New Uniform Customs and Practices for Letters of Credit, UCP 600

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New Uniform Customs and Practices for Letters of Credit, UCP 600 Attorney at Law Dr. Jens Nielsen, Hamburg, Germany

1) The never ending attempt to adapt to new technologies and the simplification of rules

On June 1, 2007 the new Uniform Customs and Practices for Documentary Credits, published as International Chamber of Commerce publication No 600, will take effect. The first version of the UCP was drafted at the ICC congress in Vienna in 1933 (ICC-Publication No. 82). After the first revision in 1951, the UCP were again revised in 1962, latter revision being of particular significance, since for the first time Great Britain and the Commonwealth accepted the UCP. The UCP were again revised in 1974 and 1993; the 1993 revision obtained the blessing of the UNCITRAL (United Nations Commission on International Trade Law) which recommended that the UCP be applied to all documentary credits [1].

The stated goal of the current revision has been identical to previous ones, i.e. - take into account developments in banking, transportation and insurance - review the wording of the UCP to avoid differing interpretations and applications [2]. In a note to its members and the national committees the ICC itself labeled the new revision as "the most comprehensive in the entire history of the rules." Comprehensiveness however did not lead to substantive changes.

The ICC has shortened the number of articles from 49 to 38. This change is mostly cosmetic however, since substantive changes are barely noticeable. An exception to the foregoing is the shortening of the time to examine documents from seven to five working days.

2) Structural Changes

The drafters of the UCP 600 unfortunately have given up the division of the text with upper case characters. The criterion of inconsistency of documents (Article 13 a sentence 3 UCP 500) was watered down to read now " Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit." (Article 14 d UCP 600). The term "to honour" has been newly introduced and obligates the issuing bank to comply with its payment obligations whether they are based on sight payment, deferred payment, acceptance, deferred payments or negotiation L/Cs. The term to negotiate has been newly introduced (Article 2 UCP 600) and means "the purchase by the nominated bank of drafts advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank” .

Article 12 b UCP 600 allows that a nominating bank prepay (!) or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank. In this context it should be remembered that individual agreements take precedence over general terms and conditions. Under this doctrine the discounting of deferred-payment L/Cs is - contrary to the wording of Article 12 b UCP 600- not allowed,. One of the most important structural changes of the UCP 600 consists of the introduction of articles regarding definitions (Article 2) and interpretation (Article 3). These new articles summarize what in the UCP 500 had been spread over various articles relating to specific documents.

The goal of the UCP 600 was to reduce redundancy [3]. It remains doubtful however, whether these summaries, in particular article 3, are advantageous. Article 3 contains, without any numbering or division, in twelve paragraphs of completely differing content. Beginning with the concept of irrevocability of LCs, continuing to creation of originals, time related concepts like "on or about", "to", "until", "till", “from” and “between”, and "beginning", "middle" and "end" of a month.

3) short review of the most important changes

The most important practical change is the reduction of time to examine documents from previously seven bank working days (UCP 13 b UCP 500) to now five (Article 14b UCP 600). At this point it is not clear whether this will lead to a quicker examination of documents, as is the ICCs intention, or rather convince banks to use the entire time allotted for examination.

Article 1 - 5 Definition, Interpretation, independence of credits and underlying contracts.

Article 6 - 10 Availability, expiry date and place, obligations of issuing and confirming bank, advising credits and amendments.

Article 11 - 17 Pre-Advised Credits, nominated bank, reimbursement arrangements, complying presentations and discrepant documents, waiver, original documents and notices Article 18 Commercial invoice Article 19 - 27 Transport Documents Article 28 Insurance documents Article 29 - 37 Extension of Expiry Date, tolerances, partial drawings and partial shipments, Disclaimers

Article 38 - 39 Transferability of Credits and Assignment of Proceeds. The most important substantive changes are: The criterion that documents have to appear to comply "on their face" is only mentioned in Article 14 a UCP 600. This leaves open that one has to consult the back side of the document. The criterion of inconsistency (Article 13 a UCP 500 "Documents which appear on their face to be inconsistent with one another") was watered down to read now (see Article 14 d UCP 600): "Data in a document, when read in context ... need not be identical to, but must not conflict with..."

4) criterion of documentary compliance

The requirement that documents have to be examined whether they appear to comply "on their face" has not changed; Article 14 a UCP 600 adds however, whether the documents appear to "constitute a complying presentation". This addition should not be interpreted as a softening of the standard of documentary compliance. This view is supported by ICC publication 645 International Standby Banking Practice for the examination of documents under documentary credits which also applies to UCP 600 [4]. In the introduction to ICC-Publ. 645 the ICC states that the ISBP have developed into a necessary complement to the UCP which practitioners should continue to apply, also the ICC announces an amended version of the ISBP. Contrary to the ISBP, the four position papers of the ICC dated September 1994 are not applicable to the UCP 600. The decision regarding the determination of original documents however is still valid but has been incorporated into the UCP 600 [5].

[1] Wheble, ICC-Publication No 415, page 42

[2] ICC-Publication No 600 ED, Introduction, page 11

[3] ICC-Publication No 600 ED, Introduction, page 15

[4] ICC-Publication No 600 ED, Introduction, page 13

[5] ICC-Publication No 600 ED, Introduction, page 13