IMAGE PHOTOGRAPH1 There have recently been significant rule changes with regard to documentary letters of credit which

are governed by the terms of the Uniform Custom and Practices for Documentary Credits promulgated by the International Chamber of Commerce ("ICC"). Effective July 1 , 2007, the Banking Commission of the ICC unanimously adopted the latest edition of its Uniform Custom and Practices for Documentary Credits 600 ("UCP 600"). UCP 600 replaces and supersedes UCP 500 as the current ICC set of rules governing letters of credit. However, all letters of credit opened prior to July 1 , 2007, which specify that they are subject to UCP 500, will still be governed by UCP 500. It is important to remember that UCP 500, and now UCP 600, are applicable worldwide not just in the U.S. These rule changes will have no effect on documentary letters of credit that do not provide that they are subject to the UCP. UCP 600 is an attempt to address recent developments in the banking, transport, and insurance industries. The provisions of UCP 600 are more user-friendly, both in structure and language. This may lead to an overall reduction in documentary rejections. As with all prior UCP publications, UCP 600 references only banks as issuers of letters of credit when, of course, we live in a world where letters of credit are issued and confirmed by parties other than banks. UCP 600 applies to them as well. We have outlined several of the changes below: * UCP 500 allowed the issuing bank a "reasonable time" following the date of receipt of the documents, but not to exceed seven banking days to examine the documents and to decide either to pay or reject the draw. Courts had inconsistently interpreted what actually constituted a "reasonable time" under UCP 500, finding that the seven days was not a "safe harbor" and that using the full seven days could, in some instances, be "unreasonable," thereby precluding rejection. UCP 600 provides for an absolute deadline?? five banking days following the day of presentation to review the documents and determine if there is compliance. While UCP 600 omits any reference to "reasonable time," it is unclear whether the five days will be interpreted as a "safe harbor." In all likelihood, a finding of deliberate delay will still preclude rejection even where notice of noncompliance is given within the five days. This change is to be distinguished from Section 5-108 of the Uniform Commercial Code governing documentary letters of credit that are not specifically governed by UCP 600. Under the UCC, an issuing bank has a reasonable amount of time, not to exceed seven business days, to either pay or reject a draw. * One debated topic among the drafters of UCP 600 was the process known as "linkage." The linkage issue is the degree to which inconsistencies between documents tendered constituted a discrepancy justif~iing nonpayment. Under UCP 500, a large number of documents were rejected for inconsistency between documents. UCP 600 dramatically liberalizes the consistency requirement. It provides that data in a document, when read in context with the credit, the document itself, and international standard practice need not be identical to, but must not conflict with, any other stipulated document or the credit.

* Interpretations under UCP 500 left open whether banks were entitled to insist on original documents and what qualified as original documents. UCP 600 provides that at least one original of each stipulated document must be tendered. UCP also clarifies the requirements to qualif~' as an original document.

* UCP 600 establishes new rules for determining the enforceability of issuer-proposed amendments. and had established that a revocable credit could be amended or cancelled at any time without notice to the seller.* UCP 600 limits the situations in which limited liability applies to an issuer of a credit. when an issuer refuses to honor a draw. * The flight stamp shown on an airway bill will be the date of shipment. Furthermore. UCP 600 specifies what such notice must contain. telephone or the like) stated as part of the beneficiary's or applicant's address will be disregarded. you should revise your sales contract to incorporate express terms imposing such an obligation on the buyer of the goods and must revise the letter of credit to expressly incorporate UCP 600 or make reference in the letter of credit to the then-current UCP rules as governing the terms of the letter of credit. However. email. whether requested in the credit or not. it must give only a single notice to the presenter. 2007. which created controversy over whether UCP 500 in fact permitted such discounting. mutilation or other errors stemming from the transmission of any messages or delivery of letters or documents. Contact details (telefax. the parties to the letter of credit must clearly and specifically intend the credit to be revocable or it will be irrevocable. UCP 600 establishes irrevocable letters of credit as the default credit. UCP 600 clearly recognizes the concept of discounting deferred payment credits. * UCP 600 adds two new options to a rejection notice. * UCP 500 clearly established that letters of credit could be either revocable or irrevocable. when the address and contact details of the applicant appear in a transport document (subject to the transport document articles of UCP 600) as part of the address of a consignee or notification party. letters of credit should be governed by UCP 600. that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. though it must be within the same country. If you determine that your post-July 1. This essentially moves the risk of something going wrong from the discounting bank back to the applicant for the credit during the deferred payment period. The issuing bank must reimburse the nominated bank (the bank at which the credit is available) on maturity whether or not the nominated bank has paid early. It now defines a letter of credit as "any arrangement. then they must appear as stated in the credit. This appears to widen the risks of liability of an issuer of a credit (when compared to UCP 500) for consequences arising out of delay. . the interpretations under UCP 600' s Article 3 state that a credit is irrevocable even without some indication to that effect." the word "clean" need not appear on the transport document. Furthermore." As a result. * UCP 500 failed to acknowledge the concept of discounting deferred payment credits. * Banks may accept insurance documents that contain references to an exclusion clause. loss in transit. however named or described. Recommendations Review UCP 600 carefully. It allows the bank to hold documents (i) pending applicant waiver or receipt of additional instructions from the presenter or (ii) to ensure it is acting in accordance with presenter's instructions. * An applicant or beneficiary address appearing in any stipulated document need not be the same as stated in the letter of credit. * Where a credit requires a transport document to be "clean on board.

New York. NY.. IL.iccwbo. Kohn is co-general counsel of CFA. Bell. He is a member of the CFA Education Foundation Founders Leadership IMAGE PHOTOGRAPH2AUTHOR_AFFILIATION Jonathan N. Kohn. P. Ltd. IMAGE PHOTOGRAPH3AUTHOR_AFFILIATION Richard M. He is a member of the CFA Education Foundation Founders Leadership Council .A copy of UCP 600 can be obtained through www. and partner. black.C. Chicago.. Helfat is co-general counsel of CFA. Otterbourg. Steindler. Houston & Rosen. Rosenbloom & Moritz. Goldberg. and senior partner.