A delicate balance has to be sought between simplicity and
detail in order to ensure that legal rules are sufficiently flexible to meet the needs of different trades and to adjust to technological advances.
The focus of this article is upon the Uniform Customs and Practice for Documentary Credits (UCP), which consists of a set of principles which standardise banking procedures for payments byway of documentary credits. These principles do not apply automatically, but are in play once traders choose to pay by letter of credit and to incorporate the UCP as part of their contract terms. The UCP was first issued by the International Chamber of Commerce (ICC) in 1933. It has been regularly revised since then in order to ensure that it reflected current banking and trade practice. The most recent version had been the UCP500, promulgated by the ICC in 1993 and effective from January 1, 1994.3 The ICC Commission on *J.B.L. 356 Banking Technique and Practice (Banking Commission) initiated a fundamental review in 2003. After three years of preparation and consultation, unanimous approval of the draft was given by the Banking Commission on October 25, 2006. It is expected that the UCP600 will be used by banks and traders across the world from July 1, 2007 (and will therefore be referred to as the “UCP600 (2007 revision)”).4
Over the years, the letter of credit has been a popular choice. It is particularly attractive when traders are conducting business across great distances in relation to highly valuable cargoes. In this situation, they either need to know each other well enough to trust one another or they need to put some sort of payment mechanism in place which will offer certain safeguards to protect each of them. The letter of credit offers considerable advantages in these respects. It is documentary in nature and independent of the sale contract because payment is made in return for shipping documents rather than the goods themselves. Subject to what has been...
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