Uniform Customs and Practices for Documentary Credit (UCPDC600) : Standard Practice applicable to Letter of Credit

The global trade value of goods exported throughout the world amounted to approximately 19 trillion U.S. dollars at current prices. Thus it is evident that Cross border trade has increased dramatically in the last 30 years and consequently there is a greater need for harmonization of commercial law at international Level. Obvious methods of creating transactional commercial law include international conventions and forms of soft Law. Legal harmonization is not only imposed but many a times is opted – for example a court in India may follow decision made by court in England. This Harmonization depends on how judicious the law, custom or practice is. Here the focus is on UCPDC which consist of a set of principles which standardize banking procedures for payments by way of documentary credits (Letter of Credit). Letter of Credit is most opted mechanism in international trade. Advantages of LC are – It is documentary in nature and independent of the sale contract because payment is linked with shipping documents. Subject to stipulations a seller can call for payment as soon as goods have been shipped and documents are tendered. Buyer can assure himself about the quality of the goods by stipulating and making inspection report must for payment. The UCP was first issued by the International Chamber of Commerce in 1933. It was constantly modified thereafter constantly. The last version of UCP 500 was introduced in 1993 and made effective from 01.01.1994. considering changes in the trade practices UCP 600 was introduced on 01.07.2007 replacing UCP 500. UCP 500 had 49 articles final version of UCP 600 has 39 articles alterations have made to cover some provisions for the first time like position of the second advising bank. Doctrine of Strict Compliance In arranging for the carriage of goods overseas , seller need the reassurance that the standards applied by banks in scrutinizing documents will not vary from country to country. An assurance was needed because if the documents are rejected this is likely to cause delay and expenses in selling the goods elsewhere. There must be strict compliance between documents tendered by the beneficiary and the stipulations in the letter of credit. Some Important (salient) provisions are given here under :-

1. The UCPDC contains rules that apply to a documentary credit when the text of the credit expressly indicates that it is subject to these rules. (Art 1)

2. Banks deal with documents and not with goods, services and performance to which documents may relate (Art 5)

3. A credit is irrevocable even if there is no indication to this effect (Art 3)

4. Credit are separate transactions from sale or other contracts on which it may be based. Banks are in no way concerned with or bound by such contract even if some reference to it is included in credit (Art 4)

5. An issuing bank is irrevocably bound to honor as of the time is issues the credit documents presented to it and if they constitute a complying presentation (Art 7)

6. A bank utilizing the services of an advising bank or second advising bank or advise a credit must use the same bank to advise any amendments there to (Art 9d)

7. 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 (Article 10a)

8. An authenticated tele transmission of credit or amendment will be deemed to be the operative credit or amendment and any subsequent mail confirmation shall be disregarded (Art 11a)

9. A nominated bank acting on its nomination, a confirming bank, if any and the issuing bank shall have a maximum of 5 banking days following the day of presentation to determine if a presentation is complying. The period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last date for presentation (Art 14b)

10. A document presented but not required by the credit will be disregarded and may be returned to the presenter (Art 14g)

11. when an issuing bank determines that a presentation is complying it must be honored. B. when the confirming bank determines that a presentation is complying it must honor or negotiate and forward the documents to the issuing bank.

12. when the nominated bank a confirming bank or the issuing bak decides to refuse to honor or negotiate it must give a notice in terms of Art 16c to the presenter by telecommunication or other expeditious means no later than the close of the fifth banking day following the day of presentation. (Art 16d)

13. At least one original of each document stipulated in the credit must be presented (Art 17a)

14. A bank shall treat as an original any document bearing an apparently original signature, mark, stamp or lable of the issuer of the document unless the document itself indicate that it is not as original.

15. A bill of lading or other transport documents such as non negotiable sea way bill charter party bill of lading, air transport documents etc. required in the credit and submitted by the presenter must appear to be signed by the carrier/master/owner/charterer/named agent and must be identified as that of the carrier, master, owner etc. or by named agent on behalf of the aforesaid. It should also indicate that the goods have been shipped on board or accepted for carriage etc. and indicate the place of shipment and the place of destination as stated in the credit (Arts 22-24)

16. A bank shall accept only a clean transport document. A clean 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 transport document even if a credit has a requirement for that transport document even if a credit has a requirement for that transport document to be ‘clean on board’ (Art 27)

17. Insurance documents must be issued and signed by insurance company or underwriter or agent. Original of insurance document must be presented, cover note issued by banker will not be accepted. (Art 28)

18. The insurance should be effective from the date of loading and must be issued in the same currency as the credit. If there is no indication in the credit of insurance coverage required, the insurance coverage must be 110% of the CIF or CIP value of the goods and if this value cannot be determined from the documents, the amount of insurance coverage must be calculated on the basis of the amount for which honor or negotiation is requested or the gross value of the goods shown on the invoice, whichever is greater ( Art 28)

19. When a credit requires insurance against ‘all risks’ and an insurance document is presented containing any ‘all risk’ notation or clause whether or not bearing the heading ‘ all risk as’ the insurance document will be accepted without regard to any risks stated to be excluded (Art 28h)

20. If the expiry date of the credit or the last day for presentation falls on a day when the bank is closed for reason other that ‘force majeure’, the expiry date will be extended to the first following day on which such bank is open but the latest date of shipment will not be extended for the aforesaid reason. (art 29a)

21. If presentation is made on the following banking day, a nominated bank must provide the issuing or confirming bank with a statement on its covering schedule that the presentation was made within the time limits extended in accordance with article 29a.

22. A bank has no obligation to accept a presentation outside of its banking hours (Art 33)

23. A bank assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of the documents etc. (Art 34)

24. Article 38 deals with the rule regarding ‘Transferable Credit’.

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