Of course, the covid-19 crisis has impacted Trade Finance in different ways. The forwarding of documents has been disrupted – hence delays and increased risk of documents lost in transit. The transit times of the goods has increased.
(Originally published in the book “CoronAdvice - covid-19 from a Trade Finance perspective”)
Of course, the covid-19 crisis has impacted Trade Finance in different ways. The forwarding of documents has been disrupted – hence delays and increased risk of documents lost in transit. The transit times of the goods has increased.
There are different ways to handle these “disruptions”. However, a consequence of such disruptions is that new “clauses” are emerging that related to documentary credits.
The purpose of this article is to address a couple of those.
For Cuba it applies that the courier services were “temporarily suspended” for a long time due to covid-19. This triggered the messages like the below from some of the banks in Cuba to their correspondent banks in other countries:
Attention to department of documentary credits
Due to the current situation with covid-19 pandemic, please take note that until the problems with sending doc-uments by international couriers to Cuba are solved all documentary credits issued by us are modified as fol-lows:
If required in MT700 (or subsequent MT707 the following document (or similar worded) is deleted:
+ Document issued by the beneficiary (and/or proof of sending of DHL) in which he declares to have sent di-rectly to the originator (within X days after shipment of the goods), X originals of the transport document (with originals and/or copies of the rest of the documents.
The present modification of the documentary credit issued up to date will be effective until a SWIFT message is issued communicating the end of its validity.
Due to the impossibility of sending the original documents by DHL or equivalent our entities agree that, excep-tionally, the documentation will be sent to us at the following e-mail address [E-MAIL ADDRESS OF THE BANK IN CUBA], the originals remain in the custody of you and they must be sent to us by DHL or equivalent means when the courier service to Cuba is re-established.
As can be seen from this message, it addresses two issues. One is that, if the Documentary Credit includes a re-quirement that the beneficiary must forward one or more originals of the transport document (e.g. the bill of lading) to the buyer, then that requirement is deleted. The other relates to the nominated bank forwarding the presented documents to the bank in Cuba. In such case, it is acceptable to present the documents via e-mail to the bank in Cuba – and then (when possible) forward the originals via courier service.
The first part of the message is somewhat unorthodox in that it potentially amends all Documentary Credits issued by the bank in Cuba. Technically this would not be in line with UCP 600 sub-article 10 (a) which reads:
Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.
Hence, such “modification” (which technically is an amendment) would require the agreement of the beneficiary as well as a confirming bank. However, since the original requirement in the Documentary Credit would be impossi-ble for the beneficiary to comply with (as it requires the beneficiary to forward documents via courier service) then it seems like a good solution that no one would object to.
For the second part, it is also a practical solution to a real problem. Of course , sending commercial documents (like bill of lading and invoice) via an open (and unsecure) e-mail is of course not desirable. Therefore, such would either assume that a secure channel is used (between the nominated bank and the bank in Cuba) or that the ben-eficiary expressly agrees to the sending of his documents via open e-mail.
It has been seen, that there are some Documentary Credits issued by banks in Algeria that are subject to eUCP, i.e. the SWIFT MT700 would include the following:
Field 40E: Applicable Rules: EUCP LATEST VERSION
This means that the Documentary Credit is subject to the version of the Supplement of the ICC Uniform Customs and Practice for Documentary Credits for Electronic Presentations, International Chamber of Commerce, Paris, France, which is in effect on the date of issue. The current version is eUCP Version 2.0.
For a number of those Documentary Credits it applies that the only “change” compared to a Documentary Credit only subject to UCP 600 is that it is issued subject to eUCP. As was discussed in chapter 8: Electronic presenta-tions under Documentary Credits and Collections it is indeed possible to use the eUCP but such decision has a string of consequences / issues that must be carefully considered; such as
• The format of each electronic record (eUCP version 2.0 article e5)
• The place for presentation of electronic records (eUCP version 2.0 article e6)
• If the “electronic records” to be presented are scanned, then what about the “originals”?
If the intention is that the presentation must consist of an electronic bill of landing, then this must also be subject to a separate agreement; e.g. with the involved shipping line and perhaps a company facilitating this; like essDOC.
In other words, simply issuing Documentary Credits subject to the eUCP is not a good idea. This should include a well thought through process.
It should be added, that this change to Algerian Documentary Credits does not come out of the blue. In fact, the Bank of Algeria has allowed the authorized intermediary banks, to receive documents relating to import operations by electronic means. These documents received electronically can be used to complete all banking and customs formalities applicable to import operations (in Algeria). This is part of the government and institution measures in response to covid-19 (*1).
The ICC have published the “Interpretative Paper on the correct interpretation of the first paragraph of UCP 600 article 35”. Article 35 has also been subject to many “modifications” in Documentary Credit.
In all fairness, this started already when the UCP 600 was published in 2007; mainly because it so clearly places the risk of (complying) documents forwarded (by a nominated bank) on the issuing bank. However, also during the covid-19 crisis there has been modifications to UCP 600 article 35. One of them are:
IN CASE THAT DOCUMENTS FORWARDED BY NOMINATED BANK TO US WERE LOST IN TRANSIT, WE HAVE THE RIGHT TO REQUIRE COPY/DUPLICATE OF THE ORIGINAL DOCUMENTS,COVERING LET-TER AND RELATIVE COURIER RECEIPT TO BE SENT TO OUR BANK FOR CHECKING AND PAYMENT UNDER L/C WILL BE PENDED TILL COPY/DUPLICATE OF DOCUMENTS ARE FOUND COMPLIANT. IN THIS REGARD, THE SECOND PARAGRAPH OF ART.35 OF UCP 600 IS NOT APPLICABLE. OUR BANK SHALL NOT BEAR ANY CHARGES AND INTERESTS INCURRED.
What this clause does, is to modify the 2nd paragraph of UCP 600 article 35. Such modification is based on UCP 600 article 1 which states that the rules “…are binding on all parties thereto unless expressly modified or excluded by the credit.” This means that in this case UCP 600 article 35 paragraph 2 does not apply to this Documentary Credit, but the wording in the Documentary Credit does.
The clause is drafted to ensure that 1) if the documents are lost in transit, then the bank wants proof that they are sent (as required by the Credit) as well as copies of the documents and 2) payment will not be made until the copy documents are examined and found to comply with the terms and conditions of the Credit.
As can be seen from the above, there are new clauses and ways emerging due to the covid-19 crisis. For those clauses it applies, that they should be considered as any other clause in a Documentary Credit, and if it is found (as an example) that the clause is not workable or makes the Documentary Credit ambiguous, then the good advice is to contact the bank asking it to remove the clause. If that is not doable, the correct approach may be not to act un-der the Documentary Credit at all.
