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.
An example:
Issuing Bank: Bank ISS in India
Advising Bank: Bank ADV in the UK
Applicant: IMP Trader in India
Beneficiary: EXP Trader 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.
An example:
LC information (excerpts):
:31D: DATE AND PLACE OF EXPIRY
200501 IN UNITED KINGDOM
:44E: PORT OF LOADING
FELIXSTOWE
:44F: PORT OF DISCHARGE
CHINESE PORT
:44C: LATEST DATE OF SHIPMENT
200410
: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
21 DAYS
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.
An example:
LC information (excerpts):
:41A: AVAILABLE WITH
BANK NOM
BY DEF PAYMENT
:42P: DEFERRED PAYMENT DETAILS
90 DAYS AFTER SHIPMENT
Presentation information:
Goods shipped on board (bill of lading): 6 April 2020
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.
Takeaways:
* 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
Kim