CDCS* UCP 600 Practice Exercises 5

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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:   newQuestion 123 was added on 12 Feb 2012.

  1. A credit subject to UCP 600 purchasing commodities goods from any Asian port(s) to any European port(s), asked for one set of charter party bills of lading (CPBL). The beneficiary asked for an amendment to specify the name of the port(s) of loading based on UCP 600 article 22 (a) (iii) that allows only the port(s) of discharge to name a range or ports or a geographic area. But it does not allow the port(s) of loading to indicate a range of ports or geographical area.

    Is the beneficiary correct in its objection to range of port(s) of loading stated in the credit?

    Model Answer

  2. A credit subject to UCP 600 expired on 7 February 2010, which is a Sunday. In the morning of 7 February 2010, although the nominated paying bank in China was closed to the public due to Sunday, yet the bankers in the letter of credit department of this bank had to come back to work internally in order to clear the heavy workload before the Chinese New Year holidays starting from on 14 February 2010.

    On this day, there was a small fire at 12.00 pm due to short circuit and the bank had to close after 12.00 pm. The bank re-opened on Monday 8 February 2010. In the morning of this day the bank knew from the headline of the New York Times that the issuing bank in USA had finance troubles.

    The beneficiary made a presentation on 8 February 2010 and was refused by the nominated paying bank stating:

    “We had a force majeure incident due to fire on Sunday 7 February 2010. According to UCP 600 article 36 provisions, the expiry date and the last date for presentation for this credit would not be extended to the next business day due to force majeure reasons. As a result, the provisions of article 29 (a) is not applicable due to this force majeure incident. Your presentation is now returned without payment. We regret for this unfortunate incident which is out of our control.”

    Q1     Is the nominated paying bank right in its refusal notice?

    Model Answer

  3. A credit subject to UCP 600 has the following clause in field 78:

    “INFO TO PRESENTING BK:
    +ON RECEIPT OF DOCUMENTS CONFORMING TO THE TERMS OF THIS DOCUMENTARY CREDIT AT OUR COUNTER, WE UNDERTAKE TO REIMBURSE YOU IN THE CURRENCY OF THIS CREDIT IN ACCORDANCE WITH YOUR PAYMENT INSTRUCTION ON THE DUE DATE OF THE DRAFT/DOCUMENTS AFTER DEDUCTING ALL RELATIVE REIMBURSING FEE AND CABLE CHARGES INCURRED. WE SHALL ADVISE YOU THE MATURITY DATE.”

    The documents were compliant but were lost in transit from the presenting bank that did not take up the nomination. The issuing bank sent a refusal notice saying that based on the first two lines of the above clause, payment is only conditional to good receipt of documents at the counter of the issuing bank and that this clause overrides UCP 600 article 7 regarding issuing bank's payment obligations under the credit.

    Q1     Is the issuing bank right in its refusal notice?

    Model Answer

  4. A credit subject to UCP 600 has the following clause stated in the bill of lading.

    “NO DIRECT OVERSIDE DISCHARGE OR DIRECT DELIVERY.”

    The goods are wood pulp packed in bales transported from Canada to Kunsan, South Korea by a break bulk vessel.

    The issuing bank refuses payment because this clause is discrepant as it infringes the right of the consignee on discharge.

    Q1     Is the issuing bank right in its refusal?

    Model Answer

  5. In a transferred credit subject to UCP 600, the substituted drafts from the first beneficiary had discrepancies. The transferring bank sent notice to the first beneficiary to correct the discrepancies but the first beneficiary had caused some delay in return of the corrected drafts. Meanwhile the transferring bank did not wait for the return of the corrected drafts and presented the documents from the second beneficiary (for a smaller drawing amount) to the issuing bank in accordance with article 38 (i). Hence the payment was only adequate to cover payment to the second beneficiary. As a result, the first beneficiary was not paid.

    The first beneficiary sent a protest to the transferring bank and opined that the second part of article 38 (i) only covers the invoice, not drafts. As a result, the transferring bank has no right to present the documents from the second beneficiary without waiting for the first beneficiary to correct the discrepancies in the drafts.

    Q1     Is the first beneficiary right in his protest?

    Model Answer

  6. A credit subject to UCP 600 has the following terms:

    +One original and two copies beneficiary's signed statement if shipment is free of wood packing materials, the following must be stated on actual shipper's letterhead, I (state name) hereby certify and declare that the merchandise shipped does not contain any wood packing materials, mentioning this credit number, PO No. and container No.

    The beneficiary's signed statement is signed as:

    BRASIL EXPORT INC.

    Beneficiary's Signed Statement

    LC No. MAICON/424
    PO No. LUCIO/1333
    Container No. KAKA2010702

    We hereby certify and declare that the merchandise shipped does not contain any wood packing materials.

    For and on behalf of
    Brasil Export Inc.

     

    Fabiano Robinho

    Authorized Signature

     

    The issuing bank refuses the beneficiary's signed statement with following reason:

    “The beneficiary's signed statement states “We hereby certify...” instead of “I, Fabiano Robinho, hereby certify...” as specified in the credit.

    Questions:

    Q1     Is the issuing bank correct in its refusal?

    Model Answer

  7. In a credit subject to UCP 600, the issuing bank refuses to pay due to following discrepancies in a port-to-port bill of lading:
    • The goods should be consigned to the place of the consignee. The bill of lading shows that the consignee is in New York whereas the port of discharge is Los Angeles.

    Questions:

    Q1     Is the issuing bank correct in its refusal?

    Model Answer

  8. In a credit subject to UCP 600, the issuing bank refuses to pay due to following discrepancies in a cargo insurance policy:
    • The credit asks for payment of claims in Sharjah, UAE whereas the stamp in the policy shows that payment of claims is in Sharjah, UAE but the pre-printed words in the policy show that payment of claims is in Dubai, UAE.

    Questions:

    Q1     Is the issuing bank correct in its refusal?

    Model Answer

  9. In a credit subject to UCP 600, asking for drafts, the words in the signature box for the drawer is all written in hand writing as follows:

    For and on behalf of
    ABC Company Limited

    Michael Jimson
    Authorized Signature

    The issuing bank refuses to pay due to following discrepancies in the drafts:

    Hand written company name is not acceptable to avoid frauds.

    For and on behalf of
    ABC Company Limited,

    Michael Jimson
    ............................
    Authorized Signature

    According to trade practice, words in red as shown above should appear in the form of a company stamp.

    Questions:

    Q1     Is the issuing bank correct in its refusal?

    Model Answer

  10. A credit subject to UCP 600 has the following terms:

    +One original and two copies forwarder's cargo receipt, consigned to applicant, notify ABC Inc. with freight collect. Please contact XYZ Forwarder Inc, 100 Avenue Road, Toronto, Ontario L4S 2L1 Canada. Mr. So Good Tel: 905 888 8888 Fax 905 888 9999 to arrange delivery of goods. All loading charges are for the account of beneficiary.

    The issuing bank refuses to pay due to following discrepancy in the forwarder's cargo receipt (FCR):

    The FCR does not show “All loading charges are for the account of beneficiary”.

    But in the beneficiary's signed certificate required by the credit, it has covered such condition, namely:

    We hereby certify that:

    1. This shipment does not contain any wood packing material.
    2. No child labour is involved in the manufacture of the goods.
    3. The beneficiary holds the applicant harmless against copyright infringement, if any.
    4. All loading charges are for the account of beneficiary.

    Questions:

    Q1     Is the issuing bank correct in its refusal?

    Model Answer

  11. A credit subject to UCP 600, allowing partial shipments, has the following terms:

    “+One original and two copies beneficiary's signed statement to warrant that:

    1. The goods are free of copyright infringement.
    2. No child labour is involved in the manufacturing.
    3. No wood packing materials are used.

    10,000 pcs. remote control helicopters, red, with batteries
    PO No. 12345 for East Coast USA.

    8,000 pcs. remote control sport cars, blue, with batteries
    PO No. 12346 for West coast USA.”

    The commercial invoice indicates shipment of 10,000 pcs. helicopters to East Coast only.

    The issuing bank refuses the beneficiary's signed statement with following reason:

    “The beneficiary's signed statement, covering 8,000 pcs. remote control sport cars for West Coast, as well as 10,000 pcs. helicopters for East Coast, is not consistent with the goods covered by the commercial invoice.”

    Questions:

    Q1     Is the issuing bank correct in its refusal?

    Model Answer

  12. A credit subject to UCP 600 calling for 2,000 MT of chemicals does not allow partial shipments or drawings.

    Two bills of lading are presented. Bill of lading 1 of voyage No. 666 shows carriage by MV Good Luck with 1,000 MT of chemicals to be discharged at Singapore and bill of lading 2 of voyage No. 666 showing carriage by the same vessel MV Good Luck with 1,000 MT of chemicals to be discharged at Hong Kong.

    The issuing bank refuses the presentation stating:

    “According to article 31 (b) of UCP 600, shipments to two different destinations are partial shipments that the credit does not allow”.

    The beneficiary argues that Singapore and Hong Kong are only ports of discharge, not destinations, that are the exact words used in article 31 (b) of UCP 600. Hence there is no discrepancy.

    Questions:

    Q1     Who is correct?

    Model Answer

  13. A credit subject to UCP 600 calling for 10,000 MT of cement does not allow partial shipments or drawings.

    Two sets of stipulated documents are presented. One set containing Bill of Lading (BL) 1 is presented in the morning of 1 May 2010 and another set containing BL 2 is presented in the afternoon of 1 May 2010, using a different covering letter or schedule.

    BL 1 of voyage No. 888 shows carriage by MV OMG covering 6,000 MT of cement to be discharged at New York. BL 2 showing carriage by the same vessel MV OMG of same voyage No. 888 covering 4,000 MT of cement is to be discharged at New York.

    The issuing bank refuses the two presentations stating:

    “Partial shipment is made and this is not allowed in the credit.”

    The beneficiary argues that according to article 31 (b) of UCP 600, the two shipments carried by the same vessel, on the same voyage and to the same destination are not partial shipments. Hence there is no discrepancy.

    Questions:

    Q1     Who is correct?

    Model Answer

  14. We refer to the previous case study No. 113.

    Questions:

    Q1     Would the two presentations be compliant in case study No. 113 if

      1. The covering letter or schedule presented in the morning states:

        “Special instructions:

        This is only the first batch of documents. The second batch of documents will be sent in the afternoon. Please do not start your document checking until the second batch of documents has been received. Thank you for your kind cooperation.”

        and

      2. The covering letter or schedule presented in the afternoon states:

        “Special instructions:

        This is the second batch of documents. Please start your document checking now together with the first batch of documents already sent in the morning. Thank you for your kind cooperation.”

    Model Answer

  15. A bill of lading has no issuing date but with a dated on board notation that complies with the credit requirement under UCP 600.

    The issuing bank refuses to pay due to no issuing date being given on the signature box.

    Is the issuing bank right in its decision?

    Model Answer

  16. The credit subject to UCP 600 requires a dated shipping advice and a shipping advice is presented with the issuing date box worded as “dated as per copy of bill of lading No. ABC12345 attached herewith”.

    The issuing bank refuses payment due to the shipping advice not showing any date, month or year to indicate the issuing date.

    Is the issuing bank correct in its decision?

    Model Answer

  17. A certificate of origin is presented under UCP 600 with the issuing date box showing 12 Dec 2011 and the signature box showing another date 15 Dec 2011.

    Q1 Which is the actual issuing date of the certificate of origin, 12 Dec 2011 or 15 Dec 2011?
     
    Q2 If the signing date is deemed to be the issuing date, then can the issuing bank refuse payment relying on inconsistence of the two issuing dates shown in the same certificate of origin?

    Model Answer

  18. A credit subject to UCP 600 states:

    +1 original and 2 copies of beneficiary's certificate certifying that 1 set of copies of shipping documents has been sent to the applicant within 2 days from date of shipment.

    1 original and 2 copies of a signed beneficiary's certificate are presented, certifying that 1 set of copies of shipping documents has been sent to the applicant within 2 days from date of shipment. But it has no date of issue. The issuing bank refuses payment due to no issuing date being shown in the beneficiary's certificate.

    Is the issuing bank correct in its decision?

    Model Answer

  19. A credit subject to UCP 600 states:

    +1 original and 2 copies of beneficiary's certificate certifying that 1 set of copies of shipping documents has been sent to the applicant after shipment.

    1 original and 2 copies of a signed beneficiary's certificate are presented, certifying that 1 set of copies of shipping documents has been sent to the applicant after shipment. But its issuing or signing date is 1 day before date of shipment. The issuing bank refuses payment because the certification cannot be made before occurrence of the event (i.e. sending 1 set of copies of shipping documents to the applicant after date of shipment).

    Is the issuing bank correct in its decision?

    Model Answer

  20. Letter of credit A subject to UCP 600 states:

    +1 original and 2 copies of beneficiary's certificate certifying that 1 set of copies of shipping documents has been sent to the applicant within 2 days from date of shipment.

    Letter of credit B subject to UCP 600 with other identical terms and conditions states:

    +1 original and 2 copies of beneficiary's certificate certifying that 1 set of copies of shipping documents has been sent to the applicant within 2 days after date of shipment.

    The shipment date for the presentation is 3 May 2011.

    1 original and 2 copies of a signed beneficiary's certificate are presented, certifying that 1 set of copies of shipping documents has been sent to the applicant on date of shipment. It follows that its issuance or signature date is also 3 May 2011.

    Is this beneficiary's certificate compliant under both letter of credit A and B?

    Model Answer

  21. The LC is subject to UCP 600 available for payment by the nominated bank that is also the transferring bank.

    The LC states:

    "Documents must be presented within 21 days from date of BL but within expiry of the Credit".

    Shipment must be made not later than 31 August 2007.

    The LC expiry date is?1 September 2007.

    (Note: This is in line with international banking practice as most issuing banks make the expiry date 21 days after last shipment date.?However some LCs give only 10 days for expiry after last shipment date.?In my LC escort retainer service, I often ask my clients to check and make sure they do have full 21 days after last date of shipment in order to enjoy the full benefits on period of presentation under UCP 600, particularly when the LC has to be transferred to another supplier for shipment arrangement.)

    The LC has been transferred to two second beneficiaries in two other countries.

    The BL presented is a pre-printed "Received for shipment" BL with an on board notation stamp dated 1 August 2007.

    The issuing date of BL is 5 August 2007

    After receipt of documents from second beneficiaries, first presentation to the nominated bank by first beneficiary is on 12 August 2007.?The discrepant documents have to be sent back to the second beneficiaries to cure and this takes a lot of time to complete the curing cycle as the second beneficiaries are not domiciled in the same country of the first beneficiary.

    Date of last presentation to nominated bank after curing discrepancies is?3 August?007.

    The presentation is rejected by issuing bank based on UCP 600 article 14 (c) as the BL is presented more than 21 days after shipment date [which is the on board notation date according to UCP 600 article 20 (a) (ii)].

    Is the issuing bank correct it is refusal?

    Model Answer

  22. Issuing Date of Cargo Insurance Certificate

    A Marine Cargo Insurance Certificate (the Certificate) was presented against an LC subject to UCP 600.

    The Certificate states on its face the following:

    Open Cover Policy No. OCP-12345678 issued on 1 January 2011.
    Marine Cargo Insurance Certificate No. MCIC-87654321 issued on 3 April 2011

    The related bill of lading shows a shipped on board date of 1 April 2011.

    The issuing bank refused payment due to the issuing date of the Marine Cargo Insurance Certificate is later than the shipped on board date, based on the provisions of UCP 600 sub-article 28 (e). The issuing bank also added that the cargo insurance converge is not yet effective at the time of shipment on board.

    Is the issuing bank correct in refusing payment of the presentation?

    Model Answer

  23. Tolerance in LC amount and shipped quantity

    A confirmed letter of credit subject to UCP 600 states:

    In Field 39A: + or - 5%

    In filed 43P: Partial shipments and drawings allowed

    In field 45A: 100,000 MT steel round bars BS 1234 per PO No. 5678.

    1st shipment: Around 50,000 MT

    2nd shipment: Around 30,000 MT

    3rd shipment: Around 20,000 MT

    The confirming bank refuses to pay based on following discrepancies:

    1. “Around” is not a word defined in UCP 600. Hence the tolerance limit in quantity should be governed by the tolerance limit in the credit, namely + or - 5%.
    2. The issuing bank should bear the consequences of unclear or misleading wordings as well as ambiguity in the credit.
    3. Hence the quantity in the 1st shipment, 55,000 MT exceeds the tolerance limit of + or - 5% in the credit.

    Question: Is the confirming bank right in its refusal?

    Model Answer

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