latest date of presentation ucp 600

lcviews CoronAdvice #7: Dates and timelines under LCs

The new blogpost in the segment “lcviews CoronAdvice” aims to address one of the questions frequently asked during the clovid-19 crises: Is it possible to amend the dates and timelines applicable to a documentary credit – this in order to allow for more time; thereby contemplating delays caused by the fact that many banks work based on their contingency plans and that many countries are in different phases of lockdown.

Initially, it must be mentioned that most of the challenges facing the Trade Finance industry right now relate to LCs already issued. This means that the content of the LC – as well as the UCP 600 provisions will apply. Therefore, in order to change the applicable dates and timelines, there must be made an amendment to the LC. (For new LCs the “correct” dates and timelines can simply be inserted).

According to UCP 600 article 10(a) in order to amend an LC, agreement is required by the issuing bank, the confirming bank (if any) and the beneficiary.

This means that any date or timeline in the LC or the UCP 600 can simply be changed by way of an amendment – given the relevant parties agree to it. However, it must be stressed that although the LC; by its nature is a separate transaction from the sale or other contract (UCP 600 article 4(a)); the LC is of course based upon the agreement between the buyer and the seller. It would be common for contracts to include dates and timelines (e.g. in respect of the agreed delivery date). The dates and timelines in the LC would normally be based upon – and correspond with the dates and timelines in the agreement. This means that when considering amending dates and timelines in the LC, the content of the underlying agreement must of course be considered. 

With that said, the dates and timelines potentially in scope for this are the following:

Date of expiry

UCP 600 article 10 addresses the issue of expiry; which must be read in context with how the LC is available. The outset is that an LC must state an expiry date for presentation. The expiry date is the latest date a presentation must be made – at the place where the LC is available. I.e. at the counters of the bank with which the LC is available. There are two basic scenarios:

1: Where there is a nominate bank (either specified by name – or simply “any bank”)

In such case the place for presentation is at the counters of the (or “a”) nominated bank  OR  at the counters of the issuing bank.

The date of expiry is the same regardless if the beneficiary makes the presentation to the nominated bank or to the issuing bank. 

An example:

Issuing Bank: Bank ISS in India

Nominated Bank: Bank NOM in the UK

Applicant: IMP Trader in India

Beneficiary: EXP Trader in the UK

LC Available with Bank NOM and expires 1 May 2020 in the UK.

In such case EXP Trader (in the UK) must present the documents EITHER to Bank NOM (UK) OR to Bank ISS (India). Regardless to whom the beneficiary chooses to present, the latest date a presentation must be made is 1 May 2020.

Of course, the normal course of action would be for EXP Trader to present to Bank NOM. However, if that – for some reason – is not possible EXP Trader may need to make a direct presentation to Bank ISS. In such case, there could be a need to extend the expiry date.

Also, as mentioned above there may well be other reasons to consider extending the LC expiry date. For example, that it is not possible for EXP Trader to deliver the goods as originally agreed. However, such amendment to the LC should be aligned with the existing agreement, and there may well be a need to change the contract accordingly.

2: Where the LC is only available with the issuing bank

In such case, the place for presentation is at the counters of the issuing bank (only), and the presentation must be made to the issuing bank no later than 1 May 2020. This applies even when there is an advising bank (that is not a nominated bank) involved.

Advising Bank: Bank ADV in the UK

LC Available with Bank ISS and expires 1 May 2020 in India.

In such case the presentation must be made to Bank ISS (India). The latest date a presentation must be made is 1 May 2020.

The normal course of action would be for EXP Trader to “present” the documents to Bank ADV in due time before the expiry date, allowing Bank ADV to forward the documents (on their behalf) to Bank ISS.

As indicated, the fact that there is an advising bank does not change the fact that the presentation must be presented at the issuing bank no later than 1 May 2020.  

Again, it may not possible for EXP Trader to deliver the goods as originally agreed, and therefore an amendment extending the expiry date may be considered. However, such amendment to the LC should be aligned with the existing agreement, and there may well be a need to change the agreement accordingly.

For both examples above, it is also important to consider that an extension of the expiry date could incur extra charges (e.g. issuance commission and amendment commission).

Period for presentation

UCP 600 article 14(c) addresses the period for presentation. Basically, this sub-article applies when the presentation includes a “transport document” (i.e. one of the transport documents described in UCP 600 articles 19, 20, 21, 22, 23, 24 or 25). In such case, the presentation by (or on behalf of) the beneficiary must be made not later than 21 calendar days after the date of shipment, however, not later than the expiry date of the LC (see above). 

As can be seen, the default period for presentation according to UCP 600 article 14(c) is 21 days. This period is commonly modified (often reduced) in the LC. In such case it is the number of days mentioned in the LC that apply.

In a situation where there are delays, it may well take longer time than normally to obtain the documents needed to be presented under the LC. For that reason, there may well be a need, to have a longer period for presentation. In such case, there are 2 issues to consider

* The documents may potentially have a longer transit time between the seller and the buyer – and there is the risk that the goods arrive before the documents, and it may be challenging for the buyer to obtain release of the goods (e.g. because the bill of lading has not arrived timely).

* Normally an LC is structured so that the date of expiry, latest date of shipment and period for presentation are aligned. I.e.:

“Latest date of shipment” + “period for presentation” = “date of expiry”

This means that changing the “period for presentation” may trigger changes to “latest date of shipment” and “date of expiry”.

Latest date of shipment

As such the “latest date of shipment” is not defined in the UCP 600. There are, however, different places throughout the UCP 600 where “latest date of shipment” is mentioned, i.e.:

* Sub-article 29(c); latest date for shipment will not be extended as a result of the expiry date or the last day for presentation falls on a day when the bank to which presentation is to be made is closed.

* Sub-article 31(b); if the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

* Sub-article 38(g); the latest shipment date or given period for shipment is part of the data that may be changed when transferring the LC.

However, where it is primarily important in the context of this “lcviews CoronAdvice” is that all of the UCP 600 transport articles (i.e. articles 19, 20, 21, 22, 23, 24 or 25) in one form or the other define “shipment”.

Most LCs issued include a latest shipment date, which is the latest date (based on the presented transport document) that goods covered by the LC must be shipped. 

LC information (excerpts):

:31D: DATE AND PLACE OF EXPIRY

200501 IN UNITED KINGDOM

:44E: PORT OF LOADING

:44F: PORT OF DISCHARGE

CHINESE PORT

:44C: LATEST DATE OF SHIPMENT

:46A: DOCUMENTS REQUIRED

+ FULL SET ON BOARD MARINE BILLS OF LADING ISSUED TO ORDER OF ISSUING BANK NOTIFY APPLICANT MARKED FREIGHT PREPAID

:48: PERIOD FOR PRESENTATION

Presentation information:

Documents presented by the beneficiary to the nominated bank:  24 April 2020

Goods shipped on board (bill of lading):  6 April 2020

The goods are shipped on board 6 April 2020, which is acceptable because the LC indicates 10 April 2020 as latest date of shipment.

As the period for presentation is 21 days, the presentation must be made no later than 27 April 2020 (i.e. 6 April 2020 + 21 days).

There may well be good reasons to consider extending “latest date of shipment”, as it may not be possible for the beneficiary to ship the goods as originally agreed. However, such amendment to the LC should be aligned with the existing underlying agreement, and there may well be a need to change the agreement accordingly. Likewise, such amendment could also trigger amendments to the date of expiry (see above).

Maturity/due date

According to UCP 600 article 6(b) an LC must state whether it is available by  sight payment ,  deferred payment ,  acceptance  or  negotiation .

For the purpose of deferred payment and acceptance, it will apply that the payment is due a fixed period of time after a determinable date (e.g. shipment or sight).

For the purpose of negotiation, the LC may both be payable at sight – or at a future date (as determined by the LC).

For the scenarios where the LC is payable at a future date – that later date will be determined by the wording of the LC. ISBP 745 section B offers guidance in that respect. 

:41A: AVAILABLE WITH

BY DEF PAYMENT

:42P: DEFERRED PAYMENT DETAILS

90 DAYS AFTER SHIPMENT

Following that, payment is due 5 July 2020 (i.e. 6 April 2020 + 90 days).

It is possible to change the deferred payment period in the LC via an amendment. However, such amendment to the LC should be aligned with the underlying agreement, and there may well be a need to change the agreement accordingly. 

Timeline to determine if a presentation is complying

According to UCP 600 article 14(b) the bank (nominated bank (acting on its nomination), confirming bank and issuing bank) each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This provision is further qualified by UCP 600 article 16(d) which states that the notice of refusal (if any), must be given by telecommunication or, if that is not possible, by other expeditious means  no later than the close of the fifth banking day following the day of presentation .  

It is important to understand that this provision is relevant for the banks; I.e. the rationale for changing the “five days period” is for example that the involved banks have activated their contingency planes; and (as an example) the bank officers are working from home – and therefore need more time to examine the presentation and send the notice of refusal. In that respect it is important to understand that the “five days period” is actually a “ maximum  of five days period”. I.e. in reality the period could be shorter. In any case, if the timeline to determine if a presentation is complying is to be changed (for the specific LC) then that is possible via an amendment.

In summing up the above, it is possible to change all timelines and dates in an LC and the UCP 600 – but it must be done using the normal way of amending LCs. 

Also, it is important to bear in mind that the LC is based upon the underlying agreement between the buyer and the seller, meaning that amendments to the LC should reflect amendments to the underlying agreement.

* In order to change the applicable dates and timelines, there must be made an amendment to the LC. 

* Any date or timeline in the LC or the UCP 600 can simply be changed by way of an amendment – given the relevant parties agree to it.

* When considering amending dates and timelines in the LC, the content of the underlying agreement must of course be considered.

*  Changing a date or timeline, for example the “period for presentation” may trigger changes to other timelines or dates, for example “latest date of shipment” and “date of expiry”

Look out; more “lcviews CoronAdvice” to come.

Meanwhile – as always, take care of the LC – but take special care of each other during these difficult times.

Kind regards

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Passages The International Trade Blog

The hidden expiration date on every export letter of credit.

However, another date equal in importance is referred to as the last date for presentation. The presentation period—the window of time in which the exporter must present documents—is tied to the ship date as indicated in the original transport document.

Letter of Credit Presentation Period

A letter of credit includes terminology similar to “documents must be presented within 10 days after the bill of lading date but within the validity of the letter of credit.” For example, if the shipment took place on January 1, documents must be presented no later than January 11 or the expiration date if earlier. If the expiration date is January 5, documents must be presented by January 5, not the 11th.

Some letters of credit require a presentation period of seven days, some 15, etc. If the letter of credit does not state a presentation date, the exporter has 21 days according to UCP Article 14c. Exporters should be aware of this requirement and feel confident they can work within the stated time period. If not, they should request an amendment.

Why does a letter of credit include these time requirements? The importer stipulates them because a delay in presentation can create problems. When the goods arrive at the customs entry point, the importer needs the documents to clear the goods. If not cleared in a timely manner, the goods will go into storage and incur daily charges.

With a short presentation period, the importer can force the exporter to deliver the documents to the bank quickly. Once the documents enter banking channels, they will find their way to the importer in due time for customs clearance.

An alert exporter, however, must ask several key questions:

• How quickly after shipment can the documents be assembled and presented to the bank?
• Can unusual situations cause delays?
• Can the consular's signature be obtained (for a specific country) within the time limit?

Some consulates are located in distant cities and only sign documents once a week. If the appointed day for signing documents falls on a holiday, in either country involved in the transaction, then one more week must be added to the time frame. While 10, 15 or even 21 days may seem like adequate time, it can slip away quickly.

Like what you read?   Subscribe today   to the International Trade Blog to get the latest news and tips for exporters and importers delivered to your inbox.

This article was first published in December 2014 and has been updated to include current information, links and formatting.

About the Author: Roy Becker

Roy Becker was President of Roy Becker Seminars based in Centennial, Colorado. His company specialized in educating companies how to mitigate the financial risk of importing and exporting. Previous to starting the training company, Roy had over 30 years experience working in the international departments of several banks where he assisted many importers and exporters with the intricate banking needs associated with international trade.

Roy served as adjunct faculty in the International MBA programs at the University of Denver and University of Colorado in Denver. He conducted seminars at the World Trade Center Denver and The Center for Financial Training Western States, and was a guest lecturer at several Denver area Universities.

Roy retired in 2021.

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Uniform Rules for Documentary Credits (UCP 600) - eBook

The latest edition of the Uniform Customs and Practice for Documentary Credits (UCP) - the ICC's rules on documentary credits.

Contains important new provisions in transport, insurance and compliance

Includes a "Definitions" article designed to clarify the meaning of key terms

Also includes version 2.0 of the eUCP - the 14 articles of ICC's supplement to the UCP that govern presentation of documents in electronic form

eBook Summary

Description.

Commercial letters of credit are the lifeblood of international trade.

For more than 85 years, the Uniform Customs and Practice for Documentary Credits (UCP) - the International Chamber of Commerce 's rules on documentary credits - have governed letter of credit transactions worldwide. 

UCP 600 contains important new provisions in the fields of transport, insurance and compliance, which will form the basis of letter of credit transactions for years to come. 

The revised UCP includes a "Definitions" article designed to clarify the meaning of key terms, a changed practice for giving a notice of refusal and other modifications you will need to know. It also includes version 2.0 of the eUCP - the 14 articles of ICC's supplement to the UCP that govern presentation of documents in electronic form. 

Since its inception, the UCP has remained a vital component of international trade. Bankers, traders, lawyers, transporters, academics and all who deal with letter of credit transactions will refer to UCP 600 on a daily basis. 

Table of contents

ICC Uniform Customs and Practice for Documentary Credits

Introduction

Article 1       Application of UCP

Article 2       Definitions

Article 3       Interpretations

Article 4       Credits v. Contracts

Article 5       Documents v. Goods, Services or Performance

Article 6       Availability, Expiry Date and Place for Presentation

Article 7       Issuing Bank Undertaking

Article 8       Confirming Bank Undertaking

Article 9       Advising of Credits and Amendments

Article 10     Amendments

Article 11     Teletransmitted and Pre-Advised Credits and Amendments

Article 12    Nomination

Article 13     Bank-to-Bank Reimbursement Arrangements

Article 14     Standard for Examination of Documents

Article 15     Complying Presentation

Article 16     Discrepant Documents, Waiver and Notice

Article 17     Original Documents and Copies

Article 18     Commercial Invoice

Article 19     Transport Document Covering at Least Two Different Modes of Transport

Article 20     Bill of Lading

Article 21     Non-Negotiable Sea Waybill

Article 22     Charter Party Bill of Lading

Article 23     Air Transport Document

Article 24     Road, Rail or Inland Waterway Transport Documents

Article 25     Courier Receipt, Post Receipt or Certificate of Posting

Article 26     “On Deck”, “Shipper’s Load and Count”, “Said by Shipper to Contain” and Charges Additional to Freight

Article 27     Clean Transport Document

Article 28     Insurance Document and Coverage

Article 29     Extension of Expiry Date or Last Day for Presentation

Article 30     Tolerance in Credit Amount, Quantity and Unit Prices

Article 31     Partial Drawings or Shipments

Article 32     Instalment Drawings or Shipments

Article 33     Hours of Presentation

Article 34     Disclaimer on Effectiveness of Documents

Article 35     Disclaimer on Transmission and Translation

Article 36     Force Majeure

Article 37     Disclaimer for Acts of an Instructed Party

Article 38     Transferable Credits

Article 39     Assignment of Proceeds

Supplement to UCP 600 for Electronic Presentation

Introduction eUCP Version 2.0

Introduction 1.1

Article e1               Scope of the eUCP

Article e2               Relationship of the eUCP to the UCP

Article e3               Definitions

Article e4               Electronic Records and Paper Documents

• Goods, Services or Performance

Article e5               Format

Article e6               Presentation

Article e7               Examination

Article e8               Notice of Refusal

Article e9               Originals and Copies

Article e10             Date of Issuance

Article e11             Transport

Article e12             Data Corruption of an Electronic Record

Article e13             Additional Disclaimer of Liability for Presentation of Electronic Records under eUCP

Article e14             Force Majeure

Acknowledgements

ICC at a Glance

• Publishing date: 2007
• Number of pages: 70
• Language: English

Important note

Please note that the eBook delivery will be deferred. After purchase, you will receive an email with instructions on how to download the eBook within 3 working days.

Please note upon receiving your eBook, you will have 60 days to download it. Kindly note that the eBook link is for one user only. The eBook cannot be lent (one eBook link per user). 

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• Letters of Credit (LCs)

The role of UCP in Standby Letters of Credit transactions

Discover how UCP rules shape Standby Letters of Credit, making global trade smoother and more reliable for finance pros. Read more here.

By Ravi Jinugu

Last modified Monday April 29, 2024

Estimated reading time: 14 minutes

Standby Letters of Credit (SBLCs) mimic independent guarantees and were mainly issued by US banks predominantly during the time when issuance of guarantees seldom occurred in the US. Although US banks were never prohibited from issuing independent guarantees, in 1996, the US Office of the Comptroller of the Currency expressly permitted them to do so.      

Three years later, the OCC permitted US banks to issue dependent financial undertakings, although hereto, they had been able to do so in connection with other banking transactions in which they were involved. ISP98 was promulgated by the Institute of International Banking Law & Practice, endorsed by the ICC (ICC Pub. 590), and US banks started issuing their standbys subject to ISP98 . 

Banks in much of the rest of the world gradually did the same as knowledge of the rules grew. Prior to ISP98, despite its limitations, UCP was used extensively for issuance of standbys since it reinforced the independence and documentary character of letters of credit. But UCP was never intended to govern standby letter of credit practice

UCP 600 and Standby Letters of Credit

UCP 600 Article 1 (Application of UCP) states in part: “The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication No. 600 (“UCP”) are rules that apply to any documentary credit (“credit”) (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules.”

The word “any” implies that a standby of any form, i.e. performance, advance payment, bid bond/tender bond, financial, etc, could be issued subject to UCP 600 . The 2007 UCP revision made few changes relevant to standbys while carrying over the intent of UCP 500.

• UCP 600 Article 34 includes the words “services or other performance” to address the specific nature of a standby letter of credit and be consistent with the phrase “goods, services or other performance” used throughout UCP 600.
• This was an important change in the 2007 revision. ISBP 821 (2023) further clarifies this. ISBP 821 A6 (a) states, “When a credit requires the presentation of a copy of a transport document covered by UCP 600 articles 19-25, the relevant article is not applicable, as these articles only apply to original transport documents. A copy of a transport document is to be examined only to the extent expressly stated in the credit, otherwise according to UCP 600 sub-article 14 (f).”
• In fact, even before UCP 600, it was long established that the 21-day presentation period rule was not applicable to standbys. The ICC Banking Commission in its Opinion R168 (1987-1988) refused to apply the 21-day presentation period rule to a standby under UCP 400: “The commission decided that under a standby credit Article 47 (a) of UCP 400 does not apply, particularly where it is only a copy document which is, therefore, not a transport document.” During the 2007 revision process, some previously issued ICC opinions, such as this one, were thought to merit incorporation in the UCP rules.

Why UCP 600 is not suitable for Standby Issuance

Unlike ISP98, which was drafted for standby LCs and therefore caters to the myriad specific situations surrounding standby LCs, UCP only accommodates issuance of standby LCs. There are no provisions in UCP to cover situations like extend or pay, requests that the beneficiary issue its own undertaking to another (counter undertakings), and the like.

It should be noted that the word “standby” appears only once in the text of the UCP 600 rules. Only a few UCP 600 articles apply to standbys and some articles are inappropriate or otherwise incompatible with standby practice, tend to work contrary to the intentions of the parties, and, if applied, cause confusion in their interpretation and application. UCP 600 Article 1 aptly uses the phrase “to the extent applicable …” to signal this.

Examples of UCP 600 articles and topics that do not align with standby practice and tend to cause confusion include

1. Consistency of data across documents

UCP 600 sub-Article 14 (d) states, “Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.” Documents requested to be presented under commercial LCs would normally relate to a shipment and therefore, are expected not to conflict with each other.

The same cannot be said about standbys. Documents under a typical standby need not necessarily be free of conflict. This is because the documents may relate to different underlying obligations. In case of default, documents, in fact, may be expected to be inconsistent with one another; a mix of documents requiring performance together with those indicating default. To avoid confusion, this article requires attention.

2. Force Majeure

UCP 600 Article 36 states, “A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control. A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business.”

The default position of UCP is that the beneficiary bears the risk of its inability to draw within the prescribed time due to a force majeure event. It fits reasonably well for a commercial LC where the beneficiary (usually the seller) controls the goods – it holds the documents of title – and therefore, the discrepancy is probably waived.

This UCP position, however, is opposite to standby practice in that standby beneficiaries are likely unwilling to bear the risk of forfeiture of their rights due to closure of a solvent issuer. It is due to this reason that this UCP article is invariably omitted from standbys issued under UCP 600. Text which has been used to modify the article might look like the following (which is in line with treatment under ISP98):

“Article 36 under UCP 600 is modified as follows: If the Letter of Credit expires while the place for presentation is closed due to events described in said Article, the expiry date of this Letter of Credit shall be automatically extended without amendment to a date thirty (30) calendar days after the place for presentation reopens for business.”

3. Closure when the expiration date is on a business day

UCP 600 Article 29 allows for extension of a credit’s expiry date and last day for presentation to the first following banking day (unless it is force majeure situation), if these dates fall on a day when the bank to which presentation is to be made is ordinarily closed (e.g., a weekend day). 

This rule does not apply to latest date of shipment and other dates specified in the credit. This provision is logical for commercial letters of credit which usually require presentation of documents that are linked to, and reflect delivery of, goods or services. It makes sense to omit the “latest shipment date” from the provisions of this article, as it has a material impact on the buyer who might not be able to secure possession of the goods at the expected time. Non-timely receipt of the goods could potentially result in the buyer not being able to sell the goods. For instance, shipment of seasonal goods or perishable items.

In addition to an expiry date, standbys sometimes contain deadlines for presentation of demands in instalments, for instance. Where such deadlines are present in a standby, there is no reason not to extend these dates, and the extension should apply to them as well.

For example, assume a standby requires presentation of a first instalment on a Sunday (when the issuer is closed), and therefore presentation is attempted on the next banking day. Under UCP 600 this would be a discrepancy (which departs from standby practice) since the scope of the extension rules only applies to expiry dates and not to other deadlines.

4. Partial drawings

There is no distinction in UCP between a drawing for less than the full amount and multiple drawings in situations when there is a drawing for less than the full amount. A drawing for less than the full amount would be unwelcome in most cases of a commercial LC where partial shipments are prohibited.

In standby practice, a prohibition of partial drawings means that only one drawing is permitted which must be in the full amount. Use of the term ‘multiple drawings prohibited’ means that only one drawing is permitted which can be for less than the full amount.

A standby LC issued under UCP must expressly exclude the relevant UCP 600 Article 31 (Partial Drawings or Shipments) and insert suitable replacement text to avoid confusion. Text for such modification might state:

“Partial and multiple drawings are allowed hereunder. The amount that may be drawn by beneficiary under this Letter of Credit shall be automatically reduced by the amount of any payments made through Issuing Bank referencing this Letter of Credit.”

5. Instalment drawings or shipments

UCP 600 Article 32 contains a suitable provision for commercial letter of credits on this matter. It provides that if a letter of credit specifies instalment payments, and if an instalment is not drawn, the credit ceases to be available for that and any subsequent instalments.

The rationale behind this provision is touched upon in the ICC’s COMMENTARY ON UCP 600, “The view of the Drafting Group and the majority of ICC national committees … was that by including a specific schedule in the credit there is a definite requirement for either a drawing to be made or goods to be shipped within a specific period. Failure on the part of the beneficiary to do so could result in a financial or other risk to the applicant. Therefore, there was a need for a penalty if the beneficiary does not comply with the instalment schedule.”

For a commercial credit, failure to draw would generally mean that the beneficiary has failed to make a required shipment. However, the same may not be applicable for a standby. A standby supporting an obligation to pay (e.g., rent to be paid every month) in instalments would normally be drawn upon when there is a failure to make a direct payment.

The UCP rule, if applied, would mean that the credit ceases to be available if it is not drawn as per the instalment schedule. This departs from general standby practice and defeats the whole purpose of having a standby as a secondary payment vehicle. It is for this reason that this article must be excluded or modified in a standby issued subject to UCP 600.

It should be noted that ISBP 821 Paragraph C16 (a)(i) elaborates on the phrase “given period” that is used in this article. It states, “Given periods are a sequence of dates or timelines that determine a start date and end date for each instalment.” It gives an example of an instance where this standard could be applied. ISBP 821 Paragraph C16 (b) (i) further provides:

“When a credit indicates a drawing or shipment schedule by only indicating a number of latest dates, and not given periods (as referred to in paragraph C16) (a) (i)): i. this is not an instalment schedule as envisaged by UCP 600, and article 32 will not apply. …”

6. Transferable credits

Treatment of transferable credits under UCP 600 departs considerably from what is expected in standby practice. 

Multiple transfers 

Whereas it is common practice to have standbys transferred multiple times, it is not allowed for in UCP 600 unless explicitly modified. UCP600 sub-Article 38 (d) states in part, “A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not to be considered a subsequent beneficiary.”

An example of a standby which requires transfer multiple times is when the beneficiary may be an indenture trustee who could be replaced numerous times over the life of the standby. A clause to modify UCP 600’s default provision could state:

“This Letter of Credit is transferable without charge any number of times, but only in the amount of the full unutilized balance hereof and not in part and with the approval of the Account Party which consent shall not be unreasonably withheld, conditioned or delayed.”

Partial transfers

Unlike commercial letters of credit, standby LCs rarely require partial transfers and therefore ISP98 does not specifically allow for partial transfer. In a commercial letter of credit, there might be multiple suppliers and/or the original beneficiary may retain the right to draw whereas a typical standby would involve transfer of the entire right to draw.

Standby credits issued subject to UCP 600 likely contain detailed clauses which modify the UCP rules. ISP98 rules on transfer of a standby are very comprehensive and therefore rarely require modification unless there are exceptional circumstances

7. Return of dishonoured documents

Unlike documents called for in commercial LCs which have importance themselves such as a bill of lading which could be a document of title and is required to collect goods from the carrier, documents presented under a standby LC typically have no intrinsic value.

Failure to dispose of them as requested by the presenter does not have any material impact. ISP98 Rule 5.07 aligns with this practice. Under UCP 600 sub-Article 16 (f), failure to follow disposal instructions would mean that the issuing bank “shall be precluded from claiming that the documents do not constitute a complying presentation.”

To address matters not covered by the UCP, some standbys issued subject to these rules – especially in the US – expressly state that those matters shall be governed in accordance with the laws of the issuer’s country. I have seen standbys from the US with this clause or similar:

“Unless otherwise expressly stated herein, this Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (“UCP”), 2007 Revision, International Chamber of Commerce Publication No. 600. Matters not covered by the UCP shall be governed and construed in accordance with the laws of … .”

Today, ISP98 is largely considered the preferred set of rules for standbys. However, a small number of standbys in the US and other parts of the world continue to be issued subject to UCP600. This can predominantly be attributed to:

• Bankers’ familiarity with UCP and therefore preference for the UCP current version, particularly for a “simple” standby such as a financial standby which is payable on presentation of a demand;
• A reluctance by government agencies to amend their mandated forms;
• So-called “power beneficiaries” who insist on UCP. In my experience, some Swiss entities prefer UCP over ISP98. One particular beneficiary I have come across is a Switzerland-based company selling fertiliser. Also, from my experience I know that a big bank (as beneficiary) in Australia chooses UCP over ISP.
• Bankers and other standby users in some countries consider ISP98 to be too complicated and therefore uptake of ISP98 has been stunted in certain countries. For instance, some specialists consider the ISP98 rules “to be the most complicated guidelines ever published by the ICC” which explains why the publication of an “official commentary” seemed to be necessary

Nonetheless, adoption of ISP98 has grown over the years and continues to do so at a fast pace.

Why Standbys are still referenced in UCP 600

Even though UCP is not suitable for issuance of standby LCs and suggestions were made by several ICC National Committees during the 2007 revision process to delete reference to standbys, it remained. The UCP 600 drafting group felt that there were still a significant number of standbys that continued to be issued under UCP 600.

It also contended that even if the reference to standbys was removed, banks would continue to issue standbys subject to UCP 600. UCP, not being law, could not prohibit issuance of a standby subject to its rules anyway. Viewed a different way, nothing prevents a bank from issuing a commercial LC subject to ISP98, but why would anyone do so?

Unless very carefully drafted, standbys issued under UCP are susceptible to misinterpretation and could cause considerable uncertainty, and ambiguity, and hence be very problematic. ICC Opinion R303 (1998/99) – issued when UCP 500 was in force, but still applicable to UCP 600 – cautions that: “Care is needed in the use of standbys in a commercial setting, for which additional training may be necessary. Moreover, use of the UCP with a standby imposes additional questions which must be duly considered.”

A comment made in DOCUMENTARY CREDITS UCP 500 AND 400 COMPARED (ICC Publication No 511) advises that ICC National Committees (NCs) “must acknowledge that not all the Articles in the UCP apply to a Commercial Credit or to a Standby Credit and that a majority of the Articles do not apply to the Standby Credit. It is recognized that the parties to the Credit may wish to exclude certain Articles of the UCP from a specific type of Credit …” 

With the exception of the ICC Banking Commission’s stance on the UCP transport articles’ applicability for a standby (Opinion R168 issued under UCP 400 and equally applicable to UCP600), UCP does not give any guidance as to which articles are to not apply to a standby.

Standbys, by their nature, are very flexible and could be applied to transactions that require presentation of commercial documents e.g., transport documents, insurance documents, etc. Therefore, it becomes very difficult, if not impossible, to generalise the applicability of the articles.

Another comment contained in DOCUMENTARY CREDITS UCP 500 AND 400 COMPARED (ICC Publication No 511) disclosed that during this revision process, “NCs commented the possibility of identifying the individual articles applicable to the Standby Credit. It was decided that this request could not be met.”

In the transition from UCP 500 to UCP 600, no major changes were made to better suit the UCP rules for standbys. It is a very tight rope to walk when it comes to handling standbys issued subject to UCP. Utmost care and consideration must be taken when contemplating issuance of a standby subject to UCP and UCP standbys should be handled by experienced practitioners. 

About the Author(s)

Ravi Kumar Jinugu

With over 15 years of experience in the field of international trade, he has strived to stay abreast of worldwide trends and advancements. His career includes roles in the international trade departments of several prestigious banks, such as ICICI Bank Ltd, Deutsche Bank in India, Westpac NZ, and Bank of New Zealand, leading to his current position at NAB. This breadth of experience has provided him with valuable insights into banking operations across various countries. He holds numerous certifications, demonstrating his commitment to professional development. These include the highly regarded Certified Documentary Credit Specialist (CDCS) accreditation obtained in 2008, and certificates in Trade Finance from Indian Institute of Banking and Finance (IIBF). Additionally, he has completed online training in Financial Crime, Fraud & Sanctions, and DC Master from Coastline Solutions. During his tenure at ICICI Bank, he pioneered several automation initiatives in relation to the handling of SWIFT messages. These initiatives included automating the process of emailing SWIFT messages to customers and distribution of SWIFT messages to branches, thereby improving operational efficiency.

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• Trade Finance

Rules of International Trade

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Below are quick links to all Rules of International Trade.

ISBP 821 International Standard Banking Practice

The ISBP is a checklist of best practices worldwide for checking documents under the UCP, ICC's universally used rules on letters of credit.

The publication International Standard Banking Practice for the Examination of Documents under UCP 600.

eUCP 2.1 Electronic Uniform Customs and Practice for Documentary Credits

eUCP VERSION 2.1

The eUCP is a supplement to the UCP that, when used in conjunction with the UCP, will provide the necessary rules for the presentation of the electronic equivalents of paper documents under letters of credit.

eURC 1.1 Supplement for Electronic Presentation (eURC) Version 1.1

eURC Version 1.1

The ICC Uniform Rules for Collections are a practical set of Rules to aid bankers, buyers, and sellers in the collections process.

The supplement for Electronic Presentation, eURC, ensures continued digital compatibility for presentation of electronic records under Collections.

URDTT Uniform Rules for Digital Trade Transactions

URDTT VERSION 1.0

The ICC Uniform Rules for Digital Trade Transactions (URDTT) are intended: (a) for a fully digital environment; (b) to be neutral with regard to technology and messaging standards; and (c) to extend into the corporate space, including commercial transactions and the growing community of non-bank providers of financial services.

The URDTT are designed to be compatible with UNCITRAL Model Laws, including those on Electronic Commerce, Electronic Signatures and Electronic Transferable Records.

ISDGP International Standard Demand Guarantee Practice

The International Standard Demand Guarantee Practice for URDG 758 (ISDGP) is a companion document to the ICC Uniform Rules for Demand Guarantees 758 (URDG). It supplements the URDG by identifying and recording best practice in relation to the URDG rules and beyond.

UCP 600 Uniform Customs and Practice for Documentary Credits

The UCP 600 are the latest revision of the Uniform Customs and Practice for Documentary Credits. UCP 600 comes into effect on July 1, 2007.

The 39 articles of UCP 600 are a comprehensive and practical working aid to bankers, lawyers, importers, and exporters, transport executives, educators, and everyone involved in letter of credit transactions worldwide.

eUCP 2.0 Electronic Uniform Customs and Practice for Documentary Credits

eUCP VERSION 2.0

Isbp 745 international standard banking practice.

The ISBP is a checklist of best practices worldwide for checking documents under the UCP, ICC’s universally used rules on letters of credit.

UCP 500 Uniform Customs and Practice for Documentary Credits

The UCP 500 are the Uniform Customs and Practice for Documentary Credits. UCP 500 came into effect on January 1, 1994.

The 49 articles of UCP 500 are a comprehensive and practical working aid to bankers, lawyers, importers, and exporters, transport executives, educators, and everyone involved in letter of credit transactions worldwide.

URC 522 Uniform Rules for Collections

The URC 522 are the Uniform Rules for Collections. URC 522 came into effect on 01 January 1996.

The ICC Uniform Rules for Collections are 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 since 1979.

eURC 1.0 Supplement for Electronic Presentation (eURC) Version 1.0

eURC Version 1.0

Urr 725 the uniform rules for bank-to-bank reimbursements.

The URR 725 are the Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits.

URR 725 should not be seen as a revision of URR 525. It is an updating process that has followed the same manner as the eUCP, i.e. to change the style to match that of UCP 600. The changes were approved by the ICC national committees at the ICC Banking Commission in April 2008.

URDG 758 Uniform Rules for Demand Guarantees

The URDG 758 are the Uniform Rules for Demand Guarantees - effective 01 July 2010.

This revision of ICC's Uniform Rules for Demand Guarantees (URDG) is the first since the rules were developed by ICC in 1991. The original rules, URDG 458, gained broad international acceptance in recent years following their incorporation by the World Bank in its guarantee forms and their endorsement by UNCITRAL and leading industry associations, such as FIDIC.

ISP 98 International Standby Practices

International Standby Practices is a new set of rules and best practice for users of standby letters of credit.

Though standby letters of credit have similarities with commercial letters of credit and other financial instrument, there are significant differences in scope and practice. A new set of Rules was therefore required for this workhorse of commerce and finance and ISP 98 fills this important gap in the market place.

URF 800 Uniform Rules for Forfaiting

ICC Uniform Rules for Forfaiting details how forfaiting facilitates the provision of finance to the international trade community. It eliminates certain risks, improves Cash Flow and can considerably speed up and simplify transactions. The International Chamber of Commerce (ICC) and the International Forfaiting Association (IFA) have joined forces to provide the business community with the first ever Uniform Rules on Forfaiting (URF 800).

DOCDEX Documentary Credit Dispute Resolution Expertise

The International Centre for Expertise administers the ICC Rules for Documentary Instruments Dispute Resolution Expertise (DOCDEX), established by the ICC Banking Commission to facilitate the rapid settlement of disputes arising under the Uniform Customs and Practice for Documentary Credits (UCP), the Uniform Rules for Bank-to-Bank Reimbursement under Documentary Credits (URR), the ICC Uniform Rules for Collections (URC), or the ICC Uniform Rules for Demand Guarantees (URDG).

URBPO Uniform Rules for Bank Payment Obligations

The scope of the Uniform Rules for Bank Payment Obligations (URBPO) lies solely in the bank-to-bank space. This is the scope agreed in the memorandum of understanding signed between ICC and SWIFT in September 2011 and the terms of reference provided to the Drafting Group. URBPO are designed to operate in what is known as the 'collaborative' space as will any Transaction Matching Application (TMA) chosen by financial institutions (known in URBPO as Involved Banks) for a given transaction.

• BPO Accounting and Capital Treatment
• ICC Guidelines for the Creation of BPO Customer Agreements
• BPO Frequently asked questions - Banks
• BPO Frequently asked questions - Corporates

eUCP Electronic Uniform Customs and Practice for Documentary Credits

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UCP 600 (English)

UCP 600 came into effect on 1 July 2007. It contains significant changes you will need to know, including:

• A reduction in the number of articles from 49 to 39;
• New articles on "Definitions" and "Interpretations" to provide more clarity and precision in the rules;
• The replacement of the phrase "reasonable time" for acceptance or refusal of documents by a firm period of five banking days;
• New provisions which allow for the discounting of deferred payment credits;
• A definitive description of negotiation as “purchase” of drafts of documents.  

The new UCP 600 also contains within the text the 12 Articles of the eUCP, ICC’s supplement to the UCP governing presentation of documents in electronic or part-electronic form.

Used by letter of credit practitioners worldwide, the Uniform Customs and Practice for Documentary Credits (UCP) are the most successful private rules for trade ever developed. Bankers, traders, lawyers, transporters, academics and all who deal with letter of credit transactions worldwide, will refer to UCP 600 on a daily basis.

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