As explained in our previous couple of blogs, the explanatory notes accompanying the recent ICC Banking Commission decision not to proceed with a revision of UCP 600 contained a number of answers to questions raised by practitioners in different parts of the world.
We have addressed a few more of these queries below by stating the issue and the response from the ICC.
Inoperative credits. Clarification as to how and when the credit becomes operative.
- This is partially addressed in UCP 600 article 11 and there is no valid reason for expansion. In any event, very few credits are issued in this manner nowadays.
Allow partial acceptance of amendments.
- Non-allowance of the partial acceptance of amendments is not a new concept and was also apparent in UCP 500. Allowing partial acceptance has the potential to lead to greater confusion and is, rightly, discouraged.
- From a legal perspective, and as outlined in ‘Jack: Documentary Credits', the contractual analysis is that the bank's offer to amend is a single offer only capable of acceptance as a whole. A request by the beneficiary to accept some but not all of the offered amendments constitutes a counter-offer, which the banks in their turn may accept or refuse, but which in any event kills off the original offer and prevents it from being subsequently accepted.
Delete "...and any subsequent instalment" in article 32: what is the logic behind the current wording?
- The intent of this article is the same as in UCP 500.
- The potential to still allow the credit to be valid for future instalments was considered by the UCP 600 drafting group.
- However, the prevailing view of the majority of ICC National Committees was that by including a specific schedule in the credit, there is a definite requirement for either a drawing to be made or goods to be shipped within a specific period.
- Failure on the part of the beneficiary to do so could result in a financial or other risk to the applicant. Therefore, there was a need for a penalty if the beneficiary does not comply with the instalment schedule. The penalty also focuses the applicant and beneficiary on what will be the status of the goods not shipped within the instalment i.e., lost or carried forward to the next or a future shipment. The credit would need to be amended accordingly. Removing the penalty leaves a gap as to what happens regarding those goods.
Delete any reference to standby credit; why use UCP 600 and ISP98 in parallel; use URDG 758 for standby letters of credit.
- UCP 600 is not particularly user-friendly when it comes to standby credits. However, the removal of the phrase "(including, to the extent to which they may be applicable, any standby letter of credit)" from article 1 would not necessarily stop any bank from issuing a standby credit subject to a future revision of UCP.
- There is nothing to prevent URDG 758 being utilised for standby credits. However, as stated in the Guide to ICC Uniform Rules for Demand Guarantees URDG 758, standby credits are technically within the scope of URDG, but their issuers may find it more convenient to opt for the ICC Uniform Customs and Practice for Documentary Credits (UCP) or possibly the International Standby Practices (ISP98), since standby credits use mechanisms, including confirmation and payment by acceptance or negotiation of drafts, that are more akin to those utilised for documentary credits.
- In addition, this is not a practical step as there are many thousands of standby credits issued yearly subject to UCP and which choose the UCP over ISP98 for specific reasons.
- The ICC cannot force a specific discipline of rules, in this case, on the marketplace.
Force Majeure article. Should a sanctions article be added, or perhaps be included as a sub-article of article 36 ‘Force Majeure'?
- The current wording does not cover sanctions although, regardless of this, the applicable law will always override the UCP.
- Sanctions are not a force majeure (UCP) issue - they are not acts of god but regulatory imposed issues (similar to injunctions) and would have to be dealt with separately from force majeure.
- This is better dealt with from a practice viewpoint rather than a rule perspective.
Introduce a rule that banks should not charge discrepancy fees.
- This is a matter of practice for each individual bank and UCP cannot mandate how the market handles this issue.