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3 x 3 Commentary on UCP Draft
By Kim Christensen
When I examine the anatomy of the UCP 600 Draft I notice some Draft articles
good, the other risky or bad. I take up for discussion:
- 3 good ones
- 3 risky ones
- 3 bad ones
The 3 good ones
3 examples of changes that are good in the sense that they help to make
the rules more clear and/or help to reduce discrepancies in the documents.
1: Article 30
I am so pleased that article 30 from UCP 500 has been deleted from the
draft. This is surely a right move. The interesting thing however will then
be how the forwarder is defined by the ICC. There is a great need to rethink
this – to make it more compliant with today’s industry practice. As I have
argued before I think that ISBP paragraph 77 is simply wrong – and should be
changed. This rough statement is explained in more detail in DCInsight
Volume 11 Number 3 (End the fuss about transport documents issued by
forwarders).
2: Reasonable time rule
Another pleasant innovation is the removal of the reasonable time rule;
i.e. the time that a bank has to refuse the documents. In a world where the
processing of LC transactions must be a fast and smooth as possible, it
makes no sense of having elastic rules: How many days apply? Are the bank to
evaluate that for each and every set of documents – and what if the judge
reaches another conclusion? In any case, I strongly believe that this rule
is to blame for a large number of refusals – because the bank decides to
refuse BEFORE asking the applicant for a waiver – simply because they are
afraid to cross the “invisible reasonable time line”. Surely the intentions
should be to contact the applicant for a waiver in order to AVOID refusing
the documents.
I am aware that it has been argued that the removal of the reasonable
time rule, will mean that some banks will only pay on the fifth day; i.e.
later than today. First of all I think that “these” banks are the same ones
that pay on the seventh day – today. Further one should mention that a new
article has been proposed, clearly saying that when the documents are
approved by the issuing bank – that bank must pay.
3: Addresses
A controversial issue has been the addresses of he parties mentioned in
the credit (See e.g. the ViewPoint interview with Mr. Heinz Hertl). In
general the proposed rule is, that the addresses need not be identical – as
long as it is within the same country. Although I would have liked the rule
to go even further (!!), I think it is a good step in the right direction –
which will save many banks from many refusals. It has been said – that you
may be in doubt whether e.g. the beneficiary is the correct one. I think
this is rather hypothetical. The advising bank will know which beneficiary
is the correct one – and should there be one credit advised to a wrong part
– it is highly unlikely that that part will produce the documents and
present them under the LC.
The 3 risky ones
3 examples of changes that seems risky; not because their logic fails –
or they aim in the wrong direction – but because new “concepts” or “words”
are introduced – which may result I many discussions and different
interpretations.
1: Negotiation
Many efforts has been done in order to define the concept of
“negotiation” better”. In the new one the term “giving value” is no longer
there – instead it talks about “… the purchase … of drafts … and/or
documents, by either advancing or agreeing to advance funds …” [excerpt]
It is not for me to say that this is a bad definition, but since there is
so strong focus on negotiation, it is risky to add new words. No one can
predict how a court would interpret this: which criteria must be fulfilled
before you have “purchased”?
2: Deferred payments
A sub-article has been included to sole the famous “Banco Santander”
case. It states that if a credit is available the deferred payment the
nominated bank is authorized to “prepay or purchase”.
Once again – it is not for me to say whether this will work or not – but
it is risky to introduce new words like “prepay”; looking at the definition
of negotiation which says “advance funds” – one may ask what is the
difference – and perhaps a judge will evaluate that there is a difference
because two different words have been used.
3: Amendments
The rules of how to handle amendments has been changed as well. The
changes seems logic since a bank that advises an amendment now MUST inform
the bank form which it received the amendment of any acceptance or rejection.
This seems not a bad step since it is more “firm” than the UCP 500
wording (should). One may however ask what the consequence is if a bank
fails to do so – and further – since this is a new rule, I think that we may
come across many very different interpretations of that rule. Please bear in
mind, that this will/must change the process in many banks; especially if
such bank does not notify anything to the issuing bank today.
The 3 bad ones
3 examples of articles that are “bad” in the sense – that they should be
changed – or should be changed more. The examples mentions all circle around
aligning the rules to current insurance and transport practice.
1: Insurance; date of effectiveness
Even in this draft the issuance date of the insurance document is linked
to whether or not the insurance is effective. It is been proved without any
doubt that this is simply wrong [see e.g. T.O. Lee article
The Effective Date of a Cargo Insurance Policy] – so
I do hope that this will finally be changed.
2: On board notations
If you are a beneficiary or a shipping line, trying to find out how to
make an on board notation on a port-to-port bill of lading you are surely to
be confused. This article (not hat far from article 23 of UCP 500) mentions
a number of ways for this on-board notation to be stated; depending on
whether:
- it is an “on-board B/L”
- It is received for shipment B/L
- If it mentions “intended vessel”
- If place of receipt is different from port of loading
My hope is that the rules just clearly said that it should appear
unambiguously which vessel – at which port and at what date the goods has
been shipped.
3: Transport documents
In general I feel that much more work needs to be done with the transport
articles. It seems that we have not come as far as we have with some of the
other articles. To me there are some “peculiarities” that ought to be
cleared before finalizing the UCP 600:
* There still is a document for port-to-port shipments. It is s given
fact that more and more transport agreements are made on “door-to-door”
basis; i.e. calling for a multimodal transport document. On the other hand
the transaction may well be on FOB or CIF basis – so a shipped on board
notations may be required.
* On the other hand there is the multimodal transport document – which
does not call for an on-board notation.
* Talking about the multimodal transport document – is this – by the way
– a negotiable document? And what about the multimodal waybill?
* The multimodal transport document is now defined as “A multimodal
transport document, however named…”. Gone is (in my view correctly) the
“least two modes of transport” – but what kind of document is left here.
Could it be an Air waybill?
* The non-negotiable sea waybill is defined as covering “port-to-port”
shipments; in real life it is however defined as a document covering one or
more modes of transport – one leg however must be by sea.
So there are lots to work at; and it seems to me that one way of solving
this is simply to make two documents:
- one being negotiable, and
- one being non-negotiable
Then it is for the wording of the credit to define from where to where
the goods may be shipped – and in fact the new SWIFT rules could prove
helpful in that respect: expanding the two current “from” and “to” fields to
four – thereby mirroring the standard bill of lading form.
Those were my 3x3 views on the UCP 600 for the readers of LC VIEWS.
Please do comment – agree – disagree – as much as you like.
[also printed in LC VIEWS Newsletter No. 49 - June 2006)
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