Article

by Kim Christensen

For at least four years, endless discussions have been going on concerning the revision of UCP 500: what should be changed, what should not be changed and what direction should each article take. After UCP 600 was approved by the ICC Banking Commission in October 2006, one would have thought that these discussions would end - or at least change. After all, the rules are now fully drafted, and there is no room for changes, at least not for the next 10 years or so. However, after reading the last issue of DCInsight 1 it is easy to reach the conclusion that the discussions are still going on as vigorously as ever. I am not saying that one should not discuss these things. I am merely saying that one should spend one's energy where it is realistic.

Convictions

We all have our own personal strategies or convictions. To a large extent, these determine our approach to specific situations. For example, if you take the pessimistic view that people are out to cheat you, the consequence is that you are likely to meet untrustworthy people most of the time. If, on the other hand, you believe that people in general are trustworthy, you will focus on examples to support this and you will consider the people who do, in fact, want to cheat you as exceptions. Your basic attitude determines how you act and respond, and the consequences often become self-fulfilling.

Put this into a UCP 600 perspective. If you basically think that these are bad rules, then your reading of them will prove you to be absolutely right. If, on the other hand, you consider them to be the best UCP rules ever developed, that attitude will prevail while reading UCP 600. My approach to UCP 600 is clear: these are by far the best set of L/C rules ever created. They are a well written set of rules that provide clarity to the parties in the L/C process.

Details

Of course, one can continue to discuss the new rules, but I suggest that we now spend our energy where it is better used. The fact is the rules have been changed. They seem to be improved, but everyone working with L/Cs realizes that the devil lies in the details. The general rules are one thing: how to apply them in practice quite another. I believe the aim of the discussions taking place should be to bring clarity to the practical application of the rules, particularly when the general rule has been changed. This means the world needs precise guidelines.

Examples: clean on board

Reading the UCP 600 and listening to the discussions have raised certain questions concerning where, at this stage, the practical application is not clear. Here are four examples:

UCP 600 article 27 creates a new rule concerning clean on board: "The word 'clean' need not appear on a transport document, even if a credit has a requirement for that transport document to be 'clean on board'."

I have heard it said that this is the general rule, but if the L/C has a specific requirement, e.g., "Bill of lading marked clean on board", then the words "clean on board" must, in fact, appear on the bill of lading. Besides the fact that I find it hard to understand this view, I know that only few shipping lines would be willing to state this in a negotiable transport document. Second, most transport documents already include wording to the effect that goods are clean on board - as far as the shipping line has been able to determine. This is found in wording such as: "RECEIVED by the Carrier the Goods as specified above in apparent good order and condition unless otherwise stated ... ". Some may argue that this is the part of the document that the document examiner should not read, but it is also here that one will see whether it contains a pre-printed wording that goods are shipped on board2.

You may also ask what the implication of this is for the document examiner. What if the L/C says:

"Bill of lading indicating clean on board", or

"Bill of lading stating clean on board", or

"Bill of lading certifying clean on board", or ...?

It is important that this does not cause problems once UCP 600 is in force.

Signed commercial invoices

There is no requirement in the UCP 600 that an invoice must be signed. In fact, the draft version of ISBP that the ICC Banking Commission is to vote upon at its April meeting in Singapore says: "Unless required by the credit, an invoice need not be signed or dated."3 One scenario that seems to be causing confusion is when the L/C calls for the invoice to be signed. This could be done in a number of ways - some clear and obvious. One, however, has been the basis for many discussions. This is when the L/C calls for "Signed invoice in 4 fold". UCP 6004 tells us that "4 fold" means that at least one original and the remaining number in copies must be presented. So the big question is: if one original and three copies are presented, must the copies be signed?

I have been in touch with a number of L/C specialists, and they do not think this would be the case under UCP 500. The question is whether UCP 600 constitutes a change here. Again, clarity is needed.

Non-documentary conditions

Sub-article 14(h) of UCP 600 is identical to the UCP 500 sub-article 13(c) that was explained in Position Paper 3. Subsequent to the approval of UCP 600, it has been made clear that the Position Papers were linked to the UCP 500 and will not be applicable under UCP 600.

The question is, of course, how far this rule will go. Position Paper 3 mentions the following example: "... a condition in the documentary credit states that the goods are to be of German origin and no Certificate of Origin is called for, the reference to 'German origin' would be deemed to be a non-documentary condition and disregarded in accordance with UCP 500 sub-Article 13(c). If, however, the same documentary credit stipulated a Certificate of Origin, then there would not be a non-documentary condition as the Certificate of Origin would have to evidence the German origin."

Following that example, can the non-documentary requirement of "German origin" be totally disregarded under UCP 600, so that in this case bankers would even have to accept a certificate of origin which indicates that the origin is "Russian"?

Indicate the carrier

Another issue that seems to be causing confusion occurs when, for example, a bill of lading as per UCP 600 article 20 is issued by an agent. In this scenario the word "identified" has slipped out of the rule, so now the document should "indicate" the name of the carrier. The question is, if a transport company is mentioned in the letterhead of the bill of lading - without the word "carrier", and the bill of lading is signed by "ABC Freight as agent for the carrier", will this comply with UCP 600 sub-article 20(a)(i)?

UCP 600 Commentary

From where I sit, the UCP 600 is clearly workable. L/C practitioners may have differing views as to whether or not the rules are drafted the way they prefer, but the point I would make is that we should accept that the rules are now out there and do our outmost to make them work. In that respect, the biggest challenges, as I see it, will occur when a rule changes practice. For the answer to that, many of us are awaiting the Commentary on UCP 600, promised this year. In this publication, the UCP Drafting Group have a golden opportunity to state clearly and unambiguously their view as to how a certain rule should be understood and interpreted.

I hope that they will seize it, so that we can adopt a common view on these issues before the UCP 600 come into effect. We owe it to ourselves and to all users of documentary credits.

Kim Christensen is TF Business & Product Specialist in Nordea in Denmark and a member of the ICC Banking Commission. His email is kim.christensen@nordea.com

1. DCInsight Vol.13 No.1, January-March 2007.

2. Sub-article 20(a)(ii).

3. ISBP Paragraph 62 (Final Draft, March 2006).

4. Sub-article 17(e).