NEGOTIATION AND THE LAW OF CONTRACT[1]

In trade finance and documentary credit operations, the word “negotiation” remains an enduring enigma. No one described the situation better perhaps than the late Ole Malmqvist, a member of the UCP 600 Drafting Group, who, in a DCInsight interview, said: “ … 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 … The word ‘negotiation’ is a problem … I think we should get rid of the word ‘negotiation’, because we cannot define it and because we don't need the concept[2]. He continued: “ … Every L/C expert knows exactly what negotiation is/means. But ask any three of them for their interpretation and be prepared to receive three different answers![3]”

Reinhard Längerich, a former member of the ICC Banking Commission, said[4]: “I am convinced that by removing the term ‘negotiation’ and ‘the right of recourse against the beneficiary’ [from UCP], we would make the letter of credit a more reliable instrument.”

But the fact remains that, in spite of these severe criticisms, negotiation is alive and well and is included in the latest version of the UCP. Since we must continue to live with it, this article is yet another attempt to explain the concept and to provide yet another answer.

UCP 600 definitions

......(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] Published in DC Insight, Vol. 16, No. 2, April-June 2010.

[2] DCInsight Vol. 10 No.4 Oct - Dec 2004.

[3] DCInsight Vol. 12 No.2 April - June 2006

[4] DCInsight Vol. 10 No.2 April - June 2004

[5] For a detailed comment on negotiation by this writer, refer to the article “Re-defining Negotiation”, LC Monitor – Trade Services Update, Volume 11, Issue 4, July–August 2009.

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