Important feature of UCP 600

UCP 600

UCP 600 is the latest version of the rules that govern letters of credit transactions worldwide. UCP 600 is prepared by International Chamber of Commerce’s (ICC) Commission on Banking Technique and Practice. Its full name is 2007 Revision of Uniform Customs and Practice for Documentary Credits, UCP 600, and (ICC Publication No. 600). The ICC Commission on Banking Technique and Practice approved UCP 600 on 25 October 2006.  The rules have been effective since 1 July 2007.

UCP 500 was the rules that had been in implementation before UCP 600. There are several significant differences exist between UCP 600 and UCP 500. Some of these differences are as follows; 

• The number of articles reduced from 49 to 39 in UCP 600; 

• In order to reach a standard meaning of terms used in the rules and prevent unnecessary repetitions two new articles have been added to the UCP 600. These newly added articles are Article 2 “Definitions” and Article 3 “Interpretations”. These articles bring more clarity and precision in the rules; 
• A definitive description of negotiation as “purchase” of drafts of documents; 
• New provisions, which allow for the discounting of deferred payment credits;
• The replacement of the phrase “reasonable time” for acceptance or refusal of documents by a maximum period of five banking days.

History of UCP

First uniform rules published by ICC in 1933. Revised versions were issued in 1951, 1962, 1974, 1983 and 1993. 

Currently majority of letters of credit issued everyday is subject to latest version of the UCP. This widely acceptance is the key sign that shows the importance of the UCP, which are the most successful private rules for trade ever developed. 

Some important features are discussed here: ( Full UCP 600)

Article I (Application of UCP)

 a. UCP 600 are rules that apply to any documentary credit & any standby letter of credit when the text of the credit expressly indicates it is subject to these rules. These rules are binding o-n all parties thereto.

b. UCP are rules not Law: - UCP governs documentary Credit primarily, but not solely. UCP does not prevent a Court from applying its country's national law.

Article 2 (Definitions)

    Credit means any arrangement however named or described that is irrevocable and thereby constitutes a definite undertaking of the issuing bank  to honour a complying presentation.

    Complying presentation means a presentation that is in accordance with the terms & conditions of the credit, the applicable provisions of these rules & international standard banking practice.

    Honour means: a. to pay at sight if the credit is available by sight payment. b. to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment.

    To accept a bill of exchange drawn by the beneficiary and pay at maturity if the credit is available by acceptance.

Negotiation means the purchase drafts or documents by the nominated bank under a complying presentation, by advancing or agreeing o advance funds to the beneficiary.

Nominated bank means the bank with which the credit is available.

Presentation means either the delivery of documents under a credit to the issuing bank or nominated bank or the documents so delivered. Presenter means a beneficiary, bank or other party that makes a presentation.

Article 3 (Interpretations)

Revocation: A credit is irrevocable even if there is no indication to that effect.

Any issuer except the beneficiary  is allowed as the issuer of a document if credit required "first class" "well known" "qualified " "competent" issuer of a document.

"On or about" means a period of five calendar days before until five calenndar days after the specified date.

Article 4 (Credit V. Contracts)

a. A credit by its nature is a separate transaction from the sale or other contract. Banks are in no way concerned with or i bound by such contract, even if any reference to it is included in the credit.

b. Bank should discourage to include contract, proforma invoice, as an integral part of the credit.

Article 5 (Documents V. Goods, Services or performance)

Banks deal with documents and not with goods. cervices or performance to which documents may relate.

Article 6 (Availability, Expiry date & place for presentation)

a.    Credit must state the bank with which it is available. A credit available with a nominated bank is also available  with the issuing bank.

b.    A credit must state whether it is available by sight  payment, deferred payment, acceptance or negotiation.

c.    An expiry date is also the last date of presentation.

d. The  place of the bank with which credit is available is the place for presentation„

Article 9 (Advising of credits and Amendments)

a.    Advising bank signifies the apparent authenticity of the credit & amendment.

b.    A credit & its amendment must be advised by the same bank.

Article 10 (Amendment)

a.       The beneficiary should give notification of acceptance or rejection of amendment. If the beneficiary fails to give such notification, a presentation that complies with the credit and to any not yet accepted amendment will be deemed to be notification of acceptance.

b. Partial acceptance of an amendment  is not allowed.

Article 11 (Transmission of L/C and amendment)

a. An authenticated Tele transmission of a credit or amendment will be deemed operative. If Tele transmission states "full details to follow" then Tele transmission not be deemed to be operative. Then issuing bank must issue the operative credit or amendments without delay in terms not inconsistent with the tele transmission.

Article 13 (Reimbursement)

a. The reimbursement authorization should not be subject to an expiry date.

.bC1aiming bank need not submit compliance certificate to the reimbursing bank.

c. An issuing bank will be responsible for any loss of the Beneficiary due to non payment.

Article 14 (Examination of documents)

a.     Nominated bank, confirming bank and the issuing bank each have a maximum of five banking days following the presentation date to determine if a presentation is complying.

a. .documents  to be presented not later than 21 calendar days after the date of shipment but  not later than the of the  credit.

b. Data in a document need not be identical but must not conflict with data in that^-document, any  other stipulated document or the credit.

c.   The description of the goods in other than commercial invoice may be in general terms not conflicting with their description in the credit.

d. the applicant become part of the consignee or notify party, details on a transport document they must be as stated in the credit.

Article 16 (Discrepant documents)

a.    Refusal notice must state each discrepancy in a single notice.

b.    Notice must state that the bank is holding the documents until it receives a waiver from the applicant or receive further instructions from the presenter prior to agreeing to accept a waiver, or that the bank is returning the documents.

c.    Notice must be given by telecommunication or, if that is not possible, by other expeditious means within the fifth banking day following the day of presentation.

Article 17 (Original documents and copies)

a.    At least one original of each document must be presented.

b.    Any document bearing  an apparently original signature mark, stamp, or written, typed, performed by the issuers hand or issued on issuers original stationery or state  that it is original to be accepted as original documents.

c.  A document either labeled "copy" or not marked as an "Ori^ginal" is a copy document which need not be signed.

Article 18 (Commercial invoice)

a.    Commercial Invoice to be issued by the beneficiary in the name of the applicant /first beneficiary in the same currency as the credit and need not be signed.

b.    Bank may accept a commercial invoice issued for an amount in excess, provided the excess amount has not  honored or negotiated.

Article 20 (Bill of lading)

 a.   B/L must indicate the name of the carrier, also to indicate that the goods have been shipped on board a named vessel from the port of loading to  the port of discharge and be the sole original B/L.

 b.   Must be signed by the carrier, or a named agent or the muster identifying their status.

c.    Transshipment is acceptable if the goods have been shipped in a container, trailer or LASH barge and the entire carriage is covered by one and the same bill of lading.

 Article 28 (Insurance):  

a.Insurance document such as insurwee policy, an insurance certificate or a declaration under an open cover must be signed by the company, an underwriter or their agents or  their agents or their proxies.

 b. Cover note will not be accepted.

c. If insurance amount is not indicated in the credit then Coverage must be at least 110% of CIF or CIP value of the Goods.

Article 29 (Extension of Expiry date)

If the expiry date of a credit falls on a holyday the expiry date will be extended to the first following banking day and the nominated bank will provide a statement that the presentation was made within the iime limit extended in accordance with sub-article 29(a)

Article 30 (Tolerance)

a.  The words 'about' or approximaty" allowing a tolerance not to exceed 10% more or less than the amount, the quantity or the unit price to " which they refer.

b. A tolerance not to exceed 5% more or less than quantity of goods is allowed, provided the quantity is not stated in number of packing units or individual items and the drawing amount is within the credit value.

Article 31 (Partial shipment)

a.. More than one set of transport documents of the same means of conveyance and for the same journey and destination will not be regarded as partial shipment. If it is more than one means of conveyance then it will be regarded partial shipment.

b. Partial drawing or shipments are allowed.

Article 34 (Disclaimer on Effectiveness of does)

A bank assumes no liability for accuracy genuineness or legal effect of any document nor does it assume any liability for the description, quantity, weight, quality or existence of the goods.

Article 35 (Disclaimer on Transmission)

A bank assumes no liability for the consequences arising out of delay, loss in transit of any messages, letter or documents. If a complying document lost in transit issuing bank must honour or negotiate or reimburse the nominated bank.

Article 38 (Transferable credit)

a. Transferable credit means a credit that specifically states it is 'transferable'.

b. A transferred credit cannot be further transferred at the request of the second beneficiary.

c. Any request for transfer must indicate if and under what conditions amendments may be advised to the second beneficiary.

d. The transferred credit may reduce the amount, unit price, expiry date, period for presentation and the shipment date.

e  If the first beneficiary is to present its own invoice, but: fails do so or presented a discrepant invoice, transferring bank has the right to present the documents as received from the second beneficiary.