ISSUE 13 Oct2007 UCP 600 - Application and Questions relating to Articles 18 and 26-29 By Gary Collyer The last newsletter saw a break from our review of questions that have been posed, by corporates and banks, at numerous seminars conducted by the writer this year. In that newsletter we reviewed, mainly, the types of exclusions and modifications that various issuing banks were seen to be applying in their credits. Most of those issues were actually discussed at the ICC Banking Commission meeting that was held in Paris on 24/25 October. In response to the various exclusions and modifications, a common theme came across from the participating national committees that attended the Banking Commission. That theme was to emphasise in the conclusion to those (and any future) opinions a message that was in line with the final note of my last newsletter i.e., "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". The ICC national committees commented, not only via their written submissions to the opinions that were being discussed but also verbally during the various breaks, that in most cases the exclusions were for clauses or similar wording that existed under UCP 500. Why were banks including such conditions in their credits? Had these banks not read the UCP 600 correctly? Had these banks not received some form of training in interpreting the UCP? How did these banks operate under UCP 500? These were the million dollar questions, for which only the respective issuing banks can respond. It was also noted in a number of comments that, in each case, the issuing bank should bear the risk where there is ambiguity in a credit should the terms and conditions remain unclear due to any modification or exclusion. This was particularly so when issuing banks were seen to exclude sub-articles such as 14 (d), 14 (f) and 28 (h). One of the big discussion points within the DC-PRO Discussion Forum has been whether or not the requirements of UCP 500 sub-article 23 (a) (iii) have been retained in UCP 600 article 20. For those that do not have the benefit of seeing the drafted opinions or the content of the Discussion Forum, I quote the text of the response that was included in the final version of the opinion: "A bill of lading is a generic term for a transport document that includes, but is not necessarily limited to, transport by sea from a port of loading to a port of discharge. It is recognized, however, that there will still be occasions when the shipping company or its agent will include reference to a place of receipt or taking in charge that is different from the port of loading. To cover this eventuality, the content of sub-article 20 (a) (ii) reads: "indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:". The emphasis in this condition is that the document checker must be able to determine that the bill of lading appears to indicate that the shipped on board statement (pre-printed wording or by a separate notation) relates to loading on board the named vessel at the port of loading stated in the credit and not to any pre-carriage of the goods between a place of receipt or taking in charge and the port of loading. Unless it is evident from the bill of lading that the shipped on board statement applies to the vessel and the port of loading, the bill of lading will require an on board notation showing the port of loading and the name of the vessel, even if the goods are loaded on the vessel named in the bill of lading". Last points from the Banking Commission. (1) A copy of the UCP 600 Commentary was handed to each of the attendees at the end of the first day. The Commentary represents the work of the UCP 600 Drafting Group. Each member drafted their own Commentary to the articles they had presented at an ICC seminar in Paris last October. The remainder of the Drafting Group then provided their input before a final draft was concluded. It is true to say that the drafting of the Commentary proved more difficult than drafting the rules themselves. For those that are looking for an A-Z of letters of credit or examples of how the rules should be applied, you will probably be disappointed. The Drafting Group decided very early in the process that the Commentary would look at the issues debated in our discussions and why the words say what they do. Examples are often taken too literally as was found with those given in ICC Position Paper No. 4. Then, some banks took the view that those examples were the only way in which a transport document could be signed, even though there were other equally acceptable methods. Copies of the Commentary are or will shortly be available from your local ICC office. (2) Agreement was reached to update the URR 525 to bring the language in line with that of UCP 600. The expectation is that a draft will be available for the next Banking Commission meeting in April 2008. Due to the fact that this is not a revision of these rules, it is expected that the draft text will be approved with minimal, if any, changes. (3) The URDG revision is well underway. The first draft for comments by national committees of the ICC is expected in February 2008. Lastly, and quite literally hot off the press, it is reported that the Commercial Law & Practice Commission of the ICC is considering a revision of Incoterms 2000. Now, let us get back to the questions under articles 18 and 26-29. We will look at other issues relating to articles 19-25 in the next newsletter. Article 18 - Commercial Invoice Banks and Corporates Why is sub-article (b) included in this article? The basic principle in sub-article 18 (b) follows that which appeared in sub-article 37 (b) of UCP 500. It is the emphasis that has changed not the ability of a nominated bank to accept an invoice for a greater value provided that they have not honoured or negotiated for an amount greater than that permitted by the credit. This emphasis "may accept a commercial invoice" as opposed to the UCP 500 wording which read "may refuse commercial invoices" is intended to highlight the fact that letters of credit should be vehicles for payment rather than refusal. The wording in UCP 500 was seen by many as actually encouraging a refusal despite the fact that the beneficiary received settlement for an amount no greater than that of the credit. Banks may include in their requirement for a commercial invoice reference to "for an amount no greater than the value of the credit" or similar, if the acceptance of an invoice that is greater in value than the credit may cause problems for the applicant in clearing the goods etc. Article 26 - "On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight Corporates Why is a bill of lading acceptable indicating that goods may be carried on deck? In letter of credit operations banks are concerned with what is known and not necessarily what may or may not occur. The fact that the bill of lading may indicate that the goods may be shipped on deck does not detract from the fact that when they were shipped they were not on deck otherwise the clause on the bill of lading would have been one of "shipped on deck". It is the position at the time of shipment that banks must take note of. Article 27 - Clean Transport Document Corporates How will I know that the bill of lading is clean? Basically, by the absence of any clause on the bill of lading declaring a defective condition of the goods or their packaging. It should be noted that the shipping company or their agent can only make a visual assessment of the goods or their packaging and there is no certainty or guarantee as to whether the goods are actually in good working order or of the condition as ordered. Article 28 - Insurance Document or Coverage Banks and Corporates If an insurance document is dated later than the date of shipment as evidenced on the transport document but includes details of the shipment i.e., date, name of vessel etc. will this suffice as evidence of insurance being effective as of the date of shipment? No. This position has not changed between UCP 500 and UCP 600. The insurance document, if dated later than the date of shipment, as evidenced on the transport document, must indicate that the insurance cover was effective no later than the date of shipment. Information such as vessel name, date of shipment, ports of loading and discharge will be seen as purely information and not evidence of effective insurance coverage. Article 29 - Extension of Expiry Date or Last Day for Presentation Banks It has been commented that certain banks are requesting the exact wording that appears in sub-article 29 (b) whereas under UCP 500 they accepted "all terms and conditions complied with" or similar notations. This is a prime example of where nothing has changed under UCP 600 except in referring to the place where the statement is to be made i.e., the covering schedule. In a number of cases, banks were requesting this clause be added where the documents had been presented on an expiry date which was a banking day but where the nominated bank sent the documents one or two days later - following examination and processing of the documents. It should be noted that this sub-article only refers to situations where the documents are presented on the next banking day following the expiry date, where the expiry date for reasons other than those in article 36 fell on a non-banking day.