AYN 426 INTERNATIONAL CAPITAL MARKET LAW AND REGULATION

Le ga l a n d Pra c tic e Pe rs pe c tiv e s

on

Doc u me n ta ry C re di ts

unde r t he

UCP 6 0 0

by

Garth Christopher Wooler J u ris Do c t o r

M BA( Dis t n ) M T M BBu s ( Co mm) GCH E

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2

Statement of Originality

I declare that the work presented in this publication and the research to which it refers is, to the best of my knowledge and belief, original and my own work, except as fully acknowledged in the text, in accordance with the standard referencing practices of the discipline.

The content of this book comprises material submitted for the completion of a Juris Doctor degree at the T.C. Beirne School of Law, University of Queensland, Brisbane, Australia. http://www.law.uq.edu.au/

Garth C. Wooler November, 2007

Se l f- p u b li sh e d i n Bri sb a n e , Au str a li a , i n 2 0 0 7 . Al l ri g h ts r e se r ve d .

T h is b o o k is p u b l ish e d o n co n d it io n th a t it sh a ll n o t, b y wa y o f tr a d e o r o th e r wis e , b e le n t, r e so ld , h ir e d o u t o r o th e r w ise c ir cu la te d w ith o u t th e p u b l ish e r ’s p r io r co n se n t in a n y fo r m o f b in d in g o r co ve r o th e r th a n th a t in wh ich it is p u b lis h e d a n d w ith o u t a s im ila r co n d it io n in c lu d in g th is co n d it io n b e in g im p o se d o n th e su b se qu e n t p u b l ish e r .

All m o d e ls, d ia g r a m s, ta b le s, flo wch a r ts a n d va lu e ch a in s p u b l ish e d in th is wo r k a r e th e o r ig in a l wo r k o f th is a u th o r fo r wh o m a ll r ig h ts to th e m a r e fu lly r e se r ve d .

Re fe r e n c in g in th e p u b l ica t io n h a s b e e n fo r m a tte d a cco r d in g to th e Au str a l ia n Gu id e T o L e g a l C ita t io n . Ple a se r e fe r to : h ttp ://w ww.l ib r a r y.u q.e d u .a u / la w/u se it s/a u st_ g u id e _ le g a l_ c ita t io n .p d f

© Ga r th Ch r i sto p h e r W o ol e r Br i sb a n e , Au str a l i a No ve mb e r , 2 0 0 7 .

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3

Dedication

This book is dedicated entirel y to my best friend, partner and soul-mate Farah Safari, the most courageous person I have ever known. Without her love, support and uncommon belief in me this book would probably never have been written. It is simply not possible to express the gratitude and humility I feel ever y da y I awake to find her still with me. To have her in my life is an endless jo y and a totally unexpected blessing and I am deeply thankful to her for choosing me.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4

About The Author

Garth W ooler was awarded his Bachelor degree in Business Communication from QUT in 1989 and returned to higher education in 2000. He has since acquired a Juris Doctor degree from the University of Queensland; a Masters degree with Distinction in Business Administration, a Masters degree in Technology Management, and a Graduate Certificate in Higher Education, all from Griffith University. He is currently completing his Master of Commerce degree at the University of Queensland Business School.

Garth has lectured and tutored at several universities and other higher education institutes in Business Law; Business Strategy; Information Systems Management; Business Management; and Economics. He has also had wide exposure to non-English speaking students in several teaching roles in Japan and Australia. He has lived and studied in, and/or travelled through, over 30 countries and has a keen interest in the interplay of economics, history, politics, business and the law.

For more than seven years Garth lived and worked in Japan as a teacher, logistics manager and as Project Manager for a transnational information system implementation. He has also acted as a Project Consultant to multi-national resources companies and transportation organisations in Australia. Eschewing specialisation for diversity, Garth brings a wide range of experience and knowledge from a plethora of academic and practical disciplines to this work.

The author invites input and questions about this work: [email protected]

oooOOOooo

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5

Acknowledgments

My thanks go first to my supervisor Dr. Alan Davidson who first suggested the topic area and has continuously shared his very deep knowledge and endless enthusiasm for documentary credit law. His encouragement, review and input over many cups of coffee have been vital to the completion of this work. I am also deeply indebted to Mr. Donald Smith who, without so much as having ever spoken to me personally, patiently read through my many drafts and tirelessly answered endless e-mails full of questions. His support, advice and practical knowledge on documentary credit practice in the international banking arena made a significant difference to this work. I am also deeply grateful to Professor James E. Byrne of the Institute of International Banking Law & Practice, and his associates Cory W ingerter and Lee Davis, for sharing their knowledge of the law in this domain, for their general and specific advice, and for their supply of reference materials, some of it provided even before publication. I must also make honourable mention of Professor John Dolan of W ayne State University, Mr. Jeremy Smith of Lloyds TSB London, and of course Mr. Serge Loode and Mr. Paul O’Shea of the University of Queensland for their support and advice.

I must also acknowledge my late father Harry W ooler, who taught me that a job worth doing is worth doing well – I think he would have thought this reasonably well done and I am deeply sorry he never saw it finished.

Many, many thanks to all.

oooOOOooo

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6

Contents

Part One

1. Introduction 1.1. Statement of Intent 1.2. Note on Terminology

2. Documentar y Credits and Stakeholders 2.1. The International Chamber of Commerce (ICC) 2.2. The Uniform Customs and Practice for Documentary Credits

(UCP) 2.3. The Documentary Credit 2.4. Types and Characteristics of Documentary Credits 2.5. The Documentary Credit Transaction Cycle

3. Fundamental Legal Principles of Documentary Credits 3.1. Preamble 3.2. The Principle of Autonomy 3.3. The Doctrine of Strict Compliance

oooOOOooo

Part Two

4. UCP 600 – The Revision Process 4.1. Preamble 4.2. Purposes and Critique of the Revision 4.3. Comparative Analysis of UCP 500 and UCP 600 Articles

5. UCP 600 – Underl ying Doctrine: Changes and Effects 5.1. Fundamentals of the UCP 600

6. The UCP 600 and Selected “Practice Areas” – Anal ysis and Commentary 6.1. Preamble 6.2. Practice Area One : Amendments To Credits 6.3. Practice Area Two : Bankers’ Mutual Obligations 6.4. Practice Area Three : The Facial Standard 6.5. Practice Area Four : Honour and Negotiation 6.6. Practice Area Five : Time Standards

7. Conclusion

oooOOOooo

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7

Contents

8. Glossar y of Terms

9. Bibliography 9.1. Books and Other Source Materials 9.2. Journal Articles 9.3. Table of Cases 9.4. W ebsites 9.5. Personal Correspondence and Discussions

10. Appendices 10.1. UCP 600 10.2. UCP 500

oooOOOooo

6 . 1 D o c u m e n t a t i o n s u b m i t t e d to I s s u i n g B a n k .

6 . 2 S i m u l t a n e o u s t r a n s f e r o f r e i m b u r s e m e n t f u n d s t o C o n f i r m i n g B a n k .

The Documentar y Credit/Confirmation C ycle

8 . G o od s S h ip p e d o r S e r v i c e s P r o v i d e d .

N o t a p p l i c a b l e t o S t a n db y s

3 . D o c u m e n t a r y C r e d i t I s s u e d

Is s uing

Ba nk

Ad vis i ng , Co nf ir mi ng , o r

No mina t e d Ba nk

B e n e f i c i a r y A p p l i c a n t 1 . U n d e r l y i n g C on t r a c t

4 . B e n e f i c i a r y Ad v i s e d a n d / o r C r e d i t C o n f i r m e d

5 . 1 D o c u m e n t a t i o n S u b m i t t e d , i n c . I n v o i c e , B o L, e t c .

5 . 2 B a n k - p a r t y n e g o t i a t e s d o c u m e n t s .

5 . 3 F u nd s r e m i t t e d t o B e n e f i c i a r y .

2 . D o c u m e n t a r y C r e d i t Ap p l i c a t i o n

7 . 1 D o c u m e n t a t i o n s u b m i t t e d t o Ap p l i c a n t .

7 . 2 F u nd s r e m i t t e d t o I s s u i ng B a n k .

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8

Part One

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9

1. Introduction 1.1. Statement of Intent

It is anticipated in the writing of this paper that the reader will have a basic understanding of the nature of international trade transactions, such terminology as is employed therein, and a broad understanding of the types of documents generally involved in trade.1 This knowledge, along with a knowledge of the risk components involved with such trade (especially the financial risks), is essential to understanding the context within which the UCP 500/600 operates.

The UCP 600 was given an implementation date of July 1st, 2007.2

The purpose of this paper is to review five Practice Areas that caused the most concern, debate, and in some cases litigation, under the UCP 500 regime3 and to examine the effect that the revised rules might have on those Practice Areas. Within this review, the published and private opinions of a wide range of Documentary Credit lawyers and practitioners will be incorporated and contrasted to provide perspective on the UCP revision process and outcome.

1.2. Note on Terminology One of the more confusing elements of any discussion on Documentary Credits is the blizzard of interchangeable terminology used to refer to the various parties, documents and actions that make up documentary credit law and practice. In an attempt to clarify these to some extent, a Glossary of Terms is provided as an appendix.

Where an Article of the UCP is referred to within the text or footnotes, that Article will be from the UCP 600 unless specifically stated otherwise.4

1 Such as International Sale Contracts, Invoices and Credit Notes, and Bills of Lading, as laid out in the ICC’s International Rules for the Interpretation of Trade Terms 2000 (INCOTERMS 2000). See: http://www.iccbooks.com/Product/CategoryInfo.aspx?cid=87 at Jan/Feb 2007.

2 http://www.iccwbo.org/policy/banking/iccjjdi/index.html at Jan/Feb 2007. 3 International Chamber of Commerce, Publication No.500, Uniform Customs and Practice for

Documentary Credits (1993) UCP 500. 4 A copy of the full text of both the UCP 600 and UCP 500 are also provided as appendices.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0

2. Documentary Credits and Stakeholders 2.1. The International Chamber of Commerce (ICC)

Established in 1919, the ICC was intended to act as a commercial bulwark against a rising tide of nationalist fervour and protectionism developing in the international political arena after the cessation of hostilities in Europe in 1918.5 This high-level objective has essentially remained unchanged over the last ninety years, with its operational objectives cited as being to serve world business by:

(1) promoting trade and investment;

(2) opening markets for goods and services, and

(3) supporting the free flow of capital.6 (The ICC is also a powerful advocate of self-regulation in the marketplace.7)

Among its many accomplishments since its inception has been the establishment of an International Court of Arbitration (1923) for resolving cross-border trade disputes;8 the International Maritime Bureau; the ICC Commercial Crime Bureau; and other agencies to assist with the facilitation of trade.9 The ICC also publishes widely on all manner of business-related topics, makes representations to the United Nations and to national governments across the globe, and serves to further the interests of trade generally.

5 http://www.iccwbo.org/id93/index.html at Jan/Feb 2007. 6 http://www.iccwbo.org/id93/index.html at Jan/Feb 2007. 7 http://www.iccwbo.org/policy/banking/iccjjdi/index.html at Jan/Feb 2007. 8 http://www.iccwbo.org/court at Jan/Feb 2007. 9 Charles del Busto, ICC Guide to Documentary Credit Operations for the UCP 500 (1994) 112.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1

2.2. The Uniform Customs and Practice for Documentary Credits (UCP) � Description and Characteristics

The Uniform Customs and Practice for Documentary Credits is a set of rules developed and published by the International Chamber of Commerce which “regulates the implementation and operation of the documentary credit.”10 In essence the UCP is a documented unification of Documentary Credit banking practices that has been achieved through the persistent efforts of the ICC11 over the last seventy five years.12

These efforts have resulted in what has become a quasi-legal set of regulations that have almost “universal effect”13 among the banking community.14 In 1990 it was posited that 95% of the world’s Documentary Credits are issued subject to the UCP15 but this figure is presumed to be significantly lower since the publication of the ISP9816 and the considerable increase since then in the use of Standby Letters of Credit.

That said, one of the more interesting characteristics of the UCP is that it is an “incomplete set of rules”17 that seek to leave various issues to be addressed by whatever appropriate national laws might apply in the circumstances. This is largely because the UCP does not address – nor is it intended to – all of the issues that various parties to a Documentary Credit transaction may have to deal with over time.18

10 Ademuni-Odeke, Law of International Trade (1999) 271. 11 Rolf A. Schütze and Gabriele Fontane, Documentary Credit Law Throughout The World – Annotated

Legislation From More Than 35 Countries (2001) 10 (Section 2.2). 12 The ICC was established in 1919 but the first UCP was not drafted until 1933. As this paper deals

with the UCP rather than the ICC, it is from this first draft that progress is measured. 13 Leo D’Arcy et al, (Eds) Schmitthoff’s Export Trade (10t h Edition, 2000) 166, Section 11-001. 14 For a detailed review of the stages of a Letter of Credit transaction see either Carr’s 8-stage analysis,

infra note 34 at 473-477, or the simplified D’Arcy analysis in Schmitthoff’s, supra note 13 at 168-170, Sections 11-003 to 11-004.

15 Paul Todd, Bills of Lading and Bankers’ Documentary Credits (3r d Edition, 1990) viii. 16 International Chamber of Commerce, International Standby Practices, (1998), James E. Byrne,

James G. Barnes and Gary Collyer (ISP Working Group). The ICC has adopted this unique set of ten rules – commonly referred to as the ISP98 – that deals specifically with Standby Letters of Credit.

17 Schütze and Fontane, supra note 11 at 5 at Preface. 18 Ibid at 9.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2

Originally seen more as a compilation of practices than a codification of all the relevant rules of law, the UCP’s adoption and application has broadened to become the worldwide standard for Documentary Credit transactions.19

� The UCP and The Law Developed outside of the framework of established national legal systems by merchants and bankers,20 the UCP is intended to minimise the risks inherent in the transactions of international trade21 and has been described as “the most successful act of commercial harmonisation in the history of world trade.”22 The risks involved include geographic boundaries; differing languages, customs and laws; and significantly different banking practices and currency controls.23

Schütze and Fontane explore the relationship of the UCP to the Law in their ICC-published book and conclude that the UCP can only “be regarded as sui generis24 rules” within the larger domain of Private Law25 given:

(a) that the application of the rules differs between jurisdictions, and

(b) the “unique character of the UCP as a system of rules”.26

They carefully posit that it is “doubtful” whether the UCP has the quality of customary law.

19 Ross P. Buckley, ‘The 1993 Revision of the Uniform Customs and Practice for Documentary Credits’

(1995) 28(2) The George Washington Journal of International Law and Economics 265 at 267, quoting Dr. Boris Kozolchyk, ‘Letters of Credit’ (1979) 9 International Encyclopedia of Comparative Law 5 at 15.

20 Alan Davidson, Developments In The Utilisation of Letters of Credit Transactions, Unpublished Masters Dissertation (1995) 3.

21 Alan Davidson, ‘The Evolution of Letter of Credit Transactions’ (1995) 10 Butterworths Journal of International Banking and Finance 128 at 128.

22 Felix W . A. Chan, ‘Documentary Compliance Under UCP: A Fault Finding Mission Or A Mere Guessing Exercise?’ (1999) Hong Kong Journals Online – Law Lectures For Practitioners 59 at 59 http://sunzi1.lib.hku.hk/hkjo/view/14/1400252.pdf at Jan/Feb 2007.

23 S. Lin Kuo-Ellen, ‘UCP Needs To Change’ (2002) 5(3) Journal of Money Laundering Control 231 at 238.

24 Sui Generis: Being the only example of its kind; unique; constituting a class of its own. 25 Defined here as “law which regulates the relationships between individuals. Family, commercial and

labor law are examples of private law because the focus of those kinds of laws is the relationships between individuals or between corporations and organizations and individuals, with the government a bystander. They are the counterpart to public law.” See: http://www.duhaime.org/dictionary/dict-p.aspx

26 Schütze and Fontane, supra note 11 at 12-13.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3

Meanwhile D’Arcy et al state quite explicitly that, in the United Kingdom at least, the UCP does not have “the status of a trade custom”;27 a finding which, if the courts agree, ultimately alters its legal effect within that jurisdiction.

Schütze and Fontane also point out that the UCP itself is not ‘law’ in any jurisdiction inasmuch as its specific Articles have not been given express statutory force. That said however, a number of jurisdictions have incorporated elements of the UCP into law, either through referring to it in statute28 or by confirming its representative authority in the courts.29

There is a range of opinion as to the source of ultimate legal authority for the documentary credit but in the absence of the elements of offer and acceptance, it would seem certain that it is not provided by contract law.30 Guy Smith states that “Letters of Credit sit uneasily between two bodies of established legal doctrine: the law of contracts and the law of negotiable instruments”.31

It has also been posited that the Documentary Credit is a creature of Lex Mercatoria, the “autonomous body of transnational commercial rules” which arose out of the need for consistent rules to govern trade during the middle ages and since.32 Lex Mercatoria has been described as “a process in which regulatory norms travel from the bottom (the practices of corporations) to [the] top (recognition by the state)”.33

27 D’Arcy et al, supra note 13 at 168, Section 11-003. 28 See for example: Article 1408 [Additional Application of the Uniform Customs and Practices for

Documentary Credits] of the Bolivian Commercial Code of 1978 which provides for the application of the UCP in the absence of any domestic statute.

29 There are innumerable examples of courts ruling on the application and meaning of UCP Articles in many jurisdictions. In the U.K. particularly, the UCP has featured in a wide range of trade disputes.

30 Boris Kozolchyk, ‘The Legal Nature of the Irrevocable Commercial Letter of Credit’ (1965) 14 American Journal of Comparative Law 395. Prof. Kozolchyk points out that attempts at characterising Documentary Credits as an abstract of contract law encounter difficulties “due to the absence of privity … [and] consideration”.

31 Guy W . Lewin Smith, ‘Irrevocable Letters of Credit and Third Party Fraud: The American Accord’ (1983) 24(4) Virginia Journal of International Law 55 at 71.

32 Ana Mercedes Lopez Rodriguez, ‘Lex Mercatoria’ (2002) 1: www.rettid.dk/artikler/20020046.pdf at Jan/Feb 2007.

33 Peter Drahos and John Braithwaite, ‘The Globalisation of Regulation’ (2001) 9(1) The Journal of Political Philosophy 103 at 111.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4

The development of the UCP and its subsequent usage by courts in deciding cases and governments in drafting legislation would therefore support the conclusion that it is indeed part of that body of rules.

In practice, to give the UCP legal force for individual transactions in most jurisdictions, it is necessary that the UCP be expressly incorporated into the Documentary Credit, somewhat similarly to the terms of a contract.34 Parties to the Documentary Credit may also include any modified UCP Article that they agree is appropriate35 and naturally the parties may also contract out of the terms of the UCP should they choose.36 However, once incorporated into the Documentary Credit and agreed upon between the parties, the UCP becomes operative. As a natural outcome from all of the above, it is understandable that the UCP Articles have not been interpreted uniformly across all jurisdictions.37

In some jurisdictions, quite apart from the UCP, there are “national statutes [that] do govern documentary credits”38

although in western countries it is rare to find statutes that deal specifically with Documentary Credits.39 The major exception to this is found in the United States where the Uniform Commercial Code (UCC) has been enacted. This Act, in part, specifically deals with the law for Documentary Credit transactions. Described as “the most comprehensive and detailed statutory coverage of documentary credits in the world”, Article 5 of the revised UCC more closely follows the UCP than did its predecessor. 40

34 International Chamber of Commerce, Publication No.600, Uniform Customs and Practice for

Documentary Credits (2007) UCP 600, Article 1. See also: Indira Carr, International Trade Law (3r d Edition, 2005) 472.

35 Ademuni-Odeke, supra note 10 at 271. 36 D’Arcy et al, supra note 13 at 168, Section 11-003. 37 Schütze and Fontane, supra note 11 at 9. 38 Ibid at 5 at Preface. 39 Ibid at 9. 40 Ibid at 120. Note that this text is provided in the ‘ERRATA’ page issued by the ICC to correct the

remarks made in the original text of the publication. [emphasis added by this author]

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5

Incidental to this legislation, it might be argued that if Lex Mercatoria is characterised by a bottom-up adoption model as outlined above, the UCC’s enactment by the U.S. Congress in legislation that strongly echoes the UCP rules strongly supports the observation that the UCP can therefore be characterised as Lex Mercatoria.

Esteemed academic and Documentary Credit commentator Dr. Boris Kozolchyk has expressed reservations about the intrinsic characteristics of the UCP principles, and poses the question whether it would perhaps be more useful for the UCP to consist of “axiomatic principles” and to make the ISBP41 “the permanent repository of periodic and wholly democratic revisions of customs and practices.”42 This author is of the view that such a model might resemble the common law legislative approach of having a relatively stable statutory regime underpinned by enacted regulations that are periodically updated through parliamentary amendment.

At an international level, the United Nations has also adopted the “United Nations Convention on Independent Guarantees and Stand-By Letters Of Credit”43 whose Articles reflect those of the UCP in many ways.44 Unfortunately, however grandiose the name, the adoption of these rules has been disappointing.45

41 International Chamber of Commerce, International Standard Banking Practice (2007) Publication No.

681. Revised for UCP 600, unpublished at time of writing. Approved for use 27 April, 2007 consequent to the approval of the UCP 600, it will hereafter be referred to as ‘ISBP2007’. The ISBP is an extensive document, the content of which is not unlike regulations that underpin legislation in common law jurisdictions. It provides detail to the Documentary Credit user community on how the practices articulated in the UCP should be applied.

42 Boris Kozolchyk, ‘Should Future UCP Revisions Be Carried Out Differently?’ (2006) 12(4) DCInsight ICC Journal http://focus.dcprofessional.com/ at Jan/Feb 2007.

43 http://www.uncitral.org/pdf/english/texts/payments/guarantees/guarantees.pdf at Jan/Feb 2007. 44 However, UNCITRAL reports that only 8 nations (4%) have ratified the Convention, and none since

2005. http://www.uncitral.org/uncitral/en/uncitral_texts/payments/1995Convention_guarantees_status.html at Jan/Feb 2007

45 Only eight countries have ratified the Convention, despite it being adopted by the ICC. http://www.uncitral.org/uncitral/en/uncitral_texts/payments/1995Convention_guarantees_status.html

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6

� A Brief History Of The UCP46

In the approximately eighty years since the international trading community began working with rule sets to provide some consistency in trade transactions, countless man-hours have been invested in developing what is generally acknowledged as the ”the most successful harmonising measure in the history of international commerce” – the UCP.47 Its early history however is tortured and clearly bifurcated prior to 1960 – there are Euro-Scandinavian and South American development histories and an Anglo-American history juxtaposed alongside those. It is beyond the purview of this paper to explore these histories in any depth – it is adequate for these purposes to note the most important developments that led to the UCP 600 in place today.

Although not official ICC policy to do so,48 revisions of the UCP49 have been produced approximately every ten years since 1933,50 usually to address the concerns of the “bankers, commercial parties, [and] transport companies”51 of the various member-states to the ICC and to refine the rules in order to accommodate new logistical and technological developments.52 It is considered a “practical document”,53

attuned to the needs of the stakeholders for whom it is constantly reviewed and revised.

46 For more detail, see Davidson, supra note 21. 47 Royston Miles Goode, Commercial Law (3r d Edition, 2004). 48 Buckley, supra note 19 at Footnote 1. 49 Although largely consistent, note that there is occasional dispute over the chronology of the UCP’s

history. New versions are voted upon and accepted by the ICC but generally do not come into force for some time thereafter, perhaps the following year. For the purposes of this paper the dates given will reflect the date the UCP was voted upon and accepted by the ICC, not the date at which the UCP came into force.

50 Buckley, supra note 19. 51 Ademuni-Odeke, supra note 10 at 271. 52 Carr, supra note 34 at 472. 53 Davidson, supra note 21 at 131.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7

Early impetus for the development of an international rule set for managing international trade finance transactions was provided by the collapse of world commodity prices subsequent to the end of hostilities in 1918.54 In the U.S. many transactions were governed broadly during this time by a set of domestic guidelines known as RAECC55 and it was during this time that some of the most fundamental principles of Documentary Credit lore were handed down in the courts. These include the establishment of bank liability on drafts,56

the Principle of Irrevocability,57 and the Doctrine of Strict Compliance.58

However there existed within the banking community a general belief that the provisions governing trade finance transactions needed global standardisation and efforts to attain this were underway as early as 1929 when the ICC’s ‘Committee on Bills of Exchange, Cheques and Commercial Documentary Credits’ met in Amsterdam. The rules which developed out of that meeting, and subsequently, were not met with overwhelming acceptance in its earliest iterations59

– the first set of rules, published in 1929, were revised again in 1933 when it was first formally named the Uniform Customs and Practice for Commercial Documentary Credits (ICC Brochure No.82).60

54 Dan Taylor, ‘The History of the UCP’ (1999) 3(12) Documentary Credit World 11 at 11. 55 Regulations Affecting Export Commercial Credits, published in 1920 by the New York Bankers

Commercial Credit Conference, a US banking body comprised of 34 US banks. See: Taylor, supra note 54.

56 Laudisi v American Exchange National Bank (1924) 122 Misc. 635, 203 N.Y.S. 432. 57 Ernesto Foglino & Co. v Webster (1926) 217 A.D. 282, 216 N.Y.S. 225. 58 Courteen Seed Co. v Hong Kong Shanghai Banking Corp. (1927) 216 A.D. 495, 215 N.Y.S. 525. 59 Carr, supra note 34 at 472. 60 Taylor, supra note 54 at 15.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 8

Although this 1933 release was technically a ‘revised’ set, it is generally considered to be the first UCP and was accepted by a broad range of the Documentary Credit user community – it was originally adopted by forty countries61 in addition to some individual U.S. banks.62 The U.S. Committee on Foreign Banking adopted this version of the UCP in May, 1938.63 Unfortunately banks in the United Kingdom and most British Commonwealth nations remained outside of the regime for many more years.64

The first major revision of the UCP, in 1951, was ultimately adopted by a number of previously non-signatory nations, and again addressed a range of issues that had arisen since the previous publication (which were no doubt considerable given the time gap and technology advances over that period). In particular, the rights and responsibilities related to Documentary Credit transactions underwent review.65

The 1961 revision, UCP 222, was predicated on the need to create a global system for Documentary Credit transactions and to address the realpolitik of international trade. Davidson states that the “language of the UCP now changed from French to English” for the first time although clearly the U.S. banks would have been using English-language versions of the rules long since.66 The concerns of the British bankers were also addressed during this revision, ultimately leading to both their own acceptance of the UCP as a standard for Documentary Credit transactions and acceptance by banks throughout the wider British Commonwealth.67

61 Carr, supra note 34 at 472. 62 Davidson, supra note 21 at 130. 63 Taylor, supra note 54 at 15. 64 Schütze and Fontane, supra note 11 at 11. 65 Davidson, supra note 21 at 130. 66 Neither Taylor not the ICC website make any reference to the ‘official’ language of the ICC or the

UCP at this stage so it is perhaps natural to assume the each country was using versions written in its own language. Today the ICC National Committees each submit a translation of the UCP which becomes the “official” version in the country that submitted it.

67 Davidson, supra note 21 at 130.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 9

The 1974 revision, UCP 290, was driven out of various pressures brought on by technological and political changes. Assisted by UNCITRAL,68 issues such as ‘containerisation’ and a huge increase in the number of banks operating internationally were addressed.69

The UCP 400, adopted in 1983, introduced a range of new rules – the role accorded to intermediary banks was clarified; the Standby Documentary Credit was introduced; and electronic transfer of information was recognised.70 Perhaps reflecting a more legalistic approach to the rules, the UCP 400 was considered to be “more precise in its wording”.71

The UCP 500, which was published by the ICC in 1993, was broadly received as a positive advance on the previous version72 and was thought to allow a reduction in “the scope for misinterpretation and misapplication” of the rules.73 It was intended to both simplify the previous version and to deal with a range of documentary and system integrity issues that had arisen in the intervening 10 years.74 It was generally agreed at the time that the rules better reflected the interests of the commercial parties the UCP was intended to protect. Ultimately though, further revisions were required to meet the latest issues of bankers and traders globally, and to account for changes in technology usage in international trade transactions.

68 United Nations Commission on International Trade Law. 69 Davidson, supra note 21 at 130. 70 Davidson, supra note 21 at 130. 71 C.M. Schmitthoff, ‘The New Uniform Customs for Letters of Credit’, cited by Davidson, supra note 21

at 131. 72 Schütze and Fontane, supra note 11 at 12. 73 Pradeep Taneja, ‘UCP 600: A Document Restoring the Credibility of L/Cs’ (Preview article for

DCInsight, ICC Journal on Documentary Credits) http://www.iccbooks.com/Home/CredibilityofLCs.aspx at Jan/Feb 2007).

74 Davidson, supra note 21 at 131.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 0

The most recent revision of the UCP, commonly referred to as the UCP 600, is the result of over three years’ development by the ICC’s Banking Commission on Banking Technique and Practice.75 A Drafting Group comprised of seven world-respected bankers, a lawyer and a logistics specialist,76 sifted through the 5,000-plus submissions made by the many National Committees of the ICC and other stakeholders in the Documentary Credit community. They then created drafts of a revised UCP for submission back to the National Committees for discussion and ultimately acceptance, further modification or rejection.

In addition to this esteemed group, the ICC also created a second review group, the Consulting Group, comprising as many as forty individual experts from a range of stakeholder sectors and nations,77 whose function was to “review and advise on early drafts”78 of the new rules. Specifically, their role was to ensure that:

a) any new inclusions were in line with both the legal and usage requirements of their user community;

b) the language in any new Articles would readily translate into their local language,79 as far as such a thing is possible;

c) members of the logistics and insurance industries were provided with adequate opportunity to have input into the process.80

75 International Chamber of Commerce, UCP600, supra note 34, at ‘Foreword’. 76 Ibid, at ‘Introduction’. This document recognises nine members of the Drafting Group listed in

addition to Mr. Gary Collyer, the Chairperson of the Group. However, not all of those named were me mbers of the Drafting Group for the entire period taken to create the UCP 600.

77 Taneja, supra note 73. 78 International Chamber of Commerce, UCP600, supra note 34, at ‘Introduction’. 79 Frank Reynolds and Donald Smith, ‘Reports From The UCP Seminars’ (2006) 13(2) DCInsight ICC

Journal http://focus.dcprofessional.com/ at May 2007. Reynolds and Smith report that this simplification of English has created some discussion during training for the implementation of UCP 600. “Using defined words within definitions (i.e., "Advising bank means the bank that advises the credit ... ") raised some eyebrows until the goal of limiting vocabulary to words that translate well into many languages was explained.”

80 Gary Collyer, The Origins of the UCP Revision (2006) Coastline Solutions http://www.coastlinesolutions.com at April, 2007.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 1

The result is a document in which “virtually every term is changed”81 albeit one that uses “plain, simple, precise and concise language”82 to deal with the complexities of Documentary Credit law – in fact the UCP 600, at 9,450 words,83 is a significant 14 percent shorter than its predecessor.

Described as “the most reviewed and commented upon document in the history of the UCP”,84 the UCP 600 was formally adopted in October 2006 and given an “implementation date”85 of July 1st, 2007.86

2.3. The Documentary Credit The terms “Documentary Credit” or “Letter of Credit” are presumed to be interchangeable.87 A Letter of Credit is “a conditional promise issued by a bank to pay a specified amount in the stated currency, within the prescribed time limit and against stipulated documents.”88 Letters of Credit have been defined as “a specialized commercial document arising from an agreement between a bank and its customer” and are “unique commercial instruments … governed by their own unique rules.”89 There are at least two major sub-species of Documentary Credit: the “Commercial” Letter of Credit, and the “Standby” Letter of Credit,90

a credit instrument similar in function to its Commercial cousin but which also has a number of variations that differ in operation.91

81 James E. Byrne & Christopher S. Byrnes (Eds), Annual Survey of Letter of Credit Law & Practice

(2006) 6 at 8. 82 Taneja, supra note 73. 83 This number includes the Article headings and contents only; the title page and any other

commentary is disregarded. 84 Taneja, supra note 73. 85 Donald Smith points out that the ICC “carefully avoided using the word ‘effective [date]’” and that July

1s t has no particular significance in law or practice other than it was thought this date would give me mber organisations sufficient lead time to prepare. There is nothing stopping a bank from applying the UCP 600 rules prior to that date or applying UCP 500 after that date. Personal correspondence on file with this author.

86 http://www.iccwbo.org/policy/banking/iccjjdi/index.html at Jan/Feb 2007. 87 Gabriël Moens and Peter Gillies, International Trade and Business: Law Policy and Ethics (2nd

Edition, 2006) at 301. 88 Ibid. 89 Western Surety Co. v North Valley Bank 2005 Ohio 3453 (Ct. App.). 90 See Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit

and ‘Standby’ Letters of Credit’ below. 91 Discussed in detail in “‘Commercial’ Letters of Credit Versus ‘Standby’ Letters of Credit” below.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 2

Described by one British appeals court, and endlessly reiterated thereafter, as “the lifeblood of international commerce” and the “collateral to the underlying rights and obligations between the merchants at either end of the banking chain”92, the Letter of Credit has become recognised as one of the most effective means by which to minimise the risks associated with the transfer of property between traders,93 especially for those moving goods and services across national boundaries. The evolution of the documentary credit has been ably recorded elsewhere94 but knowledge of similar monetary exchange devices have been extant for centuries in such far-flung population centres as ancient China, Rome and Egypt.95

As such, not only has this financial product proven to be exceptionally resilient and popular but also enormously flexible in its ability to work within different economic and cultural restraints over relatively large tracts of time. Today they are universally recognised by banks and business traders in well over 175 countries.96

“Credit” is defined by the UCP 600 as “any arrangement, however named or described, that is irrevocable97 and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.”98 The court has held that one function of the Letter of Credit is “to bridge the period between the shipment [of goods]99

and the time of obtaining payment against documents [that verify shipment].”100 Other functions include to expressly clarify the documents required to establish that the underlying contract has been performed.

92 United City Merchants (Investments) Ltd v Royal Bank of Canada (The American Accord) [1981] 1

Lloyd's Rep. 604 at 612, among many other cases using the exact same terms. See D’Arcy et al, supra note 13 at 166, Footnote 2.

93 Davidson, supra note 20 at 4. 94 Frans P. de Rooy, Documentary Credits (1984). Also see Davidson, supra note 21, among others. 95 Carr, supra note 34 at 471. 96 Ademuni-Odeke, supra note 10 at 271. 97 Note that this is a shift from the UCP 500, sub-Article 8(a), which allowed for the existence of

‘revocable’ credits. 98 International Chamber of Commerce, UCP600, supra note 34, Article 2, definitions for ‘Credit’ and

‘Complying Presentation’. 99 This also includes the provision of services but typically used for transactions involving goods. 100 T.D. Bailey, Son & Co v Ross T. Smyth & Co Ltd (1940) 56 T.L.R. 825 at 828 per Lord W right.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 3

Primarily however the role of the Documentary Credit is to represent the undertaking of a neutral paymaster – the Issuing Bank – to pay the seller and protect the buyer through the process of document examination and acceptance.101

Lord Diplock said succinctly in United City Merchants that: “[t]he whole commercial purpose for which the system of confirmed irrevocable documentary credits has been developed in international trade is to give to the seller an assured right to be paid before he parts with control of the goods that does not permit of any dispute with the buyer as to the performance of the contract of sale being used as a ground for non-payment or reduction or deferment of payment.”102

The integrity of the Letter of Credit system relies on, amongst other things, the good governance of the international banking community103 and the courts have been reluctant to interfere with the workings of the international Letter of Credit system except where absolutely necessary.104

There are two underpinning legal principles which are fundamental to the operation of Letters of Credit – the Principle of Autonomy and the Doctrine of Strict Compliance, both of which are discussed in some detail below.105 These principles support the fundamental operative concept of the Letter of Credit – the notion of certainty of payment where typically, all other things being equal, the supplier of goods or services is guaranteed payment largely free of any risk that the Buyer will maliciously renege on the deal.106 As stated by Denning MR, “a letter of credit is given by a bank to the seller with the very intention of avoiding anything in the nature of a set-off or counterclaim.”107

101 Moens and Gillies, supra note 87 at 301. 102 United City Merchants (Investments) Ltd. and Glass Fibres and Equipments Ltd. v Royal Bank of

Canada, Vitrorefuerzos S.A. and Banco Continental S.A. [1983] 1 AC 168 House of Lords per Lord Diplock at 183.

103 del Busto, supra note 9 at 22. 104 Intraco Ltd v Notis Shipping Corporation of Liberia: The Bjoha Trader [1981] 2 Lloyd’s Rep. 509 per

Donaldson LJ. See also Lord Justice Stephenson in United City Merchants (Investments) Ltd. and Glass Fibres and Equipments Ltd. v Royal Bank of Canada, Vitrorefuerzos S.A. and Banco Continental S.A. ("The American Accord") [1981] 1 Lloyd's Rep 604 Court of Appeal (Civil Division) at 620, who said “I would agree also that the fewer the cases in which a bank is entitled to hold up payment the better for the smooth running of international trade.”

105 See Sections 3.2, 3.3 and 5.1 below. 106 Carr, supra note 34 at 479. 107 Power Curber International Ltd v National Bank of Kuwait [1981] 1 W LR 1233.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 4

There are different and sometimes conflicting ways of measuring the Documentary Credit trade, including By Volume (the number of distinct Credits issued) and By Value (the aggregated dollar value of Credits issued), both measures being capable of further breakdown by type. There also appears to be regional preferences to both the use of Documentary Credits as a transaction tool, and to particular types of Credit.108

It is impossible to verify with any accuracy the total value of outstanding Letters of Credit internationally given that there is no central controlling body to whom such Letter of Credit values need to be reported for compilation.109 However in the United States at the end of the second quarter 2005,110 operative Documentary Credits and Standby Letters of Credit111 were reported by the top 300 banks to be valued in excess of US$368.2 billion.112 So one might extrapolate that, while values warranted by Letter of Credit internationally may be unascertainable, the number is significant by any standard.113

However, if U.S. trends are indicative, international use of Commercial Letters of Credit is falling relatively quickly in dollar terms while the use of Standby Letters of Credit has in recent times climbed exponentially.114 One commentator optimistically puts forward the idea that the UCP 600 will arrest this trend115 but without citing any conclusive data that explains why the use of Commercial Letters of Credit is falling, it is unclear how or why the UCP 600 will necessarily accomplish this.

108 N.D. George, ‘The Irrevocable Credit and UCP 600 Article 32’ (2007) 13(1) DCInsight ICC Journal

http://focus.dcprofessional.com/ at May 2007. 109 The ICC states that “An estimated $1 trillion a year in trade is financed using letters of credit based

on the UCP.” See: http://www.iccwbo.org/policy/banking/icceide/index.html at Jan/Feb 2007. 110 Quarterly reporting is required by Federal U.S. law. 111 See Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit

and ‘Standby’ Letters of Credit’ below. 112 Byrne and Byrnes, supra note 81 at 6 at Footnote #2 and #3. Note that this number only represents

Letter of Credit obligations reported to the US Government by the top 300 banks, including non-US banks operating in the US.

113 To provide some sense of perspective to this number, the estimated total Australian GDP in 2005 was only US$635.5 billion. See: https://www.cia.gov/cia/publications/factbook/print/as.html at Jan/Feb 2007.

114 Byrne and Byrnes, supra note 81 at 6. 115 Taneja, supra note 73.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 5

Donald Smith116 however provides anecdotal evidence to suggest that the volume of Commercial Documentary Credits appears to be unchanged over the last five years, at least in Asia. While recently there has been a trend amongst large credit users in the U.S. to move toward other financing options because of cost concerns, it would appear from reports of SWIFT MT700 message traffic117 that smaller users are taking up the volume previously accounted for by the larger users.118 Again however, hard data is difficult to come by given the absence of an international regulatory regime.

2.4. Types and Characteristics of Documentary Credits � Preamble

A range of credit instruments have been developed by traders and banks over the course of history, some almost indistinct from others in operation while others enjoy quite different treatment in law and practice.119 Of these the Commercial Credit and the Standby Credit are prominent and both have proved themselves to be robust tools of international trade.

There are at least three significant benefits to using Documentary Credits. The Documentary Credit ‘system’:

(a) facilitates financing through the reduction of financial and political risk;

(b) provides legal protection under the guise of statutory and/or judicial law in both common law and/or civil law jurisdictions; and

(c) assures expert examination of the all-important documents that underpin the entire Letter of Credit process.120

116 Mr. Donald A. Smith, Chair of the Banking Committee, U.S. Council for International Business;

former Vice President of Citibank and U.S. delegate to the ICC Commission on Banking Technique and Practice.

117 Society for W orldwide Interbank Financial Telecommunication http://www.swift.com at Jun/Jul 2007. 118 Donald Smith, (2007) Personal correspondence on file with this author. 119 See ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit’ below. 120 del Busto, supra note 9 at 25–26.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 6

There is also a number of different ways in which the Beneficiary121 may obtain the monies due under a Letter of Credit, including by sight payment, by deferred payment, by acceptance, and by negotiation.122

� ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit To the novice, Documentary Credit law and practice is confused by the regular use of similar terminology to describe quite different things, and different terminology to describe very similar things. Furthermore, neither Documentary Credit practitioners nor academics necessarily agree on either the characteristics of the particular Credit types in existence or the subtle differences between the operation of the various Credits available in the market. Nowhere is this more apparent than in the realm of Standby Letters of Credit (Standbys) wherein, as shown below, there are a number of different types that operate under quite different rules.123 Gaining a clear understanding of the difference between Commercial Documentary Credits and Standbys in all their variation is known to be problematic, as “the distinction between them is nowhere precisely stated”.124

One means to enable differentiation between Documentary Credit types is provided by the circumstances under which the Letter of Credit is activated to enable the Beneficiary to be paid. The Commercial Letter of Credit, arguably the least complex type, is raised by the Applicant/Buyer125 to relieve the Beneficiary/Seller’s insecurity about being paid. Commercial Credits are expected as a matter of course to be drawn upon by the Beneficiary at some point in the transaction cycle.

121 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Beneficiary’:

“The Beneficiary means the party in whose favour the credit is issued.” 122 ‘Negotiation’ has a very context-specific meaning in Letter of Credit practice. It refers to “the

purchase by the nominated bank of drafts … and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.” International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Negotiation’. See Section 6.5 ‘Practice Area Four: Honour and Negotiation – Negotiation’ below for more detail.

123 A review by this author of eight credible financial websites, a number of dictionaries, several papers and three textbooks has thrown up an astonishing array of variant definitions and operational descriptions that serve to highlight how little accord there is in this area.

124 ISP98 Commentary, Rule 1, Paragraph 3. 125 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Applicant’:

“The Applicant means the party on whose request the credit is issued.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 7

They operate to make payment upon presentation of specific documents in a specific form that contain precise information, requested by the Applicant and Issuing Bank, which the Applicant believes necessary to demonstrate performance of the underlying contract.126 This requirement to provide documentary evidence is fundamental to trigger payment of both Commercial and Standby Documentary Credits.127

Standbys unfortunately are not so simple in operation, in part because there are various types of Standby that must be activated in quite different ways under quite specific circumstances before a Beneficiary can be paid.128 Before reviewing these, it is essential to note that while Article 1 of the UCP 600 states that the issuance of any type of Letter of Credit comes within the ambit of its rules, it makes a specific caveat regarding Standbys – it recognises that the UCP rules do not all apply to all varieties of Standby but only “to the extent to which they [the rules] may be applicable”.129

At this juncture it is also necessary to introduce the ‘International Standby Practices’, commonly referred to as ‘ISP98’. Adopted by the ICC in 1998, this set of 89 rules was “[d]eveloped by the Institute of International Banking Law and Practice, endorsed and published by the International Chamber of Commerce [and] is the standardized text for the use of standbys worldwide.”130 Credits cannot be subject to both the ISP98 at the same time as the UCP or any other set of rules. Where the terms of a Credit purport to make a Credit subject to two sets of rules, the ISP98 Rule 1.02(b) provides that the ISP rules will prevail.

126 D’Arcy et al, supra note 13 at 166, Section 11-001. 127 The Principle of Autonomy, discussed in detail below, disjoins the underlying contract from the

Documentary Credit. 128 The descriptions and definitions of the various Standbys provided herein are distilled from a range of

oft-times contradictory or contrary sources. This author has used what can only be described as a ‘commonsensical approach’ to settle on a set that prima facie appears to be consistent and practical but not at variance to any of the research. Any variations to these are to be expected but are unlikely to extirpate what is offered here.

129 International Chamber of Commerce, UCP600, supra note 34, Article 1. As mentioned above, the ICC has also adopted a unique set of ten rules – the ISP98 – that deals specifically with Standby Letters of Credit: International Chamber of Commerce, supra note 16.

130 http://www.iccbooksusa.com/index.cfm?fid=56&bookid=14

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 8

Unlike the Commercial Documentary Credit, Standbys can be raised by either party to the transaction, depending on what the Standby is being used to guarantee. What makes the use of Standbys interesting is that they are often used reciprocally with Commercial Credits, with both parties to the underlying contract raising payment guarantee Credits of one type or another to indemnify the other party.131

Additionally, Standbys are used for numerous purposes unrelated to contracts of sale/supply. These include serving as a payment guarantee on loans and other financial transactions, especially the repayment of capital and interest, and to indemnify investment holdings. They are also used to reassure a ‘recipient party’ that their supplier will meet certain contractual obligations and, as a consequence, are particularly popular in the construction and manufacturing sectors. The requirement to provide an indemnity via a Standby can be raised by the Beneficiary as early as at the commencement of a tender process. Meeting such a requirement stands to indicate that tender Applicants are genuine.132

Moens and Gillies meanwhile differentiate between Commercial and Standby Credits on the basis of the documents required under each. In the latter case, “the required documents may be of any description.”133 However this author would suggest that this means of differentiation would prove less than reliable across the spectrum of Documentary Credit transactions and could not be considered definitive by any means.

131 For example the Buyer/Importer might raise a standard Commercial Credit to guarantee payment to

a Seller/Exporter with whom they have never before done business. Because of this lack of history, the Buyer/Importer whose business is relying on the timely delivery of goods-as-ordered may seek an indemnifying Performance Standby from the Seller/Exporter to be drawn upon in the case for example where the goods are either delayed or fail to meet a quality standard.

132 Jason Chuah, Law of International Trade (3r d Edition, 2005) at 508. 133 Moens and Gillies, supra note 87 at 309 under ‘Standby Credit’.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

2 9

Standbys were developed in the United States as a “functional equivalent” to formal guarantees, which U.S. national banks were forbidden to provide.134 For the purposes of assessing risk-based capital allocations, the U.S. Federal Reserve System categorises all Standbys into two types: Financial and Performance135 although as many as seven different types have been documented.136 The general literature available on Standbys is confused, indefinite and often contradictory.137 Smith138 states that in the banking community, the corollary of the U.S. Federal Reserve categorisation is that Direct Pay Standbys are considered a sub-set of Financial and Performance Standbys and not a separate type. This is despite that the ISP98 Rule 1.01(a) states that “[t]hese Rules are intended to be applied to standby letters of credit (including performance, financial, and direct pay standby letters of credit)”139 which would indicate to the uninitiated that they are in fact quite separate types.

The U.S. Federal Reserve defines a Financial Standby as “an irrevocable undertaking by a banking organization to guarantee payment of a financial obligation … [that is] … considered a direct credit substitute…”. The “vast majority” of Standbys issued by U.S. banks are considered Financial Standbys.140

134 http://www.worldcapitalforum.com/letofcredtyp.html Also see Moens and Gillies, supra note 87 at 309

under ‘Standby Credit’. 135 Board of Governors of the Federal Reserve System, Division of Banking Supervision and Regulation,

‘Financial Standby Letters of Credit and Performance Standby Letters of Credit’, Memorandum #SR 95-20 (SUP), dated March 30, 1995.

136 http://www.intrustbank.com/Business/International/StByLOCDOc.aspx 137 Extensive research by this author into Standby Documentary Credits demonstrated a wide variation

in the understanding, definition, classification and application of these Credits in the wider academic and user communities.

138 Donald Smith, (2007) Personal correspondence on file with this author. 139 International Chamber of Commerce, ISP98, supra note 16. Rule 1.01(a) “These Rules are intended

to be applied to standby letters of credit (including performance, financial, and direct pay standby letters of credit).”

140 Board of Governors of the Federal Reserve System, supra note 135.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 0

Performance Standbys on the other hand are defined as an undertaking “to make payment in the event the customer fails to perform a non-financial contractual obligation.”141 In other words, the “determining characteristic of whether a standby Letter of Credit is performance or financial is the contractual obligation that triggers payment.”142

In the United States, differentiating between Standby types is not merely semantic. Financial Standbys are considered a “direct credit substitute” and as such are “converted to an on- balance sheet credit equivalent amount at 100 percent.” A Performance Standby however is “considered a transaction- related contingency and is converted at 50 percent.”143 For the purposes of financial accounting then, the classification is important to the relevant parties.

Financial Standbys are almost invariably raised by a Borrower to relieve the Lender’s insecurity as to the former’s capacity to meet their financial obligations. The difference between Financial and Performance Standbys that are not of the Direct Pay variety is nominal but they both operate substantially differently to a Commercial Credit insofar as how payment is triggered.144 The former is typically used to guarantee payment of a loan or other financial obligation in the case of payment default by the Applicant. Performance Standbys operate to guarantee performance of an underlying contract.

Typically Standbys are raised in the case of very large transactions whose fulfilment is operationally vital or where large sums of money rest on timely repayment or performance.145 For example, a factor that might influence a Lender to call for a Standby Credit guarantee might include a lack of lending history with the particular Borrower.

141 Ibid. 142 Ibid. 143 Ibid. 144 James G. Barnes, (Ed) The Official Commentary on International Standby Practices (1998) Institute

of International Banking Law & Practice, Inc. at Section 5. 145 Chuah, supra note 132 at 508.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 1

With Performance Standbys the shoe is on the other foot. They operate more akin to Commercial Credits insofar as they guarantee that certain goods or services are provided per an agreement between traders. They differ from Commercial Credits because typically they are raised by the Seller to reassure the Buyer and are not generally expected to be called upon because in most cases they only operate where there is default.

In fact Financial and Performance Standbys are issued characteristically without any expectation that they will be drawn upon as a matter of course146 and only operate to assure payment of an agreed amount “[w]here the applicant fails to perform a non-monetary obligation … [or] where there has been a failure to pay money owed.”147 These types of Standby Credit therefore are only activated to ensure payment where there has been a failure to perform on the part of the Borrower/Supplier. So, in practice, Financial and Performance Standby Credits have “more in common with performance bonds/guarantees”148 than they do with Commercial Letters of Credit.

However, a “significant portion”149 of the Standby market is taken by the ‘Direct Pay’ Standby Credit which, confusingly, operates quite similarly to a Commercial Credit insofar as their activation is concerned.150 Point 7 of the Commentary on the ISP98 states that “[d]irect pay standbys provide for payment of principal or interest or both as it regularly becomes due and without their being any default.”151 A Direct Pay Financial Standby can be raised to make multiple payments over time.

146 International Chamber of Commerce, ISP98, supra note 16, in ‘Preface’: “issued to support payment,

when due or after default, of obligations based on money loaned or advanced, or upon the occurrence or non-occurrence of another contingency.”

147 Barnes, supra note 144 at Section 5. 148 Carr, supra note 34 at 507. 149 Donald Smith, (2007) Personal correspondence on file with this author. 150 Intriguingly, Memorandum #SR 95-20 (SUP) from the Board of Governors of the Federal Reserve

System, Division of Banking Supervision and Regulation, makes no mention whatsoever of Direct Pay Standby Letters of Credit. This absence is consistent with what can only be described as widespread misinformation about these Credit types.

151 Barnes, supra note 144 at Section 7. [emphasis added by this author]

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 2

Direct Pay Performance Standbys can however also be created to operate only consequent to a default by a Supplier, especially where the Supplier is required to meet multiple performance benchmarks. As implied above, in general the terms of the Direct Pay model will require fewer documents to establish performance of the underlying contract than a Commercial Credit,152 and frequently nothing more is required than a sight draft.

In order to activate Commercial Credits and Direct Pay Credits operable without default, the Beneficiary proves performance of the underlying contract by submitting a set of documents that comply with the requirements of the Credit.153

To activate a Financial/Performance Standby triggered by default, the Beneficiary must prove that there has been a sufficient failure on the part of the Applicant to meet the terms of the underlying contract.

Put more succinctly, the Commercial and Direct Pay Standby scenario is that “no payment will be made without performance” of the underlying contract. In the Financial/Performance Standby case, “no payment will be made when there has been performance” of the underlying contract.154

152 Donald Smith, (2007) Personal correspondence on file with this author. 153 Known as a ‘Complying Presentation’. See International Chamber of Commerce, UCP600, supra

note 34, Article 2, definition for ‘Complying Presentation’: “A presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.”

154 Jeffrey Browne, ‘The Fraud Exception To Standby Letters of Credit In Australia: Does It Embrace Statutory Unconscionability?’ (1999) 11(1) Bond Law Review 98 at 98. [emphasis added by this author]

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 3

� Letter of Credit Revocability Documentary Credits are revocable when they can “be amended or cancelled by the Issuing Bank at any moment and without prior notice to the Beneficiary.”155 The ICC’s position on revocability has changed within the UCP 600. Irrevocability under the UCP 500 is the default position – only where the Letter of Credit does not state its own revocability status does the Letter of Credit become irrevocable by default.156 Irrevocability under the UCP 600 is the norm.157 It was determined “at a very early stage in the revision process … that revocable credits would not be a feature of UCP 600.”158

Parties that issue a Commercial Documentary Credit under UCP 600 and who wish to trade under a revocable Documentary Credit must expressly insert the full revocability terms into the text of the Credit or, subject to all-party agreement, issue the Credit subject to UCP 500.159

In practice, revocable Commercial Credits are not used by the financial trading community at large due to the unacceptably high risk of default.160 Standby Credits are never issued as revocable as this would totally defeat their purpose. Revocable Commercial Credits are however less expensive than irrevocable Credits and this is sometimes sufficient incentive for a Beneficiary to increase his exposure to payment default by shipping against this type of Credit.

Where a Beneficiary decides to do so, they are best advised to ensure that the Issuing Bank knows to advise them should the Credit actually be revoked by having a ‘Notice Clause’ inserted in the terms of the Credit.161 This way, at least some of the risk of default is mitigated.

155 International Chamber of Commerce, UCP500, supra note 3, Article 8. 156 Ibid, sub-Article 6(c). 157 International Chamber of Commerce, UCP600, supra note 34, Article 3: “A credit is irrevocable even

if there is no indication to that effect.“ 158 Gary Collyer, ‘Responses to 9 “Key Issues” Help Shape the UCP 600’ (2006) Coastline Solutions

http://www.coastlinesolutions.com at May, 2007. 159 Ibid. 160 D’Arcy et al, supra note 13 at 196-197, Sections 11-024. 161 Ibid.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 4

UCP 600 Article 3 deems that Credits issued under its rules are irrevocable “even if there is no indication to that effect” in the terms of the credit.162 It is apposite however to state again that the UCP is not black-letter law and that parties to a Letter of Credit transaction may well opt out of, or modify, any Article of the UCP 600 (including the irrevocability principle) or use any Article from any previous iteration of the UCP.

� Other Types of Credits It is beyond the purview of this review to extensively detail the whole gamut of credit products available in the market for the purposes of international trade. However, this group includes Revolving Credits; Packing (a.k.a. Anticipatory) Credits; Countervailing Credits; Overriding Credits; and Transferable Credits.163

162 International Chamber of Commerce, UCP600, supra note 34, Article 3. 163 For a detailed review of all these credit types, see D’Arcy et al, supra note 13 at 199-206,

Sections 11-029 to 11-036.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 5

2.5. The Documentary Credit Transaction Cycle164

(Parties, Relationships and Processes)165

� Explanatory Notes to Flowchart of Transaction Cycle Only a vastly more complex flowchart could possibly represent every transaction and variation in this complex and mercurial value chain. For example, there is an auxiliary role for a ‘Reimbursing Bank’ between the above bank-parties that is not detailed here. Sometimes one transaction will comprise two actions taken simultaneously. For example, in some transaction cycles the Negotiating Bank may delay sending the documents to the Issuing Bank until the reimbursement arrives; other times the documents will be forwarded as soon as they are held compliant in the expectation that the reimbursement will be immediately forthcoming. Understandably flowcharts can only represent the best and most common practice.

164 For more details and definitions, see also the Glossary in the appendices. 165 The following is an amalgam of: Moens and Gillies, supra note 87 at Chapter 6; D’Arcy et al, supra

note 13 at Chapter 11; Chuah, supra note 132 at Chapter 10; plus a range of journal articles and personal correspondence.

8 . G o od s S h ip p e d o r S e r v i c e s P r o v i d e d .

N o t a p p l i c a b l e t o S t a n db y s

Fig. 1.0 Documentary Credit/Confirmation C ycle Ba s e d lo o s e ly o n nu me ro us s i mila r e x a mp le s .

Up d a t e d a nd mo d if ie d b y t his a ut ho r t o re f le c t UCP 6 0 0 .

3 . D o c u m e n t a r y C r e d i t I s s u e d

Is s uing

Ba nk

Ad vis i ng , Co nf ir mi ng , o r

No mina t e d Ba nk

B e n e f i c i a r y A p p l i c a n t 1 . U n d e r l y i n g C on t r a c t

4 . B e n e f i c i a r y Ad v i s e d a n d / o r C r e d i t C o n f i r m e d

5 . 1 D o c u m e n t a t i o n S u b m i t t e d , i n c . I n v o i c e , B o L, e t c .

5 . 2 B a n k - p a r t y n e g o t i a t e s d o c u m e n t s .

5 . 3 F u nd s r e m i t t e d t o B e n e f i c i a r y .

2 . D o c u m e n t a r y C r e d i t Ap p l i c a t i o n

7 . 1 D o c u m e n t a t i o n s u b m i t t e d t o Ap p l i c a n t .

7 . 2 F u nd s r e m i t t e d t o I s s u i ng B a n k .

6 . 1 D o c u m e n t a t i o n s u b m i t t e d to I s s u i n g B a n k .

6 . 2 S i m u l t a n e o u s t r a n s f e r o f r e i m b u r s e m e n t f u n d s t o C o n f i r m i n g B a n k .

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 6

� The Traders The Documentary Credit transaction cycle is initiated as a direct result of two or more business parties entering into some form of agreement for either the provision of goods and/or services, or to guarantee some other form of monetary obligation incurred by one of the parties. Often there is a reciprocal exchange of Documentary Credits between the parties. For example, it is common for a manufacturer/builder to have a Credit issued to guarantee performance of a contract while their customer provides a Credit guaranteeing payment for the performance.

The Seller of the goods or services being provided is often also referred to as the Exporter and under most Commercial Credits this party will be the Beneficiary, so named because this party receives the ‘benefit’ of the Credit.166

The Buyer of the goods or services is often referred to as the Importer and under most Commercial Credits is the party that applies to their bank for the Credit to be raised. This party is therefore generally referred to as the ‘Applicant’.167

It is essential to note that the above assumptions are based on shifting sand. The ‘title’ of each party can differ depending on a range of variables, such as the type of obligation for which the Credit is required to guarantee payment and the type of Credit used to make that guarantee. For that reason it is sometimes necessary for the sake of clarity to refer to a particular party as the ‘Applicant/Importer’ for example.

It might be said with some confidence however that Commercial Credits, which are the most widely known but proportionally the least used Documentary Credit, generally follow a pattern of having a Buyer-Applicant and a Seller- Beneficiary. Except where otherwise expressly stated, this will be the assumption hereafter and where the Traders are referred to as the Applicant and the Beneficiary, it will mean the Buyer and Seller respectively.

166 For the purposes of simplicity, this paper will consistently adopt the approach that the Beneficiary is

the Seller/Exporter except where otherwise stated. It is quite common with some forms of Documentary Credit for the Seller/Exporter to be the Applicant.

167 For the purposes of simplicity, this paper will consistently adopt the approach that the Applicant is the Buyer/Importer except where otherwise stated.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 7

� The Banks Needless to say, the international banking community is the key stakeholder in the Documentary Credit business. Even corporate issuers of Documentary Credits ultimately rely on banks to facilitate payment to the Beneficiaries of their Documentary Credits. It is important to note as well that while banks are typically associated with the issuance of Credits and management of the Documentary Credit transaction cycle, they may also fulfil the role of Applicant, Beneficiary or any other role within the cycle. Within any particular Documentary Credit transaction cycle, up to five separate banks might be involved to one degree or another. The title accorded a particular bank at a given point in the transaction cycle changes depending on the bank transaction being described or what action or role that the bank is undertaking at that point in the cycle.168

In addition to the shifting roles/titles of the various bank-parties, the oft-times complex inter-relationship between the banks and the various other parties to the transaction cycle often makes it difficult to explain the rights and obligations incurred by all parties in every transaction while providing for every one of the many exceptions that can arise. The following therefore is a broad overview of the major responsibilities of the various bank-parties that in no way claims to be exhaustive.

Banks may be introduced into the Documentary Credit transaction cycle that are authorised to undertake various functions. A bank’s involvement with a particular Credit may be dependant on whether, for example, the Credit is issued as ‘available’169 with any bank170 or for a range of other reasons.

168 Donald Smith points out that “a bank may wear many hats in the same transaction – it may be the

Advising Bank, then the Confirming Bank, and if the Credit requires presentation of drafts drawn on the Issuing Bank, the Advising/Confirming Bank could also become a Negotiating Bank (a purchaser of drafts drawn on another bank). It might also be nominated by the Issuing Bank to be a Transferring Bank and so the one bank might play four quite distinct roles in the same transaction. Personal correspondence on file with this author.

169 See Section 6.5 ‘Practice Area Four: Honour and Negotiation – Negotiation’ below for a discussion on the meaning of the word ‘available’.

170 International Chamber of Commerce, UCP600, supra note 34, sub-Article 6(d)(ii): ‘The place of the bank with which the credit is available is the place for presentation. The place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank.’

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 8

The banks in the Documentary Credit transaction cycle are referred to by numerous titles, including:

(a) The Issuing Bank The title of Issuing Bank always refers to the bank that issues the Documentary Credit on behalf of the Applicant. If the Issuing Bank is in the same country as the Beneficiary, it may deal either directly with the Beneficiary or through another bank of their own nomination or occasionally one that is nominated by the Beneficiary.171

Where the Issuing Bank is dealing directly with the Beneficiary in their own country, it will also typically take the role of Advising Bank, that is the bank that advises the Beneficiary that the Letter of Credit has been raised in their favour (see ‘Advising Bank’ below for more detail). For simplification purposes however, this analysis will assume that the Beneficiary uses a bank that is separate and distinct from the Issuing Bank (as indicated in Fig.1.0 above).

(b) The Confirming Bank and Confirmation Process The role of the Confirming Bank is of course synonymous with the process of confirming a Credit and the legal obligations that arise therefrom. For this reason, both will be explained in conjunction with the other.

At its simplest the ‘confirmation’ process is one whereby a bank-party, which is usually local to the Beneficiary and almost always in the Beneficiary’s country, is authorised by the Issuing Bank to provide the Beneficiary with a second irrevocable undertaking to honour or negotiate the Documentary Credit in question. Once a bank-party has added its undertaking it becomes the ‘Confirming Bank’.

171 W here the Beneficiary prefers to deal with a particular bank the Issuing Bank is usually happy for

them to do so. It is often the case that a Beneficiary has an arrangement with a particular bank to discount the documents on presentation at a rate that is better than that available on the open market. For greater detail see Section 6.5 ‘Practice Area Four: Honour and Negotiation’ below.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

3 9

Two substantial benefits of the confirmation process accrue to the Beneficiary. First, it removes much of both the commercial and cross-border risks of the transaction. Second, bringing the Credit transaction within local legal jurisdiction can be of great assistance in the case where a dispute arises between the Traders. Once the Confirming Bank adds its confirmation to the Credit, it “is irrevocably bound to honour or negotiate” complying documents presented to them under that Credit.172

While ostensibly simple, the legal ramifications of this process are serious insofar as it provides the Beneficiary with another irrevocable undertaking to honour the Credit upon presentation of a complying document set. That is, confirmation of the Credit “commits the Confirming Bank contractually to the Beneficiary.”173 Importantly also, this additional undertaking does not in any way mitigate the responsibility of the Issuing Bank to the Beneficiary.

The primary distinction between an unconfirmed Documentary Credit and a confirmed Credit is that the former does not involve any commitment on the part of any bank other than the Issuing Bank to make payment when the Beneficiary tenders the required documents cited in the credit instrument. That is, if the Credit is both irrevocable and unconfirmed, the Beneficiary has recourse only to the Issuing Bank.

Due to the reduced risk involved, unconfirmed Documentary Credits are significantly less expensive than confirmed Letters of Credit and, in the U.S. at least, make up the overwhelming majority of Documentary Credit transactions.174

172 International Chamber of Commerce, UCP600, supra note 34, sub-Article 8(b). 173 Davidson, supra note 21 at 129. 174 Donald Smith, (2007) Personal correspondence on file with this author.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 0

(c) The Nominated Bank The Nominated Bank is ‘nominated’ by the Issuing Bank as “the bank with which the credit is available…”.175 However most Credits are also issued as being “available with any bank” and therefore the Nominated Bank is not necessarily the Issuing Bank’s nominee. These are referred to as “freely available credits” and they permit the Beneficiary to present their documents to the bank of their choice.

Occasionally the nomination is requested by the Applicant because they prefer to deal with a specific bank in their locality. This bank-party will sometimes become the Confirming Bank if so authorised by the Issuing Bank to add its confirmation to the Credit.

(d) The Negotiating Bank This bank-party can be any bank that purchases and negotiates a Bill of Exchange issued under an Acceptance Credit or a set of complying documents under a Sight Credit or a Deferred Payment Credit.176

Documentary Credits can be issued as available only with a specific bank(s) or can be issued as being freely available, meaning that any bank can negotiate the documents.177 The usual scenario however is that the Negotiating Bank is also the Nominated Bank. The adoption of this role however will only occur where the Nominated Bank is specifically nominated in the Credit or the Credit is a “freely available” Credit.

175 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Nominated

Bank’. 176 See Section 2.4 ‘Types and Characteristics of Documentary Credits: Preamble – Footnotes” above

for an explanation of ‘Negotiation’. See also International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Negotiation’.

177 Pursuant to UCP 600 sub-Article 6(a).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 1

(e) The Reimbursing Bank When a Credit is available with another bank-party the Issuing Bank will instruct that other bank-party how and where they are able to reimburse themselves. That is, they will advise them of the location of the Reimbursing Bank authorised to act on the Issuing Bank’s behalf.

To explain, when one bank-party, usually the Confirming Bank or Nominated Bank, pays the Beneficiary under the Credit, it must seek reimbursement and will usually contact the Issuing Bank. The Issuing Bank may advise it of a bank local to that paying Bank from whom it can claim reimbursement. This reimbursement function is usually undertaken by a bank with which the Issuing Bank has extensive dealings. It may also be an overseas branch of either the Issuing Bank itself or a bank in the Issuing Bank’s home country with whom it does extensive business.

(f) The Advising Bank An Advising Bank, where the role is not also fulfilled by the Issuing Bank, is the bank-party responsible for authenticating a credit or amendment upon its receipt before accurately advising the Beneficiary of that Credit or amendment.178 However, the Advising Bank incurs no obligation beyond those implied by this.179

Yet another bank may be introduced into the cycle between the Seller/Exporter’s Bank and the Exporter – a second Advising Bank – usually a local bank/branch located geographically proximate to the exporter.180

This bank is sometimes a branch of the original Advising Bank181 but not necessarily so.

178 International Chamber of Commerce, UCP600, supra note 34, sub-Article 9(b). 179 Ibid, sub-Article 9(a). 180 For simplicity’s sake, this is the last mention that will be made of such an alternative. This paper will

proceed on the assumption of only two banks in the cycle – the Issuing Bank and an Advising Bank that becomes the Confirming Bank.

181 The bank-party that originally authenticated the Documentary Credit and advised the Beneficiary that it had been opened in the Beneficiary’s favour.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 2

� The Inter-Relationships Between Parties The relationships that exist between the Bank-parties and the Traders is predicated on mutual obligation. The primary obligation of the Issuing Bank is to the Applicant. The terms of the obligation extend to ensuring that the documents presented by the Beneficiary/Exporter constitute a complying presentation and that no drafts against the Credit are honoured until such time as the documents underlying the Credit transaction are compliant. For Credits under UCP 600 the Issuing Bank also has an obligation to the other bank- parties to deal with the documents expeditiously.182

Where an Advising Bank or a Nominated Bank agrees to confirm a Credit, thereby becoming the Confirming Bank, it incurs a parallel obligation to that of the Issuing Bank in terms of ensuring that all documents presented by the Beneficiary constitute a complying presentation and to Honour accordingly. A Negotiating Bank must actually negotiate a complying presentation before seeking reimbursement from the Issuing Bank. It must be kept in mind however that compliance is “a matter of document examination, not fraud detection.”183

In the United States’ jurisdiction the relationship between the parties was partially established in the case of Instituto Nacional de Commercializacion Agricola v Continental Illinois National Bank and Trust Co.184 The court held that the plaintiff Applicant, who was suing the Confirming Bank for damages pursuant to an alleged act of negligent misrepresentation,185 had no cause of action.

182 See Section 6.6 ‘Practice Area Five: Time Standards’. 183 James Barnes, ‘UCP 600 and Bank Responsibility For Fraud’ (2007) 13(1) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007 “The validity of a reimbursement claim by a bank nominated to negotiate depends on whether it "negotiated" a complying presentation.”

184 Instituto Nacional de Commercializacion Agricola v Continental Illinois National Bank and Trust Co (1988) 858 F 2d 1264.

185 On the basis of an incorrect confirmation of a complying presentation.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 3

The court also held that “a letter of credit transaction is not even amenable to the tort of negligent misrepresentation and that, in any event, the confirming bank has no duty of care to the customer, but only to the issuing bank.”186

So, to summarise: (1) The Issuing Bank has contractual duties to its Applicant

customer.

(2) The Confirming Bank has an obligation to the Beneficiary to Honour once it adds its confirmation to that of the Issuing Bank.187

(3) The Confirming Bank and Negotiating Bank both have an obligation to: (a) ensure that the presentation is complying, and

(b) to actually negotiate the Documentary Credit before seeking reimbursement.188

(4) The Advising bank has an obligation to the Beneficiary to accurately advise the Credit in an expeditious manner.

(5) The Beneficiary is obliged to ensure that the documents presented constitute a complying presentation.

� Negotiating Credits Between Parties As mentioned above, the term ‘Negotiation’ has a specific meaning within the UCP context. While the subject will be canvassed extensively below189 it is necessary to preempt that discussion with a brief explanation as to the process and purpose of Negotiation alluded to in Step 5.2 of the Flowchart above.

186 Moens and Gillies, supra note 87 at 314. [emphasis added by this author] 187 International Chamber of Commerce, UCP600, supra note 34, sub-Article 8(b). 188 See Section 6.5 ‘Practice Area Four: Honour and Negotiation – Negotiation’ below for an extensive

discussion on the bank-party’s obligation to Negotiate. 189 For greater detail on definition and application of ‘Negotiation’ see Section 6.5 ‘Practice Area Four:

Honour and Negotiation’ below.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 4

Sometimes, in order to meet creditor demands or for other valid fiscal reasons, the Beneficiary to a Documentary Credit will seek to access funds against the drafts and/or documents they have for presentation “before the banking day on which reimbursement is due”.190 That is, they will seek to payment on the Credit prior to the its Maturity Date. The ‘Maturity Date’ is the date upon which the Issuing Bank is obliged to pay the full value of the credit. This process of paying before the Maturity Date is generally referred to as ‘Negotiation’ and is accomplished when an authorised bank-party purchases a set of drafts/documents from the Beneficiary. However, purchases of document sets can be accomplished under two quite different sets of terms.

The first is when a bank-party purchases documents with recourse to the Beneficiary – sometimes known as "negotiation under reserve".191 This is more in the nature of a loan to the Beneficiary and the penalty incurred by the Beneficiary for this is often calculated using the current lending interest rate plus a premium for any additional risk, sometimes calculated relative to the creditworthiness of the Issuing Bank and/or Applicant.

Under a ‘with recourse’ scenario, the bank-party that negotiates the Credit enjoys the security of knowing that, should the Issuing Bank refuse to honour the Credit, they can seek reimbursement of the monies paid from the Beneficiary.

Obviously bank-parties who purchase documents without recourse incur a far greater risk. To offset this risk the bank-party concerned will almost invariably impose a penalty referred to as a ‘discount’ but, while the discount rate will be higher than the rate calculated under a ‘with recourse’ agreement, the funds remitted are not considered a loan.

190 International Chamber of Commerce, UCP600, supra note 34, Article 2. 191 Moens and Gillies, supra note 87 at 308.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 5

3. Fundamental Legal Principles of Documentary Credits 3.1. Preamble

Documentary Credits are recognised internationally as a secure and efficient means of financing trade transactions across national boundaries. The process is warranted by the collective integrity of the international banking community.192

The Documentary Credit transaction cycle owes its efficacy in part to two fundamental legal tenets that guide and limit the interpretation and application of the UCP and the ISBP2007.193

These are the Principle of Autonomy and the Doctrine of Strict Compliance. These principles require understanding in order to gain, insofar as their influence extends, an appreciation of the process, protection and limitations of the Documentary Credit as a trade mechanism. They are widely understood throughout the Documentary Credit user community in much the same way as the road rules are understood by drivers in developed nations – as axiomatic, ineludible, mechanical, and integral to overall safety of use.

The purpose of this section then is to provide a brief discussion of the history and jurisprudence of these canon as a precursor to their further examination relative to the revised Articles of the UCP 600 in Part Two below.

3.2. The Principle of Autonomy – General Principles The purpose of the Principle of Autonomy is to provide a legal bulwark between a Documentary Credit and any underlying Contract between the Applicant and the Beneficiary. Under the Principle of Autonomy the Documentary Credit “is separate from and independent of the underlying contract of sale or other transaction”194 even when the contract is specifically referenced in the Credit.195 Where there is a dispute between the parties in the underlying contract, the obligation to honour that is inherent in the Credit is unaffected.196

192 Kuo-Ellen, supra note 23. 193 International Chamber of Commerce, supra note 41. 194 D’Arcy et al, supra note 13 at 170, Section 11-006. 195 Chuah, supra note 132 at 487. Note also that International Chamber of Commerce, UCP600, supra

note 34, sub-Article 4(b) explicitly exhorts Issuing Banks to discourage such practices. 196 Carr, supra note 34 at 478.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 6

There is a fraud exception to this that is beyond the purview of this paper to examine in depth, other than to state that the legal maxims197 ex turpi causa non oritur actio and fraus omnia vitiat 198

both apply to Documentary Credits as in all contractual matters. It has been held however that the mere suspicion of fraud is insufficient for the Bank to withhold payment.199 Given this finding, the fact that actual fraud must be proved is evidentially an onerous burden to discharge in most, if not all, jurisdictions.

One instance where the application of the Principle of Autonomy is complicated arises when fraud is detected after presentation of the complying documents but before the maturity date of the Documentary Credit and a bank other than the Issuing Bank has negotiated the Credit. Negotiating/Nominated banks will often assist their Beneficiary customers when they are in need of funds to finance the transaction or to pay creditors for obligations that have arisen pursuant to the transaction by advancing funds at a discount. As already mentioned, this is referred to as Negotiation.200 Where this occurred for a Documentary Credit issued under the UCP 500 rules, and fraud was detected before the maturity date, courts in at least one jurisdiction have held that the Issuing Bank is not obliged to reimburse the Nominated Bank.201

That said, the Privy Council has also held that where a bank does pay against undetected fraudulent documents that for all purposes appeared to constitute a complying presentation, and having met all its checking obligations satisfactorily, that bank is entitled to reimbursement from the Applicant.202 The UCP 600 addresses this conflict directly as will be discussed in Section 6.3 below.

197 http://www.davidthomas.com.au/miscmaxi ms.htm 198 “An illegal contract cannot be enforced” and “Fraud vitiates everything”, respectively. In the

Documentary Credit context, the former was used by the Defendant before Lord Justice Stephenson in United City Merchants (Investments) Ltd. and Glass Fibres and Equipments Ltd. v Royal Bank of Canada, Vitrorefuerzos S.A. and Banco Continental S.A. ("The American Accord") [1981] 1 Lloyd's Rep 604 Court of Appeal (Civil Division) at 632 and other places, and before Mr. Justice Mocatta in the trial court in the same matter.

199 Society of Lloyd’s v Canadian Imperial Bank of Commerce [1993] 2 Lloyd’s Rep 579 per Justice Saville at Headnote.

200 See Footnote 122 above. 201 Banco Santander SA v. Banque Paribas [2000] C.L.C. 906 CA (Civ Div) Note that UCP 600 has

eliminated this under sub-Article 7(c). 202 Gian Singh & Co. Ltd v Banque de l’Indochine [1974] 1 W .L.R. 1234.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 7

One other scenario where the Principle of Autonomy has been found to be insufficient to ensure payment, occurs when the Documentary Credit is used to finance the commission of an illegal act, such as the shipment of illegal goods or committing a financing misdemeanour.203 The illegality complained of may be “an existing or supervening event; either case will render the credit null and void.”204 It is pertinent to note that the UCP doesn’t address this in any manner – the degree of illegality that will render the Documentary Credit void will ultimately be a matter to be decided on the facts by individual courts in the relevant jurisdiction.

In the absence of illegal conduct however, the Principle of Autonomy was firmly reinforced in Hamzeh Malas and Sons v British Imex Industries Ltd205 where Jenkins LJ stated that a confirmed Letter of Credit “imposes upon the banker an absolute obligation to pay, irrespective of any dispute there may be between the parties…”.206 The operative clause here is ‘any dispute between the parties’. Jenkins LJ is referring to disputes between the Applicant and Beneficiary concerning the actual goods or services for which payment is being sought, such as warranty disputes pertaining to fitness for purpose.

The Principle therefore ensures that banks maintain a clear separation between the Documentary Credit and any underlying contract and are in no way responsible for any warranty disputes relating directly to the goods or services being traded. The banks deal “only in documents … [and are] not concerned with the sufficiency of performance under the sale contract or with the resolution of disputes which may arise thereunder.”207

203 Mahonia Ltd v JP Morgan Chase Bank and Another [2003] 2 Lloyd's Rep 911 where “The issue for

decision was whether the principle that a letter of credit gave rise to an autonomous contract insulated from the underlying transaction in connection with which it was issued precluded the bank from declining to pay against presentation of a conforming document on the facts assumed on the basis of the application.” Note however that as a matter of public policy the court in this case would not enforce the Letter of Credit where the underlying contract of sale was entered into for unlawful purposes in a foreign jurisdiction.

204 Chuah, supra note 132 at 492. 205 [1958] 2 QB 127 – an injunction application appeal hearing. 206 Hamzeh Malas and Sons v British Imex Industries Ltd [1958] 2 QB 127 at 127. 207 Ademuni-Odeke, supra note 10 at 285.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 8

This autonomous position has been reaffirmed consistently in English case law since this 1958 finding208 and appears to have been applied consistently by courts in other jurisdictions as well. The approach of the ICC to the Principle of Autonomy in the UCP 600 will be discussed in more detail in Section 5.1 below.

3.3. The Doctrine of Strict Compliance – General Principles Blood brother to the Autonomy Principle, the Doctrine of Strict Compliance commences with and is characterised by the broadly accepted tenet that the bank-parties to a Documentary Credit deal only in the documents stipulated in the “detailed, unambiguous formulation of requirements in the operative credit instrument”209

(and no other contract or agreement).

This means that the bank-parties are not concerned with the goods/services in the underlying transaction insofar as their obligations pursuant to the Documentary Credit are concerned. This strict orientation to the documents required under a Credit completely underpins the bank-parties’ roles in the Documentary Credit cycle and is specifically incorporated into the Articles of the UCP 600.210

Over time as many as four standards have been suggested to determine degrees of compliance. The first, the "strict compliance" test, was “articulated first more than seventy years ago in England211 and adopted by most courts in [that] country.”212 This is the generally accepted test within the Documentary Credit community today.

208 Moens and Gillies, supra note 87 at 301-303. Also, particularly, Intraco Ltd v Notis Shipping Corp of

Liberia (The Bhoja Trader) [1981] 2 Lloyd’s Rep 256. 209 Boris Kozolchyk, ‘Strict Compliance and The Reasonable Document Checker’ (1991) 56 Brooklyn

Law Review 45 at 50. 210 International Chamber of Commerce, UCP600, supra note 34, Article 5. 211 Equitable Trust Co. of New York v Dawson Partners Ltd. (1927) 27 Lloyd’s List L.R. 49. 212 http://www.eagletraders.com/advice/doc_standby_letters_credit.htm#fn8

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

4 9

In addition, the following have also been put recognised: (a) the "precise and mirror image" test, which does not tolerate

even immaterial variations;

(b) the "bifurcated" standard, which sets different standards for the applicant’s obligation to reimburse the issuer and the issuer’s obligation to honour the beneficiary; and

(c) the "substantial compliance" test, which is somewhat less demanding than the strict compliance standard.213

Given such a clear focus by all parties to the Documentary Credit on strict adherence to its terms, the Doctrine further holds that the documents required by the Credit must not only be supplied per its terms as to type, but must also comply strictly in both form and content. In addition, the documents must also conform to the requirements detailed in the ISBP2007.214 The strictness of this Doctrine was enunciated by Lord Sumner in Equitable Trust when he said “there is no room for documents that are almost the same or which will do just as well.”215

The range and number of documents required by a Documentary Credit can be extensive and their content complex. Consequently the UCP provides rules to limit the liability of the bank-parties where processing errors might expose the bank-parties to litigation.216

When the Applicant initiates the Documentary Credit cycle, the Issuing Bank will obtain the Applicant’s documentary requirements; that is, the Applicant must provide an exhaustive list of documents that they require the Exporter/Seller to produce in order for the Letter of Credit to be honoured.

213 http://www.eagletraders.com/advice/doc_standby_letters_credit.htm#fn8 Note that the paragraphs

marked (a)-(c) are a direct quote from this website. 214 International Chamber of Commerce, supra note 41. 215 Equitable Trust Co. of New York v Dawson Partners Ltd. (1927) 27 Lloyd’s List L.R. 49. 216 International Chamber of Commerce, UCP600, supra note 34, Article 34 provides that the bank-

parties to the Documentary Credit transaction can not be held liable for the accuracy, efficacy or legal effect of any documents related to the Documentary Credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 0

Understandably, many of the documents will be standardised for Documentary Credit transactions, like Invoices and Bills of Lading for example, but some will relate only to the individual transaction and may include data that is specific to the goods of the actual shipment for which the Documentary Credit was issued.

This list of documents is then reproduced in the terms of the Letter of Credit, resulting in all bank-parties in the cycle being fully cognisant of the obligations that the Beneficiary bears with regard to providing documentary evidence for the provision of goods or services pursuant to the underlying contract.

The Doctrine of Strict Compliance, when used in its intended fashion, has the effect of shielding the Issuing Bank and the Applicant from shipment error and fraud. However, when mischievously applied, it can be an effective weapon to damage the interests of an otherwise innocent Beneficiary, ultimately capable of defrauding them of their legal property without breaching the law. This might be achieved by a bank-party using errors of no substantive importance to reject a reimbursement claim. Kozolchyk refers to such acts as “bad faith banking practices”.217

Documentary Credits are by nature complex and the documentary requirements laid out within them to confirm shipment of goods are often extensive. Furthermore, the very nature of the documents – Bills of Lading, Maritime Waybills, etc. – incline those documents towards complicated, language-heavy descriptions and extensive numerical content. Many are visually congested with seemingly vast amounts of information crammed onto pages of finely printed data fields. Often, multiple copies of documents are required and terms imposed as to whether those copies are required to be originals or duplicates.218

217 Boris Kozolchyk, “The ‘Best Practices Approach’ To The Uniformity of International Commercial Law:

The UCP and Nafta Implementation Experience” (1996) 13 Arizona Journal of International and Commercial Law 443 from 451.

218 Sometimes ‘original copies’ are referred to as ‘wet’ copies, a reference to the ink being ‘wet’. Conversely, duplicate copies are sometimes referred to as ‘dry’ copies, such as those produced by photocopying machines or by NCR paper.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 1

Given the inherent tendency of the human to error, the Doctrine is a ready mechanism with the capacity to mutate the shield into a sword. This is especially prevalent where there is collusion between ‘bad faith’ Issuing Banks and Applicants, or ‘bad faith’ Confirming Banks and Beneficiaries.219

The courts in a range of jurisdictions have contributed to the uncertainty of applying the Doctrine by interpreting and applying it in different ways, thereby creating, arguably, either versions of the Doctrine which reflect “commercial and legal realities” or exceptions that are context or case-specific.220 Chan221 cites two cases which causes him to question whether the Doctrine under the UCP is one of “strict compliance” or “absolute compliance”, or whether complainants might rely on the de minimus rule.222 It is beyond the scope of this paper to do more than acknowledge that the Doctrine is subject to much discussion as to its efficacy.

In Hing Yip Fat Co Ltd v The Daiwa Bank Ltd, Kaplan J of the Hong Kong High Court held that the supplanting the word ‘industrial’ for ‘industries’ amounted to nothing more than a typographical error on which the defendant bank could not rely to withhold payment.223 However, in Seaconsar v Bank Markazi, the Court of Appeal held that the absence of the buyer’s name and the credit number on just one of dozens of interlinked documents tendered was sufficient to hold the tender as bad.224 On appeal, the House of Lords would not be drawn on what constituted a de minimus error in Documentary Credit discrepancies. The House stated in obiter that it would be unhelpful “to define the sort of discrepancy which can properly be regarded as trivial”225 especially when the Documentary Credit, for reasons unknown to the document checker, specified the inclusion of certain documents or data.

219 Kozolchyk, supra note 217 at 451. 220 Kozolchyk, supra note 209 at 52. 221 Chan, supra note 22 at 59. 222 Latin for "of minimum importance" or "trifling." Essentially it refers to something or a difference that

is so little, small, minuscule, or tiny that the law does not refer to it and will not consider it. In a million dollar deal, a $10 mistake is de minimis. http://legal-dictionary.thefreedictionary.com/De+minimus

223 Hing Yip Fat Co Ltd v The Daiwa Bank Ltd [1991] 2 HKLR 34. 224 Seaconsar Far East v Bank Markazi Jomhouri Islami Iran [1993] 1 Lloyd’s Rep. 236. Although

overturned on appeal, the House of Lords did not address this issue and it possibly remains good law.

225 Seaconsar Far East v Bank Markazi Jomhouri Islami Iran [1993] 3 W LR 756.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 2

Application of the Doctrine relies considerably on those within the banking system entrusted with the task of checking the presented documents.226

In a classic example of the degree of controversy over the extent of the Doctrine, the seminal international trade text Schmitthoff’s Trade Law states that “the bank, when examining the tendered documents, should not insist on the rigid and meticulous fulfilment of the precise wording in all cases” but goes on to clarify this less- than circumspect position by stating that “the bank will be at risk if it does not insist on strict compliance.”227 Given the case law, this author feels that the latter position would be the better view. Schmitthoff’s somewhat contrary statements do however provide support for Chan’s position that the application of the Doctrine might in fact be more of a guessing exercise than the application of a black-letter maxim.228

While it is the bank’s responsibility to examine the presented documents per UCP 500 sub-Article 13(a) and UCP 600 sub-Article 14(a), it is also a generally accepted tenet of Documentary Credit practice that the document checker “does not need to look behind the documents”.229 That is, the bank-parties are not obliged to investigate the veracity of the data in the documents, the character of the goods involved in the shipment, or the customary practices or terminology of the industry concerned.230

226 Kozolchyk, supra note 209. 227 Clive M. Schmitthoff, Schmitthoff’s Export Trade – The Law and Practice of International Trade (9t h

Edition, 1990) at 411, and D’Arcy et al, supra note 13 at 178. 228 Chan, supra note 22 at 59. 229 Moens and Gillies, supra note 87 at 314. 230 In JH Rayner & Co Ltd v Hambro’s Bank Ltd [1943] KB 37, it was held that defendant bank was

correct in asserting that the presentation did not comply on the grounds in part that the term ‘Coromandel groundnuts’ was replaced with ‘machine-shelled kernels’, despite submissions to the court that within the trade it was well known that the two terms were perfectly interchangeable.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 3

This was held to be true in Banque de l’Indochine et de Suez S.A. v J.H. Rayner Ltd231 where the House of Lords stated in obiter that:

“It is quite impossible to suggest that a banker is to be affected with knowledge of the customs and customary terms of every one of the thousands of trades for whose dealings he may issue a letter of credit.”

Put simply, if a bank knowingly admits a complying presentation on the basis of documents that do not comply with the terms of the Documentary Credit, it would be acting wrongfully, with all that this implies.232 The alter-ego of this scenario is where the Beneficiary submits a presentation knowing it to be either non-compliant with the terms of the Documentary Credit or to be fraudulent in some other sense.

Barnes discusses the implications of several findings in U.S. courts where Beneficiaries have been shown to have knowingly presented non-conforming documents.233 The effect was to knowingly abrogate the bank’s obligation to advise of a discrepancy, per UCP 500, within a reasonable time.

A leading case in this area, Pro-Fab, Inc. v Vipa, Inc.234 followed the logic of a similar case, Philadelphia Gear Corp v Central Bank,235 by holding that “it would be anomalous to penalize a party for failing to notify another party of an apparent defect already known to the other party.”236

Therefore support for the concept of good faith in Documentary Credit transactions on the part of all the parties to the transaction cycle has been the predominant intention of most courts that have wrestled with this issue.237

231 JH Rayner & Co Ltd v Hambro’s Bank Ltd [1943] KB 37 at 41. 232 Moens and Gillies, supra note 87 at 315. 233 James G. Barnes, ‘Nonconforming Presentations Under Letters of Credit: Preclusion and Final

Payment” (1990) 56 Brooklyn Law Review 103 at 106-107. 234 772 F.2d 847 (11t h Circ. 1985). 235 Philadelphia Gear Corp v Central Bank 717 F.2d 230 (5th Circ. 1983). 236 Barnes, supra note 233 at 107. 237 See Section 6.3 ‘Practice Area Two: Bankers’ Mutual Obligations’ below.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 4

Part Two

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 5

4. UCP 600 – The Revision Process 4.1. Preamble

The extent of the revisions to the UCP that resulted in the UCP 600 was extensive. The total number of Articles in the UCP has been reduced from 49 in the UCP 500 to 39, and the wording of almost every Article has been altered at least to some degree.238

The numbering of all Articles has perforce altered as a result.

It is not within the purview of this paper to review and/or analyse every Article in the UCP 600. Rather, the relatively limited literature available on the UCP 600 at time of writing consistently focuses on a number of “Practice Areas”239 that were the subject of intensive review during the three-year revision process and continue to be criticised and discussed, notwithstanding the unanimous approval of the new rules in Paris on 26th October, 2006.240 For the purposes of this review, five significant Practice Areas are analysed and discussed and the UCP 600 Articles relevant to those Practice Areas are also examined accordingly.

The two fundamental principles underpinning the Documentary Credit – the Principle of Autonomy and the Doctrine of Strict Compliance – have already been discussed in relation to their general application.241 Any review of the UCP 600 must reflect on the impact the new rule set has on both these Principles. As a natural corollary of that process, relevant literature on the jurisprudence is also introduced to the discussion in order to contextualise any impact the revision may have on the law.

238 James E. Byrne and Lee H. Davis, ‘New Rules For Commercial Letters of Credit Under UCP 600’

(2007) 39(3) Uniform Commercial Code Law Journal 301 at 307. 239 Coined by this author, the term “Practice Areas” refers to any one of a number of recognised

conditionals affecting Documentary Credit activity that must be taken into consideration by stakeholders to the Documentary Credit transaction cycle.

240 http://www.iccwbo.org/policy/banking/iccjcde/index.html at Jan/Feb 2007. 241 See 3.2 & 3.3 above.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 6

Given that the UCP 600 has only recently come into use, “consequences of this revision are difficult to predict”242 and the issues that might emerge from its application can largely only be surmised. While the following analysis therefore may involve some speculation by some commentators on effect, the effect of the changes in light of previous revisions and in context with the commentary thus far available may shed light on what may be forthcoming.

Finally, it is impossible to completely ringfence each of these Practice Areas into discrete discourses – all are inextricably interlinked and should be understood as such. For example, ‘honour’ and ‘negotiation’ are closely aligned philosophically, as indeed are the Doctrine of Strict Compliance and the removal of the Facial Standard243 from all but one of the UCP’s Articles. With this in mind, similar issues often arise in multiple Practice Areas with inter-related commentary that is appropriate to all.

4.2. Purposes and Critique of the Revision The “UCP rules are regularly reviewed and updated when necessary to reflect current banking and trade practice”244 which Buckley describes as “an event [that] occurs with comforting regularity”.245 One commentator has cited a “key aim” for the revision as being to “enhance the letter of credit product” in order to ensure that the Documentary Credit continues to be relevant as a “trade risk mitigation tool”.246 The Chair of the UCP 600 Drafting Group, Gary Collyer, echoed this sentiment by saying that there is a need to “project more confidence in the [Documentary Credit] product” in order to maintain it as a “viable option” for settling international trade transactions.247

242 Byrne and Byrnes, supra note 81 at 8. 243 The ‘Facial Standard’ refers to the standard implied by the UCP 500 terms “on their face”, “on its

face” etc. This is dealt with extensively in Section 6.4 ‘Practice Area Four: The Facial Standard’ below. Also see Holst’s comments in Section 5.1 ‘Fundamentals of the UCP 600: Summary – Fundamental Doctrine of the UCP 600’ below.

244 http://www.uscib.org/index.asp?DocumentID=3515 at Jan/Feb 2007. 245 Buckley, supra note 19. 246 David Meynell, ‘All Products Need To Be Reinvigorated’ (2006) 12(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. 247 Gary Collyer, “A Look Back at the UCP Revision” (2006) 12(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 7

The ICC, through its Documentary Credit journal DCInsight, states that “new developments in transport and electronic commerce have spurred the current revision of the rules”248 and that the “UCP 600 [are] modern rules for a changing world”.249 This revision then is “part of a continuing effort … to deal with hot issues of current interest to letter of credit practitioners”.250

Gary Collyer has also said that the “spirit of the revision” had a number of goals, including: � to encourage banks and their applicants to be more

explicit in the terms of their credits;

� to take account of the removal, merging or modification of articles that give rise to risk of ambiguity or misrepresentation; and

� to look at the presentation, the parties involved and the goods before refusing documents for reasons that have no real bearing on the underlying transaction, the credit or the rule in UCP 600.251

However, not all credit practitioners are complimentary of either the need for a revision, the process, or the outcome. Jeremy Smith of Lloyd’s TSB has expressed doubts as to whether the benefits that might accrue from the revision will outweigh the “substantial costs” of implementing the new rules and goes so far as to say that the “exercise has been a major opportunity missed to reduce the unattractiveness of the credit from an operational risk … perspective”.252 In part he places blame for this on the “highly defective process adopted for the revision”,253 a position apparently agreed with by Kozolchyk.254

248 http://www.iccwbo.org/policy/banking/icceide/index.html at Jan/Feb 2007. 249 http://www.iccwbo.org/policy/banking/icchcdg/index.html at Jan/Feb 2007. 250 http://www.iccwbo.org/policy/banking/iccffjj/index.html at Jan/Feb 2007. 251 Collyer, supra note 247. 252 Jeremy Smith, ‘A Major Opportunity Missed’ (2006) 12(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. [emphasis added by this author] 253 Ibid. 254 Kozolchyk, supra note 42.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 8

The reasons why the revision process was originally set upon in 2003 when there did not appear to be any broad-based criticism of the effectiveness of the UCP 500 from anywhere within the stakeholder community remain unclear.255 The anecdotal evidence appears to suggest that the UCP 500 revision was driven by the ICC itself in conjunction with at least some of its national committees despite contrary advice from its own Banking Commission.256

In a somewhat different vein, Kuo-Ellen, discussing the flaws of the Documentary Credit system, points out that it “is open to criminal abuse by ways of fraud and money laundering” and posits that the UCP is unlikely to be able to deal with these issues.257

With respect, the ICC has never indicated to the market that they have ever contemplated any attempt to deal with criminal behaviour within the ambit of the UCP and it strikes this author as extremely unlikely that they would either make such a statement or attempt such a futile exercise.

Regardless however of any criticism or whatever motivation by which the revision process was driven, the UCP 600 was approved for implementation from July 1st, 2007, and presumably most banks implemented it accordingly. The purpose of this paper is to attempt to gain an understanding of the new regime and its affect on the user community through a review of five significant Practice Areas.

4.3. Non-Bank Issuers of Documentary Credits The reality in the Documentary Credit market is that banks are not the only corporate entities to issue Documentary Credits. Across the world large corporations issue their own Credits to guarantee payment. This has the effect of muddying the regulatory waters and the UCP 600 has intentionally disregarded this market segment.

255 Including the ICC Banking Commission, the banks, insurance companies, transportation and

logistics or Documentary Credit customer base. 256 James E. Byrne, 26t h February, 2007. Personal correspondence on file with this author. A cynical

view would suggest that the underlying motivation was fiscal, with the ICC likely to earn many millions of dollars from the user community for provision of materials and training to implement the new regime.

257 Kuo-Ellen, supra note 23.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

5 9

A number of commentators have found fault in the fact that Article 5258 that makes no mention of non-bank issuers of Documentary Credits.259 They have expressed concern as to its almost insular and exclusionary character and claim that the terminology is biased towards bankers and away from other members of the broader Documentary Credit community. William Cameron points out that the Canadian Bankers Association, among others, felt that the UCP should reflect “the reality that is going on” and would have preferred the use of the term ‘issuers’ to ‘banks’.260

He offers as explanation for this failure to recognise non-bank issuers of Documentary Credits in the UCP 600 an inability by those in favour of such recognition to convince a majority of other participants in the revision process to forego the entrenched notion that somehow incorporating the words ‘banks’ would “protect the banking role”.261 In response, he fears that this exclusionary wording may ultimately lead to “the establishment of a separate rule structure” by (presumably) those corporate issuers now not referred to in the UCP 600.262

It would seem that the logic for the wording rests on the proposition that other parties, that is non-banks or ‘corporates’ as they are often referred to in the literature, deal in things other than documents and it is only banks who deal exclusively in documents. While this is true in the broad sense, the UCP is a strictly contextual document. When issuing Documentary Credits, corporates also deal only in the documents that are specified in the Documentary Credit itself and nothing else. Furthermore, non- banks also issue their Documentary Credits subject to the UCP rules. This has created a natural expectation in some quarters that those issuers should also have been referred to within them.

258 International Chamber of Commerce, UCP600, supra note 34, Article 5: “Banks deal with documents

and not with goods, services or performance to which the documents may relate.” 259 See Section 5.1 ‘Fundamental Approach of the UCP 600: The UCP 600 and The Principle of

Autonomy’ below for more discussion on this controversial Article. 260 W illiam Cameron, ‘Interview: Balancing the Pluses and Minuses’ (2006) 12(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. 261 Geoffrey W ynne and Kate Richardson, ‘Bank Notes’ (2006) Publications of Denton Wilde Sapte

Lawyers http://www.dentonwildesapte.com/en/Publication/banknotes.aspx at Feb/Mar 2007. It has been reported that some members of the Commission felt so strongly about this issue that they “threatened to veto the entire draft if any recognition [of non-banks] was included” in the final draft of UCP 600.

262 Cameron, supra note 260.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 0

In other words, even corporate issuers of Documentary Credits adhere strictly to the Principle of Autonomy for the purposes of the credit transaction and many commentators believe that corporate issuers should have been included under the new UCP 600. Certainly it is difficult to see how their exclusion from the text can in any way further the cause of universal usage of the UCP.

4.4. Comparative Analysis of UCP 500 and UCP 600 Articles263

In the process of developing the UCP 600, some Articles have been deleted either partially or completely; some have been merged into composite Articles or their intent was incorporated within the text in other ways; and other Articles are new constructs.

The following is a general outline of the restructure and is not intended as a substantive comparative analysis of the two documents.264

� Discontinued UCP 500 Articles The following Articles are not reflected in the text of the UCP 600: � Article 5 : Instructions to Issue/Amend Credits

� Article 6 : Revocable v. Irrevocable Credits265 – The concept of revocable credits has been “abandoned” because they are “so rare as to be considered not worth the space or energy”.266

� Article 8 : Revocation of a Credit – Ibid.

� Article 12 : Incomplete or Unclear Instructions

� Article 38 : Other Documents

263 For the summarised information referred to in various parts of this section, the author would like to

acknowledge: Gary Collyer, ‘Understanding the UCP’, Paper Presented at the ICC Commission on Banking Technique and Practice, London, October 26, 2006, where the vote to approve the rules was taken.

264 James E. Byrne, The Comparison of UCP 600 & UCP 500 (2007). This book provides an extensive comparative analysis of the UCP 500 and the UCP 600.

265 Documentary Credits issued under the UCP 600 are irrevocable unless the terms of the credit specifically state otherwise, i.e. the parties to the credit agree that it should be revocable. It is widely accepted that such a case is unlikely in practice.

266 James E. Byrne, 8t h February, 2007. Personal correspondence on file with this author.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 1

� Regenerated UCP 500 Articles

The following UCP 500 Articles have been accommodated within the text of the UCP 600 in part or full but have not been given, with the exception of Article 1, the same title or Article number: � Article 1 : Application of UCP – minimal text changes with minor

effect on meaning.

� Article 2 : Meaning of a Credit

� Article 9 : Liability of Issuing and Confirming Banks

� Article 10 : Types of Credit

� Article 20 : Ambiguity as to the Issuers of Documents

� Article 21 : Unspecified Issuers or Contents of Documents

� Article 22 : Issuance Date of Documents v. Credit Date

� Article 30 : Transport Documents Issued by Freight Forwarders

� Article 31 : On Deck, Shipper’s Load and Count, Name of Consignor

� Article 33 : Freight Payable/Prepaid Transport Documents

� Article 35 : Type of Insurance Cover

� Article 36 : All-Risks Insurance Cover

� Article 46 : General Expressions as to Dates for Shipment

� Article 47 : Date Terminology for Periods of Shipment

� Neoteric UCP 600 Articles

The following Articles are entirely new to the UCP 600 and therefore have no precedent in the UCP 500: � Article 2 : Definitions

� Article 3 : Interpretations

� Article 9 : Advising of Credits and Amendments

� Article 12 : Nomination

� Article 15 : Complying Presentation

� Article 17 : Original Documents and Copies

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 2

5. UCP 600 – Underlying Doctrine: Changes and Effects

5.1. Fundamentals of the UCP 600

� Preamble

The Principle of Autonomy and the Doctrine of Strict Compliance have been addressed in general terms above.267

It remains to review these in light of the UCP 600 and to discuss the possible effect of the changes that the new regime will produce. The UCP 500 is treated herein as the baseline version; where the following analyses refer in any way to a ‘change’ or the ‘text’, this implies the text of the UCP 600.268

� The UCP 600 and The Principle of Autonomy

Under the Principle of Autonomy a Documentary Credit “is separate from and independent of the underlying contract of sale or other transaction.”269 The Applicant then is not in a position to prevent payment to the Beneficiary on the basis of a breach of an underlying contract270 except where fraud is involved.

The UCP 600 Articles relating to the Principle of Autonomy contain three significant conceptual differences to those of the UCP 500. In addition, there are grammatical changes – the plural forms of ‘Credits’, ‘Contacts’, etc. have become single, thereby making the text grammatically consistent,271

and the opening sentence is bifurcated, none of which has any great effect on the meaning of the Articles. The numbering has also altered.272

267 See Sections 3.2 and 3.3 above. 268 Any Article referred to will be the relevant UCP 600 Article unless specifically noted otherwise. 269 D’Arcy et al, supra note 13 at 170, Section 11-006. 270 Chuah, supra note 132 at 487. 271 This is the last mention that will be made of basic grammatical alterations to the text unless such

changes have an effect beyond mere word tense or conjugation. 272 The numbering convention used by the Drafting Group remains a mystery to this author – there is a

lack of consistency throughout the document as to numbering/bulleting of sub-sections/paragraphs which offends the lawyer’s preference for consistent, sequential numerical reference points. For example, the formatting of Article 3 makes it difficult to refer to, in writing, the ‘irrevocability’ interpretation in that Article without lengthy description. It is also inexplicable to this author why the second paragraph in UCP 500 Article 3 was given the identifier ‘B’, but the identical paragraph in UCP 600 Article 4 was not given any identifier at all.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 3

In order of occurrence, the first change is the inclusion of the concept of ‘Honour’273 in sub-Article 4(a) to replace the words “to pay, accept and pay draft(s)” in the UCP 500 sub-Article 3(a). This is a significant inclusion or substitution and requires a detailed examination. Therefore the concept of ‘Honour’, its definition, and a discussion on the effect of its inclusion will be given in the ‘Honour and Negotiation’ Practice Area, Section 6.5 below.

273 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for “Honour”.

UCP 500 Article 3: Credits v. Contracts a. Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the Credit. Consequently, the undertaking of a bank to pay, accept and pay Draft(s) or negotiate and/or to fulfil any other obligation under the Credit, is not subject to claims or defences by the Applicant resulting from his relationships with the Issuing Bank or the Beneficiary.

b. A Beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the Applicant and the Issuing Bank.

Article 4: Documents v. Goods/Services/Performances In Credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.

UCP 600 Article 4: Credits v. Contracts a. A credit by its nature is a separate transaction from the sale or other contract on which it may be based. Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the Issuing Bank or the Beneficiary.

A Beneficiary can in no case avail itself of the contractual relationships existing between banks or between the Applicant and the Issuing Bank.

b. An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.

Article 5: Documents v. Goods, Services or Performance Banks deal with documents and not with goods, services or performance to which the documents may relate.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 4

The next significant change to the UCP apropos of the Principle of Autonomy, is the inclusion of sub-Article 4(b). This Article is intended to preempt the difficulties that can be created, often innocently, when such documents as ‘proforma invoices’ are included in the Documentary Credit itself.

Documentary Credits are typically issued far in advance of the time when they will be honoured or negotiated. Proforma invoices and the underlying contracts may include, at the time of their creation, elements that are entirely inconsistent with the Documentary Credit obligation agreed to long before.

Those variances may be of a minor nature or were subsequently negotiated between the parties to the transaction. As they are not reflected in the Documentary Credit, they therefore become a possible cause of non-compliance.274

So, in summary, if amendments to the underlying contract are in fact negotiated between the parties but the Documentary Credit is not amended pursuant to sub-Article 10(a),275 the discrepant elements written into the Documentary Credit at its inception long before might result in a diligent document checker rejecting the presentation notwithstanding that both Traders were agreeable to the changes.276

274 Kozolchyk, supra note 209. 275 International Chamber of Commerce, UCP600, supra note 34, sub-Article 10(a): “Except as

otherwise provided by Article 38, a credit can neither be amended nor cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.”

276 Frank Reynolds, ‘A Trader’s View’ (2006) 12(4) DCInsight ICC Journal http://focus.dcprofessional.com/ at Jan/Feb 2007.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 5

In a legal context, sub-Article 4(b) is merely a recommendation to Issuing Banks worded along the lines of an ‘advisory notice’ rather than a ‘rule of law’ per se.277 The use of the word ‘should’ eliminates the force of a directive, and given that it has been stated that the formulation of the UCP over time has been in an “exhortatory pattern”,278 it gives rise to speculation about whether the UCP in toto should properly be regarded as a set of ‘rules’.279

In fairness, it should be stated that the UCP is written by members of the banking community for use by other members of that community with the intent that it should reflect common banking practice vis-à-vis the Documentary Credit transaction cycle – it is not created by lawyers with the tenets of statutory interpretation in mind.

Regardless of its didactic characteristics, if sub-Article 4(b) were to be ignored, and the inclusion of an ill-advised document gives rise to a legal dispute, the expression “and the like” may also prove to be problematic given the imprecision of the clause’s legal meaning. This might be solved, at least in common law jurisdictions, by application of the ejusdem generis280 rule (the class rule), although it is arguable whether the terms “proforma invoice” and “underlying contract” would be found to form a class (or genus) in the normal way under the rules of statutory interpretation.281

277 The Concise Oxford English Dictionary defines ‘rule’ as “a regulation or principle governing conduct

or procedure within a particular area of activity.” Sub-Article 4(b) could not be described as either a regulation or a governing principle, and therefore is difficult to characterise as a ‘rule’. This then possibly contradicts Article 1 which asserts that the UCP “are rules that apply to any Documentary Credit”. [emphasis added by this author]

278 James E. Byrne, 15t h February, 2007, citing the position of Professor Boris Kozolchyk. Personal correspondence on file with this author.

279 This therefore begs the question of why the clause has been included at all. If the inclusion of the underlying documents is seriously problematic then they should be expressly excluded by a rule. If it is not problematic, then the inclusion of the clause is unnecessary. Given the risk position of the Issuing Bank in the Documentary Credit cycle, it would perforce move to adopt any position that would mitigate that risk, including an outright ban on the inclusion of such documents should it in fact complicate or endanger the Documentary Credit process.

280 Latin for "of the same kind," used to interpret loosely written statutes. W here a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed. Example: if a law refers to automobiles, trucks, tractors, motorcycles and other motor-powered vehicles, "vehicles" would not include airplanes, since the list was of land-based transportation. See: http://www.legal-explanations.com/definitions/ejusdem-generis.htm at Jan/Feb 2007

281 A rule of legal construction believed to have first been stated by Lord Tenderden in Sandiman v Beach Barn & C. 96. See: The Rule of "Ejusdem Generis" (1916) 4(1) Virginia Law Review 57-59. Also see R v Ann Harris (1836) 173 ER 196.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 6

Finally, at the heart of both the Documentary Credit and the Principle of Autonomy in the UCP 600 is Article 5 which codifies the Principle by stating that “Banks deal with documents and not with goods, services or performance to which the documents may relate.”

This Article differs from its predecessor, UCP 500 Article 4.282

As mentioned above,283 the words “all parties” were replaced with the word “Banks” in the UCP 600. Perhaps this change was also intended to reflect the fact that other parties to the transaction, such as corporate issuers of Documentary Credits, and the Traders themselves, do deal in things other than documents.284 Perhaps it just reflects a somewhat natural bias of bankers generally away from non-bank parties.

Whatever the case, the use of the word “banks” in Article 5 was debated at length throughout the revision process and the choice was made by the Banking Commission as a whole in opposition to the recommendation of the Drafting Group.285

This occurred notwithstanding that Documentary Credits are issued in relatively large numbers by parties other than banks, a practice that has also been increasing for some time and the use of the word “banks” remains controversial.

One could make a fairly sound argument then that if the 2006 revision was in fact “intended to reflect customs and practice”286 in the Documentary Credit community, it has not succeeded in doing so in this regard. Arguably this position appears to have been endorsed by Chair of the Drafting Group, Gary Collyer who has stated that he is not in agreement with the outcome of the discussions on this point.287

282 International Chamber of Commerce, UCP500, supra note 3, Article 4:

‘Documents v Goods/Services/Performances’ – “In Credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.”

283 See Section 4.2 ‘Purposes and Critiques of the Revision: Non-Bank Issuers of Documentary Credits’ above.

284 Again, this is a specious argument given that the UCP is a context-specific document. 285 Donald Smith, 2007. Personal correspondence on file with this author. 286 Collyer, supra note 247. 287 Ibid. Mr. Collyer however makes the salient point that “drafting was completed based on the

consensus viewpoint expressed by the national committees … unless there was a compelling reason not to do so.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 7

Kozolchyk, discussing a much-earlier iteration of the UCP has also mooted why non-banks are not mentioned. He states that “[n]ot infrequently, top down formulation or reformulation of custom when used internationally is at odds with existing local commercial practice.” The reason he says may be because the UCP “not only contains some model practices, but also the practices of self-interested bankers.”288 Nevertheless, when corporates issue a Documentary Credit they invariably include a term that provides for the UCP word “Bank” to mean “Issuer”.

� The UCP 600 and The Doctrine of Strict Compliance289

The Doctrine of Strict Compliance operates subject to the following three conditionals:290

(a) that the bank-parties to a Documentary Credit deal only in original documents;291

(b) that the documents so dealt with are strictly of the quantity, type and character provided in the terms of the Documentary Credit, and are not concerned with any underlying contract292 or other document not specifically stipulated in the credit; and

(c) that the content of the documents, that is the integral ‘data’ within them, must satisfy all the conditions of the Documentary Credit in terms of their consistency and integrity.293

288 Kozolchyk, supra note 217 at 445 & 450 respectively. 289 Also see Section 3.3 ‘The Doctrine of Strict Compliance’ above. 290 Note that this is a dependant hierarchy – Strict Compliance is met first through dealing only with

original documents in a generic sense, then the quantity and type of documents specifically provided for in the Documentary Credit, and then finally the integrity of the data within the specifically provided-for documents.

291 International Chamber of Commerce, UCP600, supra note 34, Article 5. 292 For the first time in the UCP, sub-Article 4(b) suggests that “An issuing bank should discourage any

attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.” The phrase “and the like” is dealt with further below.

293 UCP 600, sub-Article 14(d) provides that “[d]ata in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 8

The purpose of the Doctrine is to ensure that presented document portfolios are consistent with the defined notion of a “complying presentation” – a term introduced to the Documentary Credit community within the UCP 600 and defined in Article 2.294

However, the definition provided by UCP 600 by itself has given rise to some debate – doubt has emerged as to what exactly is meant by “international standard banking practice” in this context. One of the U.S. delegates to the ICC Banking Commission, Donald Smith,295 has provided an unequivocal response pursuant to discussions held in a range of Documentary Credit forums. The term, he states, is to be applied “generically – if it had been meant to refer to the ISBP publication it would have been capitalized or otherwise indicated.”296

He points out the importance of keeping in mind the longevity of the UCP and the ISBP – these rules sets are only revised occasionally and restricting the Article’s definition to the published set might exclude new practices that have come into being in the interim.297 In fact, the ISBP2007 itself states that “[n]o single publication can anticipate all the terms or the documents that may be used in connection with documentary credits or their interpretation under the UCP and the standard practice it reflects.”298

294 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Complying

Presentation’. 295 Chair of the Banking Committee, U.S. Council for International Business. 296 Donald Smith, 13t h April, 2007. Personal correspondence on file with this author. 297 Donald Smith, 13t h April, 2007. Personal correspondence on file with this author. 298 International Chamber of Commerce, International Standard Banking Practice (2003) ICC Publication

No. 645

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

6 9

However, that is not the end of the argument. Professor James Byrne, Director of the Institute of International Banking Law & Practice,299 states that:

“The definition of “complying presentation” in UCP 600 Article 2 ¶5 indicates that the presentation must be in accordance with the LC, the UCP, “and international standard banking practice.” This phrase provides additional linkage between UCP 500 and standard international letter of credit which UCP 600 reflects. It also provides an implied reference to the International Standard Banking Practice (2007), a document with the same name, indicating that the ISBP (2007) is an authoritative interpretation of practice under UCP 600.”300

However this “implied reference” to the ISBP seems to fly in the face of the majority of opinion given that Gary Collyer, Chair of the Drafting Committee, has said that the committee wanted to avoid “an expansion of the UCP text” with excessive reference to the ISBP.301

More recently he has said in response to concerns raised at training seminars, that:

“[t]he fact that these words are not followed by ‘ICC Publication No. 645’ … seems to be of some concern to a number of banks. The decision was made very early in the UCP revision process that the definition would not confine itself to the content of the ISBP. In the determination of a complying presentation there are a number of practices and procedures followed by all banks that are not encompassed in the ISBP. Not least that the ISBP does not cover the issues relating to every type of document that is presented under a documentary credit, for example, inspection certificates, certificates of analysis, health certificates and, even, simple documents such as packing and weight lists.”302

299 Also known as the IIBLP: see http://www.iiblp.org 300 Byrne, supra note 264. 301 Collyer, supra note 247. 302 Gary Collyer, ‘UCP Seminars Prompt Similar Types of Questions and Issues on a Global Basis –

Part 2” (2007) Coastline Solutions http://www.coastlinesolutions.com/news7.htm at June 2007.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 0

Meynell has also said that the term ‘international standard banking practice’ as used within UCP 600 “is a far wider concept than that included in the ISBP publication, so direct mention of the publication has been avoided.”303 Finally, Carlo di Ninni, Co-Chair of the UCP Consulting Group is quoted as saying that “the ISBP does not appear” in UCP 600. However, he did go on to say that because the ISBP “has proved very effective in practice, [it] must be part of the criteria we use to check documents for clarity”.304

So while it would appear that the while there is no unanimity in the ICC on the matter, the evidence would suggest that the term does not refer directly to the ISBP publication but to the general practices of the Documentary Credit banking community.

Reference is made in six Articles of the UCP 600 to “complying presentation”305 and this compliance character of a document set is almost invariably a condition precedent to a bank-party either honouring the Credit or forwarding the documents to another bank for honour or rejection. Incidentally, it has been noted that the “ISP98, following the UCP and departing from the UCC, does not prescribe a specific standard to which the issuer should require that the presentation comply.”306

Achievement of a “complying presentation” is again a three-stage process:

(1) presentation of the documents;

(2) verification of compliance with the Documentary Credit for document type and quantity; and

(3) examination of the documents to ensure data integrity to the requirements of the Credit and data consistency between documents.

303 Meynell, supra note 246. 304 Carlo di Ninni, “Some Real Problems with the Definition of ‘Bank’" (2006) 12(2) DCInsight ICC

Journal http://focus.dcprofessional.com/ at Feb/Mar 2007. 305 Sub-Articles 7(a), 7(c), 8(a), 8(c), 14(a), 14(b), 15, 16(f) and 35. 306 http://www.eagletraders.com/advice/doc_standby_letters_credit.htm#fn8

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 1

In practice stages two and three will generally be carried out concurrently, subject to the time limits provided for under UCP 600, as detailed in the ‘Time Standards’ Practice Area in Section 6.6 below.

The process for determining a complying presentation commences with the presentation by the Beneficiary of the documents that are specified by the Documentary Credit to either the Issuing Bank, or to an authorised Confirming Bank or Nominated Bank.307 Todd puts the requirement succinctly thus: the “Beneficiary must tender the exact documents stipulated in the credit, and … the bank must accept only those exact documents”.308

As discussed below, while this position has been codified in the UCP 600,309 it may ultimately be questionable as to whether it is too simplified for the purposes of most banks’ actual practice and the security of the Documentary Credit transaction process. The sub-Article 14(g) provision that documents required under the Credit simply be disregarded and returned is questionable behaviour as Professor Kozolchyk points out.310

The process of determining strict compliance requires the Beneficiary to present all documents specified in the Credit in the exact number and form needed. Further, all documents must meet the required content and time constraints provided for by the Credit. It was succinctly stated in Fidelity National Bank v Dade County (with American quotidian wisdom) that strict compliance is “not like pitching horseshoes. No points are awarded for being close.”311 A failure to meet the document requirements under the Credit will result in the various terms of Article 16 being triggered.312

307 See Fig. 2.0 Value Chain Analysis in Section 6.6 ‘Practice Area Five: Time Standards’ below. 308 Todd, supra note 15 at 213. 309 International Chamber of Commerce, UCP600, supra note 34, sub-Article 14(g). 310 See later in this Section for Professor Kozolchyk’s argument decrying this. 311 Fidelity National Bank v Dade County 371 So 2d 545 at 546. 312 Article 16 sets out the obligations on the bank-parties vis-à-vis “Discrepant Documents, W aiver and

Notice” pursuant to the Beneficiary failing to meet the standards of a complying presentation.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 2

While the UCP 600 does not explicitly state it,313 ‘strict compliance’ by definition requires that all documents presented by the Beneficiary must meet a fairly rigorous standard of accuracy in terms of the data provided therein.314

That said however, Paragraph 26 of the ISBP2007315

pointedly states that “[m]isspellings or typing errors that do not affect the meaning of a word or the sentence in which it occurs, do not make a document discrepant.” The UCP also requires that ‘original’ documents (as defined) be presented where the Documentary Credit so states.316

As mentioned above, the verification and examination stages required to determine a complying presentation, comprising the checking of documents and the checking of data, would in practice be dealt with together. This combined process is conducted primarily pursuant to a range of sub-Articles within Articles 14, 17, and 18.

Article 14 contains a number of general principles for determining strict compliance, interspersed with several provisions that provide quite specific instructions for the document checker.317 One practical purpose for these provisions is to remedy the practice by some banks of using minor discrepancies that have no practical impact on the transaction as grounds for rejecting a presentation. Article 14 has been compiled from a range of rules transposed from the UCP 500, both in modified and original form,318 while some sub-Articles are newly created to assist the document checker.

313 Sub-Article 14(a) only states that the bank-parties must examine the documents to determine

whether they constitute a ‘complying presentation’ as defined in Article 1. 314 International Chamber of Commerce, supra note 41. Paragraph 25 provides that “A misspelling or

typing error that does not affect the meaning of a word or the sentence in which it occurs, does not make a document discrepant. For example, a description of the merchandise as “mashine” instead of “machine”, “fountan pen” instead of “fountain pen” or “modle” instead of “model” would not make the document discrepant.”

315 Ibid. 316 International Chamber of Commerce, UCP600, supra note 34, sub-Article 17(a): “At least one

original of each document stipulated in the credit must be presented.” and goes on in sub-sections (b)-(e) to define the terms ‘original’ and ‘copies of original’.

317 For example sub-Article 14(a) is a general instruction that retains the facial standard as the underlying principle for compliance, much to the displeasure of many commentators, while sub-Article 14(j) deals in exacting detail with addresses and other contact details. There does not appear to have been any attempt to structure these into a taxonomy that relates to the checking process.

318 Collyer, supra note 263 at 27.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 3

For the purposes of this examination of the UCP 600’s codification and application of the Doctrine of Strict Compliance, four of the most significant sub-Articles in Article 14 will be discussed.

The first, sub-Article 14(a), is an anomaly insofar as it is the only Article in the UCP that retains the ‘facial standard’.319 This ‘standard’ refers to the clause “on their face” or alternately “on its face” used in reference to the compliance of documents in the Documentary Credit transaction cycle. In the UCP 500 the standard was used 28 times to deal inter alia with compliance with the terms of the credit; inconsistency between documents; and the presence of correct names and signatures on shipping documents.

Sub-Article 14(a), in essence, codifies the Doctrine of Strict Compliance by categorically stating that the bank-parties are restricted to the examination of documents alone and it is on a prima facie examination only that they must determine whether a complying presentation has been provided by the Beneficiary.

The new sub-Article 14(d), which was introduced “to reduce misuse of the inconsistency rule”320 by providing that what the UCP 500 referred to as an “internal inconsistency”, or a data conflict between documents not of a significant nature, is no longer sufficient cause for a bank declaring a bad tender. Sub-Article 14(d) provides that as long as the data in a particular document does not conflict with the Credit or any other document required by the Credit then that document does not cause a compliance breach.

319 The retention/removal of the ‘Facial Standard’ is discussed in detail in Section 6.4 ‘Practice Area

Three: The Facial Standard’ below. 320 Collyer, supra note 263 at 28.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 4

While this might be seen by some to be a significant shift from the formerly immutable position of absolute compliance, this position was held good at common law as early as 1982 in the British Court of Appeal case Banque de l’Indochine et de Suez S.A. v J.H. Rayner Ltd.321 It has been reported that some commentators feel the elements of this sub-Article are far too broad and the result will be that its application will result in “a lot of subjective decisions”.322 Again, the accuracy of this will only be demonstrated over time.

Where a Beneficiary presents documents that are not stipulated by the Credit, UCP 600 sub-Article 14(g) provides that they “will be disregarded and returned to the presenter.”323

However, Kozolchyk asks what should happen when an unrequested document is presented that contains specific and significant information that totally contradicts the data in a required document.324

For example, an official customs document not required by the Credit that therefore falls under sub-Article 14(g), might be presented that describes the shipped goods in a manner that is totally repugnant to the description of the goods given in the invoice that is required under the Documentary Credit. If the document checker were to adhere strictly to the UCP by rejecting the customs document, s/he might then be complicit in defrauding their own bank or client. So, as stated above, the practice of sub-Article 14(g) may prove too simple for the purposes of the “knowledgable diligent document checker”.325

321 [1982] 2 Lloyd’s Rep 476 at 482. 322 Cameron, supra note 260. 323 International Chamber of Commerce, UCP600, supra note 34, sub-Article 14(g): “A document

presented but not required by the credit will be disregarded and may be returned to the presenter.” 324 Kozolchyk, supra note 209 at 59. Note that this article was written pursuant to the UCP 400 but the

example is as pertinent an enquiry under the UCP 600 – or even more so given the application of sub-Article 14(g).

325 Kozolchyk, supra note 209 at 46.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 5

Also in Article 14 for the purposes of the document checker, sub-Article 14(j) – a totally new UCP Article – removes the requirement for the addresses of the Beneficiary and Applicant to appear on any documents, which “should eliminate a number of needlessly claimed discrepancies”.326 It also provides a number of conditions that must be met if either party’s addresses do in fact appear on the document, all of which represents a significant change from the position in the UCP 500. The elements of sub-Article 14(j) are also consistent with the ‘internal inconsistency’ provision sub-Article 14(d) which together may remove many of the causes for dishonour such as getting foreign addresses English-letter perfect.327

More relevant to the purposes of Strict Compliance, the UCP 600 expressly states in sub-Article 18(c) that “[t]he description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.” However, this provision possibly throws up both duplication and contradiction within the UCP.

The duplication is created by the inclusion of sub-Article 18(c) which specifically addresses the ‘goods description’ compliance requirements for commercial invoices alone.328

Sub-Article 14(d)329 is identical in intent, albeit for all data in all documents, which by definition duplicates the substance of sub-Article 18(c). Given this, it is unclear why the inclusion of sub-Article 18(c) was considered a necessary inclusion in UCP 600.

326 Mohammad Burjaq, ‘A Reaction From The Middle East’ (2007) 13(1) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Feb/Mar 2007. 327 Reynolds, supra note 276. 328 The term “commercial invoice” is not defined in the UCP 600. 329 “Data in a document, when read in context with the credit, the document itself and international

standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 6

To complicate matters further for document checkers, sub-Article 14(e) skirts the perimeter of sub-Article 18(c) and adds that, except for data provided in a commercial invoice, the description of the goods or services provided “may be [stated] in general terms not conflicting with their description in the credit.” The question for the courts will possibly be the extent to which discrepancy can be defined as conflict for the purposes of strict compliance.

To summarise, sub-Articles 14(d) and 14(e) provide that data in any document, particularly the description of goods and services, must not conflict with the Credit especially, or with other documents required under the Credit. However, the data within one document need not be identical to the data in the other required documents. Not conflict with, nor mirror.

Meanwhile sub-Article 18(c) draws a clear distinction between the Credit and any Commercial Invoice provided and states exactly what sub-Article 14(e) says in the negative. That is, in the former, descriptions in a Commercial Invoice must match the credit; in the latter, descriptions other than those in the Commercial Invoice need not match the credit. This labyrinthian expedition through compliance is almost certain to cause problems in future.

The possible contradiction with sub-Article 18(c) is created contingent upon the meaning imputed into the words ‘identical’ and ‘correspond’. First, the terms of sub-Article 14(d) provide inter alia that data in a document “need not be identical to … data [in] … the credit”. Second, sub-Article 18(c) provides that the “description of the goods” (which incidentally is data), “must correspond with … the credit”. By definition therefore, sub-Article 18(c) requires that where the description data in an Invoice fails to “correspond”330 to the data required by the Documentary Credit, the document checker should find that there has been no complying presentation as defined.

330 The term is undefined in UCP 600 and being relative, is likely to be subjected to a varying range of

interpretation.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 7

This then begs the question as to whether the data that must ‘correspond’ to other data per sub-Article 18(c) can also be data that need not be ‘identical’ to it per sub-Article 14(d). Or perhaps, less succinctly, the extent to which Commercial Invoice data can be not identical to the Credit before it ceases to correspond to the Credit is yet to be established. It will be interesting to see what a court makes of these duplications and contradictions should a dispute ever arise over the non-compliance of a presentation because of the goods description in a Commercial Invoice.

Whatever the effect of these Articles, a failure at any of the three levels of the checking hierarchy outlined above can potentially trigger the sub-Article 16(a) mechanism for discrepant presentations that allows the bank-party to reject the presentation. There is of course the provisionary sub-Article 16(b) that allows the Applicant to deal with such contingencies through the exercise of their right to waive.331

Furthermore, banks may also expose themselves to a higher risk by waiving discrepancies at their own discretion. The right of waiver however is not strictly within the jurisprudence of Strict Compliance but rather a means of mitigating its more onerous effects.

� Summary – Fundamental Doctrine of the UCP 600

There is no doubt that the Principle of Autonomy and the Doctrine of Strict Compliance have both been accorded their necessary place within the UCP 600 and continue to doctrinally underpin much of the Documentary Credit transaction cycle. The question that remains to be asked is this: has the 2006 revision of the UCP resulted in making the application of these two fundamental operating principles more effective and consistent?

331 International Chamber of Commerce, UCP600, supra note 34, sub-Article 16(b) provides that the

Issuing Bank may at its own discretion approach the Applicant for a waiver of the discrepancies, allowing the transaction to proceed.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 8

The response to this largely depends on who is answering it and with what specific practice area they are concerned. Some commentators are deeply pessimistic, while others appear either sanguine or exuberant.332 It is difficult to speculate but in general the limited literature that has been published by industry insiders appears to be fairly unconcerned about the interplay between the UCP 600, Autonomy and Strict Compliance. More time and far more analysis will be required to establish if the problems with the UCP 500 have been mitigated or exacerbated. This is because, in part, there was not total agreement on the problems with the UCP 500 or what possible solutions should have been implemented.

One Strict Compliance issue with the UCP 500 noted by Buckley is its failure to address the rights of an Applicant against a bank-party that is proposing to pay against a complying presentation based on documents which are forged or otherwise fraudulent.333 UCP 600 does not attempt to address this334 and ISP98 specifically leaves the issue to the applicable law in the jurisdiction that applies.335

Another Strict Compliance issue is posited by Holst who appears to think that the removal of the Facial Standard336

from all-but-one Article “indicates … that banks must perform a more thorough examination of the documents than has previously been the case.”337

332 See the 2006, Volume 12(4) and 2007, Volume 13(1) editions of the DCInsight ICC Journal at

http://focus.dcprofessional.com/ for a range of short articles from across the user community. 333 Buckley, supra note 19 at 313. 334 This is addressed in some detail in Section 6.5 ‘Practice Area Four: Honour and Negotiation – The

Fraud Issue in Negotiation, Article 7 and sub-Article 12(b)’ below. 335 International Chamber of Commerce, International Standby Practices, (1998), James E. Byrne,

James G. Barnes and Gary Collyer (ISP Working Group) Rule 1.05 ‘Exclusion of Matters Related to Due Issuance and Fraudulent or Abusive Drawing’.

336 See Section 6.4 ‘The Facial Standard’ below. 337 Peter Holst, ‘A Shipping Association’s View’ (2006) 12(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. This issue breaches the boundaries of both Strict Compliance and the Facial Standard as addressed in Section 6.4 ‘Practice Area Four: The Facial Standard’ below.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

7 9

This position appears to suggest that either the removal of the Facial Standard somehow implies that the risks associated with the inspection of documents should be carried by the bank-parties, or that the removal of the Facial Standard somehow weakens the Principle of Autonomy by involving the bank-parties in the underlying contract.

Smith finds Holst’s position unreasonable on the basis that business risk must remain as far possible with the parties doing business – the Traders. Furthermore, the underlying idea of bank neutrality will be compromised when bank-parties are compelled to adopt more risk than they can operationally control or are paid to adopt.338 This is confirmed within the UCP 600 disclaimer Article 34 which operates to mitigate this very risk.339

Clearly, only time will tell if the UCP 600 achieves a better Documentary Credit system through the revisions and additions to the Autonomy and Strict Compliance provisions.

338 Donald Smith, 2007. Personal correspondence on file with this author. 339 International Chamber of Commerce, UCP600, supra note 34, Article 34: “A bank assumes no

liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for the good faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee or the insurer of the goods or any other person.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 0

6. The UCP 600 and Selected “Practice Areas” – Analysis and Commentary

6.1. Preamble

The following five “Practice Areas” have been created in order to frame an analysis and discussion of the relevant, albeit scant, extant literature on the UCP 600. This was done in context with an assessment by this author of the importance of the various changes to the UCP rules themselves.340 Almost all of the commentary on what follows is sourced from delegates to the ICC Banking Commission who have commented through the ICC Banking Commission’s journal DCInsight, or from members of the user community and their legal advisers through early publications or personal correspondence with this author.

As Professor James Byrne341 points out, during the UCP 600’s introductory period “the tools available for an attorney to understand or work with UCP 600 are relatively scarce.”342 No doubt in the fullness of time a plethora of academic articles will draw ever-increasing volumes of analysis into the debate as to whether the publication of the UCP 600 had the effect that its drafters are hoping for. The following is a precursor to that body of work.

Kozolchyk has said (of the UCP 500) that “the success of the UCP … is due largely to its ‘living law’ status … because the conduct it prescribes is indistinguishable from everyday international banking practice … [and that] it does not tolerate desuetude.”343 However, judging from most of the commentary, this statement requires careful qualification if it is to also apply to the UCP 600.

340 This author has been extensively aided by Mr. Donald Smith, Chair of the Banking Committee, U.S.

Council for International Business. 341 Professor Byrne of the Institute of International Banking Law & Practice, Inc. kindly provided this

author with an advance copy of his upcoming work on the UCP 600 ‘New Rules For Commercial Letters of Credit Under UCP 600’, supra note 236.

342 Byrne and Davis, supra note 238 at 341. 343 Kozolchyk, supra note 217 at 468.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 1

It is perhaps a more realistic view to say that the UCP reflects a compromise thrashed out between stakeholders in the Documentary Credit market that reflects the desired banking practice of a majority of ICC members. The most obvious example of the UCP not reflecting actual Documentary Credit practice is the refusal by the ICC members to include in the UCP any reference to non-bank issuers of Documentary Credits.344

Also along the line of inadequate representation, William Cameron345 has expressed some reservations as to whether an appropriate level of input from such sectors as the insurance stakeholder community was received during the revision process, commenting also that such input was “very difficult to get”.346

While Documentary Credits have innumerable practical applications, the “largest dollar amount uses for letters of credit are as security posted by corporations and businesses to insurance companies … and by non-admitted reinsurance companies to originating insurers to secure reinsurance obligations.”347

It is arguable therefore whether the UCP 600 does adequately reflect the needs to the entire stakeholder community when, as Cameron points out, it is not certain whether the largest user group348 has provided sufficient input into the revision process.349

As with the above-mentioned issue of non-bank Documentary Credit issuers, it may therefore be that the UCP is more about the preferred ‘banking practices’ of the bank-parties represented in the ICC than the preferred practices of other stakeholders in the user community.350 As Gary Collyer has stated, whether the revised UCP is adequate for all users, “only time will tell”.351

344 As mentioned above, non-bank or ‘corporate’ institutions have commonly issued widely recognised

Documentary Credits for many years. 345 A member of the UCP Consulting Group and Partner with Owen Consulting of Toronto, Canada

consulting on financial services and e-commerce. 346 Cameron, supra note 260. 347 Carter H. Klein, ‘Letter of Credit Law Developments’ (Paper prepared for Chicago Bar Association

Commercial & Financial Transactions Committee, Chicago, January 19, 2006) at 1. http://www.jenner.com/files/tbl_s18News/RelatedDocuments147/2050/Klein_Letter_of_Credit_Law_D evelopments_2006.pdf at Mar 2007.

348 Predominantly this market sector in the U.S. uses Financial Standby Letters of Credit for financial guarantees such as unemployment benefits, medical insurance for the unemployed and workman’s compensation. The size of this market is huge – hundreds of billions of dollars.

349 Cameron, supra note 260. 350 Professor John Dolan of W ayne State University made the same claims for the UCP 500 in his

article ‘W eakening the Letter of Credit Product: The New Uniform Customs and Practice for Documentary Credits’ (1994) 2 International Business Law Journal 149.

351 Collyer, supra note 247.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 2

Finally, given that the UCP rules ipso facto drive the banking practices associated with the Documentary Credit transaction, it is difficult to say whether the modern UCP mirrors banking practice or vice versa. It could verily be argued that, given the extent of re-training of bank personnel required to implement UCP 600, the rules are defining the transaction cycle and not the other way around.352

It is certainly difficult to make the case that an imposed doctrine that requires a costly implementation process of doubtful justification353 can be said to reflect anything like ‘everyday practice’. In fact, it is a logical contradiction to say so. In its defence however, it is the role of the ICC Banking Commission to protect the integrity of the Documentary Credit product in the market. It has done so with great success for nearly three quarters of a century and it is perhaps from within the trust borne of this fact that the most recent iteration of the UCP should be viewed.

Again however, irrespective of any anomalies, the UCP 600 is now in its implementation phase and the following Practice Areas have been directly impacted by it. What follows is a review of the relevant Articles in each Practice Area and a discussion of the effects of the revision, both immediate and speculative, on the Documentary Credit transaction cycle.354 What the following is not intended to be is a comparative analysis of the UCP 500 and the UCP 600, which would require a far more protracted dissertation than can be achieved here.355 That said, some reference to the UCP 500 is perforce necessary to provide perspective.

352 Smith, supra note 252. 353 Geoffrey W ynne and Fiona Nash, ‘Bank Notes’ (2006) Publications of Denton Wilde Sapte Lawyers

http://www.dentonwildesapte.com/en/Publication/banknotes_7.aspx at Mar 2007. 354 For reasons of space and simplicity, not every sub-Article relating to every Practice Area will be

examined in depth – only those that impact most significantly on any given Practice Area will be discussed.

355 Byrne, supra note 264, for an extensive comparative analysis of the UCP 500 and the UCP 600.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 3

6.2. Practice Area One: Amendments To Credits

The term ‘amendment’ is not defined in the UCP 600 and its meaning must therefore be derived from common use. A Documentary Credit is amended when a term of the Credit is altered by agreement between the parties, usually pursuant to instructions from the Applicant. While simple enough in theory, the practice is significantly more complex.

As the processes and the communication channels356 for advising both the original Documentary Credit and any subsequent amendments to the Credit are for all intents and purposes identical, the UCP 600 has aggregated them: Article 9 and Article 10, and to a limited extent Article 11, deal with ‘Credit Amendment’ practices.

The process of making and advising amendments is demonstrably controversial throughout the literature. As a result of the inability of the ICC to find a consensus view on this matter, it was decided to leave the Articles largely the same as per the UCP 500. A new deeming provision, sub-Article 10(e), was added to provide that, similar to some contract law associated with acceptance of an offer,357 acceptance of an amendment must be absolute and unconditional or will be considered a rejection.358

It is arguable whether the revisions have achieved anything like a consistent, coherent strategy for dealing with the amendment process. It has also been suggested by one commentator that there appears to be a logical contradiction in the rules relating to the manner in which the Amendment articles operate but this will be shown to be of doubtful validity.

356 International Chamber of Commerce, UCP600, supra note 34, sub-Article 9(d) provides that the

same channels must be used to advise a Beneficiary of an amendment as was used to advise them of the original Documentary Credit.

357 Masters v Cameron (1954) 91 CLR 353. 358 International Chamber of Commerce, UCP600, supra note 34, sub-Article 10(e).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 4

� Operation of Amendment Articles

There is a simple, almost elegant beauty to the way the Amendment advice and acceptance Articles operate and this operation echoes certain elements of the law of unilateral offer in Contract. The two sub-Articles that operate in tandem with each other – 10(a) and 10(c) – provide a perfect logical loop that secures both the Banks and the Beneficiary against unauthorised amendments to the Documentary Credit.

Sub-Article 10(a) provides that a Documentary Credit can not be amended without the mutual agreement of the Banks and the Beneficiary. The complex deeming provision sub-Article 10(c)359 then provides inter alia that:

(i) The original Credit remains in force until any amendment is accepted by all parties; and

(ii) the Beneficiary should give notice of their acceptance/rejection of an amendment;360 and

(iii) a failure to give notice will result in the credit only being amended upon presentation by the Beneficiary of a complying presentation, and only if that presentation meets the specifications of the as-yet unacknowledged and unaccepted amendment.361

Sub-Article 10(c) therefore operates to constitute ‘acceptance by performance’, much the same as with a unilateral offer in contract law.362 That is, by the action of presenting a set of documents that complies with the Documentary Credit and any proposed amendments thereto, the Beneficiary indicates their acceptance of those amendments.

359 It is the view of this author that the various terms of this Article should have been teased out into a

number of sub-Articles. 360 Note the exhortative rather than mandatory nature of the wording. 361 International Chamber of Commerce, UCP600, supra note 34, sub-Articles 10(a) & 10(c). 362 Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 per Bowen LJ at 269-270: “Performance of

the condition is a sufficient acceptance without notification.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 5

Conversely, if a Beneficiary neither advises of their acceptance of an amendment, nor presents documents that comply with the proposed ‘amended’ Credit, sub-Article 10(a) operates and the credit retains its original form in a perfect iterative tautology with sub-Article 10(c).

While Meynell acknowledges that the substance of the UCP 500 has in fact been retained vis-à-vis the amendment Articles,363 Smith questions what appears at first glance to be an inherent contradiction in the UCP 600 between the irrevocability and amendment advisory provisions on the one hand,364 and the default amendment provision for failure to advise365 on the other.366

While since acknowledging that his December 2006 article367

was not intended to be a thesis on the matter,368 Smith hypothesises as to a Beneficiary who, for whatever reason, has:

(a) not received advice of an amendment that (i) disallows partial shipments and (ii) cancels the remainder of a credit after the first of four shipments have been shipped; and

(b) has begun to ship the second shipment in accordance with the original Documentary Credit.

Smith appears to posit that if, in the scenario outlined above, the Beneficiary provided, perhaps coincidentally, a document set for the first shipment that complied with a Credit amendment of which they have no knowledge, that presentation might trigger the final part of the deeming provision sub-Article 10(c). Such an event would automatically amend the Credit on the basis of performance as detailed above, thereby cancelling the remaining shipments.

363 Meynell, supra note 246. 364 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition of ‘Credit’, and

Article 3 ‘Interpretations: ¶2’ on Irrevocability, and sub-Article 7(b). 365 Sub-Article 10(c). 366 Donald Smith, ‘UCP 600: Learn the New Rules to Avoid Litigation and Nonpayment’ (Dec. 2006)

Managing Exports and Imports Institute of Management and Administration (IOMA) Newsletter http://www.ioma.com/

367 Ibid. 368 Donald Smith, 21s t March, 2007. Personal correspondence on file with this author.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 6

However, for this to have happened would require a logical contradiction between sub-Articles 10(a) and 10(c) which does not exist. The document presentation for the first shipment must have complied with the original Credit or either the Issuing Bank or Confirming Bank would have given notice within five banking days.369 It is not possible for that presentation to have triggered any later amendment of the Credit because, if the presentation had coincidentally complied with a subsequently-issued amendment, it would have been rejected as non-compliant with the original Credit. So, to re-state it, the original shipment papers must have complied with the original Credit and therefore could not have acted as a surrogate notification of acceptance of any amendment.

Next, the presentation of documents for the second shipment could not comply with the amended Documentary Credit because the amendment disallows partial shipments. Therefore that presentation could not operate to act as a surrogate notification of acceptance of the amendment either.

So, it is simply not feasible to suggest that a Beneficiary can provide a complying presentation for a Documentary Credit modified by an amendment of which they had no knowledge.370 No action on the part of the Beneficiary has affirmed both sub-Article 10(a),371 and the first part of sub-Article 10(c),372 and the original Credit remains “in force”.

369 Pursuant to sub-Article 16(d). 370 Mr. Smith would not be drawn on this further when questioned directly by this author. He states in

response to a question as to how such a situation might arise is “A beneficiary who receives an amendment should respond promptly in writing to the advising bank their decision to accept or reject the individual amendment, AND when presenting documents the savvy beneficiary provides a letter to the bank stating how many amendments they have received AND which ones they have accepted and which they have rejected. This action should serve to both notify the bank(s) which amendments have been accepted - rejected, as well as make it clear that these are the only amendments received - and a beneficiary who has not received an amendment can not be held to have accepted that of which they have no knowledge.”

371 All bank-parties and the Beneficiary must agree to an amendment. 372 No notice of acceptance = no amendment.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 7

In a subsequent repositioning statement Smith has proposed the question as to “whether under 10(c) silence might convey the consent required under 10(a).”373 With respect, this author would consider that the provisions of Article 10, when viewed in toto, removes any such possibility.

On another amendment-related matter, UCP 600 deeming sub-Article 10(e) continues the practice of disallowing partial acceptance of amendments as per UCP 500 sub-Article 9(D)(iv) but has physically repositioned the disallowing provision under the Amendments banner rather than as a “Liability of Issuing and Confirming Banks”.374

Finally insofar as Amendment Articles are related, sub-Article 10(f) disallows any default operation of an unacknowledged amendment by lapse of time. This thereby removes any covert capacity to declare an amendment valid where the acceptance/rejection is not advised within an arbitrary time frame set by the Issuing Bank. This reinforces the rights of the Beneficiary pursuant to sub-Article 10(a) that disallows any amendment to occur without their express agreement to its terms.

373 Donald Smith, 21s t March, 2007. Personal correspondence on file with this author. 374 International Chamber of Commerce, UCP500, supra note 3, Article 9.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 8

6.3. Practice Area Two: Bankers’ Mutual Obligations

The obligations incurred between the various bank-parties under the UCP has historically been one of the more frequent areas of dispute, especially where fraud has been detected in the underlying transaction. While the UCP has “long provided for reimbursement rights for nominated banks that do what they are nominated to do”,375 the addition in the UCP 600 of a number of Articles has clarified these rights and other related inter-bank-party obligations.

These obligations are several and varied. There are obligations pursuant to UCP 600 that require the Confirming/Nominated Bank to advise the Beneficiary or Issuing Bank of certain transactions and decisions made. Sub-Article 8(d) for example provides that a bank authorised to confirm a credit, but is unprepared to do so, “must inform the issuing bank without delay”.376 This is but one of a range of matters with which the UCP 600 deals relating to the obligations of banks to inform or advise each other.377

Arguably the most important obligations the bank-parties incur in the Documentary Credit transaction cycle relate to their obligations to pay pursuant to a complying presentation. These obligations are laid out in sub-Articles 7(c), 8(c), 12(b) and Article 15.378 The latter two of these are new provisions that have no precedent in the UCP 500. The former two are partial reflections of UCP 500 Article 9 and Article 19 and provide for ‘discounting’379 of deferred payment undertakings (DPU).380

375 Barnes, supra note 183. 376 International Chamber of Commerce, UCP600, supra note 34, sub-Article 8(d). 377 See for example those Articles mentioned in the inset box in Section 6.6 ‘Practice Area Five: Time

Standards’ below. 378 See the end of this section for a discussion on how sub-Articles 15(a) and 15(b) virtually replicate

sub-Articles 7(a) & 7(b). 379 ‘Discounting’ is a process of purchasing documents for a value less than the face value of the

Documentary Credit itself. This enables banks to generate earnings while allowing Beneficiaries access to funds prior to the maturity date of the Credit.

380 A Deferred Payment Undertaking is the assignment to a Confirming/Nominated Bank of a Documentary Credit by its Beneficiary. Payment is not made against the presentation of documents under the Credit but at a specified time after the event – its ‘Maturity Date’ – during which time the documents will be remitted to the Issuing Bank. In order to expedite payment, a Beneficiary will negotiate payment with the Confirming/Nominated Bank to pay on the basis of a complying presentation but subject to a discount (see footnote above). This often represents a valuable revenue stream in Documentary Credit transactions for both Confirming Banks and Corporate issuers.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

8 9

The inclusion of a specific sub-provision allowing such discounting by both Issuing and Confirming Banks was supported by two-thirds of the National Committees of the ICC.381

D’Arcy et al state that under UCP 500 at least, the exact point in time that the Issuing Bank and Confirming Bank are irrevocably locked into the Letter of Credit transaction is “controversial”.382

However, UCP 600 removes any doubt whatsoever – sub-Articles 7(b) and 8(b) make it clear that the bank-parties are irrevocably bound from the time the Documentary Credit is issued (in the case of the Issuing Bank) or Confirmed. Once confirmed, the Confirming Bank must honour or negotiate the Beneficiary’s drafts upon receipt of a complying presentation.383

The bank-parties’ mutual obligations provided for within sub-Article 7(c) are of particular interest. Structurally, this sub-Article is a complex synthesis of a rule and several conditional elements that would probably have been better teased out into sub-Articles of their own. The rule obliges the Issuing Bank to reimburse a Nominated Bank that has honoured a complying presentation under the following conditions:

(i) payment is due at maturity;

(ii) payment or purchase by the Nominated Bank prior to maturity is irrelevant to the obligation; and

(iii) the obligation to pay is independent of any Issuing Bank obligation to the Beneficiary.384

Sub-Article 8(c) reflects this obligation perfectly except that the obligation is incurred by the Confirming Bank in relation to paying the Nominated Bank. Together these two sub-Articles clarify “the nature and scope of [the bank-parties’] reimbursement rights [and in the process] strengthens those rights”. Their purpose, in addition to sub-Article 12(b) discussed below, is to minimise the risk exposure of Nominated Banks to Beneficiary fraud.385

381 Collyer, supra note 158. 382 D’Arcy et al, supra note 13 at 194, Section 11-023. 383 International Chamber of Commerce, UCP600, supra note 34, sub-Article 8(a). 384 Interestingly, the final conditional of sub-Article 7(c) is akin to having its own Doctrine of Autonomy

insofar as it isolates the Issuing Bank’s obligation to pay the Nominated Bank from any other contractual obligation to the Beneficiary.

385 Barnes, supra note 183.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 0

Längerich has stated that he would have preferred to see a ‘good faith’ element introduced into the determination of whether a bank-party has “a right to be reimbursed”.386 He is most likely referring to the German civil concept of “Treu und Glauben”387

which found its way into the U.S. Uniform Commercial Code through the influence of Karl Llewellyn. However, such an inclusion into the UCP would most likely have created more dispute than value especially given that much of the common law world struggles with the concept of good faith.388 He also considers that there ought to have been a right given to the Issuing Bank to be reimbursed by the Applicant389 but given that the UCP is a rule set governing Documentary Credit contracts between banks, this position tends to indicate a lack of understanding about the common law principles of privity.390 With respect, it also indicates a surprisingly narrow view of the purpose of the UCP, which is to govern transactions between banks and not between bank-parties and their customers.

386 Reinhard Längerich, ‘An Improved UCP That Has Solved Many Problems’ (2007) 13(1) DCInsight

ICC Journal http://focus.dcprofessional.com/ at Jan/Feb 2007. 387 Serge Loode, 20t h May, 2007. Personal correspondence on file with this author. In German law the

principle of ‘Treu und Glauben’ is mandated in s157 of the Civil Code (Bürgerliches Gesetzbuch, or ‘BGB’). It prescribes that contracts have to be interpreted according to good faith. The Courts have used this section to extend the wording of contracts in cases where the result would be unfair otherwise. Another section, s242, deals with the law of obligations in the BGB. It prescribes that whoever owes performance under a contract (e.g. to transfer property according to a sales contract or to provide a certain service) is only obliged to perform the action as far as can be expected under good faith and reasonable usage. The section allows for the adjustment of unfair contracts and has been used where the exact wording of the contract, as well as the rules of civil law, do not allow for the person owing performance to terminate or adjust the contract, but where the result would be unfair.

388 Allan E. Farnsworth, ‘The Concept of Good Faith In American Law’ (Paper presented at the Conferenze E Seminari, Saggi, 1993) at 3. See: http://w3.uniroma1.it/idc/centro/publications/10farnsworth.pdf at Mar/Apr 2007.

389 Längerich, supra note 386. 390 Wilson v Darling Island Stevedoring & Lighterage Co Ltd (1956) 95 CLR 43, where Kitto J said “the

benefit and the burden of contracts are, generally speaking, confined to the contracting parties … [but] … It is a rule which is not without qualifications.” Also note Andy Gibson and Douglas Fraser, Business Law (3r d Edition, 2007) at 384: “As a general rule, only the persons who are parties to a contract can acquire rights and incur liabilities under it.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 1

Sub-Article 12(b), which provides that “[b]y nominating a bank to accept a draft or incur a deferred payment undertaking, an Issuing Bank authorizes the bank thus nominated to prepay or purchase” those instruments. Burjaq391 acknowledges that the provision was included in the UCP 600 in order to offset the impact of the Banco Santander SA v Banque Paribas case392 wherein the U.K. Court of Appeal held that a Confirming Bank that discounted its own deferred payment undertaking did so at its own risk.393

This finding meant that, under the UCP 500, should fraud in the underlying transaction (such as the forged documents in Santander) be established prior to the maturity date of the deferred payment undertaking incurred by the Confirming Bank, the Issuing Bank is not required to reimburse that Confirming Bank.394

The effect of sub-Article 12(b), in conjunction with sub-Articles 7(c) and 8(c), is to shift the risk of fraud back to the Issuing Bank. This shift of risk is not however popular with everyone. One concern is that, as Längerich alluded to, the Issuing Bank will not be able to “reimburse itself from the Applicant when the fraud is found.”395

This is accomplished, to some extent at least, by sub-Articles 37(a) and 37(d) which transpose some of the risk back to the Applicant. The former provides that the Applicant bears any risk associated with the utilisation of one bank’s services by another bank, including of course the Issuing Bank, if conducted to give effect to the Applicant’s instructions. The latter is simply an indemnifying clause that specifies the Applicant’s responsibility vis-à-vis any transaction costs incurred by “a bank”396 as a result of “obligations and responsibilities imposed by foreign laws and usages.”397

391 Burjaq, supra note 326. 392 Banco Santander SA v Banque Paribas [2000] C.L.C. 906 CA (Civ Div) It should be noted however

that the Documentary Credit issued by Banque Paribas was not a negotiation credit nor was Banco Santander authorised by the Issuing Bank to discount against documents.

393 Chuah, supra note 132 at 483. 394 Taneja, supra note 73. 395 Burjaq, supra note 326. 396 It is assumed that the intention here is to indemnify all bank-parties in the Documentary Credit cycle

against any transaction costs incurred to give effect to the Applicant’s instructions. 397 International Chamber of Commerce, UCP600, supra note 34, sub-Article 37(d).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 2

Dolan points out that sub-Article 12(b) does not address the situation where the Issuing Bank explicitly denies authorisation to a Nominated Bank to discount its own deferred payment undertaking by adding terms to a Credit that will render it subject to a Santander style fraud defence. Any Nominated Bank that took assignment of a DPU in the absence of the Issuing Bank’s authority, stands in the shoes of the Beneficiary and as such faces the likelihood of being refused reimbursement should fraud be discovered prior to the Credit’s maturity date. He goes on to argue that the option to modify the Credit with an express clause is always available to the Issuing Bank and nothing could have been added to the UCP to prevent such modifications to the terms of the Credit.398

Finally for the purposes of Bankers’ Mutual Obligations, are the three sub-Articles under Article 15 which set out the obligations of the relevant bank-parties to honour or negotiate the Documentary Credit once they have determined that the documents provided to them constitute a complying presentation.399 Two questions are raised by this Article. The first relates to the use of the phrase “that a presentation is complying”, which differs from the Article 2 definition of “complying presentation”. This change begs the question of why the Drafting Committee would have altered the wording if they did not intend it to have a different meaning. Whether a strict reading of the two phrases will actually lead a court to decide that they have different meanings is debatable.400

Regardless, the choice of words is somewhat remarkable.

398 John Dolan, ‘Negotiation Credits Under UCP 600’ (2007) 13(1) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. 399 International Chamber of Commerce, UCP600, supra note 34, Article 15. 400 It would appear to this author that the Article 15 phrase can be taken to mean “a presentation that is

complying (with [the Article 2 mentioned] terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.)”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 3

The second and arguably more important question concerns the inter-relationship between Article 15 with the ‘Bank Undertaking’ sub-Articles 7(a) and 8(a). Apart from procedural instructions in the former vis-à-vis forwarding the documents to the Issuing Bank, sub-Articles 15(a) and 15(b) replicate sub-Articles 7(a) and 8(a) and the purpose for the inclusion of both the exhortative Article 15 and the more explicatory Articles 7 and 8 is unclear.401 Smith has posited that the importance of Article 15 stems from its use of the word “When” which he states is intended to be read down as meaning “Immediately upon”.402 Given this, Smith states that the inclusion of Article 15 is intended to remove any doubt as to whether the bank-parties are permitted to hold a complying presentation for the entire five banking days allowed in sub-Article 14(b) before they honour or negotiate.

Whether or not a court is likely to infer that meaning from the text is arguable at best. It is suggested by this author that such a conclusion might only be drawn by the court making use of such extraneous explanatory materials as might be available to explain such an implication because it is hardly self-evident.

In conclusion, the general impression one can take from the literature is that the effects of the changes are being positively received overall. The mitigation of the Santander issue has been broadly lauded and despite the reservations put forward by some, it appears that most commentators feel that the overall outcome from the revision of the UCP rules in this Practice Area is likely to be very positive.

401 Byrne and Davis at Footnote 17 point out that Article 15 “is essentially redundant”. 402 Donald Smith, 2007. Personal correspondence on file with this author.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 4

6.4. Practice Area Three: The Facial Standard

The ‘Facial Standard’ refers to the meaning and application of the terms “on its face” or “on their face” insofar as they relate to the document checking process. Not to be confused with the legal term ‘prima facie’, which inter alia implies a first-glance authenticity or adequacy, the expression in the UCP 500 text has generated a large volume of queries to the ICC over time as to its meaning. The various iterations of the clause “on its/their/the face” appears 28 times in the UCP 500 and has been said to mean “the review of a document in line with international standard banking practice and the features of the document itself.”403

It has also been reported that when investigations were commenced by the ICC-appointed task force to create ISBP, a sub-committee was formed to report on what constituted the ‘face’ of a transport document and whether the term implied that a document checker should examine both sides of presented documents.404

Tellingly, in Gary Collyer’s account of the agenda for the 2005 Dublin “UCP-specific” Banking Commission meeting,405 the first-mentioned topic for discussion is the retention or removal of the Facial Standard.406 The Drafting Group407 was of the opinion that the term should be removed from the UCP altogether and put this to the National Committees to indicate their agreement or otherwise.

403 Gary Collyer, ‘Key Issues on UCP for National Committees to Decide’ ICC Commission on Banking

Technique and Practice Document 470/1056, reprinted in Byrne and Byrnes, supra note 81 at 266. 404 Donald Smith, ‘Standard Banking Practice Approved’ (2002) 8(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. In the literature generally this conundrum is mentioned repeatedly – does ‘on its face’ include both sides of the document? To the native speaker it might seem obvious. To the non-native, or to a party seeking to find a reason for rejecting a presentation, it makes for a fine point of law.

405 Collyer, supra note 247. 406 Ibid. 407 See ‘A Brief History of the UCP’ in Section 2.2 above.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 5

The problems associated with the term that ultimately contributed to its removal stem from two sources. First, in English the term does “not seem to have any meaning in itself”408 or at best has a meaning that is elusive. Second, its lack of clear meaning causes usage difficulties for bankers outside of the English-speaking world.409 Linguistically the word ‘face’ is used in this sense slightly idiomatically, and the whole UCP Facial Standard expression is enough like the idiom ‘on the face of it’ to cause problems for translators.410 It was reported to the Banking Commission that the UCP term just translates too literally for the comfort of non-native speakers of English.411 Chalmer more succinctly describes it as “utterly confusing and ambiguous”.412

Not surprisingly therefore, the ultimate decision was made to eliminate the expression from UCP 600, although Kozolchyk sees this “de-emphasis on the facial standard” as a threat to the “axiomatic principles … embodied in the UCP 500”.413 Somewhat surprisingly however, it was not removed completely – it still appears one time, in sub-Article 14(a), which is “the key article setting out the bank's standard for the examination of documents”.414

Collyer has said that the decision to keep it was “to reinforce the position and understanding of the term as it exists today”415

although he makes no mention of whose understanding it is to which he refers. Donald Smith gives the decision further support, stating that “on their face” was retained in sub-Article 14(a) “to instruct courts that Letter of Credit parties deal with the information contained in the documents”.416

408 Holst, supra note 337. 409 Note that this is surmise based on an amalgam of commentary by Collyer, supra note 247, to the

effect that there was a perceived need to “get the UCP into an English that can be understood by everyone”, in addition to this author’s knowledge of business translation techniques.

410 http://www.idiomconnection.com/oquiz.html#A3 “on the face of it”. 411 Collyer, supra note 158. 412 Kim Chalmer, ‘A Representative of a Carrier Looks at the Draft UCP’ (2006) 12(3) DCInsight ICC

Journal http://focus.dcprofessional.com/ at Jan/Feb 2007. 413 Kozolchyk, supra note 42. 414 Professor Charles Debattista, ‘Transport Articles – Some Criticism of Current W ording’ (2006)

12(2) DCInsight ICC Journal http://focus.dcprofessional.com/ at Jan/Feb 2007. 415 Collyer, supra note 158. See: 1. Retention of the words "on its [their] face". 416 Donald Smith, 29t h June, 2007. Personal correspondence on file with this author.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 6

Analogously then, the retention of the expression is, in part at least, meant to serve as a legal umbilical from the UCP text to the Principle of Autonomy. It is arguable whether the courts, unless it is specifically brought to their attention, will take this into consideration given that it is hardly self-evident.

Byrne and Davis provide support for the large-scale removal of the term, although they are silent on the single retention, by pointing out that UCP 600 uses the legal drafting technique of providing definition to reduce repetition. They note that “the phrase ‘complying presentation’ is used in lieu of the traditional formula that a document must comply on its face with the terms and conditions of the credit”.417

Not surprisingly, the all-but-one deletion has given rise to both criticism and commendation. Peter Holst from The Baltic and International Maritime Council (BIMCO)418 has expressed particular delight in the removal of the expression “on its face” but for reasons that are somewhat suspect.419 He appears to be under the impression that inclusion of the term is to some degree correlated to the extent to which document checkers fulfil their obligations to their applicant clients.420 As mentioned above,421 he goes on from that position to conclude that the removal of the term will therefore prompt banks to conduct document examinations more thoroughly than has previously been the case – a conclusion that is questionable at best. He further expresses the hope that the final retention in sub-Article 14(a) will also be removed in a future revision of the rules.

417 Byrne and Davis, supra note 238 at 308. [emphasis added by this author] 418 The Baltic and International Maritime Council: http://www.bimco.org 419 Holst, supra note 337. 420 He states that use of the term “could potentially prompt banks to perform a more superficial

examination of the documents than what is needed.” 421 See Section 5.1 ‘Fundamentals of the UCP 600: Summary – Fundamental Doctrine of the UCP 600’

above.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 7

Längerich expresses surprise at the sub-Article 14(a) retention, claiming that the clause “on the basis of the documents alone” used in that Article “should be sufficient”.422 However, it is arguable whether this sub-clause provides any clearer indication of the basis upon which document checkers should form their decision to pronounce a presentation as complying. Professor Debattista calls the removal of the Facial Standard from the transport documents “wise” but also laments the remaining instance. Writing during the UCP 600 drafting period he expresses doubts about the explanation provided by the Drafting Group that “seem[s] to justify the retention of these words by suggesting that these words help decide what ‘page’ the document checker is expected to review.”423

He gives no indication of being aware of any justification related to the Principle of Autonomy.

However the courts have not had any difficulty with the term “on its face” and have used it in any number of ways in relation to Documentary Credit disputes.424 In NEC Hong Kong v The Industrial and Commercial Bank of China,425 Stone J. categorically affirmed the Principle of Autonomy and its strict relationship to the Facial Standard by stating that the “bank deals solely in documents. On the face of those documents there was compliance with the terms of the credit, and that, in my judgment, is the end of this particular story.”

422 Längerich, supra note 386. 423 Debattista, supra note 414. 424 This author acknowledges the 2006 and 2007 Annual Surveys of Letter of Credit Law & Practice

produced by the Institute of International Banking Law & Practice, Inc. for the following case material dealing with or referring to the Facial Standard.

425 [2006] 2 HKLRD 645 at 668 (para.154). [emphasis added by this author]

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 8

In the U.K., Mr. Justice Colman hearing Mahonia Ltd v JP Morgan Chase Bank and Another in the Commercial Court confirmed that the Facial Standard was the benchmark for the degree of conformance that would trigger the duty to honour. He held that “If, on their face, the documents presented to the confirming bank by the seller conform with the requirements of the credit as notified to him by the confirming bank, that bank is under a contractual obligation to the seller to honour the credit …”426

This identical principle had previously been upheld in the USA where the Ohio Court of Appeal stated that “the obligation to [honour] a draft on a credit when it is accompanied by documents which appear on their face to be in accordance with the terms and conditions of the credit is independent of the performance of the underlying contract for which the credit was issued.”427 Finally, in a case dealing with a fraudulent Documentary Credit the court held that “the alleged letter of credit did not appear in the bank records, and the applicant … did not have lines of credit with the bank. [The defendant bank] BB&T further noted the language and form of the credit was unprofessional and raised several questions of authenticity on its face.”428

So, by retaining one instance of the Facial Standard within UCP 600, the ICC may have failed to achieve anything if the reasons for removing it cited above are accurate. This author suggests that one instance of the term does not lessen the need for clarity and definition any more than one hundred instances.

426 Mahonia Ltd v JP Morgan Chase Bank and Another [2003] 2 Lloyd's Rep 911 at para 36. [emphasis

added by this author] 427 Western Surety Co. v North Valley Bank 2005 Ohio 3453 (Ct. App.). [emphasis added by the court] 428 Hilton Group, PLC v Branch Banking & Trust Co. of South Carolina Civil Action No. 2:05-973-DCN

(D. S.C. Nov. 15, 2006). [emphasis added by this author]

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

9 9

6.5. Practice Area Four: Honour and Negotiation

A panoptic view of the UCP 600 reveals that the concept of ‘Honour’ is difficult to analyse if severed from its alter-ego ‘Negotiation’, as the two operate in conjunction with each other. Consequently they are introduced here under separate subheadings with a joint review to follow.

One approach to the analysis of the relevant UCP 600 rules, taken by Fung, seeks to categorise Credits by their method of availability – by sight payment, deferred payment, and acceptance (his “Honour Group”), or negotiation (his “Negotiation Group”). He posits that, given a strict reading of the definitions of ‘Honour’ and ‘Negotiation’ provided in UCP 600 Article 2, these practices may only operate in mutually exclusive circumstances, which he believes is inconsistent with standard banking practice. That is, the definitions do not allow Honour Group Credits to be negotiated which is contrary to common practice.429

This Practice Area is to date already one of the most extensively commented-on within the user community, and many commentators are anticipating that much debate and litigation will emerge from within it. To determine why this might be it is necessary to:

(a) review the two definitions provided; and

(b) attempt to determine whether those definitions provide clear guidance as to their meaning; and

(c) determine whether they reflect international standard banking practice.

Certainly the two definitions and their inter-relationship with each other (and other Articles in UCP 600) appear problematic at the outset and the controversy already in the academic and user community prompts a review.

429 King Tak Fung, ‘Availability of Credit and Negotiation’ 12(1) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 0

� Honour

No definition for the verb term ‘Honour’ has been provided in previous iterations of UCP and its specific inclusion in UCP 600 is controversial on many levels, including its alleged exclusionary effect and the manner in which it appears to proscribe the practice of negotiating Credits. While UCP 500 Article 9 foreshadowed the more specific definition provided in UCP 600 Article 2, the latter is newly coined. As with the term ‘Facial Standard’, the word ‘Honour’ in the sense applied by the UCP 600 probably will not translate well and may defeat the good intentions of the Drafting Group in this area.

‘Honour’, as an “all encompassing term”,430 has been discussed by a number of industry commentators, one of whom describes it as “a novel concept”431 while another leading industry exponent describes its inclusion in the rules as “useful”.432 Its definition in Article 2 uses a trinity of conditionals to describe the circumstances when a Documentary Credit can be honoured. It thereby also provides a relatively narrow construction of the term, contrary to the wide range of reported uses to which the term is put in standard banking practice.433

In three parts, the definition provides the circumstances that may be described as an ‘Honour’:

(1) Payment on presentation of a complying document set (a Sight Payment Credit);

(2) Payment on maturity of a deferred payment undertaking incurred by a bank-party given the receipt of a complying presentation (a Deferred Payment Credit);

(3) Payment, on maturity, of a Bill of Exchange accepted by a bank-party in conjunction given the receipt of a complying presentation (an Acceptance Credit).434

430 Meynell, supra note 246. 431 Taneja, supra note 73. N.B. It would appear that there is no irony in the use of this description. 432 Längerich, supra note 386. 433 Kozolchyk, supra note 42. 434 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for “Honour”.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 1

The second and third of these three credits are sometimes generically referred to as ‘usance credits’ or ‘term credits’ due to the fact that payment is not made against a complying presentation but at some time after presentation.435 The difference between a Deferred Payment Credit and an Acceptance Credit is the requirement with the latter for the Beneficiary to present a Bill of Exchange with the complying presentation.

The distinction between these two, being the inclusion of a Bill of Exchange with the document presentation, is important. This is because, under (3) an Acceptance Credit, the Beneficiary is provided with the choice of either:

(a) waiting until the Bill of Exchange matures to receive payment; or

(b) selling the Bill of Exchange, usually at a discount, and thereby accessing the funds before its maturity date.436

Standard banking practice has such purchases discounted by varying amounts, depending inter alia on the value of the credit and the period until maturity.

Fung’s ersatz taxonomy refers to these three credit types as the “’Honour’ Group” because, as mentioned, of the appearance that banks can not negotiate them.437 He goes on to discuss at length the fact that Documentary Credits438

are inherently “financing instruments” and his concern about the ability of bank-parties to negotiate Credits stems from his belief that among the banking user community Credits “are financing instruments and that each L/C should be negotiable unless it states otherwise.”439 This, he states, is something that the UCP 600 would appear to disallow especially with regard to Acceptance Credits.440

435 UBS Global Asset Management, Trade and Export Finance Glossary

http://www.ubs.com/1/e/ubs_ch/bb_ch/finance/trade_exportfinance/glossar/glossar_u.html at May, 2006.

See also: Chuah, supra note 132 at 483. 436 As detailed above, this is referred to as ‘Negotiation’. 437 In the sense of ‘Negotiation’ under UCP 600, and not in the sense of negotiability of financial

instruments under Property Law. 438 He uses the term ‘Letters of Credit”. 439 Fung, supra note 429. 440 Ibid.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 2

Professor Kozolchyk finds the UCP 600 definition of the term ‘Honour’ misleading and also in contradiction with industry-accepted usage, but for slightly different reasons. He states that the “definition [of Honour] presupposes that a payment must take place for honour to occur in any of the three listed instances [in the Article 2 definition]”. He points out that the term “‘honour’, legally as well as in banking parlance, means simply to fulfil one's promise.”441 His fundamental argument appears to be that by restricting the meaning of the word ‘Honour’ to refer only to some form of ‘payment’ excludes use of the word to describe other ways in which banks can keep their promise, such as their promise to simply accept documents for the purposes of determining whether they comprise a complying presentation.

Another concern expressed by Kozolchyk is that the definition of ‘Honour’ does not reflect all the situations in which Documentary Credits may currently be honoured. In particular, Kozolchyk is concerned that two common instances where an Issuing Bank might ‘keep its promise’ are now excluded from the definition:

(a) where a deferred payment undertaking is paid by the Issuing Bank prior to its maturity; and

(b) negotiation by an Issuing Bank of a draft drawn on, and accepted by, that Issuing Bank.442 (Discussed further under ‘Negotiation’ below.)

The Professor’s general point regarding the above exclusions is that if neither of these are deemed as ‘honoured’, then it is unclear at what point a particular transaction becomes finalised and the exposure of the parties to liability ends.

441 Kozolchyk, supra note 42. 442 Ibid.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 3

Professor Kozolchyk has also expressed a more general concern about ‘exclusion by definition’ – a concern obliquely mirrored by other user-commentators that is characterised by the idea that strict definition tends to calcify the natural metamorphosis of meaning in a vibrant user community. He points out that the ICC Banking Commission has heretofore resisted the temptation to strictly define Documentary Credit terms for that very reason.443

� Negotiation

Prior to the UCP 600, Chua stated that “what constitutes negotiation is not always clear.”444 Smith has said that”’[n]egotiation’ may be the most abused, misused and misunderstood word in the letter of credit business.”445

Whatever the real position, the process of Negotiation within the Documentary Credit cycle is an important one and has been given a much higher standing within the new rule regime than previously.

Negotiated documents are invariably purchased at a ‘discount’ by whichever bank in the transaction cycle that is authorised to do so under the Credit.446 As already mentioned, discounting occurs when a bank-party purchases documents in advance of the maturity date of the Documentary Credit to which they apply, without recourse to the Beneficiary.447 The advance purchase by the bank-party incurs additional risk which is paid for by the document seller through the relatively significant charge or ‘discount’ to the face value of the Documentary Credit.448

443 Kozolchyk, supra note 42. 444 Chuah, supra note 132 at 485. 445 Donald Smith, ‘Negotiation Is Not Always W hat Bankers Think It Is’ (2006) 12(3) DCInsight ICC

Journal http://focus.dcprofessional.com/ at Jan/Feb 2007. 446 Donald Smith points out that although common expression would have the Documentary Credit

‘discounted’, technically ‘discounting’ is a process of purchasing documents for a value less than the face value of the Documentary Credit itself, i.e. the documents are discounted, not the Credit.

447 See Section 2.3 ‘The Documentary Credit’ above for more details on the discounting process. 448 Chuah, supra note 132 at 484-5.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 4

‘Negotiation’ is described in UCP 500 with the “somewhat imprecise phrase”449 of “the giving of value for Draft(s) and/or documents”450 which Längerich defined as including:

(a) paying of an amount, with recourse under sight credits;

(b) paying of an amount, without recourse;

(c) discounting a presentation (such as paying with deduction of interest);

(d) [giving] a promise to pay at maturity (this promise may, to some extent, be limited.)451

‘Negotiation’ is defined in UCP 600 Article 2 as the “purchase” by a Nominated Bank of drafts and/or documents under a complying presentation in advance of the time that reimbursement is due.452 The development and inclusion of this “somewhat better” definition in the UCP 600453 has already been described as a “contentious issue”454 and represents a distinct shift from the “informal definition”455

provided in the UCP 500’s generic verb clause “giving of value”.456 Under the UCP 600 definition, a range of commentators have posited that Negotiation is not likely to be as straightforward and the decision to define the term ‘Negotiation’ within the UCP is not without its critics and justifications.

The eminent Professor Boris Kozolchyk’s has expressed an apparent general distaste for the “freezing effect”457 that he propounds must result from the act of defining terms within the UCP. The inclusion of a definition for ‘Negotiation’ however was predicated by the ICC wanting to put a stop to an unethical practice by unscrupulous banks.

449 Reinhard Längerich, ‘”Negotiation” Seen To Be No Benefit To Beneficiaries’ (2004) 10(2) DCInsight

ICC Journal http://focus.dcprofessional.com/ at Jan/Feb 2007. 450 International Chamber of Commerce, UCP500, supra note 3, sub-Article 10(B)(ii) “Negotiation means

the giving of value for Draft(s) and/or document(s) by the bank authorized to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation.”

451 Längerich, supra note 449. 452 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for ‘Negotiation’. 453 Längerich, supra note 386. 454 Meynell, supra note 246. 455 Byrne and Davis, supra note 238 at 336. 456 International Chamber of Commerce, UCP600, supra note 34, sub-Article 10(b)(ii). 457 Kozolchyk, supra note 42.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 5

These bank-parties seek reimbursement by claiming to have negotiated a Documentary Credit without having actually done so.458 Instead of actually negotiating a particular Credit, these bank-parties in fact only act as a document forwarding agent but seek to be reimbursed by the Issuing Bank before actually undertaking to pay the Beneficiary. This behaviour thereby eliminates virtually all transactional risk for that bank-party. The Banking Commission is hoping that a narrow reading of the Article 2 definition of ‘Negotiation’ may assist with eliminating this practice.459

Cameron, while personally preferring the UCP 500 version of Negotiation, feels that the latest iteration is possibly an improvement “as it [the definition] probably makes it [the meaning] clear to banks that aren't familiar with the concept”.460 Längerich on the other hand, as far back as 2004, was calling for the whole concept of Negotiation to be removed from the UCP, stating that he was convinced that this would “not create serious difficulties” for any of the parties to the transaction.461 Not surprisingly, this advice was not heeded by the Banking Commission.

To deal with the above-mentioned invalid claims for reimbursement by Nominated Banks and other banks where the Credit is available with any bank, the UCP 500 sub-Article 10(b)(ii) was intended to curtail the practice by simply stating that “[m]ere examination of the documents without giving of value does not constitute a negotiation”.462

458 Byrne and Davis, supra note 238 at Footnote 75. 459 Byrne and Davis, supra note 238 at Footnote 75. 460 Cameron, supra note 260. 461 Reinhard Längerich, ‘”Negotiation” Seen To Be No Benefit To Beneficiaries’ (2004) 10(2) DCInsight

ICC Journal http://focus.dcprofessional.com/ at Jan/Feb 2007. 462 International Chamber of Commerce, UCP500, supra note 3, sub-Article 10(B)(ii).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 6

UCP 600 on the other hand takes a different approach by ligating the purchase of drafts to the actual act of advancing funds to the Beneficiary (or agreeing to do so) in order to determine whether the Nominated Bank has in fact negotiated the Credit.463 Under the UCP 600 definition, any surety given that is less than a legally binding executory promise to the Beneficiary and the Issuing Bank might lawfully find there to be no valid claim to reimbursement.

To the minds of Byrne and Davis, this begs the question of when ‘Negotiation’ has actually taken place. They ask whether an executory promise to pay comprises ‘Negotiation’, that is, whether a promise to purchase equates to an actual purchase for the purposes of the law. Further, they also speculate as to whether a Negotiating Bank can claim reimbursement from an Issuing Bank once it has promised to pay the Beneficiary but have not actually done so.464 They point out that the U.K. Bills of Exchange Act defines “value” as “valuable consideration” and in contract law an executory promise is good consideration.465

From this it is justifiable to ponder whether a breach of such a promise might either constitute a breach of contract or, in the Australian context, give rise to a promissory estoppel. In Silovi Pty Ltd v Barbaro, Priestly JA, explaining Waltons Stores (Interstate) Ltd v Maher and Another,466 pointed out that equitable estoppel operates when contract law cannot and also differs considerably from common law estoppel; it can apply to promises which are representations of future conduct.467

463 International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for “Negotiation”. 464 Byrne and Davis, supra note 238 at 336-338. 465 Ibid at Footnote 79. 466 Waltons Stores (Interstate) Ltd v Maher and Another (1988) 76 ALR 513. 467 Silovi Pty Ltd v Barbaro (1988) 13 NSW LR 466 or 65 LGRA 144 per Priestley JA at 150 “Equitable

estoppel operates upon representations or promises as to future conduct, including promises about legal relations. W hen certain conditions are fulfilled, this kind of estoppel is itself an equity, a source of legal obligation … For equitable estoppel to operate … there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 7

An executory promise to purchase documents might conceivably be held thus and, in the Australian jurisdiction, a Nominated Bank may be estopped from breaking a promise to purchase a document set from a Beneficiary, given the Beneficiary’s ability to satisfy the six-point test laid down by Brennan J. in Waltons.468

The definition of “Negotiation’ under UCP 600 Article 2 also gives rise to other difficulties. These emerge directly from the elements of the definition insofar as that they appear to:

(a) allow only the Nominated Bank to purchase drafts and/or documents before maturity; and

(b) restrict the purchase by the Nominated Bank to drafts and/or documents drawn on a bank other than that Nominated Bank.469

From these elements emerges the question of whether the UCP provides authority for an Issuing Bank to act as a Nominated Bank, that is to negotiate, when it either:

(i) wishes to purchase and negotiate drafts/documents before maturity, or

(ii) is obliged, subject to sub-Article 7(a)(v), to purchase and negotiate drafts/documents because the Nominated Bank, exercising its rights pursuant to sub-Article 12(a), refuses to do so.

468 Waltons Stores (Interstate) Ltd v Maher and Another (1988) 76 ALR 513 at 542 “[I]t is necessary for

a plaintiff to prove that (1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.”

469 Kozolchyk, supra note 42. Professor Kozolchyk describes this restriction within the definition as “surprising”.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 8

Insofar as the question of who is entitled to purchase drafts/documents before maturity per (i) above, Byrne and Davis quite categorically state their belief that no bank is proscribed from purchasing “drafts/documents presented under a credit”. While they follow this to state that in the UCP 600 context “‘negotiation’ is limited to purchase by a Nominated Bank as a Negotiating Bank”,470 they do not explain their reasoning and their assertions do not really clarify matters greatly.

Kozolchyk on the other hand puts forth the suggestion that: “If honour by the issuing bank does not encompass negotiation of its own negotiation credit, the issuer's undertaking may well be only subsidiary to that of another nominated bank. It is true that a negotiator may refuse to negotiate if the beneficiary does not accept the proposed (and presumably reasonable LIBOR471 or market-based) discount rate. Yet, such a rejection would be based upon a rule other than that which states that a beneficiary cannot approach an issuing bank for its negotiation until a nominated negotiating bank has been unsuccessfully approached.”472

This statement appears to imply that an Issuing Bank can negotiate but only once the Beneficiary has exhausted their obligation to first approach a Nominated Negotiating Bank. However, attempting to police such a policy might prove to be costly, ineffective and of little real benefit.

To clarify (ii) above, UCP 600 sub-Article 12(a) allows a Nominated Bank who is not a Confirming Bank to refuse to undertake any obligation to Honour or Negotiate. Further complicating the interpretation of the rules relevant to Negotiation, sub-Article 7(a)(v) states in part that “the issuing bank must honour if the credit is available by negotiation with a nominated bank … that … does not negotiate.”

470 Byrne and Davis, supra note 238 at Footnote 76. 471 London Inter-Bank Offered Rate. 472 Kozolchyk, supra note 42.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 0 9

It is clear however that to ‘Honour’ a Credit plainly incurs very different obligations than those to Negotiate, so the question is whether the UCP in this sub-Article only authorises the Issuing Bank to Honour under these conditions or implies that it can Negotiate as well.

As far as the Article 2 definitional restriction on Nominated Banks to purchase only documents drawn on banks other than themselves, the discussion is predicated on the proposition that Issuing Banks cannot negotiate their own Credits. This proposition emerges from a strict reading of the definition of ‘Negotiation’ which appears to provide that only Nominated Banks can negotiate and, as a ‘Nominated Bank’, it may only purchase drafts/documents from banks other than itself.

However, it is not inconceivable to imagine a situation where the Issuing Bank becomes, for all practical purposes, the Nominated Bank, such as when sub-Article 7(a)(v) operates, and thereafter must negotiate a draft drawn on itself as the Issuing Bank.473 Again, under the definition it would appear that an Issuing Bank cannot do so as an Issuing Bank.

Davidson on the other hand finds the whole argument substantially without foundation. His position is that simply because the UCP does not expressly state that the Issuing Bank can negotiate a Credit is not to imply that it can not negotiate. To his mind such express statements are unnecessary especially given that it is standard banking practice for Issuing Banks to negotiate their own Credits. Davidson has further stated that the Issuing Bank’s prime obligation under the UCP is to Honour a Credit on its maturity date. Whether it also decides to negotiate its own Credit (or not) is not a matter that needs to be validated under the UCP rule regime.474

473 Ibid. 474 Alan Davidson, 2007. Personal discussions with this author.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 0

It is possible that this conundrum with ‘Negotiation’ in fact has its genesis in the lack of specificity in “the undefined notion of availability”475 within the definition of ‘Nominated Bank’. It is unclear exactly what is meant when a credit is “available” with a bank – what reciprocal rights and obligations are incurred with ‘availability’ are not specified. Again, Davidson believes the meaning of this word to be “self evident” and dismisses any need to define it further.476

Perhaps this is so but in the absence of general agreement, it is proposed by this author that a resolution to the Issuing Bank/Nominated Bank conundrum might be found through prescribing a different reading to the UCP 600 Article 2 definition of ‘Nominated Bank’ by defining ‘available’ more concisely.

If the word ‘available’ in this context can be prescribed to mean “payable, acceptable or negotiable”,477 echoing inter alia UCP 500 Article 9,478 then the applicability of the UCP 600 Article 2 definition of ‘Nominated Bank’ broadens significantly for the better. Assuming the acceptability of this meaning for ‘available’, a Nominated Bank might then be defined in full as:

A bank with which the credit is payable, acceptable or negotiable, or any bank in the case of a credit that is payable, acceptable or negotiable with any bank.479

If (a) this interpretation can be adopted (echoing the UCP 500 as it does), and (b) if it can also be given that the credit in question is in fact ‘acceptable’ by the Issuing Bank, then clearly we must conclude that the Issuing Bank would in effect take on the characteristics of a Nominated Bank for the purposes of negotiating the credit and the conundrum would be resolved.

475 Kozolchyk, supra note 42. [emphasis added by this author] 476 Alan Davidson, 2007. Personal discussions with this author. 477 Kozolchyk, supra note 42. Professor Kozolchyk mentions the idea of ‘availability’ taking this meaning

in passing but does not elaborate on his thinking – he states: “Availability seems to have two meanings in UCP 600: [the] type of liability assumed by the obligated bank (as in acceptance, negotiation and payment) and geographic location of the assumed liability, regardless of its type.”

478 International Chamber of Commerce, UCP500, supra note 3, Article 9: Liability of Issuing and Confirming Banks.

479 Paraphrased from International Chamber of Commerce, UCP600, supra note 34, Article 2, definition for “Nominated Bank”.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 1

� The Fraud Issue in Negotiation, Article 7, and Sub-Article 12(b)

Definitional matters aside, the problem of fraud is never far from the minds of the Documentary Credit user community. Barnes480 believes that, except where a suspicion of Beneficiary fraud exists, the operation of sub-Article 12(b) discussed above is not going to be an issue relative to the Nominated Bank’s presentation of a complying presentation pursuant to sub-Article 7(a) and sub-Article 7(c). That is, where the Issuing Bank has authorised a Nominated Bank to accept a draft or Deferred Payment Undertaking481 and it does so accept, the rules should operate well except where the Issuing Bank suspects fraud by the Beneficiary.

As Article 5 clearly states, banks deal in documents and are “focussed on documentary compliance”.482

However, where there may be non-documentary fraudulent activity by the Beneficiary, it becomes most relevant whether the Nominated Bank has actually negotiated the documents with the Beneficiary, with or without recourse.483 That is, the timing of any promises made will impinge on the Issuing Bank’s capacity to protect itself against beneficiary fraud.

If the Nominated Bank is collecting for reimbursement of funds already paid to the Beneficiary, sub-Article 7(c) operates automatically. However, for the purposes of determining the existence of a “negotiation”, it is probably not enough for the Nominated Bank to simply have promised to pay the Beneficiary subject to the satisfaction of the condition precedent that the Issuing Bank honour.484

480 Barnes, supra note 183. 481 Deferred Payment Undertaking: supra note 380. 482 Barnes, supra note 183. 483 W hether the terms of the negotiation allows for the Negotiating Bank to recoup funds paid to the

Beneficiary but not reimbursed by the Issuing Bank. Dolan claims that the UCP 600 is silent on what obligation the Nominated Bank has in this regard and proposes that courts will find the change in language from UCP 500 sub-Article 9(iv) to mean that Issuing Banks no longer need to “nominate a bank that will negotiate without recourse”: John Dolan, supra note 398. Reynolds however argues that this can be “teased out” from sub-Article 8(a)(ii) which provides that negotiation by a Confirming Bank must be without recourse: Reynolds, supra note 276. However his position does not accord with the situation where the Confirming Bank and the Nominated Bank are different.

484 Barnes, supra note 183.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 2

As mentioned above, Byrne and Davis believe that where a bank485 has made an executory promise to a Beneficiary, such a promise would allow that bank to claim that they have ‘negotiated’ for the purposes of triggering sub-Article 7(c) “at least where the Letter of Credit fraud was discovered after having given the promise and before the day on which reimbursement is due.”486 Given the tenet of “fraus omnia corrumpit”,487 it is debatable whether a court will support the view that where Beneficiary fraud is known to the Issuing Bank, they are not within their rights to deny a Nominated Bank a reimbursement claim. This author is prepared to speculate that such a case is highly unlikely.

Further difficulties potentially arise where:

(a) the Issuing Bank knows of a likelihood of Beneficiary fraud; and

(b) the Nominated Bank has refused to pay;488 but

(c) the Nominated Bank has nevertheless forwarded a complying presentation to the Issuing Bank for honour.

Clearly the Issuing Bank is going to be highly reluctant to honour the complying presentation but sub-Articles 7(a)(i)-(v) appear to operate to obligate the Issuing Bank to do so. It will be interesting to see what future courts decide should this scenario arise.

485 They do not specify but it is assumed that they mean either a Confirming Bank, Negotiating Bank or

Nominating Bank. 486 Byrne and Davis, supra note 238 at Footnote 78. 487 “Fraud unravels all.” Also used in this context are the maxims “ex maleficio non oritur contractus: A

contract cannot arise out of an illegal act” and “ex turpi causa non oritur actio: An illegal contract cannot be enforced”. http://www.davidthomas.com.au/miscmaxims.htm

488 Pursuant again to sub-Articles 12(a), 12(c), and/or 16(a).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 3

� Negotiation – Summary

To summarise the commentary on Negotiation outlined above, the extant discussion has so far raised a number of spectres for the Negotiation process within the UCP 600. They are:

(a) whether a Nominated Bank’s promise to purchase equates to an actual purchase for the purposes of reimbursement by the Issuing Bank;489

(b) whether an Issuing Bank can negotiate its own Credits before maturity;490

(c) whether an Issuing Bank can act as a Nominated Bank and can therefore purchase documents for Credits drawn on itself as the Issuing Bank.

The first will need to be addressed either in the forthcoming Explanatory Notes from the ICC, or ultimately by the courts. It relates to the question of the extent to which a representation to purchase plays in the formation of a contract and/or whether such a representation constitutes an enforceable agreement.

It has been implied that perhaps as far as the second issue warrants, Issuing Banks may be able to negotiate their own Credits before maturity if the Beneficiary has exhausted all other Negotiation avenues.

However, this author proposes that both the second and third issues might be resolved by use of a novel approach to interpretation – by giving a broader reading to the UCP 600 Article 2 definition of “Nominated Bank”, and by ascribing a different meaning to the word “available” within this definition, a resolution to these conundrum might be possible. Unfortunately, there are only speculative answers to these questions and in all likelihood they will ultimately have to be decided by a court.

489 Byrne and Davis, supra note 238 at 336-338. 490 Article 2 appears to only allow ‘Negotiation’ to mean purchase of drafts/documents by a Nominated

Bank on other banks.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 4

� Mutual Operation of Honour and Negotiation – Summary

The interplay between the UCP 600 definitions of ‘Honour’, ‘Negotiation’, and ‘Nominated Bank’, in conjunction with the interpretation and application of sub-Articles 7(a) and 8(a) (Issuing Bank and Confirming Bank Undertaking respectively) and sub-Article 12(b) (Nomination), is complex and has already proved to be controversial.

Fung claims that the strict definition of ‘Honour’ creates a situation where a Documentary Credit “available by sight payment, by deferred payment or by acceptance is not negotiable.” He feels that by defining terms too narrowly UCP 600 fails to provide authorisation to issuing banks who wish to negotiate “drafts and/or documents presented under a sight payment, deferred payment or acceptance L/C prior to the issuing or nominated bank's effecting payment under the L/C.” He posits that the negotiating position of the banks in the Documentary Credit cycle should be an express term of the Documentary Credit itself and should therefore not be subject to a broad principle set out in the UCP.491

Kozolchyk is concerned about the requirement for payment to take place before a credit can be considered ‘honoured’. He believes that if a strict reading of the definitions of both ‘Honour’ and ‘Negotiation’ are taken together, then Issuing Banks are unable to prepay and thus honour a Credit while a Nominated Bank can do so, which clearly “does not make sense”.492 His further concerns regarding these definitions are that they do not reflect current Documentary Credit practice and that they might stifle development of the Documentary Credit product in the user community.

491 Fung, supra note 429. 492 Kozolchyk, supra note 42.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 5

Barnes feels that the definition of ‘Negotiation’ provided in UCP 600 does allow the Nominated Bank and the Beneficiary to accommodate their own needs with a variety of terms in their Credit agreement. However he refuses to accept that an agreement by a Nominated Bank to pay the Beneficiary subject to the condition precedent that funds are received by the Nominated Bank from the Issuing Bank can be classed as ‘Negotiation’.493

Meanwhile Byrne and Davis feel that redefining ‘negotiation’ from “giving of value” to “purchase” is of use to Negotiating Banks “who are concerned about when they can claim reimbursement”. They argue that since any bank can purchase a draft or documents presented under a credit, in the context of UCP 600 “negotiation” is perforce limited to purchase by a nominated bank as a negotiating bank.494 This partially confirms Fung’s position although Byrne and Davis do not foray into the ‘availability’ debate. In the final analysis however, they appear concerned that UCP 600 has not helped clarify any of the bank-party’s positions vis-à-vis negotiated credits, executory promises and possible Beneficiary fraud.

493 Barnes, supra note 183. 494 Byrne and Davis, supra note 238 at Footnote 76.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 6

F ig . 2 .0 Va lue C ha i n Ana l ys is f o r t he

Pre s e nt a t io n a nd Ex a mina t io n o f Do c u me nt s , Wa ive r o f Dis c re p a nc y a nd Ho no ur o r Ne g o t ia t io n o f

Do c ume nt a r y Cre d it s U nd e r UCP 6 0 0 ( Ba s e d o n t h e ICC F lo wc h a rt Do c u me n t 4 7 0 /9 5 2 re v 2 )

Step Two Decision: Receiving Bank-Party

Determines Compliance or Non-Compliance

Sub-Articles 14(a) and 14(b)

Decision: Documents Comply or Waive Discrepancies

Action: Honour or Negotiate Sub-Articles 7(a) and 8(a)

Decision: Documents do not comply.

Action: Give Presenter Notice of Refusal to Honour or Negotiate

Sub-Article 16(c) and 16(d)

Document Presentation by

Beneficiary to Bank-Party

Step One Action: Bank-Party Examines

Documents Sub-Article 14(a)

Action: Applicant Refuses To Waive Discrepancies

Action: Decide to Refuse to Honour or Negotiate

Sub-Article 16(a)

Action: Seek Waiver from Applicant

Sub-Article 16(b)

Action: Applicant Waives Discrepancies

Step Four Decision: Take Up or Refuse

Waiver Action: Give Presenter Notice

of Refusal or Honour or Negotiate Credit Decision: Refuse to Accept

Applicant’s Waiver Article 16(c)(iii)(b)

Step Five Action: Issuing Bank Honours

Credit Sub-Article 7(a)

Step Five Action: Confirming/Nominated

Bank Honours or Negotiates Credit Sub-Article 8(a)

Decision: Accept Applicant’s Waiver of Discrepancies

Action: Honour or Negotiate Credit

Step Three Decision: Seek Waiver or Refuse &

Give Presenter Notice Article 16

N.B. Sub-Article 14(b) provides that Steps One to Five must taken by each of the bank-party(ies) within five banking days unless otherwise specified in the Documentary Credit terms.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 7

6.6. Practice Area Five: Time Standards

This Practice Area will deal with the two time standards provided for within UCP 600 – the five banking-day standard for notification of dishonour, and the concept of ‘Without Delay’.495

The presentation of documents by a Beneficiary sets into motion a chain of events affected by a range of variables that produce a plethora of possible outcomes.496 These events are circumscribed within the UCP 600 by time limits. However, before looking at the new Time Standard under the UCP 600, it is apposite to provide both some historical context vis-à-vis the UCP 500, and a brief explanation of the Preclusion Rule.

Generically, the transactions or activities within the Document Examination Value Chain497 are categorised under the two Documentary Credit rules regimes as follows:

UCP 5 0 0 UCP 6 0 0

Su b - Ar t ic le 1 3 ( B) : Sta n d a r d fo r E xa m in a t io n o f Do cu m e n ts – Re a so n a b l e T i me , L i mi te d to 7 Ba n ki n g Da ys

Su b - Ar t ic le 1 4 ( b ) : Sta n d a r d fo r E xa m in a t io n o f Do cu m e n ts – Ma xi mu m 5 Ba n ki n g Da ys L i mi ta ti o n

Su b - Ar t ic le 1 4 ( C) : D iscr e p a n t Do cu m e n ts a n d No t ice – W ai ve r Se e ki n g Di scr e ti o n

Su b - Ar t ic le 1 6 ( b ) : D iscr e p a n t Do cu m e n ts, W a ive r a n d No t ice – W a i ve r Se e ki n g Di scr e ti o n

Su b - Ar t ic le 1 4 ( D) ( i) : D iscr e p a n t Do cu m e n ts a n d No t ice – No ti fi ca ti o n Ob li g a ti o n

Su b - Ar t ic le 1 6 ( d ) : D iscr e p a n t Do cu m e n ts, W a ive r a n d No t ice – No ti fi ca ti o n Ob li g a ti o n

Su b - Ar t ic le 1 4 ( E) : D iscr e p a n t Do cu m e n ts a n d No t ice – Pr e cl u si o n Ru l e

Su b - Ar t ic le 1 6 ( f) : D iscr e p a n t Do cu m e n ts, W a ive r a n d No t ice – Pr e cl u si o n Ru l e

495 For the purposes of brevity the former will be referred to as the ‘Time Standard’ while the latter will be referred to as the ‘Without Delay Requirement’. ‘The Time Standard’ will be used to refer to the rules pertaining to the allowance of time provided to bank-parties to complete the transaction activities pursuant to the document examination value chain as outlined below. The ‘Without Delay Requirement’ refers to use of the expression ‘Without Delay’ to indicate the celerity with which banks must deal with certain matters under the UCP 600. See the Inset Box below for details on the UCP 600 Articles relevant to the ‘Without Delay’ requirement.

496 See “Figure 2.0 Value Chain Analysis for the Presentation and Examination of Documents, W aiver of Discrepancy and Honour or Negotiation of Credit Under UCP 600” below.

497 Michael Porter, Competitive Advantage – Creating and Sustaining Superior Performance (1985) at 33 “The value chain disaggregates a firm into its strategically relevant activities in order to understand the bahavior of costs …”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 8

The Preclusion Rule, provided for under UCP 500 sub-Article 14(E)498 and UCP 600 sub-Article 16(f),499 is essentially a fail-safe rule designed to operate in the case where the responsible bank-parties fail to meet their advisory obligations as to whether a presentation is complying. The Preclusion Rule allows that in the circumstance where notice of a non-compliant presentation is not provided to the presenter within the Time Standard provided (7 and 5 banking days respectively), the Issuing Bank and Confirming Bank (if any) is precluded from so claiming it to be non-compliant and refusing to honour the Credit.

Again however, it is important to remain cognisant of the fact that the UCP rules are not law – they are “rules of practice”500 for the purpose of guiding parties through Documentary Credit transactions. Also again, Article 1 of the UCP 600 provides that the rules only apply when the text of the Documentary Credit itself “expressly indicates that it [the Credit] is subject to [the] rules … unless expressly modified or excluded by the credit.”501 Therefore, like all other elements of the UCP, both the Time Standard and Without Delay Requirement can be specifically modified by agreement between the transacting parties at the time the UCP is incorporated into the transaction.

498 International Chamber of Commerce, UCP500, supra note 3, sub-Article 14(E) “If the Issuing Bank

and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/ or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.”

499 International Chamber of Commerce, UCP600, supra note 34, sub-Article 16(f) “If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.”

500 James E. Byrne, 15t h February, 2007. Personal correspondence on file with this author. 501 International Chamber of Commerce, UCP600, supra note 34, Article 1.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 1 9

� Reasonable Time and The Five Banking Day Time Standard

The concept of ‘Reasonable Time’ for the examination of documents, already provided for under UCP 400,502 was modified under UCP 500 sub-Article 13(B) to include the words, “not to exceed seven banking days”, with the intention of providing the user community with “a defined outer limit to [the] period of ‘reasonable time’”.503 Unfortunately the incorporation of this circumscription provided the grist for an extensive array of debate and dispute as to its actual meaning and application in practical terms.504

Buckley highlighted two “significant” concerns as early as 1995 – the first, that the seven day limit would become the de facto norm;505 and the second, that if the first came to be seen as reasonable, then expert testimony “may begin to give credence to that practice.”506 While it is beyond the purview of this paper to enter into a lengthy examination of the discussion and litigation engendered by UCP 500 sub-Article 13(B), it is appropriate perhaps to make one general observation.

While N.D. George states categorically that “[i]nitially, many practitioners thought that they could take all of the seven banking days before preclusion would set in”, it appears that over the lifespan of the UCP 500 it became consistently clear both in practice and in law that bank-parties could not treat the maximum period of seven days as a ‘reasonable’ time to examine documents when such a period clearly was not reasonable. This thereby abrogates Buckley’s first stated concern.

502 International Chamber of Commerce, Publication No.400, Uniform Customs and Practice for

Documentary Credits (1983) UCP 400. 503 International Chamber of Commerce Official Opinion R534/TA54. Access from DCProfessional

website http://dcprofessional.com/ at May/Jun 2007. 504 Alan Davidson, ‘Judicial Interpretation of “Reasonable Time Under UCP 500’ (1997) 12(10)

Butterworths Journal of International Banking and Financial Law 476. 505 Interestingly, Meynell is now making the exact same argument for the five banking day limit. See

Meynell, supra note 246. 506 Buckley, supra note 19 at 276.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 0

In Bayerische Vereubsbank v Bank of Pakistan507 Manse J “clearly drew a distinction between a reasonable period of time and the seven banking day maximum”.508 In other words, the court took a very literal approach to interpreting ‘reasonable time’ – it felt that the time taken to examine documents must emphatically be reasonable, no more or less.

However, therein hides the perennial legal conundrum of objectivity. While the English-based common law generally looks to apply the objective test by using the legal fiction of the ‘reasonable person’ standard, the adjective ‘reasonable’ is in itself subjective. From ‘the man on the Clapham omnibus’ forward,509 common law courts have struggled to explain the concept of ‘reasonable’. The venerable Documentary Credit lawyer and author Brooke Wunnicke510

takes particular issue with the concept of reasonableness within the context of the UCP, calling it a “weasel word” and claiming that “no single English word has caused more mischief in litigation than ‘reasonable’”.511

Not surprisingly therefore, one of the first agenda items for the revision of the UCP was to ascertain from the ICC National Committees whether the circumscribing phrase ‘Reasonable Time’ should be removed from text of the rules and “to set a maximum number of days” in its place.512

Ultimately thirty-six of the ICC National Committees concurred with the proposition to remove "Reasonable Time", with only one disagreeing.

507 Bayerische Vereubsbank v Bank of Pakistan [1997] 1 Lloyd’s Rep 59. 508 Davidson, supra note 504 at 477. See also Chan, supra note 22 at 66. 509 McQuire v Western Morning News [1903] 2 KB 100 per Sir Richard Henn Collins MR who attributes it

to Lord Bowen. In the Australian legal vernacular, ‘the man on the Bondi Tram’. 510 http://hallevans.com/attorneys/index.cfm?attorneyId=52 and see: http://letterofcredit.com/index.asp 511 Brooke W unnicke, ‘A Lawyer’s Personal W elcome to the New UCP’ (2007) 13(2) DCInsight ICC

Journal http://focus.dcprofessional.com/ at May/Jun 2007. 512 Collyer, supra note 158.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 1

More difficulty was to be had finding a general consensus on establishing the period to be allowed, following the day of receipt of documents, for examination of documents. The “subsequent feedback from the National Committees”513

indicated a relatively even spread of preferences and it is not clear from the literature whether the final number of days was decided from a simple majority on the first poll.

It should also be said that there is no indication that the preference of any particular member country or grouping held sway. The final tally showed that:

� 5 days was preferred by 15 countries;

� 6 days was preferred by 9 countries;

� 7 days was preferred by 10 countries;

� No preference was given by 2 countries.514

Sub-Article 14(b) was written to provide for a maximum of five banking days for examination, rejection, waiver and notice, which Kozolchyk hopes will “eliminate the endless misinterpretations of its UCP 500 predecessor”.515 Certainly five days was not the first choice of the ICC’s U.S. affiliate516

who in fact wanted a three-day Time Standard in the UCP 600.517 As it appeared highly unlikely that they were likely to get a majority vote on a three day limit, the U.S. wanted, as reflected in ISP98,518 a three-day ‘safe harbour’519

with a slightly longer prescribed period to be deemed ‘unreasonable’.

513 Ibid. 514 Collyer, supra note 158. 515 Kozolchyk, supra note 42. 516 The U.S. Council for International Business is the U.S. ICC Affiliate. 517 Donald Smith, 2007. Personal correspondence on file with this author – an attachment titled “Draft of

Concerns by Consulting Group with UCP 600 – US Various Authors”. 518 International Chamber of Commerce, ISP98, supra note 16, Rule 5.01(a) ‘Timely Notice of

Dishonour’, “Notice of dishonour must be given within a time after presentation of documents which is not unreasonable.”; Rule 5.01(a)(i) “Notice given within three business days is deemed to be not unreasonable and beyond seven business days is deemed to be unreasonable.”

519 Richard F Dole Jr., ‘Applicant Ad Hoc W aiver of Discrepancies in the Documents Presented Under Letters of Credit’ (2005) 58(4) SMU Law Review 1453 at 1474, referring to the International Financial Services Association (IFSA) ‘Reasonable Time for Examination & Notice of Dishonour, Statements of Practice 2&3” http://www.ifsaonline.org/eweb/StartPage.aspx. See also N.D. George, ‘Delete “Reasonable Time” and “Without Delay” From the UCP’ (2005) 11(3) DCInsight http://focus.dcprofessional.com/ at Mar/Apr 2007.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 2

Finally however, they “proposed the 5 day period as a compromise … as some countries wanted longer than the 7 days [already] in the UCP 500.”520

Despite that the three-day preference has been the U.S. position for many years, for the sake of uniformity the Uniform Commercial Code (UCC) was amended in the mid-1990’s to reflect the Time Standard in the UCP 500.521

The UCC Section 5-108(b) provides inter alia that “[a]n issuer has a reasonable time after presentation, but not beyond the end of the seventh business day of the issuer after the day of its receipt of documents to honor…”522 This will almost certainly be amended again to reflect the realities of the UCP 600.

From the logistician’s perspective, Holst agrees with the preferred U.S. position of three days but clearly for different reasons. His concerns relate to the cost effect of a longer Time Standard on the Importer’s business should banks use the maximum allowable time to examine documents. He justifiably highlights the extra storage and demurrage charges that can be incurred, as well as the opportunity costs associated with not having access to the goods being imported. As a result, he expresses the view that at some point in the future the “period could be reduced even further” than the UCP 600’s five banking days.523

It is evident that the Time Standard is both controversial and of vital importance to all stakeholders. In particular the timeliness (or lack thereof) with which the various transactions within the document examination value chain are completed. Delays along the time continuum by any party can have significant impact upon the other stakeholders downstream and the waiver-and-notice milieu can be one of constant compromise between the parties in the Documentary Credit cycle.

520 Donald Smith, 2nd July, 2007. Personal correspondence on file with this author. [emphasis added by

this author] 521 Prior to the mid-1990’s revision, UCC Section 5-112 allowed three banking days for document

examination, reflecting the UCP 400 position of “reasonable time” without any maximum duration. Buckley supra note 19 at 272 points out that the U.S. courts consistently upheld this maximum as being reasonable.

522 Uniform Commercial Code, Section 5-108(b)(1). 523 Holst, supra note 337.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 3

One question that was raised from within the ranks of the National Committees during the UCP 600 finalisation process concerns whether the introduction of the word ‘maximum’ into UCP 600 sub-Article 14(b) “reintroduces the question of ‘reasonable time’”. It is reported that an expectation exists that this will be answered within the UCP Commentary to be issued by the ICC sometime in 2007.524 The issue here is unspecified in the literature although it might be assumed to be thus: if there is a five-day maximum, and there is no provision for reasonableness, then at some point within the five banking day limit the bank-party must start incurring liability for the downstream parties to the Documentary Credit. The next problem is going to be how to locate that point – an issue which ultimately may be a question for the courts to decide. The US National Committee’s view is that “[t]he word, ‘maximum’, without further clarification, will likely create litigation problems similar to the former phrase ‘reasonable time’.”525

It is an unfortunate fact that within the Documentary Credit value chain the individual stakeholders by and large have either (a) conflicting motivations, or (b) their business drivers are in fact largely unrelated to those of the other stakeholders.

As far as any conflicts of interest between the stakeholders extend, Applicant/Importers want payment made as late as possible, thereby keeping their monies accessible for as long as possible. Beneficiary/Exporters on the other hand understandably want to receive payment as soon after shipment as can be accomplished in order that they may service their business liabilities as expeditiously as possible. Clearly these two interests are in juxtaposition.

524 Editor, ‘UCP 600 Unanimously Approved’ (2006) 12(3) DCInsight ICC Journal

http://focus.dcprofessional.com/ at May/Jun 2007. 525 Donald Smith, cited in ‘Updates’ (2006) 10(9) Documentary Credit World 3.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 4

Applicant/Importers have also been known to view the submission of a non-compliant presentation as an opportunity to further bargain with the Beneficiary/Exporter on price, leveraging their discretion to waive discrepancies to achieve additional discounts. This then pressures the bank-parties to delay the issuance of a Notice of Dishonour for as long as possible. Understandably, the banks generally regard this behaviour as miscreant and would largely prefer, in the absence of the preferred complying presentation, to maintain the shortest possible transaction timelines.526

On a somewhat different tangent, the bank-parties have an internal conflict with which they must deal. They want sufficient time to properly process all documents to ensure that they constitute a complying presentation. They must do this however without overstepping the bounds of the metaphorical three-day ‘safe harbour’ within which the efficacy of their document checking activity is beyond scrutiny. This might constitute a careful balancing act on occasion, although the literature generally suggests that the actual checking process rarely requires more than a single man-day and often much less.527

Unlike in Bankers Trust Co. v State Bank of India528 where the documents supplied constituted the “quite exceptional” number of nearly 1,000 pages,529 most document sets for Commercial Credits are relatively small. The fear of litigation however pervades the bank-party mentality. Smith refers to this exposure to litigation as the “fly in the ointment”530 while N.D. George laments that any lack of precision in the Time Standard “creates an everyday gamble for document checkers [who hope] they will not be called upon to defend themselves in a court of law.”531

526 Donald Smith, 3r d July, 2007. Personal correspondence on file with this author. 527 Nicole Keller, ‘An Interview’ (2003) 9(3) DCInsight http://focus.dcprofessional.com/ at Mar/Apr 2007

among others. 528 [1991] 2 Lloyd's Rep. 443. 529 Buckley, supra note 19 at 277. 530 Donald Smith, ‘A User’s W ish List For The Next UCP’ (2005) 11(4) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Mar/Apr 2007. 531 George, supra note 519.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 5

Both express the sentiment similarly. The last thing banks want to do is incur the expense of having to defend their Documentary Credit practices in court.

An inconspicuous element of sub-Article 14(b) is the provision of a maximum of five banking days to each of the three possible banks in the chain. That is, if all three banks were to use their entire allocation of time to determine whether they consider the presentation to be complying, the total time from presentation to reimbursement could be fifteen days plus mailing time.

On yet another tangent, while the possibility of such a scenario ever arising is debatable, it is fairly certain that the scope of the Article will only apply to the activities of the banks themselves and not to their customers. The English Court of Appeal held in Bankers Trust Co. v State Bank of India that, under UCP 400 at least, the Time Standard for examination did not “contemplate a period of time for the applicant to go through the documents”.532

Returning to the bank-parties’ obligation to advise of dishonour per sub-Article 16(c), Dole points out that the court in DBJJJ, Inc. v National City Bank533 held that under UCP 500, identifying the discrepancies in a document set and the decision to refuse to accept documents are distinct actions and the former does not trigger an obligation to give immediate Notice of Dishonour outlining the discrepancies.534

It could be argued that this distinction between actions, and the immediacy of the obligation to give notice, has been replicated in UCP 600 within Article 16, at least insofar as the Issuing Bank is concerned.

532 Bankers Trust Co. v State Bank of India [1991] 2 Lloyd's Rep. 443 at 455. 533 DBJJJ Inc. v National City Bank 19 Cal Rptr. 3d 904, 914-15 “The identification of discrepancies is

separate from the refusal to take up documents.” 534 Dole, supra note 519 at 1480.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 6

Sub-Article 14(b) provides the Time Standard under which document examination must take place535 and sub-Article 16(c) provides that, upon deciding not to honour or negotiate, the bank-party “must give a single notice to that effect to the presenter.” Sub-Article 16(d) provides that this notice must be communicated to the Presenter “by telecommunication or… other expeditious means” within the five banking day Time Standard.

However, what is not clear is how immediate the obligation is on banks other than the Issuing Bank to advise the Presenter. Sub-Article 16(b) provides a ‘short-circuit’ to the Issuing Bank’s obligation to advise the Presenter by allowing the Issuing Bank to approach the Applicant for a waiver of the discrepancies. However, the question this ‘short-circuit’ begs is how sub-Article 16(c) is to be read insofar as the Negotiating Bank or Confirming Bank is concerned – should it be read to as a requirement to give immediate Notice of Dishonour or can these bank-parties justifiably take the full five days provided given that the Issuing Bank may be able to do so on the pretext of seeking an Applicant waiver? Ultimately this will probably left to a court to determine.

Again, the Time Standard only applies where notice is required to be given of a non-compliant presentation. As already mentioned it is not unknown in the Documentary Credit world for a Beneficiary to knowingly present a non-compliant presentation, a situation which would probably disengage the notification obligations under sub-Article 16(c).536

535 A maximum of five banking days. 536 Pro-Fab, Inc. v Vipa, Inc. 772 F.2d 847 (11t h Circ. 1985) See Section 3.3 ‘The Doctrine of Strict

Compliance’ above.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 7

� ‘Without Delay’

One of the purposes of the revision process was to remove ambiguities in the text of the UCP. Nevertheless, in a number of sub-Articles,537 most relating to the advice of Credits and Amendments, the wording of the UCP still requires the parties to act “without delay” – clearly a subjective measure. N.D. George of the Arab Banking Corporation recommended as early as 2005 that the terms ‘without delay’ and ‘reasonable time’ be eliminated from the UCP 600 because of the imprecision of the terms.538 Even Taneja, a staunch proponent of the UCP 600 revisions, describes the inclusion of the term as diminishing the “commendable accomplishments of the rules”.539

Collyer however states that the use of the term is unavoidable and that the user community “will have to live with [such] terms”, given that there “must be an expectation that banks will act in accordance with the intent in which the words are used i.e., expeditiously.”540 Perhaps but the argument does not extend to the circumstance where the term is not included where it perhaps should be.

UCP 600 sub-Article 16(d), which deals with the provision of the written notice that must be given when a presentation is deemed non-compliant,541 is almost identical to UCP 500 sub-Article 14(D)(i)542 with one significant exception – the term ‘without delay’ has been removed. To this author it would seem anomalous to leave the term in six Articles but delete it from an Article that arguably requires a time standard to be imposed on bank-party behaviour.

537 See inset box. 538 George, supra note 519. 539 Taneja, supra note 73. 540 Collyer, supra note 158. 541 “The notice required in sub-Article 16(c) must be given by telecommunication or, if that is not

possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.”

542 “If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents.”

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 8

It appears that Collyer is arguing that the use of the words “must be given by… other expeditious means” implies that the bank-parties must act expeditiously. However this author would argue that such an argument is unlikely to find favour in a court because clearly the ‘expeditious-ness’ of the ‘means’ does not in any way oblige a party to act expeditiously; it merely means that the means used must bear the characteristic of being expeditious.

The case law would indicate that determining the meaning of ‘without delay’ is contingent upon the actual action required by the UCP to be undertaken ‘without delay’. (See insert box for ‘Activities’ required to be performed ‘without delay’.)

In Sphinx Gustavsberg, Woo J would not hold for the Plaintiff that under UCP 500 sub-Article 14(d)(i), “taking two days to perform the purely administrative act of preparing … a rejection notice could not be characterised as ‘without delay’”.543 Two days for such a task, he felt, was adequately expeditious.

543 N.V. Koninklijke Sphinx Gustavsberg v Cooperative Centrale-Raiffeinsen-Boerenleenbank B.A.

(Rabobank) [2005] 1657 HKCU 1 [Hong Kong] at para 26 and at para 33.

Ac t iv it ie s Wit h in UCP 6 0 0 Re q u irin g Pe rf o r ma n c e

“Wit h o u t De la y ” Art ic le 8 ( d ) : In fo r mi n g th e Issu i n g Ba n k th a t a n a u th o r i se d b a n k-

p a r ty i s n o t p r e p a r e d to co n fi r m a cr e d i t. Art ic le 9 ( e ) : In fo r mi n g o n e r e l e va n t b a n k- p a r ty b y a n o th e r b a n k-

p a r ty o f th e i r r e fu sa l to a d vi se th e Be n e fi ci ar y o f a cr e d i t o r a me n d me n t.

Art ic le 9 ( f ) : In fo r mi n g th e r e l e va n t b a n k- p a r ty b y a r e ce i vi n g b a n k- p a r ty o f th e i r i n a bili ty to co n fi r m a u th e n ti ci ty o f a cr e d i t o r a me n d me n t r e ce i ve d .

Art ic le 1 0 ( b ) : In fo r mi n g th e Issu i n g Ba n k th a t th e Co n fi r mi n g Ba n k wi l l b e a d vi si n g a n a me n d me n t wi th o u t a l so e xte n d i n g i ts co n fi r ma ti o n .

Art ic le 1 1 ( a ) : T h e i ssu a n ce o f a n o p e r a ti ve cr e di t o r a me n d me n t a fte r se n d i n g a te l e- tr a n smi ssi o n a d vi si n g th a t ‘fu ll d e ta i l s wi ll fol l o w’ ( o r si mi l a r ) .

Art ic le 1 1 ( b ) : T h e i ssu a n ce o f a n o p e r a ti ve cr e di t o r a me n d me n t su b se q u e n t to th e i ssu a n ce o f a n i r r e vo ca b l e p r e- a d vi ce o f a cr e d i t o r a me n d me n t .

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 2 9

The Issuing Bank that rejected the presentation successfully argued that in addition to the complexity of the documents and the number of errors in the documents to be checked, certain extraneous conditions should also be taken into consideration when deciding how to characterise ‘without delay’. These they argued should include the size of the Bank’s document checking workforce and their English language abilities. The trial judge544 and the appellant bench agreed.

In doing so they relied in part on the position that had been clearly given in Seaconsar v Bank Markazi545 where Sir Christopher Staughton stated at pages 41-42 that "[t]he time needed for checking documents must necessarily be somewhat vague; it depends how many documents are required by the credit, what detail they must contain, and how clearly or (as the case may be) obscurely that is spelt out.”

As to a clearer definition of the term ‘without delay’, His Lordship would not be drawn, stating "[t]he words 'without delay' mean what they say, and nothing is to be gained by paraphrasing them.”546 This, at least, could scarcely be clearer.

544 N.V. Koninklijke Sphinx Gustavsberg v Cooperative Centrale-Raiffeinsen-Boerenleenbank B.A.

(Rabobank) [2004] HKEC 538 at para 56. 545 [1999] 1 Lloyd's Rep 36. 546 Seaconsar v Bank Markazi [1999] 1 Lloyd's Rep 36 per Sir Christopher Staughton at 41-42.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 0

7. Conclusion

In the world of international business, the Uniform Customs and Practice for Documentary Credits is an almost unique development. It is a rule regime full of contrast and juxtaposition – it is exhortatory yet compelling; not law but intricately intertwined with it; created through voluntary association but almost compulsory in application. Like all international agreements created through a process of compromise, every commentator can find something in it that does not suit their particular agenda. Some practitioners have cynically suggested that the revision was motivated at least in part by the economic benefits that accrue to the ICC and other organisations that supply training and publications to the user community.547

As has been demonstrated above, every major doctrine and principle embodied in the UCP has come under review in the latest revision. The “massive changes” involved make the UCP 600 “a candidate for the title of the most ambitious and extensive revision” of the UCP ever548 with all that this involves. Professor Kozolchyk has criticised the process of reviewing the UCP as being defective and would perhaps have the fundamental structure and content of the rules reinvented.549 Both he and Jeremy Smith are in general accord that any revision of the Documentary Credit practice regime should be more holistic, with Kozolchyk appearing to suggest a different role for the UCP underpinned by a regulatory ISBP regime, and Jeremy Smith suggesting that “what is needed is a single publication that goes beyond the current UCP and ISBP.”550 Smith also berates the entire UCP 600 revision as an unnecessary expense that cannot be justified in light of any perceived advantage to its implementation551 while Collyer agrees about the cost but not the value assessment of the outcome.552

547 James Byrne, 26t h February, 2007. Personal correspondence on file with this author. 548 Byrne and Davis, supra note 238 at 306. 549 Kozolchyk, supra note 42. 550 Smith, supra note 252. 551 Ibid. 552 Collyer, supra note 247.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 1

Some practitioners are less concerned. Meynell for example simply puts forth the idea that “all products need to be reinvigorated”; that this revision is part of that process, and suggests that, if nothing else, the revision process has brought Documentary Credit practitioners to “re-focus their attention on the value of the L/C as a risk mitigating and payment instrument.”553 Christensen is also more sanguine, possibly to the point of being fatalistic, when he says “we should accept that the rules are now out there and do our utmost to make them work”, although this could hardly be read as a ringing endorsement.554

There is no support in the literature for making the UCP more complex – the broad consensus appears to be that the rules need to be kept to the level of general operating principles as far as is possible. Much like criticisms levelled at legislative regimes which are bedevilled by a constant effort to move beyond general principles to the minutia of individual case management,555 Keller points out that attempts to make the UCP rules more concise would only result in excessive complexity and ultimately restrict business opportunity without necessarily providing for every possible situation that can arise. She gives the example of UCP 500 Article 14 – this relatively complex rule, described as “specific and … more like a manual”, is also ironically among the highest generators of queries to the Banking Commission.556 In a similar vein Gary Collyer echoes this generalist sentiment by providing the realistic assessment that it is not possible to “compensate for bad practice or deliberate misapplication of these rules”, clearly implying that no amount of complexity is likely to cure all Documentary Credit woes.557

Whatever the position of any particular Documentary Credit practitioner or observer however, the above analysis of just five major Practice Areas and the two underlying operational doctrines shows that there is much debate still continuing as the meaning, application and effect of the new rule regime. The efficacy of the UCP 600 is yet to be tested by practice.

553 Meynell, supra note 246. 554 Kim Christensen, ‘A Practical Approach to the New UCP’ 13(2) DCInsight ICC Journal

http://focus.dcprofessional.com/ at Jan/Feb 2007. 555 Richard Krever, ‘Taming Complexity in Australian Income Tax’ (2003) Sydney Law Review 22 at

http://www.austlii.org/au/journals/SydLRev/2003/22.html#fn1 at Jun/Jul 2007. 556 Keller, supra note 527. 557 Collyer, supra note 247.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 2

To paraphrase Churchill, this may be the end of the beginning of the UCP 600 but it could never be characterised as being the beginning of the end.558 Yet to come is the extensive period of practice which ultimately is the only means by which the UCP 600 can effectively and realistically be tested. Ultimately the UCP 600 may prove to be the lifeline for the Documentary Credit product that many of the banking and finance industry’s major players hope it will be. However, given the wide range of opinions already emerging, what is already clear is that its acceptance, implementation and utilisation is not likely to be without controversy.

oooOOOooo

“A work is never finished; only abandoned.” Paul Valery

558 Sir W inston Churchill, "Now this is not the end. It is not even the beginning of the end. But it is,

perhaps, the end of the beginning." Speech given at the Lord Mayor's Luncheon, Mansion House, London, 10 November, 1942, following the victory at El Alamein in North Africa. http://www.winstonchurchill.org/i4a/pages/index.cfm?pageid=388#not_the_end

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 3

8. Glossary of Terms

� Advising Bank

� “The bank that advises the credit at the request of the issuing bank.”559

� Usually the Beneficiary’s local bank, its role includes both the authentication of the Credit and, on instructions from the Applicant’s bank (see ‘Issuing Bank’), accurately advising the Beneficiary or another bank that the Letter of Credit has been opened. The Advising Bank incurs no liability to make payment as a result of the advisory process.

� See Section 2.5 ‘The Documentary Credit Transaction Cycle’.

� Applicant

� “The party on whose request the credit is issued.”560 This is the party who applies to a bank for the Letter of Credit to be issued – for Commercial Credits this is almost invariably the Buyer/Importer of the goods/services under Commercial Credits.

� See Section 2.5 ‘The Documentary Credit Transaction Cycle – The Traders’ above.

� Beneficiary

� “The party in whose favour a credit is issued.”561 This is the party named in the Letter of Credit to receive the monies due under the Letter of Credit – for Commercial Credits this is almost invariably the Seller/Exporter of the goods/services. This is the party that receives the ‘benefit’ of the Letter of Credit, i.e. the monies due.

� See Section 2.5 ‘The Documentary Credit Transaction Cycle – The Traders’ above.

� Buyer

� See ‘Applicant’.

559 UCP 600, Article 2, “Advising Bank”. 560 UCP 600, Article 2, “Applicant”. 561 UCP 600, Article 2 “Beneficiary”.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 4

� Commercial Letter of Credit

� The Commercial Letter of Credit is one of a number of different purpose-defined Documentary Credits. It is designed to ensure payment only where there has been strict performance of the underlying contract between the parties, oft-times a contract of sale, and is typically expected to be drawn upon by the Beneficiary at some point in the transaction cycle.

� See Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit’ above.

� Complying Presentation

� “A presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.”562 This refers to the act of presenting the documents referred to in the Letter of Credit in a manner such that all components comply with the requirements laid out in the Letter of Credit.

� Confirmation (of a Letter of Credit)

� “A definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.”563 This is a process involving a bank(s) in the country of the Beneficiary who is authorised by the Issuing Bank to provide the Beneficiary with a second irrevocable undertaking vis- à-vis the Documentary Credit in question, that is, to honour or negotiate that Credit on receipt of a complying presentation.

� See Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit’ above.

562 UCP 600, Article 2 “Complying Presentation”. 563 UCP 600, Article 2 “Confirmation”.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 5

� Confirming Bank

� “The bank that adds its confirmation to a credit upon the issuing bank’s authorization or request.”564 This is the bank that ‘confirms’ to the Beneficiary that the Letter of Credit has been received along with instructions to confirm the Letter of Credit. See Section 1.4 ‘Confirmed Credit’ above. Also see ‘Advising Bank’.

� See Section 2.5 ‘The Documentary Credit Transaction Cycle – The Banks’ above.

� Credit

� “Any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.”565

� This definition includes all of the credit types outlined in Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit’ above.

� Deferred Payment Undertaking (DPU) or Deferred Payment Credit (DPC)

� A Deferred Payment Undertaking is the assignment to a Confirming/Nominated Bank of a Documentary Credit by its Beneficiary. Payment is not made against the presentation of documents under the Credit but at a specified time after the event – its ‘Maturity Date’ – during which time the documents will be remitted to the Issuing Bank. In order to expedite payment, a Beneficiary will negotiate payment with the Confirming/Nominated Bank to pay on the basis of a complying presentation but subject to a discount (see footnote above). This often represents a valuable revenue stream in Documentary Credit transactions for both Confirming Banks and Corporate issuers.566

564 UCP 600, Article 2 “Confirming Bank”. 565 UCP 600, Article 2 “Credit”. 566 Chuah, supra note 132 at 483.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 6

� Documentary Credit / Documentary Letter of Credit

� An instrument by which a bank substitutes its credit for that of a customer to enable him to finance the purchase of goods or to incur other commitments.

� See Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit’ above. Also see Glossary Terms for ‘Credit’ and ‘Commercial Letter of Credit’ above.

� Doctrine of Strict Compliance

� The legal doctrine that requires all documents referred to in the Letter of Credit to comply strictly in form and content with the documentary requirements laid down in the Letter of Credit.

� Draft or Usance Draft or Term Draft

� A written order signed by one party (the drawer) requesting a second party (the drawee) to pay a specified amount of money to a third party (the payee) at some future time.567 Documentary credits often require presentation of a draft drawn by the Beneficiary on the Issuing Bank, the Confirming Bank or the Reimbursing Bank.

� Exporter

� See ‘Beneficiary’.

� Importer

� See ‘Applicant’

� Issuing Bank

� “The bank that issues a credit at the request of an applicant or on its own behalf.“568 Often the Buyer’s local bank. This is the bank that issues the Letter of Credit on instructions from the Buyer and advises the seller’s nominated bank that a Letter of Credit has been raised pursuant to the contract of sale between the two trading parties.569

� See Section 2.5 ‘The Documentary Credit Transaction Cycle – The Banks’ above.

567 http://www.teachmefinance.com/Financial_Terms/draft.html 568 UCP 600, Article 2 “Issuing Bank”. 569 http://www.ubs.com/1/e/ubs_ch/bb_ch/finance/trade_exportfinance/glossar/glossar_d.html

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 7

� LIBOR

� London Inter-Bank Offering Rate

� This is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments such a Documentary Credits.570

� Negotiation

� “The purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.”571

� See Section 2.3 The Documentary Credit above.

� Nominated Bank

� “The bank with which the credit is available or any bank in the case of a credit available with any bank.”572 This is the bank that has been nominated by the Beneficiary as the bank with whom they prefer to do business vis-à-vis the Letter of Credit.

� See Section 2.5 ‘The Documentary Credit Transaction Cycle – The Banks’ above.

� Presenter

� “A beneficiary, bank or other party that makes a presentation.”573

Usually the seller of the goods or services for which the Documentary Credit is intended make/guarantee payment.

� Presentation

� “Either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered.”574

570 http://www.teachmefinance.com/Financial_Terms/London_Interbank_Offered_Rate.html 571 UCP 600, Article 2 “Negotiation”. 572 UCP 600, Article 2 “Nominated Bank”. 573 UCP 600, Article 2 “Presenter”. 574 UCP 600, Article 2 “Presentation”.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 8

� Presenting Bank

� See ‘Presenter’.

� Principle of Autonomy

� “According to this principle the credit is separate from and independent of the underlying contract of sale or other transaction.”575

� See Sections 3.2 and 5.1 above.

� Revocable/Irrevocable Documentary Credit

� Revocability is a characteristic of the Documentary Credit and refers to the undertaking given by the Issuing Bank as to whether the Credit can be rescinded without the agreement of the other parties to the Documentary Credit transaction, that is it can “be amended or cancelled by the Issuing Bank at any moment and without prior notice to the Beneficiary.”576

� Also see Section 2.4 ‘Types and Characteristics of Documentary Credits’ above.

� Seller

� See ‘Beneficiary’

� Standby Letter of Credit

� Standby Documentary Credits fall into two groups that operate quite differently. Performance/Financial Standbys operate generally where there has been a failure to perform and are generally not expected to be drawn upon. Direct Pay Standbys operate similarly to Commercial Credits (see above) and are generally expected to be drawn on.

� Also see Section 2.4 ‘Types and Characteristics of Documentary Credits: ‘Commercial’ Letters of Credit and ‘Standby’ Letters of Credit’ above.

575 D’Arcy et al, supra note 13 at 170, Section 11-006. 576 International Chamber of Commerce, UCP500, supra note 3, Article 8.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 3 9

9. Bibliography

In addition to the materials specifically cited, the following are of general relevance to the matters discussed in the various sections of this paper.

9.1. Books and Other Source Materials

T it le F o o t - no t e

� Ad e mu n i - Od e ke , L a w o f In te r n a t io n a l T r a d e ( 1 9 9 9 ) 1 0 � Ba r n e s, Ja me s G., ( Ed ) T h e Off ic ia l Co m m e n ta r y o n In te r n a t io n a l Sta n d b y

Pr a ct ice s ( 1 9 9 8 ) In sti tu te o f In te r n a ti o n a l Ba n ki n g L a w & Pr a cti ce , In c. 1 4 4

� Bo a r d o f Go ve r n o r s o f th e F e d e r a l Re se r ve Syste m, Di vi si o n o f Ba n ki n g Su p e r vi si o n a n d Re g u l a ti o n , ‘Fi n a n ci al Sta n d b y L e tte r s o f Cr e d i t a n d Pe r fo r ma n ce Sta n d b y L e tte r s o f Cr e d i t’, Me mo r a n d u m # SR 9 5 - 2 0 ( SU P) , d a te d Ma r ch 3 0 , 1 9 9 5 .

1 3 5

� Bu sto , Ch a r l e s d e l , ICC Gu id e to Do cu m e n ta r y Cr e d it Op e r a t io n s fo r th e UCP 5 0 0 ( 1 9 9 4 )

9

� Byr n e , Ja me s E., T h e Co m p a r iso n o f UC P 6 0 0 & U CP 5 0 0 ( 2 0 0 7 ) 2 6 4 � Byr n e , Ja me s E., a n d Byr n e s, Ch r i sto p h e r S., ( Ed s) , An n u a l Su r ve y o f L e tte r o f

Cr e d it L a w & Pr a ct ice ( 2 0 0 6 ) 8 1

� Ca r r , In d i r a , In te r n a tio n a l T r a d e L a w ( 3 r d Ed i ti o n , 2 0 0 5 ) 3 4 � Ch u a h , Ja so n , L a w o f In te r n a t io n a l T r a d e ( 3 r d Ed i ti o n , 2 0 0 5 ) 1 3 2 � D’Ar cy, L e o , Mu r r a y, Ca r o l e , a n d Cl e a ve , Ba r b a r a , ( Ed s) S ch m itth o ff’s E xp o r t

T r a d e ( 1 0 th Ed i ti o n , 2 0 0 0 ) 1 3

� Da vi d so n , Al a n , A Co m p a r a t ive An a l ysis a n d Eva lu a t io n o f th e De ve lo p m e n t o f th e Pr in c ip le o f Au to n o m y in th e Ne o te r ic L e tte r o f Cr e d it T r a n sa ct io n ( 2 0 0 2 )

- -

� Da vi d so n , Al a n , De ve lo p m e n ts In T h e Ut il isa t io n o f L e tte r s o f Cr e d it T r a n sa ctio n s, Un p u b l i sh e d Ma ste r s Di sse r ta ti o n ( 1 9 9 5 )

2 0

� De Ro o y, F r a n s P., Do cu m e n ta r y Cr e d its ( 1 9 8 4 ) 9 4 � Gi b so n , An d y, a n d F r a se r , Do u g l a s, Bu s in e ss L a w ( 3 r d Ed i ti o n , 2 0 0 7 ) 3 9 0 � Go o d e , Ro ysto n Mi l e s, Co m m e r cia l L a w ( 3 r d Ed i ti o n , 2 0 0 4 ) 4 7 � In te r n a ti o n al Ch a mb e r o f Co mme r ce Of fi ci al Op i ni o n R5 3 4 /T A5 4 . Acce ss fr o m

DCPr o fe ssi o n a l we b si te a t h ttp ://d cp r o fe ssi o n a l .co m a t Ma y/Ju n 2 0 0 7 5 0 3

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , In te r n a t io n a l Ru le s fo r th e In te r p r e ta t io n o f T r a d e T e r m s ( 2 0 0 0 ) ( INCOT ERMS 2 0 0 0 )

1

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , In te r n a t io n a l Sta n d a r d Ba n k in g Pr a ct ice ( 2 0 0 3 ) ICC Pu b l i ca ti o n No . 6 4 5

2 9 8

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , In te r n a t io n a l Sta n d a r d Ba n k in g Pr a ct ice ( 2 0 0 7 ) ICC Pu b l i ca ti o n No . 6 8 1

4 1

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , In te r n a t io n a l Sta n d b y Pr a ct ice s ( IS P9 8 ) , ( 1 9 9 8 ) , Ja me s E. Byr n e , Ja me s G. Ba r n e s a n d Ga r y Co l l ye r ( ISP W o r ki n g Gr o u p Ed s)

1 6

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , Pu b l i ca ti o n No .2 2 2 , Un ifo r m Cu sto m s a n d Pr a ct ice fo r Do cu m e n ta r y Cr e d its ( 1 9 6 1 ) – UC P 2 2 2

- -

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , Pu b l i ca ti o n No .2 9 0 , Un ifo r m Cu sto m s a n d Pr a ct ice fo r Do cu m e n ta r y Cr e d its ( 1 9 7 4 ) – UC P 2 9 0

- -

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , Pu b l i ca ti o n No .4 0 0 , Un ifo r m Cu sto m s a n d Pr a ct ice fo r Do cu m e n ta r y Cr e d its ( 1 9 8 3 ) – UC P 4 0 0

5 0 2

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , Pu b l i ca ti o n No .5 0 0 , Un ifo r m Cu sto m s a n d Pr a ct ice fo r Do cu m e n ta r y Cr e d its ( 1 9 9 3 ) – UC P 5 0 0

3

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , Pu b l i ca ti o n No .6 0 0 , Un i fo r m Cu sto ms a n d Pr a cti ce fo r Do cu me n ta r y Cr e d i ts ( 2 0 0 7 ) – UC P 6 0 0

3 4

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 0

T it le F o o t - no t e

� In te r n a ti o n al Fi n a n ci al Se r vi ce s Asso ci a ti o n ( IF SA) Re a so n a b le T im e fo r E xa m in a t io n & No t ice o f D ish o n o u r , Sta te m e n ts o f Pr a ct ice 2 &3 h ttp :// www.i fsa o n l i n e .o r g /e we b /Sta r tPa g e .a sp x

5 1 9

� L a ti me r , Pa u l , Au str a l ia n Bu s in e ss L a w ( 2 5 t h Ed i ti o n , 2 0 0 6 ) - - � Mo e n s, Ga b r i ë l , a n d Gill i e s, Pe te r , In te r n a tio n a l T r a d e a n d Bu s in e s s: L a w

Po l icy a n d Eth ic s ( 2 n d Ed i ti o n , 2 0 0 6 ) 8 7

� Po r te r , Mi ch a e l , Co m p e tit ive Ad va n ta g e – Cr e a t in g a n d Su sta in in g Su p e r io r Pe r fo r m a n ce ( 1 9 8 5 )

4 9 7

� Ri d g e wa y, Ge o r g e L ., M e r ch a n ts o f Pe a ce ( 1 9 5 9 ) - - � Sch mi tth o ff, Cl i ve M., Sch m itth o ff’ s E xp o r t T r a d e – T h e L a w a n d Pr a ct ice o f

In te r n a tio n a l T r a d e ( 9 th Ed i ti o n , 1 9 9 0 ) 2 2 7

� Sch ü tze , Ro l f A., a n d F o n ta n e , Ga b r i e l e , Do cu m e n ta r y Cr e d it L a w T h r o u g h o u t T h e W o r ld – An n o ta te d L e g isla t io n F r o m M o r e T h a n 3 5 Co u n tr ie s ( 2 0 0 1 )

1 1

� S mi th , Do n a l d , ( Ed .) “ Dr a ft o f Co n ce r n s b y Co n su l ti n g Gr o u p wi th UCP 6 0 0 – US Va r i o u s Au th o r s” ( 2 0 0 7 ) Pe r so n a l co r r e sp o n d e n ce .

5 1 7

� T e r r y, An d r e w a n d Gi u g n i , De s, Bu s in e s s a n d th e L a w ( 4 t h Ed i ti o n , 2 0 0 3 ) - - � T o d d , Pa u l , Bills o f L a d in g a n d Ba n ke r s’ Do cu m e n ta r y Cr e d its ( 3 r d Ed i ti o n ,

1 9 9 0 ) 1 5

9.2. Journal Articles

T it le F o o t - no t e

� An o n y mo u s, ‘T h e Ru l e o f " E ju sd e m Ge n e r i s" ’ ( 1 9 1 6 ) 4 ( 1 ) V ir g in ia L a w Re v ie w 5 7 - 5 9

2 8 1

� Ba r n e s, Ja me s, ‘No n co n fo r mi n g Pr e se n ta ti o n s Un d e r L e tte r s o f Cr e d i t: Pr e cl u si o n a n d Fi n al Pa y me n t’ ( 1 9 9 0 ) 5 6 Br o o k lyn L a w Re v ie w 1 0 3

2 3 3

� Ba r n e s, Ja me s, ‘U CP 6 0 0 a n d Ba n k Re sp o n si b i li ty F o r F r a u d ’ ( 2 0 0 7 ) 1 3( 1 ) DCIn s ig h t IC C Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

1 8 3

� Br o wn e , Je ffr e y, ‘T h e F r a u d E xce p ti o n T o Sta n d b y L e tte r s o f Cr e d i t In Au str a l i a : Do e s It E mb r a ce S ta tu to r y Un co n sci o n a b i li ty? ’ ( 1 9 9 9 ) 1 1 ( 1 ) Bo n d L a w Re v ie w 9 8

1 5 4

� Bu ckl e y, Ro ss P., ‘T h e 1 9 9 3 Re vi si o n o f T h e Un i fo r m Cu sto ms a n d Pr a cti ce fo r Do cu me n ta r y Cr e d i ts’ ( 1 9 9 5 ) 2 8 ( 2 ) T h e Ge o r g e W a sh in g to n Jo u r n a l o f In te r n a tio n a l L a w a n d Eco n o m ics 2 6 5

1 9

� Bu r ja q , Mo h a m ma d , ‘ A Re a cti o n F r o m T h e Mi d d l e Ea st’ ( 2 0 0 7 ) 1 3 ( 1 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t F e b /Ma r 2 0 0 7

3 2 6

� Byr n e , Ja me s E., a n d Da vi s, L e e H., ‘Ne w Ru l e s F o r Co mme r ci a l L e tte r s o f Cr e d i t Un d e r UCP 6 0 0 ’ ( 2 0 0 7 ) 3 9 ( 3 ) Un ifo r m Co m m e r c ia l Co d e L a w Jo u r n a l 3 0 1

2 3 8

� Ca me r o n , W illi a m, ‘In te r vi e w: Ba l a n ci n g th e Pl u se s a n d Mi n u se s’ ( 2 0 0 6 ) 1 2 ( 4 ) DCIn s ig h t IC C Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

2 6 0

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 1

9.2 Journal Articles (cont’d)

T it le F o o t - no t e

� Ch a l me r , Ki m, ‘ A Re p r e se n ta ti ve o f a Ca r r i e r L o o ks a t th e Dr a ft UC P’ ( 2 0 0 6 ) 1 2 ( 3 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 1 2

� Ch a n , F e l i x W . A., ‘Do cu me n ta r y Co mp l i a n ce Un d e r UCP: A F a u l t F i n di n g Mi ssi o n Or A Me r e Gu e ssi n g E xe r ci se ? ’ ( 1 9 9 9 ) Ho n g Ko n g Jo u r n a l s On l in e – L a w L e ctu r e s F o r Pr a ct it io n e r s 5 9

h ttp ://su n zi 1 .li b .h ku .h k/h kjo /vi e w/1 4 /1 4 0 0 2 5 2 .p d f a t Ja n /F e b 2 0 0 7

2 2

� Ch r i ste n se n , Ki m, ‘A Pr a cti ca l Ap p r o a ch to th e Ne w UC P’ 1 3 ( 2 ) DC In s ig h t IC C Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

5 5 4

� Co l l ye r , Ga r y, ‘A L o o k Ba ck A t T h e UCP Re vi si o n ’ ( 2 0 0 6 ) 1 2 ( 4 ) DCIn sig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

2 4 7

� Co l l ye r , Ga r y, ‘Ke y Issu e s o n UC P fo r Na ti o n a l Co mmi tte e s to De ci d e ’ ICC Co m m is s io n o n Ba n k in g T e ch n iqu e a n d Pr a ct ice Do cu m e n t 4 7 0 /1 0 5 6 , r e p r i n te d i n Ja me s E. Byr n e a n d Ch r i sto p h e r S. Byr n e s ( Ed s) , 2 0 0 6 An n u a l Su r ve y o f L e tte r o f Cr e d i t L a w & Pr a cti ce ( 2 0 0 6 )

4 0 3

� Co l l ye r , Ga r y, ‘Re sp o n se s to 9 “ Ke y Issu e s” He l p Sh a p e th e UCP 6 0 0 ’ ( 2 0 0 6 ) Co a stl in e So lu t io n s

h ttp :// www.co a stl i n e so l u ti o n s.co m a t Ma y, 2 0 0 7

1 5 8

� Co l l ye r , Ga r y, ‘UCP Se mi n a r s Pr o mp t Si mi l a r T yp e s o f Qu e sti o n s a n d Issu e s o n a Gl o b a l Ba si s – Pa r t 2 ” ( 2 0 0 7 ) Co a stlin e So lu t io n s

h ttp :// www.co a stl i n e so l u ti o n s.co m/n e ws7 .h t m a t Ju n e 2 0 0 7

3 0 2

� Co l l ye r , Ga r y, ‘Un d e r sta n d i n g th e UCP’ Pa p e r Pr e se n te d a t th e I CC Co m m is s io n o n Ba n k in g T e ch n iqu e a n d Pr a ct ice , L o n d o n , Octo b e r 2 6 , 2 0 0 6

2 6 3

� Da vi d so n , Al a n , ‘T h e Evo l u ti o n o f L e tte r o f Cr e d i t T r a n sa cti o n s’ ( 1 9 9 5 ) 1 0 Bu tte r wo r th s Jo u r n a l o f In te r n a t io n a l Ba n k in g a n d F in a n ce 1 2 8

2 1

� Da vi d so n , Al a n , ‘Ju d i ci al In te r p r e ta ti o n o f “ Re a so n a b l e Ti me Un d e r UC P 5 0 0 ’ ( 1 9 9 7 ) 1 2 ( 1 0 ) Bu tte r wo r th s Jo u r n a l o f In te r n a tio n a l Ba n k in g a n d F in a n c ia l L a w 4 7 6

5 0 4

� De b a tti sta , Ch a r l e s, ‘T r a n sp o r t Ar ti cl e s – So me Cr i ti ci sm o f Cu r r e n t W or d i n g ’ ( 2 0 0 6 ) 1 2 ( 2 ) DCIn sig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 1 4

� Do l a n , Jo h n , ‘Ne g o ti a ti o n Cr e di ts Un d e r UCP 6 0 0 ’ ( 2 0 0 7 ) 1 3 ( 1 ) DCIn s ig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

3 9 8

� Do l a n , Jo h n , ‘W e a ke n i n g th e L e tte r o f Cr e di t Pr o d u ct: T h e Ne w Un i fo r m Cu sto ms a n d Pr a cti ce fo r Do cu me n ta r y Cr e d i ts’ ( 1 9 9 4 ) 2 In te r n a tio n a l Bu s in e ss L a w Jo u r n a l 1 4 9

3 5 0

� Do l e , Ri ch a r d F ., Jr ., ‘Ap p l i ca n t Ad Ho c W ai ve r o f Di scr e p a n ci e s i n th e Do cu me n ts Pr e se n te d Un d e r L e tte r s o f Cr e d i t’ ( 2 0 0 5 ) 5 8 ( 4 ) SM U L a w Re v ie w 1 4 5 3

5 1 9

� Dr a h o s, Pe te r a n d Br a i th wa i te , Jo h n , ‘T h e Gl o b a li sa ti o n o f Re g ul a ti o n ’ ( 2 0 0 1 ) 9 ( 1 ) T h e Jo u r n a l o f Po l it ica l Ph ilo so p h y 1 0 3

3 3

� Ed i to r , ‘UCP 6 0 0 Un a n i mo u sl y Ap p r o ve d ’ ( 2 0 0 6 ) 1 2 ( 3 ) DCIn s ig h t IC C Jo u r n a l h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma y/Ju n 2 0 0 7

5 2 4

� F a r n swo r th , Al l a n E., ‘T h e Co n ce p t o f Go o d F a i th In A me r i ca n L a w’ ( Pa p e r p r e se n te d a t th e Co n fe r e n ze E Se mi n a r i , Sa g g i , 1 9 9 3 )

h ttp :// w3 .u n i r o ma 1 .i t/i d c/ce n tr o /p u b l i ca ti o n s/1 0 fa r n swo r th .p d f a t Ma r /Ap r 2 0 0 7

3 8 8

� F u n g , Ki n g T a k, ‘Ava i l a bi li ty o f Cr e d i t a n d Ne g o ti a tio n ’ 1 2 ( 1 ) DCIn sig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 2 9

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 2

9.2 Journal Articles (cont’d)

T it le F o o t - no t e

� Ge o r g e , N.D., ‘De l e te “ Re a so n a b l e T i me ” a n d “ W ith o u t De l a y” Fr o m th e UCP ’ ( 2 0 0 5 ) 1 1 ( 3 ) DCIn sig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma r /Ap r 2 0 0 7

5 1 9

� Ge o r g e , N.D., ‘T h e Ir r e vo ca b l e Cr e d i t a n d UCP 6 0 0 Ar ti cl e 3 2 ’ ( 2 0 0 7 ) 1 3 ( 1 ) DCIn s ig h t IC C Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma r /Ap r 2 0 0 7

1 0 8

� Ho l st, Pe te r , ‘A Sh i p p i n g Asso ci a ti o n ’s Vi e w’ ( 2 0 0 6 ) 1 2 ( 4 ) DCIn s ig h t IC C Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

3 3 7

� Ke l l e r , Ni col e , ‘An In te r vi e w’ ( 2 0 0 3 ) 9 ( 3 ) DCIn s ig h t IC C Jo u r n a l h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma r /Ap r 2 0 0 7

5 2 7

� Kl e i n , Ca r te r H., ‘L e tte r o f Cr e d i t L a w De ve l o p me n ts ’ Pa p e r p r e p a r e d fo r Ch ica g o Ba r Asso c ia t io n Co m m e r c ia l & F in a n c ia l T r a n sa ct io n s Co m m itte e , Ch i ca g o , Ja n u a r y 1 9 , 2 0 0 6

h ttp :// www. je n n e r .co m/fi l e s/tb l _ s1 8 Ne ws/ Re l a te d Do cu me n ts1 4 7 /2 0 5 0 / Kl e i n _ L e tt e r _ o f_ Cr e d i t_ L a w_ De ve l o p me n ts_ 2 0 0 6 .p d f a t M a r 2 0 0 7

3 4 7

� Ko zo l ch yk, Bo r i s, ‘Sh o u l d F u tu r e UCP Re vi si o n s Be Ca r r i e d Ou t Di ffe r e n tl y? ’ ( 2 0 0 6 ) 1 2 ( 4 ) DCIn sig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 2

� Ko zo l ch yk, Bo r i s, ‘Str i ct Co mp l i a n ce a n d th e Re a so n a b l e Do cu me n t Ch e cke r ’ ( 1 9 9 0 ) 5 6 Br o o klyn L a w Re v ie w 4 5

2 0 9

� Ko zo l ch yk, Bo r i s, ‘T h e L e g a l Na tu r e o f th e Ir r e vo ca b l e Co mme r ci a l L e tte r o f Cr e d i t’ ( 1 9 6 5 ) 1 4 Am e r ica n Jo u r n a l o f C o m p a r a tive L a w 3 9 5

3 0

� Ko zo l ch yk, Bo r i s, “ T h e ‘Be st Pr a cti ce s Ap p r o a ch ’ T o T h e Un i fo r mi ty o f In te r n a ti o n al Co mme r ci a l L a w: T h e U CP a n d Na fta I mp l e me n ta ti o n E xp e r i e n ce ” ( 1 9 9 6 ) 1 3 Ar izo n a Jo u r n a l o f In te r n a t io n a l a n d Co m m e r c ia l L a w 4 4 3

2 1 7

� Kr e ve r , Ri ch a r d , ‘T a mi n g Co mp l e xi ty i n Au str a li a n In co me T a x’ ( 2 0 0 3 ) Syd n e y L a w Re v ie w 2 2

h ttp :// www.a u stl i i .o r g /a u /jo u r n a l s/Syd L Re v/2 0 0 3 /2 2 .h t ml # fn 1 a t Ju n /Ju l 2 0 0 7

5 5 5

� L ä n g e r i ch , Re i n h a r d , ‘” Ne g o ti a ti o n” Se e n T o Be No Be n e fi t T o Be n e fi ci a ri e s’ ( 2 0 0 4 ) 1 0 ( 2 ) DCIn sig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 4 9

� L ä n g e r i ch , Re i n h a r d , ‘An Imp r o ve d UCP T h a t Ha s So l ve d Ma n y Pr o b l e ms’ ( 2 0 0 7 ) 1 3 ( 1 ) DCIn sig h t I CC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

3 8 6

� L e wi n S mi th , Gu y W ., ‘Ir r e vo ca b l e L e tte r s o f Cr e di t a n d T hi r d Pa r ty F r a u d : T h e A me r i ca n Acco r d ’ ( 1 9 8 3 ) 2 4 ( 4 ) V ir g in ia Jo u r n a l o f In te r n a t io n a l L a w 5 5

3 1

� L i n Ku o - El l e n , S., ‘UCP Ne e d s T o Ch a n g e ’ ( 2 0 0 2 ) 5 ( 3 ) Jo u r n a l o f M o n e y L a u n d e r in g Co n tr o l 2 3 1

2 3

� Me yn e l l , Da vi d , ‘Al l Pr o d u cts Ne e d T o Be Re i n vi g o r a te d ’ ( 2 0 0 6 ) 1 2 ( 4) DCIn sig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

2 4 6

� Ni n n i , Ca rl o d i , “ So me Re a l Pr o b l e ms wi th th e De fi n i ti o n o f ‘Ba n k’” ( 2 0 0 6 ) 1 2 ( 2 ) DCIn s ig h t IC C Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t F e b /Ma r 2 0 0 7

3 0 4

� Re yn o l d s, F r a n k, ‘A T r a d e r ’s Vi e w’ ( 2 0 0 6 ) 1 2 ( 4 ) DCIn s ig h t IC C Jo u r n a l h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

2 7 6

� Re yn o l d s, F r a n k, a n d S mi th , Do n a l d , ‘Re p o r ts F r o m T h e UC P Se mi n a r s ’ ( 2 0 0 6 ) 1 3 ( 2 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma y 2 0 0 7

7 9

� Ro d r i g u e z, An a Me r ce d e s L o p e z, ‘L e x Me r ca to r i a ’ ( 2 0 0 2 ) www.r e tti d .d k/a r ti kl e r /2 0 0 2 0 0 4 6 .p d f a t Ja n /F e b 2 0 0 7

3 2

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 3

9.2 Journal Articles (cont’d)

T it le F o o t - no t e

� Sch mi tth o ff, C. M. ‘T h e Ne w Un i fo r m Cu sto ms fo r L e tte r s o f Cr e d i t’, ci te d b y Da vi d so n , Al a n ,‘T h e Evo l u ti o n o f L e tte r o f Cr e di t T r a n sa cti o n s’ ( 1 9 9 5 ) 1 0 Bu tte r wo r th s Jo u r n a l o f In te r n a t io n a l Ba n k in g a n d F in a n ce 1 2 8

7 1

� S mi th , Do n a l d , ‘A U se r ’s W i sh Li st F o r T h e Ne xt UCP ’ ( 2 0 0 5 ) 1 1 ( 4 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma r /Ap r 2 0 0 7

5 3 0

� S mi th , Do n a l d , ‘Ne g o ti a ti o n Is No t Al wa y s W h a t Ba n ke r s T h i n k It Is’ ( 2 0 0 6 ) 1 2 ( 3 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 4 5

� S mi th , Do n a l d , ‘Sta n d a r d Ba n ki n g Pr a cti ce Ap p r o ve d ’ ( 2 0 0 2 ) 8 ( 4 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

4 0 4

� S mi th , Do n a l d , ‘UC P 6 0 0 : L e a r n th e Ne w Ru l e s to Avo i d L i ti g a ti o n a n d No n p a y me n t’ ( De c. 2 0 0 6 ) M a n a g in g E xp o r ts a n d Im p o r ts In st itu te o f M a n a g e m e n t a n d Ad m in istr a t io n ( IOM A) Ne w sle tte r

h ttp :// www.i o ma .co m/

3 6 6

� S mi th , Do n a l d , ci te d i n ‘Up d a te s’ ( 2 0 0 6 ) 1 0 ( 9 ) Do cu m e n ta r y Cr e d it W o r ld 3 5 2 5 � S mi th , Je r e my, ‘ A Ma jo r Op p o r tu n i ty Mi sse d ’ ( 2 0 0 6 ) 1 2 ( 4 ) DCIn s ig h t IC C

Jo u r n a l h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ja n /F e b 2 0 0 7

2 5 2

� T a n e ja , Pr a d e e p , ‘UC P 6 0 0 : A Do cu me n t Re sto r i n g th e Cr e d i b ili ty o f L /Cs’ ( Pr e vi e w Ar ti cl e fo r DCIn s ig h t, IC C Jo u r n a l o n Do cu me n ta r y Cr e d i ts)

h ttp :// www.i ccb o o ks.co m/Ho me / Cr e d i b i lityo fL Cs.a sp x a t Ja n /F e b 2 0 0 7

7 3

� T a yl o r , Da n , ‘T h e Hi sto r y o f th e UCP’ ( 1 9 9 9 ) 3 ( 1 2 ) Do cu m e n ta r y Cr e d it W o r ld 1 1

5 4

� W un n i cke , Br o o ke , ‘A L a wye r ’s Pe r so n a l W el co me to th e Ne w UCP ’ ( 2 0 0 7 ) 1 3 ( 2 ) DCIn s ig h t ICC Jo u r n a l

h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/ a t Ma y/Ju n 2 0 0 7

5 1 1

� W ynn e , Ge o ffr e y, a n d Na sh , F i o n a , ‘Ba n k No te s’ ( 2 0 0 6 ) Pu b l i ca ti o n s o f De n to n W ild e Sa p te L a wye r s

h ttp :// www.d e n to n wi l d e sa p te .co m/e n / Pu b l i ca ti o n /b a n kn o te s_ 7 .a sp x a t Ma r 2 0 0 7

3 5 3

� W ynn e , Ge o ffr e y, a n d Ri ch a r d so n , Ka te , ‘Ba n k No te s’ ( 2 0 0 6 ) Pu b l i ca ti o n s o f De n to n W il d e Sa p te L a wye r s

h ttp :// www.d e n to n wi l d e sa p te .co m/e n / Pu b l i ca ti o n /b a n kn o te s.a sp x a t Ma r 2 0 0 7

2 6 1

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 4

9.3. Table of Cases

� Ba n co Sa n ta n d e r SA v Ba yfe r n L td [2 0 0 0 ] 1 Al l E.R. ( Co mm) 7 7 6 [tr i a l ] � Ba n co Sa n ta n d e r SA v. Ba n qu e Pa r ib a s [2 0 0 0 ] C.L .C. 9 0 6 CA ( Ci v Di v) [a p p e a l ] � Ba n ke r s T r u st Co . v Sta te Ba n k o f In d ia [1 9 9 1 ] 2 L l o yd ' s Re p . 4 4 3 � Ba n qu e d e l’In d o ch in e e t d e Su e z S.A. v J.H. Ra yn e r L td . [1 9 8 2 ] 2 L l o yd ’s Re p 4 7 6 � Ba ye r isch e Ve r e u b sb a n k v Ba n k o f Pa k ista n [1 9 9 7 ] 1 L l o yd ’s Re p 5 9 � Ca r l ill v Ca r b o l ic Sm o ke Ba ll Co m p a n y [1 8 9 3 ] 1 Q B 2 5 6 � Co u r te e n Se e d Co . v Ho n g ko n g Sh a n g h a i Ba n k in g Co r p . ( 1 9 2 7 ) 2 1 6 A.D. 4 9 5 , 2 1 5

N.Y.S. 5 2 5 � DBJJJ In c. v Na t io n a l C it y Ba n k 1 9 Ca l Rp tr . 3 d 9 0 4 , 9 1 4 - 1 5 � Equ ita b le T r u st v Da wso n Pa r tn e r s ( 1 9 2 7 ) 2 7 L l o yd ’s L i st L .R. 4 9 , 5 2 ( H.L .) � Er n e sto F o g l in o & Co . v W e b ste r ( 1 9 2 6 ) 2 1 7 A.D. 2 8 2 , 2 1 6 N. Y.S. 2 2 5 � F id e l ity Na t io n a l Ba n k v Da d e Co u n ty 3 7 1 So 2 d 5 4 5 � Gia n S in g h & Co . L td v Ba n qu e d e l’In d o ch in e [1 9 7 4 ] 1 W .L .R. 1 2 3 4 � Ha m ze h M a la s a n d So n s v Br it ish Im e x In d u str ie s L td [1 9 5 8 ] 2 Q B 1 2 7 � H ilto n Gr o u p , PL C v Br a n ch Ba n k in g & T r u st Co . o f So u th Ca r o l in a Ci vi l Acti o n No .

2 :0 5 - 9 7 3 - DCN ( D.S .C. No v. 1 5 , 2 0 0 6 ) � H in g Y ip F a t Co L td v T h e Da iwa Ba n k L td [1 9 9 1 ] 2 HKL R 3 4 � In st itu to Na c io n a l d e Co m m e r c ia l iza c io n Ag r ico la v Co n t in e n ta l Il l in o is Na t io n a l Ba n k

a n d T r u st Co ( 1 9 8 8 ) 8 5 8 F 2 d 1 2 6 4 � In tr a co L td v No t is Sh ip p in g Co r p o f L ib e r ia ( T h e Bh o ja T r a d e r ) [1 9 8 1 ] 2 L l o yd ’s Re p

2 5 6 � JH Ra yn e r & Co L td v Ha m b r o ’s Ba n k L td [1 9 4 3 ] KB 3 7 � L a u d is i v Am e r ica n E xch a n g e Na t io n a l Ba n k ( 1 9 2 4 ) 1 2 2 Mi sc. 6 3 5 , 2 0 3 N. Y.S . 4 3 2 � M a h o n ia L td v JP M o r g a n Ch a se Ba n k a n d An o th e r [2 0 0 3 ] 2 L l o yd ' s Re p 9 1 1 � M a ste r s v Ca m e r o n ( 1 9 5 4 ) 9 1 CL R 3 5 3 � M cQu ir e v W e ste r n M o r n in g Ne ws [1 9 0 3 ] 2 K B 1 0 0 � N.V. Ko n in kl ijke Sp h in x Gu sta vsb e r g v Co o p e r a t ive

Ce n tr a le - Ra iffe in se n - B o e r e n le e n b a n k B .A. ( Ra b o b a n k) [2 0 0 4 ] HK EC 5 3 8 � N.V. Ko n in kl ijke Sp h in x Gu sta vsb e r g v Co o p e r a t ive

Ce n tr a le - Ra iffe in se n - B o e r e n le e n b a n k B .A. ( Ra b o b a n k) [2 0 0 5 ] 1 6 5 7 HKC U 1 � NEC Ho n g Ko n g v T h e In d u str ia l a n d Co m m e r c ia l Ba n k o f Ch in a 2 0 0 6 HKC U 2 8 0 � Ph ila d e lp h ia Ge a r Co r p v Ce n tr a l Ba n k 7 1 7 F .2 d 2 3 0 ( 5 th Ci r c. 1 9 8 3 ) � Po we r Cu r b e r In te r n a t io n a l L td v Na t io n a l Ba n k o f Ku wa it [1 9 8 1 ] 1 W L R 1 2 3 3 � Pr o - F a b , In c. v V ip a , In c. 7 7 2 F 2 d 8 4 7 ( 1 1 th Ci r 1 9 8 5 ) � R v An n Ha r r is ( 1 8 3 6 ) 1 7 3 ER 1 9 6 � Se a co n sa r F a r Ea st v Ba n k M a r ka zi Jo m h o u r i Is la m i Ir a n [1 9 9 3 ] 3 W L R 7 5 6 � Se a co n sa r v Ba n k M a r ka zi [1 9 9 9 ] 1 L l o yd ' s Re p 3 6 � S in o m Sh a n g h a i Im p o r t & E xp o r t Co . L td . v E xf in ( In d ia ) M in e r a l Or e Co . Pvt. L td .

2 0 0 6 HKCU 9 8 1

� So c ie ty o f L lo yd ’s v Ca n a d ia n Im p e r ia l Ba n k o f Co m m e r ce [1 9 9 3 ] 2 L l o yd ’s Re p . 5 7 9 � T .D. Ba ile y, So n & Co v Ro ss T . Sm yth & Co L td ( 1 9 4 0 ) 5 6 T .L .R. 8 2 5

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 5

9.3 Table of Cases (cont’d)

� Un ite d C ity M e r ch a n ts ( In ve stm e n ts) L td . a n d Gla ss F ib r e s a n d E qu ip m e n ts L td . v Ro ya l Ba n k o f Ca n a d a , V itr o r e fu e r zo s S . A. a n d Ba n co Co n t in e n ta l S.A. ( " T h e Am e r ica n Acco r d " ) [1 9 7 9 ] 1 L l o yd ' s Re p . 2 6 7 Qu e e n ' s Be n ch Di vi si o n ( Co mme r ci a l Co u r t) [F i r st T ri al b e fo r e Mr . Ju sti ce Mo ca tta ]

� Un ite d C ity M e r ch a n ts ( In ve stm e n ts) L td . v Ro ya l Ba n k o f Ca n a d a a n d Oth e r s [1 9 8 0 ] 1 L l o yd ' s Re p . 2 5 1 Qu e e n ' s Be n ch Di vi si o n ( Co mme r ci a l Co u r t) [Se co n d T r i a l b e fo r e Mr . Ju sti ce Mo ca tta ]

� Un ite d C ity M e r ch a n ts ( In ve stm e n ts) L td . a n d Gla ss F ib r e s a n d E qu ip m e n ts L td . v Ro ya l Ba n k o f Ca n a d a , V itr o r e fu e r zo s S . A. a n d Ba n co Co n t in e n ta l S.A. ( " T h e Am e r ica n Acco r d " ) [1 9 8 1 ] 1 L l o yd ' s Re p 6 0 4 Co u r t o f Ap p e a l ( Ci vil Di vi si o n ) [Ap p e a l b e fo r e th e fu l l b en ch o f Ste p h e n so n , Ackn e r & Gr i ffi th s JJ]

� Un ite d C ity M e r ch a n ts ( In ve stm e n ts) L td . a n d Gla ss F ib r e s a n d E qu ip m e n ts L td . v Ro ya l Ba n k o f Ca n a d a , V itr o r e fu e r zo s S . A. a n d Ba n co Co n t in e n ta l S.A. [1 9 8 3 ] 1 A.C. 1 6 8 Ho u se o f L o r d s [Be fo r e L o r d Di p l o ck, L o r d F r a se r o f T ul l yb el to n , L o r d Ru sse l l o f Kil l o we n , L o r d Sca r ma n a n d L o r d Br i d g e o f Ha r wi ch ]

� W a lto n s Sto r e s ( In te r sta te ) L td v M a h e r a n d An o th e r ( 1 9 8 8 ) 7 6 AL R 5 1 3 � W e ste r n Su r e ty Co . v No r th Va lle y Ba n k 2 0 0 5 Oh i o 3 4 5 3 ( Ct. Ap p .) � W ilso n v Da r l in g Isla n d Ste ve d o r in g & L ig h te r a g e Co L td ( 1 9 5 6 ) 9 5 CL R 4 3

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 6

9.4. W ebsites (accessed Jan – Jun 2007)

� Au str a l i a n Gui d e T o L e g al Ci ta ti o n , T h e h ttp :// www.l i b r a r y.u q .e d u .a u /l a w/u se i ts/a u st_ g u i d e _l e g a l _ ci ta ti o n .p d f

� Ba l ti c a n d In te r n a tio n a l Ma r i ti me Co u n ci l , T h e h ttp :// www.b i mco .o r g

� Ba r cl a ys Ba n k Bu si n e ss Ba n ki n g – Gl o ssa r y o f T e r ms h ttp :// www.b u si n e ss.b a r cl a ys.co .u k/B RC1 / jsp /b r c co n tr o l ? ta sk=a r ti cl e g r o u p &va l u e =4 3 0 7 &ta r g e t=_ se l f&si te =b b b

� Ce n tr a l In te lli g e n ce Ag e n cy h ttp s:// www.ci a .g o v/ci a /p u b l i ca ti o n s/fa ctb o o k/p r i n t/a s.h tml

� Ce n tr a l In te lli g e n ce Ag e n cy W or l d F a ctb o o k – Au str a l i a , T h e h ttp s:// www.ci a .g o v/ci a /p u b l i ca ti o n s/fa ctb o o k/p r i n t/a s.h tml

� Ch u r ch i ll Ce n tr e , T h e h ttp :// www. wi n sto n ch u r ch i l l .o r g /i 4 a /p a g e s/i n d e x.cf m? p a g e i d =3 8 8 # n o t_ th e _ e n d

� Cr e d i t Re se a r ch F o u n d a ti o n , T h e h ttp :// www.cr fo n l i n e .o r g

� Da vi d T h o ma s L e g a l Ma xi ms h ttp :// www.d a vi d th o ma s.co m.a u / mi sc ma xi ms.h t m

� DCPr o F o cu s ( DCIn s ig h t o n l i n e ma g a zi n e ) h ttp ://fo cu s.d cp r o fe ssi o n a l .co m/

� Di cti o n a r y o f Fi n a n ci a l Sca m T e r ms h ttp :// www.fr a u d a i d .co m/ Di cti o n a r y- o f- Fi n a n ci a l- Sca m- T e r ms

� Du h a i me On l i n e L e g a l Di cti o n a r y h ttp :// www.d u h a i me .o r g /d i cti o n a r y/d i ct- p .a sp x

� Ea g l e T r a d e r s.co m h ttp :// www.e a g l e tr a d e r s.co m/a d vi ce /d o c_ sta n d b y_ l e tte r s_ cr e d i t.h t m# fn 8

� E xp o r t9 1 1 .co m – In te r n a ti o n a l Bu si n e ss Ed u ca ti o n W e b si te h ttp :// www.e xp o r t9 1 1 .co m/e 9 1 1 /e xp o r t/l c.h t m

� Ha l l & Eva n s, Atto r n e ys At L a w h ttp ://h a l l e va n s.co m/a tto r n e ys/i n d e x.cfm? a tto r n e yId =5 2

� Id i o m Co n n e cti o n , T h e h ttp :// www.i d i o mco n n e cti o n .co m/o q u i z.h t ml # A3

� In sti tu te o f In te r n a ti o n al Ba n ki n g L a w & Pr a cti ce h ttp :// www.i i b l p .o r g a t Ma y, 2 0 0 7

� In sti tu te o f In te r n a ti o n al Ba n ki n g L a w a n d Pr a cti ce , In c., T h e h ttp :// www.i i b l p .o r g

� In te r n a ti o n al Ch a mb e r o f Co mme r ce , T h e ( a n d a l l su b - p a g e s) h ttp :// www.i cc wb o .o r g h ttp :// www.i ccb o o ks.co m/Ho me / Cr e d i b i lityo fL Cs.a sp x h ttp :// www.i cc wb o .o r g /p o l i cy/b a n ki n g /i ccjcd e /i n d e x.h t ml h ttp :// www.i ccb o o ksu sa .co m/i n d e x.cf m? fi d =5 6 &b o o ki d =1 4

� In tr u st Ba n k h ttp :// www.i n tr u stb a n k.co m/Bu si n e ss/In te r n a ti o n a l /StByL OCDO c.a sp x

� L e g a l Exp l a n a ti o n s.co m h ttp :// www.l e g a l - e xp l a n a ti o n s.co m/d e fi n i ti o n s/e ju sd e m- g e n e r i s.h t m

� L e xMe r ca to r i a .o r g h ttp :// www. ju s.u i o .n o /l m/

� So ci e ty fo r W o r l d wi d e In te r b a n k Fi n a n cia l T el e co mmu n i ca ti o n h ttp :// www.s wi ft.co m

� Sta n d b y a n d Co m me r ci a l L e tte r s o f Cr e d i t h ttp ://l e tte r o fcr e d i t.co m/co n te n ts.a sp

� Sta n d b y a n d Co m me r ci a l L e tte r s o f Cr e d i t – Au th o r ’s Si te h ttp ://l e tte r o fcr e d i t.co m/i n d e x.a sp

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 7

9.4 W ebsites (accessed Jan – Jun 2007) (cont’d)

� T e a ch Me F i n a n ce .co m h ttp :// www.te a ch me fi n a n ce .co m

� UBS Gl o b a l Asse t Ma n a g e me n t T r a d e a n d E xp o r t F i n a n ce Gl o ssa r y h ttp :// www.u b s.co m/1 /e /u b s_ ch /b b _ ch /fi n a n ce /tr a d e _ e xp o r tfi n a n ce /g l o ssa r .h tml

� UBS Gl o b a l Asse t Ma n a g e me n t , T r a d e a n d E xp o r t F i n a n ce Gl o ssa r y h t t p : / / w w w. u b s. c o m / 1 / e / u b s _ c h / b b _ c h / f i n a n c e / t r a d e _ e x p o r t f i n a n c e / g l o s s a r / g l o s sa r _ u . h t m l

� Un i te d Na ti o n s Co mmi ssi o n o n In te r n a ti o n a l T r a d e L a w h ttp :// www.u n ci tr a l .o r g /u n ci tr al /i n d e x.h t ml

� Un i te d Na ti o n s Co n ve n ti o n o n In d e p e n d e n t Gu a r a n te e s a n d Sta n d - By L e tte r s Of Cr e d i t, T h e

h ttp :// www.u n ci tr a l .o r g /p d f/e n g li sh /te xts/p a y me n ts/g u a r a n te e s/g u a r a n te e s.p d f

� Un i te d Sta te s Co u n ci l fo r In te r n a tio n a l Bu si n e ss h ttp :// www.u sci b .o r g /i n d e x.a sp ? Do cu me n tI D=3 5 1 5

� Vi r tu a l L a w Jo u r n a l - Pr o vi n g El e ctr o ni c Re co r d s i n L e tte r s o f Cr e d i t h ttp :// www.vi r tu a l l a wjo u r n a l .n e t/? n o d e i d =3 0 &l a n g =e n

� W orl d Ca p i tal F o r u m h ttp :// www. wo r l d ca p i ta l fo r u m.co m/l e to fcr e d typ .h t ml

9.5. Personal Correspondence and Discussions

For the purposes of this paper, extensive personal correspondence and discussions were entered into with members of both the Documentary Credit user community and the legal and business academic community, including:

� Byrne, Professor James E., Institute of International Banking Law & Practice, [email protected]

� Cassimatis, Dr. Anthony, Lecturer, T.C. Beirne School of Law, University of Queensland, [email protected]

� Davidson, Dr. Alan, Senior Lecturer, T.C. Beirne School of Law, University of Queensland,

[email protected]

� Davis, Lee, Institute of International Banking Law & Practice,

[email protected]

� Dolan, Professor John F., Distinguished Professor of Law, W ayne State University, [email protected]

� Loode, Serge, Australian Centre for Peace & Conflict Studies, University of Queensland, [email protected]

� Smith, Donald, Chair of the Banking Committee, U.S. Council for International Business, [email protected]

� Smith, Jeremy, Lloyds TSB Bank Plc.,

[email protected]

� Wingerter, Corey, Institute of International Banking Law & Practice,

[email protected]

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 8

Appendices

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 4 9

Uniform Customs and Practice for Documentary Credits 2007 Revision

ICC Publication No. 600577

(UCP 600) Article 1 Application of UCP The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 (“UCP”) are rules that apply to any documentary credit (“credit”) (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject to these rules. They are binding on all parties thereto unless expressly modified or excluded by the credit.

Article 2 Definitions For the purpose of these rules:

• Advising bank means the bank that advises the credit at the request of the issuing bank. • Applicant means the party on whose request the credit is issued. • Banking day means a day on which a bank is regularly open at the place at which an act subject to these

rules is to be performed.

• Beneficiary means the party in whose favour a credit is issued. • Complying presentation means a presentation that is in accordance with the terms and conditions of the

credit, the applicable provisions of these rules and international standard banking practice.

• Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.

• Confirming bank means the bank that adds its confirmation to a credit upon the issuing bank’s authorization or request.

• Credit means any arrangement, however named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation.

• Honour means: a. to pay at sight if the credit is available by sight payment. b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred

payment. c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is

available by acceptance.

• Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf. • Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the

nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.

• Nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

• Presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered.

• Presenter means a beneficiary, bank or other party that makes a presentation.

Article 3 Interpretations For the purpose of these rules:

• Where applicable, words in the singular include the plural and in the plural include the singular.

• A credit is irrevocable even if there is no indication to that effect.

• A document may be signed by handwriting, facsimile signature, perforated signature, stamp, symbol or any other mechanical or electronic method of authentication.

• A requirement for a document to be legalized, visaed, certified or similar will be satisfied by any signature, mark, stamp or label on the document which appears to satisfy that requirement.

577 This copy was not provided by the ICC and may contain errors of content or formatting, including

numbering sequences. This author recommends that any person who intends to use the UCP for any academic or business purpose should consult the text provided by the International Chamber of Commerce. See: http://www.iccwbo.org

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 0

• Branches of a bank in different countries are considered to be separate banks.

• Terms such as "first class", "well known", "qualified", "independent", "official", "competent" or "local" used to describe the issuer of a document allow any issuer except the beneficiary to issue that document.

• Unless required to be used in a document, words such as "prompt", "immediately" or "as soon as possible" will be disregarded.

• The expression "on or about" or similar will be interpreted as a stipulation that an event is to occur during a period of five calendar days before until five calendar days after the specified date, both start and end dates included.

• The words "to", "until", "till", “from” and “between” when used to determine a period of shipment include the date or dates mentioned, and the words “before” and "after" exclude the date mentioned.

• The words “from” and "after" when used to determine a maturity date exclude the date mentioned.

• The terms "first half" and "second half" of a month shall be construed respectively as the 1st to the 15th and the 16th to the last day of the month, all dates inclusive.

• The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the 10th, the 11th to the 20th and the 21st to the last day of the month, all dates inclusive.

Article 4 Credits v. Contracts a . A credit by its nature is a separate transaction from the sale or other contract on which it may be based.

Banks are in no way concerned with or bound by such contract, even if any reference whatsoever to it is included in the credit. Consequently, the undertaking of a bank to honour, to negotiate or to fulfil any other obligation under the credit is not subject to claims or defences by the applicant resulting from its relationships with the issuing bank or the beneficiary.

A beneficiary can in no case avail itself of the contractual relationships existing between banks or between the applicant and the issuing bank.

b . An issuing bank should discourage any attempt by the applicant to include, as an integral part of the credit, copies of the underlying contract, proforma invoice and the like.

Article 5 Documents v. Goods, Services or Performance Banks deal with documents and not with goods, services or performance to which the documents may relate.

Article 6 Availability, Expiry Date and Place for Presentation a . A credit must state the bank with which it is available or whether it is available with any bank. A credit

available with a nominated bank is also available with the issuing bank.

b . A credit must state whether it is available by sight payment, deferred payment, acceptance or negotiation.

c. A credit must not be issued available by a draft drawn on the applicant.

d . i. A credit must state an expiry date for presentation. An expiry date stated for honour or

negotiation will be deemed to be an expiry date for presentation. ii. The place of the bank with which the credit is available is the place for presentation. The

place for presentation under a credit available with any bank is that of any bank. A place for presentation other than that of the issuing bank is in addition to the place of the issuing bank.

e . Except as provided in sub-article 29 (a), a presentation by or on behalf of the beneficiary must be made on or before the expiry date.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 1

Article 7 Issuing Bank Undertaking a . Provided that the stipulated documents are presented to the nominated bank or to the issuing bank and

that they constitute a complying presentation, the issuing bank must honour if the credit is available by: i . sight payment, deferred payment or acceptance with the issuing bank;

i i . sight payment with a nominated bank and that nominated bank does not pay; i i i . deferred payment with a nominated bank and that nominated bank does not incur its deferred

payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;

i v. acceptance with a nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;

v. negotiation with a nominated bank and that nominated bank does not negotiate.

b . An issuing bank is irrevocably bound to honour as of the time it issues the credit.

c. An issuing bank undertakes to reimburse a nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the issuing bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not the nominated bank prepaid or purchased before maturity. An issuing bank's undertaking to reimburse a nominated bank is independent of the issuing bank’s undertaking to the beneficiary.

Article 8 Confirming Bank Undertaking a . Provided that the stipulated documents are presented to the confirming bank or to any other nominated

bank and that they constitute a complying presentation, the confirming bank must: i . honour, if the credit is available by

i. sight payment, deferred payment or acceptance with the confirming bank; ii. sight payment with another nominated bank and that nominated bank does not pay; iii. deferred payment with another nominated bank and that nominated bank does not incur its

deferred payment undertaking or, having incurred its deferred payment undertaking, does not pay at maturity;

iv. acceptance with another nominated bank and that nominated bank does not accept a draft drawn on it or, having accepted a draft drawn on it, does not pay at maturity;

v. negotiation with another nominated bank and that nominated bank does not negotiate.

i i . negotiate, without recourse, if the credit is available by negotiation with the confirming bank.

b . A confirming bank is irrevocably bound to honour or negotiate as of the time it adds its confirmation to the credit.

c. A confirming bank undertakes to reimburse another nominated bank that has honoured or negotiated a complying presentation and forwarded the documents to the confirming bank. Reimbursement for the amount of a complying presentation under a credit available by acceptance or deferred payment is due at maturity, whether or not another nominated bank prepaid or purchased before maturity. A confirming bank's undertaking to reimburse another nominated bank is independent of the confirming bank’s undertaking to the beneficiary.

d . If a bank is authorized or requested by the issuing bank to confirm a credit but is not prepared to do so, it must inform the issuing bank without delay and may advise the credit without confirmation.

Article 9 Advising of Credits and Amendments a . A credit and any amendment may be advised to a beneficiary through an advising bank. An advising

bank that is not a confirming bank advises the credit and any amendment without any undertaking to honour or negotiate.

b . By advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 2

c. An advising bank may utilize the services of another bank (“second advising bank”) to advise the credit and any amendment to the beneficiary. By advising the credit or amendment, the second advising bank signifies that it has satisfied itself as to the apparent authenticity of the advice it has received and that the advice accurately reflects the terms and conditions of the credit or amendment received.

d . A bank utilizing the services of an advising bank or second advising bank to advise a credit must use the same bank to advise any amendment thereto.

e . If a bank is requested to advise a credit or amendment but elects not to do so, it must so inform, without delay, the bank from which the credit, amendment or advice has been received.

f. If a bank is requested to advise a credit or amendment but cannot satisfy itself as to the apparent authenticity of the credit, the amendment or the advice, it must so inform, without delay, the bank from which the instructions appear to have been received. If the advising bank or second advising bank elects nonetheless to advise the credit or amendment, it must inform the beneficiary or second advising bank that it has not been able to satisfy itself as to the apparent authenticity of the credit, the amendment or the advice.

Article 10 Amendments a . Except as otherwise provided by article 38, a credit can neither be amended nor cancelled without the

agreement of the issuing bank, the confirming bank, if any, and the beneficiary.

b . An issuing bank is irrevocably bound by an amendment as of the time it issues the amendment. A confirming bank may extend its confirmation to an amendment and will be irrevocably bound as of the time it advises the amendment. A confirming bank may, however, choose to advise an amendment without extending its confirmation and, if so, it must inform the issuing bank without delay and inform the beneficiary in its advice.

c. The terms and conditions of the original credit (or a credit incorporating previously accepted amendments) will remain in force for the beneficiary until the beneficiary communicates its acceptance of the amendment to the bank that advised such amendment. The beneficiary should give notification of acceptance or rejection of an amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance by the beneficiary of such amendment. As of that moment the credit will be amended.

d . A bank that advises an amendment should inform the bank from which it received the amendment of any notification of acceptance or rejection.

e . Partial acceptance of an amendment is not allowed and will be deemed to be notification of rejection of the amendment.

f. A provision in an amendment to the effect that the amendment shall enter into force unless rejected by the beneficiary within a certain time shall be disregarded.

Article 11 Teletransmitted and Pre-Advised Credits and Amendments a . An authenticated teletransmission of a credit or amendment will be deemed to be the operative credit or

amendment, and any subsequent mail confirmation shall be disregarded.

If a teletransmission states "full details to follow" (or words of similar effect), or states that the mail confirmation is to be the operative credit or amendment, then the teletransmission will not be deemed to be the operative credit or amendment. The issuing bank must then issue the operative credit or amendment without delay in terms not inconsistent with the teletransmission.

b . A preliminary advice of the issuance of a credit or amendment (“pre-advice”) shall only be sent if the issuing bank is prepared to issue the operative credit or amendment. An issuing bank that sends a pre- advice is irrevocably committed to issue the operative credit or amendment, without delay, in terms not inconsistent with the pre-advice.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 3

Article 12 Nomination a . Unless a nominated bank is the confirming bank, an authorization to honour or negotiate does not

impose any obligation on that nominated bank to honour or negotiate, except when expressly agreed to by that nominated bank and so communicated to the beneficiary.

b . By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank.

c. Receipt or examination and forwarding of documents by a nominated bank that is not a confirming bank does not make that nominated bank liable to honour or negotiate, nor does it constitute honour or negotiation.

Article 13 Bank-to-Bank Reimbursement Arrangements a . If a credit states that reimbursement is to be obtained by a nominated bank ("claiming bank") claiming on

another party ("reimbursing bank"), the credit must state if the reimbursement is subject to the ICC rules for bank-to-bank reimbursements in effect on the date of issuance of the credit.

b . If a credit does not state that reimbursement is subject to the ICC rules for bank-to-bank reimbursements, the following apply: i . An issuing bank must provide a reimbursing bank with a reimbursement authorization that

conforms with the availability stated in the credit. The reimbursement authorization should not be subject to an expiry date.

i i . A claiming bank shall not be required to supply a reimbursing bank with a certificate of compliance with the terms and conditions of the credit.

i i i . An issuing bank will be responsible for any loss of interest, together with any expenses incurred, if reimbursement is not provided on first demand by a reimbursing bank in accordance with the terms and conditions of the credit.

i v. A reimbursing bank's charges are for the account of the issuing bank. However, if the charges are for the account of the beneficiary, it is the responsibility of an issuing bank to so indicate in the credit and in the reimbursement authorization. If a reimbursing bank's charges are for the account of the beneficiary, they shall be deducted from the amount due to a claiming bank when reimbursement is made. If no reimbursement is made, the reimbursing bank's charges remain the obligation of the issuing bank.

c. An issuing bank is not relieved of any of its obligations to provide reimbursement if reimbursement is not made by a reimbursing bank on first demand.

Article 14 Standard for Examination of Documents a . A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must

examine a presentation to determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation.

b . A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying. This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation.

c. A presentation including one or more original transport documents subject to articles 19, 20, 21, 22, 23, 24 or 25 must be made by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as described in these rules, but in any event not later than the expiry date of the credit.

d . Data in a document, when read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 4

e . In documents other than the commercial invoice, the description of the goods, services or performance, if stated, may be in general terms not conflicting with their description in the credit.

f. If a credit requires presentation of a document other than a transport document, insurance document or commercial invoice, without stipulating by whom the document is to be issued or its data content, banks will accept the document as presented if its content appears to fulfil the function of the required document and otherwise complies with sub-article 14 (d).

g . A document presented but not required by the credit will be disregarded and may be returned to the presenter.

h . If a credit contains a condition without stipulating the document to indicate compliance with the condition, banks will deem such condition as not stated and will disregard it.

i . A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.

j. When the addresses of the beneficiary and the applicant appear in any stipulated document, they need not be the same as those stated in the credit or in any other stipulated document, but must be within the same country as the respective addresses mentioned in the credit. Contact details (telefax, telephone, email and the like) stated as part of the beneficiary’s and the applicant’s address will be disregarded. However, when the address and contact details of the applicant appear as part of the consignee or notify party details on a transport document subject to articles 19, 20, 21, 22, 23, 24 or 25, they must be as stated in the credit.

k. The shipper or consignor of the goods indicated on any document need not be the beneficiary of the credit.

l . A transport document may be issued by any party other than a carrier, owner, master or charterer provided that the transport document meets the requirements of articles 19, 20, 21, 22, 23 or 24 of these rules.

Article 15 Complying Presentation a . When an issuing bank determines that a presentation is complying, it must honour.

b . When a confirming bank determines that a presentation is complying, it must honour or negotiate and forward the documents to the issuing bank.

c. When a nominated bank determines that a presentation is complying and honours or negotiates, it must forward the documents to the confirming bank or issuing bank.

Article 16 Discrepant Documents, Waiver and Notice a . When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank

determines that a presentation does not comply, it may refuse to honour or negotiate.

b . When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 5

c. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter.

i . The notice must state: i i . that the bank is refusing to honour or negotiate; and i i i . each discrepancy in respect of which the bank refuses to honour or negotiate; and

i. that the bank is holding the documents pending further instructions from the presenter; or

ii. that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

iii. that the bank is returning the documents; or iv. that the bank is acting in accordance with instructions previously received from the

presenter.

d . The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.

e . A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may, after providing notice required by sub-article 16 (c) (iii) (a) or (b), return the documents to the presenter at any time.

f. If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.

g . When an issuing bank refuses to honour or a confirming bank refuses to honour or negotiate and has given notice to that effect in accordance with this article, it shall then be entitled to claim a refund, with interest, of any reimbursement made.

Article 17 Original Documents and Copies a . At least one original of each document stipulated in the credit must be presented.

b . A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original.

c. Unless a document indicates otherwise, a bank will also accept a document as original if it:

i . appears to be written, typed, perforated or stamped by the document issuer’s hand; or i i . appears to be on the document issuer’s original stationery; or i i i . states that it is original, unless the statement appears not to apply to the document presented.

d . If a credit requires presentation of copies of documents, presentation of either originals or copies is permitted.

e . If a credit requires presentation of multiple documents by using terms such as "in duplicate", "in two fold" or "in two copies", this will be satisfied by the presentation of at least one original and the remaining number in copies, except when the document itself indicates otherwise.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 6

Article 18 Commercial Invoice a . A commercial invoice:

i . must appear to have been issued by the beneficiary (except as provided in article 38); i i . must be made out in the name of the applicant (except as provided in sub-article 38 (g)); i i i . must be made out in the same currency as the credit; and i v. need not be signed.

b . A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may accept a commercial invoice issued for an amount in excess of the amount permitted by the credit, and its decision will be binding upon all parties, provided the bank in question has not honoured or negotiated for an amount in excess of that permitted by the credit.

c. The description of the goods, services or performance in a commercial invoice must correspond with that appearing in the credit.

Article 19 Transport Document Covering at Least Two Different Modes of Transport a . A transport document covering at least two different modes of transport (multimodal or combined

transport document), however named, must appear to: i . indicate the name of the carrier and be signed by:

• the carrier or a named agent for or on behalf of the carrier, or

• the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent. Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

i i . indicate that the goods have been dispatched, taken in charge or shipped on board at the place stated in the credit, by:

• pre-printed wording, or

• a stamp or notation indicating the date on which the goods have been dispatched, taken in charge or shipped on board.

The date of issuance of the transport document will be deemed to be the date of dispatch, taking in charge or shipped on board, and the date of shipment. However, if the transport document indicates, by stamp or notation, a date of dispatch, taking in charge or shipped on board, this date will be deemed to be the date of shipment.

i i i . indicate the place of dispatch, taking in charge or shipment and the place of final destination stated in the credit, even if:

i. the transport document states, in addition, a different place of dispatch, taking in charge or shipment or place of final destination, or

ii. the transport document contains the indication "intended" or similar qualification in relation to the vessel, port of loading or port of discharge.

i v. be the sole original transport document or, if issued in more than one original, be the full set as indicated on the transport document.

v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back transport document). Contents of terms and conditions of carriage will not be examined.

vi . contain no indication that it is subject to a charter party.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 7

b . For the purpose of this article, transhipment means unloading from one means of conveyance and reloading to another means of conveyance (whether or not in different modes of transport) during the carriage from the place of dispatch, taking in charge or shipment to the place of final destination stated in the credit.

c. i . A transport document may indicate that the goods will or may be transhipped provided that

the entire carriage is covered by one and the same transport document. i i . A transport document indicating that transhipment will or may take place is acceptable, even if

the credit prohibits transhipment.

Article 20 Bill of Lading a . A bill of lading, however named, must appear to:

i . indicate the name of the carrier and be signed by:

• the carrier or a named agent for or on behalf of the carrier, or

• the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

i i . indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

• pre-printed wording, or

• an on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the bill of lading will be deemed to be the date of shipment unless the bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

If the bill of lading contains the indication "intended vessel" or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.

i i i . indicate shipment from the port of loading to the port of discharge stated in the credit.

If the bill of lading does not indicate the port of loading stated in the credit as the port of loading, or if it contains the indication “intended” or similar qualification in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of shipment and the name of the vessel is required. This provision applies even when loading on board or shipment on a named vessel is indicated by pre-printed wording on the bill of lading.

i v. be the sole original bill of lading or, if issued in more than one original, be the full set as indicated on the bill of lading.

v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back bill of lading). Contents of terms and conditions of carriage will not be examined.

vi . contain no indication that it is subject to a charter party.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 8

b . For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.

c. i . A bill of lading may indicate that the goods will or may be transhipped

provided that the entire carriage is covered by one and the same bill of lading.

i i . A bill of lading indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the bill of lading.

d . Clauses in a bill of lading stating that the carrier reserves the right to tranship will be disregarded.

Article 21 Non-Negotiable Sea Waybill a . A non-negotiable sea waybill, however named, must appear to:

i . indicate the name of the carrier and be signed by:

• the carrier or a named agent for or on behalf of the carrier, or

• the master or a named agent for or on behalf of the master.

Any signature by the carrier, master or agent must be identified as that of the carrier, master or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the carrier or for or on behalf of the master.

i i . indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

• pre-printed wording, or

• an on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the non-negotiable sea waybill will be deemed to be the date of shipment unless the non-negotiable sea waybill contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

If the non-negotiable sea waybill contains the indication "intended vessel" or similar qualification in relation to the name of the vessel, an on board notation indicating the date of shipment and the name of the actual vessel is required.

i i i . indicate shipment from the port of loading to the port of discharge stated in the credit.

If the non-negotiable sea waybill does not indicate the port of loading stated in the credit as the port of loading, or if it contains the indication “intended” or similar qualification in relation to the port of loading, an on board notation indicating the port of loading as stated in the credit, the date of shipment and the name of the vessel is required. This provision applies even when loading on board or shipment on a named vessel is indicated by pre-printed wording on the non-negotiable sea waybill.

i v. be the sole original non-negotiable sea waybill or, if issued in more than one original, be the full set as indicated on the non-negotiable sea waybill.

v. contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage (short form or blank back non-negotiable sea waybill). Contents of terms and conditions of carriage will not be examined.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 5 9

vi . contain no indication that it is subject to a charter party.

b . For the purpose of this article, transhipment means unloading from one vessel and reloading to another vessel during the carriage from the port of loading to the port of discharge stated in the credit.

c. i . A non-negotiable sea waybill may indicate that the goods will or may be transhipped provided

that the entire carriage is covered by one and the same non-negotiable sea waybill. i i . A non-negotiable sea waybill indicating that transhipment will or may take place is

acceptable, even if the credit prohibits transhipment, if the goods have been shipped in a container, trailer or LASH barge as evidenced by the non-negotiable sea waybill.

d . Clauses in a non-negotiable sea waybill stating that the carrier reserves the right to tranship will be disregarded.

Article 22 Charter Party Bill of Lading a . A bill of lading, however named, containing an indication that it is subject to a charter party (charter party

bill of lading), must appear to: i . be signed by:

• the master or a named agent for or on behalf of the master, or

• the owner or a named agent for or on behalf of the owner, or

• the charterer or a named agent for or on behalf of the charterer.

Any signature by the master, owner, charterer or agent must be identified as that of the master, owner, charterer or agent.

Any signature by an agent must indicate whether the agent has signed for or on behalf of the master, owner or charterer.

An agent signing for or on behalf of the owner or charterer must indicate the name of the owner or charterer.

i i . indicate that the goods have been shipped on board a named vessel at the port of loading stated in the credit by:

• pre-printed wording, or

• an on board notation indicating the date on which the goods have been shipped on board.

The date of issuance of the charter party bill of lading will be deemed to be the date of shipment unless the charter party bill of lading contains an on board notation indicating the date of shipment, in which case the date stated in the on board notation will be deemed to be the date of shipment.

i i i . indicate shipment from the port of loading to the port of discharge stated in the credit. The port of discharge may also be shown as a range of ports or a geographical area, as stated in the credit.

i v. be the sole original charter party bill of lading or, if issued in more than one original, be the full set as indicated on the charter party bill of lading.

b . A bank will not examine charter party contracts, even if they are required to be presented by the terms of the credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 0

Article 23 Air Transport Document a . An air transport document, however named, must appear to:

i . indicate the name of the carrier and be signed by:

• the carrier, or

• a named agent for or on behalf of the carrier.

Any signature by the carrier or agent must be identified as that of the carrier or agent.

Any signature by an agent must indicate that the agent has signed for or on behalf of the carrier.

i i . indicate that the goods have been accepted for carriage.

i i i . indicate the date of issuance. This date will be deemed to be the date of shipment unless the air transport document contains a specific notation of the actual date of shipment, in which case the date stated in the notation will be deemed to be the date of shipment.

i v. Any other information appearing on the air transport document relative to the flight number and date will not be considered in determining the date of shipment.

v. indicate the airport of departure and the airport of destination stated in the credit.

vi . be the original for consignor or shipper, even if the credit stipulates a full set of originals.

vi i . contain terms and conditions of carriage or make reference to another source containing the terms and conditions of carriage. Contents of terms and conditions of carriage will not be examined.

b . For the purpose of this article, transhipment means unloading from one aircraft and reloading to another aircraft during the carriage from the airport of departure to the airport of destination stated in the credit. i . An air transport document may indicate that the goods will or may be transhipped, provided

that the entire carriage is covered by one and the same air transport document.

i i . An air transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment.

Article 24 Road, Rail or Inland Waterway Transport Documents a . A road, rail or inland waterway transport document, however named, must appear to:

i . indicate the name of the carrier and:

• be signed by the carrier or a named agent for or on behalf of the carrier, or

• indicate receipt of the goods by signature, stamp or notation by the carrier or a named agent for or on behalf of the carrier.

Any signature, stamp or notation of receipt of the goods by the carrier or agent must be identified as that of the carrier or agent.

Any signature, stamp or notation of receipt of the goods by the agent must indicate that the agent has signed or acted for or on behalf of the carrier.

If a rail transport document does not identify the carrier, any signature or stamp of the railway company will be accepted as evidence of the document being signed by the carrier.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 1

i i . indicate the date of shipment or the date the goods have been received for shipment, dispatch or carriage at the place stated in the credit. Unless the transport document contains a dated reception stamp, an indication of the date of receipt or a date of shipment, the date of issuance of the transport document will be deemed to be the date of shipment.

i i i . indicate the place of shipment and the place of destination stated in the credit.

b . i . A road transport document must appear to be the original for consignor or shipper or

bear no marking indicating for whom the document has been prepared. i i . A rail transport document marked “duplicate” will be accepted as an original. i i i . A rail or inland waterway transport document will be accepted as an original whether

marked as an original or not.

c. In the absence of an indication on the transport document as to the number of originals issued, the number presented will be deemed to constitute a full set.

d . For the purpose of this article, transhipment means unloading from one means of conveyance and reloading to another means of conveyance, within the same mode of transport, during the carriage from the place of shipment, dispatch or carriage to the place of destination stated in the credit.

e . i . A road, rail or inland waterway transport document may indicate that the goods will or

may be transhipped provided that the entire carriage is covered by one and the same transport document.

i i . A road, rail or inland waterway transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment.

Article 25 Courier Receipt, Post Receipt or Certificate of Posting a . A courier receipt, however named, evidencing receipt of goods for transport, must appear to:

i . indicate the name of the courier service and be stamped or signed by the named courier service at the place from which the credit states the goods are to be shipped; and

i i . indicate a date of pick-up or of receipt or wording to this effect. This date will be deemed to be the date of shipment.

b . A requirement that courier charges are to be paid or prepaid may be satisfied by a transport document issued by a courier service evidencing that courier charges are for the account of a party other than the consignee.

c. A post receipt or certificate of posting, however named, evidencing receipt of goods for transport, must appear to be stamped or signed and dated at the place from which the credit states the goods are to be shipped. This date will be deemed to be the date of shipment.

Article 26 "On Deck", "Shipper's Load and Count", “Said by Shipper to Contain” and Charges Additional to Freight a . A transport document must not indicate that the goods are or will be loaded on deck. A clause on a

transport document stating that the goods may be loaded on deck is acceptable.

b . A transport document bearing a clause such as "shipper's load and count" and "said by shipper to contain" is acceptable.

c. A transport document may bear a reference, by stamp or otherwise, to charges additional to the freight.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 2

Article 27 Clean Transport Document A bank will only accept a clean transport document. A clean transport document is one bearing no clause or notation expressly declaring a defective condition of the goods or their packaging. 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”.

Article 28 Insurance Document and Coverage a . An insurance document, such as an insurance policy, an insurance certificate or a declaration under an

open cover, must appear to be issued and signed by an insurance company, an underwriter or their agents or their proxies.

Any signature by an agent or proxy must indicate whether the agent or proxy has signed for or on behalf of the insurance company or underwriter.

b . When the insurance document indicates that it has been issued in more than one original, all originals must be presented.

c. Cover notes will not be accepted.

d . An insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover.

e . The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance document that the cover is effective from a date not later than the date of shipment.

f. i . The insurance document must indicate the amount of insurance coverage and be in the

same currency as the credit.

i i . A requirement in the credit for insurance coverage to be for a percentage of the value of the goods, of the invoice value or similar is deemed to be the minimum amount of coverage required.

If there is no indication in the credit of the insurance coverage required, the amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods.

When the CIF or CIP value cannot be determined from the documents, the amount of insurance coverage must be calculated on the basis of the amount for which honour or negotiation is requested or the gross value of the goods as shown on the invoice, whichever is greater.

i i i . The insurance document must indicate that risks are covered at least between the place of taking in charge or shipment and the place of discharge or final destination as stated in the credit.

g . A credit should state the type of insurance required and, if any, the additional risks to be covered. An insurance document will be accepted without regard to any risks that are not covered if the credit uses imprecise terms such as “usual risks” or “customary risks”.

h . When a credit requires insurance against “all risks” and an insurance document is presented containing any “all risks” notation or clause, whether or not bearing the heading “all risks”, the insurance document will be accepted without regard to any risks stated to be excluded.

i . An insurance document may contain reference to any exclusion clause.

j. An insurance document may indicate that the cover is subject to a franchise or excess (deductible).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 3

Article 29 Extension of Expiry Date or Last Day for Presentation a . If the expiry date of a credit or the last day for presentation falls on a day when the bank to which

presentation is to be made is closed for reasons other than those referred to in article 36, the expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day.

b . If presentation is made on the first following banking day, a nominated bank must provide the issuing bank or confirming bank with a statement on its covering schedule that the presentation was made within the time limits extended in accordance with sub-article 29 (a).

c. The latest date for shipment will not be extended as a result of sub-article 29 (a).

Article 30 Tolerance in Credit Amount, Quantity and Unit Prices a . The words "about" or "approximately" used in connection with the amount of the credit or the quantity or

the unit price stated in the credit are to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to which they refer.

b . A tolerance not to exceed 5% more or 5% less than the quantity of the goods is allowed, provided the credit does not state the quantity in terms of a stipulated number of packing units or individual items and the total amount of the drawings does not exceed the amount of the credit.

c. Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed, provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not reduced or that sub-article 30 (b) is not applicable. This tolerance does not apply when the credit stipulates a specific tolerance or uses the expressions referred to in sub- article 30 (a).

Article 31 Partial Drawings or Shipments a . Partial drawings or shipments are allowed.

b . A presentation consisting of more than one set of transport documents evidencing shipment commencing on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering a partial shipment, even if they indicate different dates of shipment or different ports of loading, places of taking in charge or dispatch. If the presentation consists of more than one set of transport documents, the latest date of shipment as evidenced on any of the sets of transport documents will be regarded as the date of shipment.

A presentation consisting of one or more sets of transport documents evidencing shipment on more than one means of conveyance within the same mode of transport will be regarded as covering a partial shipment, even if the means of conveyance leave on the same day for the same destination.

c. A presentation consisting of more than one courier receipt, post receipt or certificate of posting will not be regarded as a partial shipment if the courier receipts, post receipts or certificates of posting appear to have been stamped or signed by the same courier or postal service at the same place and date and for the same destination.

Article 32 Instalment Drawings or Shipments If a drawing or shipment by instalments within given periods is stipulated in the credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available for that and any subsequent instalment.

Article 33 Hours of Presentation A bank has no obligation to accept a presentation outside of its banking hours.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 4

Article 34 Disclaimer on Effectiveness of Documents A bank assumes no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for the good faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee or the insurer of the goods or any other person.

Article 35 Disclaimer on Transmission and Translation A bank assumes no liability or responsibility for the consequences arising out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in the credit.

If a nominated bank determines that a presentation is complying and forwards the documents to the issuing bank or confirming bank, whether or not the nominated bank has honoured or negotiated, an issuing bank or confirming bank must honour or negotiate, or reimburse that nominated bank, even when the documents have been lost in transit between the nominated bank and the issuing bank or confirming bank, or between the confirming bank and the issuing bank.

A bank assumes no liability or responsibility for errors in translation or interpretation of technical terms and may transmit credit terms without translating them.

Article 36 Force Majeure A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control.

A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business.

Article 37 Disclaimer for Acts of an Instructed Party a . A bank utilizing the services of another bank for the purpose of giving effect to the instructions of the

applicant does so for the account and at the risk of the applicant.

b . An issuing bank or advising bank assumes no liability or responsibility should the instructions it transmits to another bank not be carried out, even if it has taken the initiative in the choice of that other bank.

c. A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses (“charges”) incurred by that bank in connection with its instructions.

If a credit states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges.

A credit or amendment should not stipulate that the advising to a beneficiary is conditional upon the receipt by the advising bank or second advising bank of its charges.

d . The applicant shall be bound by and liable to indemnify a bank against all obligations and responsibilities imposed by foreign laws and usages.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 5

Article 38 Transferable Credits a . A bank is under no obligation to transfer a credit except to the extent and in the manner expressly

consented to by that bank.

b . For the purpose of this article:

Transferable credit means a credit that specifically states it is “transferable”. A transferable credit may be made available in whole or in part to another beneficiary (“second beneficiary”) at the request of the beneficiary (“first beneficiary”).

Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorized by the issuing bank to transfer and that transfers the credit. An issuing bank may be a transferring bank.

Transferred credit means a credit that has been made available by the transferring bank to a second beneficiary.

c. Unless otherwise agreed at the time of transfer, all charges (such as commissions, fees, costs or expenses) incurred in respect of a transfer must be paid by the first beneficiary.

d . A credit may be transferred in part to more than one second beneficiary provided partial drawings or shipments are allowed.

A transferred credit cannot be transferred at the request of a second beneficiary to any subsequent beneficiary. The first beneficiary is not considered to be a subsequent beneficiary.

e . Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary. The transferred credit must clearly indicate those conditions.

f. If a credit is transferred to more than one second beneficiary, rejection of an amendment by one or more second beneficiary does not invalidate the acceptance by any other second beneficiary, with respect to which the transferred credit will be amended accordingly. For any second beneficiary that rejected the amendment, the transferred credit will remain unamended.

g . The transferred credit must accurately reflect the terms and conditions of the credit, including confirmation, if any, with the exception of:

• the amount of the credit,

• any unit price stated therein,

• the expiry date,

• the period for presentation, or

• the latest shipment date or given period for shipment,

any or all of which may be reduced or curtailed.

The percentage for which insurance cover must be effected may be increased to provide the amount of cover stipulated in the credit or these articles.

The name of the first beneficiary may be substituted for that of the applicant in the credit.

If the name of the applicant is specifically required by the credit to appear in any document other than the invoice, such requirement must be reflected in the transferred credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 6

h . The first beneficiary has the right to substitute its own invoice and draft, if any, for those of a second beneficiary for an amount not in excess of that stipulated in the credit, and upon such substitution the first beneficiary can draw under the credit for the difference, if any, between its invoice and the invoice of a second beneficiary.

i . If the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.

j. The first beneficiary may, in its request for transfer, indicate that honour or negotiation is to be effected to a second beneficiary at the place to which the credit has been transferred, up to and including the expiry date of the credit. This is without prejudice to the right of the first beneficiary in accordance with sub-article 38 (h).

k. Presentation of documents by or on behalf of a second beneficiary must be made to the transferring bank.

Article 39 Assignment of Proceeds The fact that a credit is not stated to be transferable shall not affect the right of the beneficiary to assign any proceeds to which it may be or may become entitled under the credit, in accordance with the provisions of applicable law. This article relates only to the assignment of proceeds and not to the assignment of the right to perform under the credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 7

Uniform Customs and Practice for Documentary Credits 1993 Revision

ICC Publication No. 500578

(UCP 500)

GENERAL PROVISIONS AND DEFINITIONS

ARTICLE 1: Application of UCP The Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 50O, shall apply to all Documentary Credits (including to the extent to which they may be applicable, Standby Letter(s) of Credit) where they are incorporated into the text of the Credit. They are binding on all parties thereto, unless otherwise expressly stipulated in the Credit.

ARTICLE 2: Meaning of Credit For the purposes of these Articles, the expressions "Documentary Credit(s)" and "Standby Letter(s) of Credit" (hereinafter referred to as "Credit(s)"), mean any arrangement, however named or described, whereby a bank (the "Issuing Bank") acting at the request and on the instructions of a customer (the "Applicant") or on its own behalf,

i. is to make a payment to or to the order of a third party (the "Beneficiary"), or is to accept and pay bills of exchange (Draft(s)) drawn by the Beneficiary, or

ii. authorizes another bank to effect such payment, or to accept and pay such bills of exchange (Draft(s)), or iii. authorizes another bank to negotiate, against stipulated document(s), provided that the terms and

conditions of the Credit are complied with. For the purposes of these Articles, branches of a bank in different countries are considered another bank.

ARTICLE 3: Credits v. Contracts A. Credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the Credit. Consequently, the undertaking of a bank to pay, accept and pay Draft(s) or negotiate and/or to fulfill any other obligation under the Credit, is not subject to claims or defenses by the Applicant resulting from his relationships with the Issuing Bank or the Beneficiary.

B. A Beneficiary can in no case avail himself of the contractual relationships existing between the banks or between the Applicant and the Issuing Bank.

ARTICLE 4: Documents v. Goods/Services/Performances In Credit operations all parties concerned deal with documents, and not with goods, services and/or other performances to which the documents may relate.

ARTICLE 5: Instructions to Issue/Amend Credits A. Instructions for the issuance of a Credit, the Credit itself, instructions for an amendment thereto, and the

amendment itself, must be complete and precise.

In order to guard against confusion and misunderstanding, banks should discourage any attempt: i. to include excessive detail in the Credit or in any amendment thereto; ii. to give instructions to issue, advise or confirm a Credit by reference to a Credit previously issued (similar

Credit) where such previous Credit has been subject to accepted amendment(s), and/or unaccepted amendment(s).

578 This copy was not provided by the ICC and may contain errors of content or formatting, including

numbering sequences. This author recommends that any person who intends to use the UCP for any academic or business purpose should consult the text provided by the International Chamber of Commerce. See: http://www.iccwbo.org

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 8

B. All instructions for the issuance of a Credit and the Credit itself and, where applicable, all instructions for an amendment thereto and the amendment itself, must state precisely the document(s) against which payment, acceptance or negotiation is to be made.

FORM AND NOTIFICATION OF CREDITS ARTICLE 6: Revocable v. Irrevocable Credits A. A Credit may be either

i. revocable, or ii. irrevocable.

B. The Credit, therefore, should clearly indicate whether it is revocable or irrevocable.

C. In the absence of such indication the Credit shall be deemed to be irrevocable.

ARTICLE 7: Advising Bank's Liability A. A Credit may be advised to a Beneficiary through another bank (the "Advising Bank") without engagement on

the part of the Advising Bank, but that bank, if it elects to advise the Credit, shall take reasonable care to check the apparent authenticity of the Credit which it advises. If the bank elects not to advise the Credit, it must so inform the Issuing Bank without delay.

B. If the Advising Bank cannot establish such apparent authenticity it must inform, without delay, the bank from which the instructions appear to have been received that it has been unable to establish the authenticity of the Credit and if it elects nonetheless to advise the Credit it must inform the Beneficiary that it has not been able to establish the authenticity of the Credit.

ARTICLE 8: Revocation of a Credit A. A revocable Credit may be amended or canceled by the Issuing Bank at any moment and without prior notice to

the Beneficiary.

B. However, the Issuing Bank must: i. reimburse another bank with which a revocable Credit has been made available for sight payment,

acceptance or negotiation for any payment, acceptance or negotiation made by such bank prior to receipt by it of notice of amendment or cancellation, against documents which appear on their face to be in compliance with the terms and conditions of the Credit;

ii. reimburse another bank with which a revocable Credit has been made available for deferred payment, if such a bank has, prior to receipt by it of notice of amendment or cancellation, taken up documents which appear on their face to be in compliance with the terms and conditions of the Credit.

ARTICLE 9: Liability of Issuing and Confirming Banks A. An irrevocable Credit constitutes a definite undertaking of the Issuing Bank, provided that the stipulated

documents are presented to the Nominated Bank or to the Issuing Bank and that the terms and conditions of the Credit are complied with:

i. if the Credit provides for sight payment to pay at sight;

ii. if the Credit provides for deferred payment to pay on the maturity date(s) determinable in accordance with the stipulations of the Credit;

iii. if the Credit provides for acceptance; a. by the Issuing Bank to accept Draft(s) drawn by the Beneficiary on the Issuing Bank and pay them

at maturity, or b. by another drawee bank to accept and pay at maturity Draft(s) drawn by the Beneficiary on the

Issuing Bank in the event the drawee bank stipulated in the Credit does not accept Draft(s) drawn on it, or to pay Drafts(s) accepted but not paid by such drawee bank at maturity;

iv. if the Credit provides for negotiation to pay without recourse to drawers and/or bona fide holders, Draft(s) drawn by the Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the Applicant. If the Credit nevertheless calls for Draft(s) on the Applicant, banks will consider such Draft(s) as an additional document(s).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 6 9

B. A confirmation of an irrevocable Credit by another bank (the "Confirming Bank") upon the authorization or request of the Issuing Bank, constitutes a definite undertaking of the Confirming Bank, in addition to that of the issuing Bank, provided that the stipulated documents are presented to the Confirming Bank or to any other Nominated Bank and that the terms and conditions of the Credit are complied with:

i. If the Credit provides for sight payment to pay at sight; ii. if the Credit provides for deferred payment to pay on the maturity date(s) determinable in accordance

with the stipulations of the Credit; iii. if the Credit provides for acceptance:

a. by the Confirming Bank to accept Draft(s) drawn by the Beneficiary on the Confirming Bank and pay them at maturity, or

b. by another drawee bank to accept and pay at maturity Draft(s) drawn by the Beneficiary on the Confirming Bank, in the event the drawee bank stipulated in the Credit does not accept Draft(s) drawn on it, or to pay Draft(s) accepted but not paid by such drawee bank at maturity;

iv. if the Credit provides for negotiation to negotiate without recourse to drawers and/or bona fide holders, Draft(s) drawn by the Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the Applicant. If the Credit nevertheless calls for Draft(s) on the Applicant, banks will consider such Draft(s) as an additional document(s).

C. i. If another bank is authorized or requested by the Issuing Bank to add its confirmation to a Credit but is

not prepared to do so, it must so inform the Issuing Bank without delay. ii. Unless the Issuing Bank specifies otherwise in its authorization or request to add confirmation, the

Advising Bank may advise the Credit to the Beneficiary without adding its confirmation.

D. i. Except as otherwise provided by Article 48, an irrevocable Credit can neither be amended nor canceled

without the agreement of the Issuing Bank, the Confirming Bank, if any, and the Beneficiary. ii. The Issuing Bank shall be irrevocably bound by an amendment(s) issued by it from the time of the

issuance of such amendment(s). A Confirming Bank may extend its confirmation to an amendment and shall be irrevocably bound as of the time of its advice of the amendment. A Confirming Bank may, however, choose to advise an amendment to the Beneficiary without extending its confirmation and if so, must inform the Issuing Bank and the Beneficiary without delay.

iii. The terms of the original Credit (or a Credit incorporating previously accepted amendment(s)) will remain in force for the Beneficiary until the Beneficiary communicates his acceptance of the amendment to the bank that advised such amendment. The Beneficiary should give notification of acceptance or rejection of amendment(s). If the Beneficiary fails to give such notification, the tender of documents to the Nominated Bank or Issuing Bank, that conform to the Credit and to not yet accepted amendment(s), will be deemed to be notification of acceptance by the Beneficiary of such amendment(s) and as of that moment the Credit will be amended.

iv. Partial acceptance of amendments contained in one and the same advice of amendment is not allowed and consequently will not be given any effect.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 0

ARTICLE 10: Types of Credit A. All Credits must clearly indicate whether they are available by sight payment, by deferred payment, by

acceptance or by negotiation.

B. i. Unless the Credit stipulates that it is available only with the Issuing Bank, all Credits must nominate the

bank (the "Nominated Bank") which is authorized to pay, to incur a deferred payment undertaking, to accept Draft(s) or to negotiate. In a freely negotiable Credit, any bank is a Nominated Bank. Presentation of documents must be made to the Issuing Bank or the Confirming Bank, if any, or any other Nominated Bank.

ii. Negotiation means the giving of value for Draft(s) and/or document(s) by the bank authorized to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation.

C. Unless the Nominated Bank is the Confirming Bank, nomination by the Issuing Bank does not constitute any undertaking by the Nominated Bank to pay, to incur a deferred payment undertaking, to accept Draft(s), or to negotiate. Except where expressly agreed to by the Nominated Bank and so communicated to the Beneficiary, the Nominated Bank's receipt of and/or examination and/or forwarding of the documents does not make that bank liable to pay, to incur a deferred payment undertaking, to accept Draft(s), or to negotiate.

D. By nominating another bank, or by allowing for negotiation by any bank, or by authorizing or requesting another bank to add its confirmation, the Issuing Bank authorizes such bank to pay, accept Draft(s) or negotiate as the case may be, against documents which appear on their face to be in compliance with the terms and conditions of the Credit and undertakes to reimburse such bank in accordance with the provisions of these Articles.

ARTICLE 11: Teletransmitted and Pre Advised Credit A.

i. When an Issuing Bank instructs an Advising Bank by an authenticated teletransmission to advise a Credit or an amendment to a Credit, the teletransmission will be deemed to be the operative Credit instrument or the operative amendment, and no mail confirmation should be sent. Should a mail confirmation nevertheless be sent, it will have no effect and the Advising Bank will have no obligation to check such mail confirmation against the operative Credit instrument or the operative amendment received by teletransmission.

ii. If the teletransmission states "full details to follow" (or words of similar effect) or states that the mail confirmation is to be the operative Credit instrument or the operative amendment, then the teletransmission will not be deemed to be the operative Credit instrument or the operative amendment. The Issuing Bank must forward the operative Credit instrument or the operative amendment to such Advising Bank without delay.

B. If a bank uses the services of an Advising Bank to have the Credit advised to the Beneficiary, it must also use the services of the same bank for advising an amendment(s).

C. A preliminary advice of the issuance or amendment of an irrevocable Credit (pre advice), shall only be given by an Issuing Bank if such bank is prepared to issue the operative Credit instrument or the operative amendment thereto. Unless otherwise stated in such preliminary advice by the Issuing Bank, an Issuing Bank having given such pre advice shall be irrevocably committed to issue or amend the Credit, in terms not inconsistent with the pre advice, without delay.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 1

ARTICLE 12: Incomplete or Unclear Instructions If incomplete or unclear instructions are received to advise, confirm or amend a Credit, the bank requested to act on such instructions may give preliminary notification to the Beneficiary for information only and without responsibility. This preliminary notification should state clearly that the notification is provided for information only and without the responsibility of the Advising Bank. In any event, the Advising Bank must inform the Issuing Bank of the action taken and request it to provide the necessary information.

The Issuing Bank must provide the necessary information without delay. The Credit will be advised, confirmed or amended, only when complete and clear instructions have been received and if the Advising Bank is then prepared to act on the instructions.

LIABILITIES AND RESPONSIBILITIES ARTICLE 13: Standard for Examination of Documents

A. Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit.

Documents not stipulated in the Credit will not be examined by banks. If they receive such documents, they shall return them to the presenter or pass them on without responsibility.

B. The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly.

C. If a Credit contains conditions without stating the document(s) to be presented in compliance therewith, banks will deem such conditions as not stated and will disregard them.

ARTICLE 14: Discrepant Documents and Notice

A. When the Issuing Bank authorizes another bank to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate against documents which appear on their face to be in compliance with the terms and conditions of the Credit, the Issuing Bank and the Confirming Bank, if any, are bound:

i. to reimburse the Nominated Bank which has paid, incurred a deferred payment undertaking, accepted Draft(s), or negotiated,

ii. to take up the documents.

B. Upon receipt of the documents the Issuing Bank and /or Confirming Bank, if any, or a Nominated Bank acting on their behalf, must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, such banks may refuse to take up the documents.

C. If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit, it may in its sole judgment approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub Article 13 (b).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 2

D. i. If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to

refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him.

ii. Such notice must state all discrepancies in respect of which the bank refuses the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.

iii. The Issuing Bank and/or Confirming Bank, if any, shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.

E. If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/ or Confirming Bank, if any, shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit.

F. If the remitting bank draws the attention of the Issuing Bank and/or Confirming Bank, if any, to any discrepancy(ies) in the document(s) or advises such banks that it has paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated under reserve or against an indemnity in respect of such discrepancy(ies), the Issuing Bank and/or Confirming Bank, if any, shall not be thereby relieved from any of their obligations under any provision of this Article. Such reserve or indemnity concerns only the relations between the remitting bank and the party towards whom the reserve was made, or from whom, or on whose behalf, the indemnity was obtained.

ARTICLE 15: Disclaimer on Effectiveness of Documents Banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s), or for the general and/or particular conditions stipulated in the document(s) or superimposed thereon; nor do they assume any liability or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods represented by any document(s), or for the good faith or acts and/or omissions, solvency, performance or standing of the consignors, the carriers, the forwarders, the consignees or the insurers of the goods, or any other person whomsoever.

ARTICLE 16: Disclaimer on the Transmission of Messages Banks assume no liability or responsibility for the consequences arising out of delay and/or loss in transit of any message(s), letter(s) or document(s), or for delay, mutilation or other error(s) arising in the transmission of any telecommunication. Banks assume no liability or responsibility for errors in translation and/or interpretation of technical terms, and reserve the right to transmit Credit terms without translating them.

ARTICLE 17: Force Majeure Banks assume no liability or responsibility for the consequences arising out of the interruption of their business by Acts of God, riots, civil commotions, insurrections, wars or any other causes beyond their control, or by any strikes or lockouts. Unless specifically authorized, banks will not, upon resumption of their business, pay, incur a deferred payment undertaking, accept Draft(s) or negotiate under Credits which expired during such interruption of their business.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 3

ARTICLE 18: Disclaimer for Acts of an Instructed Party A. Banks utilizing the services of another bank or other banks for the purpose of giving effect to the instructions of

the Applicant do so for the account and at the risk of such Applicant.

B. Banks assume no liability or responsibility should the instructions they transmit not be carried out, even if they have themselves taken the initiative in the choice of such other bank(s).

C. i. A party instructing another party to perform services is liable for any charges, including commissions,

fees, costs or expenses incurred by the instructed party in connection with its instructions. ii. Where a credit stipulates that such charges are for the account of a party other than the instructing party,

and charges cannot be collected, the instructing party remains ultimately liable for the payment thereof.

D. The Applicant shall be bound by and liable to indemnify the banks against all obligations and responsibilities imposed by foreign laws and usages.

ARTICLE 19: Bank to Bank Reimbursement Arrangements A. If an Issuing Bank intends that the reimbursement to which a paying, accepting or negotiating bank is entitled,

shall be obtained by such bank (the "Claiming Bank"), claiming on another party (the "Reimbursing Bank"), it shall provide such Reimbursing Bank in good time with the proper instructions or authorization to honor such reimbursement claims.

B. Issuing Banks shall not require a Claiming Bank to supply a certificate of compliance with the terms and conditions of the Credit to the Reimbursing Bank.

C. An Issuing Bank shall not be relieved from any of its obligations to provide reimbursement if and when reimbursement is not received by the Claiming Bank from the Reimbursing Bank.

D. The Issuing Bank shall be responsible to the Claiming Bank for any loss of interest if reimbursement is not provided by the Reimbursing Bank on first demand, or as otherwise specified in the Credit, or mutually agreed, as the case may be.

E. The Reimbursing Bank's charges should be for the account of the Issuing Bank. However, in cases where the charges are for the account of another party, it is the responsibility of the Issuing Bank to so indicate in the original Credit and in the reimbursement authorization. In cases where the Reimbursing Bank's charges are for the account of another party they shall be collected from the Claiming Bank when the Credit is drawn under. In cases where the Credit is not drawn under, the Reimbursing Bank's charges remain the obligation of the Issuing Bank.

DOCUMENTS ARTICLE 20: Ambiguity as to the Issuers of Documents A. Terms such as "first class", "well known", "qualified", "independent", "official", "competent", "local", and the like,

shall not be used to describe the issuers of any document(s) to be presented under a Credit. If such terms are incorporated in the Credit, banks will accept the relative document(s) as presented, provided that it appears on its face to be in compliance with the other terms and conditions of the Credit and not to have been issued by the Beneficiary.

B. Unless otherwise stipulated in the Credit, banks will also accept as an original document(s), a document(s) produced or appearing to have been produced: i. by reprographic, automated or computerized systems; ii. as carbon copies; provided that it is marked as original and, where necessary, appears to be signed.

A document may be signed by handwriting, by facsimile signature, by perforated signature, by stamp, by symbol, or by any other mechanical or electronic method of authentication.

C. i. Unless otherwise stipulated in the Credit, banks will accept as a copy(ies), a document(s) either labeled

copy or not marked as an original a copy(ies) need not be signed. ii. Credits that require multiple document(s) such as "duplicate", "two fold", "two copies" and the like, will be

satisfied by the presentation of one original and the remaining number in copies except where the document itself indicates otherwise.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 4

D. Unless otherwise stipulated in the Credit, a condition under a Credit calling for a document to be authenticated, validated, legalized, visaed, certified or indicating a similar requirement, will be satisfied by any signature, mark, stamp or label on such document that on its face appears to satisfy the above condition.

ARTICLE 21: Unspecified Issuers or Contents of Documents When documents other than transport documents, insurance documents and commercial invoices are called for, the Credit should stipulate by whom such documents are to be issued and their wording or data content. If the Credit does not so stipulate, banks will accept such documents as presented, provided that their data content is not inconsistent with any other stipulated document presented.

ARTICLE 22: Issuance Date of Documents Vs. Credit Date Unless otherwise stipulated in the Credit, banks will accept a document bearing a date of issuance prior to that of the Credit, subject to such document being presented within the time limits set out in the Credit and in these Articles.

ARTICLE 23: Marine/Ocean Bill of Lading A. If a Credit calls for a bill of lading covering a port to port shipment, banks will, unless otherwise stipulated in the

Credit, accept a document, however named, which: i. appears on its face to indicate the name of the carrier and to have been signed or otherwise

authenticated by: • the carrier or a named agent for or on behalf of the carrier, or • the master or a named agent for or on behalf of the master.

Any signature or authentication of the carrier or the master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting, and

ii. indicates that the goods have been loaded on board, or shipped on a named vessel. Loading on board or shipment on a named vessel may be indicated by pre printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment. In all other cases loading on board a named vessel must be evidenced by a notation on the bill of lading which gives the date on which the goods have been loaded on board, in which case the date of the board notation will be deemed to be the date of shipment. If the bill of lading contains the indication "intended vessel", or similar qualification in relation to the vessel, loading on board a named vessel must be evidenced by an on board notation on the bill of lading which, in addition to the date on which the goods have been loaded on board, also includes the name of the vessel on which the goods have been loaded, even if they have been loaded on the vessel named as the "intended vessel".

If the bill of lading indicates a place of receipt or taking in charge different from the port of loading, the on board notation must also include the port of loading stipulated in the Credit and the name of the vessel on which the goods have been loaded, even if they have been loaded on the vessel named in the bill of lading. This provision also applies whenever loading on board the vessel is indicated by pre printed wording on the bill of lading, and

iii. indicates the port of loading and the port of discharge stipulated in the Credit, notwithstanding that it:

a. indicates a place of taking in charge different from the port of loading, and/or a place of final destination different from the port of discharge, and/or

b. contains the indication "intended" or similar qualification in relation to the port of loading and/or port of discharge, as long as the document also states the ports of loading and/or discharge stipulated in the Credit, and

iv. consists of a sole original bill of lading or, if issued in more than one original, the full set as so issued, and

v. appears to contain all of the terms and conditions of carriage, or some of such terms and conditions by reference to a source or document other than the bill of lading (short form/blank back bill of lading); banks will not examine the contents of such terms and conditions, and

vi. contains no indication that it is subject to a charter party and/or no indication that the carrying vessel is propelled by sail only, and

vii. in all other respects meets the stipulations of the Credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 5

B. For the purpose of this Article, transshipment means unloading and reloading from one vessel to another vessel during the course of ocean carriage from the port of loading to the port of discharge stipulated in the Credit.

C. Unless transshipment is prohibited by the terms of the Credit, banks will accept a bill of lading which indicates that the goods will be transshipped, provided that the entire ocean carriage is covered by one and the same bill of lading.

D. Even if the Credit prohibits transshipment, banks will accept a bill of lading which: i. indicates that the transshipment will take place as long as the relevant cargo is shipped in Container(s),

Trailer(s) and/or "LASH" barge(s) as evidenced by the bill of lading, provided that the entire ocean carriage is covered by one and the same bill of lading, and/or

ii. incorporates clauses stating that the carrier reserves the right to transship.

ARTICLE 24: Non Negotiable Sea Waybill A. If a Credit calls for a non negotiable sea waybill covering a port to port shipment, banks will, unless otherwise

stipulated in the Credit, accept a document, however named, which: i. appears on its face to indicate the name of the carrier and to have been signed or otherwise

authenticated by: • the carrier or a named agent for or on behalf of the carrier, or • the master or a named agent for or on behalf of the master,

Any signature or authentication of the carrier or master must be identified as carrier or master, as the case may be. An agent signing or authenticating for the carrier or master must also indicate the name and the capacity of the party, i.e. carrier or master, on whose behalf that agent is acting, and

ii. indicates that the goods have been loaded on board, or shipped on a named vessel.

Loading on board or shipment on a named vessel may be indicated by pre printed wording on the nonnegotiable sea waybill that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the non negotiable sea waybill will be deemed to be the date of loading on board and the date of shipment.

In all other cases loading on board a named vessel must be evidenced by a notation on the non negotiable sea waybill which gives the date on which the goods have been loaded on board, in which case the date of the on board notation will be deemed to be the date of shipment.

If the non negotiable sea waybill contains the indication "intended vessel", or similar qualification in relation to the vessel, loading on board a named vessel must be evidenced by an on board notation on the non negotiable sea waybill which, in addition to the date on which the goods have been loaded on board, includes the name of the vessel on which the goods have been loaded, even if they have been loaded on the vessel named as the "intended vessel".

If the non negotiable sea waybill indicates a place of receipt or taking in charge different from the port of loading, the on board notation must also include the port of loading stipulated in the Credit and the name of the vessel on which the goods have been loaded, even if they have been loaded on a vessel named in the nonnegotiable sea waybill. This provision also applies whenever loading on board the vessel is indicated by pre printed wording on the non negotiable sea waybill, and

iii. indicates the port of loading and the port of discharge stipulated in the Credit, notwithstanding that it: a. indicates a place of taking in charge different from the port of loading, and/or a place of final

destination different from the port of discharge, and/or b. contains the indication "intended" or similar qualification in relation to the port of loading and/or port

of discharge, as long as the document also states the ports of loading and/or discharge stipulated in the Credit, and

iv. consists of a sole original non negotiable sea waybill, or if issued in more than one original, the full set as so issued, and

v. appears to contain all of the terms and conditions of carriage, or some of such terms and conditions by reference to a source or document other than the nonnegotiable sea waybill (short form/blank back nonnegotiable sea waybill); banks will not examine the contents of such terms and conditions, and

vi. contains no indication that it is subject to a charter party and/or no indication that the carrying vessel is propelled by sail only, and

vii. in all other respects meets the stipulations of the Credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 6

B. For the purpose of this Article, transshipment means unloading and reloading from one vessel to another vessel during the course of ocean carriage from the port of loading to the port of discharge stipulated in the Credit.

C. Unless transshipment is prohibited by the terms of the Credit, banks will accept a non negotiable sea waybill which indicates that the goods will be transshipped, provided that the entire ocean carriage is covered by one and the same non negotiable sea waybill.

D. Even if the Credit prohibits transshipment, banks will accept a non negotiable sea waybill which: i. indicates that transshipment will take place as long as the relevant cargo is shipped in Container(s),

Trailer(s) and/or "LASH" barge(s) as evidenced by the nonnegotiable sea waybill, provided that the entire ocean carriage is covered by one and the same non negotiable sea waybill, and/or

ii. incorporates clauses stating that the carrier reserves the right to transship.

ARTICLE 25: Charter Party Bill of Lading A. If a Credit calls for or permits a charter party bill of lading, banks will, unless otherwise stipulated in the Credit,

accept a document, however named, which: i. contains any indication that it is subject to a charter party, and ii. appears on its face to have been signed or otherwise authenticated by:

• the master or a named agent for or on behalf of the master, or • the owner or a named agent for or on behalf of the owner.

Any signature or authentication of the master or owner must be identified as master or owner as the case may be. An agent signing or authenticating for the master or owner must also indicate the name and the capacity of the party, i.e. master or owner, on whose behalf that agent is acting, and

iii. does or does not indicate the name of the carrier, and iv. indicates that the goods have been loaded on board or shipped on a named vessel.

Loading on board or shipment on a named vessel may be indicated by pre printed wording on the bill of lading that the goods have been loaded on board a named vessel or shipped on a named vessel, in which case the date of issuance of the bill of lading will be deemed to be the date of loading on board and the date of shipment.

In all other cases loading on board a named vessel must be evidenced by a notation on the bill of lading which gives the date on which the goods have been loaded on board, in which case the date of the on board notation will be deemed to be the date of shipment, and

v. indicates the port of loading and the port of discharge stipulated in the Credit, and vi. consists of a sole original bill of lading or, if issued in more than one original, the full set as so issued,

and

vii. contains no indication that the carrying vessel is propelled by sail only, and viii. in all other respects meets the stipulations of the Credit.

B. Even if the Credit requires the presentation of a charter party contract in connection with a charter party bill of lading, banks will not examine such charter party contract, but will pass it on without responsibility on their part.

ARTICLE 26: Multimodal Transport Document A. If a Credit calls for a transport document covering at least two different modes of transport (multimodal

transport), banks will, unless otherwise stipulated in the Credit, accept a document, however named, which: i. appears on its face to indicate the name of the carrier or multimodal transport operator and to have been

signed or otherwise authenticated by: • the carrier or multimodal transport operator or a named agent for or on behalf of the carrier or multimodal transport operator, or

• the master or a named agent for or on behalf of the master. Any signature or authentication of the carrier, multimodal transport operator or master must be identified as carrier, multimodal transport operator or master, as the case may be. An agent signing or authenticating for the carrier, multimodal transport operator or master must also indicate the name and the capacity of the party, i.e. carrier, multimodal transport operator or master, on whose behalf that the agent is acting, and

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 7

ii. indicates that the goods have been dispatched, taken in charge or loaded on board.

Dispatch, taking in charge or loading on board may be indicated by wording to that effect on the multimodal transport document and the date of issuance will be deemed to be the date of dispatch, taking in charge or loading on board and the date of shipment. However, if the document indicates, by stamp or otherwise, a date of dispatch, taking in charge or loading on board, such date will be deemed to be the date of shipment, and

iii. a. indicates the place of taking in charge stipulated in the Credit which may be different from the port,

airport or place of loading, and the place of final destination stipulated in the Credit which may be different from the port, airport or place of discharge, and/or

b. contains the indication "intended" or similar qualification in relation to the vessel and/or port of loading and/or port of discharge, and

iv. consists of a sole original multimodal transport document or, if issued in more than one original, the full set as so issued, and

v. appears to contain all of the terms and conditions of carriage, or some of such terms and conditions by reference to a source or document other than the multimodal transport document (short form/blank back multimodal transport document); banks will not examine the contents of such terms and conditions, and

vi. contains no indication that it is subject to a charter party and/or no indication that the carrying vessel is propelled by sail only, and

vii. in all other respects meets the stipulations of the Credit.

B. Even if the Credit prohibits transshipment, banks will accept a multimodal transport document which indicates that transshipment will or may take place, provided that the entire carriage is covered by one and the same multimodal transport document.

ARTICLE 27: Air Transport Document A. If a Credit calls for an air transport document, banks will, unless otherwise stipulated in the Credit, accept a

document, however named, which: i. appears on its face to indicate the name of the carrier and to have been signed or otherwise

authenticated by: • the carrier, or • a named agent for or on behalf of the carrier.

Any signature or authentication of the carrier must be identified as carrier. An agent signing or authenticating for the carrier must also indicate the name and the capacity of the party, i.e. carrier, on whose behalf that agent is acting, and

ii. indicates that the goods have been accepted for carriage, and iii. where the Credit calls for an actual date of dispatch, indicates a specific notation of such date, the date

of dispatch so indicated on the air transport document will be deemed to be the date of shipment.

For the purpose of this Article, the information appearing in the box on the air transport document (marked "For Carrier Use Only" or similar expression) relative to the flight number and date will not be considered as a specific notation of such date of dispatch.

In all other cases, the date of issuance of the air transport document will be deemed to be the date of shipment, and

iv. indicates the airport of departure and the airport of destination stipulated in the Credit, and v. appears to be the original for consignor/shipper even if the Credit stipulates a full set of originals, or

similar expressions, and vi. appears to contain all of the terms and conditions of carriage, or some of such terms and conditions, by

reference to a source or document other than the air transport document; banks will not examine the contents of such terms and conditions, and

vii. in all other respects meets the stipulations of the Credit.

B. For the purpose of this Article, transshipment means unloading and reloading from one aircraft to another aircraft during the course of carriage from the airport of departure to the airport of destination stipulated in the Credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 8

C. Even if the Credit prohibits transshipment, banks will accept an air transport document which indicates that transshipment will or may take place, provided that the entire carriage is covered by one and the same air transport document.

ARTICLE 28: Road, Rail or inland Waterway lmport Documents A. If a Credit calls for a road, rail, or inland waterway transport document, banks will, unless otherwise stipulated in

the Credit, accept a document of the type called for, however named, which: i. appears on its face to indicate the name of the carrier and to have been signed or otherwise

authenticated by the carrier or a named agent for or on behalf of the carrier and/or to bear a reception stamp or other indication of receipt by the carrier or a named agent for or on behalf of the carrier.

Any signature, authentication, reception stamp or other indication of receipt of the carrier, must be identified on its face as that of the carrier. An agent signing or authenticating for the carrier must also indicate the name and the capacity of the party, i.e. carrier, on whose behalf that agent is acting, and

ii. indicates that the goods have been received for shipment, dispatch or carriage or wording to this effect. The date of issuance will be deemed to be the date of shipment unless the transport document contains a reception stamp, in which case the date of the reception stamp will be deemed to be the date of shipment, and

iii. indicates the place of shipment and the place of destination stipulated in the Credit, and iv. in all other respects meets the stipulations of the Credit.

B. In the absence of any indication on the transport document as to the numbers issued, banks will accept the transport document(s) presented as constituting a full set. Banks will accept as original(s) the transport document(s) whether marked as original(s) or not.

C. For the purpose of this Article, transshipment means unloading and reloading from one means of conveyance to another means of conveyance, in different modes of transport, during the course of carriage from the place of shipment to the place of destination stipulated in the Credit.

D. Even if the Credit prohibits transshipment, banks will accept a road, rail, or inland waterway transport document which indicates that transshipment will or may take place, provided that the entire carriage is covered by one and the same transport document and within the same mode of transport.

ARTICLE 29: Courier and Post Receipts A. If a Credit calls for a post receipt or certificate of posting, banks will, unless otherwise stipulated in the Credit,

accept a post receipt or certificate of posting which:

i. appears on its face to have been stamped or otherwise authenticated and dated in the place from which the Credit stipulates the goods are to be shipped or dispatched and such date will be deemed to be the date of shipment or dispatch, and

ii. in all other respects meets the stipulations of the Credit.

B. If a Credit calls for a document issued by a courier or expedited delivery service evidencing receipt of the goods for delivery, banks will, unless otherwise stipulated in the Credit, accept a document, however named, which:

i. appears on its face to indicate the name of the courier/ service, and to have been stamped, signed or otherwise authenticated by such named courier/service (unless the Credit specifically calls for a document issued by a named Courier/Service, banks will accept a document issued by any Courier/Service), and

ii. indicates a date of pick up or of receipt or wording to this effect, such date being deemed to be the date of shipment or dispatch, and

iii. in all other respects meets the stipulations of the Credit.

ARTICLE 30: Transport Documents issued by Freight Forwarders Unless otherwise authorized in the Credit, banks will only accept a transport document issued by a freight forwarder if it appears on its face to indicate:

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 7 9

i. the name of the freight forwarder as a carrier or multimodal transport operator and to have been signed or otherwise authenticated by the freight forwarder as carrier or multimodal transport operator, or

ii. the name of the carrier or multimodal transport operator and to have been signed or otherwise authenticated by the freight forwarder as a named agent for or on behalf of the carrier or multimodal transport operator.

ARTICLE 31: "On Deck", "Shipper's Load and Count", Name of Consignor Unless otherwise stipulated in the Credit, banks will accept a transport document which:

i. does not indicate, in the case of carriage by sea or by more than one means of conveyance including carriage by sea, that the goods are or will be loaded on deck. Nevertheless, banks will accept a transport document which contains a provision that the goods may be carried on deck, provided that it does not specifically state that they are or will be loaded on deck, and/or

ii. bears a clause on the face thereof such as "shipper's load and count" or "said by shipper to contain" or words of similar effect, and/or

iii. indicates as the consignor of the goods a party other than the Beneficiary of the Credit.

ARTICLE 32: Clean Transport Documents A. A clean transport document is one which bears no clause or notation which expressly declares a defective

condition of the goods and/or the packaging.

B. Banks will not accept transport documents bearing such clauses or notations unless the Credit expressly stipulates the clauses or notations which may be accepted.

C. Banks will regard a requirement in a Credit for a transport document to bear the clause "clean on board" as complied with if such transport document meets the requirements of this Article and of Articles 23, 24, 25, 26, 27, 28 or 30.

ARTICLE 33: Freight Payable/Prepaid Transport Documents A. Unless otherwise stipulated in the Credit, or inconsistent with any of the documents presented under the Credit,

banks will accept transport documents stating that freight or transportation charges (hereafter referred to as "freight") have still to be paid.

B. If a Credit stipulates that the transport document has to indicate that freight has been paid or prepaid, banks will accept a transport document on which words clearly indicating payment or prepayment of freight appear by stamp or otherwise, or on which payment or prepayment of freight is indicated by other means. If the Credit requires courier charges to be paid or prepaid banks will also accept a transport document issued by a courier or expedited delivery service evidencing that the courier charges are for the account of a party other than the consignee.

C. The words "freight prepayable" or "freight to be prepaid" or words of similar effect, if appearing on transport documents, will not be accepted as constituting evidence of the payment of freight.

D. Banks will accept transport documents bearing reference by stamp or otherwise to costs additional to the freight, such as costs of, or disbursements incurred in connection with, loading, unloading or similar operations, unless the conditions of the Credit specifically prohibit such reference.

ARTICLE 34: Insurance Documents A. Insurance documents must appear on their face to be issued and signed by insurance companies or

underwriters or their agents.

B. If the insurance document indicates that it has been issued in more than one original, all the originals must be presented unless otherwise authorized in the Credit.

C. Cover notes issued by brokers will not be accepted, unless specifically authorized in the Credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 8 0

D. Unless otherwise stipulated in the Credit, banks will accept an insurance certificate or a declaration under an open cover pre signed by insurance companies or underwriters or their agents. If a Credit specifically calls for an insurance certificate or a declaration under an open cover, banks will accept, in lieu thereof, an insurance policy.

E. Unless otherwise stipulated in the Credit, or unless it appears from the insurance document that the cover is effective at the latest from the date of loading on board or dispatch or taking in charge of the goods, banks will not accept an insurance document which bears a date of issuance later than the date of loading on board or dispatch or taking in charge as indicated in such transport document.

F. i. Unless otherwise stipulated in the Credit, the insurance document must be expressed in the same

currency as the Credit. ii. Unless otherwise stipulated in the Credit, the minimum amount for which the insurance document must

indicate the insurance cover to have been effected is the CIF (cost, insurance and freight (..."named port of destination")) or CIP (carriage and insurance paid to (..."named place of destination")) value of the goods, as the case may be, plus 10%, but only when the CIF or CIP value can be determined from the documents on their face. Otherwise, banks will accept as such minimum amount 110% of the amount for which payment, acceptance or negotiation is requested under the Credit, or 110% of the gross amount of the invoice, whichever is the greater.

ARTICLE 35: Type of Insurance Cover A. Credits should stipulate the type of insurance required and, if any, the additional risks which are to be covered.

Imprecise terms such as "usual risks" or "customary risks" shall not be used; if they are used, banks will accept insurance documents as presented, without responsibility for any risks not being covered.

B. Failing specific stipulations in the Credit, banks will accept insurance documents as presented, without responsibility for any risks not being covered.

C. Unless otherwise stipulated in the Credit, banks will accept an insurance document which indicates that the cover is subject to a franchise or an excess (deductible).

ARTICLE 36: All Risks Insurance Cover Where a Credit stipulates "insurance against all risks", banks will accept an insurance document which contains any "all risks" notation or clause, whether or not bearing the heading "all risks", even if the insurance document indicates that certain risks are excluded, without responsibility for any risk(s) not being covered.

ARTICLE 37: Commercial Invoices A. Unless otherwise stipulated in the Credit, commercial invoices;

i. must appear on their face to be issued by the Beneficiary named in the Credit (except as provided in Article 48), and

ii. must be made out in the name of the Applicant (except as provided in sub Article 48 (H)), and iii. need not be signed.

B. Unless otherwise stipulated in the Credit, banks may refuse commercial invoices issued for amounts in excess of the amount permitted by the Credit. Nevertheless, if a bank authorized to pay, incur a deferred payment undertaking, accept Draft(s), or negotiate under a Credit accepts such invoices, its decision will be binding upon all parties, provided that such bank has not paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated for an amount in excess of that permitted by the Credit.

C. The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 8 1

ARTICLE 38: Other Documents If a Credit calls for an attestation or certification of weight in the case of transport other than by sea, banks will accept a weight stamp or declaration of weight which appears to have been superimposed on the transport document by the carrier or his agent unless the Credit specifically stipulates that the attestation or certification of weight must be by means of a separate document.

MISCELLANEOUS PROVISIONS ARTICLE 39: Allowances in Credit Amount, Quantity and Unit Price A. The words "about", "approximately", "circa" or similar expressions used in connection with the amount of the

Credit or the quantity or the unit price stated in the Credit are to be construed as allowing a difference not to exceed 10% more or 10% less than the amount or the quantity or the unit price to which they refer.

B. Unless a Credit stipulates that the quantity of the goods specified must not be exceeded or reduced, a tolerance of 5% more or 5% less will be permissible, always provided that the amount of the drawings does not exceed the amount of the Credit. This tolerance does not apply when the Credit stipulates the quantity in terms of a stated number of packing units or individual items.

C. Unless a Credit which prohibits partial shipments stipulates otherwise, or unless sub Article (B) above is applicable, a tolerance of 5% less in the amount of the drawing will be permissible, provided that if the Credit stipulates the quantity of the goods, such quantity of goods is shipped in full, and if the Credit stipulates a unit price, such price is not reduced. This provision does not apply when expressions referred to in sub Article (A) above are used in the Credit.

ARTICLE 40: Partial Shipments/Drawings A. Partial drawings and/or shipments are allowed, unless the Credit stipulates otherwise.

B. Transport documents which appear on their face to indicate that shipment has been made on the same means of conveyance and for the same journey, provided they indicate the same destination, will not be regarded as covering partial shipments, even if the transport documents indicate different dates of shipment and/or different ports of loading, places of taking in charge, or dispatch.

C. Shipments made by post or by courier will not be regarded as partial shipments if the post receipts or certificates of posting or courier's receipts or dispatch notes appear to have been stamped, signed or otherwise authenticated in the place from which the Credit stipulates the goods are to be dispatched, and on the same date.

ARTICLE 41: Installment Shipments/Drawings If drawings and/or shipments by installments within given periods are stipulated in the Credit and any installment is not drawn and/or shipped within the period allowed for that installment, the Credit ceases to be available for that and any subsequent installments, unless otherwise stipulated in the Credit.

ARTICLE 42: Expiry Date and Place for Presentation of Documents A. All Credits must stipulate an expiry date and a place for presentation of documents for payment, acceptance, or

with the exception of freely negotiable Credits, a place for presentation of documents for negotiation. An expiry date stipulated for payment, acceptance or negotiation will be construed to express an expiry date for presentation of documents.

B. Except as provided in sub Article 44(A), documents must be presented on or before such expiry date.

C. If an Issuing Bank states that the Credit is to be available "for one month", "for six months", or the like, but does not specify the date from which the time is to run, the date of issuance of the Credit by the Issuing Bank will be deemed to be the first day from which such time is to run. Banks should discourage indication of the expiry date of the Credit in this manner.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 8 2

ARTICLE 43: Limitation on the Expiry Date A. In addition to stipulating an expiry date for presentation of documents, every Credit which calls for a transport

document(s) should also stipulate a specified period of time after the date of shipment during which presentation must be made in compliance with the terms and conditions of the Credit. If no such period of time is stipulated, banks will not accept documents presented to them later than 21 days after the date of shipment. In any event, documents must be presented not later than the expiry date of the Credit.

B. In cases in which sub Article 40(B) applies, the date of shipment will be considered to be the latest shipment date on any of the transport documents presented.

ARTICLE 44: Extension of Expiry Date A. If the expiry date of the Credit and/or the last day of the period of time for presentation of documents stipulated

by the Credit or applicable by virtue of Article 43 falls on a day on which the bank to which presentation has to be made is closed for reasons other than those referred to in Article 17, the stipulated expiry date and/or the last day of the period of time after the date of shipment for presentation of documents, as the case may be, shall be extended to the first following day on which such bank is open.

B. The latest date for shipment shall not be extended by reason of the extension of the expiry date and/or the period of time after the date of shipment for presentation of documents in accordance with sub Article (A) above. If no such latest date for shipment is stipulated in the Credit or amendments thereto, banks will not accept transport documents indicating a date of shipment later than the expiry date stipulated in the Credit or amendments thereto.

C. The bank to which presentation is made on such first following business day must provide a statement that the documents were presented within the time limits extended in accordance with sub Article 44(A) of the Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500.

ARTICLE 45: Hours of Presentation Banks are under no obligation to accept presentation of documents outside their banking hours.

ARTICLE 46: General Expressions as to Dates for Shipment A. Unless otherwise stipulated in the Credit, the expression "shipment" used in stipulating an earliest and/or a latest

date for shipment will be understood to include expressions such as, "loading on board", "dispatch", "accepted for carriage", "date of post receipt", "date of pick up", and the like, and the case of a Credit calling for a multimodal transport document the expression "taking in charge".

B. Expressions such as "prompt", "immediately", "as soon as possible", and the like should not be used. If they are used banks will disregard them.

C. If the expression "on or about" or similar expressions are used, banks will interpret them as a stipulation that the shipment is to be made during the period from five days before to five days after the specified date, both end days included.

ARTICLE 47: Date Terminology for Periods of Shipment A. The words "to", "until", "till", "from" and words of similar import applying to any date or period in the Credit

referring to shipment will be understood to include the date mentioned.

B. The word "after" will be understood to exclude the date mentioned.

C. The terms "first half', "second half of a month shall be construed respectively as the 1st to the 15th, and the 16th to the last day of such month, all dates inclusive.

D. The terms "beginning", "middle", or "end" of a month shall be construed respectively as the 1st to the 10th, the 11th to the 20th, and the 21st to the last day of such month, all dates inclusive.

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 8 3

TRANSFERABLE CREDIT ARTICLE 48: Transferable Credit A. A transferable Credit is a Credit under which the Beneficiary (First Beneficiary) may request the bank authorized

to pay, incur a deferred payment undertaking, accept or negotiate (the "Transferring Bank"), or in the case of a freely negotiable Credit, the bank specifically authorized in the Credit as a Transferring Bank, to make the Credit available in whole or in part to one or more other Beneficiary(ies) (Second Beneficiary(ies)).

B. A Credit can be transferred only if it is expressly designated as "transferable" by the Issuing Bank. Terms such as "divisible", "fractionable", "assignable", and "transmissible" do not render the Credit transferable. If such terms are used they shall be disregarded.

C. The Transferring Bank shall be under no obligation to effect such transfer except to the extent and in the manner expressly consented to by such bank.

D. At the time of making a request for transfer and prior to transfer of the Credit, the First Beneficiary must irrevocably instruct the Transferring Bank whether or not he retains the right to refuse to allow the Transferring Bank to advise amendments to the Second Beneficiary(ies). If the Transferring Bank consents to the transfer under these conditions, it must, at the time of transfer, advise the Second Beneficiary(ies) of the First Beneficiary's instructions regarding amendments.

E. If a Credit is transferred to more than one Second Beneficiary(ies), refusal of an amendment by one or more Second Beneficiary(ies) does not invalidate the acceptance(s) by the other Second Beneficiary(ies) with respect to whom the Credit will be amended accordingly. With respect to the Second Beneficiary(ies) who rejected the amendment, the Credit will remain unammended.

F. Transferring Bank charges in respect of transfers including commissions, fees, costs or expenses are payable by the First Beneficiary, unless otherwise agreed. If the Transferring Bank agrees to transfer the Credit it shall be under no obligation to effect the transfer until such charges are paid.

G. Unless otherwise stated in the Credit, a transferable Credit can be transferred once only. Consequently, the Credit cannot be transferred at the request of the Second Beneficiary to any subsequent Third Beneficiary. For the purpose of this Article, a retransfer to the First Beneficiary does not constitute a prohibited transfer.

Fractions of a transferable Credit (not exceeding in the aggregate the amount of the Credit) can be transferred separately, provided partial shipment/drawings are not prohibited, and the aggregate of such transfers will be considered as constituting only one transfer of the Credit.

H. The Credit can be transferred only on the terms and conditions specified in the original Credit, with the exception of:

• the amount of the Credit, • any unit price stated therein, • the expiry date, • the last date for presentation of documents in accordance with Article 43 • the period for shipment, any or all of which may be reduced or curtailed.

The percentage for which insurance cover must be effected may be increased in such a way as to provide the amount of cover stipulated in the original Credit, or these Articles.

In addition, the name of the First Beneficiary can be substituted for that of the Applicant, but if the name of the Applicant is specifically required by the original Credit to appear in any document(s) other than the invoice, such requirement must be fulfilled.

I. The First Beneficiary has the right to substitute his own invoice(s) (and Draft(s)) for those of the Second Beneficiary(ies), for amounts not in excess of the original amount stipulated in the Credit and for the original unit prices if stipulated in the Credit, and upon such substitution of invoice(s) (and Draft(s)) the First Beneficiary can draw under the Credit for the difference, if any, between his invoice(s) and the Second Beneficiaries(ies') invoice(s).

L e g a l a n d P r a c t i c e P e r s p e c t i v e s o n D o c u m e n t a r y C r e d i t s u n d e r t h e U C P 6 0 0

1 8 4

When a Credit has been transferred and the First Beneficiary is to supply his own invoice(s) (and Draft(s)) in exchange for the Second Beneficiary's(ies') invoices(s) (and Draft(s)) but fails to do so on first demand, the Transferring Bank has the right to deliver to the Issuing Bank the documents received under the transferred Credit, including the Second Beneficiary's(ies') invoice(s) (and Draft(s)) without further responsibility to the First Beneficiary.

J. The First Beneficiary may request that payment or negotiation be effected to the Second Beneficiary(ies) at the place to which the Credit has been transferred up to and including the expiry date of the Credit, unless the original Credit expressly states that it may not be made available for payment or negotiation at a place other than that stipulated in the Credit. This is without prejudice to the First Beneficiary's right to substitute subsequently his own invoice(s) (and Draft(s)) for those of the Second Beneficiary(ies) and to claim any difference due to him.

ASSIGNMENT OF PROCEEDS ARTICLE 49: Assignment of Proceeds The fact that a Credit is not stated to be transferable shall not affect the Beneficiary's right to assign any proceeds to which he may be, or may become, entitled under such Credit, in accordance with the provisions of the applicable law. This Article relates only to the assignment of proceeds and not to the assignment of the right to perform under the Credit itself.

ICC ARBITRATION Contracting parties that wish to have the possibility of resorting to ICC Arbitration in the event of a dispute with their contracting partner should specifically and clearly agree upon ICC Arbitration in their contract or, in the event no single contractual document exists, in the exchange of correspondence which constitutes the agreement between them. The fact of issuing a letter of credit subject to the UCP 500 does NOT by itself constitute an agreement to have resort to ICC Arbitration. The following standard arbitration clause is recommended by the ICC:

"All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules".