On 1 July the existing Uniform Customs Practice of Documentary Credits, or UCP 500, were replaced with the new UCP 600. The revision will affect all those trading internationally using letters of credit to arrange payment; this includes exporters, importers, bankers, lawyers and carriers.
The objective of the ICC in creating uniform rules for documentary credits, first devised in 1933, was to facilitate the flow of international trade and alleviate problems encountered when individual countries try and promote their own national rules on letter of credit practice.
The revision is a culmination of more than three years’ work by the ICC’s commission on banking technique and practice. The revision was brought about following criticism of the now old UCP 500, which was perceived as outdated, over-complicated and open to ambiguity and error. The old rules were widely criticised by the shipping industry, in particular, Article 23 which set out the requirements for bills of lading.
The new Rules are leaner than their predecessors with 39 as opposed to 49 articles. They seek to remove scope for ambiguity and error in interpretation and application by incorporating new definitions and interpretations articles and many articles have been revised so that they are clearer and easier to read and understand.
The new definitions section can be found under article 2. This defines terms such as ‘honour’; what it means to honour a letter of credit, ‘confirmation’, and ‘negotiation’. Interpretations can be found under article 3. This deals with issues such as the requirement for a document to be legalised/visaed or certified, what constitutes a valid signature, and seeks to determine how vague terms such as ‘on or about’ and ‘first half’ (of the month) should be uniformly interpreted.
The new article 10 sets out the requirements for amending or cancelling a letter of credit. A letter of credit cannot be amended or cancelled without the agreement of the issuing bank, confirming bank (if any) and the beneficiary. The original terms and conditions will remain in force for the beneficiary until the beneficiary communicates acceptance of the amendment to the advising bank. This is designed to prevent the situation where beneficiaries unintentionally accept amendments by default. However, it is possible that a beneficiary may accept an amendment by conduct.
Article 14 (previously article 13), has been amended so that the ‘reasonable time’ allowed to each of the various banks (nominating, confirming, issuing) for confirming whether presentation is in compliance with the letter of credit is capped at five banking days following the day of presentation. In addition, documents no longer need to be consistent with one another or the credit itself in order to comply with the letter of credit terms. Under UCP 600 it is sufficient that documents be ‘not conflicting’ with other documents or their description in the credit. This serves to water down the requirement under UCP 500 and provides greater scope for acceptance of documents at presentation. Further, any condition within letter of credit terms which does not stipulate a document necessary to indicate compliance with that condition shall be disregarded.
It is noteworthy that article 14 contains a new provision regarding the addresses of applicant and beneficiary appearing in a stipulated document. Under article 14 j the addresses noted in the document need not be the same as those stated in the credit (or other stipulated document) provided they are in the same country. Additional contact details (i.e. phone, email) will be disregarded. The exception to this is transportation documentation. If the address and contact details of the applicant appear as consignee/notify in a transport document (subject to the relevant articles) they must be as stated in the credit. However, a shipper or consignor of goods indicated in a document need not be the beneficiary of the credit. A transport document may (under article 14 l) be issued by any party other than the carrier/owners/master/charterer provided it meets the requirements of the relevant articles under the rules.
In addition to the requirements for examination and acceptance of presentation, the procedures for refusal of documents have also been re-drafted and amended and are now included under article 16.
The new article 17 deals with original documents. This includes the stipulation that at least one original of each document stipulated in the credit must be presented for the letter of credit requirements to be fulfilled. This article also defines what constitutes an original document.
The articles dealing with transportation documents, comprising articles 19-24 under the new UCP 600, have been amended to remove confusion over identification of carriers and agents. Article 23 (now article 20 under UCP 600) concerning bills of lading has also been re-drafted to make it clearer and easier to follow.
Whilst it is early days for UCP 600, it is hoped that the new Rules will facilitate transactions by simplifying procedures and removing uncertainty and ambiguity which previously lead to the failure of up to 70% of documents on first, and indeed subsequent, presentations under UCP 500. A copy of the Rules can be obtained via the ICC website at http://www.iccwbo.org/
