ISSUE 12 Sep2007 UCP 600 - two months old and modifications or exclusions are occurring By Gary Collyer In a break from our regular sequence of newsletters, where we have been looking at the questions that have arisen by article of UCP 600, in this edition we will look at some of the reported modifications and exclusions that are occurring in a number of documentary credits. In addition to highlighting the respective articles and text, I will offer my own thoughts. Article 1 Swift LCs issued after 1st July 2007 bearing field 40E: UCP Latest version but under field 78 it is stated that the credit is subject to UCP 500. This is not necessarily a UCP 600 issue but a misunderstanding of the new SWIFT guidelines regarding the identification of the applicable rules. If a bank wishes to issue a credit subject to UCP 500 (for whatever reason) then they must insert OTHR in field 40E and make reference to the credit being subject to UCP 500 in field 47A. Whilst referring to the application of the SWIFT guidelines, it is also being reported that certain banks are not completing the new fields 44A, 44E, 44F and 44B correctly. Credits are being issued requesting a bill of lading and indicating the ports of loading and discharge in fields 44A and 44B rather than 44E and 44F. This expansion of the SWIFT fields was made to enable banks to specifically indicate the routing for the goods beyond just the start and end points. The correct completion of these fields should enable an issuing bank to clearly identify whether a bill of lading or multimodal type transport document should be called for and avoid any confusion as to what the beneficiary is expected to produce and what the banks are expected to review. Sub-article 13 (b)(i) Issuing banks are still indicating an expiry date in reimbursement authorizations. The idea of incorporating a rule that stated there should be no expiry date in a reimbursement authorization was to bring transactions that are subject to URR and those that are not, into line with one another. A reimbursing bank has no involvement in a letter of credit. Their sole purpose is to honour a valid claim made by the named claiming bank or any bank where it is stated that any bank may claim. Issues relating to compliance of the documents and the validity of any claim are for the issuing bank and nominated bank to determine. In addition, where a reimbursement authorization includes an expiry date it is common that it is the same date as that in the credit. Such action can have a serious impact on the settlement of a claim validly made by a claiming bank, due to a compliant presentation being made on or just prior to the expiry date but the claim being sent shortly thereafter. Sub-article 14(f) Deletion of this sub-article. It has been reported that certain banks are stating "sub-article 14 (f) is excluded". Whilst article 1 of UCP 600 allows for modification or exclusion of the rules, it begs the question that if a bank excludes 14 (f) without any further comment (which is apparently the case), what is the purpose? How is the nominated bank supposed to review the documents? Is the exclusion implying that banks cannot accept documents as presented even though the issuing bank's credit was deficient in the name of the issuer or its data content?!? This places the nominated bank in a very difficult position, almost untenable. The nominated bank should revert to the issuing bank for clarification and reinstatement of the rule. If the exclusion has been made due to the inclusion of "content appears to fulfil the function of the required document ..." then this is quite strange as the rule actually provides some protection for issuing banks and applicants that have not been specific in their documentary requirements. Sub-Article 14 (k) Another sub-article that has been excluded in some credits. By excluding this sub-article, the issuing bank is effectively stating that the shipper or consignor on any document must be the beneficiary and, only, the beneficiary. Sub-article 14(l) Deletion of this sub-article. Is the intention that the beneficiary only present a transport document that is 'issued' by a carrier, owner, master or charterer? What impact does such exclusion have in relation to the signing of the document? In reality, the answer to the first question is, probably, yes. To the second question, the answer is that the transport document may still be signed by one of the parties mentioned in the respective transport article - which would include the agent. Such exclusion would not, however, stop a freight forwarder issuing a transport document on their own letterhead and signing as carrier. By signing as carrier, it is not a freight forwarder document - it is a carrier document. This issue comes back to a similar problem under UCP 500. What is the intention when a bank states "freight forwarder bills of lading are not allowed". Does this relate to the form of issuance or does it extend to the fact that a freight forwarder cannot sign the document as agent and only the carrier may sign? This highlights part of the danger in excluding rules or types of documents. It is often not sufficient for the credit to state, for example, "sub-article 14 (l) is excluded" [or "does not apply"]. As explained above, the use of such terminology would not stop a bank from accepting a transport document where the freight forwarder has issued the document and signed as carrier. Sub-article 16 (c) (iii) (d) Deletion of this sub-article. This sub-article was added to the list of options that are open to banks in the handling of discrepant documents. The wording, as an example, reflected the fact that often nominated banks will have identified discrepancies in the documents and advised them to the issuing bank in their covering schedule. The covering schedule would then indicate a course of action that they would wish the issuing bank to follow. If the issuing bank rejects the documents and has no intention of accepting a waiver from the applicant, then they could use the option of returning the documents rather than the course of action that is quoted (or sought by the nominated bank) under (c) (iii) (d). The concept in (c) (iii) (d) will occur where, in the example above, the issuing bank is happy to comply with the requested course of action. Article 20 Is CY the same as the port of loading? If there is a place of receipt is there a need for an on board notation? Although not exclusions or modifications, these are issues concerning article 20 (and article 21) that need to be addressed now rather than in a later edition of this newsletter. Article 20 covers the rules relating to bills of lading. In discussions with the ICC's Transport Commission it was decided that the structure of this article should reflect the role of a bill of lading i.e., to cover shipment from a port to a port. On this basis, the reference that appeared in UCP 500 sub-article 23 (a) (ii) to the 'on board' requirements where the bill of lading indicated a place of receipt different to the port of loading was seen to actually encourage a bill of lading to evidence pre-carriage (whereas if this were the intention, the credit should have called for a combined or multimodal type document). This language does not appear in the same manner in UCP 600. However, the words "indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit" do appear. These words require that the document checker be able to determine from the face of the bill of lading whether the on board statement (pre-printed or by way of notation) relates to the vessel and the port of loading rather than to the pre-carriage between the place of receipt and the port of loading. For example, a bill of lading recently seen stated that the shipped on board statement referred to the named vessel OR the conveyance carrying the cargo from the place of receipt (inland point) to the port of loading stated in the bill of lading. This clearly highlights the fact that not in all cases can an on board statement be seen as applying to the named vessel and port of loading. Under UCP 500 there is an ICC Opinion R. 282 that covers the issue of CY and a port of loading. The conclusion to this opinion states "Using your example where a place of receipt is given as ''Hong Kong CY'' and the port of loading is shown as "Hong Kong", they are to be deemed one and the same place and therefore not subject to the provisions of [UCP 500] sub-Article 23 (a) (ii)". This opinion will also apply in respect of UCP 600 sub-article 20 (a) (ii). The above issues are similarly addressed in the Commentary to UCP 600 that will be published shortly. Sub-article 28 (i) Deletion of sub-article (i). This is not totally unexpected as it is a shift from the position in ISBP publication 645 paragraph 186. However, the change in the rule was made for a reason. The insurance industry advised the UCP 600 drafting group, that if it were not so now it would be in the very near future, that all insurance documents would be required by the re-insurance market to contain exclusion clauses. These exclusion clauses are specifically in relation to acts of terrorism and the like. They do not relate to common insurance risks that may be associated with ICC (A) etc. By excluding sub-article (i), an issuing bank may be issuing an unworkable credit or one that may necessitate an amendment in order that the beneficiary may present a complying presentation. Article 33 Statement of banking hours Due to the reduction in the number of banking days for banks to determine compliance, some banks have seen the need to express, by way of SWIFT broadcasts or statement in their credits, their banking hours for the purpose of determining the day of presentation. Whilst this is totally permissible, the reduction from a maximum of 7 banking days to a maximum of 5 banking days following the day of presentation (effectively 6 banking days) should not, I would have thought, cause most banks any difficulty. Article 35 There are banks and applicants who still insist on excluding UCP600 Art 35 These exclusions, I would presume, are being driven solely by the inclusion of the new text in this article. Banks and applicants that are including such exclusions should bear in mind that the same position would prevail under UCP 500 and all previous revisions of UCP. This is made clear in ICC Opinion R. 548 which reads in the conclusion "Notwithstanding the fact that the reimbursement instruction in the credit reads "Upon receipt of full set of documents in conformity with the L/C terms, we will effect payment as per your instruction," by virtue of Article 16 the issuing bank would be obliged to honour a compliant presentation that had been negotiated by a nominated bank but lost in transit. The reimbursement obligation under a credit, as outlined above, is not subject to the receiving of documents by the issuing bank, but only to a compliant presentation being made to the nominated bank. The reimbursement clause in the credit does not make the reimbursement subject to the receiving of documents." By excluding article 35, I cannot perceive that any nominated bank will agree to honour or negotiate. The issuing bank has issued their credit and nominated a bank to act thereunder. By that nomination, the issuing bank has a duty to protect the interests of a nominated bank that has acted according to the terms of that nomination and towards a beneficiary who has performed under the credit and provided documents that, in the view of the nominated bank, are in compliance with the terms and conditions of the credit. This is whether or not the beneficiary has sought honour or negotiation from the nominated bank. General note: It should be noted by banks that if they are considering the exclusion of a rule, it is often not as simple as merely making a statement in the credit that article X or sub-article X is deleted or is not to apply. Very often there needs to be something put into the credit to cover the void that the exclusion leaves. Similarly, where a modification is made, the issuing bank must ensure that the revised wording in the credit is sufficiently descriptive so that there may be no ambiguity as to how it may be interpreted or applied.