CDCS* UCP 600 Practice Exercises 1

WARNING!

Disclaimer

  • CDCS means "Certified Documentary Credit Specialist", a certification from ICC Paris, administered by IFSA for the USA, Canada, and Mexico, whilst for the rest of the world by IFS School of Finance.
  • CDCS is a registered trade mark of ifs School of Finance registered with the EU Community Trade Mark office under number 000858704.

The Bad News

  1. We declare our copyright for the following CDCS Exam Exercises and Model Answers (the Exercises). Please understand that you may face serious legal consequences for unauthorised use of our exercises.
  2. Some of our Exercises are tricky ones and you have to read them carefully and think twice before you finish your answers. For best learning results (if you don't know the answer at all) or for testing purposes (if you believe that you should know what the correct answer is), please do not click the Model Answer button placed below each question so soon. After you have provided your answer, which you think should be correct, do think twice before you click for the Model Answer. Otherwise you will exclaim: "Oh shiX! I should have given a different answer if I had read the question correctly and had given the issues a little more thoughts".

The Good News

If you fail in providing good answers for the Exercises, don't worry! You would still be able to pass the CDCS exam, because our Exercises may be more difficult than those in the CDCS. The examiners of CDCS only wish to check your knowledge on UCP 600, ISP98 and the other ICC Rules. They do not wish to give you a hard time like we do, to push you to the limit, so that you may get a distinction!

Our Advices

In the CDCS examination, due to fear, anxiety and heavy pressure, you could only perform up to 66% (2/3) of your normal capacity. That means you would not be able to think so coolly and intelligently for the best answers. And exercises like this would prepare you well in advance for the most difficult part (case studies) of the CDCS examination that would ultimately lead you to a pass, if not an enviable distinction.

Here you go. And good luck!

 


Note:   updated Question 11 was edited on 19 Jun 2009.

 

  1. A documentary credit subject to UCP 500 bears a title "Irrevocable Documentary Credit" has a special condition as follows:

    "This documentary credit will become inoperative upon receipt of a cable to this effect from the issuing bank after issuance."

    After receipt of such a cable advice, the beneficiary made a presentation nevertheless. The issuing bank sent a refusal notice by SWIFT pointing out a discrepancy as follows:

    "Documents presented after expiry of the documentary credit render the presentation discrepant."

    Is the issuing bank correct in its refusal?

    What would be the situation if the same credit is subject to UCP 600?

    Model Answer

  2. Is the following refusal notice acceptable for a DC subject to UCP 600?

    "We refuse the documents and have found the following three discrepancies in the presented documents:

    1. The port of discharge in the B/L is not the same as that stated in the DC.
    2. Presentation after expiry.
    3. Corrections in the certificate of origin are not authenticated by the issuer."

    Model Answer

  3. What is an "unconfirmed letter of credit" under UCP 600?

    Model Answer

  4. Is it possible that a confirmed letter of credit subject to UCP 600 becomes an unconfirmed letter of credit without the consent of the beneficiary?

    Model Answer

  5. Is the following refusal notice acceptable for a DC subject to UCP 600?

    "We have found the following three discrepancies in the presented documents:

    1. The port of discharge in the B/L is not the same as that stated in the DC.
    2. Presentation after expiry.
    3. Corrections in the certificate of origin are not authenticated by the issuer.

    Meanwhile we are holding the documents at your disposal and risk."

    Model Answer

  6. An applicant informed the issuing bank that the goods were rubbish and asked the issuing bank to freeze payment under a DC subject to UCP 500/600 due to trade frauds although the documents presented were all compliant. Should the issuing bank follow the instructions from the applicant?

    Model Answer

  7. Is this refusal notice acceptable for a DC subject to UCP 600?

    "We refuse to pay you due to the following three discrepancies:

    1. The commercial invoice does not meet the terms and conditions of the DC.
    2. Third party B/L presented.
    3. Unclean B/L presented.

    Meanwhile we are holding the documents at your disposal and risk."

    Model Answer

  8. A DC subject to UCP 500 issued by Bank I was confirmed by Bank C expiring on 1 September 2002. There was no restriction on the presentation. The beneficiary presented the documents to Bank I on 29 August 2002. Is this the best practice? What are the risks?

    If the DC were subject to UCP 600, would your answer be the same?

    Model Answer

  9. A presenting bank had the following messages in its covering letter/schedule dated 24 July 2007 presented against a DC subject to UCP 600.

    "We have found the following discrepancies in the documents:

    1. The port of discharge in the B/L is not the same as that stated in the DC.
    2. Presentation after expiry.
    3. Corrections in the certificate of origin are not authenticated by the issuer.

    The documents are now presented for collection. Please approach the applicant for a waiver and give us your authority to negotiate by SWIFT message."

    The issuing bank sent its refusal notice as follows:

    "After consulting the applicant, we determine to refuse the documents due to the three discrepancies with the underlying reasons as stipulated in your covering letter/schedule dated 24 July 2007.

    Meanwhile, we are holding the documents at your disposal and risk."

    Model Answer

  10. A nominated paying bank sent three refusal notices on the same day under a DC subject to UCP 600. The first notice was sent by fax listing all the discrepancies with reasons; the second notice made by telephone advising payment dishonour and the third notice sent by telex advising that documents were returned to the presenter by local courier. Is this acceptable? Please state your reasons.

    Model Answer

  11. UCP 600 article 3 states that:

    "Branches of a bank in different countries are considered to be separate banks."

    UCP 500 Article 2 states that:

    "For the purpose of these Articles, branches of a bank in different countries are considered another bank."

    Charles del Busto explained in ICC Publication No. 511 "UCP 500 and 400 Compared" that the underlying reason is because branches of the bank in different countries may be subject to different jurisdictions. What is legal for the head office of a bank may not be also legal in its branches in different countries.

    Hong Kong was a British territory before 1 July 1997. After 1 July 1997, Hong Kong became part of the People's Republic of China (PRC) but it practises "One Country Two Systems" whereby the applicable law in Hong Kong is the Basic Law (Common Law) whereas that of PRC is Civil Law.

    On 24 July 2007, a documentary credit subject to UCP 600 issued by Bank ABC Beijing Head Office was advised by its branch in Hong Kong. There were disputes on the discrepancies between the Beneficiary and the Bank ABC Head Office. The Beneficiary's law firm served a strong letter to Bank ABC Hong Kong Branch showing its intent to sue it in Hong Kong unless payment was made within 14 days. Bank ABC Hong Kong Branch replied as follows:

    "Due to different jurisdictions between Hong Kong and PRC, we are in fact a different bank according to the provisions of UCP 500 Article 2 (equivalent to UCP 600 article 3), based on the interpretation of Charles del Busto in ICC Publication No. 511 "UCP 500 and 400 Compared". Hence as an advising bank we have no payment obligations. Your client, as a beneficiary, should sue our Head Office in Beijing instead."

    Is the defence of Bank ABC Hong Kong Branch correct?

    Model Answer

  12. The applicant showed to the beneficiary a written undertaking from the issuing bank for its agreement to issue a letter of credit subject to UCP 600. However, due to change in financial position of the applicant, the issuing bank later decided not to do so. The beneficiary wrote to the issuing bank to force its commitment in writing. Is the beneficiary successful? Please give your reasons.

    Model Answer

  13. Under which condition that a confirmed letter of credit subject to UCP 600 may become unconfirmed without the consent of the beneficiary?

    Model Answer

  14. In determination of the compliance of a refusal notice with the UCP 600, should the stipulations of UCP 600 articles 14 and 16 be read separately for (a) document examination for compliance, (b) determination of refusal or acceptance and (c) sending of the refusal notice respectively?

    Model Answer

  15. One set of Drafts drawn on the drawee bank presented under a documentary credit subject to UCP 600 expiring on 30 August 2007 was accepted on 30 July 2007 for 30 days deferred payment but was unpaid on maturity 30 August 2007. According to UCP 600 article 7 (a) (iv) the beneficiary made a new set of "replacement" Drafts drawing on the issuing bank on 3 September 2007. The issuing bank refused to pay the Drafts because they were drawn and presented after expiry of the DC. Is the issuing bank correct in its decision? Please state your reasons.

    Model Answer

  16. An issuing bank sent its refusal notice on the 5th banking day after receipt of the documents presented under UCP 600. In fact a simple set of documents was presented for sales of kitchenware, consisting of a total of 12 pages of documents. Is this refusal notice sent within reasonable time?

    Model Answer

  17. An issuing bank sent its refusal notice to a presentation under UCP 600 to a presenting bank overseas by courier. Is this acceptable?

    Model Answer

  18. Under UCP 600, can a beneficiary, through a presenting bank, have the right to present documents against a confirmed letter of credit directly to the issuing bank?

    Model Answer

  19. A standby letter of credit subject to UCP 600 was issued to back up an "open account" transaction where payment was made only 30 days after the "shipped on board" date. The standby required presentation of Drafts in duplicate, one Default Statement signed by the Beneficiary, one copy of Commercial Invoice and one copy of "shipped on board" B/L. It also specified that no presentation could be made until after default in payment. The Issuing Bank sent its Refusal Notice as follows:

    "We refuse to pay due to the following discrepancy in the B/L:

    The copy of B/L was presented more than 21 days after shipment, which is against the stipulation in UCP 600 article 14 (c)."

    Is the Issuing Bank correct in its refusal decision?

    Model Answer

  20. For a DC subject to UCP 600, what should the presenting bank advise the beneficiary who asks for direct presentation to the issuing bank, thereby by-passing the confirming bank?

    Model Answer

  21. A standby LC issued by Bank I was confirmed by Bank C expiring on 1 September 2002. There was no restriction on the presentation. The beneficiary presented the documents to Bank I on 29 August 2002 but was wrongly dishonoured on 2 September 2002 relying on invalid discrepancies, such as the commercial invoice was not marked "original" whereas the standby LC did not ask for such marking. The documents were returned to the beneficiary that received them on 5 September 2002. The beneficiary presented the same documents without any alteration to the confirming bank on 6 September 2002. The refusal notice from the confirming bank stated:

    "We refuse to pay due to presentation made after expiry of the standby LC. Meantime we are holding the documents at your disposal and risk."

    Is the confirming bank right in its refusal under ISP98?

    Model Answer

  22. Case Study

    A beneficiary put in its purchase agreement a special condition: "Payment by a confirmed letter of credit" and a "confirmed letter of credit" subject to UCP 600 was advised by the advising bank, which was also the nominated paying bank for at sight payment with reimbursements subject to URR 525 by an independent reimbursing bank. When the issuing bank in country A was ordered by the local government to freeze payment due to foreign exchange control, the beneficiary presented the compliant documents (later certified by the ICC DOCDEX Decision) to the nominated paying bank in country B, but no payment was made. What are the reasons?

    Model Answer

  23. A beneficiary made a compliant presentation under a documentary credit subject to UCP 600. The applicant showed to the issuing bank that the same beneficiary had made fraudulent presentation under another documentary credit issued by another bank and instructed the issuing bank not to pay the beneficiary. The issuing bank did not follow the instruction and paid the beneficiary. The applicant refused to reimburse the issuing bank. Is the applicant right in doing so? Please give your reasons.

    Model Answer

  24. Is the nominated paying bank in question 10 subject to the sanction under UCP 600 Article 16 (f)?

    Model Answer

  25. 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 and what are the risks?

    Model Answer

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