Tuesday, April 30, 2013

Wanted: A more positive article 15


Wanted: A more positive article 15[1]

The expressions “reasonable time” and “without delay”, because of their non-specific nature, came under intense scrutiny during the drafting of UCP 600. “Without delay” survived, but the appearance of the expression “reasonable time” in sub-article 13(b) of UCP 500 was to be its last. The latter was removed completely from UCP 600. Five years on, few seem to feel its absence.
“Without delay” conveys a greater sense of urgency than “reasonable time”. “Reasonable time” stretches the permitted time to an outer limit that could perhaps be justified under a given circumstance. Yet, both of the expressions are subjective in nature; neither indicates any definitive time frame nor a globally acceptable standard. It’s debatable whether any period could, in all fairness, be set as a “reasonable time”. Hence, it could not be part of any internationally applicable rules. If considered from a technical or legal point of view, a definite number of days was desirable. But even in its absence, most people preferred clear definitions and guidelines, black-and-white solutions over stipulations that were indefinite or vague in nature. A definite period was easier to handle. Compliance, or its breach, was easier to determine.
“Without delay”
The term “without delay” posed similar problems.  (Contd.....)

[The complete article is available in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]
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[1] Published: DCInsight, Page 10, Vol 18, No. 4, October-December 2012.

Thursday, April 25, 2013

Redefining 'negotiation'


Background
The term ‘negotiation’ has defied definition since its inception. As far back as the early 1980s people have been asking what negotiation was supposed to mean. Integral to the meaning of negotiation is the issue about recourse payment. The confusion about correct interpretation and application of the term ‘negotiation’ is not confined to laymen like me, but has troubled some of the experts in the business.
Ole Malmqvist, a member of the UCP Drafting Group for UCP 600 says, 
.... there has been an extended discussion about the word negotiation, which nobody can define and which only a few want to get rid of.... I'm still looking for someone who can explain to me the difference between payment and negotiation .... so far no one has been able to come up with a definition, not one I have seen, at any rate, so I doubt that anyone will be able to come up with a definition now .... I suggested that we get rid of the word negotiation.... The word ‘negotiation’ is a problem.... In short, I think we should get rid of the word ‘negotiation’ because we cannot define it and because we don't need the concept…. (contd......)

[The complete article is available in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]





[i] DCInsight, April-June 2004.
[ii] LC Monitor-Trade Services Update, Volume 11, Issue 2, March–April 2009.
[iii].Ibid.
[iv].Ibid.
[v] Ibid.
[vi] Ibid.
[vii] Ibid.
[viii] Ibid.
[ix] DCInsight, Vol 15, No 3, July-September 2009.
[x] LC Monitor-Trade Services Update, Volume 11, Issue 2, March - April 2009.
[xi] Another comment on ‘Negotiation, Trade Services Update Volume 12, Issue 3, May – June 2009.
[xii] Ibid.
[xiii] LCM-Trade Services Update, Volume 11, Issue 2, March - April 2009.
[xiv] DCInsight, Vol 15 No 3, July-September 2009.

Nominated bank and UCP 600


This article analyses the roles and responsibilities of a nominated bank under selected provisions of UCP 600.
Article 6(a) of UCP 600 requires that a “credit must state the bank with which a credit is available”. This bank has been defined under Article 2 as the ‘nominated bank’. A nominated bank could be a bank specifically designated by the issuing bank for the purpose of negotiation or honour of documents. Alternately, it may be any bank. According to sub-article 7(c), the issuing bank’s undertaking to reimburse under its own LC is restricted only to a nominated bank. Note that the bank that has added its confirmation to a credit need not necessarily be a nominated bank.
Let us focus on the first major article on nomination, viz., Article 12. Sub-article 12(a) states: (contd...)

[The complete article is available in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]




[1] Published in DC Insight, Volume 17, No. 1, Jan-March 2011.
[1] Author is the former managing director of Fina Bank Ltd, Nairobi, Kenya and TransAfrica Bank  Ltd., Kampala, Uganda; founder and CEO of Institute of Banking Studies.  

[i] ‘Suggested answer’ to question no. 2.15, Frequently Asked Questions on UCP 600, Gary Collyer.

Wednesday, April 24, 2013

Article 12, UCP 600 - a critical analysis


Ever since UCP 600 was published, Article 12 (Nomination) each of the three sub-articles provided room for confusion about their intent and purpose. This article examines the issues related to Article 12 as a whole, taking up one sub-article at a time.

Sub-article 12(a)
Sub-article 12(a) states:
“Unless the nominated bank is the confirming bank, an authorisation to honour or negotiate does not impose any obligation on the nominated bank to honour or negotiate, except where expressly agreed to by the nominated bank and communicated to the beneficiary.”
This sub-article addresses two distinct effects of nomination. The first is a nominated bank’s obligation, if any, to honour or negotiate upon being nominated. The second is an apparent exception to the foregoing. The first part of the sentence stipulates that, unless the nominated bank confirms the credit, its nomination by the issuing bank casts no obligation on the bank thus nominated to honour or to negotiate. This is perfectly correct, and is also in accordance with Article 8. This is not a rule, but more in the nature of a clarification; however, its existence helps. The problem is with the second part of this same sentence or sub-article. The expression “except where expressly agreed to…” appears to provide for an exception to what goes before it. One would, thus, be led to believe that the obligation to honour or negotiate is indeed cast on the nominated (non-confirming) bank, provided that bank ‘expressly agrees’ (to negotiate or honour) and communicates the same agreement or willingness to the beneficiary.

As we know, this sub-article intends no such thing, rather ....(contd...)


[The complete article is available in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]





[i] Nominated bank and UCP 600, DCInsight, Volume 17, No. 1, Jan-March 2011.
[ii] “Issues in UCP 600: another look at five banking days and negotiation” by King-Tuk Fung, DCInsight, Vol. 16, Issue 1, October-December 2009.
[iii] That confirmation may be on the forwarding schedule itself or through later communication.
[iv] Negotiation and the law of contracts, DCInsight, Vol. 16, No. 2, April-June 2010, and Re-defining Negotiation, LC Monitor-Trade Services Update, Volume 11, Issue 4, July–August 2009.

Some random thoughts on the UCP


1.        Introduction
Often I had wished that I were a fly on the wall, had a voice recorder in place to record the deliberations, or could browse through the background papers and notes while the first ever UCP was being drawn up nearly 80 years ago. Tapping into the minds of the first ever drafting group could have been a revealing experience. For, very recently, while trying to understand the true meaning of the term “negotiation” and a few other provisions of the UCP, the question that I repeatedly asked myself was, “Does the UCP have its roots in the laws of contract?” For, there were certain inescapable similarities between the articles of the UCP and the laws of contract. I am not a member of the legal profession, neither qualified in matters of law. Yet, even to a layman like me, the similarities became so compelling that I decided to put my thoughts on paper. My initial effort resulted in a paper published in DC Insight[i]. I based that paper on the Indian Contract Act, 1872. However, since the Indian Contract Act (ICA) was formulated by the British, I looked for the original English Act to use it in my analysis. To my surprise I learned that, even today, there is no English law equivalent to the Indian Contract Act 1872 (ICA).
The ICA appears to be basically a codification of the English Common Law (contd....)

[The complete article is available in the book 'Beyond Trade Finance', published on 13-Apr-2021 by Notion Press, and available at https://notionpress.com/read/beyond-trade-finance or at https://www.amazon.in/dp/1638508666]





[i] Negotiation and the laws of contract, DC Insight, Vol. 16, No. 2, April-June 2010.
[ii] Issued by the United Nations Commission on International Trade Law, United Nations, New York, 2010.
[iii] Articles 15(2) and Article 16 of the CISG reflect similar approach to revocation.
[iv] Does this provide grounds enough for modifying Articles 2 and 4 of the ISBP to create a level playing field?
[v] The expression ‘promisee’, describing the issuing bank - the original promisor or proposer – in this particular context, is derived from the title to Section 52 viz., “Order of performance of reciprocal promises”, and sub-section 2(e) of the ICA (“Every promise and every set of promises, forming the consideration for each other…”.
[vi] “…Silence or inactivity does not in itself amount to acceptance”, states Article 18(1) of the CISG.
[vii] ICC Official Opinion R520 / TA543 rev2 - Unpublished Opinion 1995-2004.
[viii] DC Insight, Vol. 17, No. 1, Jan-March 2011.
[ix] An agreement, valid in law, is defined as a contract. In places, I have used the terms interchangeably for the limited purpose of this article.
[x] Article 3 of the Uniform Rules for Collection, ICC Publication No. 522.
[xi] Refer to my articles Negotiation and the law of contract, DC Insight, Volume 16, Issue 2, April-June 2010, and Re-defining negotiation, LC Monitor-Trade Services Update, Volume 11, Issue 4, July-August 2009.
[xii] This appears to be a deviation from the principle stated in UCP 500, sub-article 10(b)(ii) which read as follows: “Negotiation means the giving of value for draft(s) and/or document(s) by the bank authorised to negotiate. Mere examination of the documents without giving value  does not constitute a negotiation. (emphasis added)”
[xiii] The definition in Article 2 of UCP 600 is full of holes. After the publication of my article Re-defining negotiation, in the LC Monitor-Trade Services Update, Volume 11, Issue 4, July-August 2009, I was hoping to receive very strong, specific, point-by-point rebuttal of the points I had made therein. Surprisingly, I have received absolutely none till date. (Incidentally, has anyone ever wondered why, since the first UCP was released in 1933, the term “negotiation” has defied a universally acceptable definition?)
[xiv] Review of the recent Swiss Supreme Court decision (Emirates Bank International v. Credit Lyonnais (Suisse) S.A., Decision 1 June 2004, Tribunal Federal) on deferred payment credit from a comparative commercial law perspective, Chang-Soon Thomas Song, 10 May 2005.
[xv] Sub-article 12(b) was inserted in UCP 600 to address the issues raised by the courts on deferred payment credits.
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