Comments to “Commentary on UCP 600”

1 Page 1 of 14 Article by article - a critical walkthrough the commentary on ucp 600 By Kim Christensen Introduction This document provides article by article Comments to the commentary on ucp 600 . This may seem odd as the commentary are already Comments ! However the purpose of this paper is to highlight the places in the ucp 600 where the rules has been changed which results in a potential change in practice providing an evaluation as to whether practices has in fact changed or not. The aim is to help bankers understand and apply the ucp 600 correctly. [Disclaimer: The advice and guidance found in this paper is given without any responsibility or liability on the part of the writer] Flags: CH: A change in practice that seem clear and to the point.

2 CL: A clarification of practice but not a real change. CA: A change in practice that is more or less ambiguous. Article Comments Flag 1 Application of ucp 600 (page 12) The real significant change here is that the so-called SWIFT rule has been removed, which means that no matter how the LC is issued it must expressly indicate the set of rules to which it is subject. Advice: 1. Issuing banks should always indicate the applicable rules in the LC by using the relevant SWIFT codes: * UCP LATEST VERSION * EUCP LATEST VERSION * UCPURR LATEST VERSION * EUCPURR LATEST VERSION * ISP LATEST VERSION * OTHR Or by clear wording in the LC.

3 2. Advising, nominated and confirming banks should make sure that applicable rules are mentioned when handling the LC. If they are not they should contact the issuing bank. CH 2 Applicant (page 15) The role of the applicant based on the new definition has been discussed in the LC community. The fact that as per the definition the applicant is the party on whose request the LC is issued and not necessarily the customer , has lead some commentators to ask what effect that would have on sub-article 18(a) saying that the invoice must be made out in the name of the applicant.

4 Can it be made out to another party than the one mentioned as applicant in the LC. The commentary does not answer this question. CA Kim Christensen, November 2007. For permission to re-print please contact Page 2 of 14 Advice: If the invoice is to be issued to a party other than the one mention as applicant in the LC, the LC should so authorize. 2 Negotiation (page 22) The Comments made to negotiation do in fact clarify the concept a bit more that the ucp 600 wording, as it says An agreement to advance funds if and when funds are received from the issuing bank is not negotiation under this definition.

5 CL 3 Irrevocable (page 26) A credit is now irrevocable even if there is no indication to that effect. The tricky part is where an LC under ucp 600 states that it is revocable which rules would then apply? The commentary does not answer this question. Advice: If an LC received states that it is revocable without further indication, contact the issuing bank for a clarification. CH 6 Freely negotiable (page 33) An LC can now be made freely available both by payment, deferred payment, acceptance and negotiation. CH 6 Availability and place for presentation (page 33) It is now made clear that a credit available with a nominated bank is also available with the issuing bank and that a place for presentation other than that of the issuing bank is in addition to the place of the issuing bank.

6 CL 6 Draft drawn on the applicant (page 34) It is made clear that an LC calling for a draft on the applicant would be treated as any other required document therefore the LC must state the requirements for such document. Advice: Great care should be observed when an LC calls for a draft drawn on the applicant so that the obligation by the issuing bank is not depending on whether or not the draft is accepted / paid by the applicant. CL 7 Prepay or purchase (page 37) The obligation of the issuing bank to reimburse a nominated bank that has honoured or negotiated is not depending on whether the nominated bank has prepaid or purchased.

7 This is an important addition trying to prevent cases like the Banco Santander case. This article has a clear link to article 12 (b). CH Kim Christensen, November 2007. For permission to re-print please contact Page 3 of 14 8 Prepay or purchase (page 43) The obligation of the confirming bank to reimburse a nominated bank that has honoured or negotiated is not depending on whether the nominated bank has prepaid or purchased. This is an important addition trying to prevent cases like the Banco Santander case. This article has a clear link to article 12 (b). CH 9 Advising banks obligations (page 46) Article 9 underlines the obligations on the advising bank: 1.

8 That the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit, and 2. that the advice accurately reflects the terms and conditions of the credit As for 1. the wording satisfied itself is explained further by saying: the new provision aligns itself more closely with the standard practices of banks as to what they actually do in authenticating a documentary credit or amendment . CH 9 Second advising bank (page 46) A new concept introduced in ucp 600 is second advising bank . The LC community has discussed what is required for a bank to become a second advising bank; is it the advising bank that asks another bank to advice the LC or must that request come from the issuing bank.

9 How can a second advising bank accept an obligation to the effect that the advice accurately reflects the terms and conditions of the credit , when the second advising bank has not seen the original credit but only the advise from the advising bank ? The commentary does not provide a definite answer. CA 10 Amendments into force unless rejected (page 49) ucp 600 includes position paper no. 1 principle that an amendment should not include a statement to the effect that if it is not rejected with a certain period of time then it is accepted. This is duly reflected in the commentary .

10 CL 12 Nomination = authorization to prepay or purchase (page 53) It is now stated clear and precise that 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 This is an important addition trying to prevent cases like the Banco Santander case. This article has a clear link to sub-articles 7(c) and 8(c), CH 13 Reimbursements should not be made subject to any expiry date (page 57) The rules are now clear on the point that reimbursements should not be made subject to any expiry date.