The UCP 600 - Changes and its effect on the examination of documents
(2007)Department of Law
- Abstract
- Letter of credit law are governed by two overriding principles. The principle of autonomy of the credit and the doctrine of strict compliance. The principle of autonomy can be read out of articles 4, 5 and 14 (a) UCP 600 and stipulates that banks deal with documents and not with goods. A letter of credit is a separate transaction from the sales contract and the bank isn't bound to the contract even if a reference to it is included in the credit. The obligation of a bank in a letter of credit transaction is to pay against conforming documents regardless of any dispute between the buyer and seller that may have arisen. Banks must therefore base their decision, whether the presentation is complying or not, solely on the tendered documents... (More)
- Letter of credit law are governed by two overriding principles. The principle of autonomy of the credit and the doctrine of strict compliance. The principle of autonomy can be read out of articles 4, 5 and 14 (a) UCP 600 and stipulates that banks deal with documents and not with goods. A letter of credit is a separate transaction from the sales contract and the bank isn't bound to the contract even if a reference to it is included in the credit. The obligation of a bank in a letter of credit transaction is to pay against conforming documents regardless of any dispute between the buyer and seller that may have arisen. Banks must therefore base their decision, whether the presentation is complying or not, solely on the tendered documents alone and aren't allowed to speculate about the underlying facts. The principle of autonomy ensures the seller of his right to get paid before he parts with the control over the goods and protects him from claims made by the buyer that the goods isn't up to contractual standard before he has received the purchase amount. The other principle, the doctrine of strict compliance, was laid down as a general principle as early as in 1926 in the case Equitable Trust Company of New York v. Dawson Partner Ltd. Equitable Trust Company of New York v. Dawson Partner Ltd. (1926) 27 Lloyd's rep. 49 before the first edition of UCP was introduced by the ICC. The principle, now in article 14 UCP 600, still stands and serves as the starting point in the examination of documents, conducted by banks, demanding that the tender strictly complies with the terms and conditions of the credit. Practical considerations have been made over the years, taking technical progress and development in the transport- and banking industry into consideration mitigating the doctrine in some respects. In the two latest revisions, UCP 500 and UCP 600, the containerization of goods has resulted in a provision allowing the bill of lading to indicate that transhipment will or may take place even when the credit expressly prohibits transhipment. Another change that affects the doctrine of strict compliance is that the address of the beneficiary and applicant need no longer be consistent in all documents, provided that they are within the same country as mentioned in the credit. In the United States a somewhat different view and construction of the doctrine has been adopted, allowing minor discrepancies that have no effect on the credit itself. These changes made in relation to strict compliance are less than those which had been contemplated and they may possibly help reduce the number of rejected presentations which was one of the main objectives with the revision. But the provision on consistency of data among the documents, article 14 (d) UCP 600, may very well have the opposite effect. Opinions have been raised that the detailed change force banks to scrutinize every document for discrepancies even more thoroughly than previously or assume the risk of becoming liable for damages. The notion ''on their face'', found in several articles in UCP 500, was discussed during the revision. Some felt that it didn't provide anything but doubt and it was argued that some misinterpreted it as meaning that banks should only look at the front side of a tendered document. In the end, the notion was retained only in connection to the standard of examination of documents. Whether or not the change of the time allowed for examining the documents will speed up the procedure is not clear. There are different opinions in the doctrine but it seems that the intent is for banks to conduct their examination as quickly as possible since article 15 UCP 600 states that the bank must honour when it has determined a presentation as complying. The previous practice by some banks of issuing credits that contained non-documentary conditions, which caused the issuance of a position paper by the ICC to explain the correct interpretation of UCP 500 and eradicate the issuance of credits containing such conditions, still caused some debate. The previous provision that such conditions were to be seen as not having been made is retained. This position paper, issued under UCP 500, which was to be seen as a reminder offering guidance in interpreting article 13 (c) UCP 500, will however no longer be applicable according to the introduction to UCP 600. Some were of the opinion that the issuance of the position paper only made the banks' decisions whether to accept or reject the documents unnecessarily complicated. Hopefully, the revision of UCP and the removal of the position paper will help come to terms with this issue once and for all. What constitutes an original document has earlier been a reason of dispute. UCP 600 seek to resolve this issue and the new provision changes previous practice when a document that bear a manual signature is presumed to be an original document. The articles governing specific documents such as the commercial invoice, transport- and insurance documents haven't undergone any significant material change. But an effort has been made to harmonize the provisions regarding signing of documents following one of the objectives of the revision, to simplify application and interpretation. Banks have been given more options what to do in the instance of discrepant documents. Previously, only two options were open to the bank. Now, four different choices exist and it is likely that a bank who finds discrepancies in the documents will refuse to accept the documents and hold them pending a waiver from the applicant. (Less)
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http://lup.lub.lu.se/student-papers/record/1558908
- author
- Jonsborg, Martin
- supervisor
- organization
- year
- 2007
- type
- H3 - Professional qualifications (4 Years - )
- subject
- keywords
- Bankrätt
- language
- English
- id
- 1558908
- date added to LUP
- 2010-03-08 15:55:23
- date last changed
- 2010-03-08 15:55:23
@misc{1558908,
abstract = {{Letter of credit law are governed by two overriding principles. The principle of autonomy of the credit and the doctrine of strict compliance. The principle of autonomy can be read out of articles 4, 5 and 14 (a) UCP 600 and stipulates that banks deal with documents and not with goods. A letter of credit is a separate transaction from the sales contract and the bank isn't bound to the contract even if a reference to it is included in the credit. The obligation of a bank in a letter of credit transaction is to pay against conforming documents regardless of any dispute between the buyer and seller that may have arisen. Banks must therefore base their decision, whether the presentation is complying or not, solely on the tendered documents alone and aren't allowed to speculate about the underlying facts. The principle of autonomy ensures the seller of his right to get paid before he parts with the control over the goods and protects him from claims made by the buyer that the goods isn't up to contractual standard before he has received the purchase amount. The other principle, the doctrine of strict compliance, was laid down as a general principle as early as in 1926 in the case Equitable Trust Company of New York v. Dawson Partner Ltd. Equitable Trust Company of New York v. Dawson Partner Ltd. (1926) 27 Lloyd's rep. 49 before the first edition of UCP was introduced by the ICC. The principle, now in article 14 UCP 600, still stands and serves as the starting point in the examination of documents, conducted by banks, demanding that the tender strictly complies with the terms and conditions of the credit. Practical considerations have been made over the years, taking technical progress and development in the transport- and banking industry into consideration mitigating the doctrine in some respects. In the two latest revisions, UCP 500 and UCP 600, the containerization of goods has resulted in a provision allowing the bill of lading to indicate that transhipment will or may take place even when the credit expressly prohibits transhipment. Another change that affects the doctrine of strict compliance is that the address of the beneficiary and applicant need no longer be consistent in all documents, provided that they are within the same country as mentioned in the credit. In the United States a somewhat different view and construction of the doctrine has been adopted, allowing minor discrepancies that have no effect on the credit itself. These changes made in relation to strict compliance are less than those which had been contemplated and they may possibly help reduce the number of rejected presentations which was one of the main objectives with the revision. But the provision on consistency of data among the documents, article 14 (d) UCP 600, may very well have the opposite effect. Opinions have been raised that the detailed change force banks to scrutinize every document for discrepancies even more thoroughly than previously or assume the risk of becoming liable for damages. The notion ''on their face'', found in several articles in UCP 500, was discussed during the revision. Some felt that it didn't provide anything but doubt and it was argued that some misinterpreted it as meaning that banks should only look at the front side of a tendered document. In the end, the notion was retained only in connection to the standard of examination of documents. Whether or not the change of the time allowed for examining the documents will speed up the procedure is not clear. There are different opinions in the doctrine but it seems that the intent is for banks to conduct their examination as quickly as possible since article 15 UCP 600 states that the bank must honour when it has determined a presentation as complying. The previous practice by some banks of issuing credits that contained non-documentary conditions, which caused the issuance of a position paper by the ICC to explain the correct interpretation of UCP 500 and eradicate the issuance of credits containing such conditions, still caused some debate. The previous provision that such conditions were to be seen as not having been made is retained. This position paper, issued under UCP 500, which was to be seen as a reminder offering guidance in interpreting article 13 (c) UCP 500, will however no longer be applicable according to the introduction to UCP 600. Some were of the opinion that the issuance of the position paper only made the banks' decisions whether to accept or reject the documents unnecessarily complicated. Hopefully, the revision of UCP and the removal of the position paper will help come to terms with this issue once and for all. What constitutes an original document has earlier been a reason of dispute. UCP 600 seek to resolve this issue and the new provision changes previous practice when a document that bear a manual signature is presumed to be an original document. The articles governing specific documents such as the commercial invoice, transport- and insurance documents haven't undergone any significant material change. But an effort has been made to harmonize the provisions regarding signing of documents following one of the objectives of the revision, to simplify application and interpretation. Banks have been given more options what to do in the instance of discrepant documents. Previously, only two options were open to the bank. Now, four different choices exist and it is likely that a bank who finds discrepancies in the documents will refuse to accept the documents and hold them pending a waiver from the applicant.}},
author = {{Jonsborg, Martin}},
language = {{eng}},
note = {{Student Paper}},
title = {{The UCP 600 - Changes and its effect on the examination of documents}},
year = {{2007}},
}