Coastline newsletter / 2006 edition

ISSUE 3 Sep2006

ICC Opinions shape the UCP revision - Part 1

By Gary Collyer

In the July edition of this newsletter it was stated that the Task Force engaged by the ICC Banking Commission - to deliver recommendations as to the structure of a revision of UCP 500 - had identified (amongst others) that:

  • Seven articles of UCP 500 had accounted for over 58% of all Opinions issued by the Banking Commission; and that
  • Seventeen articles had given rise to either none, one or two Opinions.

This newsletter and the one for October look at some of the issues raised in those 58% of Opinions and whether they have had any bearing on the content of the final text of the UCP 600. The text of which is currently with the National Committees of the ICC for their consideration and voting at the ICC Banking Commission meeting on October 25, 2006.

It has previously been highlighted that the seven articles of UCP 500 were 9, 13, 14, 21, 23, 37 and 48. We will look at each of these in turn.

In this newsletter we discuss Article 9, 13 and 14.

UCP 500 Article 9 - Liability of Issuing and Confirming Banks
(UCP 600 Articles 7, 8 and 10 - Issuing Bank Undertaking, Confirming Bank Undertaking and Amendments )

The issues in relation to Article 9 were the following:

1. The effect of Position Paper #1 relating to time limits imposed on the acceptance or rejection of amendments.

2. The necessity for re-wording of sub-Article 9(d)(iii) with respect to the beneficiary advice of acceptance or rejection of amendments (in particular, advice or intimation of rejection).

3. Issues relating to the difference between payment, acceptance and negotiation. The effect of court decisions regarding discounting of deferred payment undertakings.

4. The effect of amendments received after receipt of documents by a nominated bank but prior to them effecting settlement.

5. Should 'Negotiation' remain as a settlement method?

6. Issuing bank liability when documents are received directly from a beneficiary or other bank, and not from the bank to which the credit was restricted.

7. Sub-Articles 9(c)(i) and 9(d)(ii) - there should be a definition of what is "without delay".

8. If a draft is drawn on the applicant it is considered as an additional document and will be checked as such. What will be checked and what is meant by additional document?

Taking each of these points in turn:

Summary:

1. This issue is covered in UCP 600 sub-article 10(f). It should be noted that the ICC Position Papers #1-4 were in respect of UCP 500 and have no effect under UCP 600. This is made clear in the introduction to UCP 600.

2 & 4. The drafting group attempted to amend the text to enforce a position that the beneficiary must provide an indication of acceptance or rejection. However, the majority of ICC National Committees elected to retain the wording that exists in UCP 500. Due to this decision, no further changes were made to reflect the issue under point 4.

3 & 5. UCP 600 introduces the concept of Honour or Negotiation, Honour encapsulating the settlement types - payment, acceptance and deferred payment. The ICC National Committees voted by a majority to retain negotiation as a settlement type.

6. Sub-article 6(a) makes it clear that a credit available with a nominated bank is also available with the issuing bank and therefore the beneficiary has a choice.

7. The words without delay have been likened to 'reasonable time' in that there is no definitive period. It is straight forward to impose a deadline where there is a clear 'penalty' for failure to comply i.e., if an issuing bank refuses on the 8th banking day (6th under UCP 600), the refusal is not valid and they must honour. However, in circumstances such as the article highlighted, if the UCP 600 stated say, 3 banking days instead of without delay, what would be the penalty for the bank reverting on day 4 or 5. There can be none and as such, we will have to live with terms such as 'without delay' but there must be an expectation that banks will act in accordance with the intent in which the words are used i.e., expeditiously.

8. Sub-article 6(c) removes reference to treatment as an additional document and states that a credit must not be available by a draft drawn on the applicant. This does not stop an issuing bank calling for a draft as part of the documents required, but the bank would need to be specific as to the required content.


UCP 500 Article 13 - Standard for Examination of Documents
(UCP 600 Article 14 - Standard for Examination of Documents)

1. Opinions were issued in respect of the following issues. The question was whether these should be covered by UCP 600, ISBP or both.

i. Typographical errors
ii. Date formats
iii. Non-documentary conditions
iv. Consigned transport documents versus to order documents
v. Addendums to documents
vi. Mathematical calculations
vii. Shipping marks
viii. Due date calculations
ix. Re-definition of "reasonable time"
x. Re-visit the principle of inconsistency. That it is not a requirement for a mirror image but for a level of consistent data. xi. What is close of business for the purposes of reasonable time?

2. Responsibilities of banks where goods are consigned directly to the applicant and documents are received with discrepancies

3. What are banking days? Do these include short working days?

4. Credits which include a date for negotiation of documents as opposed to a date for presentation.

5. Re-enforce the position of an issuing bank when documents are forwarded that are not called for i.e., they will not be reviewed under any circumstances.

6. The need for certificates to be dated or not.

7. Language of documents. Again, taking these points in turn:

Summary:

1. Most of these items are contained within ISBP and the decision was made that this was the best place for them to reside. In respect of (iii) the ICC National Committees were given 2 further structures to consider, but they elected to retain the wording that exists in the UCP today. Item (ix) has been answered by the removal of the concept of 'reasonable time' in UCP 600. Item (x) has been re-defined and appears at sub-article 14(d).

2. The principle for the actions of banks is clearly defined in Article 5 (UCP 500 Article 4). Banks deal with documents and not with goods.

3. Article 2 of UCP 600 provides the definition of 'banking day'.

4. Sub-article 6(d)(i) covers this issue.

5. Sub-article 14(g) covers this issue and does not refer to sending the document to the issuing bank. That will remain an option for the bank to consider.

6 & 7. The decision was made to keep these principles in ISBP.


UCP 500 Article 14 - Discrepant Documents and Notice
(UCP 600 Article 16 - Discrepant Documents, Waiver and Notice)

At the time, this article was the #1 recipient of ICC Opinions which is a worrying statistic given the important nature of refusal of documents and the need to have a correct refusal notice issued. To combat this, the ICC issued a document covering examination, waiver and notice**. In particular, this document covered the issues surrounding liability of an issuing bank having sought and received waiver; holding documents at disposal; clarity of discrepancies observed and the discrepancies being contained within one single advice of refusal.

** This document is available from the ICC website - www.iccwbo.org

Summary:

UCP 600 Article 16 has been re-drafted to encompass the principles of the ICC document referenced above including additional options for the handling of discrepant documents and removal of the words "held at your disposal". It also tackled the issue of banks providing a refusal notice that contained reference to releasing the documents once the waiver had been received and accepted, a position that was seen by the courts to be against the wording of Article 14 of UCP 500.


In the next edition:

Part 2 of this summary of problematic articles in UCP 500 - Articles 21, 23, 37 and 48

 

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