UCP 600 - Key Issues
The UCP 600 became available for incorporation into letters of credit from 1st July 2007 and replaces UCP
500. It is expected that letters of credit issued after that date will be subject to the UCP 600. The UCP 500 has not been repealed and as such and in principle, parties could still opt for the UCP 500.
Rationale for the UCP 600
Revisions of the UCP 500 were initiated by International Chamber of Commerce (“ICC”) which mandated the
Banking Commission of the ICC to bring the UCP procedure in line with the present times. Though the UCP
500 had obvious benefits, the international business community found the procedure embedded in the UCP
500 cumbersome and open to ambiguity, error and document rejections.
New and Simplified Structure
One striking feature of the UCP 600 is its lean and simplified look. It is set out in a new and simplified structure. The number of articles have been reduced from 49 to 39. The practice of position papers which were issued previously to clarify rules have been discontinued.
The old UCP 500 was subjected to major drafting changes. Every single article has been re-drafted and tightened with a view to not only to bringing simplicity and clarity to the language but to remove ambiguity and reduce document rejections.
UCP 600 Summary of New Provisions
Set out below is a summary of the new provisions:
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a leaner set of rules, with 38 articles rather than 49 articles;
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a new section of “Definitions”, containing terms such as “honour”, “credit” and “negotiation”;
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a replacement of the term “reasonable time” with a definite number of days for examining and determining compliance of documents;
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a new provision concerning addresses of the beneficiary and the applicant;
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an expanded discussion of “original documents”; and
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re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents. To elaborate on some of the more important changes.
1. The duties and obligations of the transaction parties to the letter of credit (mainly banks) have became more transparent in the UCP 600. One example to that effect is the article covering the advising bank which states: …….. by advising the credit or amendment, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit or amendment and that the advice accurately reflects the terms and conditions of the credit or amendment received ……..
2. A new concept introduced is “Honour” – which is defined as:
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to pay at sight if the credit is available by sight payment;
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to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment; and
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to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity if the credit is
available by acceptance.
3. The phrase “reasonable time”, being the period in which banks previously had to accept or refuse documents has been replaced with a defined period of five banking days.
4. A credit cannot now be amended or cancelled without the agreement of the issuing bank, confirming bank
(if any) and the beneficiary. This is to avoid parties from unintentionally accepting amendments made to credits by default.
5. Documents no longer need to be “consistent” which, in practice, waters down the requirement under the previous rules. Now, documents need only to be “not conflicting”. This is an important change. This would in practice reduce the number of inconsistencies as information in one document need not be identical in another document so long as it does not conflict with the information in the other documents.
6. Addresses of beneficiaries and applicants need no longer be as mentioned in the documentary credit. They must however be within the same country. Contact details (like phone and fax numbers) may be disregarded
– and if stated they need not be as in the credit. An exception to this is where the address and the contact details are used in transport documents where the address and content details must be stated in the credit.
7. If a credit contains a condition without stipulating the document to indicate compliance with that condition, the bank will deem the condition as not stated and will disregard it. To give an illustration, if a credit requires that goods must be shipped on a vessel classified by, for instance, Den Norske Veritas free of recommendations but the credit does not call for tender of a classification certificate from the named classification society, that condition can be ignored.
Conclusion
The UCP 600 contains a more simplified structure and should appease the critics of the UCP 500. The procedure in the UCP 500 was widely thought to be complicated, unwieldy and open to ambiguity and error.
The UCP 600 with a new simplified structure is expected to provide consistency in application and interpretation and to reduce the number of rejections of documents tendered under a letter of credit. Whether it does fulfill this role remains to be seen.
August 2007 by Mr C Chandrasegar (Senior Director, Corporate, Banking & Finance Department)
The contents of this Legal Summary are intended to provide general information only and whilst we endeavour to ensure that the information contained in it is accurate, we do not warrant its accuracy or completeness or accept any liability for any damage caused by relying on it. The contents should not be treated as a substitute for specific legal advice. If you would like to discuss the implications of the above material to your own circumstances, please do not hesitate to contact Mr C Chandrasegar at (65) 6622 3859 or email
ChandraSC@tpclaw.com.sg 