Recommended Changes on CDCS Bible (The Complete Guide to Documentary Credits)

Disclaimer

The names of the parties, as well as the data and information in the cases stated below, have been sanitized in order to protect the identity of the parties involved. The complexities of the cases have also been simplified to facilitate easy understanding of the key issues involved.
Our expert's opinions do not necessarily reflect the views of the ICC or the ICC Commission on Banking Technique and Practice. No legal imputation should be attached to any of the contents of the cases and no legal responsibility is accepted for any errors, omissions or misleading statements or opinions caused by negligence or otherwise. Our expert's opinions are given for your reference only and you should not rely upon or act on our opinions, of which we are not held liable. You should consult your legal counsel or other experts for their opinions in your specific cases.
No article, opinion, or comment can be reproduced in whole or in part without our express written permission.

Mr. Lakshman Wickremeratne and Mr. Michael Rowe,
ICC Banking Commission
38 Cours Albert 1er
75008 Paris
France

cc. The Chartered Institute of Bankers, London.

1 March 2001

Dear Mr. Wickremeratne and Mr. Rowe,

Suggested Changes in The Complete Guide to Documentary Credits

I understand that "The Complete Guide to Documentary Credits", the official guidebook for ICC CDCS examination, is to be revised soon. Taking this opportunity, I would like to suggest the following changes in its text:

Shipment of Goods and Presentation of Documents

Page 1/5

"The seller dispatches the goods as required and presents the stipulated documents to the nominated bank whether it be the issuing bank, a specific nominate bank…" where "whether it be the issuing bank" should be deleted to avoid an issuing bank being misinterpreted as also being a nominated bank. An issuing bank nominates another bank, the nominated bank, to perform certain tasks on its behalf and hence cannot be also a nominated bank by itself. This is according to the definition of a nominated bank by sub Article 10 (b) (i) of the UCP 500.

Generic Flow Chart of the Documentary Credit Process

Page 1/6

"10 Documents and 11 Reimbursement" should be better numbered as "10 Reimbursement and 11 Documents" because documents would normally be released to the applicant only after reimbursement being made to the issuing bank by the applicant.

2.1    Conclusion of the export contract

Page 2/4

"Although trade continues to become more international in nature, there is still no general system of international commercial law applicable to export transaction…". I hold reservation for this statement as the United Nations Convention on Contracts for International Sales of Goods (CISG Vienna Convention 1980) is the general system of international commercial law applicable to export transactions, and it has been adopted by major trading nations.

4.3.1    Method of payment

Open Account

Page 2/15

"The buyer pays after dispatch of goods and often after receipt of payment on the sale of goods" where "and after receipt of payment on the sale of goods" is a misleading statement because the party that receives payment should be the seller and not the buyer.

1.1.1    Categorisation of credits by types - a cautionary note

Page 3/4

"The documentary credit specialist must always read the credit as a whole document." where the word "and amendments, if any" should be added between "credit" and "as" because an amendment may also change the categorisation of the credit.

4.3.2    Settlement methods

Sight payment

Page 3/40

"Unless the Nominated Bank is also the Confirming Bank, payment received by the beneficiary may well be with recourse to the beneficiary" where "beneficiary" should be "Beneficiary" for consistency and to avoid confusions, the words "or the Paying Bank" should be added after "Confirming Bank" because sight payment made by the Nominated Bank under a credit available for sight payment should be also without recourse.

Presentation of documents

Page 4/19

"Article 10bi also provides that documents must be presented to the nominated bank, which may be: the issuing bank, or the confirming bank, or…" where "the issuing bank, or " should be deleted because an issuing bank is not a nominated bank under the definition of an nominated bank as provided in Article 10 (b) (i) of the UCP 500.

6.1    Diagram 1 - Who "talks" to whom about what

Page 4/29

"who documents are issued by " should be "By whom documents are issued" for clarity.

Page 4/30

In describing the relationship between the issuing bank and the correspondent bank, in the "About What" section, the words "to amend, transfer, and assign the credit" should be added after "to confirm" for the sake of completeness.

2.1.8    Effecting shipment/performance and obtaining stipulated documents

Page 4/9

"…the beneficiary has a duty to make shipment or perform in accordance with the credit and obtain and present the stipulated documents under the credit." where use of the word "duty" is inappropriate because the credit is only a payment undertaking conditional to its terms and conditions being fully complied. It is not a document to policy the trade. The duty to make shipment is in fact under the sales contract that polices the trade. The beneficiary has the option not to utilize the credit. If that is the case, as far as the credit is concerned, there is no duty to perform.

Figure 6.6: Charter Party Bill of Lading

Page 6/30

Under "Key Criteria" in the charter party bill of lading shown, item No. 9 is missing although item No. 11 refers to item No. 9.

3.5.2    Key criteria of Article 26

11)    ‘full set’

Page 6/36

"if a multimodal transport document (MMTD) is issued…" where the abbreviation of multimodal transport document should be MTD according to the terminology used in the UNCTAD/ICC Rules for Multimodal Transport Documents, ICC Publication No. 481 and the United Nations International Multimodal Transport Association (IMTA) of Geneva, of which I am a member.

Page 6/37

"MMTD" appearing in various lines should read "MTD" for the same reason.
Types of credits

b)    for deferred payment

Page 8/26

"The credit may or may not stipulate a requirement for drafts" is an incorrect statement because the very purpose of introducing a deferred payment credit is to void the drafts that may involve stamp duties. If drafts are involved, the credit becomes an usance credit.

Figure 9.1 MT740 Authorization to Reimburse Information Flow Chart

Figure 9.2 MT747 Amendment to an Authorization to Reimburse Information Flow Chart

Figure 9.3 MT742 Reimbursement Claim Information Flow Chart

Pages 9/21 & 22

For consistency with the UCP 500 terminology, "Reimbursement Bank" should read "Reimbursing Bank". In UCP 500 all banks are "ING" banks and not "MENT" banks. Perhaps that is why we have ING Bank.

Also the example given for a reimbursing bank is "Manufacturers Hanover Trust Bank", that ceased to exist by the time this publication was published. This bank became a part of the Chemical Bank that is now part of Chase Manhattan Bank.

I sincerely hope that in the new edition, the above-suggested changes would be incorporated and my efforts would be acknowledged in the "Thank You" column. Before I leave, I would like to congratulate you that this publication is well written and has achieved its objective as an official guidebook of the ICC CDCS examination.

Best regards,

Yours sincerely
T. O. Lee Consultants Ltd.

T. O. Lee
Managing Director

(905) 237-6465

(905) 237-6867