall be communicated by the arbitral tribunal
award shall state the reason for the absence of the to the Center which shall communicate an original of the
signature. award to each party and to each arbitrator. Where an
6. Copies of the award signed by the arbitrators shall be arbitral award on agreed terms is made, the provisions of
communicated to the Center which shall communicate an article 32, paragraphs 2, 4, 5, 7 and 8, shall apply.
original of the award to each party and to each arbitrator.
7. If the arbitration law of the country where the award is Article 35
made requires that the award be filed or registered, the Interpretation of the Award
Center shall comply with this requirement within the 1. Within thirty days after the receipt of the award, either
period of time required by law. party, with notice to the other party, may request that the
8. The Center may publish the award only with the consent arbitral tribunal give an interpretation of a specific point
of the parties or in sanitized form, that is, with such or part of the award.
deletions or modifications that are necessary to mask the 2. The interpretation shall be given in writing within thirty
identity of the parties, and after having given the parties days after the receipt of the request. The interpretation
thirty days in which to comment upon the sanitized version. shall form part of the award and the provisions of article
32, paragraphs 2 to 7, shall apply.
Article 33
Applicable Law, Amiable Compositeur Article 36
1. The arbitral tribunal shall apply the law designated by the Correction of the Award
parties as applicable to the substance of the dispute. 1. Within thirty days after the receipt of the award, either
Failing such designation by the parties, the arbitral party, with notice to the other party, may request the
tribunal shall apply the law determined by the conflict of arbitral tribunal to correct in the award any errors in
laws rules which it considers applicable. computation, any clerical or typographical errors, or any
2. The arbitral tribunal shall decide as amiable compositeur errors of similar nature. The arbitral tribunal may within
or ex aequo et bono only if the parties have expressly thirty days after the communication of the award make
authorized the arbitral tribunal to do so and if the law such corrections on its own initiative.
applicable to the arbitral procedure permits such arbitra- 2. Such corrections shall be in writing, and the provisions of
tion. article 32, paragraphs 2 to 7, shall apply.
3. In all cases, the arbitral tribunal shall decide in accordance
with the terms of the undertaking and shall take into Article 37
account generally accepted international rules, usages and Additional Award
practices. 1. Within thirty days after the receipt of the award, either
4. Monetary amounts in the award may be expressed in any party, with notice to the other party, may request the
currency. The arbitral tribunal may award simple or arbitral tribunal to make an additional award as to claims
compound interest to be paid by a party on any sum presented in the arbitral proceedings but omitted from the
awarded against that party. It shall be free to determine the award.
interest at such rates as it considers to be appropriate, 2. If the arbitral tribunal considers the request for an
without being bound by legal rates of interest, and shall be additional award to be justified and considers that the
free to determine the period for which the interest shall be omission can be rectified without any further hearing or
paid. The arbitral tribunal may not award exemplary or evidence, it shall complete its award within sixty days
punitive damages. after the receipt of the request.
3. When an additional award is made, the provisions of
Article 34 article 32, paragraphs 2 to 7, shall apply.
Settlement or Other Grounds for Termination
1. If, before the award is made, the parties agree on a settle-
ment of the dispute, the arbitral tribunal shall either issue
an order for the termination of the arbitral proceedings or,
Article 38 made, the Center may order the suspension or termination
Costs of the arbitral proceedings.
The arbitral tribunal shall state the costs of arbitration in its 4. After the proceedings are terminated or the award has been
award. The term “costs” includes only: made, the Center shall render an accounting to the parties
a) The fees of the arbitral tribunal to be stated separately of the deposits received and return any unexpended
as to each arbitrator and to be fixed by the Center in balance to the parties.
accordance with article 39;
b) The travel and other expenses incurred by the arbitra- Article 42
tors;
c) The costs of expert advice and of other assistance
Exclusion of Liability
Except in respect of deliberate wrongdoing, the members of
the arbitral tribunal and the Center shall not be liable to a
97
required by the arbitral tribunal;
d) The travel and other expenses of witnesses to the ex- party for any act or omission in connection with the arbitra-
tent such expenses are approved by the arbitral tribunal; tion including the failure to act in response to a request for
e) The costs for legal representation and assistance of the interim relief.
successful party if such costs were claimed during the
arbitral proceedings, and only to the extent that the Article 43
arbitral tribunal determines that the amount of such Waiver of Defamation
costs is reasonable; The parties and, by acceptance of appointment, the members
f) Any fees and expenses of the Center in accordance of the arbitral tribunal agree that any statements or comments,
with its schedule of fees. whether written or oral, made or used by them or the respec-
tive representatives of the parties in preparation for or in the
Article 39 course of the arbitration shall not be relied upon to found or
maintain any action for defamation, libel, slander or any re-
Fees of the Arbitral Tribunal
lated complaint, and this article may be pleaded as a bar to
The fees of the arbitral tribunal shall be reasonable in amount,
any such action.
taking into account the amount in dispute, the complexity of
the subject-matter, the time spent by the arbitrators and any
other relevant circumstances of the case.

Article 40
Apportionment of Costs
1. Except as provided in paragraph 2, the costs of arbitration
shall in principle be born by the unsuccessful party.
However, the arbitral tribunal may apportion each of such
costs between the parties if it determines that apportion-
ment is reasonable, taking into account the circumstances
of the case.
2. With respect to the costs of legal representation and
assistance referred to in article 38, paragraph (e), the
arbitral tribunal, taking into account the circumstances of
the case, shall be free to determine which party shall bear
such costs or may apportion such costs between the
parties if it determines that apportionment is reasonable.
3. When the arbitral tribunal issues an order for the termina-
tion of the arbitral proceedings or makes an award on agreed
terms, it shall fix the costs of arbitration referred to in
article 38 and article 39 in the text of that order or award.
4. No additional fees may be charged by an arbitral
tribunal for interpretation or correction or completion of
its award under articles 35 to 37.

Article 41
Deposit of Costs
1. The Center may request each party to deposit an equal
amount as an advance for the costs referred to in article 38,
paragraphs (a), (b), (c), (d) and (f).
2. During the course of the arbitral proceedings the Center
may request supplementary deposits from the parties.
3. If the required deposits are not paid in full within twenty-
one days after the receipt of the request, the Center shall
so inform the parties in order that one or another of them
may make the required payment. If such payment is not
INTERNATIONAL STANDARD BANKING PRACTICE PRELIMINARY CONSIDERATIONS
FOR THE EXAMINATION OF DOCUMENTS The application and issuance of the credit
UNDER DOCUMENTARY CREDITS (ISBP) 1. The terms of a credit are independent of the underlying
Published in January 2003 by ICC PUBLISHING S.A. transaction even if a credit expressly refers to that transac-
tion. To avoid unnecessary costs, delays, and disputes in
All rights reserved. No part of this work may be reproduced the examination of documents, however, the applicant and
or copied in any form or by any means – graphic, electronic or beneficiary should carefully consider which documents
mechanical, including photocopying, recording, taping or in- should be required, by whom they should be produced,

98 formation retrieval systems – without written permission of

ICC Publishing S.A.
and the time frame for presentation.
2. The applicant bears the risk of any ambiguity in its
instructions to issue or amend a credit. Unless expressly
INTRODUCTION stated otherwise, a request to issue or amend a credit
At its May 2000 meeting the Commission on Banking Tech- authorizes an issuer to supplement or develop the terms in
nique and Practice of the International Chamber of Commerce a manner necessary or desirable to permit the use of the
(ICC Banking Commission) established a task force to docu- credit.
ment international standard banking practice for the examina- 3. The applicant should be aware that the UCP contains
tion of documents presented under documentary credits is- Articles such as Articles 13, 20, 21, 23, 24, 26, 27, 28, 39,
sued subject to the Uniform Customs and Practice for Docu- 40, 46 and 47 that define terms in a manner that may
mentary Credits , the International Chamber of Commerce’s produce unexpected results unless the applicant fully
Publication No. 500 (UCP). acquaints itself with these provisions. For example, a credit
The international standard banking practices documented in requiring presentation of a marine bill of lading and
this publication are consistent with the UCP and the Opin- containing a prohibition against transhipment will, in most
ions and Decisions of the ICC Banking Commission. This cases, have to exclude UCP sub-Article 23(d) to make the
document does not amend UCP. It explains how the practices prohibition against transhipment effective.
articulated in the UCP are to be applied by documentary 4. A credit should not require presentation of documents that
practitioners. It is, of course, recognized that the law in some are to be issued and/or countersigned by the applicant. If a
countries may compel a different practice than that stated credit is issued including such terms, the beneficiary must
here. either seek amendment or comply with them and bear the
No single publication can anticipate all the terms or the docu- risk of failure to do so.
ments that may be used in connection with documentary cred- 5. Many of the problems that arise at the examination stage
its or their interpretation under the UCP and the standard could be avoided or resolved by careful attention to detail
practice it reflects. in the underlying transaction, the credit application, and
However, the task force preparing this publication has en- issuance of the credit as discussed.
deavoured to cover terms commonly seen on a day-to-day
basis and the documents most often presented under docu-
mentary credits. GENERAL PRINCIPLES
It should be noted that any term in a documentary credit Abbreviations
which modifies or affects the applicability of a provision of 6. The use of generally accepted abbreviations, for example
the UCP may also have an impact on international standard "Ltd” instead of “Limited”, “Int’l” instead of “Interna-
banking practice. tional”, “Co.” instead of “Company”, “kgs” or “kos”
Therefore, in considering the practices described in this pub- instead of “kilos”, “Ind.” instead of “Industry”, “mfr”
lication, parties must take into account any term in a docu- instead of “manufacturer” or “mt” instead of “metric tons”
mentary credit that expressly excludes or modifies a provi- – or vice versa – does not make a document discrepant.
sion in an article of the UCP. This principle is implicit through- 7. Virgules (slash marks “/”) may have different meanings,
out this publication, whether or not stated, but it is some- and unless apparent in the context used, should not be
times expressly repeated for purposes of emphasis or for used as a substitute for a word.
illustration. Where examples are given, these are solely for the Certifications and declarations
purpose of illustration and are not exhaustive. 8. A certification, declaration or the like may either be a
This publication reflects international standard banking prac- separate document or contained within another document
tice for all parties to a documentary credit. Since applicants’ as required by the credit. If the certification or declaration
obligations, rights, and remedies depend upon their undertak- appears in another document which is signed and dated,
ing with the issuing bank, the performance of the underlying any certification or declaration appearing on that
transaction, and the timeliness of any objection under appli- document does not require a separate signature or date if
cable law and practice, applicants should not assume that the certification or declaration appears to have been given
they may rely on these provisions in order to excuse their by the same entity that issued and signed the document.
obligations to reimburse the issuing bank. Corrections and alterations
The incorporation of this publication into the terms of a docu- 9. Corrections and alterations of information or data in
mentary credit should be discouraged, as the requirement to documents, other than documents created by the benefi-
follow agreed practices is implicit in the UCP. ciary, must appear to be authenticated by the party who
Because this publication reflects current documentary credit issued the document or by a party authorized by the
practice as provided by ICC national committees and indi- issuer to do so. Corrections and alterations in documents
vidual ICC members, it will be of considerable use in the which have been legalized, visaed, or the like, must appear
formulation of any future revision of the UCP.
to be authenticated by the party who legalized, visaed, b) “not later than 2 days after” does not indicate a period,
etc., the document. The authentication must show by only a latest date. If an advice must not be dated prior to
whom the authentication has been made and include that a specific date, the credit must so state.
party’s signature or initials. If the authentication appears
c) “at least 2 days before” indicates that something must
to have been made by a party other than the issuer of the
take place not later than two days before an event. There
document, the authentication must clearly show in which
is no limit as to how early it may take place.
capacity that party has authenticated the correction or
alteration. d) “within 2 days of” indicates a period two days prior to
10. Corrections and alterations in documents issued by the
beneficiary itself, except drafts, which have not been
legalized, visaed or the like, need not be authenticated. See
the event until two days after the event.
18. The term “within” when used in connection with a date
excludes that date in the calculation of the period.
99
also “Drafts and calculation of maturity date”. 19. Dates may be expressed in different formats, e.g., the
11. The use of multiple type styles or font sizes or handwrit- 12th of November 2003 could be expressed as 12 Nov 03,
ing in the same document does not, by itself, signify a 12Nov03, 12.11.2003, 12.11.03, 2003.11.12, 11.12.03,
correction or alteration. 121103, etc.
12. Where a document contains more than one correction or Provided that the date intended can be determined from
alteration, either each correction must be authenticated the document or from other documents included in the
separately or one authentication must be linked to all presentation, any of these formats are acceptable. To avoid
corrections in an appropriate way. For example, if the confusion it is recommended that the name of the month
document shows three corrections numbered 1, 2 and 3, should be used instead of the number.
one statement such as “Correction numbers 1, 2 and 3
above authorized by XXX” or similar, will satisfy the
Documents for which the UCP Transport Articles do not
requirement for authentication.
apply
Dates
20. Some documents commonly used in relation to the
13. Drafts, transport documents and insurance documents
transportation of goods, e.g., Delivery Order, Forwarder’s
must be dated even if a credit does not expressly so
Certificate of Receipt, Forwarder’s Certificate of Ship-
require. A requirement that a document, other than those
ment, Forwarder’s Certificate of Transport, Forwarder’s
mentioned above, be dated, may be satisfied by reference
Cargo Receipt and Mate’s Receipt do not reflect a contract
in the document to the date of another document forming
of carriage and are not transport documents as defined in
part of the same presentation (e.g., where a shipping
UCP Articles 23 through 29.
certificate is issued which states “date as per bill of lading
number xxx” or similar terms). Although it is expected that As such, UCP Article 43 would not apply to these
a required certificate or declaration in a separate document documents.
be dated, its compliance will depend on the type of certi- Therefore, these documents will be examined in the same
fication or declaration that has been requested, its required manner as other documents for which there are no specific
wording, and the wording that appears within it. Whether provisions in the UCP, i.e., under UCP Article 21. In any
other documents require dating will depend on the nature event, documents must be presented not later than the
and content of the document in question. expiry date of the credit.
14. Any document, including a certificate of analysis, inspec- 21. Copies of transport documents are not transport docu-
tion certificate and pre-shipment inspection certificate, may ments for the purpose of UCP Articles 23-29 and 43. The
be dated after the date of shipment. However, if a credit UCP Transport Articles apply where there are original
requires a document evidencing a pre-shipment event (e.g., transport documents presented. Where a credit allows for
pre-shipment inspection certificate), the document must, the presentation of a copy(ies) rather than an original(s),
either by its title or content, indicate that the event (e.g., the credit must explicitly state the details to be shown.
inspection) took place prior to or on the date of shipment. Where copies (nonnegotiable) are presented, they need
A requirement for an “inspection certificate” does not not evidence signature, dates, etc.
constitute a requirement to evidence a pre-shipment event.
Documents must not indicate that they were issued after
the date they are presented. Expressions not defined in UCP
15. A document indicating a date of preparation and a later 22. Expressions such as “shipping documents”, “stale docu-
date of signing is deemed to be issued on the date of ments acceptable”, “third party documents acceptable”,
signing. and “exporting country” should not be used as they are
not defined in UCP. If used in a credit, their meaning should
16. The rule for the latest date for presentation in sub-Article
be made apparent. If not, they have the following meaning
43(a) of UCP applies only to presentations that are
under international standard banking practice:
required to contain one or more original transport docu-
ments. Transport documents are those covered by UCP a) “shipping documents” – all documents (not only trans-
Articles 23-29. In any event, documents must be presented port documents), except drafts, required by the credit.
not later than the expiry date of the credit. b) “stale documents acceptable” – documents presented
17. Phrases often used to signify time on either side of a date later than 21 days after the date of shipment are accept-
or event: able as long as they are presented within the validity of
a) “within 2 days after” indicates a period from the date of the credit.
the event until two days after the event.
c) “third party documents acceptable” – all documents, is normally placed on the first or last page of the docu-
excluding drafts but including invoices, may be issued ment, but unless the credit or the document itself indicates
by a party other than the beneficiary. If the issuing bank’s where a signature or endorsement is to appear, the signa-
intent is that the transport document(s) may show a ture or endorsement may appear anywhere on the docu-
shipper other than the beneficiary, the clause is not ment.
necessary because it is already permitted by UCP Originals and copies
sub-Article 31(iii). 31. Documents issued in more than one original may be marked
d) “exporting country” – the country where the “Original”, “Duplicate”, “Triplicate”, “First Original”,

100 beneficiary is domiciled, and/or the country of

origin of the goods, and/or the country of receipt by the
carrier and/or the country from which shipment or
“Second Original”, etc. None of these markings will
disqualify a document as an original.
32. Each required document must be presented in at least one
dispatch is made. original, unless the credit allows for presentation of
23. Words and phrases such as “prompt”, “immediately”, “as documents as copies. The number of originals to be
soon as possible”, and the like should not be used in any presented must be at least the number required by the
context. If they are used banks will disregard them. credit, the UCP, or, where the document itself states how
Inconsistency in the documents many originals have been issued, the number stated on the
24. Documents presented under a credit must not appear to document.
be inconsistent with each other. The requirement is not 33. It can sometimes be difficult to determine from the
that the data content be identical, merely that the wording of a credit whether it requires an original or a
documents not be inconsistent. copy, and to determine whether that requirement is
Issuer of documents satisfied by an original or a copy. For example, where the
25. If a credit indicates that a document is to be issued by a credit requires:
named person or entity, this condition is satisfied if the a) “Invoice”, “One Invoice” or “Invoice in 1 copy”, it will
document appears to be issued by the named person or be understood to be a requirement for an original invoice.
entity. b) “Invoice in 4 copies”, it will be satisfied by the presen-
It may appear to be issued by a named person or entity by tation of at least one original and the remaining number
use of its letterhead, or, if there is no letterhead, the as copies of an invoice.
document appears to have been completed and/or signed c) “One copy of Invoice”, it will be satisfied by presenta-
by, or on behalf of, the named person or entity. tion of a copy of an invoice. However, it is standard
Language banking practice to accept an original instead of a copy
26. Under international standard banking practice, it is in this construction.
expected that documents issued by the beneficiary will be 34. Where an original would not be accepted in lieu of a copy,
in the language of the credit. When a credit states that the credit must prohibit an original, e.g., “photocopy of
documents in two or more languages are acceptable, a nomi- invoice – original document not acceptable in lieu of
nated bank may, in its advice of the credit, limit the number photocopy”, or the like.
of acceptable languages as a condition of its engagement in 35. The ICC Banking Commission Policy Statement, docu-
the credit or confirmation. ment 470/871(Rev), titled “The determination of an “Origi-
Mathematical calculations nal” document in the context of UCP sub-Article 20(b)” is
27. Detailed mathematical calculations in documents will not recommended for further guidance on originals versus
be checked by banks. Banks are only obliged to check total copies.
values against the credit and other required documents. Shipping marks
Misspellings or typing errors 36. The purpose of a shipping mark is to enable identification
28. Misspellings or typing errors that do not affect the of a box, bag or package. If a credit specifies the details of
meaning of a word or the sentence in which it occurs, do a shipping mark, the document(s) mentioning the marks
not make a document discrepant. For example, a descrip- must show these details, but additional information is
tion of the merchandise as “mashine” instead of “machine”, acceptable provided it is not inconsistent with the credit
“fountan pen” instead of “fountain pen” or “modle” terms.
instead of “model” would not make the document discrep- 37. Shipping marks contained in some documents often
ant. However, a description as “model 123” instead of include information in excess of what would normally be
“model 321” would not be regarded as a typing error and considered “shipping marks”, and could include informa-
would constitute a discrepancy. tion such as the type of goods, warnings as to the handling
Multiple pages and attachments or riders of fragile goods, net and/or gross weight of the goods, etc.
29. Unless the credit or a document provides otherwise, pages The fact that some documents show such additional infor-
which are physically bound together, sequentially numbered mation, while others do not, is not a discrepancy.
or contain internal cross references, however named or 38. Transport documents covering containerized goods will
entitled, are to be examined as one document, even if some sometimes only show a container number under the head-
of the pages are regarded as an attachment. Where a docu- ing “Shipping marks”. Other documents that show a
ment consists of more than one page, it must be possible detailed marking will not be considered to be inconsistent
to determine that the pages are part of the same document. for that reason.
30. If a signature and/or endorsement is required to be on a
document consisting of more than one page, the signature
Signatures ii. “60 days after 12 May 2002”, or
39. Even if not stated in the credit, drafts, certificates and iii. “60 days after bill of lading date” and elsewhere on
declarations by their nature require a signature. Transport the face of the draft state “bill of lading date 12 May
documents and insurance documents must be signed in 2002”,
accordance with the provisions of the UCP.
or
40. The fact that a document has a box or space for a signature
does not necessarily mean that such box or space must be iv. “60 days date” on a draft dated the same day as the
completed with a signature. For example, banks do not date of the bill of lading,or
require a signature in the area titled “Signature of shipper
or their agent”, or similar phrases, commonly found on
transport documents such as air waybills or road trans-
v. “11 July 2002”, i.e., 60 days after the bill of lading
date. 101
c) If the tenor refers to xxx days after the bill of lading date,
port documents. If a document on its face requires a signa-
the on board date is deemed to be the bill of lading date
ture for its validity (e.g.,“This document is not valid
even if the on board date is prior to or later than the date
unless signed”, or similar terms), it must be signed.
of issuance of the bill of lading.
41. A signature need not be handwritten. Facsimile signatures,
perforated signatures, stamps, symbols (such as chops) or d) The UCP provides no guidance where the words “from”
any electronic or mechanical means of authentication are and “after” are used to determine maturity dates of drafts.
sufficient. However, a photocopy of a signed document Reference to “from” and “after” in the UCP refers solely
does not qualify as a signed original document, nor does a to date terminology for periods of shipment. Where the
signed document transmitted through a fax-machine, word “from” is used to establish the maturity date, in-
absent an original signature. A requirement for a document ternational standard banking practice would exclude the
to be “signed and stamped”, or a similar requirement, is date mentioned, unless the credit specifically provides
also fulfilled by a signature and the name of the party that “from” is considered to include the date mentioned.
typed, or stamped, or handwritten, etc. Therefore, for the purposes of determining the maturity
42. A signature on a company’s letterhead paper will be taken date of a time draft, the words “from” and “after” have
to be the signature of that company, unless otherwise the same effect. Calculation of the maturity commences
stated. the day following the date of the document, shipment, or
other event, i.e., 10 days after or from March 1 is March 11.
The company’s name need not be repeated next to the
e) If a bill of lading showing more than one on board
signature. notation is presented under a credit which requires drafts
Title of documents and combined documents to be drawn, for example, at 60 days after or from bill of
43. Documents may be titled as called for in the credit, bear a lading date, and the goods according to both or all on
similar title, or be untitled. For example, a credit require- board notations were shipped from ports within a
ment for a “Packing List” may also be satisfied by a docu- permitted geographical area or region, the earliest of these
ment containing packing details whether titled “Packing on board dates will be used for calculation of the
Note”, “Packing and Weight List”, etc., or an untitled docu- maturity date.
ment. The content of a document must appear to fulfill the Example: the credit requires shipment from European
function of the required document. port and the bill of lading evidences on board vessel “A”
44. Documents listed in a credit should be presented as sepa- from Dublin August 16, and on board vessel “B” from
rate documents. If a credit requires a packing list and a Rotterdam August 18. The draft should reflect 60 days
weight list, such requirement will be satisfied by presenta- from the earliest on board date in a European port, i.e.,
tion of two separate documents, or by presentation of two August 16.
original copies of a combined packing and weight list, f) If a credit requires drafts to be drawn, for example, at 60
provided such document states both packing and weight
days after or from bill of lading date, and more than one
details.
set of bills of lading are presented under one draft, the
date of the last bill of lading will be used for the calcula-
DRAFTS AND CALCULATION OF MATURITY DATE tion of the maturity date.
Tenor 46. While the examples refer to bill of lading dates, the same
45. The tenor must be in accordance with the terms of the principles apply to all transport documents.
credit. Maturity date
a) If a draft is drawn at a tenor other than sight, or other 47. If a draft states a maturity date by using an actual date, the
than a certain period after sight, it must be possible to date must have been calculated in accordance with the
establish the maturity date from the data in the draft requirements of the credit.
itself. 48. For drafts drawn “at XXX days sight”, the maturity date
b) As an example of where it is possible to establish a is established as follows:
maturity date from the data in the draft, if a credit calls a) in the case of complying documents, or in the case of
for drafts at a tenor 60 days after the bill of lading date, non-complying documents where the drawee bank has
where the date of the bill of lading is 12 May 2002, the not provided a refusal of documents, the maturity date
tenor could be indicated on the draft in one of the follow- will be XXX days after the date of receipt of documents
ing ways: by the drawee bank.
i. “60 days after bill of lading date 12 May 2002”, or
b) in the case of non-complying documents where the drawee Name and address
bank has provided a notice of refusal of documents and 60. An invoice must appear on its face to have been issued by
subsequent approval, at the latest XXX days after the the beneficiary named in the credit. Telex or fax numbers,
date of acceptance of the draft by the drawee bank. The etc., forming part of the address, need not be present, or, if
date of acceptance of the draft must be no later than the stated, need not be identical to that in the credit.
date of approval of the documents. 61. An invoice must be made out in the name of the applicant.
49. In all cases the drawee bank must advise the maturity date Telex or fax numbers, etc., forming part of the address,
to the presenter. The calculation of tenor and maturity need not be present, or, if stated, need not be identical to

102 dates, as shown above, would also apply to credits

designated as being available by deferred payment, i.e.,
where there is no requirement for a draft to be presented
that in the credit.
Description of the goods and other general issues
related to invoices
by the beneficiary. 62. The description of the goods in the invoice must corre-
Banking days, grace days, delays in remittance spond with the description in the credit. There is no
50. Payment must be available in immediately available funds requirement for a mirror image. For example, details of the
on the due date at the place where the draft or documents goods may be stated in a number of areas within the
are payable, provided such due date is a banking day in invoice which, when collated together, represents a
that place. If the due date is a non-banking day, payment description of the goods corresponding to that in the credit.
will be due on the first banking day following the due date 63. The goods description in an invoice must reflect what
unless the credit states otherwise. Delays in the goods have been actually shipped. For example, where
remittance of funds, such as grace days, the time it takes to there are two types of goods shown in the credit, such as
remit funds, etc., must not be in addition to the stated or 10 trucks and 5 tractors, an invoice that reflects only ship-
agreed due date as defined by the draft or documents. ment of 4 trucks would be acceptable provided the credit
Endorsement does not prohibit partial shipment. An invoice showing
51. The draft must be endorsed, if necessary. the entire goods description as stated in the credit, then
Amounts stating what has actually been shipped, is also acceptable.
52. The amount in words must accurately reflect the amount 64. An invoice must evidence the value of the goods shipped.
in figures if both are shown, and indicate the currency, as Unit price(s), if any, and currency shown in the invoice
stated in the credit. must agree with that shown in the credit. The invoice must
53. The amount must agree with that of the invoice, unless show any discounts or deductions required in the credit.
otherwise stated in the credit or as a result of UCP The invoice may also show a deduction covering advance
sub-Article 37(b). payment, discount, etc., not stated in the credit.
How the draft is drawn 65. If a trade term is part of the goods description in the
credit, or stated in connection with the amount, the
54. The draft must be drawn on the party stated in the credit.
invoice must state the trade term specified, and if the
55. The draft must be drawn by the beneficiary. description provides the source of the trade term, the same
Drafts on the applicant source must be identified (e.g., a credit term “CIF Singapore
56. Credits should not be issued requiring that drafts be drawn Incoterms 2000” would not be satisfied by “CIF Singapore
on the applicant. If a credit calls for drafts to be drawn on Incoterms”, etc.). Charges and costs must be included within
the applicant, banks must consider such drafts as the value shown against the stated trade term in the credit
additional documents to be reviewed in accordance with and invoice. Any charges and costs shown beyond this
UCP Article 21. value are not allowed.
Corrections and alterations 66. Unless required by the credit, an invoice need not be
57. Corrections and alterations on a draft, if any, must appear signed or dated.
to have been authenticated by the drawer. 67. The quantity of merchandise, weights, and measurements
58. In some countries draft(s) showing corrections and alter- shown on the invoice must be not inconsistent with the
ations are not acceptable even with the drawer’s authenti- same quantities appearing on other documents.
cation. Issuing banks in such countries should make a state- 68. An invoice must not show:
ment in the credit to the effect that no correction or alter- a) over-shipment (except as provided in UCP sub-Article
ation must appear in the draft(s).
39(b)), or
b) merchandise not called for in the credit (including
INVOICES samples, advertising materials, etc.) even if stated to be
free of charge.
Definition of invoice
69. The quantity of the goods required in the credit may vary
59. A credit requiring an “invoice” without further definition
within a tolerance of +/- 5%. This does not apply if a
will be satisfied by any type of invoice presented (com-
credit stipulates that the quantity must not be exceeded or
mercial invoice, customs invoice, tax invoice, final invoice,
reduced, or if a credit stipulates the quantity in terms of a
consular invoice, etc.). However, invoices identified as
stated number of packing units or individual items. A
“provisional”, “pro-forma”, or the like are not acceptable
variance of up to +5% in the goods quantity does not
unless specifically authorized in the credit. When a credit
allow the amount of the drawing to exceed the amount of
requires presentation of a commercial invoice, a document
the credit.
titled “invoice” will be acceptable.
70. If partial shipments are prohibited, a tolerance of 5% less of shipment unless it bears a separate dated on board
in the invoice amount is acceptable, provided that the notation, in which event the date of the on board notation
quantity is shipped in full and that any unit price, if stated will be deemed to be the date of shipment whether or not
in the credit, has not been reduced. If no quantity is stated the on board date is before or after the issuance date of the
in the credit, the invoice will be considered to cover the full bill of lading.
quantity. 79. “Shipped in apparent good order”, “Laden on board”,
71. The required number of originals and copies must be “clean on board” or other phrases incorporating words
presented. such as “shipped” or “on board” have the same effect as
72. If a credit calls for instalment shipments, each shipment
must be in accordance with the instalment schedule.
“Shipped on board”.
Ports of loading and ports of discharge
80. While the named port of loading, as required by the credit,
103
OCEAN/MARINE BILLS OF LADING should appear in the port of loading field within the bill of
lading, it may instead be stated in the field headed “Place
(COVERING PORT-TO-PORT SHIPMENT)
of receipt” or the like, if it is clear that the goods were
Application of UCP Article 23 transported from that place of receipt by vessel, and
73. If a credit requires presentation of a transport document provided there is an on board notation evidencing that the
covering a port-to-port shipment, UCP Article 23 is goods were loaded on that vessel at the port stated under
applicable. “Place of receipt” or like term.
74. If a credit requires presentation of a “marine” or “ocean” 81. While the named port of discharge, as required by the
transport document, UCP Article 23 applies. A transport credit, should appear in the port of discharge field within
document need not use the term “marine” or “ocean” in the bill of lading, it may be stated in the field headed “Place
order to comply with UCP Article 23 provided that it of final destination” or the like if it is clear that the goods
covers a port-to-port shipment. were to be transported to that place of final destination by
Full set of originals vessel, and provided there is a notation evidencing that the
75. A UCP Article 23 transport document must indicate the port of discharge is that stated under “Place of final
number of originals that have been issued. Transport destination” or like term.
documents marked “First Original”, “Second Original”, 82. If a Container Yard (CY) or Container Freight Station
“Third Original”, “Original”, “Duplicate”, “Triplicate”, (CFS) is stated as the place of receipt and that place is the
etc., or similar expressions are all originals. Bills of lading same as the stated port of loading (e.g., Place of Receipt:
need not be marked “original” to be acceptable as an Hong Kong CY; Port of Loading: Hong Kong), these places
original bill of lading. See section 3.1 of ICC Publication are deemed to be the same, and therefore the specification
470/871Rev., 29 July 1999, “The determination of an of the port of loading and the name of the vessel in the “on
“Original” document in the context of UCP 500 sub- board” notation are not necessary.
Article 20(b)”. 83. If a credit gives a geographical area or range of ports of
Signing of bills of lading loading and/or discharge (e.g., “Any European Port”), the
76. Original bills of lading must bear a signature in the form bill of lading must indicate the actual port of loading and/or
described in UCP sub-Article 20(b) and the name of the discharge, which must be within the geographical area or
carrier must appear on the face of the bill of lading, identi- range quoted.
fied as the carrier. Consignee, order party, shipper and endorsement,
a) If an agent signs a bill of lading on behalf of a carrier, the notify party
agent must be identified as agent, and must identify the 84. If a credit requires a bill of lading to show that the goods
carrier on whose behalf it is signing, unless the carrier are consigned to a named party, e.g., “consigned to Bank
has been identified elsewhere on the face of the bill of X” (a “straight” consignment), rather than “to order” or
lading. “to order of Bank X“, the bill of lading must not contain
b) If the master (captain) signs the bill of lading, the signa- words such as “to order” or “to order of” that precede the
ture of the master (captain) must be identified as “mas- name of that named party, whether typed or pre-printed.
ter” (“captain”). In this event, the name of the master Likewise, if a credit requires the goods to be consigned “to
(captain) need not be stated. order” or “to order of” a named party, the bill of lading
c) If an agent signs the bill of lading on behalf of the master must not show that the goods are consigned straight to the
(captain), the agent must be identified as agent and the named party.
name of the master (captain) on whose behalf it is sign- 85. If a bill of lading is issued to order, or to order of the
ing must be stated. shipper, it must be endorsed by the shipper. An endorse-
77. If a credit states “Freight Forwarder’s Bill of Lading is ment indicating that it is made for or on behalf of the
acceptable” or uses a similar phrase, then the bill of lading shipper is acceptable.
may be signed by a freight forwarder in the capacity of a 86. If a credit does not state a notify party(ies), the respec-
freight forwarder, without the need to identify itself as tive field on the bill of lading may be left blank or com-
carrier or agent for the named carrier. It is not necessary to pleted in any manner.
show the name of the carrier. Transhipment and partial shipment
On board notations 87. Transhipment is the unloading and reloading of goods
78. If a pre-printed “Shipped on board” bill of lading is from one vessel to another during the course of ocean
presented, its issuance date will be deemed to be the date carriage from the port of loading to the port of discharge
stipulated in the credit. If it does not occur between these the requirements of documents to show whether freight is
two ports, unloading and reloading is not considered to be to be prepaid or collected.
transhipment. 98. If a credit states that costs additional to freight are
88. Although transhipment may be prohibited, UCP sub- not acceptable, a bill of lading must not indicate that
Article 23(d) nonetheless permits transhipment under cer- costs additional to the freight have been or will be
tain circumstances. incurred. Such indication may be by express refer-
If, however, a credit prohibits transhipment and excludes ence to additional costs or by the use of shipment
UCP sub-Articles 23(d)(i) and (ii), a bill of lading that terms which refer to costs associated with the loading or

104 indicates on its face that transhipment will or may take

place will be considered discrepant.
unloading of goods, such as Free In (FI), Free Out (FO),
Free In and Out (FIO) and Free In and Out Stowed (FIOS).
A reference in the transport document to costs which may
89. If a credit prohibits partial shipments, and more than one
be levied as a result of a delay in unloading the goods or
set of original bills of lading are presented covering ship-
after the goods have been unloaded, e.g., costs covering the
ment from one or more ports of loading (as specifically
late return of containers, is not considered to be an
allowed, or within a given range, in the credit), such
indication of additional costs in this context.
documents are acceptable provided that they cover the
shipment of goods on the same vessel and same journey Goods covered by more than one bill of lading
and are destined for the same port of discharge. In the 99. If a bill of lading states that the goods in a container are
event that more than one set of bills of lading are covered by that bill of lading plus one or more other bills
presented, and incorporate different dates of shipment, of lading, and the bill of lading states that all bills of lading
the latest of these dates of shipment will be taken for the must be surrendered, or words of similar effect, this means
calculation of any presentation period and must fall on or that all bills of lading related to that container must be
before the latest shipment date specified in the credit. presented in order for the container to be released. Such a
Shipment on more than one vessel is a partial shipment, bill of lading is not acceptable unless all the bills of lading
even if the vessels leave on the same day for the same form part of the same presentation under the same credit.
destination.
Clean bills of lading CHARTER PARTY BILLS OF LADING
90. Clauses or notations on bills of lading which expressly Application of UCP Article 25
declare a defective condition of the goods and/or packaging 100. If a credit requires presentation of a charter party bill of
are not acceptable. Clauses or notations which do not lading covering a port-to-port shipment, UCP Article 25 is
expressly declare a defective condition of the goods and/or applicable.
packaging (e.g., “packaging may not be sufficient for the
sea journey”) do not constitute a discrepancy. A statement A transport document containing any indication that it is
that the packaging “is not sufficient for the sea journey” subject to a charter party is a charter party bill of lading
would not be acceptable. under UCP Article 25.
91. The word “clean” need not appear on a bill of lading even 101. If a credit requires presentation of a charter party bill of
though the credit may require a “clean on board bill of lading, then a marine transport document presented
lading” or one marked “clean on board”. containing an indication that it is subject to a charter party
must fulfill the requirements of UCP Article 25.
92. If the word “clean” appears on a bill of lading and has been
deleted, the bill of lading will not be deemed to be claused Full set of originals
or unclean unless it specifically bears a clause or notation 102. A UCP Article 25 transport document must indicate the
declaring that the goods or packaging are defective. number of originals that have been issued. Transport
Goods description documents marked “First Original”, “Second Original”,
“Third Original”, “Original”, “Duplicate”, “Triplicate”,
93. A goods description in the bill of lading may be shown in
etc., or similar expressions are all originals. Charter party
general terms not inconsistent with that stated in the credit.
bills of lading need not be marked “original” to be accept-
Corrections and alterations able under a credit. See section 3.1 of ICC Publication 470/
94. Corrections and alterations on a bill of lading must be 871 Rev. 29, July 1999, “The determination of an
authenticated. Such authentication must appear to have ‘Original’document in the context of UCP 500 sub-Article
been made by the carrier, master (captain), or any of their 20(b)”.
agents (who may be different from the agent that may have Signing of charter party bills of lading
issued or signed it), provided they are identified as an
103. Original charter party bills of lading must bear a signa-
agent of the carrier or the master (captain).
ture in the form described in UCP sub-Article 20(b).
95. Non-negotiable copies of bills of lading do not need to
include any signature on, or authentication of any alter- a) If the master (captain) or owner signs the charter party
ations or corrections that may have been made on the origi- bill of lading, the signature of the master (captain) or
nal. owner must be identified as “master” (“captain”) or
Freight and additional costs “owner”.
96. If a credit requires that a bill of lading show that freight b) If an agent signs the charter party bill of lading on
has been paid or is payable at destination, the bill of lading behalf of the master (captain) or owner, the agent must
must be marked accordingly. be identified as agent and the name of the master
97. Applicants and issuing banks should be specific in stating (captain) or owner on whose behalf it is signing must be
stated.
On board notations and/or packaging (e.g., “packaging may not be sufficient
104. If a pre-printed “Shipped on board” charter party bill of for the sea journey”) do not constitute a discrepancy. A
lading is presented, its issuance date will be deemed to be statement that the packaging “is not sufficient for the sea
the date of shipment unless it bears an on board notation, journey” would not be acceptable.
in which event the date of the on board notation will be 112. The word “clean” need not appear on a charter party bill
deemed to be the date of shipment whether or not the on of lading even though the credit may require a “clean on
board date is before or after the issuance date of the board charter party bill of lading” or one marked “clean on
document. board”.
105. “Shipped in apparent good order”, “Laden on board”,
“clean on board” or other phrases incorporating words
such as “shipped” or “on board” have the same effect as
113. If the word “clean” appears on a charter party bill of
lading and has been deleted, the charter party bill of lading
will not be deemed to be claused or unclean unless it spe-
105
“shipped on board”. cifically bears a clause or notation declaring that the goods
Ports of loading and ports of discharge or packaging are defective.
106. If a credit gives a geographical area or range of ports of Goods description
loading and/or discharge (e.g., “Any European Port”), the 114. A goods description in charter party bills of lading may
charter party bill of lading must indicate the actual port(s) be shown in general terms not inconsistent with that stated
of loading, which must be within the geographical area or in the credit.
range indicated but may show the geographical area or Corrections and alterations
range of ports as the port of discharge. 115. Corrections and alterations on charter party bills of
Consignee, order party, shipper and endorsement, lading must be authenticated. Such authentication must
notify party appear to have been made by the owner, master (captain),
107. If a credit requires a charter party bill of lading to show or any of their agents (who may be different from the
that the goods are consigned to a named party e.g., agent that may have issued or signed it), provided they are
“consigned to Bank X” (a “straight” consignment), rather identified as an agent of the owner or the master (captain).
than “to order” or “to order of Bank X”, the charter party 116. Non-negotiable copies of charter party bills of lading do
bill of lading must not contain words such as “to order” or not need to include any signature on, or authentication of
“to order of” that precede the name of that named party, any alterations or corrections that may have been made on
whether typed or pre-printed. the original.
Likewise, if a credit requires the goods to be consigned “to Freight and additional costs
order” or “to order of” a named party, the bill of lading 117. If a credit requires that a charter party bill of lading show
must not show that the goods are consigned straight to the that freight has been paid or is payable at destination, the
named party. charter party bill of lading must be marked accordingly.
108. If a charter party bill of lading is issued to order, or to 118. Applicants and issuing banks should be specific in
order of the shipper, it must be endorsed by the shipper. stating the requirements of documents to show whether
An endorsement indicating that it is made for or on behalf freight is to be prepaid or collected.
of the shipper is acceptable. 119. If a credit states that costs additional to freight are not
109. If a credit does not state a notify party(ies), the respec- acceptable, a charter party bill of lading must not indicate
tive field on the charter party bill of lading may be left that costs additional to the freight have been or will be
blank or completed in any manner. incurred. Such indication may be by express reference to
Partial shipment additional costs or by the use of shipment terms which
110. If a credit prohibits partial shipments, and more than refer to costs associated with the loading or unloading of
one set of original charter party bills of lading are goods, such as Free In (FI), Free Out (FO), Free In and
presented covering shipment from one or more ports of Out (FIO) and Free In and Out Stowed (FIOS). A refer-
loading (as specifically allowed, or within a given range, in ence in the transport document to costs which may be
the credit), such documents are acceptable, provided that levied as a result of a delay in unloading the goods, or after
they cover the shipment of goods on the same vessel and the goods have been unloaded, is not considered to be an
same journey and are destined for the same port of indication of additional costs in this context.
discharge, range of ports or geographical area. In the event
that more than one set of charter party bills of lading are MULTIMODAL TRANSPORT DOCUMENTS
presented, and incorporate different dates of shipment,
Application of UCP Article 26
the latest of these dates of shipment will be taken for the
calculation of any presentation period and must fall on or 120. If a credit requires presentation of a transport document
before the latest shipment date specified in the credit. covering transportation utilizing at least two modes of
transport, and if the transport document clearly shows
Shipment on more than one vessel is a partial shipment,
that it covers a shipment from the place of taking in charge
even if the vessels leave on the same day for the same
and/or port, airport or place of loading to the place of final
destination.
destination mentioned in the credit, UCP Article 26 is
Clean charter party bills of lading applicable. In such circumstances, a multimodal transport
111. Clauses or notations on charter party bills of lading which document must not indicate that shipment or dispatch has
expressly declare a defective condition of the goods and/or been effected by only one mode of transport, but it may be
packaging are not acceptable. Clauses or notations that do silent regarding the modes of transport utilized.
not expressly declare a defective condition of the goods
121. In all places where the term multimodal transport Place of taking in charge, dispatch, loading on board
document is used within this document, it also includes and destination
the term combined transport document. A document need 127. If a credit gives a geographical range for the place of
not be titled “Multimodal transport document” or taking in charge, dispatch, loading on board and destina-
“Combined transport document” to be acceptable under tion (e.g., “Any European Port”), the multimodal trans-
UCP Article 26, even if such expressions are used in the port document must indicate the actual place of taking in
credit. charge, dispatch, loading on board and destination, which
Full set of originals must be within the geographical area or range quoted.

106 122. A UCP Article 26 transport document must indicate the

number of originals that have been issued. Transport docu-
ments marked “First Original”, “Second Original”, “Third
Consignee, order party, shipper and endorsement,
notify party
128. If a credit requires that a multimodal transport document
Original”, “Original”, “Duplicate”, “Triplicate”, etc., or to show that the goods are consigned to a named party,
similar expressions are all originals. Multimodal transport e.g., “consigned to Bank X” (a “straight” consignment),
documents need not be marked “original” to be acceptable rather than “to order” or “to order of Bank X”, the
under a credit. See section 3.1 of ICC Publication 470/871 multimodal transport document must not contain words
Rev., 29 July 1999, ‘The determination of an ‘Original’ such as “to order” and “to order of” that precede the name
document in the context of UCP 500 sub-Article 20(b).’ of that named party, whether typed or pre-printed. Like-
Signing of multimodal transport documents wise, if a credit requires the goods to be consigned “to
123. Original multimodal transport documents must bear a order” or “to order of” a named party, the multimodal
signature in the form described in UCP sub-Article 20(b) transport document must not show that the goods are
and the name of the carrier or multimodal transport opera- consigned straight to the named party.
tor must appear on the face of the multimodal transport 129. If a multimodal transport document is issued to order, or
document, identified as the carrier or multimodal trans- to order of the shipper, it must be endorsed by the ship-
port operator. per. An endorsement indicating that it is made for or on
a) If an agent signs a multimodal transport document on behalf of the shipper is acceptable.
behalf of the carrier or multimodal transport operator, 130. If a credit does not stipulate a notify party(ies), the
the agent must be identified as agent, and must identify respective field on the multimodal transport document may
on whose behalf it is signing, unless the carrier or be left blank or completed in any manner.
multimodal transport operator has been identified
Transhipment and partial shipment
elsewhere on the face of the multimodal transport
document. 131. In a multimodal transport shipment, transhipment will
occur, i.e., the unloading and reloading of goods from one
b) If the master (captain) signs the multimodal transport
mode of transport to another during the course of the
document, the signature of the master (captain) must journey from the point of taking in charge, dispatch or
be identified as “master” (“captain”). In this event, the loading on board, to the final destination stipulated in the
name of the master (captain) need not be stated. credit. Should transhipment be prohibited, banks will ac-
c) If an agent signs the multimodal transport document on cept a multimodal transport document evidencing that
behalf of the master (captain), the agent must be identi- transhipment has occurred provided the entire journey is
fied as agent and the name of the master (captain) on covered by one and the same multimodal transport
whose behalf it is signing must be stated. document.
124. If a credit states “Freight Forwarder’s Multimodal trans- 132. If a credit prohibits partial shipments and more than one
port document is acceptable” or uses a similar phrase, set of original multimodal transport documents are
then the multimodal transport document may be signed by presented covering shipment, dispatch or taking in charge
a freight forwarder in the capacity of a freight forwarder, from one or more points of origin (as specifically allowed
without the need to identify itself as carrier or multimodal or within a given range in the credit), such documents are
transport operator or their agent. It is not necessary to acceptable provided that they cover the movement of goods
show the name of the carrier or multimodal transport on the same means of conveyance and same journey and
operator. are destined for the same destination. In the event that
On board notations more than one set of multimodal transport documents are
125. The issuance date of a multimodal transport document presented, and if they incorporate different dates of
will be deemed to be the date of dispatch, taking in charge shipment, dispatch or taking in charge, the latest of these
or loading on board unless it bears a separate dated dates will be taken for the calculation of any presentation
notation evidencing dispatch, taking in charge or loading period, and must fall on or before any latest date of ship-
on board from the location required by the credit, in which ment, dispatch or taking in charge specified in the credit.
event the date of the notation will be deemed to be the date 133. Shipment on more than one means of conveyance (more
of shipment whether or not the date is before or after the than one truck (lorry), vessel, aircraft, etc.) is a partial
issuance date of the document. shipment, even if such means of conveyance leave on the
126. “Shipped in apparent good order”, “Laden on board”, same day for the same destination.
“clean on board” or other phrases incorporating words Clean multimodal transport documents
such as “shipped” or “on board” have the same effect as 134. Clauses or notations on multimodal transport documents
“Shipped on board”. that expressly declare a defective condition of the goods
and/or packaging are not acceptable. Clauses or notations
that do not expressly declare a defective condition of the Such a multimodal transport document is not acceptable
goods and/or packaging (e.g., “packaging may not be suffi- unless all the multimodal transport documents form part
cient for the journey”) do not constitute a discrepancy. A of the same presentation under the same credit.
statement that the packaging “is not sufficient for the jour-
ney” would not be acceptable.
135. The word “clean” need not appear on a multimodal trans- AIR TRANSPORT DOCUMENTS
port document even though the credit may require a “clean Application of UCP Article 27
on board multimodal transport document” or one marked 144. If a credit requires presentation of a transport document
“clean on board”.
136. If the word “clean” appears on a multimodal transport
document and has been deleted, the multimodal transport
covering an airport-to-airport shipment, UCP Article 27 is
applicable.
145. If a credit requires presentation of an “air waybill” or
107
document will not be deemed to be claused or unclean “air consign-ment note” or similar, UCP Article 27
unless it specifically bears a clause or notation declaring applies. An air transport document need not use these
that the goods or packaging are defective. terms in order to comply with UCP Article 27 provided
Goods description that it covers an airportto-airport shipment.
137. A goods description in the multimodal transport docu- Original air transport documents
ment may be shown in general terms not inconsistent with 146. The air transport document must appear, from the face
that stated in the credit. of the document, to be the “Original for Consignor/Ship-
Corrections and alterations per”. A requirement for a full set of originals is satisfied by
138. Corrections and alterations on a multimodal transport the presentation of a document indicating that it is the
document must be authenticated. Such authentication must original for consignor/ shipper.
appear to have been made by the carrier, master (captain), Signing of air transport documents
multimodal transport operator, or any one of their agents 147. An original air transport document must bear a signature
who may be different from the agent that may have issued in the form described in UCP sub-Article 20(b) and the
or signed it, provided they are identified as an agent of the name of the carrier must appear on the face of the air
carrier, master (captain) or multimodal transport operator. transport document, identified as the carrier. If an agent
139. Copies of multimodal transport documents do not need signs an air transport document on behalf of a carrier, the
to include any signature on, or authentication of any alter- agent must be identified as agent, and must identify the
ations or corrections that may have been made on the origi- carrier on whose behalf it is signing, unless the carrier has
nal. been identified elsewhere on the face of the air transport
Freight and additional costs document.
140. If a credit requires that a multimodal transport document 148. If a credit states “House air waybill is acceptable” or
show that freight has been paid or is payable at destina- “Freight Forwarder’s air waybill is acceptable” or uses a
tion, the multimodal transport document must be marked similar phrase, then the air transport document may be
accordingly. signed by a freight forwarder in the capacity of a freight
forwarder, without the need to identify itself as a carrier or
141. Applicants and issuing banks should be specific in stat-
agent for a named carrier.
ing the requirements of documents to show whether freight
is to be prepaid or collected. It is not necessary to show the name of the carrier.
142. If a credit states that costs additional to freight are not Goods accepted for carriage, date of shipment, and require-
acceptable, a multimodal transport document must not ment for an actual date of dispatch
indicate that costs additional to the freight have been or 149. An air transport document must indicate that the goods
will be incurred. have been accepted for carriage.
Such indication may be by express reference to additional 150. If a credit indicates that an actual date of dispatch must
appear on the air transport document, the document must
costs or by the use of shipment terms which refer to costs
contain a separate notation that provides this information.
associated with the loading or unloading of goods, such as
This date of dispatch will be considered as the date of
Free In (FI), Free Out (FO), Free In and Out (FIO) and
shipment. Information contained in the boxes typically
Free In and Out Stowed (FIOS). A reference in the trans-
titled “For Carrier Use Only” will not be considered for
port document to costs which may be levied as a result of
determining the actual date of dispatch.
a delay in unloading the goods or after the goods have been
unloaded is not considered to be an indication of additional 151. If no actual date of dispatch is required by the credit to
costs in this context. be shown on the document, the date of issuance of an air
transport document will be deemed to be the date of dis-
Goods covered by more than one multimodaltransport docu-
patch, even if the document shows a flight date and/or a
ment
flight number in the box marked “For Carrier Use Only” or
143. If a multimodal transport document states that the goods similar expression.
in a container are covered by that multimodal transport
document plus one or more other multimodal transport If the actual flight date is shown as a separate notation, but
documents, and the document states that all multimodal is not required by the credit, it will be disregarded in deter-
transport documents must be surrendered, or words of mining the date of shipment.
similar effect, this means that all multimodal transport
documents related to that container must be presented in
order for the container to be released.
Airports of departure and destination 162. If the word “clean” appears on an air transport docu-
152. Air transport documents must indicate the airport of ment and has been deleted, the air transport document will
departure and airport of destination as stated in the credit. not be deemed to be claused or unclean unless it specifi-
The identification of airports by the use of IATA codes cally bears a clause or notation declaring that the goods or
instead of writing out the name in full (e.g., LHR instead of packaging are defective.
London Heathrow) is not a discrepancy. Goods description
153. If a credit gives a geographical area or range of airports of 163. A goods description in an air transport document may be
departure and/or destination (e.g., ”Any European Air- shown in general terms not inconsistent with that stated in

108 port”), the air transport document must indicate the actual
airport of departure and/or destination, which must be
within that geographical area or range quoted.
the credit.
Corrections and alterations
164. Corrections and alterations on air transport documents
Consignee, order party and notify party must be authenticated. Such authentication must appear
154. Air transport documents should not be issued “to order” to have been made by the carrier or any of its agents (who
or “to order of” a named party because they are not docu- may be different from the agent that may have issued or
ments of title. Even if a credit calls for an air transport signed it), provided it is identified as an agent of the carrier.
document made out “to order” or “to order of” a named 165. Copies of air transport documents do not need to
party, a document presented showing goods consigned to include any signature of the carrier or agent (or shipper
that party, without mention of “to order” or “to order of”, even if required by the credit to appear on the original air
is acceptable. transport document), nor any authentication of any alter-
155. If a credit does not state a notify party(ies), the respec- ations or corrections that may have been made on the origi-
tive field on the air transport document may be left blank ` nal.
or completed in any manner. Freight and additional costs
Transhipment and partial shipment 166. If a credit requires that an air transport document show
156. Transhipment is the unloading and reloading of goods that freight has been paid or is payable at destination, the
from one aircraft to another during the course of carriage air transport document must be marked accordingly.
from the airport of departure to the airport of destination 167. Applicants and issuing banks should be specific in
stipulated in the credit. If it does not occur between these stating the requirements of documents to show whether
two airports, unloading and reloading is not considered to freight is to be prepaid or collected.
be transhipment. 168. If a credit states that costs additional to freight are not
157. Although transhipment may be prohibited, UCP acceptable, an air transport document must not indicate
sub-Article 27(c) nonetheless permits transhipment that costs additional to the freight have been or will be
provided the entire carriage is covered by one and the same incurred.
air transport document. Such indication may be by express reference to additional
158. If a credit prohibits partial shipments, and more than costs or by the use of shipment terms that refer to costs
one air transport document is presented covering dispatch associated with the loading or unloading of goods. A refer-
from one or more airports of departure (as specifically ence in the transport document to costs which may be
allowed, or within a given range, in the credit), such docu- levied as a result of a delay in unloading the goods or after
ments are acceptable, provided that they cover the the goods have been unloaded is not considered an indica-
dispatch of goods on the same aircraft and same flight, and tion of additional costs in this context.
are destined for the same airport of destination. In the 169. Air transport documents often have separate boxes which,
event that more than one air transport document is by their pre-printed headings, indicate that they are for
presented incorporating different dates of shipment, the freight charges “prepaid” and for freight charges “to
latest of these dates of shipment will be taken for the collect”, respectively.
calculation of any presentation period and must fall on or A requirement in a credit for an air transport document
before the latest shipment date specified in the credit. to show that freight has been prepaid will be fulfilled by a
159. Shipment on more than one aircraft is a partial shipment, statement of the freight charges under the heading “Freight
even if the aircraft leave on the same day for the same Prepaid”, or a similar expression or indication, and a
destination. requirement that an air transport document show that
Clean air transport documents freight has to be collected will be fulfilled by a statement
160. Clauses or notations on an air transport document which of the freight charges under the heading “Freight to
expressly declare a defective condition of the goods, and/ Collect”, or a similar expression or indication.
or packaging are not acceptable. Clauses or notations on
the air transport document which do not expressly declare
ROAD, RAIL OR INLAND WATERWAY TRANSPORT
a defective condition of the goods and/or packaging (e.g.,
“packaging may not be sufficient for the air journey”) do DOCUMENTS
not constitute a discrepancy. Statements that the packag- Application of UCP Article 28
ing “is not sufficient for the air journey” would not be 170. If a credit requires presentation of a transport document
acceptable. covering movement by road, rail or inland waterway, UCP
161. The word “clean” need not appear on the air transport Article 28 is applicable.
document even though the credit may require a “clean air Original and duplicate of road, rail or inland waterway
waybill” or one marked “clean on board”. transport documents
171. If a credit requires a road, rail or inland waterway trans- that may have issued or signed it, provided they are iden-
port document, the transport document presented will be tified as an agent of the carrier.
accepted as an original whether or not it is marked as an 180. Copies of UCP Article 28 transport documents do not
original. A road transport document must show that it is need to include any signature on, or authentication of any
the copy meant for the shipper or consignor or bear no alterations or corrections that may have been made on the
marking indicating for whom the document has been original.
prepared. With respect to rail waybills, the practice of Freight and additional costs
many railway companies is to provide the shipper or 181. If a credit requires that a UCP Article 28 transport docu-
consignor with only a duplicate (often a carbon copy)
duly authenticated by the railway company’s stamp.
Such a duplicate will be accepted as an original.
ment show that freight has been paid or is payable at
destination, the transport document must be marked
accordingly.
109
Carrier and signing of road, rail or inland waterway 182. Applicants and issuing banks should be specific in stat-
transport documents ing the requirements of documents to show whether freight
172. The term “carrier” need not appear at the signature line is to be prepaid or collected.
provided the transport document appears to be signed by
the carrier, or an agent on behalf of the carrier, if the carrier INSURANCE DOCUMENTS
is otherwise identified as the “carrier” on the face of the Application of UCP Articles 34-36
transport document.
183. If a credit requires presentation of an insurance docu-
International standard banking practice is to accept a ment, UCP Articles 34 through 36 are applicable.
railway bill evidencing date stamp by the railway station Issuers of insurance documents
of departure without showing the name of the carrier or a
184. Insurance documents must appear on their face to have
named agent signing for or on behalf of the carrier. (UCP
been issued and signed by insurance companies or under-
sub-Article 28(a)(i)).
writers or their agents. If required on the face of the insur-
173. The term “carrier” used in UCP Article 28 includes terms ance document or in accordance with the credit terms, all
in transport documents such as “issuing carrier”, “actual originals must appear to have been countersigned.
carrier”, “succeeding carrier”, and “contracting carrier”.
185. An insurance document is acceptable if issued on an
174. Any signature, authentication, reception stamp, or other insurance broker’s stationery, provided the insurance docu-
indication of receipt on the transport document must ment has been signed by the insurance company or its
appear to be made either by: agent, or by the underwriter or its agent. A broker may sign
a) the carrier, identified as the carrier, or as agent for the named insurance company or the named
b) a named agent signing for or on behalf of the carrier, and underwriter.
indicating the name and capacity of the carrier on whose Risks to be covered
behalf that agent is signing. 186. The insurance document must cover the risks defined in
Order party and notify party the credit. If a credit is explicit with regard to risks to be
175. Transport documents which are not documents of title covered, there must be no exclusions referenced in the docu-
should not be issued “to order” or “to order of” a named ment with respect to those risks. If a credit requires “all
party. Even if a credit calls for a transport document which risks” coverage, this is satisfied by the presentation of an
is not a document of title to be made out “to order” or “to insurance document evidencing any “all risks” clause or
order of” a named party, such a document, showing goods notation, even if it is stated that certain risks are excluded.
consigned to that party, without mention of “to order” or An insurance document indicating that it covers Institute
“to order of”, is acceptable. Cargo Clauses (A) satisfies a condition in a credit calling
for an “all risks” clause or notation.
176. If a credit does not stipulate a notify party(ies), the
respective field on the transport document may be left 187. Insurance covering the same risk for the same shipment
blank or completed in any manner. must be covered under one document unless the insurance
documents for partial cover each clearly reflect, by
Partial shipment
percentage or otherwise, the value of each insurer’s cover
177. Shipment on more than one means of conveyance (more
and that each insurer will bear their share of the liability
than one truck (lorry), train, vessel, etc.) is a partial ship- severally and without pre-conditions relating to any other
ment, even if such means of conveyance leave on the same
insurance cover that may have been effected for that ship-
day for the same destination. ment.
Goods description 188. The insurance document must show that risks are
178. A goods description in the transport document may be covered at least between the point of shipment, dispatch
shown in general terms not inconsistent with that stated in or taking in charge and the point of discharge or final
the credit. destination as required by the credit.
Corrections and alterations Dates
179. Corrections and alterations on an UCP Article 28 trans- 189. Insurance documents must not bear a date of issuance
port document must be authenticated. Such authentication which is later than the date of loading on board or dispatch
must appear to have been made by the carrier, or any one or taking in charge of the goods (as applicable) at the place
of their named agents, who may be different from the agent stated in the credit, unless it appears from the insurance
document that the cover is effective at the latest from the Contents of certificates of origin
date of loading on board or dispatch or taking in charge (as 198. The certificate of origin must appear to relate to the
applicable) of the goods at the place stated in the credit. invoiced goods. The goods description in the certificate of
190. An insurance document that incorporates an expiry date origin may be shown in general terms not inconsistent
must clearly indicate that such expiry date relates to the with that stated in the credit or by any other reference
latest date that loading on board or dispatch or taking in indicating a relation to the goods in a required document.
charge of the goods (as applicable) is to occur, as opposed 199. Consignee information, if shown, must not be inconsis-
to an expiry date for the presentation of any claims there tent with the consignee information in the transport docu-

110 under.
Currency and amount
191. An insurance document must be issued in the currency
ment.
However, if a credit requires a transport document to be
issued “to order”, “to the order of shipper”, “to order of
of and, as a minimum, for the amount required by the the issuing bank”, or “consigned to the issuing bank”, the
credit. If a credit does not state a minimum percentage certificate of origin may show the applicant of the credit,
amount, then the minimum insurance amount must be 110% or another party named therein, as consignee. If a credit
of the CIF value, or 110% of CIP value, as determined by has been transferred, the name of the first beneficiary as
the amounts reflected on the invoice or any other required consignee would also be acceptable.
document. A requirement for “Insurance for 110%”, or the 200. The certificate of origin may show the consignor or
like, is deemed to be the minimum amount of insurance exporter as a party other than the beneficiary of the credit
coverage required. or the shipper on the transport document.
The UCP does not provide for any maximum percentage.
192. If a credit requires the insurance cover to be irrespective
of percentage, the insurance document must not contain a
clause stating that the insurance cover is subject to a
franchise or an excess deductible.
193. If it is apparent from the credit or from the documents
that the final invoice amount only represents a certain part
of the gross value of the goods (e.g., due to discounts,
pre-payments or the like, or because part of the value of
the goods is to be paid at a later date), the calculation of
insurance cover must be based on the full gross value of
the goods.
Insured party and endorsement
194. An insurance document must be in the form as required
by the credit and, where necessary, be endorsed by the
party to whose order claims are payable. A document
issued to bearer is acceptable where the credit requires an
insurance document endorsed in blank and vice versa.
195. If a credit is silent as to the insured party, an insurance
document evidencing that claims are payable to the order
of the shipper or beneficiary would not be acceptable
unless endorsed. An insurance document should be issued
or endorsed so that the right to receive payment under it
passes upon, or prior to, the release of the documents.

CERTIFICATES OF ORIGIN
Basic requirement
196. A requirement for a certificate of origin will be satisfied
by the presentation of a signed, dated document that certi-
fies to the origin of the goods.
Issuers of certificates of origin
197. A certificate of origin must be issued by the party stated
in the credit. However, if a credit requires a certificate of
origin to be issued by the beneficiary, the exporter or the
manufacturer, a document issued by a chamber of
commerce will be deemed acceptable provided it clearly
identifies the beneficiary, the exporter or the manufacturer
as the case may be. If a credit does not state who is to issue
the certificate, then a document issued by any party,
including the beneficiary, is acceptable.
ICC UNIFORM RULES FOR BANK-TO-BANK i. For the purposes of these Rules branches of a bank in
REIMBURSEMENTS UNDER DOCUMENTARY CREDITS different countries are considered separate banks.

A. General Provisions and Definations Article 3 - Reimbursement Authorisations Versus Credits

Article 1 - Application of URR A Reimbursement Authorisation is separate from the Credit
The Uniform Rules for Bank-to-Bank Reimbursements under to which it refers, and a Reimbursing Bank is not concerned
Documentary Credits (“Rules”), ICC Publication No. 525, with or bound by the terms and conditions of the Credit, even
shall apply to all Bank-to-Bank Reimbursements where they if any reference whatsoever to the terms and conditions of the
are incorporated into the text of the Reimbursement
Authorisation. They are binding on all parties thereto, unless
otherwise expressly stipulated in the Reimbursement
Credit is included in the Reimbursement Authorisation.
111
B. Liabilities and Responsibilities
Authorisation. The Issuing Bank is responsible for indicating Article 4 - Honour of a Reimbursement Claim
in the Documentary Credit (“Credit”) that Reimbursement Except as provided by the terms of its Reimbursement
Claims are subject to these Rules. Undertaking a Reimbursing Bank is not obligated to honour a
In a Bank-to-Bank Reimbursement subject to these Rules, Reimbursement Claim.
the Reimbursing Bank acts on the instructions and/or under
the authority of the Issuing Bank. Article 5 - Responsibilities of the Issuing Bank
These Rules are not intended to override or change the provi- The Issuing Bank is responsible for providing the informa-
sions of the ICC Uniform Customs and Practice for Docu- tion required in these Rules in both the Reimbursement
mentary Credits. Authorisation and Credit and is responsible for any con-
sequences resulting from non-compliance with this provision.
Article 2 - Definitions
As used in these Rules, the following terms shall have the C. Form and Notification of Authorisations, Amendments
meanings specified in this Article and may be used in the and Claims
singular or plural as appropriate: Article 6 - Issuance and Receipt of a Reimbursement
a. “Issuing Bank” shall mean the bank that has issued a Credit Authorisation or Reimbursement Amendment
and the Reimbursement Authorisation under that Credit. a. All Reimbursement Authorisations and Reimbursement
b. “Reimbursing Bank” shall mean the bank instructed and/or Amendments must be issued in the form of an authenti-
authorised to provide reimbursement pursuant to a cated teletransmission or a signed letter.
Reimbursement Authorisation issued by the Issuing Bank. When a Credit, or amendment thereto which has an effect
c. “Reimbursement Authorisation” shall mean an instruction on the Reimbursement Authorisation, is issued by
and/or authorisation, independent of the Credit, issued by teletransmission, the Issuing Bank should advise its Reim-
an Issuing Bank to a Reimbursing Bank to reimburse a bursement Authorisation or Reimbursement Amendment
Claiming Bank, or, if so requested by the Issuing Bank, to to the Reimbursing Bank by authenticated teletransmis-
accept and pay a time draft(s) drawn on the Reimbursing sion. The teletransmission will be deemed the operative
Bank. Reimbursement Authorisation or the operative Reimburse-
d. “Reimbursement Amendment” shall mean an advice from ment Amendment and no mail confirmation should be sent.
the Issuing Bank to a Reimbursing Bank stating changes to Should a mail confirmation nevertheless be sent, it will
a Reimbursement Authorisation. have no effect and the Reimbursing Bank will have no
e. “Claiming Bank” shall mean a bank that pays, incurs a obligation to check such mail confirmation against the
deferred payment undertaking, accepts draft(s), or negoti- operative Reimbursement Authorisation or the operative
ates under a Credit and presents a Reimbursement Claim Reimbursement Amendment received by teletransmission.
to the Reimbursing Bank. “Claiming Bank” shall include a b. Reimbursement Authorisations and Reimbursement
bank authorised to present a Reimbursement Claim to the Amendments must be complete and precise. To guard
Reimbursing Bank on behalf of the bank that pays, incurs against confusion and misunderstanding, Issuing Banks
a deferred payment undertaking, accepts draft(s), or nego- must not send to Reimbursing Banks:
tiates. i. a copy of the Credit or any part thereof or a copy of an
f. “Reimbursement Claim” shall mean a request for reimburse- amendment to the Credit in place of, or in addition to,
ment from the Claiming Bank to the Reimbursing Bank. the Reimbursement Authorisation or Reimbursement
g. “Reimbursement Undertaking” shall mean a separate Amendment. If such copies are received by the Reim-
irrevocable undertaking of the Reimbursing Bank, issued bursing Bank they shall be disregarded;
upon the authorisation or request of the Issuing Bank, to ii. multiple Reimbursement Authorisations under one
the Claiming Bank named in the Reimbursement teletransmission or letter, unless expressly agreed to
Authorisation, to honour that bank’s Reimbursement Claim by the Reimbursing Bank.
provided the terms and conditions of the Reimbursement c. Issuing Banks shall not require a certificate of compliance
Undertaking have been complied with. with the terms and conditions of the Credit in the Reim-
h. “Reimbursement Undertaking Amendment” shall mean an bursement Authorisation.
advice from the Reimbursing Bank to the Claiming Bank d. All Reimbursement Authorisations must (in addition to
named in the Reimbursement Authorisation, stating the requirement of Article 1 for incorporation of reference
changes to a Reimbursement Undertaking. to these Rules) state the following:
i. Credit number;
ii. currency and amount; b. The Issuing Bank must send notice of any amendment to a
iii. additional amounts payable and tolerance, if any; Reimbursement Authorisation that has an effect on the
iv. Claiming Bank or, in the case of freely negotiable reimbursement instructions contained in the Credit to the
credits, that claims can be made by any bank. In the nominated bank or, in the case of a freely negotiable Credit,
absence of any such indication the Reimbursing Bank is the advising bank. In the case of cancellation of the Reim-
authorised to pay any Claiming Bank; bursement Authorisation prior to expiry of the Credit, the
v. parties responsible for charges (Claiming Bank’s and Issuing Bank must provide the nominated bank or the
Reimbursing Bank’s charges) in accordance with advising bank with new reimbursement instructions.

112 Article 16 of these Rules.

Reimbursement Amendments must state only the relative
c. The Issuing Bank must reimburse the Reimbursing Bank
for any Reimbursement Claims honoured or draft(s)
accepted by the Reimbursing Bank prior to the receipt by
changes to the above and the Credit number.
e. If the Reimbursing Bank is requested to accept and pay a it of notice of cancellation or Reimbursement Amendment.
time draft(s), the Reimbursement Authorisation must
indicate the following, in addition to the information Article 9 - Reimbursement Undertakings
specified in (d) above: a. In addition to the requirements of sub-Article 6 (a), (b)
and (c) of these Rules, all Reimbursement Authorisations
i. tenor of draft(s) to be drawn;
authorising or requesting the issuance of a Reimbursement
ii. drawer;
Undertaking must comply with the provisions of this
iii. party responsible for acceptance and discount charges, Article.
if any.
b. An authorisation or request by the Issuing Bank to the
Reimbursement Amendments must state the relative Reimbursing Bank to issue a Reimbursement Undertaking
changes to the above. is irrevocable (“Irrevocable Reimbursement Authorisation”)
Issuing Banks should not require a sight draft(s) to be and must (in addition to the requirement of Article 1 for
drawn on the Reimbursing Bank. incorporation of reference to these Rules) contain the
f. Any requirement for: following:
i. pre-notification of a Reimbursement Claim to the i. Credit number;
Issuing Bank must be included in the Credit and not in ii. currency and amount;
the Reimbursement Authorisation;
iii. additional amounts payable and tolerance, if any;
ii. pre-debit notification to the Issuing Bank must be
indicated in the Credit. iv. full name and address of the Claiming Bank to whom
the Reimbursement Undertaking should be issued;
g. If the Reimbursing Bank is not prepared to act for any
reason whatsoever under the Reimbursement Authorisation v. latest date for presentation of a claim including any
or Reimbursement Amendment, it must so inform the usance period;
Issuing Bank without delay. vi. parties responsible for charges (Claiming Bank’s and
h. In addition to the provisions of Articles 3 and 4, Reim- Reimbursing Bank’s charges and Reimbursement
bursing Banks are not responsible for the consequences Undertaking fee) in accordance with Article 16 of these
resulting from non-reimbursement or delay in reimburse- Rules.
ment of Reimbursement Claims, where any provision c. If the Reimbursing Bank is requested to accept and pay a
contained in this Article is not followed by the Issuing time draft(s), the Irrevocable Reimbursement Authorisation
and/or Claiming Bank. must also indicate the following, in addition to the infor-
mation contained in (b) above:
Article 7 - Expiry of a Reimbursement Authorisation i. tenor of draft(s) to be drawn;
Except to the extent expressly agreed to by the Reimbursing ii. drawer;
Bank, the Reimbursement Authorisation must not have an iii. party responsible for acceptance and discount charges,
expiry date or latest date for presentation of a claim except as if any.
indicated in Article 9.
Issuing Banks should not require a sight draft(s) to be
Reimbursing Banks will assume no responsibility for the drawn on the Reimbursing Bank.
expiry date of Credits and if such date is provided in the d. If the Reimbursing Bank is authorised or requested by the
Reimbursement Authorisation it will be disregarded. Issuing Bank to issue its Reimbursement Undertaking to
The Issuing Bank must cancel its Reimbursement the Claiming Bank but is not prepared to do so, it must so
Authorisation for any unutilised portion of the Credit to which inform the Issuing Bank without delay.
it refers, informing the Reimbursing Bank without delay. e. A Reimbursement Undertaking must indicate the terms
and conditions of the undertaking and:
Article 8 - Amendment or Cancellation of Reimbursement
i. Credit number and Issuing Bank;
Authorisations
Except where the Issuing Bank has authorised or requested ii. currency and amount of the Reimbursement Authori-
the Reimbursing Bank to issue a Reimbursement Undertaking sation,
as provided in Article 9 and the Reimbursing Bank has issued iii. additional amounts payable and tolerance, if any;
a Reimbursement Undertaking: iv. currency and amount of the Reimbursement Under-
a. The Issuing Bank may issue a Reimbursement Amend- taking;
ment or cancel a Reimbursement Authorisation at any time v. latest date for presentation of a claim including any
upon sending notice to that effect to the Reimbursing Bank. usance period;
vi. party to pay the Reimbursement Undertaking fee, if mail confirmation is to be sent. In the event such a mail
other than the Issuing Bank. The Reimbursing Bank confirmation is sent, the Claiming Bank will be responsi-
must also include its charges, if any, that will be ble for any consequences that may arise from a
deducted from the amount claimed. duplicate reimbursement;
f. If the latest date for presentation of a claim falls on a day ii. must clearly indicate the Credit number and Issuing
on which the Reimbursing Bank is closed for reasons other Bank (and Reimbursing Bank’s reference number, if
than those mentioned in Article 15, the latest date for known);
presentation of a claim shall be extended to the first iii. must separately stipulate the principal amount claimed,
following day on which the Reimbursing Bank is open.
g. i. An Irrevocable Reimbursement Authorisation cannot
be amended or cancelled without the agreement of the
any additional amount(s) and charges;
iv. must not be a copy of the Claiming Bank’s advice of
payment, deferred payment, acceptance or negotiation
113
Reimbursing Bank. to the Issuing Bank;
ii. When an Issuing Bank has amended its Irrevocable v. must not include multiple Reimbursement Claims
Reimbursement Authorisation, a Reimbursing Bank under one teletransmission or letter;
which has issued its Reimbursement Undertaking may vi. must, in the case of a Reimbursement Undertaking,
amend its undertaking to reflect such amendment. If a comply with the terms and conditions of the
Reimbursing Bank chooses not to issue its Reim- Reimbursement Undertaking.
bursement Undertaking Amendment it must so inform b. In cases where a time draft is to be drawn on the Reim-
the Issuing Bank without delay. bursing Bank, the Claiming Bank must forward the draft
iii. An Issuing Bank which has issued its Irrevocable with the Reimbursement Claim to the Reimbursing Bank
Reimbursement Authorisation Amendment, shall be for processing, and include the following in its claim if
irrevocably bound as of the time of its advice of the required by the Credit and/or Reimbursement Undertak-
Irrevocable Reimbursement Authorisation Amendment. ing:
iv. The terms of the original Irrevocable Reimbursement i. general description of the goods and/or services;
Authorisation (or an Authorisation incorporating ii. country of origin;
previously accepted Irrevocable Reimbursement iii. place of destination/performance.
Authorisation Amendments) will remain in force for and if the transaction covers the shipment of merchandise,
the Reimbursing Bank until it communicates its iv. date of shipment;
acceptance of the amendment to the Issuing Bank. v.place of shipment.
v. A Reimbursing Bank must communicate its acceptance c. Claiming Banks must not indicate in a Reimbursement Claim
or rejection of an Irrevocable Reimbursement that a payment, acceptance or negotiation was made under
Authorisation Amendment to the Issuing bank. A reserve or against an indemnity.
Reimbursing Bank is not required to accept or reject an d. Reimbursing Banks assume no liability or responsibility
Irrevocable Reimbursement Authorisation Amendment for any consequences that may arise out of any non-
until it has received acceptance or rejection from the acceptance or delay of processing should the Claiming Bank
Claiming Bank to its Reimbursement Undertaking fail to follow the provisions of this Article.
Amendment.
h. i. A Reimbursement Undertaking cannot be amended or Article 11 - Processing Reimbursement Claims
cancelled without the agreement of the Claiming Bank. a. i. Reimbursing Banks shall have a reasonable time, not to
ii. A Reimbursing Bank which has issued its Reimbursement exceed three banking days following the day of receipt
Undertaking Amendment shall be irrevocably bound as of the Reimbursement Claim, to process claims. Reim-
of the time of its advice of the Reimbursement bursement Claims received outside banking hours are
Undertaking Amendment. deemed to be received on the next banking day.
iii. The terms of the original Reimbursement Undertaking If a pre-debit notification is required by the Issuing
(or a Reimbursement Undertaking incorporating Bank, this pre-debit notification period shall be in addi-
previously accepted Reimbursement Amendments) will tion to the processing period mentioned above.
remain in force for the Claiming Bank until it communi- ii. If the Reimbursing Bank determines not to reimburse,
cates its acceptance of the Reimbursement Undertak- either because of a non-conforming claim under a Reim-
ing Amendment to the Reimbursing Bank. bursement Undertaking, or for any reason whatsoever
iv. A Claiming Bank must communicate its acceptance or under a Reimbursement Authorisation, it shall give
rejection of a Reimbursement Undertaking Amendment notice to that effect by telecommunication or, if that is
to the Reimbursing Bank. not possible, by other expeditious means, without
delay, but no later than the close of the third banking
Article 10 - Standards for Reimbursement Claims day following the day of receipt of the claim (plus any
a. The Claiming Bank’s claim for reimbursement: additional period mentioned in sub-Article (i) above).
i. must be in the form of a teletransmission, unless specifi- Such notice shall be sent to the Claiming Bank and the
cally prohibited by the Issuing Bank, or an original Issuing Bank and, in the case of a Reimbursement
letter. A Reimbursing Bank has the right to request that Undertaking, it must state the reasons for non-pay-
a Reimbursement Claim be authenticated and in such ment of the claim.
case the Reimbursing Bank shall not be liable for any b. Reimbursing Banks will not process requests for back value
consequences resulting from any delay incurred. If a (value dating prior to the date of a Reimbursement Claim)
Reimbursement Claim is made by teletransmission, no from the Claiming Bank.
c. Where a Reimbursing Bank has not issued a Reimburse- Article 15 - Force Majeure
ment Undertaking and a reimbursement is due on a future Reimbursing Banks assume no liability or responsibility for
date: the consequences arising out of the interruption of their busi-
i. The Reimbursement Claim must specify the pre-deter- ness by Acts of God, riots, civil commotions, insurrections,
mined reimbursement date. wars or any other causes beyond their control, or by any
ii. The Reimbursement Claim should not be presented to strikes or lockouts.
the Reimbursing Bank more than ten (10) of its banking
days prior to such predetermined date. If a Reimburse- Article 16 - Charges

114 ment Claim is presented more than ten (10) banking

days prior to the predetermined date, the Reimbursing
Bank may disregard the Reimbursement Claim. If the
a. The Reimbursing Bank’s charges should be for the account
of the Issuing Bank. However, in cases where the charges
are for the account of another party, it is the responsibility
Reimbursing Bank disregards the Reimbursement Claim of the Issuing Bank to so indicate in the original Credit and
it must so inform the Claiming Bank by teletransmis- in the Reimbursement Authorisation.
sion or other expeditious means without delay. b. When honouring a Reimbursement Claim, a Reimbursing
iii. If the predetermined reimbursement date is more than Bank is obligated to follow the instructions regarding any
three banking days following the day of receipt of the charges contained in the Reimbursement Authorisation.
Reimbursement Claim, the Reimbursing Bank has no c. In cases where the Reimbursing Bank’s charges are for the
obligation to provide notice of non-reimbursement account of another party they shall be deducted when the
until such predetermined date, or no later than the close Reimbursement Claim is honoured. Where a Reimbursing
of the third banking day following the receipt of the Bank follows the instructions of the Issuing Bank regard-
Reimbursement Claim plus any additional period ing charges (including commissions, fees, costs or expenses)
mentioned in (a) (i) above, whichever is later. and these charges are not paid or a Reimbursement Claim
is never presented to the Reimbursing Bank under the
d. Unless otherwise expressly agreed to by the Reimbursing
Reimbursement Authorisation, the Issuing Bank remains
Bank and the Claiming Bank, Reimbursing Banks will
liable for such charges.
effect reimbursement under a Reimbursement Claim only
to the Claiming Bank. d. Unless otherwise stated in the Reimbursement Authori-
sation, all charges paid by the Reimbursing Bank will be in
e. Reimbursing Banks assume no liability or responsibility if
addition to the amount of the Authorisation provided that
they honour a Reimbursement Claim that indicates that a
the Claiming Bank indicates the amount of such charges.
payment, acceptance or negotiation was made under
reserve or against an indemnity and shall disregard such e. If the Issuing Bank fails to provide the Reimbursing Bank
indication. Such reserve or indemnity concerns only the with instructions regarding charges, all charges shall be for
relations between the Claiming Bank and the party the account of the Issuing Bank.
towards whom the reserve was made, or from whom, or on
whose behalf, the indemnity was obtained. Article 17 - Interest Claims/Loss of Value
All claims for loss of interest, loss of value due to any
exchange rate fluctuations, revaluations or devaluations are
Article 12 - Duplications of Reimbursement Authorisations
between the Claiming Bank and the Issuing Bank, unless such
An Issuing Bank must not, upon receipt of documents, give a losses result from the non-performance of the Reimbursing
new Reimbursement Authorisation, or additional instructions, Bank’s obligation under a Reimbursement Undertaking.
unless they constitute an amendment to, or a cancellation of
an existing Reimbursement Authorisation. If the Issuing Bank
does not comply with the above and a duplicate reimburse-
ment is made, it is the responsibility of the Issuing Bank to
obtain the return of the amount of the duplicate reimbursement.
The Reimbursing Bank assumes no liability or responsibility for
any consequences that may arise from any such duplication.

D. Miscellaneous Provisions
Article 13 - Foreign Laws and Usages
The Issuing Bank shall be bound by and shall indemnify the
Reimbursing Bank against all obligations and responsibilities
imposed by foreign laws and usages.

Article 14 - Disclaimer on the Transmission of Messages

Reimbursing Banks assume no liability or responsibility
for the consequences arising out of delay and/or loss in transit
of any message(s), letter(s) or document(s), or for delay,
mutilation or other errors arising in the transmission of any
telecommunication. Reimbursing Banks assume no liability
or responsibility for errors in translation.
ICC UNIFORM RULES FOR COLLECTION 3. the “collecting bank” which is any bank, other than the
remitting bank, involved in processing the collection;
A. General Provisions and Definations 4. the “presenting bank” which is the collecting bank
Article 1 making presentation to the drawee.
Application of URC 522 b. The “drawee” is the one to whom presentation is to be
a. The Uniform Rules for Collections, 1995 Revision, ICC made in accordance with the collection instruction.
Publication No. 522, shall apply to all collections as
defined in Article 2 where such rules are incorporated into B. Form and Structire of Collections
the text of the “collection instruction” referred to in
Article 4 and are binding on all parties thereto unless
otherwise expressly agreed or contrary to the provisions
Article 4
Collection Instruction
115
a. 1. All documents sent for collection must be accompanied
of a national, state or local law and/or regulation which by a collection instruction indicating that the collection
cannot be departed from. is subject to URC 522 and giving complete and precise
b. Banks shall have no obligation to handle either a collection instructions. Banks are only permitted to act upon the
or any collection instruction or subsequent related instruc- instructions given in such collection instruction, and in
tions. accordance with these Rules.
c. If a bank elects, for any reason, not to handle a collection 2. Banks will not examine documents in order to obtain
or any related instructions received by it, it must advise instructions.
the party from whom it received the collection or the
3. Unless otherwise authorised in the collection instruc-
instructions by telecommunication or, if that is not
tion, banks will disregard any instructions from any
possible, by other expeditious means, without delay.
party/bank other than the party/bank from whom they
received the collection.
Article 2 b. A collection instruction should contain the following items
Defination of Collection of information, as appropriate.
For the purposes of these Articles: 1. Details of the bank from which the collection was
a. “Collection” means the handling by banks of documents received including full name, postal and SWIFT
as defined in sub-Article 2(b), in accordance with instruc- addresses, telex, telephone, facsimile numbers and
tions received, in order to: reference.
1. obtain payment and/or acceptance,
2. Details of the principal including full name, postal
or address, and if applicable telex, telephone and facsimile
2. deliver documents against payment and/or against numbers.
acceptance, 3. Details of the drawee including full name, postal
or address, or the domicile at which presentation is to be
3. deliver documents on other terms and conditions. made and if applicable telex, telephone and facsimile
b. “Documents” means financial documents and/or commer- numbers.
cial documents: 4. Details of the presenting bank, if any, including full
1. “Financial documents” means bills of exchange, name, postal address, and if applicable telex, telephone
promissory notes, cheques, or other similar instruments and facsimile numbers.
used for obtaining the payment of money; 5. Amount(s) and currency(ies) to be collected.
2. “Commercial documents” means invoices, transport 6. List of documents enclosed and the numerical count of
documents, documents of title or other similar docu- each document.
ments, or any other documents whatsoever, not being 7. a. Terms and conditions upon which payment and/or
financial documents. acceptance is to be obtained.
c. “Clean collection” means collection of financial documents b. Terms of delivery of documents against:
not accompanied by commercial documents.
1) payment and/or acceptance
d. “Documentary collection” means collection of:
2) other terms and conditions
1. Financial documents accompanied by commercial docu-
ments; It is the responsibility of the party preparing the
collection instruction to ensure that the terms for the
2. Commercial documents not accompanied by financial
delivery of documents are clearly and unambiguously
documents.
stated, otherwise banks will not be responsible for any
consequences arising therefrom.
Article 3
8. Charges to be collected, indicating whether they may
Parties to a Collection be waived or not.
a. For the purposes of these Articles the “parties thereto”
are: 9. Interest to be collected, if applicable, indicating whether
it may be waived or not, including:
1. the “principal” who is the party entrusting the
handling of a collection to a bank; a. rate of interest
2. the “remitting bank” which is the bank to which the b. interest period
principal has entrusted the handling of a collection; c. basis of calculation (for example 360 or 365 days in
a year) as applicable.
10. Method of payment and form of payment advice. Article 7
11. Instructions in case of non-payment, non-acceptance Release of Commercial Documents
and/or non-compliance with other instructions. Documents Against Acceptance (D/A) vs.
c. 1. Collection instructions should bear the complete Documents Against Payment (D/P)
address of the drawee or of the domicile at which the a. Collections should not contain bills of exchange payable at
presentation is to be made. If the address is incomplete a future date with instructions that commercial documents
or incorrect, the collecting bank may, without any are to be delivered against payment.
liability and responsibility on its part, endeavour to b. If a collection contains a bill of exchange payable at a
116 ascertain the proper address.
2. The collecting bank will not be liable or responsible for
future date, the collection instruction should state whether
the commercial documents are to be released to the drawee
any ensuing delay as a result of an incomplete/incorrect against acceptance (D/A) or against payment (D/P).
address being provided. In the absence of such statement commercial documents
will be released only against payment and the collecting
C. Form of Presentation bank will not be responsible for any consequences arising
Article 5 out of any delay in the delivery of documents.
Presentation c. If a collection contains a bill of exchange payable at a
a. For the purposes of these Articles, presentation is the future date and the collection instruction indicates that
procedure whereby the presenting bank makes the commercial documents are to be released against payment,
documents available to the drawee as instructed. documents will be released only against such payment and
b. The collection instruction should state the exact period of the collecting bank will not be responsible for any
time within which any action is to be taken by the drawee. consequences arising out of any delay in the delivery of
documents.
Expressions such as “first”, “prompt”, “immediate”, and
the like should not be used in connection with presenta-
tion or with reference to any period of time within which Article 8
documents have to be taken up or for any other action that Creation of Documents
is to be taken by the drawee. If such terms are used banks Where the remitting bank instructs that either the collecting
will disregard them. bank or the drawee is to create documents (bills of exchange,
c. Documents are to be presented to the drawee in the form promissory notes, trust receipts, letters of undertaking or
in which they are received, except that banks are authorised other documents) that were not included in the collection, the
to affix any necessary stamps, at the expense of the party form and wording of such documents shall be provided by the
from whom they received the collection unless otherwise remitting bank, otherwise the collecting bank shall not be
instructed, and to make any necessary endorsements or liable or responsible for the form and wording of any such
place any rubber stamps or other identifying marks or document provided by the collecting bank and/or the drawee.
symbols customary to or required for the collection opera-
tion. D. Liabilities and Responsibilities
d. For the purpose of giving effect to the instructions of the Article 9
principal, the remitting bank will utilise the bank nomi- Good Faith and Reasonable Care
nated by the principal as the collecting bank. In the Banks will act in good faith and exercise reasonable care.
absence of such nomination, the remitting bank will utilise
any bank of its own, or another bank’s choice in the Article 10
country of payment or acceptance or in the country where
Documents vs. Goods/Services/Performances
other terms and conditions have to be complied with.
a. Goods should not be despatched directly to the address of
e. The documents and collection instruction may be sent a bank or consigned to or to the order of a bank without
directly by the remitting bank to the collecting bank or prior agreement on the part of that bank.
through another bank as intermediary. Nevertheless, in the event that goods are despatched
f. If the remitting bank does not nominate a specific present- directly to the address of a bank or consigned to or to the
ing bank, the collecting bank may utilise a presenting bank order of a bank for release to a drawee against payment or
of its choice. acceptance or upon other terms and conditions without
prior agreement on the part of that bank, such bank shall
Article 6 have no obligation to take delivery of the goods, which
Sight/Acceptance remain at the risk and responsibility of the party
In the case of documents payable at sight the presenting bank despatching the goods.
must make presentation for payment without delay. In the b. Banks have no obligation to take any action in respect of
case of documents payable at a tenor other than sight the the goods to which a documentary collection relates,
presenting bank must, where acceptance is called for, make including storage and insurance of the goods even when
presentation for acceptance without delay, and where pay- specific instructions are given to do so. Banks will only
ment is called for, make presentation for payment not later take such action if, when, and to the extent that they agree
than the appropriate maturity date. to do so in each case. Notwithstanding the provisions of
sub-Article 1(c) this rule applies even in the absence of
any specific advice to this effect by the collecting bank.
c. Nevertheless, in the case that banks take action for the of any document(s), or for the general and/or particular condi-
protection of the goods, whether instructed or not, they tions stipulated in the document(s) or superimposed thereon;
assume no liability or responsibility with regard to the nor do they assume any liability or responsibility for the
fate and/or condition of the goods and/or for any acts and/ description, quantity, weight, quality, condition, packing,
or omissions on the part of any third parties entrusted delivery, value or existence of the goods represented by any
with the custody and/or protection of the goods. How- document(s), or for the good faith or acts and/or omissions,
ever, the collecting bank must advise without delay the solvency, performance or standing of the consignors, the
bank from which the collection instruction was received of carriers, the forwarders, the consignees or the insurers of the
any such action taken.
d. Any charges and/or expenses incurred by banks in connec-
tion with any action taken to protect the goods will be for
goods, or any other person whomsoever.
117
Article 14
the account of the party from whom they received the
Disclaimer on Delays, Loss in Transit and Translation
collection.
a. Banks assume no liability or responsibility for the
e. 1. Notwithstanding the provisions of sub-Article 10(a), consequences arising out of delay and/or loss in transit of
where the goods are consigned to or to the order of the any message(s), letter(s) or document(s), or for delay,
collecting bank and the drawee has honoured the collec- mutilation or other error(s) arising in transmission of any
tion by payment, acceptance or other terms and telecommunication or for error(s) in translation and/or
conditions, and the collecting bank arranges for the interpretation of technical terms.
release of the goods, the remitting bank shall be deemed
b. Banks will not be liable or responsible for any delays
to have authorised the collecting bank to do so.
resulting from the need to obtain clarification of any
2. Where a collecting bank on the instructions of the instructions received.
remitting bank or in terms of sub-Article 10(e)i,
arranges for the release of the goods, the remitting bank
shall indemnify such collecting bank for all damages Article 15
and expenses incurred. Force Majeure
Banks assume no liability or responsibility for consequences
Article 11 arising out of the interruption of their business by Acts of
God, riots, civil commotions, insurrections, wars, or any other
Disclaimer for Acts of an Instructed Party
causes beyond their control or by strikes or lockouts.
a. Banks utilising the services of another bank or other banks
for the purpose of giving effect to the instructions of the
principal, do so for the account and at the risk of such E. Payment
principal. Article 16
b. Banks assume no liability or responsibility should the Payment Without Delay
instructions they transmit not be carried out, even if they a. Amounts collected (less charges and/or disbursements and/
have themselves taken the initiative in the choice of such or expenses where applicable) must be made available
other bank(s). without delay to the party from whom the collection
c. A party instructing another party to perform services shall instruction was received in accordance with the terms and
be bound by and liable to indemnify the instructed party conditions of the collection instruction.
against all obligations and responsibilities imposed by b. Notwithstanding the provisions of sub-Article 1(c), and
foreign laws and usages. unless otherwise agreed, the collecting bank will effect
payment of the amount collected in favour of the remitting
bank only.
Article 12
Disclaimer on Documents Received
a. Banks must determine that the documents received appear Article 17
to be as listed in the collection instruction and must advise Payment in Local Currency
by telecommunication or, if that is not possible, by other In the case of documents payable in the currency of the coun-
expeditious means, without delay, the party from whom try of payment (local currency), the presenting bank must,
the collection instruction was received of any documents unless otherwise instructed in the collection instruction, re-
missing, or found to be other than listed. lease the documents to the drawee against payment in local
currency only if such currency is immediately available for
Banks have no further obligation in this respect.
disposal in the manner specified in the collection instruction.
b. If the documents do not appear to be listed, the remitting
bank shall be precluded from disputing the type and
number of documents received by the collecting bank. Article 18
c. Subject to sub-Article 5(c) and sub-Articles 12(a) and 12(b) Payment in Foreign Currency
above, banks will present documents as received without In the case of documents payable in a currency other than
further examination. that of the country of payment (foreign currency), the
presenting bank must, unless otherwise instructed in the
collection instruction, release the documents to the drawee
Article 13 against payment in the designated foreign currency only if
Disclaimer on Effectiveness of Documents such foreign currency can immediately be remitted in accor-
Banks assume no liability or responsibility for the form, dance with the instructions given in the collection instruction.
sufficiency, accuracy, genuineness, falsification or legal effect
Article 19 ing bank will not deliver documents and will not be
Partial Payments responsible for any consequences arising out of any delay
a. In respect of clean collections, partial payments may be in the delivery of the document(s). When payment of
accepted if and to the extent to which and on the condi- collection charges and/or expenses has been refused the
tions on which partial payments are authorised by the law presenting bank must inform by telecommunication or, if
in force in the place of payment. The financial document(s) that is not possible, by other expeditious means without
will be released to the drawee only when full payment delay the bank from which the collection instruction was
thereof has been received. received.

118 b. In respect of documentary collections, partial payments

will only be accepted if specifically authorised in the
collection instruction. However, unless otherwise
c. In all cases where in the express terms of a collection
instruction or under these Rules, disbursements and/or
expenses and/or collection charges are to be borne by the
instructed, the presenting bank will release the documents principal, the collecting bank(s) shall be entitled to recover
to the drawee only after full payment has been received, promptly outlays in respect of disbursements, expenses
and the presenting bank will not be responsible for any and charges from the bank from which the collection
consequences arising out of any delay in the delivery of instruction was received, and the remitting bank shall be
documents. entitled to recover promptly from the principal any amount
c. In all cases partial payments will be accepted only subject so paid out by it, together with its own disbursements,
to compliance with the provisions of either Article 17 or expenses and charges, regardless of the fate of the
Article 18 as appropriate. collection.
Partial payment, if accepted, will be dealt with in accor- d. Banks reserve the right to demand payment of charges
dance with the provisions of Article 16. and/or expenses in advance from the party from whom the
collection instruction was received, to cover costs in
attempting to carry out any instructions, and pending
F. Interest, Charges and Expenses
receipt of such payment also reserve the right not to carry
Article 20 out such instructions.
Interest
a. If the collection instruction specifies that interest is to be
G. Other Provision
collected and the drawee refuses to pay such interest, the
presenting bank may deliver the document(s) against Article 22
payment or acceptance or on other terms and conditions Acceptance
as the case may be, without collecting such interest, unless The presenting bank is responsible for seeing that the form of
sub-Article 20(c) applies. the acceptance of a bill of exchange appears to be complete
b. Where such interest is to be collected, the collection and correct, but is not responsible for the genuineness of any
instruction must specify the rate of interest, interest signature or for the authority of any signatory to sign the
period and basis of calculation. acceptance.
c. Where the collection instruction expressly states that
interest may not be waived and the drawee refuses to pay Article 23
such interest the presenting bank will not deliver docu- Promissory Notes and Other Instruments
ments and will not be responsible for any consequences The presenting bank is not responsible for the genuineness of
arising out of any delay in the delivery of document(s). any signature or for the authority of any signatory to sign a
When payment of interest has been refused, the present- promissory note, receipt, or other instruments.
ing bank must inform by telecommunication or, if that is
not possible, by other expeditious means without delay Article 24
the bank from which the collection instruction was Protest
received. The collection instruction should give specific instructions
regarding protest (or other legal process in lieu thereof), in the
Article 21 event of non-payment or non-acceptance.
Charges and Expenses In the absence of such specific instructions, the banks
a. If the collection instruction specifies that collection charges concerned with the collection have no obligation to have the
and/or expenses are to be for account of the drawee and the document(s) protested (or subjected to other legal process in
drawee refuses to pay them, the presenting bank may lieu thereof) for non-payment or non-acceptance.
deliver the document(s) against payment or acceptance or Any charges and/or expenses incurred by banks in connection
on other terms and conditions as the case may be, without with such protest, or other legal process, will be for the
collecting charges and/or expenses, unless sub-Article 21(b) account of the party from whom the collection instruction
applies. was received.
Whenever collection charges and/or expenses are so waived
they will be for the account of the party from whom the
collection was received and may be deducted from the
proceeds.
b. Where the collection instruction expressly states that
charges and/or expenses may not be waived and the drawee
refuses to pay such charges and/or expenses, the present-
Article 25
INTERNATIONAL STANDBY PRACTICES - ISP98
Case-of-Need
If the principal nominates a representative to act as case-of- Preface
need in the event of non-payment and/or non-acceptance the The International Standby Practices (ISP98) reflects
collection instruction should clearly and fully indicate the generally accepted practice, custom, and usage of standby
powers of such case-of-need. In the absence of such indica- letters of credit. It provides separate rules for standby letters
tion banks will not accept any instructions from the case-of- of credit in the same sense that the Uniform Customs and
need. Practice for Documentary Credits (UCP) and the Uniform

119
Rules for Demand Guarantees (URDG) do for commercial
letters of credit and independent bank guarantees.
Article 26
The formulation of standby letter of credit practices in
Advices
separate rules evidences the maturity and importance of this
Collecting banks are to advise fate in accordance with the
financial product. The amounts outstanding of standbys
following rules:
greatly exceed the outstanding amounts of commercial letters
a. Form of Advice of credit. While the standby is associated with the United
All advices or information from the collecting bank to the States where it originated and where it is most widely used, it
bank from which the collection instruction was received, is truly an international product. Non-U.S. bank outstandings
must bear appropriate details including, in all cases, have exceeded those of U.S. banks in the United States alone.
the latter bank’s reference as stated in the collection Moreover, the standby is used increasingly throughout the
instruction. world.
b. Method of Advice Standbys are issued to support payment, when due or after
It shall be the responsibility of the remitting bank to default, of obligations based on money loaned or advanced,
instruct the collecting bank regarding the method by which or upon the occurrence or non-occurrence of another
the advices detailed in sub-Articles (c)i, (c)ii and (c)iii are contingency.
to be given. In the absence of such instructions, the For convenience, standbys are commonly classified descrip-
collecting bank will send the relative advices by the method tively (and without operative significance in the application
of its choice at the expense of the bank from which the of these Rules) based on their function in the underlying
collection instruction was received. transaction or other factors not necessarily related to the terms
c. 1. Advice of Payment and conditions of the standby itself. For example:
The collecting bank must send without delay advice of A “Performance Standby” supports an obligation to
payment to the bank from which the collection instruc- perform other than to pay money, including for the purpose
tion was received, detailing the amount or amounts of covering losses arising from a default of the applicant in
collected, charges and/or disbursements and/or expenses completion of the underlying transactions.
deducted, where appropriate, and method of disposal An “Advance Payment Standby” supports an obligation to
of the funds. account for an advance payment made by the beneficiary to
2. Advice of Acceptance the applicant.
The collecting bank must send without delay advice of A “Bid Bond/Tender Bond Standby” supports an
acceptance to the bank from which the collection obligation of the applicant to execute a contract if the appli-
instruction was received. cant is awarded a bid.
3. Advice of Non-Payment and/or Non-Acceptance A “Counter Standby” supports the issuance of a separate
The presenting bank should endeavour to ascertain the standby or other undertaking by the beneficiary of the counter
reasons for non-payment and/or non-acceptance and standby.
advise accordingly, without delay, the bank from which A “Financial Standby” supports an obligation to pay money,
it received the collection instruction. including any instrument evidencing an obligation to repay
The presenting bank must send without delay advice borrowed money.
of non-payment and/or advice of non-acceptance to the A “Direct Pay” Standby supports payment when due of an
bank from which it received the collection instruction. underlying payment obligation typically in connection with a
On receipt of such advice the remitting bank must give financial standby without regard to a default.
appropriate instructions as to the further handling of An “Insurance Standby” supports an insurance or reinsur-
the documents. If such instructions are not received by ance obligation of the applicant.
the presenting bank within 60 days after its advice of A “Commercial Standby” supports the obligations of an
non-payment and/or non-acceptance, the documents applicant to pay for goods or services in the event of
may be returned to the bank from which the collection non-payment by other methods.
instruction was received without any further responsi- In the past, many standbys have been issued subject to the
bility on the part of the presenting bank. UCP even though it was intended for commercial letters of
credit. The UCP reinforced the independence and documen-
tary character of the standby. It also provided standards for
examination and notice of dishonor and a basis to resist
market pressures to embrace troublesome practices such as
the issuance of standbys without expiration dates.
Despite these important contributions, it has long been
apparent that the UCP was not fully applicable nor
appropriate for standbys, as is recognized in UCP 500 Article Although the ISP can be varied by the text of a standby, it
1 which provides that it applies “to the extent to which they provides neutral rules acceptable in the majority of situations
may be applicable.” Even the least complex standbys (those and a useful starting point for negotiations in other situations.
calling for presentation of a draft only) pose problems not It will save parties (including banks that issue, confirm, or are
addressed by the UCP. More complex standbys (those beneficiaries of standbys) considerable time and expense in
involving longer terms or automatic extensions, transfer on negotiating and drafting standby terms.
demand, requests that the beneficiary issue its own undertak- The ISP is designed to be compatible with the United
ing to another, and the like) require more specialized rules of Nations Convention on Independent Guarantees and Stand-

120
practice. The ISP fills these needs. by Letters of Credit (which represents a useful and practical
The ISP differs from the UCP in style and approach formulation of basic standby and independent guarantee law)
because it must receive acceptance not only from bankers and and also with local law, whether statutory or judicial, and to
merchants, but also from a broader range of those actively embody standby letter of credit practice under that law. If
involved in standby law and practice—corporate treasurers these rules conflict with mandatory law on issues such as
and credit managers, rating agencies, government agencies and assignment of proceeds or transfer by operation of law,
regulators, and indenture trustees as well as their counsel. applicable law will, of course, control. Nonetheless, most of
Because standbys are often intended to be available in the these issues are rarely addressed by local law and progressive
event of disputes or applicant insolvency, their texts are sub- commercial law will often look to the practice as recorded in
ject to a degree of scrutiny not encountered in the commercial the ISP for guidance in such situations, especially with
letter of credit context. As a result, the ISP is also written to respect to cross border undertakings. As a result, it is
provide guidance to lawyers and judges in the interpretation expected that the ISP will complement local law rather than
of standby practice. conflict with it.
Differences in substance result either from different The ISP is intended to be used also in arbitration as well as
practices, different problems, or the need for more precision. judicial proceedings (such as the expert based letter of credit
In addition, the ISP proposes basic definitions should the arbitration system developed by the International Center for
standby permit or require presentation of documents by Letter of Credit Arbitration (ICLOCA) Rules or general
electronic means. Since standbys infrequently require commercial ICC arbitration) or with alternative methods of
presentation of negotiable documents, standby practice is dispute resolution. Such a choice should be made expressly
currently more conducive to electronic presentations, and and with appropriate detail. At a minimum, it can be made in
the ISP provides definitions and rules encouraging such connection with the clause relating to ISP98 - e.g., This
presentations. The development of S.W.I.F.T. message types undertaking is issued subject to ISP98, and all disputes
for the ISP is anticipated. arising out of it or related to it are subject to arbitration under
The ISP, like the UCP for commercial letters of credit, ICLOCA Rules (1996).
simplifies, standardizes, and streamlines the drafting of stand- Although translations of the ISP into other languages are
bys, and provides clear and widely accepted answers to envisioned and will be monitored for integrity, the English
common problems. There are basic similarities with the UCP text is the official text of the ISP in the event of disputes.
because standby and commercial practices are fundamentally The ISP is the product of the work of the ISP Working
the same. Even where the rules overlap, however, the ISP is Group under the auspices of the Institute of International
more precise, stating the intent implied in the UCP rule, in Banking Law & Practice, Inc. which interacted with
order to make the standby more dependable when a drawing hundreds of persons over a five year period, and has benefit-
or honor is questioned. ted from comments received from individuals, banks, and
Like the UCP and the URDG, the ISP will apply to any national and international associations. In particular, the
independent undertaking issued subject to it. This approach participation of the International Financial Services Associa-
avoids the impractical and often impossible task of identify- tion (formerly the USCIB) and the Ad Hoc Working Group
ing and distinguishing standbys from independent guarantees under the chairmanship of Gary Collyer (which led to its
and, in many cases, commercial letters of credit. The choice of endorsement by the ICC Banking Commission) is gratefully
which set of rules to select is, therefore, left to the parties— recognized. In addition, the sponsorship and support of
as it should be. One may well choose to use the ISP for certain Citibank N.A., The Chase Manhattan Bank, ABN AMRO,
types of standbys, the UCP for others, and the URDG for Baker & McKenzie, and the National Law Center for
still others. While the ISP is not intended to be used for Inter-American Free Trade is acknowledged. Perhaps the
dependent undertakings such as accessory guarantees and greatest significance of the ISP is that its creation marks a
insurance contracts, it may be useful in some situations in new chapter in the collaboration between the international
indicating that a particular undertaking which might other- banking operations community and the legal community at an
wise be treated as dependent under local law is intended to be international level. In this respect, the active role played in
independent. this process by the Secretariat of the United Nations
For the ISP to apply to a standby, an undertaking should be Commission on International Trade Law has been invaluable.
made subject to these Rules by including language such as The ISP is drafted as a set of rules intended for use in daily
(but not limited to): practice. It is not intended to provide introductory informa-
tion on standbys and their uses. While it is recognized that
This undertaking is issued subject to the International specific rules would benefit from explanatory comments, such
Standby Practices 1998. comments are not appended to the ISP because the resulting
or work would be too cumbersome for daily use. Instead, intro-
Subject to ISP98. ductory materials and Official Comments are available in the
Official Commentary on the International Standby Practices nomination, amendment, transfer, request for issuance, or other
(ISP98). For further information on support materials and agreement of:
developments on the ISP and to pose queries, consult the i. the issuer;
ISP98 website: www.ISP98.com ii. the beneficiary to the extent it uses the standby;
To address inevitable questions, to provide for official iii. any advisor;
interpretation of the rules, and to assure their proper evolu- iv. any confirmer;
tion, the Institute of International Banking Law & Practice,
v. any person nominated in the standby who acts or agrees
Inc. has created a Council on International Standby Practices
to act; and
which is representative of the several constituencies which
have contributed to the ISP and has charged it with the task of
maintaining the integrity of the ISP in cooperation with the
vi. the applicant who authorises issuance of the standby or
otherwise agrees to the application of these Rules.
121
Institute, the ICC Banking Commission, the IFSA, and
various supporting organizations. 1.05 Exclusion of Matters Related to Due Issuance and
Fraudulent or Abusive Drawing
James G. Barnes, Baker & McKenzie, Vice Chair These Rules do not define or otherwise provide for:
ISP Working Group a. power or authority to issue a standby;
Professor James E. Byrne, Director, Institute of International b. formal requirements for execution of a standby (e.g. a signed
Banking, Law & Practice, Inc., Chair & Reporter writing); or
ISP Working Group c. defenses to honour based on fraud, abuse, or similar matters.
Gary W. Collyer, Chair, These matters are left to applicable law.
ICC Ad Hoc Working Group & Technical Adviser to the ICC
Banking Commission General Principles
1.06 Nature of Standbys
Rule 1: General Provisions a. A standby is an irrevocable, independent, documentary,
Scope, Application, Definations, and Interpretation of and binding undertaking when issued and need not so state.
These Rules b. Because a standby is irrevocable, an issuer’s obligations
1.01 Scope and Application under a standby cannot be amended or cancelled by the
a. These Rules are intended to be applied to standby letters issuer except as provided in the standby or as consented
of credit (including performance, financial, and direct pay to by the person against whom the amendment or cancel-
standby letters of credit). lation is asserted.
b. A standby letter of credit or other similar undertaking, c. Because a standby is independent, the enforceability of an
however named or described, whether for domestic or issuer’s obligations under a standby does not depend on:
international use, may be made subject to these Rules by
i. the issuer’s right or ability to obtain reimbursement
express reference to them.
from the applicant;
c. An undertaking subject to these Rules may expressly
ii. the beneficiary’s right to obtain payment from the
modify or exclude their application.
applicant;
d. An undertaking subject to these Rules is hereinafter
iii. a reference in the standby to any reimbursement agree-
referred to as a “standby”.
ment or underlying transaction; or
1.02 Relationship to Law and Other Rules iv. the issuer’s knowledge of performance or breach of any
a. These Rules supplement the applicable law to the extent reimbursement agreement or underlying transaction.
not prohibited by that law. d. Because a standby is documentary, an issuer’s obligations
b. These Rules supersede conflicting provisions in any other depend on the presentation of documents and an examina-
rules of practice to which a standby letter of credit is also tion of required documents on their face.
made subject. e. Because a standby or amendment is binding when issued,
it is enforceable against an issuer whether or not the
1.03 Interpretative Principles appli cant authorised its issuance, the issuer received a fee,
These Rules shall be interpreted as mercantile usage with or the beneficiary received or relied on the standby or the
regard for: amendment.
a. integrity of standbys as reliable and efficient undertakings
to pay; 1.07 Independence of the Issuer-Beneficiary Relationship
b. practice and terminology of banks and businesses in day- An issuer’s obligations toward the beneficiary are not affected
to-day transactions; by the issuer’s rights and obligations toward the applicant
under any applicable agreement, practice, or law.
c. consistency within the worldwide system of banking
operations and commerce; and
1.08 Limits to Responsibilities
d. worldwide uniformity in their interpretation and application. An issuer is not responsible for:
a. performance or breach of any underlying transaction;
1.04 Effect of the Rules
Unless the context otherwise requires, or unless expressly b. accuracy, genuineness, or effect of any document presented
modified or excluded, these Rules apply as terms and under the standby;
conditions incorporated into a standby, confirmation, advice, c. action or omission of others even if the other person is
chosen by the issuer or nominated person; or
d. observance of law or practice other than that chosen in the “Nominated Person” - Rule 2.04
standby or applicable at the place of issuance. “Non-documentary Conditions” - Rule 4.11
“Original” - Rule 4.15(b) & (c)
Terminology “Partial Drawing” - Rule 3.08(a)
1.09 Defined Terms “Standby” - Rule 1.01(d)
In addition to the meanings given in standard banking practice “Transfer” - Rule 6.01
and applicable law, the following terms have or include the
“Transferee Beneficiary” - Rule 1.11(c)(ii)
meanings indicated below:

122 a. Definitions
“Applicant” is a person who applies for issuance of a
“Transfer by Operation of Law” - Rule 6.11
c. Electronic Presentations
The following terms in a standby providing for or
standby or for whose account it is issued, and includes (i)
a person applying in its own name but for the account of permitting electronic presentation shall have the following
another person or (ii) an issuer acting for its own account. meanings unless the context otherwise requires:
“Beneficiary” is a named person who is entitled to draw “Electronic Record” means:
under a standby. See Rule 1.11(c)(ii). i. a record (information that is inscribed on a tangible
“Business Day” means a day on which the place of medium or that is stored in an electronic or other
business at which the relevant act is to be performed is medium and is retrievable in perceivable form);
regularly open; and “Banking Day” means a day on which ii. communicated by electronic means to a system for
the relevant bank is regularly open at the place at which receiving, storing, re-transmitting, or otherwise process-
the relevant act is to be performed. ing information (data, text, images, sounds, codes,
“Confirmer” is a person who, upon an issuer’s nomina- computer programs, software, databases, and the like);
tion to do so, adds to the issuer’s undertaking its own and
undertaking to honour a standby. See Rule 1.11(c)(i). iii. capable of being authenticated and then examined for
“Demand” means, depending on the context, either a compliance with the terms and conditions of the
request to honour a standby or a document that makes standby.
such request. “Authenticate” means to verify an electronic record by
“Document” means a draft, demand, document of title, generally accepted procedure or methodology in commer-
investment security, invoice, certificate of default, or any cial practice:
other representation of fact, law, right, or opinion, that i. the identity of a sender or source, and
upon presentation (whether in a paper or electronic ii. the integrity of or errors in the transmission of infor-
medium), is capable of being examined for compliance with mation content.
the terms and conditions of a standby. The criteria for assessing the integrity of information in
“Drawing” means, depending on the context, either a an electronic record is whether the information has
demand presented or a demand honoured. remained complete and unaltered, apart from the addition
“Expiration Date” means the latest day for a complying of any endorsement and any change which arises in the
presentation provided in a standby. normal course of communication, storage, and display.
“Person” includes a natural person, partnership, corpo- “Electronic signature” means letters, characters, num-
ration, limited liability company, government agency, bank, bers, or other symbols in electronic form, attached to or
trustee, and any other legal or commercial association or logically associated with an electronic record that are
entity. executed or adopted by a party with present intent to
“Presentation” means, depending on the context, either authenticate an electronic record.
the act of delivering documents for examination under a “Receipt” occurs when:
standby or the documents so delivered. i. an electronic record enters in a form capable of being
“Presenter” is a person who makes a presentation as or processed by the information system designated in the
on behalf of a beneficiary or nominated person. standby, or
“Signature” includes any symbol executed or adopted ii. an issuer retrieves an electronic record sent to an infor-
by a person with a present intent to authenticate a mation system other than that designated by the issuer.
document.
b. Cross References
“Amendment” - Rule 2.06 1.10 Redundant or Otherwise Undesirable Terms
a. A standby should not or need not state that it is:
“Advice” - Rule 2.05
i. unconditional or abstract (if it does, it signifies merely
“Approximately” (“About” or “Circa”) - Rule 3.08(f) that payment under it is conditioned solely on presen-
“Assignment of Proceeds” - Rule 6.06 tation of specified documents);
“Automatic Amendment” - Rule 2.06(a) ii. absolute (if it does, it signifies merely that it is
“Copy” - Rule 4.15(d) irrevocable);
“Cover Instructions” - Rule 5.08 iii. primary (if it does, it signifies merely that it is the
“Honour” - Rule 2.01 independent obligation of the issuer);
“Issuer” - Rule 2.01 iv. payable from the issuer’s own funds (if it does, it
“Multiple Presentations” - Rule 3.08(b) signifies merely that payment under it does not depend
on the availability of applicant funds and is made to
satisfy the issuer’s own independent obligation); Rule 2: Obligation
v. clean or payable on demand (if it does, it signifies 2.01 Undertaking to Honour by Issuer and
merely that it is payable upon presentation of a written Any Confirmer to Beneficiary
demand or other documents specified in the standby). a. An issuer undertakes to the beneficiary to honour a
b. A standby should not use the term “and/or” (if it does it presentation that appears on its face to comply with the
means either or both). terms and conditions of the standby in accordance with
c. The following terms have no single accepted meaning: these Rules supplemented by standard standby practice.
i. and shall be disregarded: b. An issuer honours a complying presentation made to it by
“callable”,
“divisible”,
paying the amount demanded of it at sight, unless the
standby provides for honour:
i. by acceptance of a draft drawn by the beneficiary on
123
“fractionable”, the issuer, in which case the issuer honours by:
“indivisible”, and (a) timely accepting the draft; and
“transmissible”. (b) thereafter paying the holder of the draft on presen-
ii. and shall be disregarded unless their context gives them tation of the accepted draft on or after its maturity.
meaning: ii. by deferred payment of a demand made by the benefi-
“assignable”, ciary on the issuer, in which case the issuer honours by:
“evergreen”, (a) timely incurring a deferred payment obligation;
“reinstate”, and and
“revolving”. (b) thereafter paying at maturity.
iii. by negotiation, in which case the issuer honours by
1.11 Interpretation of these Rules paying the amount demanded at sight without recourse.
a. These Rules are to be interpreted in the context of c. An issuer acts in a timely manner if it pays at sight,
applicable standard practice. accepts a draft, or undertakes a deferred payment obliga-
b. In these Rules, “standby letter of credit” refers to the tion (or if it gives notice of dishonour) within the time
type of independent undertaking for which these Rules permitted for examining the presentation and giving notice
were intended, whereas “standby” refers to an undertak- of dishonour.
ing subjected to these Rules. d. i. A confirmer undertakes to honour a complying presen-
c. Unless the context otherwise requires: tation made to it by paying the amount demanded of it
i. “Issuer” includes a “confirmer” as if the confirmer at sight or, if the standby so states, by another method
were a separate issuer and its confirmation were a of honour consistent with the issuer’s undertaking.
separate standby issued for the account of the issuer; ii. If the confirmation permits presentation to the issuer,
ii. “Beneficiary” includes a person to whom the named then the confirmer undertakes also to honour upon the
beneficiary has effectively transferred drawing rights issuer’s wrongful dishonour by performing as if the
(“transferee beneficiary”); presentation had been made to the confirmer.
iii. “Including” means “including but not limited to”; iii. If the standby permits presentation to the confirmer,
iv. “A or B” means “A or B or both”; “either A or B” then the issuer undertakes also to honour upon the
means “A or B, but not both”; and “A and B” means confirmer’s wrongful dishonour by performing as if the
“both A and B”; presentation had been made to the issuer.
v. Words in the singular number include the plural, and in e. An issuer honours by paying in immediately available funds
the plural include the singular; and in the currency designated in the standby unless the
standby states it is payable by:
vi. Words of the neuter gender include any gender.
i. payment of a monetary unit of account, in which case
d. i. Use of the phrase “unless a standby otherwise states”
the undertaking is to pay in that unit of account; or
or the like in a rule emphasizes that the text of the
standby controls over the rule; ii. delivery of other items of value, in which case the
undertaking is to deliver those items.
ii. Absence of such a phrase in other rules does not imply
that other rules have priority over the text of the standby;
2.02 Obligation of Different Branches, Agencies,
iii. Addition of the term “expressly” or “clearly” to the or Other Offices
phrase “unless a standby otherwise states” or the like For the purposes of these Rules, an issuer’s branch, agency,
emphasizes that the rule should be excluded or modi- or other office acting or undertaking to act under a standby in
fied only by wording in the standby that is specific and a capacity other than as issuer is obligated in that capacity
unambiguous; and only and shall be treated as a different person.
iv. While the effect of all of these Rules may be varied by
the text of the standby, variations of the effect of some 2.03 Conditions to Issuance
of these Rules may disqualify the standby as an A standby is issued when it leaves an issuer’s control unless
independent undertaking under applicable law. it clearly specifies that it is not then “issued” or “enforce-
e. The phrase “stated in the standby” or the like refers able”. Statements that a standby is not “available”, “opera-
to the actual text of a standby (whether as issued or tive”, “effective”, or the like do not affect its irrevocable and
effectively amended) whereas the phrase “provided in binding nature at the time it leaves the issuer’s control.
the standby” or the like refers to both the text of the
standby and these Rules as incorporated.
2.04 Nomination Rule 3: Presentation
a. A standby may nominate a person to advise, receive a 3.01 Complying Presentation under a Standby
presentation, effect a transfer, confirm, pay, negotiate, A standby should indicate the time, place and location within
incur a deferred payment obligation, or accept a draft. that place, person to whom, and medium in which presenta-
b. Nomination does not obligate the nominated person to act tion should be made. If so, presentation must be so made in
except to the extent that the nominated person undertakes order to comply. To the extent that a standby does not so
to act. indicate, presentation must be made in accordance with these
c. A nominated person is not authorised to bind the person Rules in order to be complying.

124 making the nomination.

2.05 Advice of Standby or Amendment

3.02 What Constitutes a Presentation
The receipt of a document required by and presented under a
a. Unless an advice states otherwise, it signifies that: standby constitutes a presentation requiring examination for
compliance with the terms and conditions of the standby
i. the advisor has checked the apparent authenticity of
even if not all of the required documents have been presented.
the advised message in accordance with standard letter
of credit practice; and
3.03 Identification of Standby
ii. the advice accurately reflects what has been received. a. A presentation must identify the standby under which the
b. A person who is requested to advise a standby and decides presentation is made.
not to do so should notify the requesting party. b. A presentation may identify the standby by stating the
complete reference number of the standby and the name
2.06 When an Amendment is Authorised and Binding and location of the issuer or by attaching the original or a
a. If a standby expressly states that it is subject to “auto- copy of the standby.
matic amendment” by an increase or decrease in the c. If the issuer cannot determine from the face of a document
amount available, an extension of the expiration date, or received that it should be processed under a standby or
the like, the amendment is effective automatically without cannot identify the standby to which it relates, presentation
any further notification or consent beyond that expressly is deemed to have been made on the date of identification.
provided for in the standby. (Such an amendment may also
be referred to as becoming effective “without amend- 3.04 Where and to Whom Complying Presentation Made
ment”.) a. To comply, a presentation must be made at the place and
b. If there is no provision for automatic amendment, an any location at that place indicated in the standby or
amendment binds: provided in these Rules.
i. the issuer when it leaves the issuer’s control; and b. If no place of presentation to the issuer is indicated in the
ii. the confirmer when it leaves the confirmer’s control, standby, presentation to the issuer must be made at the
unless the confirmer indicates that it does not confirm place of business from which the standby was issued.
the amendment. c. If a standby is confirmed, but no place for presentation is
c. If there is no provision for automatic amendment: indicated in the confirmation, presentation for the
i. the beneficiary must consent to the amendment for it to purpose of obligating the confirmer (and the issuer) must
be binding; be made at the place of business of the confirmer from
ii. the beneficiary’s consent must be made by an express which the confirmation was issued or to the issuer.
communication to the person advising the amendment d. If no location at a place of presentation is indicated (such
unless the beneficiary presents documents which as department, floor, room, station, mail stop, post office
comply with the standby as amended and which would box, or other location), presentation may be made to:
not comply with the standby prior to such amend- i. the general postal address indicated in the standby;
ment; and ii. any location at the place designated to receive deliver-
iii. an amendment does not require the applicant’s consent ies of mail or documents; or
to be binding on the issuer, the confirmer, or the benefi- iii. any person at the place of presentation actually or
ciary. apparently authorised to receive it.
d. Consent to only part of an amendment is a rejection of the
entire amendment. 3.05 When Timely Presentation Made
a. A presentation is timely if made at any time after issuance
2.07 Routing of Amendments and before expiry on the expiration date.
a. An issuer using another person to advise a standby must b. A presentation made after the close of business at the
advise all amendments to that person. place of presentation is deemed to have been made on the
b. An amendment or cancellation of a standby does not affect next business day.
the issuer’s obligation to a nominated person that has acted
within the scope of its nomination before receipt of notice 3.06 Complying Medium of Presentation
of the amendment or cancellation. a. To comply, a document must be presented in the medium
c. Non-extension of an automatically extendable (renewable) indicated in the standby.
standby does not affect an issuer’s obligation to a nomi- b. Where no medium is indicated, to comply a document
nated person who has acted within the scope of its nomi- must be presented as a paper document, unless only a
nation before receipt of a notice of non-extension. demand is required, in which case:
i. a demand that is presented via S.W.I.F.T., tested telex,
or other similar authenticated means by a beneficiary iii. upon issuance of that amendment, retracts its demand
that is a S.W.I.F.T. participant or a bank complies; for payment; and
otherwise iv. consents to the maximum time available under these
ii. a demand that is not presented as a paper document Rules for examination and notice of dishonour.
does not comply unless the issuer permits, in its sole
discretion, the use of that medium. 3.10 No Notice of Receipt of Presentation
c. A document is not presented as a paper document if it is An issuer is not required to notify the applicant of receipt of
communicated by electronic means even if the issuer or a presentation under the standby.
nominated person receiving it generates a paper document
from it.
d. Where presentation in an electronic medium is indicated,
3.11 Issuer Waiver and Applicant Consent to
Waiver of Presentation Rules
125
to comply a document must be presented as an electronic In addition to other discretionary provisions in a standby or
record capable of being authenticated by the issuer or nomi- these Rules, an issuer may, in its sole discretion, without
nated person to whom it is presented. notice to or consent of the applicant and without effect on the
applicant’s obligations to the issuer, waive
3.07 Separateness of Each Presentation a. the following Rules and any similar terms stated in the
a. Making a non-complying presentation, withdrawing a standby which are primarily for the issuer’s benefit or
presentation, or failing to make any one of a number of operational convenience:
scheduled or permitted presentations does not waive or i. treatment of documents received, at the request of the
otherwise prejudice the right to make another timely presenter, as having been presented at a later date (Rule
presentation or a timely re-presentation whether or not 3.02);
the standby prohibits partial or multiple drawings or ii. identification of a presentation to the standby under
presentations. which it is presented (Rule 3.03(a));
b. Wrongful dishonour of a complying presentation does not iii. where and to whom presentation is made (Rule 3.04(b),
constitute dishonour of any other presentation under a (c), and (d)), except the country of presentation stated
standby or repudiation of the standby. in the standby; or
c. Honour of a non-complying presentation, with or without iv. treatment of a presentation made after the close of
notice of its non-compliance, does not waive requirements business as if it were made on the next business day
of a standby for other presentations. (Rule 3.05(b)).
b. the following Rule but not similar terms stated in the
3.08 Partial Drawing and Multiple Presentations;
standby:
Amount of Drawings
a. A presentation may be made for less than the full amount i. a required document dated after the date of its stated
available (“partial drawing”). presentation (Rule 4.06); or
b. More than one presentation (“multiple presentations”) ii. the requirement that a document issued by the benefi-
may be made. ciary be in the language of the standby (Rule 4.04).
c. The statement “partial drawings prohibited” or a similar c. the following Rule relating to the operational integrity of
expression means that a presentation must be for the full the standby only in so far as the bank is in fact dealing
amount available. with the true beneficiary: acceptance of a demand in an
electronic medium (Rule 3.06(b)).
d. The statement “multiple drawings prohibited” or a similar
expression means that only one presentation may be made Waiver by the confirmer requires the consent of the
and honoured but that it may be for less than the full issuer with respect to paragraphs (b) and (c) of this Rule.
amount available.
e. If a demand exceeds the amount available under the standby, 3.12 Original Standby Lost, Stolen, Mutilated, or Destroyed
the drawing is discrepant. Any document other than the a. If an original standby is lost, stolen, mutilated, or destroyed,
demand stating an amount in excess of the amount the issuer need not replace it or waive any requirement
demanded is not discrepant for that reason. that the original be presented under the standby.
f. Use of “approximately”, “about”, “circa”, or a similar b. If the issuer agrees to replace an original standby or to
word permits a tolerance not to exceed 10% more or 10% waive a requirement for its presentation, it may provide a
less of the amount to which such word refers. replacement or copy to the beneficiary without affecting
the applicant’s obligations to the issuer to reimburse, but,
3.09 Extend or Pay if it does so, the issuer must mark the replacement or copy
A beneficiary’s request to extend the expiration date of the as such. The issuer may, in its sole discretion, require
standby or, alternatively, to pay the amount available under it: indemnities satisfactory to it from the beneficiary and
assurances from nominated persons that no payment has
a. is a presentation demanding payment under the standby,
been made.
to be examined as such in accordance with these Rules; and
b. implies that the beneficiary: Closure on Expiry Date
i. consents to the amendment to extend the expiry date to 3.13 Expiration Date on a Non-Business Day
the date requested; a. If the last day for presentation stated in a standby (whether
ii. requests the issuer to exercise its discretion to seek the stated to be the expiration date or the date by which docu-
approval of the applicant and to issue that amendment; ments must be received) is not a business day of the issuer
or nominated person where presentation is to be made,
then presentation made there on the first following 4.07 Required Signature on a Document
business day shall be deemed timely. a. A required document need not be signed unless the standby
b. A nominated person to whom such a presentation is made indicates that the document must be signed or the docu-
must so notify the issuer. ment is of a type that standard standby practice requires
be signed.
3.14 Closure on a Business Day and Authorization b. A required signature may be made in any manner that
of Another Reasonable Place for Presentation corresponds to the medium in which the signed document
a. If on the last business day for presentation the place for is presented.

126 presentation stated in a standby is for any reason closed

and presentation is not timely made because of the
closure, then the last day for presentation is automatically
c. Unless a standby specifies:
i. the name of a person who must sign a document, any
signature or authentication will be regarded as a
extended to the day occurring thirty calendar days after complying signature.
the place for presentation re-opens for business, unless ii. the status of a person who must sign, no indication of
the standby otherwise provides. status is necessary.
b. Upon or in anticipation of closure of the place of presen- d. If a standby specifies that a signature must be made by:
tation, an issuer may authorise another reasonable place
i. a named natural person without requiring that the
for presentation in the standby or in a communication
signer’s status be identified, a signature complies that
received by the beneficiary. If it does so, then
appears to be that of the named person;
i. presentation must be made at that reasonable place;
ii. a named legal person or government agency without
and
identifying who is to sign on its behalf or its status, any
ii. if the communication is received fewer than thirty signature complies that appears to have been made on
calendar days before the last day for presentation and behalf of the named legal person or government agency;
for that reason presentation is not timely made, the last or
day for presentation is automatically extended to the
iii. a named natural person, legal person, or government
day occurring thirty calendar days after the last day for
agency requiring the status of the signer be indicated, a
presentation.
signature complies which appears to be that of the
named natural person, legal person, or government
Rule 4: Examination agency and indicates its status.
4.01 Examination for Compliance
a. Demands for honour of a standby must comply with the 4.08 Demand Document Implied
terms and conditions of the standby. If a standby does not specify any required document, it
b. Whether a presentation appears to comply is determined will still be deemed to require a documentary demand for
by examining the presentation on its face against the terms payment.
and conditions stated in the standby as interpreted and
supplemented by these Rules which are to be read in the 4.09 Identical Wording and Quotation Marks
context of standard standby practice. If a standby requires:
a. a statement without specifying precise wording, then the
4.02 Non-Examination of Extraneous Documents wording in the document presented must appear to
Documents presented which are not required by the standby convey the same meaning as that required by the standby;
need not be examined and, in any event, shall be disregarded b. specified wording by the use of quotation marks, blocked
for purposes of determining compliance of the presentation. wording, or an attached exhibit or form, then typographi-
They may without responsibility be returned to the presenter cal errors in spelling, punctuation, spacing, or the like that
or passed on with the other documents presented. are apparent when read in context are not required to be
duplicated and blank lines or spaces for data may be
4.03 Examination for Inconsistency completed in any manner not inconsistent with the
An issuer or nominated person is required to examine docu- standby; or
ments for inconsistency with each other only to the extent c. specified wording by the use of quotation marks, blocked
provided in the standby. wording, or an attached exhibit or form, and also provides
that the specified wording be “exact” or “identical”, then
4.04 Language of Documents the wording in the documents presented must duplicate
The language of all documents issued by the beneficiary is to the specified wording, including typographical errors in
be that of the standby. spelling, punctuation, spacing and the like, as well as blank
lines and spaces for data must be exactly reproduced.
4.05 Issuer of Documents
Any required document must be issued by the beneficiary 4.10 Applicant Approval
unless the standby indicates that the document is to be issued A standby should not specify that a required document be
by a third person or the document is of a type that standard issued, signed, or counter-signed by the applicant. However,
standby practice requires to be issued by a third person. if the standby includes such a requirement, the issuer may not
waive the requirement and is not responsible for the applicant’s
4.06 Date of Documents withholding of the document or signature.
The issuance date of a required document may be earlier but
not later than the date of its presentation.
4.11 Non-Documentary Terms or Conditions 4.14 Name of Acquired or Merged Issuer or Confirmer
a. A standby term or condition which is non-documentary If the issuer or confirmer is reorganized, merged, or changes
must be disregarded whether or not it affects the issuer’s its name, any required reference by name to the issuer or
obligation to treat a presentation as complying or to treat confirmer in the documents presented may be to it or its
the standby as issued, amended, or terminated. successor.
b. Terms or conditions are non-documentary if the standby
does not require presentation of a document in which they 4.15 Original, Copy, and Multiple Documents
are to be evidenced and if their fulfillment cannot be deter- a. A presented document must be an original.
mined by the issuer from the issuer’s own records or within
the issuer’s normal operations.
c. Determinations from the issuer’s own records or within
b. Presentation of an electronic record, where an electronic
presentation is permitted or required, is deemed to be an
“original”.
127
the issuer’s normal operations include determinations of: c. i. A presented document is deemed to be an original
i. when, where, and how documents are presented or unless it appears on its face to have been reproduced
otherwise delivered to the issuer; from an original.
ii. when, where, and how communications affecting the ii. A document which appears to have been reproduced
standby are sent or received by the issuer, beneficiary, from an original is deemed to be an original if the
or any nominated person; signature or authentication appears to be original.
iii. amounts transferred into or out of accounts with the d. A standby that requires presentation of a “copy” permits
issuer; and presentation of either an original or copy unless the standby
iv. amounts determinable from a published index (e.g., if a states that only a copy be presented or otherwise
standby provides for determining amounts of interest addresses the disposition of all originals.
accruing according to published interest rates). e. If multiples of the same document are requested, only one
d. An issuer need not re-compute a beneficiary’s computa- must be an original unless:
tions under a formula stated or referenced in a standby i. “duplicate originals” or “multiple originals” are
except to the extent that the standby so provides. requested in which case all must be originals; or
ii. “two copies”, “two-fold”, or the like are requested in
4.12 Formality of Statements in Documents which case either originals or copies may be presented.
a. A required statement need not be accompanied by a
solemnity, officialization, or any other formality.
Standby Document Types
b. If a standby provides for the addition of a formality to a
required statement by the person making it without 4.16 Demand for Payment
specifying form or content, the statement complies if it a. A demand for payment need not be separate from the
indicates that it was declared, averred, warranted, attested, beneficiary’s statement or other required document.
sworn under oath, affirmed, certified, or the like. b. If a separate demand is required, it must contain:
c. If a standby provides for a statement to be witnessed by i. a demand for payment from the beneficiary directed to
another person without specifying form or content, the the issuer or nominated person;
witnessed statement complies if it appears to contain a ii. a date indicating when the demand was issued;
signature of a person other than the beneficiary with an iii. the amount demanded; and
indication that the person is acting as a witness. iv. the beneficiary’s signature.
d. If a standby provides for a statement to be countersigned, c. A demand may be in the form of a draft or other instruc-
legalized, visaed, or the like by a person other than the tion, order, or request to pay. If a standby requires presen-
beneficiary acting in a governmental, judicial, corporate, or tation of a “draft” or “bill of exchange”, that draft or bill of
other representative capacity without specifying form or exchange need not be in negotiable form unless the standby
content, the statement complies if it contains the signature so states.
of a person other than the beneficiary and includes an
indication of that person’s representative capacity and the
organization on whose behalf the person has acted. 4.17 Statement of Default or Other Drawing Event
If a standby requires a statement, certificate, or other recital
4.13 No Responsibility to Identify Beneficiary of a default or other drawing event and does not specify
Except to the extent that a standby requires presentation of content, the document complies if it contains:
an electronic record: a. a representation to the effect that payment is due because
a. a person honouring a presentation has no obligation to the a drawing event described in the standby has occurred;
applicant to ascertain the identity of any person making a b. a date indicating when it was issued; and
presentation or any assignee of proceeds; c. the beneficiary’s signature.
b. payment to a named beneficiary, transferee, an acknowledged
assignee, successor by operation of law, to an account 4.18 Negotiable Documents
or account number stated in the standby or in a cover If a standby requires presentation of a document that is
instruction from the beneficiary or nominated person transferable by endorsement and delivery without stating
fulfills the obligation under the standby to effect payment. whether, how, or to whom endorsement must be made, then
the document may be presented without endorsement, or, if
endorsed, the endorsement may be in blank and, in any event,
the document may be issued or negotiated with or without be given begins on the business day following the
recourse. business day of presentation.
iv. Unless a standby otherwise expressly states a shortened
4.19 Legal or Judicial Documents time within which notice of dishonour must be given,
If a standby requires presentation of a government-issued the issuer has no obligation to accelerate its examination
document, a court order, an arbitration award, or the like, a of a presentation.
document or a copy is deemed to comply if it appears to be: b. i. The means by which a notice of dishonour is to be
i. issued by a government agency, court, tribunal, or the given is by telecommunication, if available, and, if not,

128 like;
ii. suitably titled or named;
iii. signed;
by another available means which allows for prompt
notice.
ii. If notice of dishonour is received within the time
iv. dated; and permitted for giving the notice, then it is deemed to
have been given by prompt means.
v. originally certified or authenticated by an official of a
government agency, court, tribunal, or the like. c. Notice of dishonour must be given to the person from
whom the documents were received (whether the benefi-
ciary, nominated person, or person other than a delivery
4.20 Other Documents
person) except as otherwise requested by the presenter.
a. If a standby requires a document other than one whose
content is specified in these Rules without specifying the
5.02 Statement of Grounds for Dishonour
issuer, data content, or wording, a document complies if it
appears to be appropriately titled or to serve the function A notice of dishonour shall state all discrepancies upon which
of that type of document under standard standby practice. dishonour is based.
b. A document presented under a standby is to be examined
in the context of standby practice under these Rules even 5.03 Failure to Give Timely Notice of Dishonour
if the document is of a type (such as a commercial invoice, a. Failure to give notice of a discrepancy in a notice of
transport documents, insurance documents or the like) for dishonour within the time and by the means specified in
which the Uniform Customs and Practice for Documen- the standby or these rules precludes assertion of that
tary Credits contains detailed rules. discrepancy in any document containing the discrepancy
that is retained or re-presented, but does not preclude
4.21 Request to Issue Separate Undertaking assertion of that discrepancy in any different presentation
If a standby requests that the beneficiary of the standby issue under the same or a separate standby.
its own separate undertaking to another (whether or not the b. Failure to give notice of dishonour or acceptance or
standby recites the text of that undertaking): acknowledgment that a deferred payment undertaking has
a. the beneficiary receives no rights other than its rights to been incurred obligates the issuer to pay at maturity.
draw under the standby even if the issuer pays a fee to the
beneficiary for issuing the separate undertaking; 5.04 Notice of Expiry
b. neither the separate undertaking nor any documents Failure to give notice that a presentation was made after the
presented under it need be presented to the issuer; and expiration date does not preclude dishonour for that reason.
c. if originals or copies of the separate undertaking or
documents presented under it are received by the issuer 5.05 Issuer Request for Applicant Waiver
although not required to be presented as a condition to without Request by Presenter
honour of the standby: If the issuer decides that a presentation does not comply
i. the issuer need not examine, and, in any event, shall and if the presenter does not otherwise instruct, the issuer
disregard their compliance or consistency with the may, in its sole discretion, request the applicant to waive
standby, with the beneficiary’s demand under the
non-compliance or otherwise to authorise honour within the
standby, or with the beneficiary’s separate undertak-
time available for giving notice of dishonour but without
ing; and
extending it. Obtaining the applicant’s waiver does not
ii. the issuer may without responsibility return them to
obligate the issuer to waive non-compliance.
the presenter or forward them to the applicant with the
presentation.
5.06 Issuer Request for Applicant Waiver
upon Request of Presenter
Rule 5: Notice, Preclusion, and Disposition of Documents If, after receipt of notice of dishonour, a presenter requests
5.01 Timely Notice of Dishonour that the presented documents be forwarded to the issuer or
a. Notice of dishonour must be given within a time after that the issuer seek the applicant’s waiver:
presentation of documents which is not unreasonable.
a. no person is obligated to forward the discrepant docu-
i. Notice given within three business days is deemed to ments or seek the applicant’s waiver;
be not unreasonable and beyond seven business days is
deemed to be unreasonable. b. the presentation to the issuer remains subject to these
Rules unless departure from them is expressly consented
ii. Whether the time within which notice is given is
unreasonable does not depend upon an imminent to by the presenter; and
deadline for presentation. c. if the documents are forwarded or if a waiver is sought:
iii. The time for calculating when notice of dishonour must i. the presenter is precluded from objecting to the
discrepancies notified to it by the issuer;
ii. the issuer is not relieved from examining the presenta- 6.02 When Drawing Rights are Transferable
tion under these Rules; a. A standby is not transferable unless it so states.
iii. the issuer is not obligated to waive the discrepancy b. A standby that states that it is transferable without
even if the applicant waives it; and further provision means that drawing rights:
iv. the issuer must hold the documents until it receives a i. may be transferred in their entirety more than once;
response from the applicant or is requested by the ii. may not be partially transferred; and
presenter to return the documents, and if the issuer iii. may not be transferred unless the issuer (including the
receives no such response or request within ten confirmer) or another person specifically nominated in
business days of its notice of dishonour, it may return
the documents to the presenter.
the standby agrees to and effects the transfer requested
by the beneficiary. 129
5.07 Disposition of Documents 6.03 Conditions to Transfer
Dishonoured documents must be returned, held, or An issuer of a transferable standby or a nominated person
disposed of as reasonably instructed by the presenter. need not effect a transfer unless:
Failure to give notice of the disposition of documents in a. it is satisfied as to the existence and authenticity of the
the notice of dishonour does not preclude the issuer from original standby; and
asserting any defense otherwise available to it against honour. b. the beneficiary submits or fulfills:
i. a request in a form acceptable to the issuer or nomi-
5.08 Cover Instructions/Transmittal Letter nated person including the effective date of the transfer
a. Instructions accompanying a presentation made under a and the name and address of the transferee;
standby may be relied on to the extent that they are not ii. the original standby;
contrary to the terms or conditions of the standby, the iii. verification of the signature of the person signing for
demand, or these Rules. the beneficiary;
b. Representations made by a nominated person accom- iv. verification of the authority of the person signing for
panying a presentation may be relied upon to the extent the beneficiary;
that they are not contrary to the terms or conditions of a
v. payment of the transfer fee; and
standby or these Rules.
vi. any other reasonable requirements.
c. Notwithstanding receipt of instructions, an issuer or
nominated person may pay, give notice, return the
documents, or otherwise deal directly with the presenter. 6.04 Effect of Transfer on Required Documents
Where there has been a transfer of drawing rights in their
d. A statement in the cover letter that the documents are
entirety:
discrepant does not relieve the issuer from examining the
presentation for compliance. a. a draft or demand must be signed by the transferee
beneficiary; and
5.09 Applicant Notice of Objection b. the name of the transferee beneficiary may be used in place
a. An applicant must timely object to an issuer’s honour of a of the name of the transferor beneficiary in any other
noncomplying presentation by giving timely notice by required document.
prompt means.
b. An applicant acts timely if it objects to discrepancies 6.05 Reimbursement for Payment Based on a Transfer
by sending a notice to the issuer stating the discrepancies An issuer or nominated person paying under a transfer
on which the objection is based within a time after the pursuant to Rule 6.03(a), (b)(i), and (b)(ii) is entitled to
applicant’s receipt of the documents which is not reimbursement as if it had made payment to the beneficiary.
unreasonable.
c. Failure to give a timely notice of objection by prompt Acknowledgement of Assignment of Proceeds
means precludes assertion by the applicant against the 6.06 Assignment of Proceeds
issuer of any discrepancy or other matter apparent on the Where an issuer or nominated person is asked to
face of the documents received by the applicant, but does acknowledge a beneficiary’s request to pay an assignee all or
not preclude assertion of that objection to any different part of any proceeds of the beneficiary’s drawing under the
presentation under the same or a different standby. standby, these Rules on acknowledgment of an assignment of
proceeds apply except where applicable law otherwise
requires.
Rule 6: Transfer, Assignment, and Transfer by
Operation of Law
6.07 Request for Acknowledgment
Transfer of Drawing Rights a. Unless applicable law otherwise requires, an issuer or
6.01 Request to Transfer Drawing Rights nominated person
Where a beneficiary requests that an issuer or nominated
i. is not obligated to give effect to an assignment of
person honour a drawing from another person as if that
proceeds which it has not acknowledged; and
person were the beneficiary, these Rules on transfer of
drawing rights (“transfer”) apply. ii. is not obligated to acknowledge the assignment.
b. If an assignment is acknowledged:
i. the acknowledgment confers no rights with respect to
the standby to the assignee who is only entitled to the
proceeds assigned, if any, and whose rights may be the authorised transferee of the beneficiary, these Rules on
affected by amendment or cancellation; and transfer by operation of law apply.
ii. the rights of the assignee are subject to:
(a) the existence of any net proceeds payable to the 6.12 Additional Document in Event of
beneficiary by the person making the acknowledg- Drawing in Successor’s Name
ment; A claimed successor may be treated as if it were an authorised
(b) rights of nominated persons and transferee transferee of a beneficiary’s drawing rights in their entirety if
beneficiaries; it presents an additional document or documents which

130 (c) rights of other acknowledged assignees; and

(d) any other rights or interests that may have priority
appear to be issued by a public official or representative
(including a judicial officer) and indicate:
a. that the claimed successor is the survivor of a merger,
under applicable law. consolidation, or similar action of a corporation, limited
liability company, or other similar organization;
6.08 Conditions to Acknowledgment
b. that the claimed successor is authorised or appointed to
of Assignment of Proceeds
act on behalf of the named beneficiary or its estate
An issuer or nominated person may condition its acknowl-
because of an insolvency proceeding;
edgment on receipt of:
c. that the claimed successor is authorised or appointed
a. the original standby for examination or notation;
to act on behalf of the named beneficiary because of
b. verification of the signature of the person signing for the death or incapacity; or
beneficiary;
d. that the name of the named beneficiary has been
c. verification of the authority of the person signing for the changed to that of the claimed successor.
beneficiary;
d. an irrevocable request signed by the beneficiary for 6.13 Suspension of Obligations upon
acknowledgment of the assignment that includes statements, Presentation by Successor
covenants, indemnities, and other provisions which may An issuer or nominated person which receives a presentation
be contained in the issuer’s or nominated person’s required from a claimed successor which complies in all respects
form requesting acknowledgment of assignment, such as: except for the name of the beneficiary:
i. the identity of the affected drawings if the standby a. may request in a manner satisfactory as to form and
permits multiple drawings; substance:
ii. the full name, legal form, location, and mailing address i. a legal opinion;
of the beneficiary and the assignee; ii. an additional document referred to in Rule 6.12 (Addi-
iii. details of any request affecting the method of payment tional Document in Event of Drawing in Successor’s
or delivery of the standby proceeds; Name) from a public official;
iv. limitation on partial assignments and prohibition of iii. statements, covenants, and indemnities regarding the
successive assignments; status of the claimed successor as successor by opera-
v. statements regarding the legality and relative priority tion of law;
of the assignment; or iv. payment of fees reasonably related to these determina-
vi. right of recovery by the issuer or nominated person of tions; and
any proceeds received by the assignee that are recover- v. anything which may be required for a transfer under
able from the beneficiary; Rule 6.03 (Conditions to Transfer) or an acknowledg-
e. payment of a fee for the acknowledgment; and ment of assignment of proceeds under Rule 6.08
f. fulfillment of other reasonable requirements. (Conditions to Acknowledgment of Assignment of
Proceeds);
6.09 Conflicting Claims to Proceeds but such documentation shall not constitute a required
If there are conflicting claims to proceeds, then payment to an document for purposes of expiry of the standby.
acknowledged assignee may be suspended pending resolution b. Until the issuer or nominated person receives the requested
of the conflict. documentation, its obligation to honour or give notice of
dishonour is suspended, but any deadline for presentation
6.10 Reimbursement for Payment Based on an Assignment of required documents is not thereby extended.
An issuer or nominated person paying under an acknowl-
edged assignment pursuant to Rule 6.08(a) and (b) is entitled 6.14 Reimbursement for Payment Based on a
to reimbursement as if it had made payment to the benefi-
Transfer by Operation of Law
ciary. If the beneficiary is a bank, the acknowledgment may
An issuer or nominated person paying under a transfer by
be based solely upon an authenticated communication.
operation of law pursuant to Rule 6.12 (Additional Docu-
ment in Event of Drawing in Successor’s Name) is entitled to
Transfer by Operation of Law reimbursement as if it had made payment to the beneficiary.
6.11 Transferee by Operation of Law
Where an heir, personal representative, liquidator, trustee,
receiver, successor corporation, or similar person who claims Rule 7: Cancellation
to be designated by law to succeed to the interests of a benefi- 7.01 When an Irrevocable Standby is
ciary presents documents in its own name as if it were Cancelled or Terminated
A beneficiary’s rights under a standby may not be cancelled
without its consent. Consent may be evidenced in writing or
by an action such as return of the original standby in a manner from the beneficiary or other presenter because no
which implies that the beneficiary consents to cancellation. demand is made under the standby.
A beneficiary’s consent to cancellation is irrevocable when
communicated to the issuer. 8.03 Refund of Reimbursement
A nominated person that obtains reimbursement before the
7.02 Issuer’s Discretion Regarding a Decision to Cancel issuer timely dishonours the presentation must refund the
Before acceding to a beneficiary’s authorization to cancel and reimbursement with interest if the issuer dishonours. The
treating the standby as cancelled for all purposes, an issuer refund does not preclude the nominated person’s wrongful
may require in a manner satisfactory as to form and
substance:
a. the original standby;
dishonour claims.

8.04 Bank-to-Bank Reimbursement

131
b. verification of the signature of the person signing for the Any instruction or authorization to obtain reimbursement
beneficiary; from another bank is subject to the International Chamber of
Commerce standard rules for bank-to-bank reimbursements.
c. verification of the authorization of the person signing for
the beneficiary;
d. a legal opinion; Rule 9: Timing
e. an irrevocable authority signed by the beneficiary for 9.01 Duration of Standby
cancellation that includes statements, covenants, indemni- A standby must:
ties, and similar provisions contained in a required form; a. contain an expiry date; or
f. satisfaction that the obligation of any confirmer has been b. permit the issuer to terminate the standby upon reason-
cancelled; able prior notice or payment.
g. satisfaction that there has not been a transfer or payment
by any nominated person; and 9.02 Effect of Expiration on Nominated Person
The rights of a nominated person that acts within the scope
h. any other reasonable measure.
of its nomination are not affected by the subsequent expiry of
the standby.
Rule 8: Reimbursement Obligations
8.01 Right to Reimbursement 9.03 Calculation of Time
a. Where payment is made against a complying presentation a. A period of time within which an action must be taken
in accordance with these Rules, reimbursement must be under these Rules begins to run on the first business day
made by: following the business day when the action could have
i. an applicant to an issuer requested to issue a standby; been undertaken at the place where the action should have
and been undertaken.
ii. an issuer to a person nominated to honour or otherwise b. An extension period starts on the calendar day following
give value. the stated expiry date even if either day falls on a day
b. An applicant must indemnify the issuer against all claims, when the issuer is closed.
obligations, and responsibilities (including attorney’s fees)
arising out of: 9.04 Time of Day of Expiration
i. the imposition of law or practice other than that chosen If no time of day is stated for expiration, it occurs at the close
in the standby or applicable at the place of issuance; of business at the place of presentation.
ii. the fraud, forgery, or illegal action of others; or
9.05 Retention of Standby
iii. the issuer’s performance of the obligations of a confirmer Retention of the original standby does not preserve any rights
that wrongfully dishonours a confirmation. under the standby after the right to demand payment ceases.
c. This Rule supplements any applicable agreement, course
of dealing, practice, custom or usage providing for reim-
Rule 10: Syndication/Participation
bursement or indemnification on lesser or other grounds.
10.01 Syndication
If a standby with more than one issuer does not state to
8.02 Charges for Fees and Costs whom presentation may be made, presentation may be made
a. An applicant must pay the issuer’s charges and reimburse to any issuer with binding effect on all issuers.
the issuer for any charges that the issuer is obligated to
pay to persons nominated with the applicant’s consent to 10.02 Participation
advise, confirm, honour, negotiate, transfer, or to issue a a. Unless otherwise agreed between an applicant and an
separate undertaking. issuer, the issuer may sell participations in the issuer’s
rights against the applicant and any presenter and may
b. An issuer is obligated to pay the charges of other persons:
disclose relevant applicant information in confidence to
i. if they are payable in accordance with the terms of the potential participants.
standby; or
b. An issuer’s sale of participations does not affect the
ii. if they are the reasonable and customary fees and obligations of the issuer under the standby or create any
expenses of a person requested by the issuer to advise, rights or obligations between the beneficiary and any
honour, negotiate, transfer, or to issue a separate participant.
undertaking, and they are unrecovered and unrecoverable
LETTERS OF CREDIT
Glossary

Designed as a convenient reference tool, this

glossary provides practical definitions of the
terms used in this booklet.
Acceptance - The act of placing the word “accepted” Bill of Lading - A document, generally issued by a car-
across the face of a draft, followed by the date and sig- rier to a shipper, that serves a threefold purpose: 1) a
nature of the acceptor. receipt for the goods delivered to the carrier for ship-
ment; 2) a contract of carriage of the goods from the
Acceptance Draft - A time draft which has been accepted,
place of receipt to the place of delivery listed in the bill
thereby bearing the unconditional obligation of the party
of lading; and 3) evidence of title to the goods.
which has accepted to pay the draft at maturity.
Bill of Lading, Charter Party - A bill of lading issued
134 Accepting Bank - The bank upon which a draft is drawn
and which “accepts” the draft (see Acceptance).
under a charter party (see Charter Party). It is not ac-
ceptable under a Letter of Credit unless specifically au-
Advising Bank - A bank, usually in the Beneficiary’s thorized in the Letter of Credit.
country, which notifies the Beneficiary that another bank Bill of Lading, Clean - A bill of lading which bears no
has issued a Letter of Credit in its favor. clause or notation which expressly declares a defective
Air Waybill - A non-negotiable contract of carriage for condition of the goods and/or the packaging.
air transportation between an air carrier and a shipper, Bill of Lading, Consolidator’s - A bill of lading issued
or an air carrier and an air freight forwarder. by a forwarder/consolidator to a shipper as a receipt for
Amendment - Any change to the terms and conditions merchandise to be consolidated with cargo obtained from
of a Letter of Credit. other exporters and shipped to the forwarder's agent at
the port of destination.
Applicant - The party that arranges for a Letter of Credit
to be issued, typically the buyer in a commercial trans- Bill of Lading, Forwarder’s - A bill of lading issued by
action or the borrower in a financial transaction. a forwarder (see Freight Forwarder) to a shipper, as re-
ceipt of merchandise that the forwarder will ship to its
Application - The agreement between the Applicant and agent at the port of destination.
the Issuing Bank describing the terms and conditions to
Bill of Lading, Marine - A bill of lading evidencing
be included in the Letter of Credit and the arrangements
carriage by sea - a port-to-port shipment. Unless other-
for the Applicant to reimburse the Issuing Bank.
wise stipulated in the credit it must appear on its face to
Assignment of Proceeds -Agreement of the Beneficiary indicate the name of the carrier and to have been signed
to pay all or a portion of the proceeds of a drawing or otherwise authenticated; indicate that the goods have
under a Letter of Credit to a third party (Assignee) to be been dispatched, taken in charge or loaded on board;
acknowledged by the Paying Bank. indicate the place of taking in charge stipulated in the
“At Sight” - A term indicating that an instrument is credit; appear to contain the terms and conditions of
carriage; contain no indication that it is subject to a
to be paid upon the bank's determination that the
charter party and/or no indication that the carrying
documents comply with the terms and conditions of the
vessel is propelled by sail only.
Letter of Credit (see Draft).
Bill of Lading, Negotiable - A bill of lading wherein the
Authority to Pay - A form of a Revocable Letter of Credit
consignee’s name is preceded by the words “to order,”
whose terms usually require drafts be drawn on a bank
allowing the consignee to endorse the bill of lading to
in the Beneficiary’s country.
another party and transfer title to the goods.
Automatic Extension Clause - A provision in the Letter
Bill of Lading, On Board - A bill of lading indicating
of Credit which allows the expiration date to automati-
that the goods have been loaded “on board” a specified
cally extend for an additional period of time without re-
vessel.
quiring an amendment (also known as an Evergreen
Clause). Bill of Lading, Received for Shipment - A bill of lading
acknowledging the receipt of goods by a carrier for ship-
Banker’s Acceptance - A time draft drawn on and
ment. It is not acceptable under a Letter of Credit requir-
accepted by the Drawee Bank (see Acceptance and
ing a Marine Bill of Lading unless specifically autho-
Accepting Bank). It is usually used for short-term
rized in the Letter of Credit, or unless an “On Board”
financing of goods in the Channels of Trade.
notation has been dated by the carrier or its agent.
Beneficiary - The person in whose favor a Letter of
Bill of Lading, Straight - A non-negotiable bill of lading
Credit is issued, typically the seller in a commercial trans-
whereby the consignee named in the bill holds title to
action or the creditor in a financial transaction.
the goods. The bill of lading cannot be endorsed by one
Bill of Exchange - See Draft. party to another.
Bill of Lading, Through - A bill of lading that covers Deferred Payment Credit - Provides for payment in a
transportation by more than one carrier from the point specified period of time after presentation of the con-
of taking charge of the goods to the final destination. forming documents by the beneficiary. The transaction
is similar to the acceptance letter of credit, except that
Cash Against Documents (C.A.D.) - A method of pay-
the beneficiary does not draw a draft to be accepted.
ment for goods in which documents evidencing title are
The bank receiving the documents (if in order) forwards
given to the buyer upon payment of cash to an interme-
them to the opening bank and, in the event of having

135
diary acting for the seller, usually a bank (see Docu-
confirmed the letter of credit, records the transaction in
ments Against Payment).
the same manner as an acceptance credit. The opening
Cash in Advance (C.I.A.) - A method of payment for bank likewise records the transaction in the same man-
goods or services in which the buyer pays the seller in ner as an acceptance credit.
advance of the shipment of goods or the rendering of
Demurrage - A charge for exceeding the free time
services. It is often used when the goods are manufac-
allowed for loading or unloading at a pier or freight
tured to special order specifications.
terminal.
Channels of Trade - The time required for preparation
Discount, Commercial - An allowance from the quoted
for shipment, transport, receipt and resale of goods.
price of goods usually made by the deduction of a cer-
Charter Party - The person chartering a vessel or part tain percentage from the invoice price.
of its freight space for a particular trip or period of time.
Discount, Financial - A deduction from the face amount
Clean Draft - A draft to which no documents are at- of commercial paper, such as bills of exchange, notes
tached. and acceptances.
Collecting Bank - The bank to which the remitting bank Discrepancy - A deviation from the Letter of Credit terms
sends a draft and/or documents for collection. and conditions.
Collection - A method of payment for goods. The act of Dishonor - Refusal on the part of the drawee to accept a
handling documents on instructions received, by banks, draft or to pay it when due.
in order to obtain acceptance or, as the case may be,
Documents Against Acceptance (D/A) - Instructions
payment from a drawee.
given by a seller to its bank that the documents attached
Commercial Invoice - A bill provided by the seller, ad- to a draft for collection are deliverable to the drawee
dressed to the buyer, giving a description of the goods only against the drawee’s acceptance of the draft.
or services, price, charges, etc.
Documents Against Payment (D/P) - Instructions given
Commercial Letter of Credit - A Letter of Credit by by a seller to its bank that the documents attached to a
which payment is made available to the Beneficiary draft for collection are deliverable to the drawee only
against presentation of a draft and stipulated shipping against the drawee’s payment of the draft.
documents.
Draft - A signed order or Bill of Exchange by one party,
Confirming Bank - The bank which, at the request or the drawer, addressed to another, the drawee, directing
with the consent of the Issuing Bank, adds its own irre- the drawee to pay a specified sum of money to the order
vocable undertaking to that of the Issuing Bank. of a third person, the payee (see “X Days Date”).
Consignment - A method of payment for goods where Draft, Date - A draft that matures a stated number of
the title to goods remains with the supplier/manufac- days after its date, regardless of the date of its accep-
turer until they are sold by an agent or third party. tance (see “X Days Date”).
Correspondent Bank - A bank which is a depository for Draft, Demand - A draft payable at “sight” or upon pre-
another bank and which performs various banking ser- sentation or demand.
vices for it.
Draft, Sight - A draft payable upon determination of
Cumulative Revolving Letter of Credit - A Letter of Credit proper presentation to the drawee (see “X Days Sight”).
that becomes reavailable as to amount or quantity. Any
Draft, Time - A draft payable at a fixed or determinable
portion not utilized may be accumulated for later use
future date after proper presentation to the drawee.
depending upon the wording in the Letter of Credit.
Drawee - The party on whom a draft is drawn, and from
which payment is expected.
Drawer - One who signs, or “draws,” a draft (usually International Standby Practices 1998 (ISP98) - A com-
the seller, or Beneficiary of a Letter of Credit). pilation of international practices relating to standby
letters of credit and other independent undertakings,
Endorsement - A signature on the back of a negotiable
published by the International Chamber of Commerce
instrument made primarily for the purpose of transfer-
(ICC) from time to time.
ring the rights of the holder to another person.
Irrevocable - A term placed on an instrument to indicate
Evergreen Clause - A provision in the Letter of Credit

136
that it cannot be canceled or amended or terminated
which allows the expiration date to automatically extend
prior to its expiration date without the consent of each
for an additional period of time without requiring an
party.
amendment (also known as an Automatic Extension
Clause). Issuing Bank (Opening Bank) - The bank that estab-
lishes (issues) a Letter of Credit.
Expiration Date - The final date upon which complying
drafts and/or documents under a Letter of Credit may be Late Presentation - A presentation not made within the
presented to a bank for payment, acceptance or nego- time permitted after issuance of the transport document.
tiation. The time period is 21 days after the issuance date un-
less otherwise specified.
Exports - Goods and services sold abroad.
Latest Date for Presentation - Latest date complying
Foreign Exchange Risk - The risk resulting from pur-
documents may be presented to the bank nominated in
chasing or selling goods at a price denominated in a
the Letter of Credit.
currency other than that of the purchaser or seller.
Latest Shipping Date - Latest date on which goods may
Freight Forwarder - The party that dispatches ship-
be shipped as evidenced by the transport documents.
ments for exporters or other shippers for a fee. Its tasks
may include preparing documents, booking cargo space, Letter of Credit - An undertaking issued by a bank in
warehousing, pier delivery and export clearance. favor of a Beneficiary by which the bank substitutes its
own creditworthiness for that of the Applicant by prom-
Holder in Due Course - The person who takes a nego-
ising to honor (pay) if the documents specified in the
tiable instrument for value and in good faith without
Letter of Credit are timely presented.
notice of defenses or claims.
Letter of Credit, Acceptance - A Letter of Credit that
Imports - Goods and services purchased from abroad.
provides for honor by means of accepting a draft and
Incoterms 2000 - A set of definitions published by the paying at maturity.
ICC from time to time for the interpretation of commonly
Letter of Credit, Advised - A Letter of Credit carrying
used trade terms which define the obligations of the
only the undertaking of the Issuing Bank.
parties and when the risk of loss passes from one party
to another. Letter of Credit, Back-to-Back - Two independent Let-
ters of Credit with similar terms used to facilitate pur-
Inland Carrier - A transportation company that trans-
chase of the same goods.
ports merchandise between inland points and between
ports and inland points. Letter of Credit, Commercial - A Letter of Credit in-
tended as a payment method for goods or services.
Insurance Certificate - Written evidence that insurance
coverage is in effect. Letter of Credit, Confirmed - A Letter of Credit to which
another bank, usually in the country of the exporter, has
Insurance Policy - A contract of indemnity by which an
added its irrevocable commitment to honor drafts and
insurance company, in return for payment of a premium,
documents presented in conformity with the terms of
guarantees compensation of the amount of any loss aris-
the Letter of Credit.
ing from an insured casualty.
Letter of Credit, Deferred Payment - A Letter of Credit
International Chamber of Commerce (ICC) - The body
providing for payment at a fixed period of time after pre-
which published the Uniform Customs and Practice for
sentation of complying documents. A Deferred Payment
Documentary Credits, the Uniform Rules for Collections,
Letter of Credit differs from an Acceptance Letter of
the Uniform Rules for Reimbursements, Incoterms 2000
Credit in that the Beneficiary does not receive an Ac-
and other works commonly used in international trade.
cepted Draft when it presents complying documents
under a Deferred Payment Letter of Credit.
Letter of Credit, Direct Pay - A Letter of Credit intended Nominated Bank - A bank whom the Issuing Bank des-
as a payment method for the payment of principal, pur- ignates or authorizes to pay, accept, negotiate or other-
chase price and/or interest on commercial paper and other wise give value under a Letter of Credit and undertakes
securities. to reimburse. A bank may also be designated or autho-
Letter of Credit, Negotiable - A Letter of Credit under rized (nominated) by the Issuing Bank as the Advising,
which the Issuing Bank’s obligation extends to the drawer Reimbursing or Transferring Bank.

137
of the draft or any bona fide holder thereof. Open Account - A method of payment for goods and
Letter of Credit, Revolving - A Letter of Credit that, by services. A seller ships merchandise along with the re-
its terms, renews its value over a given period, either lated documents to a buyer with no guarantee of pay-
automatically or by amendment. ment. The buyer then makes payments on its account in
the manner specified in the invoice.
Letter of Credit, Simplified - A Letter of Credit that
reduces the normal documentary requirements of a Com- Own Funds - A statement that the bank is paying with
mercial Letter of Credit. its own funds. It is a banking term and not a representa-
tion that payment is final under applicable bankruptcy
Letter of Credit, Standby - A Letter of Credit under which law.
payment is made available to the Beneficiary against
presentation of a draft, simple statement, or other docu- Payee - The party to whom a draft or other negotiable
ments. It typically does not call for documents evidenc- instrument is made payable.
ing shipment of merchandise and often is used in lieu of Paying Bank - The bank nominated in the Letter of Credit
bid bonds, performance bonds or payment guarantees as the bank authorized to pay without recourse, upon
to secure a transaction or the performance of another receipt of documents complying with the Letter of Credit.
party. If this bank is the Advising Bank, it has no obligation to
Letter of Credit, Straight - A Letter of Credit under which honor the documents. If this bank is the Confirming
the Issuing Bank’s obligation extends only to the Ben- Bank, it is obligated to honor complying documents.
eficiary. If another bank negotiates documents, it does Port of Discharge - The port at which merchandise is
so at its own risk. offloaded from the vessel.
Letter of Credit, Transferable - A Letter of Credit that
Port of Entry - The port at which goods are admitted
allows the Beneficiary to request that the Letter of Credit
into the receiving country.
be made available to another party.
Port of Loading - The port at which merchandise is loaded
Letter of Credit, Unconfirmed - A Letter of Credit that
aboard a vessel.
carriers the undertaking of the Issuing Bank only.
Presentation - The delivery of one or more documents
Maturity Date - The date upon which a draft or accep-
to the Issuing Bank or Nominated Bank for payment,
tance becomes due for payment.
acceptance or negotiation under a Letter of Credit.
Multimodal Transport - Transportation of goods by
Promissory Note - A written promise committing the
more than one mode, for instance, truck, steamship and
signer to pay a sum to another at a future date, usually
rail.
with interest.
Negotiable - A term placed on an instrument (draft or
Readily Marketable Staple - Manufactured goods or
other document) which allows title to be transferred from
raw materials which are nonperishable, generally pro-
owner to owner by endorsement, usually evidenced by
duced, well-established in commerce and have an easily
the use of the words “order of” or “to order.”
ascertainable price.
Negotiating Bank - A nominated bank, sometimes un-
Recourse - A term used on a negotiable instrument to
named in the Letter of Credit, which elects to “negoti-
indicate that the drawer or endorser is liable to subse-
ate” (purchase documents from or advance funds or
quent holders for payment at maturity.
otherwise give value to the Beneficiary) against presen-
tation of complying documents. Negotiation may be Red Clause - A provision in a Letter of Credit that pro-
made with or without recourse. vides for the advance of funds to the Beneficiary prior
to the presentation of the shipping documents.
Negotiation - The act of purchasing complying docu-
ments under a Letter of Credit, usually with recourse to Reimbursing Bank - A bank nominated by the Issuing
the Beneficiary. Bank to honor reimbursement claims.
Revocable - A term permitting modification or cancella- Underlying Transaction - The transaction underlying
tion of a Letter of Credit without the Beneficiary’s prior the Letter of Credit transaction. Usually a reference to
agreement. Once conforming documents have been the commercial or financial transaction between the
taken up prior to receipt of notice of cancellation, the Applicant and the Beneficiary.
Issuing Bank becomes obligated to pay.
Uniform Customs and Practice for Documentary Cred-
Tenor - The length of time a draft (bill of exchange) is its - A compilation of international customs and prac-

138
drawn to run before presentation for payment. tices relating to Letters of Credit, published by the ICC
from time to time.
Terms, Payment - The terms under which a seller and
buyer agree that the exchange of goods for payment With Recourse -A term used on an instrument or
shall take place. Open account, cash in advance, Letter endorsement to indicate that the drawer or endorser is
of Credit, consignment and documentary collection are liable to subsequent holders for payment at maturity.
examples of common payment terms.
Without Recourse - A term used on an instrument
Terms, Shipping - Stating in abbreviated form where or endorsement to indicate that the drawer or endorser
the seller’s responsibility for the merchandise ends and is not liable to subsequent holders for payment at
where the buyer’s begins. Some examples of common maturity.
shipping terms are F.O.B., F.A.S., C.I.F., CFR, and EX-
“X Days Date” - A term used on a draft, bill of exchange,
SHIP. In the U.S. the most common sets of shipping
or note. If an exporter draws a draft and stipulates pay-
terms are defined in Incoterms 2000 and The Revised
ment “60 days date,” the draft is due 60 days after the
American Foreign Trade Definition. (See Incoterms 2000).
date on which it was drawn. Therefore, the maturity is
Transshipment - The transfer of merchandise from one fixed and is not dependent on the date of acceptance by
mode of transportation to another, or from one convey- the drawee (see Draft).
ance to another within the same mode of transportation.
“X Days Sight” - A term used on a draft, bill of ex-
Transferring Bank - A bank authorized by the Issuing change, or note to indicate that payment is due on a
Bank by nomination in the Letter of Credit to effect a stipulated number of days after the draft has been sighted
transfer of the Issuing Bank’s Letter of Credit. (accepted) by the drawee (see Draft).
NOTES

139
NOTES

140
NOTES

141
142
Copyright © 2004 Citibank, N.A. All rights reserved.
CITIBANK, CITIGROUP and the Umbrella Device are trademarks and service
marks of Citicorp and its affiliates and are used and registered throughout the world.
04/2004 CTG2593

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Letters of Credit 2004 - IsP98 - Final

Uploaded by

Letters of Credit 2004 - IsP98 - Final

Uploaded by

An Introduction to

Citigroup® Global Transaction Services

Commercial Letters of Credit

Letters of Credit are a time-tested instrument

This booklet is not a comprehensive textbook

Nations, companies and individuals have

RISK TO BUYER RISK TO SELLER RISK TO BUYER RISK TO SELLER

RISK TO BUYER RISK TO SELLER RISK TO BUYER RISK TO SELLER

5. LETTER OF CREDIT - This important payment method What Is a Letter of Credit?

4 Application for Commercial Letter of Credit

Attn: Letter of Credit Dept., FLA–1, 2 / A Applicant (Name and Address)

Advising Bank (Name and Address)

Beneficiary (Name and Address)

Expiry Date and Place: _____________________

Accompanied by the following documents which are indicated by an "X"

❏ Commercial invoice(s) ________________ original(s) and __________ copies.

Covering: Merchandise described in the invoice(s) as (brief description): ____________________________________________________

This chapter will familiarize you with the

Authority to Pay April 11, 20_

Mail To: American Export Corporation

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

Irrevocable Negotiation Letter of Credit February 9, 20_

Mail To: Citibank, N.A.

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

NAME OF BENEFICIARY DATE

Issuing Bank’s Reference Number: Citibank Reference Number:

Ladies and Gentlemen:

Sample Letter of Credit

Confirmed Irrevocable Straight Letter of Credit March 11, 20_

Mail To: USA Corporation

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

Irrevocable Negotiation Letter of Credit January 11, 20_

Mail To: The Western Corporation

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

Irrevocable Straight Letter of Credit May 11, 20_

Mail To: The New Englander Co.

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

This chapter discusses how to avoid problems,

Insurance documents should:

To supplement the material covered in previ-

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: H. K. Exporter Corporation

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

Irrevocable Negotiation Letter of Credit February 2, 20_

Mail To: Citibank, N.A.

Ladies and Gentlemen:

Shipment from: Japan port Shipment to: Port of San Francisco, CA

and accompanied by the following documents:

Sample Letter of Credit

Most Commercial Letters of Credit are issued

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: USA Corporation

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

Mail To: Supply Company Ltd.

Ladies and Gentlemen:

and accompanied by the following documents:

Sample Letter of Credit

Many government agencies provide financial

Austria New Zealand

U.S. Dollar Banker’s Acceptances, normally

Confirmed Irrevocable Straight Letter of Credit May 11, 20_

❏ Commercial invoice(s) ______ original(s) and copies.

_________________________________________, in relation to _