CDCS UCP 600 Practice Exercises 5

CDCS* UCP 600 Practice Exercises 5

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

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.
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: Questions 107 to 111 were added on 26 August 2010.

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?

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?

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?

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?

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?

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?

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?

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?

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?

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:

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

Questions:

Q1
Is the issuing bank correct in its refusal?

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:

The goods are free of copyright infringement.
No child labour is involved in the manufacturing.
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?

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