L7 On UCP600 Article 07 October 16 Intake PDF

CDCS MENTOR
…....for Professionals
CDCS exam 2016

(October Intake)
preparation Program
A
Md. Mohiuddin,
Mohiuddin, cdcs
PRESENTATION
1
CDCS MENTOR,
MENTOR Md. Mohiuddin; Cell: 01716308384; e-mail: cdcs.mentor.bd@gmail.com
UCP 600 Article 7:Issuing Bank Undertaking CDCS MENTOR
a. Provided that the stipulated documents are presented

to the nominated bank or to the issuing bank and
that they constitute a complying presentation, the
issuing bank must honour if the credit is
available by:
i. sight payment, deferred payment or acceptance with
the issuing bank;
ii.
ii. sight payment with a nominated bank and that
nominated bank does not pay;
iii.
iii. deferred payment with a nominated bank and that
nominated bank does not incur its deferred payment
undertaking or, having incurred its deferred payment
undertaking, does not pay at maturity;
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CDCS MENTOR,
a. Provided that the stipulated documents are presented

to the nominated bank or to the issuing bank and that
they constitute a complying presentation, the issuing
bank must honour if the credit is available by:
iv. acceptance with a nominated bank and that
nominated bank does not accept a draft drawn on it or,
having accepted a draft drawn on it, does not pay at
maturity;
v. negotiation with a nominated bank and that nominated

bank does not negotiate.
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CDCS MENTOR,
CDCS MENTOR
Issuing Bank MUST Honour under conditions of :

o All stipulated documents are presented
o Presented to the nominated bank or;
Presented to the issuing bank
o Constitute a complying presentation
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CDCS MENTOR,
CDCS MENTOR
Issuing Bank’s Honour Manner:

Sight payment, deferred payment and acceptance if available
with the issuing bank.
Sight payment, deferred payment, acceptance & Negotiation

with the nominated bank and the nominated bank don’t act as
a nominated bank or don’t completed the honour mechanism
i.e. give deferred payment undertaking but not pay at maturity
or give acceptance but not pay at maturity.
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CDCS MENTOR,
b. An issuing bank is irrevocably bound to

honour as of the time it issues the credit.
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CDCS MENTOR,
CDCS MENTOR
Binding effects of issuing bank commences….
An issuing bank’s irrevocable bindings to honour

commences while issues the credit.
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CDCS MENTOR,
CDCS MENTOR
Issuing Bank issued a credit favouring a beneficiary in country of

China and sent the same to Advising Bank for advising. On the
following day, Issuing bank sent a message to Advising Bank for
cancellation of the credit. The credit still remained unadvised at the
counter of Advising Bank. Which of the following statement is correct?
A. Beneficiary's agreement to the cancellation is

not required since the credit hasn’t been advised.
B. Beneficiary's agreement to the cancellation is
required even though the credit hasn’t been advised.
Answer: (B) [due to UCP600 Article 7(b)]

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CDCS MENTOR,
c. An issuing bank undertakes to reimburse a

nominated bank that has honoured or
negotiated a complying presentation and
forwarded the documents to the issuing
bank. Reimbursement for the amount of
complying presentation under a credit available by
acceptance or deferred payment is due at maturity,
whether or not the nominated bank prepaid or
purchased before maturity. An issuing bank's
undertaking to reimburse a nominated bank is
independent of the issuing bank's undertaking to
the beneficiary.
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CDCS MENTOR,
CDCS MENTOR
Two fold undertaking of issuing bank
An issuing bank’s two fold irrevocable undertaking

through issuing the credit.
To Beneficiary: for Honour

To Nominated Bank: for reimbursement
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CDCS MENTOR,
CDCS MENTOR
An issuing bank’s irrevocable undertaking to reimburse

the nominated bank depends on the following:
1. Honoured a complying presentation or

Negotiated a complying presentation
2. forwarded the documents to the issuing bank
3. Reimbursement under a credit available by acceptance or
deferred payment is due at maturity.
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CDCS MENTOR,
CDCS MENTOR
An issuing bank undertakes to

reimburse a nominated bank that has
acted on its nomination.
An issuing bank's undertaking to the
Issuing nominated bank is independent of
Bank’s the undertaking given to the
Undertaking beneficiary.
to the Even if the nominated bank has paid

in advance under a credit available
nominated
by acceptance or deferred payment,
bank(s) the issuing bank has no obligation to
pay before maturity.
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CDCS MENTOR,
CDCS MENTOR
Both (two fold undertaking) are

Independent from each other….
An issuing bank’s two fold irrevocable undertaking through

issuing the credit.
Independent from:
Undertaking to Beneficiary for Honour
Undertaking to Nominated Bank for reimbursement
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CDCS MENTOR,
CDCS MENTOR
Does a nominated bank have the right of

recourse from the beneficiary under a
sight payment/deferred payment/acceptance credit?
When a nominated bank has paid, accepted a draft or

incurred a deferred payment undertaking it is without
recourse to the beneficiary. Exceptions may be where the
bank and beneficiary have entered into specific
agreements regarding recourse.
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CDCS MENTOR,
CDCS MENTOR
Case: -LC is available with ABC Bank by acceptance

- Drafts are to be drawn on ABC Bank
- Documents presented and ABC Bank acts upon its nomination and
accepts the draft drawn on it
- Issuing bank fails to pay on maturity date due to country risk
Q1: Is the nominated bank bound to pay the beneficiary?
Q2: Will the nominated bank have recourse to the

beneficiary if it has prepaid under the draft?
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CDCS MENTOR,
CDCS MENTOR
By reference to the nominated bank acting on its nomination, it is inferred

that the nominated bank did not confirm the credit. On this basis, the
nominated bank, at the time of presentation of documents was able to
decide whether or not they would accept the draft. Having chosen to accept
the draft the nominated bank has created an undertaking to honor on the
due date. In answer to question 1, the answer is yes due to their accepting
draft. The acceptance of the draft is without recourse to the extent that the
acceptor cannot decline to honor on the due date and if it has discounted
the proceeds earlier is not able to claim the funds back from the
beneficiary. By accepting the draft, the nominated bank took the bank,
country and documentary risk of the transaction.
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CDCS MENTOR,
CDCS MENTOR
Case:
Case: The acceptance advice we receive under deferred payment LC’s
sometimes show that documents have been accepted by the applicant “ to
mature on dd/mm/yyyy”. What is the difference between the acceptance
under a deferred payment LC and the acceptance under an
acceptance/negotiation LC? Is the acceptance under a deferred payment LC a
bank’s acceptance?
Firstly, a bank should not accept an advice that states “ accepted
by the applicant”. The taking up of documents should be an act
of the issuing bank either through their determining that the
documents comply or by them accepting a waiver issued by the
applicant in respect of discrepancies in the documents. An
advice of taking up documents should be no different if it is
under a deferred payment, acceptance, negotiation or payment
credit.
17
CDCS MENTOR,
CDCS MENTOR
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CDCS MENTOR,
CDCS MENTOR
If a credit stipulated “available with issuing bank by negotiation”

may another bank or banks negotiate the documents under the
credit?
Suggested Answer:
Answer: A credit can only be made available with an
issuing bank by honor i.e. payment, deferred payment or
acceptance. Under the definition of negotiation, a negotiation
credit is a credit that is available with a nominated bank either
with a draft drawn on a party other than the nominated bank i.e.,
the issuing bank or reimbursing bank, or no draft. For another
bank to negotiate, it would require the credit to indicate that it
was available with that bank or available with any bank.
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CDCS MENTOR,
CDCS MENTOR
If a confirming bank determines a presentation is complying and

forwards the documents to the issuing bank, does the issuing
bank have the right to hold an opposite view on the documents
and refuse to pay the confirming bank?
Suggested answer:
answer: The issuing bank undertaking is to honor
documents that constitute a complying presentation. If the
issuing bank determines that the documents do no comply, then
they are under no obligation to honor no matter whether a
confirming bank or nominated bank determined that in their
opinion, they did comply.
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CDCS MENTOR,
CDCS MENTOR
Regarding sub-article 7(b) and reference to “as of the time it

issues the credit”. In case the SWIFT or TELEX message is garbled
or the mailed credit is missing, is the credit still valid and the
issuing bank still bound?
Suggested answer: The issuing bank is bound as of the time it

issues the credit. The fact that the credit is garbled or lost in
transit does not change the position that the credit was issued and
the issuing bank was bound as of that time.
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CDCS MENTOR,
CDCS MENTOR
Under a deferred payment credit, may the issuing bank refuse to

pay (reimburse) if a court injunction has been issued?
Suggested answer:
Clearly, an issuing bank cannot ignore a court

injunction.
22
CDCS MENTOR,
CDCS MENTOR
Can a draft drawn on a confirming bank if a credit is available

with it by negotiation? What if the credit is available with it by
sight payment, deferred payment or acceptance?
Suggested answer: If a draft drawn on the confirming bank, it

can only be available with them by payment (sight draft) or
acceptance (usance draft). Under a credit available by
negotiation the draft must be drawn on a bank other than the
nominated (confirming) bank. Under a deferred payment credit
no draft should be requested.
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CDCS MENTOR,
CDCS MENTOR
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CDCS MENTOR,
CDCS MENTOR
25
CDCS MENTOR,

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CDCS MENTOR

CDCS exam 2016

a. Provided that the stipulated documents are presented

a. Provided that the stipulated documents are presented

v. negotiation with a nominated bank and that nominated

Issuing Bank MUST Honour under conditions of :

Issuing Bank’s Honour Manner:

Sight payment, deferred payment, acceptance & Negotiation

b. An issuing bank is irrevocably bound to

An issuing bank’s irrevocable bindings to honour

Issuing Bank issued a credit favouring a beneficiary in country of

A. Beneficiary's agreement to the cancellation is

Answer: (B) [due to UCP600 Article 7(b)]

c. An issuing bank undertakes to reimburse a

Two fold undertaking of issuing bank

An issuing bank’s two fold irrevocable undertaking

To Beneficiary: for Honour

An issuing bank’s irrevocable undertaking to reimburse

1. Honoured a complying presentation or

An issuing bank undertakes to

to the Even if the nominated bank has paid

Both (two fold undertaking) are

An issuing bank’s two fold irrevocable undertaking through

Undertaking to Beneficiary for Honour

Undertaking to Nominated Bank for reimbursement

Does a nominated bank have the right of

When a nominated bank has paid, accepted a draft or

Case: -LC is available with ABC Bank by acceptance

Q1: Is the nominated bank bound to pay the beneficiary?

Q2: Will the nominated bank have recourse to the

By reference to the nominated bank acting on its nomination, it is inferred

If a credit stipulated “available with issuing bank by negotiation”

If a confirming bank determines a presentation is complying and

Regarding sub-article 7(b) and reference to “as of the time it

Suggested answer: The issuing bank is bound as of the time it

Under a deferred payment credit, may the issuing bank refuse to

Clearly, an issuing bank cannot ignore a court

Can a draft drawn on a confirming bank if a credit is available

Suggested answer: If a draft drawn on the confirming bank, it

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