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«Master Dissertation Trade Customs, Usages and Practices: General Value and Application of the UCP 600 in Particular Submitted by: Svitlana Berezhna ...»

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GHENT UNIVERSITY

MASTER OF LAWS IN ADVANCED STUDIES IN EUROPEAN LAW

Master Dissertation

Trade Customs, Usages and Practices: General

Value and Application of the UCP 600 in Particular

Submitted by:

Svitlana Berezhna

Supervisor: Prof. Dr. Johan Erauw

Ghent - 2012

CONTENTS

LIST OF ABBREVIATIONS

INTRODUCTION

CHAPTER 1. GENERAL OVERVIEW OF THE CONCEPTS OF TRADE CUSTOMS,

USAGES AND PRACTICES AND THE PRACTICAL VALUE THEREOF

1.1. Trade Customs and Usages, and Practical Application Thereof

1.2. Trade Practices and Application Thereof

CHAPTER 2. APPLICATION AND PRACTICAL VALUE OF THE UCP 600 FOR

INTERNATIONAL TRADE

CHAPTER 3. PRACTICAL PROBLEMS ARISING IN THE PROCESS OF APPLICATION

OF THE UCP 600 AND WITH REGARD TO LETTERS OF CREDIT IN GENERAL........ 29 CONCLUSIONS

BIBLIOGRAPHY

LIST OF ABBREVIATIONS

Bank Payment Obligation BPO United Nations Convention on Contracts for the International Sale of CISG Goods Case Law on UNCITRAL Texts CLOUT International Chamber of Commerce ICC International Rules for the Interpretation of Trade Terms Incoterms International Standard Banking Practice for the Examination of ISBP Documents under Documentary Credits Uniform Customs and Practice for Documentary Credits UCP United Nations Commission on International Trade Law

UNCITRAL

INTRODUCTION

It can be said for sure that international trade existed long before the “nations” (in the meaning this word has as a part forming the adjective used to describe the trade between several states) themselves were formed and before written rules aimed at regulating such trade were devised.

This, however, does not imply that the trade operations were carried out in a full chaos.

On the contrary, parties to deals would, most probably, develop schemes and follow them to facilitate the trade flow. This process gave rise to the creation of the “lex mercatoria” - the law of the merchants, which consisted of the merchants’ customs, ‘reflecting the unwritten usages of the community rather than the written command of a sovereign legislator’.1 Another distinct feature of the lex mercatoria was its “transnationality” as it was not constricted to the use within one country, ‘but was the creature of the international merchant community, establishing substantive principles and convenient procedures to govern commerce throughout the world’.2 The time passed and the countries claimed their sovereign rights to regulate the legal relationships taking place therein. However, even with the introduction of the written laws by the states, the importance of trade customs, usages and practices has not diminished and should not be underestimated even nowadays. This is especially true for some fields of trade (trade in sea ports being one of the most prominent examples).

In reality, the modern lex mercatoria has emerged, defined by some authors as the transnational body of the norms aimed at regulating international trade transactions. The modern lex mercatoria is believed to consist of norms of international public law, general principles of law, trade customs and trade usages, arbitral awards, model laws developed on an international level for the further use in the development of national legislative acts, and international trade practices which are sometimes rather widely interpreted to include business customs, model contracts, codes of uniform rules, etc.3 With the constantly developing and expanding international trade network and with the emerging new transnational legal system, the references to the application of customs, usages and practices can be found in many national laws and international conventions which will be further discussed in this paper. Such references, however, are usually rather vague and it is sometimes difficult even for a lawyer, not to mention the traders, to “decipher” what is meant by such notions.

The aim of this paper is, therefore, to define the notions of trade custom, usage and practice and - taking into account the historical aspect and the current statistics of application thereof - to analyse their general value for the international trade. Specific attention will be given to the analysis of the Uniform Customs and Practice for Documentary Credits (hereinafter - the “UCP”) as one of the most successful examples of privately developed rules4 which are nowadays used almost worldwide.

In order to achieve the above-stated aim, the paper will be divided in several parts. The first chapter will be devoted to the delimitation of the concepts of trade customs, usages and practices and to the definition of their practical value for international trade. The second chapter will deal with the application and the general value of the most recent version of the UCP UCP 600 - with special attention being devoted to the analysis of the amendments introduced to Stephen Sachs, ‘The “Law Merchant” and the Fair Court of St. Ives, 1270-1324’ (BA thesis, Harvard University 2002) 2.





ibid, 2( 2000) :

[Lyudmila Anufriyeva, International Private Law, vol 2 (BEK Publishing House 2000)] (translated by author) 218.

ICC ( 2009) [ICC Uniform Customs and Practice for Documentary Credits (Plaske 2009)] (translated by author) (ICC Uniform Customs and Practice) 6.

this most recent revision of the rules. Furthermore, as there is a permanent need to improve the legal framework in order to solve / eliminate the problematic issues arising in practice in connection with the application of certain legal rules, the third chapter of this paper will be dedicated to the analysis of such problematic issues arising in connection with the application of the UCP 600 and in the sphere of the documentary credits in general. Lastly, all the relevant findings and the proposed solutions to the detected problematic issues, if any, will be summed up in the conclusions.

CHAPTER 1. GENERAL OVERVIEW OF THE CONCEPTS OF TRADE CUSTOMS,

USAGES AND PRACTICES AND THE PRACTICAL VALUE THEREOF

The existence of the medieval lex mercatoria cannot be imagined without its basis - the customs and market practices that regulated the dealings between the merchants in respective market places. As the time passed by, the customs were unified in the sphere of maritime trade (for example, the maritime law of Wisby), and, consequently, “model” deeds were developed to be repeatedly used for similar transactions5 in the other spheres of trade as well. Even though several centuries have passed since the time when the lex mercatoria was widely applied, the value of customs, usages and practices is still appreciable today in the private law domain where the states’ prevailing policy is to recognise the autonomy of the contracting parties.

Nowadays, the references to trade customs, usages and practices (though not always referred to in the same manner from the terminological point of view) can be found in various international conventions and national laws. For instance, Article 35 (3) of the UNCITRAL Arbitration Rules (as revised in 2010) contains a provision stating that the arbitral tribunal ‘shall take into account any usage of trade applicable to the transaction’. Furthermore, the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter - the “CISG”) contains a provision in Article 9 (which will be analysed in details further in this paper) establishing the binding character of any usages to which the parties have agreed and any practices which have been developed between the parties.

When it comes to national laws, in some countries the laws not only allow the application of trade customs, usages and practices but also promote it. In this respect the Uniform Commercial Code (hereinafter - the “UCC”), adopted in the United States of America (as revised in 2001), should be mentioned as an example. Thus, according to Article 1-103 (a) (2) of the UCC, one of its ‘underlying purposes and policies’ is ‘to permit the continued expansion of commercial practices through custom, usage, and agreement of the parties’.

What is, however, more important is the fact that, as it will be further proven, trade customs, usages and practices do not only “live” on paper in laws and textbooks, but serve as efficient tools to the traders and businesspeople, in general, worldwide. Some of the codifications of trade customs / usages have gained such a popularity in the majority of the countries of the world that they have managed to evolve from non-binding norms to the standard rules uniformly applied (even though, mostly, not sanctioned by the states) in specific industries.

In the following subchapters we will, therefore, analyse the definitions and the legal characteristics of trade customs, usages and practices as well as assess the general value of each of these categories for international trade. It should be noted that, as trade customs, usages and practices differ quite a lot in legal nature, it is rather difficult to make any generalisations with regard to the application thereof in the international business sphere of which the international trade constitutes a part. Bearing in mind the afore-mentioned considerations, we will, at first, analyse the legal characteristics of trade customs and trade usages within the same subchapter (because of the close connection between the two concepts and so as to reflect the on-going discussion among the legal scientific community as to the correlation between these two categories) and, subsequently, we will carry out the similar analysis with regard to the concept of trade practices (as compared to the two other wider categories). We will aim at making both subchapters not purely theoretical but also “illustrative”, containing a few practical examples so as to better grasp the concepts and including some information about the applicability of trade customs, usages and practices in the international trade nowadays.

Filip De Ly, International Business Law and Lex Mercatoria (North Holland 1992) 15-16.

1.1. Trade Customs and Usages, and Practical Application Thereof It proves rather difficult to find a definition of the trade custom and trade usage which could serve as a legal dogma, as there are different views on the definition of these notions varying by the countries and legal researchers proposing definitions. For instance, C. Schmitthoff draws, in his report on the international trade usages, prepared for the Institute of International Business Law, ‘no distinction … between the terms “trade usage” and “custom”.6 It is further explained that such an approach is applied because whichever term is applied to describe a similar concept depends mostly on a system of law: thus, the American law system operates with the term “usage of trade”, whereas the more traditional and narrower term “custom” is favoured in English law.7 Judging from the above-mentioned reasoning, however, it can be concluded that by using an adjective “narrower” C. Schmitthoff himself admits that both terms are not totally identical.

What is more, the modern “codifications” of trade rules and practices published by renowned international organisations and nowadays used as the standard rules in many spheres of business dealings (hereby the reference is made, for example, to the International Rules for the Interpretation of Trade Terms, hereinafter the “Incoterms”, and the UCP, etc. legal nature of which will be discussed further) operate both with the concepts of trade customs and trade usages. Therefore, an assumption can be made that there is a difference not only from the linguistic / etymological but also from the legal point of view.

While on the subject of substantial differences between the concepts under discussion, the following observations should be made. Whereas Schmitthoff’s report deals with the notion of international trade usages alleging them to possess similar characteristics with trade customs, in various national legal systems - to the legal order of which national courts are most usually referred by the virtue of the “applicable law” clauses of the contracts - there are different approaches to distinguishing customs from usages (unless the legal system regards them as identical / intersubstitutable as, for instance, in the USA). As a result, it should be born in mind that, although there is an ‘observation that in practice and court decisions, these differences tend to be overcome, one may still be faced with practical implications which differ from jurisdiction to jurisdiction because of different theoretical bases for application of custom and usages’.8 We will further briefly summarise some basic approaches to defining and delimiting the notions of trade customs and trade usages, but it is important to understand from the very beginning that the theoretic definitions (which, as it usually happens on the doctrinal level, vary not only in different legal systems but also in the works drafted by different scholars) do not constitute the ultimate practical value in themselves but rather serve as the instruments. What is important, therefore, is the possibility for the court (and the parties) to classify with the help of the definitions whether some behavioural pattern is a trade custom or a trade usage - a difference sometimes crucial, as many national legal systems regard the customs as a source of law, whereas the ‘usages are not a formal source of law but are devices of contract construction’.9 The legal doctrine suggests different interpretations of the concept of the trade custom, or custom in trade. For example, such a custom can be regarded as a generally accepted rule prevailing in the area of the trade on the basis of the long-term, systematic and uniform regulation of the specific factual relationships.10 Clive Schmitthoff, International Trade Usages (ICC Publication No 440/4, 1987) 53.

ibid De Ly (5) 163.

ibid, (.,2, 1999) [Leonid Strovskiy and others, Foreign Economic Activity of An Enterprise (Strovskiy L ed, 2nd edn, UNITY 1999)] (translated by author) 230.



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