Đề tài An analysis of key changes in UCP 600 compared to UCP 500 and Recommendations for better application

cles as the principle is captured in the definition of “Complying presentation” in article 2. 2.2.8. Changes in some other articles Discount of deferred payment undertaking under Article 7c, 8c and 12 Nomination of a bank includes authorizing a bank to prepay or purchase. This has also been included in Article 7 Issuing Bank Undertaking and Article 8 Confirming Bank Undertaking. Sub-Article 7 (c) provides the reimbursement undertaking for the issuing Bank. It stipulates that when the nominated bank has acted and the issuing bank must reimburse when a complying presentation is made. Next, it continues emphasizes that reimbursement is due at maturity, under an acceptance or deferred payment credit, whether or not the nominated bank has prepaid or purchased. Lastly, it focuses on the obligations of the issuing bank undertaking in relation to nominated bank (to reimburse where they act) and a beneficiary (where they may present documents directly or nominated bank does not act). Sub-article 8(c) showing reimbursement obligation of confirming bank to any nominated bank (if any) is exactly the same text as that which appears in sub-article 7(c), except the word “confirming” replaces ‘issuing”. Article 12 - Nomination adds a new concept specifying the ability of a nominated bank to pre-pay or purchase under an acceptance or deferred payment credit. It states ‘By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that nominated bank’. This represents a major change in scope of the UCP. Previously, UCP has not involved in the area of financing. However, due to recent court cases (including Banco Santander Vs. Banque Paribas, Canada Bank Vs. Credit Lyonnais), under sub-article (b), UCP 600 provides that when a documentary credit is available with a nominated bank by acceptance or deferred payment, such issuance includes an authority for nominated bank to prepay or purchase, providing that the nominated bank agrees to accept a draft or incur a deferred payment undertaking. Now, the courts will now recognize the issuance of such a documentary credit conveys an explicit authority to discount. This article provides an authority for the nominated bank prepay or purchase, not an obligation to do so. Discrepant documents, Waiver and Notice under article 16 This article describes the requirements for banks when they determine that the presentation does not comply. An issuing bank may still approach an applicant for waiver of any discrepancies, prior to sending a refusal notice. Sub-article (c) outlines the structure of a required refusal notice. Sub-article (c) (iii) provides four options regarding the status of documents while under UCP 500, only two actions of banks are mentioned when sending notice, which are holding the documents pending further instructions from the presenter or returning documents. The two added options for banks to dealing with discrepancies are holding the documents until receiving a waiver from the applicant, or receiving further instructions from the presenter prior to agreeing to accept a waiver; and acting in accordance with instructions previously received from the presenter. Original documents and copies under article 17 In this article, sub-article (b) and (c) have been taken from ICC Decision paper publicized in 1999. Sub-article (b) describes how a document is an original and sub-article (c) defines how a document may be created as an original. Sub-article (a) emphasizes that when a credit requires a document in the singular then this document must be presented as an original. Sub-article (d) provides that originals may be presented when copies are requested. This situation arises where a beneficiary may be required to present a document in four copies. To meet this requirement, the beneficiary may create one original invoice and then photocopy it three times or print four copies and sign each one manually. Insurance documents under article 28 Previously in UCP 500 Article 34 Insurance Documents; Article 35 Types of Insurance Cover; Article 36 All Risks Insurance Cover. In this article, insurance document must be issued and signed by an insurance company, an underwriter or their agents or their proxies. Cover notes will not be accepted (previously cover notes issued by brokers). The Insurance document must indicate that risks are covered at least between the place of taking in charge or shipment as stated in the credit and the place of discharge or final destination as stated in the credit. Amount of insurance coverage must be at least 110% of the CIF or CIP value of the goods. An insurance document may contain reference to any exclusion clause. Partial drawings or shipments under article 31 Partial shipments occur when the goods are loaded in more than one vessel, aircraft, truck, ect. It should be noted that partial shipments could not be considered through the number of transport documents that are issued. On the other hand, if it is only one transport document is presented, it does not necessarily reflect that a partial shipment has not occurred. When the goods are loaded in the same vessel for the same journey or destination, it will not be regarded as a partial shipment, even when separate bills of lading are issued covering the loading of goods on different date. For example, the credit covers shipment of 50MT of rice and partial shipment is not allowed. Bills of lading covering in the same vessel are issued as followed: 127 May-20MT, 28 May-20MT and 28May-10MT. Sub-article (b) indicates that the latest bills of lading (29 May) will be considered as the date of shipment. Therefore, when a credit requires shipment by truck and does not allow partial shipment, the beneficiary must ensure that the goods are capable of being loaded in the truck. If more than one truck is needed, if will considered as being a partial shipment even if they are leave on the same day for the same destination. Disclaimer on transmission under article 35 This article includes a new rule with regard to the loss of documents in transit between a nominated bank and the confirming bank or issuing bank. The basis for this rule is to avoid the situation when an issuing bank states that “we will reimburse the nominated bank upon receipt of documents” and if the documents are not received, they will have no liability to reimburse. When a beneficiary presents documents that the nominated bank finds to comply with the terms and conditions of the credit, the confirming or issuing bank must honour or negotiate regardless of the nominated bank honours or negotiates, or the documents are sent to the confirming bank, issuing bank or lost in transit. 2.3. Improvements and remaining problems under UCP 600 2.3.1. UCP 600’s improvements After ten year of usage, UCP 500 has revealed lots of weaknesses and led to a high proportion of documentary rejection. Seventy percent documentary discrepancy in letter of credit transaction is the statistic collected by ICC Thailand in 2002. This fact along with the increasing demand in international trade transaction have forced ICC to start the revision process in 2003 and UCP 600 was born three years later. Right from the drafting time, UCP 600 has received lost of comments, which are not merely from the LC community. That is to say, UCP 600 rules are the fruit of the tireless efforts and constant innovation of ICC Commission on Banking Technique and Practice (Banking Commission) in general as well as the Drafting Group from twenty-six countries all over the world in particular. The most significant achievements of UCP 600 are concise and complete content, logic structure and easily understandable language in comparison with its predecessor UCP 500. In terms of content, UCP 600 has constituted by 39 articles as opposed to 49 articles in UCP 500. The reduction in the number of articles does not means that UCP 600 rules do not cover full aspects in L/C transaction as stipulated in UCP 500. On the contrary, by being moved unnecessary articles and added essential provisions, 39 articles has provided a more comprehensive content to avoid discrepancies in documentary presentation due to inadequate stipulations. Along with the conciseness, there are significant changes in the structure. Unlike UCP 500, UCP 600 is not divided into seven sections, which were lettered from A to G and headed in turn: General Provisions and Definition, Form and Notification of Credits, Liabilities and Responsibilities, Documents, Miscellaneous Provisions, Transferable Credit and finally Assignment of Proceeds anymore. Instead of allocating articles by subject-master, UCP 600 just numbers articles from 1 to 39. Besides, order of certain articles as well as sub-articles has been changed to meet the requirement that provisions concerning the same effect and the same content are placed together. For example, under UCP 500, provisions regarding “General Expression as to Dates for Shipment” and “Dates Terminologies for Periods of Shipment” stipulated in Article 46 and 47 respectively are now moved to UCP 600 Article 3 stipulating Interpretations. Next, Article 14 named “Standard for Examination of Documents” in UCP 600 contains all requirements for Documents issued and presented, which were previously allocated in series of articles including Article 13 (Standard for Examination of Documents), Article 21(Unspecified Issuers or Content of Documents), Article 22 (Issuance Date of Documents v. Credits) and finally Article 43 (Limitation on the Expiry Date). In addition, there are many other sight modifications in terms of structure making the new draft more systematically and logic. With the regard to language, UCP 600 has achieved a considerable progress when using precise, explicable definitions as well as interpretations making the set of rules easier to understand and follow, even for people whose everyday life do not have a close relation with the L/C world. In addition, the clear language also helps to reduce arguments and disputes relating to the way to interpret and apply these rules in practice. UCP 600 introduces in Article 2 a number of definitions, most of which are newly added (namely Advising Bank, Issuing Bank, Confirming Bank, Nominated Bank, Negotiation, Honour, Banking Day, Complying Presentation, ect); or modified in a more simply way such as “Credit” definition. Interpretations on terms or words appearing frequently in letters of credit also explained more clearly and sufficiently in Article 3 under UCP 600. 2.3.2. Remaining problems in UCP 600 In fact, no rule can satisfy everyone, especially for internationally applied ones like UCP, the draft UCP 600 is also not an exception. Despite the Drafting Committee gave everyone opportunities to express their own point of view, the final draft is reached subject to a “yes” or “no” voting system, solely based on the content of that draft. If the majority vote is positive, then the UCP will take effect. As the result, there are several shortcomings in the content of the new revision, which continue to cause concern for stakeholders involved in L/C transaction. Instructions to documentary discrepancies under Transferable Credits There is no article found in UCP 600 giving instructions to deal with documentary discrepancies as to Transferable Credits. Or, at least, there should be a provision stating that all the documentary discrepancies under Transferable Credit transaction would be handled as for non-transferable L/C, in particular, making a reference to Article 16 under UCP 600. The absence of such position may lead to the failure in achieving the uniform in dealing with this problem between banks, countries or between different cases that is contrary to the spirit of UCP rules. Description of goods Next, there are some issues remain unresolved relating the description of goods on the commercial invoice. The problem with the description of the goods on the commercial invoice is the level of accuracy demanded by the UCP rules, and this mainly leads to documentary discrepancies in L/C transaction. In fact, there is no change in the content of the provision on commercial invoice, except for the change in position from Article 37 in UCP 500 to article 18 in UCP 600. It states “The description of the goods, services or performance in the commercial invoice must correspond to that appearing in the credit”. From the exporter’s point of view, one of the most crucial steps is the presentation of documents to receiving bank to get payment. However, banks will decide whether payment is made or not, mainly basing on checking documents presented by the exporter, not by specifying goods. Among many required documents, commercial invoice is the most vital one because there are a number of parties who rely on it to perform their duties. Banks do not expect the description of goods to be laid out exactly as shown in the L/C, but the data elements contained in the invoice must be match to the L/C. In other words, the sequence or the order of the details may different. The problem lies in the way banks understand the word “correspond”. For example, a spelling error between commercial invoice and letter of credit, regardless of how minor ad irrelevant this error may be, still enables banks opportunities to reject documents presented and decide to dishonour. In addition, trend of “inventing discrepancies” now becomes a commonplace with banks who want to utilize the cash flow of the exporters. This due to the fact that re-examination of documents represented not only creates a considerable fees but also causes longer settlement periods since no funds are transferred until the documents are re-examined and finally accepted. This situation will make negative impact on the exporter’s cash flow and even increase the rate of documentation error. Confirmed letter of credit There are two points of caution need to be made. First, while the UCP 600 clearly favour irrevocable over revocable credits, there is no similar assumption in favour of confirmed credits. From a seller’s perspective, of course, a confirmed credit brings the advantages of “a definite undertaking of the confirming bank, in addition to that of the issuing bank”: Thus, “confirmation” is defined in Article 2 without assuming that all credits will be confirmed where they do not say otherwise. Consequently, if a seller wants to impose upon his buyer an obligation to organize the opening of a confirmed letter of credit, he must impose such an obligation in the sale contract (e.g. “Payment by irrevocable letter of credit to be confirmed by first class bank acceptable to the Sellers…”) and – when he receives the letter of credit – to make sure that it has been confirmed by an acceptable confirming bank. Secondly, going back to revocable credits, although the UCP 600 have been clearly in favour of irrevocable credits, the new Rules have not made it impossible for revocable credits to be opened. It must be remembered that Article 1 of the UCP 600 allows parties to credits (and the parties who first generate the credit are, of course, the buyer as applicant and the issuing bank) to modify or exclude any part of the Rules. It is consequently still possible for a buyer to apply for the opening of a revocable credit and there is nothing in the UCP 600 which makes that credit inoperable. Therefore, it remains prudent for sellers to continue to stipulate in their sale contracts that the buyer will open an irrevocable letter of credit – and, of course, to make sure when the credit arrives that it incorporates UCP 600 or expressly describes itself as irrevocable. Instruction to clear and complete letter of credit The UCP 500 had contained, in Article 5, helpful advice to buyers when applying for the opening of a letter of credit: to give complete and precise instructions to the issuing bank, to avoid excessive detail in those instructions, and to avoid opening one credit by referring to instructions given in an earlier one. There is now no equivalent of Article 5 in the UCP 600. This is together with a general move in the new UCP Rules towards retaining only those Articles which actually impose a duty or lay down a principle, omitting Articles which simply set out best practice. Does the omission of the old Article 5 mean that the advice there given is any less helpful to the smooth running of credits? The answer is that this advice is still worth. Instructions need to be clear without being too detailed. In fact, the more detail in the letter of credit, the more likely it will become a mechanism for delaying rather than facilitating payment. However, traders must remember that banks do not look at the commercial value of the documents. For instance, a credit requiring simply an “Inspection Certificate” would be satisfied by an Inspection Certificate recording the goods to be unfit for human consumption. In this situation, bank has no right to refuse such “Inspection Certificate” because there is no provision in the L/C stipulating how the quality of goods must be. Therefore, the credit must call for “An Inspection Certificate confirming the goods are fit for human consumption” or “An Inspection Certificate confirming that goods comply with the following specifications … ” if the credit is to protect the buyer. Standard for examination of documents The last but not the least is the problem concerning the standard for examination of documents. The undertaking of bank to pay under a letter of credit transaction lies on the documentary compliance. Then, standard for deciding complying presentation is based on a combination of different definitions given by UCP rules. Article 2 defines that “Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and the standard banking practice”. There is nothing in the article means that international banking practice is necessarily the ISBP alone. Even when L/C clearly refers to ISBP, this publication still stops in “guideline” status and lack of real authority. Moreover, it would be possible for any bank to develop its own “standards”. As the result, the uniformity of UCP rules would be break-downed and risks in international payment would increase. Additionally, the expression “on their face” in relation to the checking of documents for compliance has been remained, despite the fact that the “no” votes had overcome the “yes” opinion. This expression has created arguments because of its unclear meaning, not only in English but also in other language. For instance, there is no equivalent concept in the French language. It appears that the ICC Drafting Group has ignored the demand for change to this article despite of the obvious difficulties in implementing its requirements. Chapter III Recommendations for better UCP 600 application It is clearly that the UCP set of rules has been standardized by ICC to affect parties involved in documentary credit transaction. The word “parties” here mainly refer to banks and other institutions that issue, confirm or otherwise process them; buyers or applicants who cause L/C to be issued and finally sellers or beneficiaries who look to L/C for payment. To ensure a letter of credit is workable, trouble-free and provides security of payment, it is essential to take simple and effective precautions at the start. Well-preparation for all steps relating to L/C will help to reduce discrepancies and associated unplanned costs for parties, especially the exporters. Statistics have shown that well in excess of fifty percent of documents presented by exporters to banks for payment under letters of credit are rejected on first presentation. This can cause expensive delays for both the exporter and the importer and may even result in a lesser payment or no payment at all. A great many of those rejections could be avoided if more care was taken to ensure that the documents called for in the credit are properly completed. 3.1. Recommendations for exporters involved in L/C transaction In principle, it is for the exporter to provide the definitive “yes” or “no” as to whether a letter of credit and required documents are in a workable form. It is imperative that, upon receipt of the credit or amendment, a full review is undertaken to ensure that the conditions meet those agreed or envisaged. Exporters should follow four key steps to ensure payment when receiving a letter of credit issued in the favour of themselves which include checking detailed content on receipt of the letter; preparing documents for presentation to the bank; presenting documents to the banks without delay and within the expiry date and transport documents time limit; and finally dealing with discrepancies. 3.1.1. Checking detailed content on receipt of the letter First of all, exporters should make sure that the letter of credit states it is subject to the 2007 revision of the Uniform Customs and Practice for Documentary Credits (UCP) of the International Chamber of Commerce (here referred current revision UCP 600). He also recommended to recognize the authenticity of the credit. If exporter is still unclear as to what the wording of the credit implies, he should check what UCP 600 has to say on the point and with its bank. Normally, credits are sent through an Advising or a Confirming bank. Any departure from this routine should be viewed with suspicion, for example if it comes to the exporter direct from overseas or if he do not recognize the Advising or Confirming bank, he need check its authenticity with his own bank. According to UCP 600 Article 9(b), the Advising bank shows its satisfaction by advising the credit with the apparent authenticity. If he receives an unexpected credit from a buyer unknown to him, even under cover of a well-known bank, he should check with the bank to ensure that everything is in order - particularly if it calls for goods to be shipped direct to the buyer. Exporter should bear in mind, as mentioned, that over half of credit documents are rejected on first presentation to the banks. The main reason for this is matters that could have been put right. Therefore, making the key checks on the day the credit arrives, consulting other departments accordingly and carrying out the following detailed checks immediately afterwards will enable difficulties to be recognized in better time to take action. Type of credit issued Exporter should be sure that the type of credit issued gives him the level of payment security, which he sought. In principle, an irrevocable credit carries only the undertaking of importers’ bank in their country while an irrevocable and confirmed one carries the extra and separate undertaking of a second bank in most countries. A bank may not state it but credits issued under UCP 600 should be irrevocable if there is no reference to other stipulations. Then, exporter need make sure that he will be paid at the time and place he planned. The credit may specify payment some time after shipment or after documents and/or drafts have been deemed compliant by the paying bank (Nominated or Issuing bank). Additional delays and other problems may arise if payment/acceptance is to take place abroad. If he is not expecting payment to be made abroad but are prepared to consider it, he need be sure that he understands the position, i.e. that he responsible for postal delays in presenting documents overseas within the time limits set by the credit. It also gives less time for replacing non-compliant documents with compliant ones. Under UCP 600, whether a credit is available by sight payment, deferred payment, acceptance or negotiation, a credit can be available with any bank. If the credit has been sent electronically to a bank ("Teletransmitted”), exporter has to check that it provides details of the credit that he can act upon and that is not just a pre-advice. Unless it says otherwise, and provided it refer to UCP 600, the Teletransmitted credit can be taken as the operative and safely acted upon one as well as overrides any later mailed advice. Unless a pre-advice states otherwise, the Issuing bank is bound to follow up the pre-advice by issuing the credit. Company names, addresses and other details Exporters need ensure that both his company name, address and full title and those of the importers are correct and consistent with all other documents. All details should be correctly spelt and consistently reproduced on all the documents. Following UCP 600 Article 14(j), addresses need not be the same as stated in the credit, but must be within the same country as the respective addresses mentioned - except when the. Applicant's contact details appear as part of the consignee or notify party det