UCP 600 has now been in force since 1st July 2007, so we have all had a while to see how the new rules work in practice.

In this article I will draw attention to a number of problematical issues with the new revision; but first, let's look at the various sources of guidance that are available to the letter of credit drafter and the document examiner.

Apart from UCP 600 itself, there is the ISBP 2007 revision (ICC publication no. 681) - essentially a technical exercise to align the International Standard Banking Practice publication with the new UCP.

We also now have the Commentary on UCP 600 (ICC publication no. 680.) This article-by-article analysis is written by the members of the UCP 600 Drafting Group. But critically, the Commentary is not approved by the ICC - it merely "reflects the Drafting Group's personal views."

We also now have the first batches of official ICC opinions on credits subject UCP 600. As we will see, the implications of some of these opinions are both surprising and disheartening!

I will be looking at these three issues:

• Credits that exclude or delete provisions of UCP 600
  
  
• Consistency/contradictions within the presented documents - sometimes known as the question of linkage
  
  
• Non-documentary conditions in the credit
  

Exclusions of provisions of the UCP

With the advent of UCP 600, many banks started to issue credits that sought to exclude one or more of its provisions. Popular exclusions included article 35 (documents lost in transit); various sub-articles within article 14 (standard for examination of documents); various sub-articles within article 28 (insurance document).

The difficulty with many of these exclusions is that they create a fatal ambiguity in the mind of the nominated and/or confirming bank For example, article 14(f) provides rules for the examination of documents where the credit does not stipulate who should issue the document, or the required data content. If the credit excludes article 14(f), then how is the document to be examined?

Or even worse, a credit may be rendered effectively unworkable! Articles 28 (h) and (i) refer to risks excluded in insurance documents. All insurance documents contain at least some exclusions, e.g. for risks such as terrorism. So if these sub-articles are simply excluded, it will be impossible to submit a compliant insurance document.

All this was discussed at some length in the ICC Official Opinion TA638rev, whose general conclusion included this advice.

"Banks should keep any exclusions (if at all needed) to a minimum, recognizing that it is often not as simple as merely making a statement in the credit that article X or sub-article Y is deleted or is not to apply. Very often there is a need for a new condition to be inserted into the credit to cover the void that the exclusion leaves."

The question of linkage

The issue here is that of inconsistencies and/or conflicts between the data in the documents required by the credit. UCP 500 dealt with this in articles 21 and 13(a), whilst in UCP 600 it is 14(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

This issue was the subject of fierce debate during the UCP revision process. A vocal contingent was in favour of dropping the requirement for between-document consistency altogether; but this view did not prevail. We have been told that the final agreed wording was an uncomfortable compromise that absolutely nobody was happy with!

A rationale for the wording in 14(d), plus an explanation on the Drafting Group's view on linkage, can be found in the Commentary on UCP. However our sense is that the issue will continue to rumble on for some time to come.

See the Mantissa Trade Tutor Forum for more on this

Non-documentary conditions

UCP 600 seeks to maintain the position of UCP 500, namely that non-documentary conditions in the credit are to be discouraged, and can be ignored by the document examiner.

However a recent ICC Opinion TA644rev muddies the waters considerably, by introducing the conflict/linkage issue via sub-article 14(d) - see above. In essence, under some circumstances a non-documentary condition can still be grounds for rejection of documents!

See the Mantissa Trade Tutor Forum for more on this

Roger Kreitman
Principal Consultant

June 2008

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