SCB Newsletter on UCP 600
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The Revision Process
With almost 3 1 /2 years taken from commencement to approval,
the content of UCP 600 represents the result of the most exhaustive
review of the UCP to date. A drafting group of 9 individuals, a
consulting group of 41 individuals from 26 countries, comments
regularly received from an average of
45-50 ICC National Committees and representatives of the Transport
and Insurance Industries bear testament to the amount of involvement
that has occurred in the revision of UCP 500. The result is 39
Articles, as opposed to UCP 500’s 49 Articles and a more streamlined
and easier to read document that should facilitate better
understanding, application and interpretation of the rules on a
global basis.
The Main Discussion and Voting Points
Like any other process that involves multiple viewpoints, comments
or ideas, the UCP 500 revision was no different in giving rise to
positions from which no clear consensus on direction could be drawn.
As such, there were numerous times during the revision that various
optional wording or structures were tendered by the drafting group
for consideration and voting. These included (with the overall
result) topics such as:
• Retention of negotiation as a settlement method (retained).
• Relevance of the words “on [its or their] face” in numerous places
in UCP (retained in one place – Article 14).
• Removal of ‘reasonable time’ (removed but maximum period for
examination reduced to 5 banking days).
• Need for a specific rule covering discounting of deferred payment
undertakings (catered for in Article 12).
• Re-classification of the requirements in determining consistency /
inconsistency of data in documents (catered for in Article 14).
Articles of UCP 500 that are not in UCP 600
There are 5 articles of UCP 500 that have not found their way into
UCP 600. These are:
• Article 8 and Article 6 (part) which refer to revocable letters of
credit. The limited usage of such instruments in today’s letter of
credit business led to the overall viewpoint that there was no
necessity to cover same in UCP 600. If an applicant or bank desire
to issue a revocable credit in the future, they have two options,
(1) issue the credit subject to UCP 600 and incorporate all the
conditions applicable to the revocability or,
(2) issue the revocable credit subject to UCP 500.
• Article 38, under the heading ‘Other Documents’, was removed at a
very early stage of the revision process. The usage of the content
of this article was seen as marginal at best.
• Articles 5 and 12 (Instructions to Issue / Amend Credits and
Incomplete or Unclear Instructions). These articles were seen as
representing standard requirements that should be expected of banks
in the establishment of letters of credit, thus not requiring
specific rules under UCP 600.
There are 6 articles in UCP 600 that are not found in UCP 500. These
are:
Definitions (Article 2), Interpretations (Article 3), Advising of
Credits and Amendments (Article 9), Nomination (Article 12),
Complying Presentation (Article 15) and Original Documents and
Copies (Article 17). Each of these will be covered in future issues
of this newsletter.
The Relationship of URR525, ISP98 and eUCP to UCP 600
Since the implementation of UCP 500, the ICC has published the
URR525 (Bank-to-Bank Reimbursement rules), the ISP98 (International
Standby Practices) and the eUCP (Electronic Supplement to the UCP).
The question in respect of these rules was ‘how should the products
that they cover be represented in UCP 600?’ The easiest option for
URR525 would have been to supplant the content into the UCP 600
equivalent of Article 19 of UCP 500 (i.e., Article 13).
Unfortunately, the ISP98 refer to the application of the ICC
Bank-to-Bank Reimbursement rules and therefore, they must remain as
a separate set of rules. The issue with ISP98 centred on whether the
implementation of a set of rules specifically covering standby
letters of credit would obviate the need for the UCP 600 to also
cover this product. Based on feedback from the ICC National
Committees, it was clear that there was still a ‘comfort’ level in
issuing standby letters of credit subject to UCP and therefore the
UCP 600 makes specific reference to the rules applying, as
applicable, to standby letters of credit.
The eUCP was probably the fastest set of rules developed by the ICC.
The perceived need for a set of rules covering electronic data in
documents has not come to fruition at the level expected.
There are various reasons for this, and as such, the eUCP remains a
supplement to the UCP 600 until some experience is gained as to
whether or not the rules represent the needs of the international
community.
UCP 600 - An analysis of Articles 1 – 6
Article 1 – Application of UCP
On first review, very little seems to have changed from the UCP 500
equivalent. However, there are some subtle differences that affect
the structure and content of UCP 600.
Firstly, the article makes reference to UCP 600 being “rules” that
apply to any documentary credit. This is the first time that the UCP
has been mentioned in the context of rules. By establishing the
articles as rules negates the need for an article to either commence
or include the words “unless otherwise stipulated in the credit” or
similar. You will not see those words used in the UCP 600, unlike
the numerous references that were made in UCP 500.
In a number of places in UCP 600 you will note the establishment of
a definitive rule e.g., sub-article 6 (c) states “A credit must not
be issued available by a draft drawn on the applicant”. In the
equivalent UCP 500 text, appearing at sub-articles 9 (a) (iv) and 9
(b) (iv), a similar position was expressed but then it explained
what would happen if a draft was nevertheless issued drawn on the
applicant. The concept in UCP 600 is that a rule is a rule.
Article 1 of UCP 600 allows for any rule to be modified or excluded
by the terms and conditions of a credit. Despite the fact that
following the implementation of UCP 500 the ICC introduced specific
rules for standby letters of credit, i.e., ISP98, the UCP 600 still
makes reference to the applicability of such instruments thereunder.
This is due to the high usage of UCP for standby letters of credit.
Article 2 – Definitions
This article contains definitions of the following parties and
terminology:
Advising bank, Applicant, Banking day, Beneficiary, Complying
presentation, Confirmation, Confirming bank, Credit, Honor, Issuing
bank, Negotiation, Nominated bank, Presentation and Presenter.
I will not focus on all of the definitions as most are fairly
obvious and well known. However, there are a few that need some
explanation.
Applicant – the reference to “party” does not impose any greater
role for the applicant under UCP 600. The use of “party” was merely
to signify that it may encompass one of any number of different
entities i.e., a bank, a customer, a customer of another bank
(outsourced processing) etc.
Banking day – there are two aspects to this definition. (1) that the
bank is regularly open and (2) at the place at which an act subject
to the rules is to be performed. A bank may be regularly open
Mondays to Saturdays but its trade department is only open Mondays
to Fridays. In this example, the bank is regularly open Mondays to
Saturdays but only ‘regularly’ open for trade transactions Mondays
to Fridays. In this context, a banking day would be any day between
Monday to Friday. National holidays would not be a day on which a
bank would ‘regularly’ be open.
Complying presentation – the reference in this definition to
“international standard banking practice” does not relate solely to
the ICC publication of the same name. International standard banking
practice as seen in this definition is wider than the publication.
There are a number of “practices’ that are carried out by banks
globally that are not encompassed within the ISBP publication.
Honor – the use of the word ‘Honor’ permits the removal of
repetitive text that appears as (a), (b) and (c) within the
definition. For example, article 7 includes “the issuing bank must
honour if the credit is available by”.
Negotiation – the definition emphasizes that negotiation relates to
the purchase of a draft drawn on a bank other than the nominated
bank. If it was drawn on the nominated bank, it would be a payment
or acceptance credit. Further, negotiation is either the advancing
or agreeing to advance funds to a beneficiary. Use of “agreeing to
advance” allows the bank and beneficiary to determine the terms
under which the negotiation will occur. These terms would include
when, for how much and whether or not the advance is with or without
recourse.
Article 3 – Interpretations
Most of the interpretations that are contained in this article have
been drawn from various articles of UCP 500, namely articles 2, 6,
20, 46 and 47. Two of the interpretations have been taken from the
ISBP and placed in this article.
(1) “The words ‘from’ and ‘after’, when used to determine a maturity
date exclude the date mentioned” – UCP 500 covered the issue of
“from” and “after” but only in relation to the ‘date terminology for
periods of shipment’. You will note that in the interpretations
article there are two separate interpretations in relation to the
word “from”. For maturity date calculation, it excludes the date
mentioned but for the determination of periods of shipment, it
includes the date mentioned.
(2) “Unless required to be used in a document, words such as
‘prompt’, ‘immediately’ or ‘as soon as possible’ will be
disregarded” – article 46 of UCP 500 made reference to these terms
but only in relation to ‘general expressions as to the dates for
shipment’.
ISBP widened the application to any usage of these terms. UCP 600
adopts the same stance as ISBP but creates a caveat where the credit
may require the word or words to appear within a document i.e.,
within a certification made by a beneficiary.
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