ISSUE 2 Aug2006 Responses to 9 "Key Issues" help shape the UCP 600 By Gary Collyer The first edition of this newsletter focused on the origins of the UCP revision, the creation of the Drafting and Consulting Groups and some of the statistics surrounding the review and drafting process. In this edition, we look closely at two other important aspects of the revision: the 9 "Key Issues" that had been identified by the Drafting Group as requiring specific input from ICC National Committees; and the Articles or sub-Articles of UCP 500 that have not been incorporated into UCP 600. 9 Key Issues Although the review and drafting process had commenced almost two years previously, comments were being received from various National Committees for which no real consensus could be drawn as to the position that should be taken in UCP 600. The ICC decided to hold a special meeting of the Banking Commission to discuss the UCP draft (as it was at that time) and also to allow the Drafting Group to air these differing comments in order to reach a conclusion. This meeting was held in Dublin in June 2005. Below you will observe the individual Key Issues, the position on which the ICC National Committees were being asked to comment (and, in most cases, vote) and the resultant effect on the drafting of UCP 600. 37 countries responded... though not always on all of the issues. 1. Retention of the words "on its [their] face" Differing views were expressed including that "on its face" does not mean the front as opposed to the back of a document, but the review of a document in line with international standard banking practice and the features of the document itself. This, in itself, was seen as a possible cause of confusion if left in UCP and, in some countries, it was mentioned that the words did not translate as they were intended. National Committees were requested to indicate whether the words should remain in UCP or be deleted in all places. Subsequent feedback from National Committees and status in UCP 600: 25 countries agreed to remove reference to "on its face" with 12 disagreeing. However, the Drafting Group believed there was a case for retaining 'on its face' in one location within the rules, to reinforce the position and understanding of the term as it exists today. The UCP 600 draft makes reference to "on their face" in sub-Article 14(a) Standard for Examination of Documents but "on its face" has been removed from all other places where it appears in UCP 500 - for example in each transport article. 2. Reasonable time General agreement was received to remove the words "reasonable time" from UCP 600 Article 14 Standard for Examination of Documents and Article 16 Discrepant Documents, Waiver and Notice and to set a maximum number of days. National Committees were requested to indicate (a) if they disagreed with this position or (b) if they agreed, to indicate the number of days following the day of receipt that should be allowed to complete the document handling process (including seeking waiver). Subsequent feedback from National Committees and status in UCP 600: 36 countries agreed to remove "Reasonable Time" with 1 disagreeing. The suggested period to be allowed, following the day of receipt of documents, was as follows: - 15 countries indicated 5 days - 9 countries indicated 6 days - 10 countries indicated 7 days - 2 countries did not indicate a number of days The current draft reflects 5 banking days as the maximum period. 3. Parties In drafting UCP 600, the Drafting Group was mindful of the growing practice of corporate issued LCs. The question was whether UCP 600 should recognise that practice and the terminology be amended from, for example, issuing bank to issuer (with a definition - the 'party' that issues the credit), confirming bank to confirmer etc. The majority of comments from the audience in Dublin indicated a preference for usage of the term banks instead of parties. National Committees were requested to indicate their preference "Party" or "Bank". Subsequent feedback from National Committees and status in UCP 600: 27 countries voted to continue referring to "Bank" with 9 voting for "Party". UCP 600 continues in the same vein as previous revisions by referring to banks, but such a statement in UCP will not stop a non-bank from issuing a LC subject to UCP 600. 4. What is the relationship of ISBP to UCP and how should it be reflected in UCP 600? The countries were requested to indicate their preference for signifying the relationship between UCP 600 and ISBP. These had ranged from explicit reference to the publication number, to reference to the publication number and ICC opinions, to no reference at all. Subsequent feedback from National Committees and status in UCP 600: The vast majority of countries indicated a preference for the introduction, or foreword, to the UCP 600 to be the place to establish the relationship with ISBP. The danger of including an explicit reference to the publication number of ISBP was the effect of any revision of ISBP that would occur in the future. In fact, it has recently been decided that an updated version of ISBP (not a revision thereof) will be made available for use at the time of implementation of UCP 600. The draft of UCP 600 contains no explicit reference to the publication of ISBP but there will be reference in the introduction. 5. Discounting of Deferred Payments General agreement was received that UCP 600 should provide a provision for a discount to occur. National Committees were requested to indicate whether or not they were in agreement for a clause to be added to the UCP text allowing for the discounting of a deferred payment undertaking. Subsequent feedback from National Committees and status in UCP 600: 27 countries voted for a clause to be included with 9 voting against. The draft includes a clause in two articles - Issuing Bank Undertaking and Confirming Bank Undertaking - allowing for a discount of the deferred payment undertaking and accepted drafts. 6. Article 28 of UCP 500 - to remain as one article or create 3 individual articles Despite a previous request from the Drafting Group, there had been no clear consensus on whether or not UCP 500 Article 28 should (a) be split into 3 separate transport articles or (b) remain as one article with a general provision covering all 3 modes of transport; with individual sub-Articles covering the differences. National Committees were, again, requested to indicate whether they preferred 3 separate articles or one as is the case in UCP 500. Subsequent feedback from National Committees and status in UCP 600: 20 countries voted for the retention of an equivalent Article 28 as it is in UCP 500 with 17 voting for it to be split into 3 different articles. The draft in circulation provides for one Article with variances by type of transport. 7. Article 30 of UCP 500 - the need for an equivalent article in UCP 600 UCP 500 Article 30 covers the issuance of transport documents by Freight Forwarders. Given the drafting of UCP 600 Article 20 "Bill of Lading" and other transport documents, the Drafting Group did not believe that there was a need for an equivalent of UCP 500 Article 30. For example, a freight forwarder issuing a bill of lading and signing as agent of a carrier or as carrier will be covered by UCP 600 Article 20 and the content of the other transport articles. National Committees were requested to indicate if they disagreed with the proposal of no equivalent of UCP 500 Article 30. Subsequent feedback from National Committees and status in UCP 600: 30 countries voted for removal of UCP 500 Article 30 with 7 voting for its retention. Whilst there is no equivalent for UCP 500 Article 30, the draft does include a reference to the issuance of transport documents by parties other than the carrier, owner, master or charterer. This has been specifically included at the request of the freight forwarding industry who were concerned that no equivalent article in UCP 600 could invoke unnecessary refusals by banks. 8. Capitalization of terms defined in Article 2 of UCP 600 National Committees were requested to comment on whether defined terms in UCP 600 Article 2 (Definitions) i.e., Advising Bank, Issuing Bank etc. should be capitalized or not. Subsequent feedback from National Committees and status in UCP 600: 18 Countries voted for capitalization with 15 voting against. 4 countries 'opted out' or offered other solutions (including 2 voting for defined terms to be in bold text). Despite the narrow voting in favour of capitalization, the draft is not capitalized for defined terms so as to be in line with current drafting techniques for rules and agreements. 9. New Articles to be considered for incorporation into UCP 600 The drafting process had, at that time, focussed on a review of the 49 Articles of UCP 500. National Committees were also requested to indicate if there was a requirement for any 'new' Articles. Subsequent feedback from National Committees and status in UCP 600: 17 Countries indicated no need for any new Articles. Other countries offered the following suggestions: - Corrections/Alterations - Recourse - Linkage - Inoperative LCs - Participations - Revolving Credits - Jurisdiction - Endorsements - Language - Transfer by Op of Law - Good Faith - Forwarder type documents - Documents of Title ICC National Committees were subsequently requested to vote on which of these should be included in UCP 600 or suggest other topics. Of the countries that responded, no more than 1/3rd supported any one of the above. On this basis, there was no clear consensus for inclusion of one or more of the subjects and they have, therefore, not been included in the text. It should be noted that some of these are covered in ISBP. UCP 500 Articles not incorporated into UCP 600 At a very early stage in the revision process it was decided that revocable credits would not be a feature of UCP 600. Therefore, there is no equivalent of UCP 500 Article 8 Revocation of a Credit nor the condition given in sub-Article 6 (b): "The Credit, therefore, should clearly indicate whether it is revocable or irrevocable". UCP 600 covers only irrevocable credits. To issue a revocable credit, a bank or issuer would need to incorporate the full terms of the revocability into the letter of credit or, they could issue the credit subject to UCP 500 (if all parties agreed). Similarly, an early decision was made not to incorporate the requirements specified in UCP 500 Article 38 Other Documents: "If a Credit calls for an attestation or certification of weight in the case of transport other than by sea, banks will accept a weight stamp or declaration of weight which appears to have been superimposed on the transport document by the carrier or his agent unless the Credit specifically stipulates that the attestation or certification of weight must be by means of a separate document." Other Articles or sub-Articles that have not been included are: UCP 500 Article 5 Instructions to Issue/Amend Credits (except sub-Article 5 (a) (i) which has been incorporated into UCP 600) and UCP 500 Article 12 Incomplete or Unclear Instructions. These articles have not been incorporated into UCP 600 as the content should be understood as good banking practice, without the need for any rule(s) to cover (a) the fact that the credit should be complete and precise and (b) that if the credit contains incomplete or unclear instructions the bank can advise the beneficiary and at the same time seek clarification from the issuing bank. UCP 500 sub-Article 14 (f) Discrepant Documents and Notice The question of honouring or negotiating under reserve or indemnity is an arrangement between the nominated bank and the beneficiary. The rules otherwise make clear that the banks must review documents for compliance or otherwise. In the case of the latter, to provide their notice of refusal. If, upon receipt of a refusal, the nominated bank seeks redress to the beneficiary, under the reserve or indemnity, then that is a matter for them and not of the rules. UCP 500 Article 33 Freight Payable/Prepaid Transport Documents Apart from the last sentence of sub-Article (b) and the substantive content of (d), the remainder of this article was deemed to be unnecessary. UCP 500 sub-Article 42 (c) Expiry Date and Place for Presentation of Documents Due to the rarity of LCs being issued with a validity stated as being "for one month", "for six months", etc. and the SWIFT MT7 series requiring an explicit expiry date, the need for this sub-Article has diminished. UCP 500 sub-Article 46 (a) General Expressions as to Dates for Shipment Each of the transport articles in UCP 600 now indicate a statement of what is deemed to be the date of shipment. Therefore, this article which provides an interpretation of the expression "shipment", is no longer required. In the next edition: In the first edition, there was reference to the seven Articles of UCP 500 that accounted for over 58% of the official opinions that the ICC had given during the life of UCP 500. Those opinions, along with the issues raised in DOCDEX cases and ICC Decisions were considered by the Drafting Group for possible coverage in UCP 600. What were those issues and, if included, how have they been catered for in UCP 600?