Ambiguity as to the date of availability of a credit: date of acceptance v date of negotiation

As to the issue of the expiry date of a credit a problem may arise if such a date is ambiguous. For instance, in Midland Bank Ltd. v. Seymuor,®® where there was an argument whether the date of negotiation of drafts drawn under the credit is the final date in which the credit to be available or the date of acceptance of negotiated drafts, it was held that the date of negotiation of a draft is not an essentia! part of a documentary credit so the date of availability or expiration of credit is the date of its acceptance.®^ Devlin, J., concerning the meaning of term

[Î955] 2 Ll.L.R. 147.

Ibid., pp. 164-7; Ellinger, supra (f.n. 11), p. 301.

"available" said: "I think that "available" means that this credit can be drawn on in the manner prescribed. That is how it is made available, and the manner prescribed is by presenting the draft and documents to the bank or to the bank's agent, that is, the draft that is to be accepted and the shipping documents that are there specified. That would be appear to be the prima facie and simple meaning of the word "available"."®® What is the solution for the question in discussion under UCP 500?

Article 42 (a) of UCP 500, in contrast with Article 46 (a) of UCP 400 relating to a negotiable credit, provides: "All credits must stipulate an expiry and a place for presentation of documents for payment, acceptance, or with the exception of freely negotiable Credits, a place for presentation of documents for negotiation. An expiry date stipulated for payment, acceptance or negotiation will be construed to express an expiry date for presentation of documents." But concerning a situation similar to the Midland Bank case the UCP is silent and paragraph (c) of Article 42 provides only that banks should discourage indications like "the credit is to be available "for one month", or "for six months", or the like" since they do not specify the date from which the time of availability of a credit starts. Therefore, what would be the solution under UCP 500 for a situation similar to the case Midland Bank above? Would it be possible to extend the meaning of availability of a credit to the time/place of negotiation of a credit? It seems, based on the first sentence of Devlin, J.'s statement concerning the meaning of "available" quoted above, "available" means that a credit can be drawn on in the manner prescribed and with the new approach concerning negotiable credits accepted under Article 42(a) of UCP 500, a credit would also be accepted being available at the time of its negotiation. Moreover, by widening the meaning of availability of a credit it would also prevent any confusion and disputes between parties to a letter of credit transaction.

There is no reference as to the point in consideration under the UCC and the proposal draft for its revision.®® Because of the uncertainty as to the meaning of the

Ibid., p. 164.

” See Section 5-106(c) and (d) o f PFD in appendix 2.

justifiable? To answer this query it is worth to consider what is the position of UCP regarding the point in discussion.

3.3.2. UCP 500

Article 42(b) of the UCP 500 provides that "Except as provided in sub-Article 44(a), documents must be presented on or before such expiry date." In sub-section (a) of Article 44 it is said: "if the expiry date of the credit [...] falls on a day on which the bank to which the presentation has to be made is closed for reasons other than those referred to in Article 17, the stipulated expiry date [...] shall be extended to the first following day on which such bank is open." Article 17 is related to the force majeure circumstances and its contents is as follows: "Banks assume no liability or responsibility for the consequences arising out of the interruption of their business by Acts of God, riots, civil commotions, insurrections, wars or any other caused beyond their control, or by any strikes or lockouts. [...]."

As it becomes clear from the above, the UCP is only considering the issue of expiry date from the bank's opening hours and it is silent about delay in the post. So, one may argue that since there is no direct reference to delay in post within the UCP then under Article 42(b) the beneficiary accepts presentation of documents on or before the expiry date and if there is any risk of delay he should bear the responsibility.®^

In contrast, it is possible to argue that the main reason behind the extension of the expiry date of credit in Articles 17 and 44(a) is that of the interruption of the bank's business or its closure caused by a reason beyond the bank's control; there may be other reasons for bank's closure, like insolvency, but the bank's control over its business activities, is the main factor for allowing the extension of expiry date of the credit. Because if it is not the case then the bank may face the argument, made by its client (the applicant for the credit) that it acts beyond its mandate that documents must be tendered within a certain time and not after that. Moreover, a

It is said that there is support for such argument in English, French, and German law [see Ellinger, supra (f.n. II) , pp. 302-303].

bank may also receive an objection from the beneficiary of the credit regarding unnecessary delays for checking presented documents in the above cited circumstances.

If banks are exempt rightly from any liability caused by delays beyond their control, then why should not a similar principle be accepted for the beneficiary in the case of delay in the post (something which is beyond his control), or indeed, in other situations mentioned under Article 17 of the UCP.

3.3.3. Concluding remarks

As a result of above discussion it seems that the beneficiary's action regarding events which are beyond his control should receive the same treatment as is accepted for the banks under the UCP.