UCP500. (Business Credit Selected Topic).

This is the first in a series of commentaries which will examine UCP500 systematically and in detail, concentrating on individual Articles and sub-Articles as they apply both to importers and exporters. The emphasis will be on their practical application and relevance to ordinary regular trade transactions, not on academic or legalistic argument, though particularly significant court decisions or other "hot topics" will be included as separate items whenever they might occur.

The Uniform Customs and Practice for Documentary Credits (UCP) published by the International Chamber of Commerce (ICC) are the universally recognized rules governing the use of documentary credits in international commerce. The current revision, UCP500, came into effect in January 1994. Many traders feel that the UCP rules were written by banks for banks, and there may be some truth in this perception. It will not be the intention to express the point of view of the banking industry, though there will be occasions when the banking view needs to be explained in order to enable traders to have a better understanding of the wider picture and thereby to take appropriate measures to protect or improve their own position.

Article 1

UCP500 is merely the latest in a long line of revisions throughout the 20th century, so most of the broad principles are well established. Nevertheless, significant variations were introduced and subsequent developments elsewhere have had an impact on what might be considered to be tried and tested territory. For example, Article 1 makes reference (as did the previous version of UCP for the first time) to Standby Letters of Credit with the caveat "to the extent to which they may be applicable." This was far from satisfactory since nobody bothered to try to define what was meant. There were unfortunate results. For example, some Standbys simply call for three documents: copy of the invoice, copy of the Bill of Lading and a statement by the beneficiary that payment has not been made according to contract. Some banks then refused to pay, alleging that the documents were discrepant because the copy of the Bill of Lading was more than 21 days old and, therefore, outside the time frame allowed in Article 43a. Such an outcome was never intended by the UCP draftsmen.

Other problems also arose, and eventually American organizations working in this field decided that rules should be drafted specifically for use with Standbys, which resulted in a new code of practice, International Standby Practices, known as ISP98. While Standbys may not be as widely used by importers and exporters based outside the U.S. as ...