Case Studies on LC

Case Studies on Documentary Credit

Abdul Monem Vice

President Dutch-Bangla Bank

Ltd.


Case-1Applicant, in his application to issue a Letter of Credit, did not mention the name of an Advising Bank. Issuing Bank issued a LC and chose its Correspondent Bank on its own to advise the credit. The Correspondent Bank neither advised the Credit to the beneficiary nor informed the Issuing Bank the LC . Which of the following statement is true?


A) Issuing Bank is responsibleB) Advising Bank is responsibleC) Applicant is responsible

Which of the following answer is true?1. A 2. B3. C


Answer

2. B


Case-2 ABC Bank Dhaka opened a LC for USD

100,000/- in favour of supplier in China for import of Capital Machinery . On scrutiny of shipping documents ABC Bank detected some discrepancies (late shipment, late presentation etc). The applicant of LC agrees to accept the documents and pay despite the discrepancies. ABC Bank can release payment against the discrepant documents?


Answer ABC Bank Dhaka shall inform the

beneficiary’s bank stating that “ The documents are acceptable despite the discrepancies, but our central bank ‘s exchange control regulation prohibits us to release payment until the goods are cleared from the port. Therefore, we shall release payment to you after clearence of the goods.”


Case-3 Red Bank opened a LC for USD 10,000/- in favor of

supplier in Japan for import of 10 M. Tons fish meal. The expiry date of the LC was Sunday,22nd July but no latest date of shipment was stipulated. Red Bank received documents mentioning goods as 10.30 M. Tons fish meal. Red Bank also detected that presentation of documents was made on Monday, 23rd July. Red Bank refused to accept documents stating that documents were discrepant ( goods shipped excess and late presentation). The negotiating bank protested and insisted that documents were presented as per LC terms. What is the position of Red Bank?


Answer A tolerance of 5% more or 5% less than

the quantity allowed unless The LC stipulates the quantity of the goods must not exceed or reduced provided that amount of drawings does not exceed the LC amount.

When the expiry date of LC or the last day of presentation falls on a non business day, the documents can be presented on the next business day.

There is no scope to reject the documents.


Case-4 Green Bank opened a LC for USD

100,000/- in favor of supplier in Indonesia for import of cement. Green Bank received the shipping documents and it was detected that the bill of lading is dated five days prior to the date of opening of LC. The applicant refused to accept the documents. Will Green Bank settle the transaction?


Answer As per Article 14(i) of UCP 600 :

Unless otherwise stipulated in the LC, bank will accept a document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.

The applicant can not refuse to pay.


Case-5 An L/C calls for a certificate of origin

from a local chamber of commerce. The product is of foreign origin. Does “local chamber of commerce” mean local where the beneficiary is or local where the product originates?


Answer The answer to this question lies in the

content of an interpretation provided in article 3 of UCP 600. Therein it is stated "Terms such as 'first class', 'well known', 'qualified', 'independent', 'official', 'competent' or 'local' used to describe the issuer of a document allow any issuer except the beneficiary to issue that document." Applying this interpretation in the context of this query, any chamber of commerce may issue the certificate of origin.


Case-6Irrevocable confirmed, deferred payment letter of credit ("L/C") available by 90 days deferred payment at the counters of Confirming Bank (CB), subject to: UCP 600.

CB purchased the deferred payment undertaking resulting from documents presented in full conformity with the terms and conditions of the L/C and effected payment to the beneficiary on a without recourse basis.

The Issuing Bank (IB) confirmed, by authenticated SWIFT, the acceptance of documents and the remittance of funds with a value maturity date. One day before the maturity date, IB informed the CB in subsequent authenticated SWIFT message as : "Please be informed that as per court order payment of this credit has been stopped."


Answer The general principle, as stated in the

conclusion to ICC Opinion R 519, is that local law will prevail over the transaction.

However, the issuing bank should seek to resist such an injunction in order to preserve the integrity of its credit and the UCP. It must be expected that the issuing bank will seek to have the injunction removed by referring the court to the appropriate articles of UCP 600 and the terms and conditions of the credit.


Case-7 An applicant informed the LC issuing

bank that the goods were rubbish and asked the issuing bank to freeze payment under a DC subject to UCP 600 due to trade frauds although the documents presented were all compliant.

Should the issuing bank follow the instruction from the applicant?


Answer The issuing bank should not follow

the instruction from the applicant. As per Article 5 of UCP 600: Banks deal with documents and not

with goods, services or performance to which the documents may relate.


Case-8 An irrevocable confirmed documentary

credit can not be amended or cancelled without the agreement of the:A) Beneficiary and applicant only.B) Confirming bank and issuing bank.C) Applicant, confirming bank and issuing bank.D) Beneficiary, confirming bank and issuing bank.


Answer

D) Beneficiary, confirming bank and issuing bank.


Case-9 Which of the following documents

MUST be signed?A) Packing list.B) Certificate of origin.C) Commercial invoice.D) Weight specification.


Answer

B) Certificate of origin.


Case-10 A credit requires an 'invoice' without

further definition. Which of the following MUST be considered a discrepancy? An invoice:A. which is not signed.B. identified as a tax invoice.C. made out in a different currency to the credit.D. issued for an amount in excess of that permitted by the credit.


Answer

C. made out in a different currency to the credit.


Case-11 A documentary credit advised to a beneficiary and

payable at sight calls for documents to include an invoice made out in the name of the applicant. Documents presented to the negotiating bank by the beneficiary include a customs invoice but no commercial invoice. All other terms and conditions have been met. What action should the negotiating bank take?

A. Reject the documents as non-complying.B. Refer to the issuing bank for authority to

pay.C. Return the documents for amendment by

the beneficiary.D. Pay the documents as fully complying with

the terms of the credit.


Answer

D. Pay the documents as fully complying with the terms of the credit.


Case-12

A documentary credit for USD 150,000 calls for a full set of bills of lading and an insurance certificate to cover all risks. The bill of lading presented indicates an on board date of 15 December. Which of the following insurance documents are acceptable?

1. Policy for USD 185,000.2. Certificate dated 17 December.3. Declaration signed by a broker.4. Certificate subject to a franchise.

A) 1 and 2 only.B) 1 and 4 only.C) 2 and 3 only.D) 3 and 4 only.


Answer

B) 1 and 4 only.


Case-13

Which of the following statements relating to the insurance requirements, as specified, are correct?

1. An insurance certificate would be acceptable in lieu of an insurance policy.

2. An insurance document stating that certain risks had been excluded may be acceptable.

3. The insurance document will need to show claims, if any, payable in Brazilian currency.

4. Insurance cover to a minimum of 110% of the invoice value would be acceptable.

A. 1 and 3 only.B. 1 and 4 only.C. 2 and 3 only.D. 2 and 4 only.


Answer

D. 2 and 4 only.


Case-14 A seller has entered into a contract with

an overseas buyer to ship goods on CPT basis. Shipment will be made from the seller’s warehouse to port by trucks and from the port to buyer’s country by sea. Seller will use two different carriers (one for road and another for sea) to effect the shipment. Which of the following statements is correct?


a) Seller must pay the freight charges of the first carrier only.

b) Seller must pay the freight charges of both carriers.

c) Risk of loss / damage during voyage is transferred to the buyer when seller delivers the goods to the first carrier.

d) Risk of loss / damage during voyage is transferred to the buyer when the goods are delivered to the second carrier by the first carrier.


Which of the following answer is correct:1. A and C2. B and C3. A and D4. B and D


Answer

2. B and C


Case-15 Moon Bank, Dhaka issued a LC for USD 90,000/-in

favor of a beneficiary. Beneficiary presented the documents to LC Issuing Bank through Star Bank. Upon receipt of documents, Moon Bank examined the documents and detected a discrepancy “Late Presentation”. Discrepancy referred to applicant but the applicant did not waive the discrepancy and rejected the documents. Moon bank informed Star Bank the rejection of documents due to “Late Presentation” and indicating that Moon Bank is holding the documents at the risk and disposal of Star Bank. Subsequently the applicant requested Moon Bank that in view of the relationship with supplier they want to accept the documents.


The applicant also instructed Moon Bank to release payment. Moon Bank released the payment under intimation to Star Bank and delivered the documents to applicant with due endorsement. Upon receipt of intimation, Star Bank informed Moon Bank that the beneficiary re-sold the goods to another buyer in Moon Bank’s country at higher price i.e USD100,000/-. Star Bank also informed Moon Bank that the documents were kept under disposal of Star Bank till further instruction and Moon Bank’s act in releasing documents was unauthorized. Star Bank demanded USD 100,000/- for final settlement. Meanwhile, the applicant cleared the goods from the port.What is the position of Moon Bank?


Answer Since the documents were being held

at the disposal of Star Bank, Moon Bank was responsible for releasing the documents to the applicant without the consent of Star Bank.

Moon Bank has to make payment of USD 100,000/- as demanded by Star Bank for settlement.


Case - 16 A documentary credit issued subject to UCP 600 calls for

"Beneficiary's certificate along with relevant courier receipt certifying that one set of non-negotiable documents have been sent to the applicant within 3 working days after shipment date".

After presenting the documents to the issuing bank, the nominated bank received a notice of refusal from the issuing bank indicating the following discrepancy: "The presented courier receipt was not signed."

The courier receipt was not signed. It did, however, include a bar code, and there was no signature space included on the document. Is the refusal of the issuing bank correct?


Answer By requiring a courier receipt and not a copy of a

courier receipt, an original courier receipt was required according to sub-article 17 (a). As mentioned in ICC Opinion TA 654rev, which was approved at the April 2008 Banking Commission meeting, an original courier receipt should be signed. However, the document in question has no signature space. The structure of a courier receipt is not governed by the UCP; this is for each courier company to determine. The ICC Banking Commission cannot dictate that a signature is required when the courier company's document does not require such evidence.

The courier receipt is acceptable.


Case-17 LC states ‘Beneficiary's certificate along

with relevant original/copy/photocopy of courier receipt certifying that one set of non-negotiable documents have been sent to the applicant within three working days after shipment date.

Documents presented and DHL receipt does not bear the date of pick-up and the initial/signature of the courier company.

Is above-mentioned discrepancy justified?


Answer

UCP 600 sub-articles 18 (c) and 14 (d),

The credit required one set of non-negotiable copies of the documents to be sent to the applicant within three days after the date of shipment. Whilst this information was to be inserted onto the beneficiary certificate, proof of compliance would be evidenced by the date of pick up shown on the courier receipt. The date of pick up was not evidenced. The credit required the presentation of a courier receipt (original, copy or photocopy). If the courier receipt included a space for signature of the courier company, then this should have been signed. The comments in relation to signing of the courier receipt apply on the basis that the presented receipt was an original and not a copy. If a copy courier receipt is required or allowed, it need not be signed.

The discrepancy is valid.


Case - 18 A documentary credit for USD 1.6 million and subject to UCP 600

was honoured by one Bank in its capacity as nominated bank, but the documents were rejected by the issuing bank as below:

1. The address of the applicant quoted in the credit was: “ 14, ROBINSON ROAD, PORT OF SPAIN, TRINIDAD, W.I." 2. The credit required that the bills of lading be marked: "NOTIFY [applicant name] 14, ROBINSON ROAD, PORT OF SPAIN,

TRINIDAD, W.I." ." 3. The bills of lading presented showed the notify party as: "[applicant name], 14, ROBINSON ROAD, NEWTOWN, PORT OF

SPAIN, TRINIDAD, W.I."4. The issuing bank refused the presentation for the following reason: "B/L NOTIFY PARTY ADDRESS NOT EXACTLY AS PER L/C INCLUDES

'NEWTOWN'“.


As per Article of UCP under sub-article 14 (j) allows some latitude when the address of the [beneficiary and/or] applicant appear on documents, i.e., that it may be the same address as that which is stated in the credit or a different address but within the same country.

From the address shown in the query, there can be no doubt that the address, whilst not exactly that which is stated in the credit, is the same. The addition of the place "Newtown" does not create a different address, merely an expansion of the address stated in the credit. Additionally, there would be no conflict under sub-article 14 (d).

There is no discrepancy.


Case-19 Is a description of the goods required to appear on the

bill of lading? [Company C] Container Shipping Lines issue bills of lading with a pre-printed clause in the "Received for Shipment" area with the following statement regarding the description of the goods:

"Which description the carrier has no reasonable means of checking and is not part of the BL".

As this states that the description of the goods is not part of the bill of lading, is this document acceptable:

1. if there is no description contained in this area?2. if the description appears to be in conflict with the

description in other stipulated documents?


It is general shipping practice that the carrier will not take responsibility for the description of goods shown on the bill of lading. Wording such as "said to contain", "shippers load and count", "particulars furnished by the shipper, carrier not responsible" or similar, are common features of bills of lading. The term and condition, "Which description the carrier has no reasonable means of checking and is not part of the BL", is a similar form of wording. Although sub-article 20 (a) (ii) includes the wording: "indicate that the goods have been shipped on board ... ", this does not imply that a description of goods is to appear.


Conclusion The UCP does not require a goods description to

appear on any document other than the invoice (sub-article 14 (e) refers). However, it is transport industry practice that a form of description will appear, and that description should not conflict with the description in the credit.

The wording quoted on the bill of lading i.e., "and is not part of the BL" is similar to terms quoted in article 26, i.e., 'shipper's load and count' and "said by shipper to contain".


Case-201. LC shows following information:

Place of Taking : South Korea Port of Loading : Any port in KoreaPort Discharge : Peru Callao Final Destination : Lima Required transport document: Clean on board ocean B/L

2. Presented transport document was an ocean B/L containing following information: Place of Receipt : Blank Port of Loading : Ulsan, Korea Port of Discharge : Peru Callao Port Final Destination : Lima

1. It seems that the LC meant multimodal transport document. This is because Lima (non-port place) was shown as the final destination. The LC, however, required ocean B/L as the transport document.

2. Presented transport document was an ocean B/L covering shipment through to Lima (non-port place).

Questions: 1. Under the LC terms, what transport document would be presented, multimodal transport

document or ocean bill of lading? 2. Which article of UCP 600 shall be applied in the examination of the B/L, article 19 or article 20? 3. If the required transport document in the LC were a multimodal transport document, would the

presented ocean B/L containing the above information be acceptable?


Given the routing for the shipment as shown in fields 44A, E, F and B, the credit should have requested the presentation of a multimodal or combined transport document (which is designed for use when there are at least two modes of transport involved) and not a bill of lading (which is designed for use in port to port shipments).

Although the beneficiary presented a document titled ‘Ocean Bill of Lading” it covered shipment from a South Korean port (Ulsan) to Lima . The transport document must be examined under the article that is applicable to the conditions stated in the credit i.e., article 20. As shipment was effected from a South Korean port, the absence of any data in the field titled ‘place of receipt’ would not be a reason for refusal.

A document, however named, would be acceptable that met the conditions stated in the credit.


Case-21 Whether a mistype of the L/C number in a bill of lading is a

discrepancy justifying refusal of payment by an issuing bank and whether the action by the negotiating bank in sending a revised document to the issuing bank after receiving the discrepancy notice is deemed as having accepted the discrepancy notice on the part of the negotiating bank.

We received the following discrepancy notice from the issuing bank. The discrepancy notice states: "B/L marked L/C No.7XXXX1/0165/AN instead of 7XXXX1/0165/4A." [The correct L/C no. in the credit was stated as 7XXXX1/0165/4N]. The L/C no. in the B/L was mistyped as AN instead of the correct 4N stated in the credit.

The issuing bank also mistyped the L/C no. as 4A instead of 4N in its discrepancy notice to the negotiating bank. This shows the issuing bank how easy it is to mistype one letter in a long L/C number.

All other documents are in order in terms of the L/C number. Is this is a discrepancy which would justify the issuing bank from refusing payment? When a nominated bank sends a revised document after receiving a discrepancy notice, is this action considered as having accepted the discrepancy notice as valid?


Analysis As referred to in ICC Opinion R 289, a requirement for the

insertion of a credit number on a document is only to assist in tracing the documents. Since the documents were received by the issuing bank and the issuing bank is applying the presented bill of lading under the correct credit number, it would seem to be an irrelevance and not valid grounds for refusal. The fact that the issuing bank misquoted the credit number would not detract from the intent of the discrepancy they were intending to highlight.

Conclusion The misquoting of the credit number on the bill of lading

does not create a reason for refusal. The fact that a refusal is sent to a nominated bank or a

beneficiary and that it provides a replacement or corrected document does not, in itself, signify the nominated bank's or beneficiary's acceptance of the discrepancy.


Case-22 A DC subject to UCP 600 has the

following stipulation: "Purchase Contract No. 123456 dated 24 July 2007 attached herewith forms an integral part of this documentary credit."

Is this stipulation acceptable ?


As per Article 4 of UCP 600 A credit by its nature is a separate

transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit.


Case No. 23Bank C confirmed an LC issued by Bank I. The credit was available by drafts drawn on the confirming bank at "30 days sight" The beneficiary presented credit compliant documents to Bank C for negotiation.

Which of the following actions by Bank C is as per UCP?


A. Send documents to issuing bank and pay the beneficiary once the issuing bank pays on maturity date

B. Send documents to issuing bank and request them to advice the maturity date as only the issuing bank can determine the maturity date.

C. Pay the beneficiary and send documents to the issuing bank informing them the maturity date.

D. Inform the beneficiary that you will pay once the issuing bank accepts the drafts drawn on them


Answer : C


Case No. 24 Your beneficiary client presented

documents under an LC available with any bank by negotiation. The documents were found compliant but the beneficiary did not require negotiation of documents. Documents were lost in transit (on the way to the issuing bank.)

Which of the following is TRUE.


A) The issuing bank is liable to pay as the documents were credit compliant.B) The issuing bank is not liable to pay since the documents did not reach their country.C) The issuing bank is not liable to pay as the documents were not negotiated by your bank.D) The beneficiary must recreate and resend all original documents in order to be paid.


Answer : A


Case No. 25

Documents under a documentary credit, tendered at the counters of confirming bank are mistakenly found compliant. The confirming paid to the beneficiary and forwarded the docs to the issuing bank. The discrepant documents were also found to comply with credit terms mistakenly by the issuing bank too. But the applicant refused to accept the discrepant documents. In this case, which of the following statement is correct?


A. The confirming bank is entitled to receive funds from the issuing bank.B. The confirming bank is entitled to recover funds from the beneficiary.C. The issuing bank is entitled to receive funds from the applicant.D. The issuing bank must not pay to the confirming bank.


Answer: A


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