Doc. Credit UCP query … ‘The Seven Year Itch’

We have had a high value standby LC on our books for approximately 7 years. It was originally issued subject to UCP 500 then amended to UCP 600. The standby is an evergreen in structure in that should we as issuing bank not issue an instruction limiting the expiry date, then the standby automatically extends for a further period of 12 calendar months. The Standby covers performance under a major commercial property development in the Middle East.

Given the increased turbulence in the financial markets our bank decided to reduce our ongoing exposure and issued the instruction referenced in the original standby limiting the exposure to the currently valid expiry date. On the day the credit was to expire, our bank received a fax transmission of the one document called for in the standby ‘signed statement of default’ before close of our banking hours.

We are of the view that as the credit called for a ‘signed statement of default’’ then the document presented must be an original document bearing an original signature and that a mere fax transmission (despite the data content in the fax transmitted document matching requirements in the credit) does not comply.

The document as printed out of our fax machine had the word ‘original’ embedded as what appeared to be a stamp on the document inserted in the senders fax machine that transmitted the message. This fax transmission, as received by ourselves, was not followed by an original statement of default either before or after the credit expired.

 

The credit has expired and we consider our exposure terminated.

We appreciate that your opinion has no legal value, but we intend to send your response to the beneficiary to help them understand the situation.

Answer:
Thank you for clarifying that my opinion has no ‘legal value’ as this frees me from any legal consequence from answering your three questions above in a direct fashion.

Based on the information provided, questions 1 and 2 are straightforward but number 3 may not be an answer you wish to transmit to the beneficiary.

1. Yes, I affirm that as the credit is silent as to whether an original or copy is to be presented, then the document here constituting the presentation must be an original. Not alone is this common sense but to provide clarification this requirement has been articulated in UCP 600, sub-article 17 (a) ‘At least one original of each document stipulated in the credit must be presented’.
Remember, the ICC Banking Commission policy statement, document 470/871(Rev), titled “The determination of an
“Original” document in the context of UCP 500 remains valid under UCP 600. Paragraph 3.5 of this policy statement makes it clear in that ‘banks treat as non-original any document that is produced at the bank’s telefax machine’.

2. Yes, I can also affirm that the beneficiary must make a complying presentation not later than the expiry date of the credit. As explained under point one, the document did not comply as it was not an original and the credit did not allow for presentation of a copy.

3. It is clear that we agree that the fax document did not comply and we also agree that once the credit has expired the beneficiary can not substitute a presented document or make a further presentation for examination. However, we are not in agreement that the bank is free from any financial obligation under this credit.

I would argue that the facts, as related, clearly evidence that your bank received a ‘presentation’ and even though it has been determined that the presentation did not comply, as your bank decided to adopt a ‘wait and see approach’ and did not issue a notice of refusal then as directed in UCP 600, sub-article 16, (f) ‘the issuing bank shall be precluded from claiming that the documents do not constitute a complying presentation’ and consequently your bank has the financial obligation to honour.