Article

by Reinhard Längerich

UCP 600, a new baby, has been born. I am not surprised that the Banking Commission adopted the rules, but I am surprised and pleased that it was a unanimous adoption. Is it a perfect version? No, there were several concerns expressed by members from different countries. But the concerns seemed not to be so considerable as to prevent a 100 per cent acceptance.

Am I satisfied? Not completely. I too have wishes that were not met. But generally it is my conviction that we have an improved UCP that has solved many problems. Including several topics from the ISBP in the text of UCP 600 is one of the improvements.

Language, definitions, interpretations

I like the new wording in the rules which, in my view, makes it easier to read and understand them, especially for non-bankers or for people whose daily jobs do not bring them into close contact with credits and the UCP. And I am also happy about articles 2 and 3 on "Definitions" and "Interpretations". The UCP are easier to read now that they include, in one place, definitions of a large number of expressions used in the rules. In particular, the definition (and introduction) of the word "honour" is very useful.

The problems regarding negotiation are not solved; and it seems that a common understanding of this term is not in sight. But nevertheless I believe the definition, which uses the phrase the "purchase of drafts or documents", is somewhat better than that used in earlier UCPs.

I also welcome the interpretations of several terms in article 3, which, in earlier versions, were spread throughout the rules. And by saying that a credit is irrevocable (even if the credit does not state that it is irrevocable), we no longer have to refer in the UCP to revocable credits, which are hardly ever used nowadays.

Financing

I generally approve of sub-articles 7(c) and 8(c), which more clearly state that the issuing bank and the confirming bank both have an obligation to reimburse a bank that has honoured or negotiated a presentation at maturity, even when that bank has prepaid or purchased the presentation. This could have been stated even more strongly by indicating that a bank having acted in good faith always had a right to be reimbursed - independent of any objection regarding the goods and/or contract. The rules should probably have also stated that not only does the issuing bank have the obligation to pay, but also that the issuing bank has a right to be reimbursed by the applicant. We have to bear in mind the fact that the applicant's request to the issuing bank to issue the credit arises from the commercial transaction between the applicant (buyer) and the beneficiary (supplier). Moreover, the applicant has more knowledge of the beneficiary than the issuing bank - and often the nominated bank - does. A major pending question is whether the courts will take this point into consideration once UCP 600 has been in force for a while. My expectation (and hope) is that courts will study, not only the UCP text, but the Banking Commission Opinions and other ICC publications on this matter.

Refusal

For several years, we have noted practices that contradict UCP 500 in connection with the refusal of discrepant documents. I am speaking of the fact that many issuing banks refused documents and held them at the disposal of the presenting bank, yet at the same time contacted the applicant for a waiver - and then handed the documents to the applicant when he had accepted them - without any prior agreement from the presenter. I am convinced that the new sub-article 16(c) - which requires, in the case of refusal, that a single notice containing specific points be given to the presenter - will make the process regarding discrepant documents much smoother, since the interests of the beneficiary now have to be taken seriously. The beneficiary wants to be paid, and only in extreme situations would he prefer the documents to be returned. The provision will also make life easier for an issuing bank to act on instructions stated in the presenting bank's cover letter without having an obligation to refuse documents and to receive the same instruction thereafter from the presenter.

Examination of documents

I also agree with the dropping of the "reasonable time" coupled with a maximum number of days concept and substituting the simple stipulation of a maximum of five banking days. This is positive, not only because it reduces the number of days from seven to five, but also because it eliminates the vague phrase "without delay".

While I am pleased that "on their face" has been removed in most places, I cannot see why we retained it in article 14, Standard for Examination of Documents. The wording "on the basis of the documents alone" and later "appear", which both figure in the new rules, should be sufficient.

Air Transport Document (AWB)

Even though this may seem a small point, it has always annoyed me that under UCP 500, unless the documentary credit required an "on board" notation, we had to view the issuing date of an air transport document as the date of shipment, even in cases where a specific date of shipment was stated in the documents. This was not easy to understand, as it was different from what was required in all other transport documents. I am pleased to see that UCP 600 rectifies this matter.

My comments on the UCP 600 can only be seen as tentative. We will all have to see what will materialize after implementation.

Reinhard Längerich, now retired, was formerly Trade Finance Manager at Nordea, Denmark. His email is reinhard@post11.tele.dk