For this edition, we invited Doris Andersen of Spar Nord Bank, International Division to give her initial views on the implementation of UCP 600.

Doris Andersen, Spar Nord Bank, International Division

"First of all we do not find that much has changed really, and the changes that we do see are for the better. We find that the rules have become a much more practical tool than UCP 500 ever was. What is more important so do our customers. The seminars that I have held in our region have also proved this.

We find it annoying, however, that so many banks, mostly within Asia, are writing out certain articles without replacing them by other articles or conditions. We contact our customers and explain to them what impact this will have for them, and in agreement with them we then contact the issuing banks, and, so far, we have received amendments deleting the text, so that the exporters have a workable L/C.

We had expected some discussions about the new wording for the requirement of bills of lading, but we have not experienced any so far.

We find the article on transfers of great value, especially 38 k, which has made life easier for us."

The comments from Doris reflect a number that have been made by the writer and other commentators.

1. "Not much has changed". This was not for the want of trying by the Drafting Group. It must be recognised that a revision such as that of a UCP, and now the URDG, culminates in a consensus of views expressed by the national committees. Everyone has their own views of what should or should not have been included within the rules. These have been well documented in a number of articles. At the end of the day, the text has to reflect the overall views of the majority at the same time striking a balance between the obligations, rights and needs of an issuing bank, confirming bank, nominated bank and a beneficiary.

2. "Changes we see are for the better". Although not articulated, the general view that has been expressed is one of easier reading and implementation of UCP 600. At the end of the day, it should not be forgotten that it is invariably the terms and conditions of the credit that will establish the basis under which a presentation will be examined and compliance determined. The better a credit is structured, the less reliance there is on numerous provisions within the rules.

3. "Writing out [of] certain articles". A number of specific issues were highlighted in the comments of Jack Chan in the previous newsletter. Similarly, there were opinions discussed at the Banking Commission meeting in October 2007 that looked at the effect of exclusion clauses. It is good to note from Doris's comments that issuing banks are reconsidering their position and amending their credit so that it may be seen to be in a workable form. As we have highlighted previously, each bank that is contemplating the exclusion of a rule needs to consider the implications of such action and whether the credit is capable of being performed there-under, by the beneficiary or nominated bank, simply with a rule or rules excluded.

It should not be forgotten that for most exclusions, a replacement provision needs to be inserted in the credit. This, in itself, requires the issuing bank to be very specific in the language that is used in order that there can be no ambiguity in the 'new' rule that is to be applied. For issuing banks whose native language is not English, this may be a troublesome and potentially risky task.

I was recently reminded of an old African proverb that is appropriate in this context - "If you take from a man his tribal customs, you had better have something of value to replace them"!!

4. "New wording for the requirement of bills of lading." It would seem that most practitioners have grasped that nothing has really changed in the requirements for on board notations. The fact that UCP 600 article 20 does not contain the language that appeared in UCP 500 sub-article 23 (a) (ii) [paragraph 5] has been explained in a number of publications including the Commentary to UCP 600. For those that have not been privy to those articles or text, the decision was made in the drafting process that a bill of lading should not be described, through the rules, so as to reflect a multimodal or combined transport.

A bill of lading is essentially a port-to-port document and the rule in article 20 reflects that. Where a bill of lading indicates a place of receipt different from the port of loading, the bill of lading requires an on board notation which includes the port of loading stated in the credit and the named vessel on which the goods have been shipped.

5. Sub-article 38 (k). Whilst Doris mentions that the wording in this sub-article has made their life easier, and that was the intent, the content of ICC opinion TA632 (approved in October 2007) should not be forgotten. In this opinion, it was stated that where there is a 100% transfer; no confirmation added by the transferring bank and no substitution of documents to occur, the transferring bank, in their advice of transfer, may state that the documents are to be sent direct to the issuing bank for settlement.

We thank Doris for her time in providing her insights and comments.

The final comment made by Jack Chan, in the last newsletter, reflected on the inclusion of clauses within credits that can be linked to sanctions and regulatory concerns. For the April meeting of the ICC Banking Commission there has been a request for an opinion submitted in relation to circumstances where an issuing bank declines to take up documents, not due to discrepancies but as a result of a sanctions violation. Watch this space for updates on this issue.

ICC Events

January and February saw 6 UCP events held in India (New Delhi, Mumbai, Kolkota, Bangalore and Chennai) and Sri Lanka (Colombo).

As usual they were very well attended, as can be seen from the photographs, with around 250 at the session in Colombo. Focussing on the implementation and clarification of the new rules, the discussions swung the way of our two commentators (Jack Chan and Doris Andersen) - credits incorporating exclusion clauses.

When analysed, the wording that was being excluded had not changed materially from that in UCP 500 and therefore the rationale behind the exclusion was obscure. Under UCP 500 transactions exclusions had not been seen for the respective article. This raised extra concerns as to why a change of tact under UCP 600? Unfortunately, without the respective issuing banks being present in the room, the answer was not clear. The basic message that could be given was to review the credit and if there are exclusions therein, determine whether it is of such magnitude that it inhibits your role as a nominated or confirming bank and, if so, seek an amendment to place the credit in a form that would allow honour or negotiation to occur without undue risk on the part of the nominated/confirming bank.

For most attendees, this was the first event that they had attended since the implementation of UCP 600 and therefore a number of questions were related more to the structure of the rules and the intent of individual articles. Further events are planned in Thailand (March) and Korea, China and Malaysia (April). Further updates will be provided in future newsletters.

We are interested to hear your feedback on, and experiences of using UCP 600, which we may include in future Newsletters, please submit your comments to Leo Cullen at leo.cullen@coastlinesolutions.com.