Letter of Credit Forum

The UCP 600 have been upon us for a couple of months, and it seems a good time to review some of the articles in greater detail.

 a) UCP as lex mercatoria or contractual stipulationThe discussion whether the UCP automatically apply since they arelex mercatoria continues. Realistically one has to assume that the courts consider the UCP as contractual stipulations that have to be expressly included into an agreement by reference. Article 1 UCP 600, thus conforming to Article 1 UCP 500, takes this view into consideration providing that the UCP only apply when "the text of the credit expressly indicates that it is subject these rules”. It is not clear what the drafters of the UCP 600 tried to accomplish by requiring an "express" indication. Any reference to the UCP still needs not be visually formatted in aspecial way.   

b) admissibility to exclude individual articlesIt is still admissible to exclude individual articlesof the UCP when opening an LC (example: exclusionof Article 23 c (i) UCP 600 which provides that"an air transport document indicating that transshipment will or may take place is acceptable, even if thecredit prohibits transshipment.")These exclusions, since they are the exception, should bbe visually formatted in such a way, that they will be realized at first sight. (cf also Article 1 UCP 600: They are binding on all parties thereto unless expressly modified or excluded by the credit.") In concordance with this view, the International Standard Banking Practicefor the Examination of Documentsunder Documentary Credits subject to UCP 600 (ISBP)(ICC publication No. 681 E) mention under No. 3that a credit requiring presentation of a bill of lading and containing a prohibition againsttransshipment will, in most cases, have to exclude UCP 600 sub-article 20(c) to makethe prohibition against transshipment effective.   

c) Unclear applicability of the UCP to standby letters of credit

The UCP are still applicable to standby letters of credit, even though itis disputed, which individual articles are relevant to standbys. This follows from Article 1 UCP 600: “to the extent to which they may beApplicable”. The Banking Commission thus refused to apply the 21 day deadline to present shipping documents (see Article 43 UCP 500/ Article 47 a UCP 400) to a standby:” The commission decided that under a standby credit article 47 a UCP does not apply, particularly where it is only a copy document which is, therefore not a transport document” (ICC Publication No. 469, R 168). Apart from this single decision, the ICC has not been able to precisely name the articles, that are not applicable to standbys. The only thing certain is, that the majority of articles are not applicable.  This follows from the fact that standbys, which have been included in the UCP since the 1983 revision, are guarantees issued by American banks who were prevented by the Glass-Steagall  Act to issue guarantees and hence issued standbys. Standbys are typically not payable against presentation of shipping documents but simply declarations of the beneficiary or drafts.   

 This is the first of a series of installments. Watch out for more.