Comments on UCP Draft #1 (4 Nov 2003)

Comments on UCP Draft #1
(4 Nov 2003)

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18 November 2003

To: Members of the Consulting Group
UCP 500 Revision
ICC Banking Commission
Paris

Note: Words added or inserted are in italics.

Article 1 Application of UCP (v.1.0)

Line 8

Add:

A Credit issued or transmitted by SWIFT message(s) is subject to UCP even if not expressly stated. For a Credit not issued or transmitted by SWIFT message, the Advising Bank must indicate clearly the Rules, if any, that the advised Credit is subject to.

Reasons:

Some Credits may be issued by non-banks that may not be transmitted by SWIFT messages. Then there may be confusion as whether they are also automatically subject to UCP. These Credits must have express statements to achieve this effect.

Article 2 Meaning of Credit (v.1.0)

Line 13

Replace:

"Issuing Bank" to be replaced with "Issuer". It follows that terms Like "Confirming Bank", "Advising Bank", "Nominated Bank" "Drawee Bank" and the like should be replaced with "Confirmer", "Adviser", "Nominee" or "Nominated Party", "Drawee" and the like.

Reasons:

1. Non-banks can also issue Credits.
2. To be consistent with ISP98 terminology, where "Issuer" is used.

Line 15

Insert:

"other than drafts" after "accompanied by the documents".

Reasons:

1. A draft is solely provided for a bank's re-financing purpose and it is not a document required by the Applicant.
2. Such insertion would reduce the confusion as to whether discrepancies in a draft would trigger payment dishonour.

Article 3 Interpretation of these Articles (Definitions) (v1.0)

Line 24

Add:

Documentary Letter of Credit

Reasons:

This term is popular in some countries, for example, Canada.

Line 25

Replace:

"Credit" with "Credits" or "Credit(s)".

Reasons:

When the subject is plural in number, the object should be also plural in number.

Line 30

Replace:

"obligation" with "undertaking".

Reasons:

1. "Incur" should go better with "undertaking" than "obligation".
2. Undertaking is a better term to describe the voluntary nature of an action in acceptance of a draft that must be without any condition attached to it.

Line 36

Replace:

"to comply with the terms and conditions of the Credit and provided all other terms and conditions of the Credit are complied with" with "to comply with ALL the terms and conditions of the Credit".

Reasons:

1. No duplication. More clean and crispy.
2. Other terms and conditions may be inter-bank instructions that have nothing to do with the Beneficiary who should not be penalised with payment dishonour, for example, mailing documents in one mail, collection of certain bank charges.
3. From my experience in resolving disputes in letter of credit, this Article would certainly be used by certain Applicant-friendly bankers to dishonour payment, relying on inter-bank instructions or even so-called "discrepancies" in the covering schedule.

Article 5 Negotiation (v1.0)

Line 73

Add:

"without incurring" between "or" and "an" to comply with grammar rules.

Article 6 Issuing Bank (v1.0)

Line 83

Replace:

"to honour" with "the Issuing Bank/Issuer must honour"

Reasons:

1. To indicate clearly the obligator is the Issuing Bank.
2. To comply with grammar rules where "to honour" has no subject.
3. To highlight the obligation is a "must".

Line 85

Add:

"and paid at maturity" before "by a Nominated Bank".

Reasons:

To be consistent with the "payment duty" of the Nominated Bank at maturity for accepted drafts as described in line 88.

Line 86

Replace:

"to issue" with "the Issuing Bank/Issuer must issue".

Reasons:

1. To indicate clearly the obligator is the Issuing Bank.
2. To comply with grammar rules where "to issue" has no subject.
3. To highlight the duty is a "must".

Line 88

Replace:

"to pay" with "the Issuing Bank/Issuer must pay".

Reasons:

1. To indicate clearly the obligator is the Issuing Bank.
2. To comply with grammar rules where "to pay" has no subject.
3. To highlight the duty is a "must".

Line 91

Replace:

"to accept" with "the Issuing Bank/Issuer must accept"

Reasons:

1. To indicate clearly the obligator is the Issuing Bank.
2. To comply with grammar rules where "to accept" has no subject.
3. To highlight the duty is a "must".

Line 94

Replace:

"to pay" with "the Issuing Bank/Issuer must pay"

Reasons:

1. To indicate clearly the obligator is the Issuing Bank.
2. To comply with grammar rules where "to pay" has no subject.
3. To highlight the duty is a "must".

Line 97

Replace:

"to pay" with "the Issuing Bank/Issuer must pay"

Reasons:

1. To indicate clearly the obligator is the Issuing Bank.
2. To comply with grammar rules where "to pay" has no subject.
3. To highlight the duty is a "must".

Line 103

Shift:

"or negotiate" from the end of this sentence to follow immediately the word "honours" in line 102 for clarity.

Article 7 Confirming Bank (v1.0)

Line 116

Replace:

"to honour" with "the Confirming Bank/Confirmer must honour"

Reasons:

1. To indicate clearly the obligator is the Confirming Bank.
2. To comply with grammar rules where "to honour" has no subject.
3. To highlight the obligation is a "must".

Line 118

Add:

"and paid at maturity" before "by another Nominated Bank".

Reasons:

To be consistent with the "payment duty" of the Nominated Bank at maturity for accepted drafts as described in line 122.

Line 119

Replace:

"to issue" with "the Confirming Bank/Confirmer must issue".

Reasons:

1. To indicate clearly the obligator is the Confirming Bank.
2. To comply with grammar rules where "to issue" has no subject.
3. To highlight the duty is a "must".

Line 121

Replace:

"to pay" with "the Confirming Bank/Confirmer must pay"

Reasons:

1. To indicate clearly the obligator is the Confirming Bank.
2. To comply with grammar rules where "to pay" has no subject.
3. To highlight the duty is a "must".

Line 124

Replace:

"to accept" with "the Confirming Bank/Confirmer must accept"

Reasons:

1. To indicate clearly the obligator is the Confirming Bank.
2. To comply with grammar rules where "to accept" has no subject.
3. To highlight the duty is a "must".

Line 127

Replace:

"to pay" with "the Confirming Bank/Confirmer must pay"

Reasons:

1. To indicate clearly the obligator is the Confirming Bank.
2. To comply with grammar rules where "to pay" has no subject.
3. To highlight the duty is a "must".

Line 130

Replace:

"to negotiate" with "the Confirming Bank/Confirmer must negotiate"

Reasons:

1. To indicate clearly the obligator is the Confirming Bank.
2. To comply with grammar rules where "to negotiate" has no subject.
3. To highlight the duty is a "must".

Line 141

Delete:

"or negotiates" as it is in present tense whilst "honoured" is in past participle tense.

Insert:

"or has negotiated" immediately following "honoured drawings".

Line 144

Correct:

"advice" (a noun) should be "advise" (a verb) to follow grammar rules.

Article 9 Advising Bank (v1.0)

Line 161

Replace:

Whenever "Advising Bank" appears, replace it with "Adviser" to be consistent with "Issuer" and "Confirmer" and to allow non-banks to get involved in documentary credit business.

Line 167

Insert:

"of the Credit" immediately after "apparent authenticity" for clarity and to be consistent with line 169 and 171 that all state "authenticity of the Credit".

Line 169

Insert:

"apparent" before "authenticity" to be consistent with line 167.

Line 171

Insert:

"apparent" before "authenticity" to be consistent with line 167.

Article 11 Credits v. Contracts (v1.0)

Lines 205-208

Modify:

The beginning of this first sentence is in plural number (Credits) whilst at the end it is in singular number (Credit, a bank, such contract). "Such contracts" should be in plural number throughout. For consistency in number, the first sentence should be modified as follows:
"A Credit, by its nature, is a separate transaction from the sales or OTHER CONTRACTS on which it may be based and a bank is in no way concerned with or bound by SUCH CONTRACTS, even if any reference whatsoever to SUCH CONTRACTS is included in the credit."

Article 12 Instructions to Issue/Amend Credits (v1.0)

Line 219

Insert:

"clear, concise, consistent" after "complete".

Reasons:

1. To be consistent with the word "unclear" in Line 268.
2. Documentary credits from some countries, like Bangladesh, normally have at least four pages. This practice has to be discouraged.
3. Some documentary credits may bear inconsistent terms and conditions, as a kind of soft clauses to make compliance impossible. This would hurt the acceptance of documentary credits in international trade. The new UCP 600 should discourage this practice.

Line 224

Insert:

"or to quote contents of UCP 600 Articles or ISBP 645 Paragraphs" after "detail".

Reasons:

A lot of Credits from Bangladesh and India are quoting the UCP 500 Articles.

Line 226

Insert:

"transfer" after "advise".

Article 15 Incomplete or Unclear Instructions (v1.0)

Line 268

Insert:

"inconsistent" after "incomplete". "transfer" after "confirm".

Line 274

Add:

"without delay" at the end of the first paragraph, after "necessary information".

Reason:

To complement "without delay" in Line 277.

Line 277

Insert:

"transferred" after "confirmed".

(Old) Article 17 Force Majeure (v.10)

Line 303

Add:

Mirror Rule 3.14 of ISP98, which is more reasonable and fair to the Beneficiary in case of Force Majeure situations.

Article 19 Bank-to-Bank Reimbursement Arrangements (v1.0)

Line 332

Adopt:

[Alternative 1]

Reasons:

1. UCP 600 is a set of standardised rules. So is URR525.
2. UCP and URR should work as a team to achieve the full effect.
3. What is the purpose of creating and publishing URR if we do not use it in letter of credit operations?
4. [Alternative 2] would only create disputes and confusions by letting parties to make free choices.
5. If the letter of credit is silent about reimbursements subject to URR 525, it may affect the negotiability and confirmability of the letter of credit. This would make the letter of credit not so popular.
6. Quoting part of the URR 525 Articles is repetitive.
7. In case there is a revision of URR 525, which is probable, then there is a need to revise the UCP 600 as well, if part of the URR 525 Articles is quoted verbatim in the UCP 600. We are simply looking for troubles.

T. O. Lee

(905) 237-6465

(905) 237-6867

Line 8	Add:	A Credit issued or transmitted by SWIFT message(s) is subject to UCP even if not expressly stated. For a Credit not issued or transmitted by SWIFT message, the Advising Bank must indicate clearly the Rules, if any, that the advised Credit is subject to.
	Reasons:	Some Credits may be issued by non-banks that may not be transmitted by SWIFT messages. Then there may be confusion as whether they are also automatically subject to UCP. These Credits must have express statements to achieve this effect.

Line 13	Replace:	"Issuing Bank" to be replaced with "Issuer". It follows that terms Like "Confirming Bank", "Advising Bank", "Nominated Bank" "Drawee Bank" and the like should be replaced with "Confirmer", "Adviser", "Nominee" or "Nominated Party", "Drawee" and the like.
	Reasons:	1. Non-banks can also issue Credits. 2. To be consistent with ISP98 terminology, where "Issuer" is used.
Line 15	Insert:	"other than drafts" after "accompanied by the documents".
	Reasons:	1. A draft is solely provided for a bank's re-financing purpose and it is not a document required by the Applicant. 2. Such insertion would reduce the confusion as to whether discrepancies in a draft would trigger payment dishonour.

Line 24	Add:	Documentary Letter of Credit
	Reasons:	This term is popular in some countries, for example, Canada.
Line 25	Replace:	"Credit" with "Credits" or "Credit(s)".
	Reasons:	When the subject is plural in number, the object should be also plural in number.
Line 30	Replace:	"obligation" with "undertaking".
	Reasons:	1. "Incur" should go better with "undertaking" than "obligation". 2. Undertaking is a better term to describe the voluntary nature of an action in acceptance of a draft that must be without any condition attached to it.
Line 36	Replace:	"to comply with the terms and conditions of the Credit and provided all other terms and conditions of the Credit are complied with" with "to comply with ALL the terms and conditions of the Credit".
	Reasons:	1. No duplication. More clean and crispy. 2. Other terms and conditions may be inter-bank instructions that have nothing to do with the Beneficiary who should not be penalised with payment dishonour, for example, mailing documents in one mail, collection of certain bank charges. 3. From my experience in resolving disputes in letter of credit, this Article would certainly be used by certain Applicant-friendly bankers to dishonour payment, relying on inter-bank instructions or even so-called "discrepancies" in the covering schedule.

Line 83	Replace:	"to honour" with "the Issuing Bank/Issuer must honour"
	Reasons:	1. To indicate clearly the obligator is the Issuing Bank. 2. To comply with grammar rules where "to honour" has no subject. 3. To highlight the obligation is a "must".
Line 85	Add:	"and paid at maturity" before "by a Nominated Bank".
	Reasons:	To be consistent with the "payment duty" of the Nominated Bank at maturity for accepted drafts as described in line 88.
Line 86	Replace:	"to issue" with "the Issuing Bank/Issuer must issue".
	Reasons:	1. To indicate clearly the obligator is the Issuing Bank. 2. To comply with grammar rules where "to issue" has no subject. 3. To highlight the duty is a "must".
Line 88	Replace:	"to pay" with "the Issuing Bank/Issuer must pay".
	Reasons:	1. To indicate clearly the obligator is the Issuing Bank. 2. To comply with grammar rules where "to pay" has no subject. 3. To highlight the duty is a "must".
Line 91	Replace:	"to accept" with "the Issuing Bank/Issuer must accept"
	Reasons:	1. To indicate clearly the obligator is the Issuing Bank. 2. To comply with grammar rules where "to accept" has no subject. 3. To highlight the duty is a "must".
Line 94	Replace:	"to pay" with "the Issuing Bank/Issuer must pay"
	Reasons:	1. To indicate clearly the obligator is the Issuing Bank. 2. To comply with grammar rules where "to pay" has no subject. 3. To highlight the duty is a "must".
Line 97	Replace:	"to pay" with "the Issuing Bank/Issuer must pay"
	Reasons:	1. To indicate clearly the obligator is the Issuing Bank. 2. To comply with grammar rules where "to pay" has no subject. 3. To highlight the duty is a "must".
Line 103	Shift:	"or negotiate" from the end of this sentence to follow immediately the word "honours" in line 102 for clarity.

Line 116	Replace:	"to honour" with "the Confirming Bank/Confirmer must honour"
	Reasons:	1. To indicate clearly the obligator is the Confirming Bank. 2. To comply with grammar rules where "to honour" has no subject. 3. To highlight the obligation is a "must".
Line 118	Add:	"and paid at maturity" before "by another Nominated Bank".
	Reasons:	To be consistent with the "payment duty" of the Nominated Bank at maturity for accepted drafts as described in line 122.
Line 119	Replace:	"to issue" with "the Confirming Bank/Confirmer must issue".
	Reasons:	1. To indicate clearly the obligator is the Confirming Bank. 2. To comply with grammar rules where "to issue" has no subject. 3. To highlight the duty is a "must".
Line 121	Replace:	"to pay" with "the Confirming Bank/Confirmer must pay"
	Reasons:	1. To indicate clearly the obligator is the Confirming Bank. 2. To comply with grammar rules where "to pay" has no subject. 3. To highlight the duty is a "must".
Line 124	Replace:	"to accept" with "the Confirming Bank/Confirmer must accept"
	Reasons:	1. To indicate clearly the obligator is the Confirming Bank. 2. To comply with grammar rules where "to accept" has no subject. 3. To highlight the duty is a "must".
Line 127	Replace:	"to pay" with "the Confirming Bank/Confirmer must pay"
	Reasons:	1. To indicate clearly the obligator is the Confirming Bank. 2. To comply with grammar rules where "to pay" has no subject. 3. To highlight the duty is a "must".
Line 130	Replace:	"to negotiate" with "the Confirming Bank/Confirmer must negotiate"
	Reasons:	1. To indicate clearly the obligator is the Confirming Bank. 2. To comply with grammar rules where "to negotiate" has no subject. 3. To highlight the duty is a "must".
Line 141	Delete:	"or negotiates" as it is in present tense whilst "honoured" is in past participle tense.
	Insert:	"or has negotiated" immediately following "honoured drawings".
Line 144	Correct:	"advice" (a noun) should be "advise" (a verb) to follow grammar rules.

Line 161	Replace:	Whenever "Advising Bank" appears, replace it with "Adviser" to be consistent with "Issuer" and "Confirmer" and to allow non-banks to get involved in documentary credit business.
Line 167	Insert:	"of the Credit" immediately after "apparent authenticity" for clarity and to be consistent with line 169 and 171 that all state "authenticity of the Credit".
Line 169	Insert:	"apparent" before "authenticity" to be consistent with line 167.
Line 171	Insert:	"apparent" before "authenticity" to be consistent with line 167.

Line 219	Insert:	"clear, concise, consistent" after "complete".
	Reasons:	1. To be consistent with the word "unclear" in Line 268. 2. Documentary credits from some countries, like Bangladesh, normally have at least four pages. This practice has to be discouraged. 3. Some documentary credits may bear inconsistent terms and conditions, as a kind of soft clauses to make compliance impossible. This would hurt the acceptance of documentary credits in international trade. The new UCP 600 should discourage this practice.
Line 224	Insert:	"or to quote contents of UCP 600 Articles or ISBP 645 Paragraphs" after "detail".
	Reasons:	A lot of Credits from Bangladesh and India are quoting the UCP 500 Articles.
Line 226	Insert:	"transfer" after "advise".

Line 268	Insert:	"inconsistent" after "incomplete". "transfer" after "confirm".
Line 274	Add:	"without delay" at the end of the first paragraph, after "necessary information".
	Reason:	To complement "without delay" in Line 277.
Line 277	Insert:	"transferred" after "confirmed".