Exclusion of certain UCP articles in the LC

GSham · Post by **GSham** » Mon Jun 27, 2011 1:00 am

LC contains the following clause: "ARTICLES 7 (c) AND 12 (b) OF UCP 600 REVISION 2007 ARE EXCLUDED IN THIS L/C."

By simply excluding these articles without further elaboration, does it mean that the opposite is true? For instance, by excluding article 7(c), does it mean that an issuing bank does not undertake to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank? If that is not the intended consequence for excluding article 7(c), the issuing bank need to elaborate what it wants to achieve by excluding the article.

Can issuing banks be more responsible please?

Gabriel

HOANGTHIANHTHU_invalid · Post by **HOANGTHIANHTHU_invalid** » Mon Jun 27, 2011 1:00 am

Dear Gabriel,

An L/C that excludes sub-article 7(c) must be available with the issuing bank, and there should be no nominated bank involved.

If the L/C is available with a nominated bank but excludes sub-article 7(c), that nominated bank will certainly refuse to act on its nomination, i.e., not negotiate or honor, unless the L/C incoporates under field 78 an alternate reimbursement undertaking that is acceptable to the nominated bank.

Regards,
Duc N.H

GSham · Post by **GSham** » Mon Jun 27, 2011 1:00 am

Dear Duc N.H.

Thank you for your comments. I agree with you that nominated banks should refuse to act on the nomination for such LCs unless the issuing bank's reimbursement undertaking is clearly indicated in the LC.

Regards
Gabriel

NigelHolt · Post by **NigelHolt** » Mon Jun 27, 2011 1:00 am

Gabriel,

Idiocy abounds in the world of documentary credits I am afraid, the absurdity of excluding 7(c) just being one example. Incidentally, my posting of 19 Sep 07 under a discussion headed “7c, 8c, 12b” may be of interest.

Regards, Jeremy

DanielD · Post by **DanielD** » Mon Jun 27, 2011 1:00 am

Gabriel,

I think that by excluding 7c AND 12b, IB simply does not authorize the prepayment. Actually, only the last sentence of 7c should be excluded. 7c,8c, 12b work together. Therefore if there is a prepayment, it will be the NB's responsability. Maybe it is what Jeremy says in his posting. No time to check.
Daniel

GSham · Post by **GSham** » Tue Jun 28, 2011 1:00 am

Thanks, Jeremy and Daniel. I think the issuing bank should spell out the intended effect of the exclusion. Thus if the intention is not to allow prepayment, the LC may state: "The nominated bank is not authorized to prepay its undertaking. Hence article 12(b) of UCP600, to the extent it is inconsistent with the foregoing, is expressly excluded."

If the exclusion of article 7(c) is pertaining to the last sentence only, the LC may state: "The issuing bank's undertaking to reimburse a nominated bank is not independent of the issuing bank's undertaking to the beneficiary. Hence sub-article 7(c) of UCP600, to the extent it is inconsistent with the foregoing, is expressly excluded." This way, the rest of sub-article 7(c) remains applicable.

Regards
Gabriel

GSham · Post by **GSham** » Wed Jun 29, 2011 1:00 am

For the next revision of the UCP, I would suggest the following to be included into article 1:
"Where any rules are excluded by the credit, the issuing bank must clearly articulate the intended effect of such exclusion, otherwise banks will deem such exclusion as not stated and will disregard it."

JimBarnes · Post by **JimBarnes** » Thu Jun 30, 2011 1:00 am

Excluding/overriding all or part of 7(c) might shift the contractual and legal basis for a nominated bank's claim for payment from UCP reimbursement to assignment of beneficiary rights.

That would likely be bad for a nominated bank trying to avoid a fraud defense.

It might also be bad for an issuer asserting a right of refund under 16(g).

It would be good for the lawyers who get to argue about the scope of the exclusion/override, what law applies to cover the issue, and what that law provides in the context of an assignment of beneficiary rights that the issuer has acknowledged in the nomination provision in its LC.

Regards, Jim Barnes

DLloyd1 · Post by **DLloyd1** » Fri Jul 22, 2011 1:00 am

I would agree that the exclusion is not well worded but taken as a whole sentence, the exclusion of the 2 sub-articles together must surely be linked and it must therefore surely be assumed that the intention is to prohibit prepayment.

Referring to Gabriel’s question, it should never be assumed that excluding an article must mean the exact opposite. For instance, if you excluded sub-article 18.a.i “(A commercial invoice) must appear to have been issued by the beneficiary (except as provided in article 38)”, this does not mean that the commercial invoice must not be issued by the beneficiary, but only that it may or may not be.