ucp 600 final

1 Southeast University Dept. of Law & Justice Final Examination (Online) Spring Semester- 2020 Course Title: International Trade Law Course Code: LLBH3231 Batch: 42, Section – 1 Assignment Topic: UCP 600 Submitted by: Name: Sumona Akter ID: 2017120300036 Batch: 42 Section: 1 Dept. of Law & Justice Southeast University Submitted to: Ehteshamul Haque Assistant Professor Dept. of Law & Justice Southeast University Date of Submission: 07.06.20

2 Table of Contents Introduction:.................................................................................................................................... 3 The born of UCP 600...................................................................................................................... 3 What’s the reason for the UCP 600?............................................................................................... 4 Evaluation of the UCP 600 ............................................................................................................. 4 The application of UCP 600 ........................................................................................................... 5 Summary of the key Articles in UCP 600 ...................................................................................... 5 Development of UCP600:............................................................................................................... 6 Nature and application of UCP:...................................................................................................... 6 Limitation of UCP 600: .................................................................................................................. 7 Case law .......................................................................................................................................... 7 Conclusion: ................................................................................................................................... 10 Reference: ..................................................................................................................................... 11

3 UCP 600 Introduction: The Uniform Complaint Procedure is the method districts use to resolve any complaint alleging unlawful discrimination in district programs and activities based on actual race, color, ancesty, national origin, ehtnic group identification, age, religion, marital or parental status, physical or mental disability, sex, sexual orientation, gender, gender identity or expression, or genetic information. The perception of one or more of such characteristics or association with a person or group with one or more of these actual or perceived characteristics. The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set of rules agreed by the International Chamber of Commerce, which apply to finance institutions to helping companies finance trade. The UCP is utilized by bankers and commercial parties in more than 175 countries in trade finance. UCP 600 means the rules of the Uniform Customs and Practice for Documentary Credits, It is the official publication which is issued by the ICC (International Chamber of Commerce). It is a body of rules on the issuance and use of a letter of credit and applies to 175 countries. The aim has been to standardise a set of rules aimed to benefit all parties during a trade finance transaction – for that reason, it is designed by industry experts rather than through legislation. The UCP was created in 1933 and has been revised by the ICC up to the point of the UCP600. The UCP600 came into force on 1 July 2007. The UCP 600 are voluntarily incorporated into contracts and have to be specifically outlined to apply. They also allow flexibility for the international parties involved. An accompaniment to the UCP 600 is the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP), ICC Publication 745. It assists with understanding whether a document complies with the terms of letters of credit. Credits that are issued and governed by UCP 600 will be interpreted in line with the entire set of 39 articles contained in UCP 600. However, exceptions to the rules can be made by express modification or exclusion. The UCP 600 are most successful rules ever developed in relation to trade and most letters of credit are subject to them. At the recent ICC UK Winter Trade Finance Conference, there was a special programme which addressed the UCP 600, which looked at recent developments in industry practice and ICC policy, as well as a review of the latest Banking Commission Opinions. The born of UCP 600 The latest revision process started in 2003. A drafting group comprising nine people together with a consulting group with forty-one members from more than 25 countries were formed to develop

4 proposed revisions for the ICC national committees worldwide. In fact, it cannot be denied that no draft will satisfy everyone, thus the drafting committee gave everyone an opportunity to express their own view by making comments. After all the suggestions had been considered, no matter how they are minor or small, decision on the new draft is taken by a voting system and the final text of UCP 600 was reached. The new revision replacing the UCP 600 was approved by the Banking Commission of the ICC at its meeting in Paris on 25 October 2006 and had a commencement date of 1 July 2007. It is the fruit of more than threeyears of work by the ICC’s Commission on Banking Technique and Practice. What’s the reason for the UCP 600? The UCP 600 replaced the UCP 500 on the 1st July 2007. It was brought about to standardise a set of rules aiming to benefit all parties during a trade finance transaction. UCP 600 was created by industry experts, and mandated by the Banking Commission, rather than through legislation. The first UCP was created in 1933 and has been revised by the ICC up to the point of the UCP 600. The UCP 600 rules are voluntarily incorporated into contracts and have to be specifically outlined in trade finance contracts in order to apply. They also allow flexibility for the international parties involved. An accompaniment to the UCP 600 is the International Standard Banking Practice for the Examination of Documents under Documentary Credits (ISBP), ICC Publication 745. It assists with understanding whether a document complies with the terms of Letters of Credit. Credits that are issued and governed by UCP 600 will be interpreted in line with the entire set of 39 articles contained in UCP 600. However, exceptions to the rules can be made by express modification or exclusion. The UCP 600 are the most successful rules ever developed in relation to trade and most Letters of Credit are subject to them. At the recent ICC UK Winter Trade Finance Conference, there was a special programme which addressed the UCP 600. This looked at recent developments in industry practice and ICC policy, as well as a review of the latest Banking Commission Opinions. Evaluation of the UCP 600 The following part would focus on the examination of the new set of rules in detail in order to evaluate whether the provisions of UCP 600 achieve the predict goals of all stakeholders involved in the transaction. The evaluation is an important consideration due to the critical role of letters of credit in international trade finance, thus, the rules governing the letters of credit is primary to offer a certainty and stability standard with a predictable outcome.

5 The application of UCP 600 First of all, as stated by Article 1 under UCP 600, it is not automatically applicable to the letters of credit. The traders in international transaction have the freedom to choose to derogate or amend the articles only by expressly indicating between the parties. The set of rules in the new version of UCP would take effect by contractual incorporation and thus the validity and enforcement of UCP 600 rely heavily on the will of the parties and national laws. As pointed out by Article 1, the rules only apply “when the text of credit expressly indicates that it is subject to these rules”. Although UCP 600 adopts the terminology of “rules” in Article 1, it is not a legal regime automatically applicable to all letters of credit. In other word, traders in international letters of credit transaction are voluntary refer to the provisions of UCP 600, which are devised by the ICC for express incorporation into letters of credit. As a contractual stipulation, the UCP 600 has to be expressly included into an agreement by reference. As for the individual article of UCP 600, it is admissible to exclude the individual article when opening a letter of credit. As stated by Article 1 under UCP 600: “They are binding on all parties thereto unless expressly modified or excluded by the credit”. An example of this exception is Article 23 c (i) of UCP 600. Another issue was addressed in UCP 600 with regards to the standby letters of credit. Although individual article are applicable for standby letters of credit, the majority of articles under UCP 600 are not applicable to standby letters of credit since standby letters of credit is not deemed as a payment instrument whereas UCP 600 is designed to serve in the payment for goods and service between a buyer and a seller. As Roy Goode observed that the UCP 600, which issued by trade and professional organisations could contribute to the development of uniform transactional rules to a considerable extent by establishing usages, which transcend the codes themselves. Summary of the key Articles in UCP 600 Articles 1-5 – General Provisions and Definitions Articles 6-13 – Liabilities and Responsibility Articles 14-17 – Examination of Documents Articles 18- 28 – Documents Articles 29-33 - Miscellaneous Provisions

6 Articles 34- 37 – Disclaimers Articles 38-39 - Transferable Credit & Assignment Development of UCP600: In order to encourage a uniformity of banking practice and reduce the differences emerging from national laws in relation to documentary credits, the International Chamber of Commerce (ICC)initiated the first version of UCP in 1933. Revisions have therefore averaged about once a decade, and have usually been in response to changing trade and banking practices.34The UCPwas revised in 1951, 1962, 1974 (UCP 290), 1983 (UCP 400), 1993 (UCP 500) and most recently in 2006 (UCP 600),as a result of the deliberations of the ICC Banking Commission.35The English banking society did not adopt the UCP until the 1962 revision, but since then, the UCP has predominatedand nearly all credits issued today are on its terms. It is of no doubt that the UCP, as a private set of rules, has obtained a remarkable achievement in the course Compared with its predecessors, the UCP600 should probably still be regarded as evolutionary, rather than revolutionary, sincethere are no substantial changesrelating to the documentationwith respect to previous revisions.36Apart from radically removing the application of revocable credits,37the UCP600 in part is a tidying up exercise. It consistsofonly 39 articles, which is less repetitive and more simplified than the UCP500. Thenewlycreated UCP600 Article 2 regarding definitions has effectively laid the foundation for the general orientation of UCP600, which also acts to avoid unnecessaryrepetition in the following main content.38UCP600 Article 3 in respect of interpretations reflectsa desire for achieving certainty and removing vague meaning. In addition, the UCP600 has reacted to changes intrade practice, and perhaps to developments in case law.39Overall, UCP 600 is a conservative and moderate document, since it does not substantially change the rules in relation to examination and rejection of documents. As we will see in the next several chapters of this thesis, there are several disappointing aspects in the UCP which are far from being clear and certain. Nature and application of UCP: Although the coverage of UCP is growing more comprehensive with each revision, the UCPstillfalls far short of constituting a complete code. The UCP does not purport to be a code setting out the law governing documentary credits. On the contrary, the ICC had rightly recognised that ‘legal issues [as to the jurisdiction of the UCP]cannot be addressed in the rules and the UCP cannot legislate national laws.’Although some parts of UCP have defined the parties’ rights and obligations, they are not set out in legal language. Moreover, the UCP has left issues which cannot be resolved by contractual provisions alone, such as property issues, remedies for non-performance and fraud.All these issues remain firmly withinthe province of the national courts. In addition, the UCP does not govern sale or carriage contracts, and the courts have been reluctant to givethe UCP any weightbeyond their ambitof being banking practice.41It is essential to know that the UCP as a set of standard terms and conditions is usually applicable only when incorporated into the

7 relevant contracts.42The UCP does not have the force of law in the English courts.43The UCP must rely upon contract to give it binding effect in each documentary credit where they are incorporated. The contractual nature is fundamental to the understanding of its provisions. In fact, the ICC cannot, and doesnot purport to, legislate. In Article 1 of UCP600, it stipulates that the UCP rules apply to any documentary credit when the text of the credit expressly indicates that it is subject to these rules.44Once incorporated, the UCP rules are binding on all parties thereto on a contractual basis unless expressly modified or excluded by the credit. Limitation of UCP 600: Although the functions of UCP600 cannot be denied in the banking practice, still they are several issues cannot be solved well. It is argued that there is no reference to money laundering rules in the UCP600, which is concerned as a weakness of these rules. However, is deems that to include the requirements of criminal money laundering offences with the rules of banking practice which are voluntarily incorporated by parties could be somewhat odd. Other than this, there are two problems deserved to be critically discussed hereinafter, viz. exception of fraud and the principle in the Santander decision. It deems that the occurrence of these situations is mainly resulted from the nature of UCP600 that they are not the definite legislative rules. Case law UCP600 Judgment – the implications for letters of credit The Court of Appeal’s judgment demonstrates that the Court will interpret the UCP 600 in a way which reflects its underlying aims and purposes as well as international banking and trading practice. This led the Court to find that where an issuing bank had issued a notice that it was returning the documents presented under the letter of credit it must do reasonably promptly. Such an obligation was in line with banking practices and expectations and was imposed even though it is not expressly provided for in the UCP 600. Parties to letters of credit governed by the UCP 600 must therefore take care to respect not just its express provisions but also its underlying aims. In summary, the facts of the case were as follows. In April 2010 we reported on the Commercial Court’s judgment in Fortis Bank and Stemcor UK Limited v Indian Overseas Bank [2010] 1 Lloyd’s Rep. 227 in which the Commercial Court provided guidance on the interpretation of provisions of the Uniform Customs Practice of Documentary Credit (“UCP”) 600. Indian Overseas Bank (“IOB”) appealed against a number of the Commercial Court’s findings and, on 31 January 2011, the Court of Appeal handed down its decision. The Court of Appeal’s judgment demonstrates that the Court will interpret the UCP 600 in a way which reflects its underlying aims and purposes as well as international banking and trading practice. This led the Court to find that where an issuing bank had issued a notice that it was returning the documents presented under the letter of credit it must do reasonably promptly. Such

8 an obligation was in line with banking practices and expectations and was imposed even though it is not expressly provided for in the UCP 600. Parties to letters of credit governed by the UCP 600 must therefore take care to respect not just its express provisions but also its underlying aims. In summary, the facts of the case were as follows. IOB had opened five letters of credit in favour of Stemcor under contracts for the sale of containerised scrap metal, with Fortis acting as the advising bank. The L/Cs were expressly subject to UCP 600. Stemcor made a number of drawings under each of them. Stemcor presented the documents under L/Cs 1-3 which Fortis accepted and paid Stemcor the amount due. The documents were forwarded to IOB. The documents presented under L/Cs 4 and 5 were also forwarded by Fortis to IOB. IOB rejected the documents on the basis of a number of discrepancies. It therefore refused to reimburse Fortis in respect of the payments it had made under L/C 1-3 and refused to make payment to Stemcor in respect of L/Cs 4 and 5. IOB issued a notice under sub-article 16(c)(iii)(c) of UCP 600 stating that it was returning the documents in respect of the vast majority of the presentations. Fortis and Stemcor applied to the Commercial Court seeking summary judgment against IOB. The four principle issues arising were: 1. Whether there were discrepancies in the documents presented. 2. Whether Fortis was technically a confirming bank. 3. Whether the bill of lading date was the date of issue of the bill of lading or the date of shipment 4. Whether IOB should be precluded under sub-article 16(f) of UCP 600 from claiming that the documents did not constitute a complying presentation. In the Commercial Court, Hamblen J found that the only discrepancies in the documents were in the beneficiary’s consolidated certificate and also found against IOB on the second and third issues. The fourth issue was subject to a preliminary issue hearing in January 2010 where it was held that IOB, having elected to return the documents under article 16, was under an obligation to return the documents with reasonable promptness. The fact that IOB had failed to do so meant that it was precluded by article 16(f) of UCP 600 from claiming that the documents were discrepant. The three issues subject to the appeal were: 1. Whether IOB was precluded under sub-article 16(f) from relying on the discrepancies. 2. Whether the Bill of Lading date was the date of shipment. 3. On cross appeal by Stemcor/Fortis, whether there was a discrepancy in the beneficiary’s consolidated certificate. The first of these issues is of wide importance and application. IOB’s contention was that, on a proper construction of article 16, the issuing bank was not required to return the documents but simply to give a notice. Alternatively, if there was an obligation to return the documents, then that obligation arose under an implied term of the L/C and not under article 16. If that was the case,

9 Fortis/Stemcor could not rely on article 16(f) which provides that “if an issuing bank... fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.” The Court of Appeal accepted that article 16(f) would only apply if the obligation arose under article 16 and therefore the issue was whether the obligation to return the documents arose under the UCP or outside the UCP. The Court of Appeal held that IOB was required to act in accordance with the notice given under article 16(c) and return the documents. Firstly, the Court held that the issuing bank has no option but to comply with the option it had chosen. In issuing a notice under article 16(c)(iii)(c), IOB was required to return the documents. Secondly, standard international banking and trading practices require an obligation to act in accordance with such notices and where an issuing bank elects to return documents, it is required to do so promptly and without delay. Thirdly, article 16(e), which permits the issuing bank having given notice under article 16(c)(iii)(a) or (b) to act in a different manner, would only be necessary if article 16(c) imposed an obligation on the issuing bank. Thus, where a bank elects to return the documents, it is required to do so with reasonable promptness. The Court adopted a purposive interpretation of the UCP 600 in accordance with its underlying aims and reflecting international banking practice. Given the international application of the UCP 600, the Court of Appeal considered that a literalistic and national interpretation needed to be avoided. Whilst there was no express obligation on the issuing bank to return the documents promptly and without delay upon giving notice, such an obligation was implicit in the wording of the article and was in line with international practice. Once IOB had elected to reject the documents, it breached this obligation by failing to return the documents for a substantial period of time and was therefore precluded under article 16(f) from relying on the discrepancies. On the bill of lading issue, it was held that the L/C clearly referred to presentation within 21 days from the date of the bill of lading and not the date of shipment. As such the date of the bill of lading was as stated on its face and there was nothing in the UCP that could displace that clear provision in the L/C. On the cross appeal, it was held that the L/C on its ordinary reading required the beneficiary’s consolidated certificate to certify that the negotiating bank had been advised to despatch the shipping documents to the opening bank at Stemcor’s cost. Therefore, in certifying that the costs were not Stemcor’s but the issuing bank’s, the certificate was clearly discrepant and the cross appeal was also rejected. The Court of Appeal’s findings in relation to preclusion under article 16 are likely to have far reaching consequences and serve as a warning to issuing banks to act in accordance with any notices they issue. The judgment imposes a fairly strict obligation on issuing banks and is therefore likely to have implications which the Court of Appeal did not necessarily appear to appreciate. The Court of Appeal did not consider that the obligation to return documents “promptly” or “within a reasonable time” would cause uncertainty although the exact meaning of these terms is likely to be tested in due course. In this case the Court of Appeal’s conclusion that the documents were not returned reasonably promptly was fairly straightforward given that IOB had issued the notices in November 2008 and the documents were not returned until February 2009. However, there will inevitably be cases where such a conclusion is less straightforward.

10 The judgment also sheds light on the Court’s approach to interpreting the UCP 600. In particular, the Court emphasised the international nature of the rules and avoided a national approach to interpretation that may not be applied in other jurisdictions. Where a letter of credit is governed by the UCP 600, parties must therefore ensure their conduct is in accordance with both the underlying aims of the UCP 600 and international banking practice. Where it is not, the parties risk breaching their obligations and incurring significant liabilities. IOB have sought permission to appeal to the Supreme Court. Conclusion: The new UCP600 will be costly to implement in terms of staff training and changes to computer software. It may be more difficult to advise clients on specific issues because the ICC Position Papers and many (but not necessarily all) of the ICC Banking Decisions79have now been swept away. It may have little effect on the percentage of documents rejected on first presentation as discrepant.This is particularly true in relation to linkage between documents: the strict requirements that documents must not be inconsistent with each other could have been dropped.The UCP has never been a comprehensive code; not only will users be obliged to refer to domestic law on particular matters, such as the fraud exception, but also to the ISBP in relation to the banks' examination of documents. Despite these criticisms, if the revised UCP provides certainty and predictability in relation to the application of its rules, it will save unnecessary litigation and will make documentary credits a moreattractive choice. As it is drafted in simpler and more elegant language than its predecessor, it should be welcomed because it will be easier to understand and translate. The fact that there has been confusion in the past over quite basic matters, such as the concept of negotiation, convincingly supports the argument that the structure and style of the UCP needed revision. In general, vague words have been eradicated; those that have been retained appear to favour the banks. For example, banks are still required to communicate with each other “without delay”; as no period of time is specified, it will be difficult to challenge a bank's actions in this regard. Nevertheless, the drafters appear to have largely succeeded in their aim of creating provisions which are free from ambiguity, thereby minimising the risk of national courts offering different interpretations of its rules. The UCP600 is likely to be welcomed by bankers because it should make their role easier. For example, Art.14(g) provides that, if banks receive documents not required by the credit, they may disregard and return them to the presenter. This will save banks time and energy; previously the beneficiary could insist that these documents shouldbe passed on to the issuing bank.Another provision designed to assist the banks relates to custody of documents. It is made clear that, after refusing presentation on the basis of discrepancies, the bank can retain the documents whilst it seeks a waiver from the applicant. This provision protects banks who could otherwise be accused of waiving the discrepancies simply because they have retained the documents after serving a proper notice.Nevertheless, the UCP600 is basically party neutral. It enhances the credit as a bank product that serves all who are involved in this type of payment mechanism, such as traders, and others. The only obvious tension is in relation to the questions of scrutiny of documents. The

11 burden is clearly upon the applicant to work out the reliability of the beneficiary and to take care in specifying documents in his application for a letter of credit. The UCP takes effect by contractual incorporation and therefore depends upon the will of the parties. Parties almost invariably choose to incorporate it and, over the years, it has been seen as a cornerstone of international commercial law.Although parties remain free to modify its rules, this can be a positive factor in improving practices which can then be considered in any later revision. Admittedly, the UCP is not comprehensive because it is subject to the domestic law of sovereign states; however, its lack of autonomy is inevitable because the validity and enforcement of international contracts depend upon national laws.It is nevertheless a unifying force: Goode has observed thatthe UCP and other codes of practice promulgated by trade and professional organisations can contribute significantly to the development of uniform transnational rules by establishing usages which transcend the codes themselves; one example is the principle of the autonomy of the credit which is seen as underlying documentary credits, whether or not the parties have chosen to incorporate the UCP. A simple comparison of the two sets of principles does not revealthe intense discussion process which led to the final draft of the UCP600. Sometimes a rule represents a compromise by drafters with entirely opposing views. It is therefore a triumph that the revised UCP600 obtained unanimous approval from the Banking Commission. Arguably, even if the number of documents rejected is not reduced significantly after the UCP600 is used, it will still be judged a success. Like its predecessors, it can be seen as harmonising rights, duties and practice in relation to the operation of documentary credits, thereby aiding cross-border business. However, the biggest achievement of this revision is the introduction of a clear, light and open style which will aid comprehension and predictability. Reference: https://www.lawteacher.net/free-law-essays/commercial-law/the-icc-uniform.php https://www.tradefinanceglobal.com/letters-of-credit/ucp-600/ http://static.elmercurio.cl/Documentos/Campo/2011/09/06/2011090611422.pdf http://www.tfab.org/docs/TradeRelatedArticlesPage/Answers%20for%20case%20studies.pdf https://en.wikipedia.org/wiki/Uniform_Customs_and_Practice_for_Documentary_Credits https://www.letterofcredit.biz/index.php/2018/10/20/latest-version-of-ucp-what-are-the- differences-between-ucp-400-ucp-500-and-ucp-600/ https://studylib.net/doc/8942064/key-changes-under-ucp-600-compared-to-ucp-500