lcviews CoronAdvice #3: Beneficiaries under LCs subject to UCP 600


The third blogpost in the segment “lcviews CoronAdvice” takes a more practical approach, in that it aims to guide beneficiaries to LCs during the coronavirus situation.

 

As has been described in the two previous “lcviews CoronAdvice” whether or not the coronavirus situation is a Force Majeure event for the purpose of the Trade Finance rules will depend on the circumstances surrounding the actual case. The same is the case for the contract between the buyer and the seller. For that reason, the buyer and the seller must check their agreements, and possibly seek legal guidance.

 

Besides that, the coronavirus situation may provide some practical challenges, and there may well be some remedies that may assist the situation – and at least enhance the position of the seller – i.e. the beneficiary to the LC. Below are some vital points to consider:

 

Dialogue, dialogue, dialogue and dialogue 

 

Have a good and ongoing dialogue with the buyer to ensure that they are able to receive the goods – and are still interested in the goods. 

For example, India's Prime Minister Narendra Modi has imposed a nationwide lockdown in an attempt to slow the spread of the coronavirus. One consequence of that is that transport services to and from India are suspended. However, with exceptions meaning that transportation for essential goods only is allowed.

If it is not possible to ship the goods or the buyer is no longer interested in receiving the goods, strongly consider making an arrangement to cancel or postpone the delivery.

 

Have a good an ongoing dialogue with the carrier to ensure that they are able to ship the goods – so that it reaches the buyer within the agreed delivery date. If that is not the case, revert to the buyer to have a dialogue on how to best handle the situation.

 

Have a good and ongoing dialogue with your bank to ensure that it is possible to forward the documents to the bank – and that it is possible for the bank to present to the issuing bank. The dialogue should explore the possibility of using electronic means; e.g. electronic documents. 

 

Have a good and ongoing dialogue with other parties involved in the transaction, ensuring that they are able to do the acts needed to clear, ship, import, insure the goods. If that is not the case, revert to the buyer to have a dialogue on how to best handle the situation.

 

LC structure and content

 

For ongoing and new LCs there are some issues that should be carefully considered. Those are issues that are always important – but may be especially important in times like these. What may seem to be details, may in fact be the factor determining if payment is received. Those issues include:

 

Availability

Consider carefully how the LC is made available. It is strongly suggested that there is a nominated bank involved – the “house bank” of the beneficiary (in the country of the beneficiary). In other words that the LC is available with any bank – or the bank of the beneficiary expiring in the country of the beneficiary. This has a number of advantages:

 

1: If a complying presentation is made to the nominated bank and that bank forwards the documents to the issuing bank then the issuing bank is obligated to honour even when the documents have been lost in transit between the nominated bank and the issuing bank (UCP 600 article 35).

 

2: An LC that is available with a nominated bank is also available with the issuing bank (UCP 600 article 6(a)). This means that there are two potential places for presentation. This means that if it is not possible to present the documents to the nominated bank (as the beneficiary normally would), it may be possible to present directly to the issuing bank. 

If the documents are presented directly to the issuing bank, it is important to remember that the expiry date or latest date for presentation is not automatically extended. I.e. the presentation must be at the issuing bank at the same time it would otherwise have been at the nominated bank. It must also be remembered that the rule explained above about documents lost in transit does not apply when the beneficiary makes a direct presentation to the issuing bank. In such case the risk of documents lost – or delayed – in transit is on the beneficiary.

 

LC Content

Consider carefully the content of the LC. Is it clear? Are there any ambiguities in the LC? is it possible to get the documents required, and otherwise comply with the requirements in the LC? 

If that is not the case, it is strongly suggested that the LC is amended before shipment is made. As can be seen from the above whether or not the documents comply does not only have an effect on the payment obligation of the involved banks – it may also determine who has the risk if the documents are lost in transit. 

 

Confirmation

Consider carefully if the LC should be confirmed (of course to the extent that the (to be) confirming bank is willing to do so. If the LC is confirmed, a complying presentation to the confirming bank will obligate that bank – regardless if the issuing bank honours. 

Ensure, that the confirming bank is also a nominated bank (this is normally the case), and that the LC is available as suggested above.

 

Complying presentation

Ensure that the documents when/if presented comply with the terms and conditions of the LC. Not only will that obligate the issuing bank and (if any) the confirming bank to honour or negotiate, it will also ensure that the risk of documents lost in transit between the nominated bank and the issuing bank is on the issuing bank.

If it is not possible to comply with the terms and conditions of the LC consider carefully if at all to ship the goods. Bear in mind that an agreement with the buyer (applicant to the LC) to approve the documents regardless of the discrepancies, does not bind the issuing bank to waive the discrepancies.

 

 

Takeaways:

 

* Have a good and ongoing dialogue with buyer, carrier, bank and other parties involved in the transaction.

* Consider carefully how the LC is made available.

* Consider carefully the content of the LC.

* Consider carefully if the LC should be confirmed.

* Ensure that the documents when/if presented comply with the terms and conditions of the LC.

 

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

Kim 

 

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LCViews - lcviews CoronAdvice #3: Beneficiaries under LCs subject to UCP 600