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UCP comparison Part 2 - Bank responsibilities

04/04/2016

Article 6 - Presentation requirements

UCP 82, article 38, only made allowance for credits that were available by payment and the credit was to indicate a time for it to remain in force for payment or shipment.

UCP 151, article 10, extended the scope to include credits that were available by acceptance or negotiation and the requirement for an expiry date.

UCP 222, article 35, made reference to credits available by payment, acceptance or negotiation with a bank authorised to carry out such an act, with a further provision that the expiry date was to be for presentation of documents.

UCP 290, General Provisions & Definitions (e), introduced the concept of a credit being freely negotiable by any bank.

In UCP 400, the wording had changed slightly to "In a freely negotiable credit, any bank is a nominated bank." The concept of a nominated bank was first indicated in UCP 290.

UCP 600 is the first set of rules to tackle the entire issue of availability and expiry.

 

Article 7 - Obligations of the issuing bank

At the outset, reference was provided for both an opening bank and an issuing bank.

UCP 82, within article 5, referred to an opening bank having a definite undertaking towards a beneficiary. This was re-emphasised in article 9, however, in this article, mentioning an issuing bank.

Reference to an opening bank was dropped in UCP 151 and issuing bank was used consistently throughout the rules. The concept of providing an issuing bank with a reasonable time to check documents was introduced in article 10.

No major changes with regard to the undertaking of the issuing bank were introduced in UCP 222.

The key change in this respect came with UCP 290, article 3, wherein the various forms of settlement were listed for the first time under the undertaking of the issuing bank.

This was further expanded in UCP 400, article 10, with the addition of deferred payment.

The text of UCP 500, primarily within articles 9 & 10, sought to provide more clarity in respect of the obligations of the issuing bank.

An additional change was introduced with the commitment that an issuing bank must follow-up the issuance of a pre-advice with an operative credit.

UCP 600 re-structured the previous diverse sub-articles and consolidated the various requirements into one article. The key differentiator has been with the introduction of the concept of ‘honour'.

Furthermore, in order to avoid the issues that arose in a number of court cases, it is now fully transparent that reimbursement is due to a nominated bank that prepays a deferred payment undertaking.

 

Article 8 - Obligations of the confirming bank

Confirmation of a credit by an advising bank was initially covered by UCP 82, article 7, wherein it was stated that such confirmation makes the advising bank responsible to the beneficiary.

This was refined in UCP 151 article 5 with the emphasis changed to highlight the definite undertaking of the confirming bank 

No major changes with regard to the undertaking of the confirming bank were introduced in UCP 222.

As with the obligations of the issuing bank, the key change in UCP 290 focussed on the listing of the various forms of settlement under the undertaking of the confirming bank in article 3.

Both issuing bank and confirming bank undertakings were simultaneously expanded in UCP 400, article 10, with the addition of deferred payment.

With the introduction of UCP 500, articles 9 and 10 provided more detail with respect to the obligations of the confirming bank.

As already noted under article 7 (above), UCP 600 re-structured the previous diverse sub-articles and consolidated the various requirements into one article with the key differentiator being the introduction of the concept of ‘honour' and the addition of prepayment of deferred payment commitments.

 

Article 9 - Obligations of the advising bank

UCP 82, article 6, stated the fact that an advising bank had no responsibility when only asked to notify (advise) a credit.

Apart from formatting changes, this stayed relatively unchanged in UCP 151, article 6.

UCP 222, article 3, changed ‘without responsibility' to ‘without engagement'.

The wording was more or less retained in UCP 290, article 3.

The first clear change for some time appeared in UCP 400, article 8, wherein it was stated that an advising bank shall take reasonable care to check the apparent authenticity of the credit which t advises.

UCP 500 saw the introduction of article 7 specifically entitled ‘Advising Bank's Liability' thereby providing further clarification of the role and responsibility of the advising bank.

Further changes arrived with UCP 600 article 9 wherein it was stated that the act of advising by advising banks, rather than using ‘reasonable care' to check the apparent authenticity of a credit, now signifies that ‘it has satisfied itself'.

In addition, the concept of a second advising bank was introduced for the first time in order to reflect existing practice.

 

Article 10 - Handling of amendments

UCP 82 article 4, UCP 151 article 4 and UCP 222 article 2 refer to modifications of credits but with no explicit instructions on how such modifications are to be handled under a documentary credit.

The first reference to ‘amendments' appears in UCP 290 article 2 but merely makes a reference with regard to amendment without prior notice to the beneficiary under a revocable credit.  A more definitive reference appears in article 3 that refers to the requirement for the agreement of all parties to amendments and that partial acceptance of an amendment is not effective.

No major change was seen in UCP 400.

UCP 500 went somewhat further by adding the word ‘amend' to the header of article 5 and providing limited rules in article 9.

A more significant change arrived later with the publication of Position Paper No. 1 clarifying correct practice in respect of amendments with specified time limits.

UCP 600, article 10, is fairly similar to UCP 500. One new provision covers the scenario of an advising bank informing the bank from which it received the amendment of acceptance or rejection.

An additional change (formalising Position Paper No. 1 above) relates to disregarding a provision in an amendment that it will become effective unless rejected by the beneficiary by a certain date.

 

Article 11 - Pre-advice

UCP 82, article 9, incorporated a form of pre-advising of a credit by stating: "When a correspondent is instructed by cable or telegram to notify such Letter of Credit, the issuing bank must send the original of the Letter of Credit to the said correspondent, if it is intended to put the document itself into circulation."

UCP 222, in article 4, referred to the situation where the mail advice was to be the operative credit and the need for the issuing bank to send it to the notifying (advising) bank.

UCP 290, article 4, contained similar language to UCP 222, but referred to the mail confirmation being the operative credit.

UCP 400 required that the issuing bank must forward the operative credit instrument or the operative amendment to the advising bank without delay.

UCP 600, sub-article 11 (b), takes the position to impose an obligation on the issuing bank by clarifying that an operative credit must always follow a pre-advice.

 

Article 12 - Nomination

The first mention of the term ‘nomination' appeared in UCP 290 ‘General Provisions and Definitions' and referred to a bank authorised to pay or accept being a nominated bank.

UCP 400 article 11 was the first to move the various applicable sub-articles into one rule. 

UCP 500 article 10 highlights that a nominated bank's handling and receipt of documents does not make them liable to pay.

The UCP 600 article is substantially similar to UCP 500 with the key change being the incorporation of prepayment of a deferred payment undertaking.

 

Article 13 - Reimbursement

It was not until UCP 290 that the first reference to bank-to-bank reimbursements appeared. Article 13 stated "A paying or negotiating bank which has been authorized to claim reimbursement from a third bank nominated by the issuing bank and which has effected such payment or negotiation shall not be required to confirm to the third bank that it has done so in accordance with the terms and conditions of the credit."

UCP 400, article 21, incorporated the first article that tackled the issues of bank-to-bank reimbursements by referring to the need for reimbursement authorisations and no requirement for a certification that the documents complied with credit terms and conditions. It also incorporated rules relating to the issuing bank obligation to reimburse if a reimbursing bank failed to do so, and the responsibility for payment of interest in the event that a claim is not honoured on first demand.

UCP 500, article 19, continued this theme and added an additional rule that reimbursing bank charges should be for the account of the issuing bank.

UCP 600, sub-article 13 (b), requires that the credit and the reimbursement authorisation indicate whether or not the reimbursement is to be subject to URR 725.

 

 

 

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