What’s draft got to do with it?[1]

Introduction

The bill of exchange (draft) has always been an integral part of documentary credits since inception. That situation could change in the near future. Voices opposed to this long partnership are getting stronger. Even though there is no official word about the next revision of the UCP, there is a rising demand for the next version to rid itself of its reliance on drafts. A sharp dividing line has developed between those who believe in the dictum “If it ain’t broke, don’t fix it”, and those who find drafts totally irrelevant – rather, more of a big nuisance – as far as documentary credits are concerned.

In two separate articles[3]  published earlier this year, experienced trade specialists Peter Sproston and Bob Ronai called on the LC community to “stop following the tradition of using drafts dating back to the 19th Century and eliminate drafts from the next revision of the rules.” In his blog post of February 2015, Kim Sindberg echoed similar sentiments, “…references to drafts and negotiation should be got rid of once and for all.”

Dependence on drafts

Documentary credits rely heavily (contd...)

[This article is continued 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] First published in LCM-TSU, Jan-March 2016.

[2]The author is trainer, faculty and author of books and articles on international trade. Home page: http://www.rnbose.com.

[3] Drafts: In or out of UCP 700? Documentary Credit World, Page 1, Vol.19, Number 1, issue of January 2015

[4] Drafts: in or out of ucp700? Documentary Credit World, Page 1, Vol.19, No 1, January 2015

[5] Refer to Newman Industries Ltd v Indo-British Industries, [1956] 2 Lloyd’s rep 219; see also W.J. Alan & Co Ltd v El Nasr Export and Import Co [1972] 2 Q.B. 189, 209-212, 221. (Peter Sproston, DCW, Jan ‘15)

[6] Documentary Credit World, Page 20, Vol.19, No 1, January 2015,

[7] Documentary Credit World, Page 1, Vol.19, No 1, January 2015.

[8] Bills of Exchange Act, UK, Section 45(2): Where the bill is payable on demand, then, subject to the provisions of this Act, presentment must be made within a reasonable time after its issue in order to render the drawer liable, and within a reasonable time after its indorsement, in order to render the indorser liable.

[9] See Negotiation and the law of contracts, Rupnarayan Bose, DC Insight, Vol. 16, No. 2, April-June 2010; and Re-defining Negotiation, Rupnarayan Bose, LC Monitor-Trade Services Update, Vol. 11, Issue 4, July–August 2009.