UCP500. (International Affairs Section).(trade finance regulations)(Brief Article)(Column)

This sixth commentary on UCP500 examines Article 10.

The re-drafting of Article 10 from its equivalent in the previous UCP seemed to cause an unexpectedly large number of difficulties, particularly for the banks themselves, partly as a result of trying too hard to clarify terminology and partly as a result of an English court decision in 1999.

Beneficiaries need to know who is going to pay them, on what terms and when. While documents can always be presented to the L/C issuing bank, beneficiaries normally want to present them nearer to home. Therefore, they need to know whether they must present documents to the advising bank, which may not be their own bank, or whether presentation to their own bank is permitted. If the advising bank has added its confirmation to the L/C, then it makes best sense to present to that bank anyway. Remember, the confirming bank is obliged to honor conforming documents, whereas any other bank may decline to do so, even if documents are in order.

When the L/C has not been confirmed, there may be a clause restricting the handling of documents to the advising bank. Often however, there is no such restriction, and beneficiaries may choose to ask their own bank to handle the documents. Although the beneficiary's bank would in these circumstances be under no obligation to handle the documents, it would often be willing to do so in order to provide a service for its customer and to generate earnings for itself. Assuming the L/C is payable at sight, then whichever bank handled the documents would become the negotiating bank if it "gave value" for the documents rather than merely forwarded them to the issuing bank for payment. The negotiating bank would consider that it had made some kind of loan or advance payment by providing the beneficiary with funds before having been paid itself by the issuing bank or by any other reimbursing bank. In effect, the negotiating bank is buying the documents from the beneficiary and presenting them on its own account to the issuing bank for payment.

Unfortunately, in trying to be helpful, Article l0bii attempted to define the meaning of negotiation, which led to a large number of queries arising from local law and different banking practices around the world. A Position Paper was issued by the International Chamber of Commerce to "correct some misinterpretations," but it has been said that this created more problems than it solved. It is clear from the numerous articles written on this topic that the term "negotiation" is still used in many different contexts, and seems to mean different things in different countries, often when alternative expressions are available which would be more accurate.

As far as beneficiaries are concerned, the important point is to satisfy themselves as to who is going to pay them and particularly whether such payment is with or ...