UCP500. (International Affairs Section).(Brief Article)

This third commentary continues the study of UCP500 by examining Article 5.

Many presentations of documents are rejected because credits have been incorrectly issued. Sometimes, there is a bank error or an error by the applicant that the issuing bank should have noticed and queried with the applicant, usually its importing customer. A simple example would be where the latest shipment date was October 25, but the credit expired on October 10--clearly absurd. Even the latest shipment dates which coincide exactly with expiry dates should be questioned as to their operational practicality, though it might just about be possible in some circumstances to ship goods and present documents on the same day.

More often, however, errors take the form of mismatches between the terms of the sales contract and the provisions stipulated in the credit. As noted in my previous commentary concerning Articles 3 and 4, banks are usually unfamiliar with the relevant sales contract and, therefore, will not know whether the credit they are issuing or advising adequately reflects the requirements and expectations of the buyer and seller.

Article 5 encourages applicants to make their contribution to the smooth running of the letter of credit process by being unambiguous and brief. In some ways, this Article anticipates Articles 12 and 20, which will be discussed in later commentaries, but let us consider some more examples. If you really want an insurance policy, do not ask for an insurance document, or banks will accept an insurance certificate as Article 34d permits. If you want to insure against a particular risk, spell it out, or it may not be covered. When you ask for an Inspection Certificate, you may well receive a certificate confirming the number of items shipped, but it is unlikely to certify that they have been tested and found to be in good working order, if, therefore, what you really want is a Test Certificate, then say so. Again, think about what you need when you ask for a Certificate of Origin issued by the local Chamber of Commerce. Do you really mean "issued" or would "stamped or counter-signed" suffice? And what does "local " mean? Local to the manufacturer in country A, or local to the exporter/beneficiary in country B?

if ambiguity does occur and is not realized until documents are presented, a bank is likely to be protected by law if it adopts a reasonable interpretation. In other words, nobody should expect to benefit from ambiguous instructions.

Avoiding excessive detail is a subject which should be dear to everybody's heart, banks and traders alike. Banks do not enjoy checking a dozen or more different documents under the same credit any more than exporters enjoy preparing them (often for low value shipments, too). With certain types of ...