ISSUE 1 May2006 The Origins of the UCP revision By Gary Collyer 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.