The Uniform Customs and Practice for Documentary Credits ("UCP") issued by the International Chamber of Commerce ("ICC") have been cited as the most successful in the history of the harmonization of international trade practice.
The United Arab Emirates ("UAE") law on documentary credits is governed by the provisions of the Commercial Law No(18) for the year 1993.
The provisions of the Commercial Law and the UCP treat certain issues identically, such as the distinction between revocable and irrevocable credits and the requirement of an expiry date of the credit which the Commercial Law, refers to as "validity date". However, the UCP are far more comprehensive. Nonetheless, UAE Courts will apply UCP rules in cases where the parties to a letter of credit have expressly agreed to be bound by the UCP.
The provisions of the Commercial Law do not expressly state at which bank documents need to be presented prior to the credits' expiry date. This question was in dispute in case No. 136 of the Dubai Court of Appeal of 1999. In this case the beneficiary presented the documents prior to the expiry of the credit to the advising bank. This bank was nominated by the issuing bank to accept the documents; however, the credit did not provide for a place of presentation. By the time the documents were forwarded by the advising bank to the issuing bank the credit had expired and the issuing bank refused to honour the credit. The Court confirmed the issuing bank's opinion that documents must be presented to the issuing bank prior to the expiry date if the credit does not provide for a place of payment.
In case No. 395 of 1999 of the Abu Dhabi Court of Appeals an uncertainty about the effects of a waiver of discrepancies was clarified. The issue in dispute was whether a waiver of discrepancies by the applicants obligates or entitles the bank to accept discrepant documents. The Court stated that the bank no longer has a right to refuse to take up discrepant documents if the applicant waived the discrepancies. The bank then has no discretion whether or not to respect the waiver and is obligated to make payment to the beneficiary.
There are many other judgments issued by UAE Courts that have applied UCP rules in line with the provisions of the Commercial Law e.g. Judgments No. 331/21, No. 212/11, No.130/22, No. 89/18, No.373/17 and No.185/10. Articles of the Commercial law pertaining to Documentary letters of credit are as follows:
Article 428 (Definition of a documentary credit)
1. The documentary credit is a contract according to which the bank issues a documentary credit for a specified amount and for a specified period of time upon a customer's (the person who asked for the credit) request in favour of a third person (the beneficiary), and which is guaranteed by documents that represent shipped goods or goods ready for shipment.
2. The documentary credit contract is independent from the contract for which the credit is issued and the bank remains alien to such contract.
Article 429 (Validity Period)
Each documentary credit must specify a maximum validity date and the documents to be presented for payment, acceptance or discounting.
If the specified expiry date falls on a bank holiday the validity period shall be extended to the first working day following such bank holiday. Except for holidays the validity period shall not be extended even if the expiry date falls on a date on which the bank's business is interrupted due to force majeure, unless the credit's applicant gives expressinstructions to the contrary.
Article 430 (Relevant documents for credit opening)
1. The credit opening, confirmation or notification documents shall precisely define the documents against which payment, acceptance or discounting are to be made.
2. The issuing bank undertakes to carry out the conditions of payment, acceptance and discounting as stipulated by the credit, if documents that represent the goods comply with the terms and conditions of the credit.
Article 431 (Revocability of credit)
1. The documentary credit may be revocable or irrevocable.
2. The documentary credit shall be definite unless its revocability is expressly agreed upon.
3. The documentary credit may be fractionable, transferable, unfractionable or not transferable.
Article 432 (Irrevocable credit)
1. The irrevocable documentary credit does not create a liability by the bank towards the beneficiary and the bank may, at any time, modify or revoke such credit either at its own initiative or at the applicant's request.
2. If the transport documents are presented in accordance with the terms and conditions of the documentary credit and within the stipulated period and prior to the credit's revocation, the bank and the applicant shall be jointly responsible to the beneficiary.
Article 433 (Bank's Liability)
1. In the case of an irrevocable documentary credit, the bank's liability shall be definite and direct to the beneficiary and to any bona fide holder of the documents drawn in compliance with the contract for which the documentary credit has been issued.
2. The definite documentary credit may not be revoked or amended unless all involved parties agree.
Article 434 (Confirmation)
1. Any bank other than the one that issues the documentary credit may confirm the definite and irrevocable credit by fulfilling its commitment definitely and direct to the beneficiary and to any bona fide holder of the document in performing the credit opening contract.
2. The simple notification of the issuance of the definite documentary credit forwarded to the beneficiary by a bank other than the one that issues the documentary credit shall not be considered a confirmation of the credit by such bank.
Article 435 (Availability and Compliance of Documents)
1. The documents must be presented to the bank before the credit's expiry date. If they are presented after the expiry date the bank shall reject them unless the applicant accepts them and the bank agrees.
2. The bank shall assure that the documents are at its disposal, that they comply with the credit's conditions, and that they are in conformity with the credit.
Article 436 (Duty of examination)
The bank shall only be liable to examine the documents and to verify that they comply on their face with the documents stipulated in the credit. The bank shall not be liable for examining whether the goods themselves comply with the documents that represent them.
Article 437 (Transfer of documents)
The documents that are accepted by the bank shall be forwarded promptly to the applicant. If the bank rejects documents the bank shall notify the beneficiary promptly thereof and inform the beneficiary about the reasons for its rejection.
Article 438 (Transfer of Credit)
1. The beneficiary may not assign the credit in whole or in part to one or several third parties unless the beneficiary is authorized to do so by the bank and the credit expressly permits such transfer.
2. The bank may not pay the credit in parts unless the applicant authorizes the bank to do so.
3. The credit may be assigned only once unless otherwise provided for in the credit opening contract.
4. The assignment is effected either by endorsement of the credit if it is registered, or by actual transfer if the credit is for the benefit if its holder. If it is for a nominal amount it shall be remitted.
Article 439 (Parties' and banks' duties)
1. The applicant shall reimburse the bank for any amounts paid to the beneficiary according to the terms of the credit and compensate all expenses that have been incurred by the bank.
2. The bank shall be entitled to foreclose the documents that it received from the seller and to obtain a pledge over the goods that are represented by the documents as collateral for the banks' claims.
3. If the applicant fails to pay the bank the value of the transport documents that are in compliance with the credit within one month running from the date of the notification that such documents have been presented, the bank is entitled to sell the goods according to the provisions applicable to the execution of commercially pledged property.
4. If the goods have perished or been damaged the pledge shall apply to any amounts held in deposit.
5. After presentation of the documents, the bank and its customer may agree that the customer transfer the goods that are subject to the credit in whole or in part to the bank as total or partial settlement of the customer's debt to the bank. The bank shall then authorize the customer to receive the goods and hold them in trust and sell them on behalf and for the account of the bank, at the terms and conditions agreed on between the parties. The customer shall be responsible as a commission agent and the bank shall have the rights of a trustee of the goods or their value.
It should be noted that at a recent meeting of the Export Forum in London, Gary Collyer, chairman of the ICC Drafting Group, gave a work-in-progress presentation of the activities of the group and a preview of some of the changes that we may expect in the next revision of the UCP revision 500.
There is no official announcement from the ICC on when we can expect the definitive version to be published. But on the basis of progress so far, an informed guess would be summer or autumn 2006, with the new revision becoming effective some months later.
Rakan Shiyab
Al Tamimi & Company 2005
