The Origins of the UCP revision
By Gary Collyer
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At the time of writing this article, ICC National Committees are meeting, or are planning to meet, to discuss the content of the latest draft of the UCP 600 distributed by the UCP Drafting Group on 13 June.
The outcome
of the comments received to this draft will undoubtedly shape
the way the final version will look. The intention is that
the final draft will be issued towards the end of August or
beginning of September 2006. ICC National Committees will
then be requested to indicate a 'yes' or 'no'
vote at the ICC Banking Commission meeting to be held on October
24/25, 2006 solely based on the content of that draft.
By the time the UCP 600 is approved the revision process,
totalling just over three years, will have been one of the
most exhaustive in the history of UCP.
This article, the first in a series, takes time to look at
the origins of the revision and the initial considerations
that have shaped its contents.
Initial drafting guidelines
At the outset, the ICC created a Task Force to deliver recommendations
as to the issues that needed to be considered in the shaping
and construction of UCP 600. The main recommendations can
be summarised as follows:
· The revision should be "Technical" and not line by line;
· There is a need to review ICC Opinions, Decisions, DOCDEX cases and
results of Court actions for any remedial action in the UCP;
· At the time, seven articles of the UCP had accounted for over 58% of all the ICC Opinions;
· On the other hand, seventeen Articles had resulted in none, one or two ICC Opinions; and
· There was a need to consider the incorporation of/relationship with ICC rules that had been developed since the implementation of UCP 500, namely URR 525, ISP 98 and eUCP.
Actual outcome as a result of the guidelines
Let us take each of these recommendations in turn and assess
how they have influenced the UCP 500 revision process.
The revision should be
"Technical" and not line by line;
Whilst the intention of the Task Force was for the Drafting
Group to look at critical issues that had either arisen through
misapplication of UCP 500 or new transport or insurance practices,
the reality is that once a revision of a set of rules such
as UCP commences there is a need to look very closely at each
Article to assess the applicability of existing rules and
consider any new concepts or processes that have either arisen
during the life of UCP 500 or are necessary for the future
under UCP 600.
There is
a need to review ICC Opinions, Decisions, DOCDEX cases and
results of Court actions for any remedial action in the
UCP;
At the time the revision process commenced there were over
500 ICC opinions in place, 2 ICC decisions and some 40-50
DOCDEX cases. Each of the opinions was reviewed in order that
they could be categorized as:
· an issue due to change in practices (banking, transport, insurance, etc.)
· an issue that has arisen due to lack of clarity, understanding or substance within the respective UCP 500 Article(s), or
· the request for an opinion could be considered as a 'one-off' and would not merit a change or addition to the wording in UCP.
At the time, seven articles of
the UCP had accounted for over 58% of all the ICC
Opinions;
Those seven Articles, namely Articles 9, 13, 14, 21, 23, 37
& 48 should not be of any surprise to letter of credit
practitioners. The most worrying aspect was that Article 14
(Discrepant Documents and Notice) was the Article that had
been the cause of most requests for an opinion. Just prior
to the revision commencing, this concern had resulted in the
ICC Banking Commission issuing a document entitled “Examination
of Documents, Waiver of Discrepancies and Notice under UCP
500” to try and explain how the examination and refusal
process should work under UCP.
Similarly, Article 48 (Transferable Credits) had given rise
to a number of opinions and the ICC Banking Commission, again,
issued a document entitled "Transferable Credits and
the UCP 500" to try and answer any burning issues in
the handling of transferable credits.
It should also be remembered that in September 1994 the ICC
issued 4 Position Papers, 3 of which covered Articles mentioned
above – time limits under amendments (Article 9), Non-documentary
conditions and linkage (Article 13) and naming of the carrier
and signing transport documents (Article 23).
On the
other hand, seventeen Articles had resulted in none, one or
two ICC Opinions; and
This should have been easy – no problems, then leave
the Articles alone. The reality is that whilst there may not
have been many or any major issues, changing the style and
language of the UCP necessitates some change even where it
may not have been initially thought warranted.
There
was a need to consider the incorporation of/relationship with
ICC rules that had been developed since the implementation of
UCP 500, namely URR 525, ISP98 and eUCP.
URR 525:
The easy option would have been to add the contents of URR
525 to the UCP 600 version of Article 19 of UCP 500. However,
the ISP98 rules make a specific reference, in rule 8.04 to
"Any instruction or authorization to obtain reimbursement
from another bank is subject to the International Chamber
of Commerce standard rules for bank-to-bank reimbursements".
Therefore, a separate set of bank-to-bank reimbursement rules
was required and the decision of whether to include them within
UCP 600 was one that need not be considered.
ISP98:
The issue here related to the fact that UCP had traditionally
made reference to the rules also covering standby letters
of credit, albeit qualified "to the extent the rules
were applicable". Some four years after the implementation
of UCP 500, the ISP98 (International Standby Practices) were
drafted and implemented to specifically deal with standby
letters of credit. Now with a set of rules dedicated to the
usage of standby’s, the question was whether UCP 600
should still cater for their application or whether their
usage is solely under ISP98. The majority of ICC National
Committees indicated a preference for the retention of applicability
to standby’s in UCP 600 and this is the position today.
eUCP:
The eUCP was developed as a supplement to UCP due to the strong
sense of feeling at the time that banks and corporates together
with the transport and insurance industries were ready to
make that 'leap' into the electronic world of
document and data delivery. The hope and expectation that
surrounded the development of eUCP has failed to materialise
into day to day transactions and its usage has been, to put
it mildly, minimal. Owing to this lack of usage, it was felt
that this was not the right time to incorporate the eUCP into
the UCP 600 and it will remain as a supplement albeit slightly
amended to identify its relationship with UCP 600.
Construction of the Drafting Group and the establishment
of a "Consulting Group"
As with any revision of a set of rules, the National Committees
of the ICC nominated individuals for a role on the Drafting
Group for the UCP500 revision. There are 9 members of the
group covering representation for Western Europe, Eastern
Europe, Asia and North America. A Representative was also
taken into the group from SWIFT in order that the impact of
any strategic changes in the rules could be considered at
an early stage as to whether changes would be needed to the
MT7 series of messages.
A new concept in managing the revision process was suggested
and implemented. A group known as the 'Consulting Group'
was created. This group was made up of over 40 individuals
from 26 countries. Their role was to ensure:
a. that new concepts and ideas were in line with local country requirements and legal statute;
b. that the language used in the new text would translate sufficiently in local language (given the large number of translations of UCP that are undertaken); and
c. that members representing the transport and insurance
industries would be able to provide valuable input to the process.
Also, owing to the large number of participants and their
country coverage, comments received would enable major issues
to be overcome prior to the formal release of a draft to the
ICC National Committees and their members.
Drafting highlights to date
1. So far, there have been 15 drafts released for comment including 3 complete drafts;
2. The majority of these drafts were reviewed by the Consulting Group prior to release to National Committees;
3. Over 50 countries have actively taken part in providing comments to the various drafts of the UCP 600;
4. The Drafting Group has held 12 meetings to date each lasting between 3 and 5 days. One further is planned for July 31 – August 2 to review any comments to the June 2006 draft;
5. The Drafting Group have reviewed over 4700 comments during the course of the drafting process; and
6. There have been 7 Banking Commission days where the draft and drafting process has been reviewed with the National Committees including a special session held in Dublin June 2005.
In the next edition:
What were the 'Key Issues' to the revision that
were identified in a meeting of the ICC in 2005 and have since
shaped the structure of the UCP 600;
Which articles of UCP 500 have not been incorporated into
UCP 600 and why;
and more.
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