Review of the 7 UCP Articles

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T R E A S U R Y S E R V I C E S
UCP 600 Update
Robert L. Foutts November 2, 2006
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Everything you wanted to know about the UCP 600
but were afraid to ask
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UCP 600 ADOPTED!

• Final text of UCP 600 was unanimously approved on
  October 25, 2006 at the ICC Banking Committee
  meeting in Paris, France
• UCP 600 will become effective on July 1, 2007.

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Uniform Customs and Practice for Documentary
Credits

• The UCP is the work of the ICC, a private
  international organization founded in 1919 and is
  formulated entirely by experts in the private
  sector. It remains, to date, the most successful
  set of private rules for trade ever developed.

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Uniform Customs and Practice for Documentary
Credits

• UCP 600 represents the sixth (6th) revision of
  the Uniform Customs and Practice for Documentary
  Credits (the UCP), since its inception by the
  International Chamber of Commerce (the ICC) in
  1933.
• UCP publication number 82 created in 1933.
• UCP publication number 151, 1951 revision.
• UCP Publication Number 222, 1962 revision.
• UCP Publication Number 290, 1974 revision
• UCP Publication Number 400, 1983 revision.
• UCP Publication Number 500, 1993 Revision.

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The UCP 600 Revision

• The development of the UCP 600 revision began in
  May of 2003, under the auspices of the ICC
  Commission on Banking Technique and Practice (the
  Banking Commission).
• The Drafting Group, comprised of 9 members was
  headed by Gary Collyer, the Technical Advisor to
  the ICC Banking Commission and formerly a
  Corporate Director of ABN Bank N.V., London
  England.

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The UCP 600 Revision

• A UCP Consulting Group was also established as an
  advisory body to the Drafting Group. This group
  was co-chaired by John Turnbull, Deputy General
  Manager, Sumitomo Mitsui Banking Corporation
  Europe Ltd., London and Carlo Di Ninni, Advisor,
  Italian Bankers Association, Rome and made up of
  more than 40 banking and transport industry
  experts from 26 countries.

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The UCP 600 Revision

• More than 400 members of the ICC Banking
  Commission reviewed and recommended changes to
  the various drafts.
• The majority of the 91 ICC National Committees
  took an active role soliciting and consolidating
  comments from their members.
• Representatives from the transport and insurance
  industries helped to shape the final draft.

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The UCP 600 Revision

• Some Statistics
• The Banking Commission has had a total of 7 days
  of discussions on the text.
• The UCP Drafting Group has met 15 times and
  reviewed around 5,000 individual comments from
  national committees.
• There were 15 drafts sent out, 3 of which were
  complete drafts and 9 of which were reviewed by
  the Consulting Group before being sent to the
  national committees.
• Several relevant drafts were sent for review to
  the ICC Commission of Transport and Logistics,
  the Commission of Commercial Law and Practice and
  the Committee on Insurance.

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The UCP 600 Revision Some Results of National
Committee Votes on Selected Issues

• Retention or removal of the expression on its
  face. 67 voted to remove, 33 to keep. The
  result was to keep it in only one place because
  of court precedents.
• Delete or retain and define reasonable time.
  97 voted to delete, 3 to keep. The phrase was
  removed from the final text.
• If reasonable time were to be deleted, how many
  days should be the maximum period for acceptance
  or refusal of documents? 41 voted for 5 days,
  25 for 6 days, 28 for 7 days, 6 gave no
  comments. Five days are used in the final text.

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The UCP 600 Revision Some Results of National
Committee Votes on Selected Issues

• Whether to use the term parties or banks in
  the rules. 73 voted for banks, 24 for parties
  and 3 had no view either way. Banks is used in
  the final text.
• Deferred payment credits. Whether to allow for
  discounting or not. 75 voted yes, and 27 voted
  no. The result is three sub-articles on
  discounting included in the final text (in
  articles 7, 8 and 12).
• Whether to retain the equivalent of Article 28 of
  UCP 500 or split it into three separate articles.
  54 voted to keep it as is and 45 voted to split
  it. The final text retains road, rail and inland
  waterway transport documents in a single article
  as it was in UCP 500. (The new article 24.)

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The UCP 600 Revision Some Results of National
Committee Votes on Selected Issues

• Whether there was a need to keep the equivalent
  of UCP 500 Article 30 concerning freight
  forwarder bills of lading. 82 voted to remove
  and 18 voted to keep. In the final version,
  sub-article 14 (i) indicates that a transport
  document may be issued by a party other than the
  carrier, master, etc. if certain conditions are
  met.
• Whether defined terms should be capitalized or
  not. 49 voted to capitalize, 41 to not and 10
  offered no decision. Given the closeness of the
  vote and the fact that a text with capitalization
  was overloaded with capital letters, the decision
  was taken not to capitalize.

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The UCP 600 Revision Some Results of National
Committee Votes on Selected Issues

• Request for new articles" to be included in the
  rules. 13 suggestions were but no single
  suggestion received more than 10 country votes,
  therefore, no new articles are included in the
  final text.
• Non-documentary conditions. Three options were
  given, two of which were variations on the
  current UCP 500 text. 81 voted to retain the
  current wording with 19 splitting their vote
  between the other two options. The main theme of
  the UCP 500 wording was included in the final
  text of Article 14.

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The UCP 600 RevisionSome Results of National
Committee Votes on Selected Issues

• Force majeure. Whether to use the current wording
  or a five banking day period after the bank
  re-opens. 49 voted to keep as is, 51 change to
  5 days. Due to no clear guidance, the wording was
  retained as currently exists in UCP 500.
• Inconsistent data sub-article 14(d) of UCP 600.
  91 voted for the concept now in this sub-article
  with 9 voting in favor of a version that would
  not require banks to check data across documents.
• Whether to retain negotiation as a settlement
  type. The vote was more than 3-1 to retain it.
  Negotiation remains in the final text as a
  settlement type.

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The UCP 600 Revision

• Some Highlights
• Fewer articles. UCP600 contains 39 articles. The
  UCP 500 has 49.
• A replacement of the term "reasonable time" with
  a definite number of days (5) for examining and
  determining compliance of documents
• A new provision concerning addresses of the
  beneficiary and the applicant
• An expanded discussion of "original documents"
  and
• Re-drafted transport articles aimed at resolving
  confusion over the identification of carriers and
  agents

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The UCP 600 Revision

• Some Highlights (continued)
• A new section of "definitions", containing terms
  such as "honour" and "negotiation.
• Honor means, i) to pay at sight if the credit is
  available by sight payment, ii) to incur a
  deferred payment undertaking and pay at maturity
  if the credit is available by deferred payment,
  (iii) to accept a bill of exchange (draft)
  drawn by the beneficiary and pay at maturity if
  the credit is available by acceptance.
• 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.

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Notable Changes

• UCP500 Articles not incorporated into UCP600
  text
• Article 5 Instructions to Issue/Advise Credits
• Article 6 Revocable v. Irrevocable Credits
• Article 8 Revocation of a Credit
• Article 12 Incomplete or Unclear Instructions
• Article 38 Other Documents
• Content of Articles 2, 6, 9, 10, 20, 21, 22, 30,
  31, 33, 35, 36, 46 and 47 were merged or
  otherwise provided for in other ways within the
  text of the UCP 600.

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Notable Changes

• New to UCP - Article 2 Definitions
• Advising bank, Applicant, Banking Day,
  Beneficiary, Complying Presentation,
  Confirmation, Confirming bank, Credit, Honour,
  Issuing bank, Negotiation, Nominated bank,
  Presentation and Presenter.
• New to UCP - Article 3 Interpretations
• Mainly conditions taken from UCP 500 Articles
  20, 46 and 47
• Plus wider application of terminology i.e.,
  "Unless required to be used in a document, words
  such as "prompt", "immediately" or "as soon as
  possible" will be disregarded" as opposed to its
  limited application under UCP 500 sub-Article
  46(b).

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Notable Changes

• Article 6 Availability, Expiry Date and Place for
  Presentation (includes)
• (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.
• (d) (i) A credit must stipulate an expiry date
  for presentation. An expiry date stated for
  honour or negotiation will be deemed to be an
  expiry date for presentation.
• (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.

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Notable Changes

• Article 7 Issuing Bank Undertaking (includes)
• 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 (includes)
• 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.

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Notable Changes

• Article 9 Advising of Credits and Amendments
  (includes)
• An advising bank may utilize the services of
  another bank ("second advising bank") to advise
  the credit and any amendment to the beneficiary.
• Article 10 Amendments (includes)
• 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.
• A provision in an amendment to the effect that
  the amendment shall become valid unless rejected
  by the beneficiary within a certain time shall be
  disregarded.

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Notable Changes

• Article 12 Nomination (includes)
• 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.
  (Also see Articles 7 and 8)
• Article 13 Bank-to-Bank Reimbursement
  Arrangements (includes)
• 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.

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Notable Changes

• Article 14 Standard for Examination of
  Documentation (includes)
• A nominated bank acting on its nomination, a
  confirming bank, if any, and the issuing bank
  must examine the presentation to determine, on
  the basis of the documents alone, whether or not
  the documents appear on their face to constitute
  a complying presentation.
• 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 does
  not depend on any upcoming expiry date or last
  day for presentation.
• A document may be dated prior to the issuance
  date of the credit, but must not be dated later
  than the date of its presentation.
• The shipper or consignor of the goods indicated
  on any document need not be the beneficiary of
  the credit.
• Note wider scope of application

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Notable Changes

• Article 14 Standard for Examination of
  Documentation (includes)
• 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.
• 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 beneficiarys and the
  applicants 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.

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Notable Changes

• Article 16 Discrepant Documents, Waiver and
  Notice (includes)
• The notice must state
• i. that the bank is refusing to honour or
  negotiate and
• ii. each discrepancy in respect of which the
  bank refuses to honour or negotiate and
• iii. a) that the bank is holding the documents
  pending further instructions from the presenter
  or
• b) 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
• c) that the bank is returning the documents or
  
• d) that the bank is acting in accordance with
  instructions previously received from the
  presenter.
• Note new options
• Article 17 Original Documents and Copies This
  article follows the principles in the ICC
  Decision for determination of an original
  document.

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Notable Changes

• Article 18 Commercial Invoice (includes)
• "... must be made out in the same currency as
  the credit ...
• Articles 19-25 represent the new Transport
  Articles of the UCP (main changes)
• First transport article is "Transport Document
  Covering at Least Two Different Modes of
  Transport" and replaces UCP500 Article 26
  "Multimodal Transport Document".
• Further alignment of the signing and
  identification of capacity gt Refined 'on board'
  notation requirements
• Re-definition of transhipment i.e., "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".
• For air transport, the flight stamp shown on the
  air waybill will now be considered the date of
  shipment whether requested in the credit or not.

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Notable Changes

• Article 27 Clean Transport Document (includes)
• 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
  (includes)
• Cover notes will/ not be accepted.
• "... 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
• An insurance document may contain reference to
  any exclusion clause.
• Note the change to the position in ISBP
  paragraph 186.

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Notable Changes

• Article 35 Disclaimer on Transmission and
  Translation (includes)
• 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.
• Excerpt from TA566 Conclusion On the basis
  that the letter of credit stipulated a nominated
  bank to negotiate (and that bank duly acted) or
  that the credit was freely negotiable, a
  negotiating bank would be entitled to receive
  payment from the issuing bank. A negotiating bank
  is protected by the content of Article 16 in the
  event that documents are lost in transit. In
  order that the issuing bank may carry out a
  review of the documents to establish compliance
  to the terms and conditions of the credit, it may
  request that the negotiating bank obtain copies
  of the transmitted documents."

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Notable Changes

• Article 36 Force Majeure
• A bank assumes no liability or responsibility
  for the consequences arising out of the
  interruption of its business by Acts or 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.
• Note addition of the coverage for "acts of
  terrorism"

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Notable Changes

• Article 38 Transferable Credits (includes)
• 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.
• 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.
• k. Presentation of documents by or on behalf
  of a second beneficiary must be made to the
  transferring bank.
• Note This article contains definitions for
  "Transferable credit", "Second beneficiary",
  First beneficiary", "Transferring bank" and
  "Transferred credit".

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Summary of Changes

• The phrase "reasonable time" for acceptance or
  refusal of documents has been replaced by a firm
  period of five banking days.
• The number of articles reduced to 39.
• New provisions allow for the discounting of
  deferred payment credits.
• Banks can now accept an insurance document that
  contains reference to any exclusion clause.
• New sections on "definitions" and
  "interpretations" have been added to clarify the
  meaning of ambiguous terms.
• Credit must state if reimbursement is subject to
  the ICC rules for bank to bank reimbursements.

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Summary of Changes (continued)

• An applicant or beneficiary address appearing in
  any stipulated document need not be the same but
  must be within the same country as the address
  stated in the credit and contact details such as
  fax, phone, email and the like, when stated as a
  part of the applicant or beneficiary address will
  be disregardedunless the address and contact
  details appear as part of the consignee or notify
  party details on a transport document subject to
  the transport document articles of the UCP 600.
  In that case they must appear as stated in the
  credit.
• 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.

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Summary of Changes (continued)

• The flight stamp shown on an airway bill will be
  considered as the date of shipment, whether
  requested in the credit or not.
• The turndown notice has two new options (i) to
  hold documents pending applicant waiver or
  receipt of additional instructions from the
  presenter or (ii) that the bank is acting in
  accordance with instructions previously received
  from presenter.
• At least one original of each document stipulated
  in a credit must be presented.
• The concept of a revocable credit was removed
  from UCP.

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Impact/Challenge

• What is affected?
• Import letters of Credit
• Export Letters of credit
• Standby Letters of Credit
• LC Applications and Agreements
• LC Systems and Standard Letters
• Impact on SWIFT messages (notices of refusal,
  subject to URR 525?)

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Impact/Challenge

• What else is affected?
• eUCP will be updated.
• ISBP will be updated to reflect the new
  provisions of the UCP 600.

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Impact/Challenge

• The new rules will impact on ALL aspects of LC
  operations
• Who is affected
• Operations
• Sales
• Legal
• Trainers
• Multiple locations.
• Customers/Beneficiaries