Following on from the previous newsletter, this edition addresses further issues that have been raised by corporates and banks over the past 6-7 months.

Corporate issues

The number of corporate issues raised include:

Article 2 – definition of Applicant

The use of the word "party" in the definition of applicant has resulted in questions as to whether this has elevated the role of the applicant in the credit process. The answer is simple - no. The word party was used solely as a means of denoting that the applicant can take any form. In other words, it could be an individual, a partnership, a company, a bank etc.

Use of the word "customer" had been considered but in these days where banks are processing work for other banks it would not be appropriate for that term to be used as the applicant may not be the 'customer' of the issuer.

Sub-article 6 (c)

The wording in UCP 600 is more definitive with regard to credits being made available by drafts on the applicant. This has caused questions such as "why?" and "our credits regularly call for drafts on the applicant as a document and can this continue?".

UCP 500 made the first reference to credits not being issued available by drafts on the applicant. This was due to the fact that a few banks were issuing their irrevocable credits calling for drafts to be drawn on the applicant at a future date (e.g., 90 days after bill of lading date) and linking their irrevocable undertaking to the acceptance of the draft by the applicant. In effect, if the draft was not accepted the undertaking was revoked.

Under UCP 500 and 600 a credit can be issued calling for a draft drawn on the applicant but it must form part of the documents required rather than the financial instrument for determining the payment under the credit.

Sub-article 17 (d)

This sub-article allows for originals or copies of documents to be presented where copies are requested in the credit. What is the idea behind this rule? – is a common question.

Due to the content of sub-articles 17 (b) and (c) which outline how a document may be treated or created as an original for the purposes of UCP 600, it is possible that whilst the credit may require only copies, the documents issued are actually classified as originals.

An example of this is where a credit requires presentation of a signed invoice in 3 copies. Under sub-article 17 (e) this means at least one original and the remaining number in copies. The beneficiary can create one invoice and sign, then copy it twice or, they could produce three invoices and sign them all thereby creating 3 originals (according to the content of sub-article 17 (b)).

Bank issues

The number of bank issues raised include:

Article 2 – definition of complying presentation.

The definition of complying presentation includes "…. and international standard banking practice". The fact that these words are not followed by "ICC Publication No. 645"(or the publication number for the updated version**) seems to be of some concern to a number of banks. The decision was made very early in the UCP revision process that the definition would not confine itself to the content of the ISBP.

In the determination of a complying presentation there are a number of practices and procedures followed by all banks that are not encompassed in the ISBP. Not least that the ISBP does not cover the issues relating to every type of document that is presented under a documentary credit, for example, inspection certificates, certificates of analysis, health certificates and, even, simple documents such as packing and weight lists.

**Please note that at the ICC Banking Commission meeting held in Singapore on April 24/25 the Commission voted unanimously 71-0 for the adoption of the updated version of ISBP. This updated version has been aligned to the content of UCP 600 and should be available from the ICC prior to the implementation of UCP 600.

Sub-article 6 (d) (ii)

There seems to be some confusion as to the construction of this sub-article. The documentary credit practitioner needs to look at this as three distinct segments. The first sentence covers the situation where the credit is restricted to a (named) nominated bank. The second covers where the credit is available with any bank (freely available). These seem to be well understood but it seems the third sentence is the one that is causing difficulty. In essence and, by way of example, it is stating that if Bank X located in London issues a LC available with Bank Y in Hong Kong by negotiation and expiring with Bank Y on 31 August 2007, the expiry of 31 August 2007 applies not only to a presentation made at the counters of Bank Y (the nominated bank) but also to a presentation made by, or on behalf of, the beneficiary to Bank X. This situation is no different to that contemplated by the wording of UCP 500 sub-article 9 (a) where it refers to "provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank".

A side issue that has been raised in relation to this article is in respect of sub-article 6 (a) which includes "… or whether it is available with any bank". The structure of this sub-article is that unlike UCP 500 where only freely negotiable credits were contemplated, under UCP 600 there may be a credit freely available by payment, acceptance, deferred payment or negotiation. The ability to construct a credit that is freely available by payment, deferred payment or negotiation seems to be understood. Acceptance seems to be an issue. However, there is no reason why a credit could not be issued as freely available by acceptance.

The draft 'drawn on' field or section of the credit would not specify the actual name of a bank but would indicate that the draft may be drawn on the nominated bank i.e., the bank that is willing to take on the role as accepting bank. Clearly, this would only be a bank that has credit lines for the issuing bank and may require the beneficiary to telephone various banks (for appetite and pricing) if they are not willing to utilise the services of the advising bank who would normally be in a correspondent banking relationship with the issuing bank.

Sub-article 8 (a) (ii).

This sub-article refers to the fact that a confirming bank negotiates on a without recourse basis, if the credit is available with them by negotiation. The issues raised here are not directly linked to the wording in UCP 600. A number of banks are focussing on the fact that the rules cover a confirmation of a credit available by negotiation whereas they do not confirm such credits. This is not a UCP issue. There is no reason why a bank cannot confirm a credit that is available by negotiation. When banks choose not to confirm such a transaction it is normally due to the fact that the bank policy directs them towards seeking an amendment changing the credit from a negotiation type to either a payment or acceptance and a reimbursement authorisation to either debit the account of the issuing bank or claim reimbursement from a reimbursing bank. Again, this situation is no different from that in UCP 500 but the wording of UCP 600 has made this issue more open.

Sub-article 9 (b).

UCP 500 sub-article 7 (a) refers to an advising bank taking reasonable care to check the apparent authenticity of the credit that it is advising. This being the sole responsibility of an advising bank. Under this sub-article of UCP 600, the wording has been amended to reflect that the advice of the credit or amendment, given by the advising bank to the beneficiary, signifies that the advising bank has satisfied itself as to the apparent authenticity of the credit. This reference to "satisfied itself" seems to be causing some concern among a few banks.

When a bank determines the apparent authenticity of any message, not just those related to documentary credit transactions, it follows the laid down policies and procedures that are in place within their organisation. It is following these policies and procedures that lead to a bank 'satisfying itself' that a credit or amendment is apparently authentic.