Introduction
On 15 June 2017 ICC (Paris) released a document, numbered 470/1272, titled Decision of the ICC in respect of a revision of UCP 600 following a comprehensive consultation. The ICC Executive Committee essentially said: “In line with the majority recommendation of National Committees, it is not considered, at this stage, to be appropriate to undertake a revision of UCP 600.”

The idea of a revision of the UCP, therefore, is buried for the time being. Yet, it is a no-brainer that a revised version of the UCP would have to be released at some point in time in the (distant?) future. Significant changes were made when UCP 500 was revised. The birth of the ISBP itself was a major development. What will the new number be, what could be the possible changes and content – as of today these are all in the realm of conjecture. One might hum, “Key sera, sera…” and move on. Alternately, for whatever it is worth, hoping that at least some of the ideas may ring a bell somewhere, touch a chord with the Drafting Group members, one could indulge in a bit of constructive guesswork, and offer a few suggestions for the next Drafting Group when it gets down to business.

A major step in this direction was taken by Kim Sindberg when he published his blog on the subject on 11 February 2015[1]. In a very interesting piece titled UCP 700 – On the table? he laid out the framework, and outlined the issues that needed to be addressed.

Obviously, certain things have changed since then. However, inspired by his blog (appended to this piece as #31), the following is my take on the subject.[2]

General:

  1. Ever since its creation, the UCP had been sailing in two boats. The very core of it operation is based on the laws related to bills of exchange. For very compelling, technical reasons this should now end[3]. The UCP should be a converted into an independent, stand-alone document, and should be revised (rather, overhauled) accordingly.

[The first step in that direction was taken when On 01 Jan 2019 the ICC, Paris released two documents,

  • Guidance Paper – The use of drafts (bills of exchange) under documentary credits – Executive Summary; document 470/1272 dated 15 June 2017, and
  • Additional material relating to the Guidance Paper – the use of drafts under documentary credits – Prepared by the Executive Committee of the ICC Banking Commission – Document 470/1272 dated 15 June 2017.

But related changes in the UCP, ISBP and SWIFT format are still a long way off. Has the ICC gone only half way? When are those final changes going to happen?]

  • I have not commented on the ISBP, except in passing. However, I’d like to emphasise that the ISBP should not propound anything that willy-nilly creates rules not envisaged in the UCP, or add to the provisions not already present in the UCP. The aim should be to make the UCP a document that’s stand-alone, complete by itself on matters of documentary credit rules. The rules should be by themselves be complete, self-explicit. The ISBP should not be a crutch for the UCP to lean on.

This worry in me is corroborated by the statement in document number 470/1272 of the ICC, titled “Decision of the ICC in respect of a revision of UCP 600 following a comprehensive consultation” which says, “In fact, only seven items were identified for possible inclusion in a revision of UCP and most of these were already an integral part of ISBP 745.”

Why should that be, or continue to remain as such for so long?

  • Several grammatical errors exist which are required to be corrected. (Example: Applicant means the party on at whose request the credit is issued. Article 2; or, “…the date of shipment and the name of the vessel is are required.” Article 20.a.iii).
  • I do not agree that “negotiation” should be taken out of the UCP. It should remain where it is in the UCP. (My view on the subject is available on page xxx.)
  • My detailed analysis on most of the issues below is available earlier in this book. Many of the articles were published earlier in DCInsight and LCM-TSU (a major privilege). Hence I will refrain from repeating the justifications for suggesting below what I have.

Article 1

ISP 98 serves standby credits far better that the UCP ever will. Hence I agree with Kim’s view that, “The ICC should clearly separate between commercial LCs – subject to the UCP – and standby LC – subject to the ISP.… Any reference to standbys in the UCP should be taken out of the rules.” The revised text of Article 1 could also be as suggested by him. (Refer to article #31 next) This will put an end to the confusion that exists in the mind of some of the people to this day.

Article 2 – Definitions

  1. The individual definitions should be split into sub-articles or sub-sections and sequentially numbered for ease of reference.
  2. In the absence of drafts, ‘honour’ must be completely re-phrased.[4]
  3. I echo Radek when he asks, “And, by the way, what do you all have against negotiation?” I believe that ‘negotiation’ should continue to remain where it is presently, but after a thorough revision. For example, the words “agreeing to advance” should be removed. “On or before the banking day” should be modified to read as “before the banking day”. Reference to ‘draft’ should be deleted. The word ‘purchase’ should also be removed. (My suggestions on these issues are contained in the articles appearing earlier in this book.)
  4. The following sentence should be suffixed to the present definition of “Nominated bank”: “If no bank is nominated, then the credit is available with any bank.”

Article 3: Interpretations

  1. I agree with Kim’s suggestions. However, I’d like to see the rules in the UCP being complete by themselves – not extended to the ISBP.
  2. The interpretations should be numbered as sub-articles for ease of reference.

Article 4: Credits v. Contracts

No suggestion presently.

Article 5: Documents v. Goods, Services or Performance

Nothing to add.

Article 6Availability, Expiry Date and Place for Presentation

Sub-article 6(a) should be modified to read as follows:

“A credit must state the bank or banks with which it is available (the nominated bank), or whether it is available with any bank. If no bank is nominated, then the credit is available with any bank. A credit available with a nominated bank is also simultaneously available with the issuing bank.

Sub-article 6(b) would have to be modified after drafts are completely removed from the UCP. Only two types of credits should suffice: (i) one that allows payment/reimbursement immediately on presentation; the other (ii) that provides for payment/reimbursement only on due date (maturity date). (The term sight payment and acceptance have to go. Alternate, standardised expressions would have to be found for these two types of credits, as clarified in my articles.)

Sub article 6(c): The present sub-article is confusing to most. The one suggested by Kim is definitely a vast improvement and could easily be used (c. The availability of a credit must not include the use of a draft.). My suggestion: (i) The availability of a credit must not include any reference to a draft or bill of exchange, OR (ii) A credit must not be issued ‘available by a draft drawn on the applicant’, but only on the issuing bank.

Sub article 6(d)(i): Issues:

  • Credits do state an expiry date (only) for presentation – not separately, but only in conjunction with the date of shipment. Refer to SWIFT MT700 Field 48 (Period of presentation).
  • The other dates found in any LC are the date of issue (SWIFT MT700 Field 31C), date and place of expiry (SWIFT MT700 Field 31D), and the last date of shipment (SWIFT MT700 Field 44C). No separate date for honour or negotiation is stated in LCs. So why is a reference to it at all there in this sub-article?
  • As clarified by this sub-article, the date stated against ‘expiry date’ (SWIFT MT700 Field 31D) in every LC is merely the last date only for the presentation of documents. If that be so, what is the date after which the LC as a contract, or as a conditional undertaking by the issuing bank for payment expires, lapses, becomes invalid or inoperable, comes to the end of its useful life, terminates? As of now, according to this sub-article, LCs (the undertaking of the issuing bank under sub-article 7) never expire![5] So when can the issuing bank reverse its risk exposure, if ever?

Hence:

  1. The sub-article needs to be re-phrased for clarity and clear alignment with MT700.
  2. A separate sub-article should provide for the actual expiry of the credit.
  3. SWIFT MT700 Field 31D – the Field definition should be modified to read as “Last date for validity of credit” (delete all reference to ‘place’).
  4. Other than the above, since there is no provision in the LCs presently for separately stating in LCs the date for honour or negotiation, these portions of the sub-article could be deleted.

Sub-article 6(e):

Except as provided in sub-article xxx, a presentation by or on behalf of the beneficiary must be made on or before the expiry date stipulated for the presentation of documents. (add the words in red/bold)

Article 7: Issuing Bank Undertaking

No issues at present

Article 8: Confirming Bank Undertaking

Sub-article 8(a)

The words, “…to the confirming bank or to any other nominated bank…” has been the cause of quite some confusion about the status of the confirming bank as a nominated bank. Is the confirming bank, by virtue of adding its confirmation, automatically (i.e. by default) assumes the status of a nominated bank, OR must it be clearly nominated as such by the issuing bank? The provision should be re-phrased to remove the ambiguity.

Sub-article 8(d)

  1. It would do everyone a world of good if a simple clarification precedes the existing sub-article 8(d), resulting in the whole sentence being modified, thus, “The issuing bank must authorise or request another bank to add its confirmation to a credit. If a bank is thus authorized or requested by the issuing bank to confirm a credit but, …..etc.”.
  2. Next: An issue about the confirming banks is that they occasionally modify or add to the LC terms as a pre-condition to adding their own confirmation to a credit. Would such modification of the original terms of a credit amount to an ‘amendment’ as defined by Article 10? The ICC Banking Commission Opinion (Document 470/1214rev; 30 April 2013/TS/wj) says, “No”. This nugget of information should be available to the public, readily and directly, through the UCP.

Article 9: Advising of Credits and Amendments

No suggestion.

Article 10: Amendments

Sub-articles 10(a), 10(b) and 10(c) must be completely revised and redrafted. The logic, consequently the rules, are flawed. The details are in my article “The confusing world of confirmed credits” appearing in the earlier section of this book.

Article 11:

May be deleted – for reasons furnished by Kim.

Article 12: Nomination[6]

Sub-article 12(a):

This sub-article should be deleted because,

  1. The section, “Unless the nominated bank is the confirming bank, an authorisation to honour or negotiate does not impose any obligation on the nominated bank to honour or negotiate,” merely repeats sub-article 9(a). It is not even a RULE.
  2. If sub-article 12(a) is referring obliquely to ‘silent confirmation’, it should not. Also another reason for this rule to be taken out of the UCP.
  3. The section starting from “except when expressly agreed….” to the end of the paragraph should be deleted since it is misleading. The fact that a nominated bank agreed to advance funds on a future date (i.e., on or prior to the date reimbursement was due) does not bind that bank to acting accordingly on the date the advance was expected or due. Even if expressly agreed to, this obligation is not irrevocable. So what is this sub-article trying to achieve? Nothing.

Sub-article 12(b):

“Prepay” is a confusing term and should be replaced. It’s ambiguous, not defined or explained in the UCP. This term needs a clear definition. If it means payment before maturity or before due date, it should be so stated; if it implies a loan or advance, the definition should say so.

However, if drafts go, this would automatically disappear.

Sub-article 12(c):

This sub-article is not a rule by any stretch of imagination. Hence, this should be removed from the UCP and shifted to the ISBP.

Article 13: Bank-to-Bank Reimbursement Arrangements

No change.

Article 14: Standard for Examination of Documents

Sub-articles 14(a) to (14(f), 14(j) to 14(l)

The fundamental principles have been enumerated pretty clearly; no change required. However, the scope of the term “data conflict” being applicable only to stipulated documents need clarification.[7]

Sub-article 14(g):

It says, “A document presented but not required by the credit will be disregarded and may be returned to the presenter.” Is this “disregard” absolute, unconditional? Or, is it subject to the condition that, if data contained in that document is in conflict as per sub-article 14(d), it will be deemed to be a discrepancy? [8]

Sub-article 14(h):

Frankly, the provision “…banks will deem such condition as not stated and will disregard it” is simply not true. Banks are required to examine the document submitted. ISBP 745, Section A26 tells us why. Sub-article 14(h) in the UCP should, therefore, be replaced with the words in ISBP SetionA26 –

“When a credit contains a condition without stipulating a document to indicate compliance therewith (“non-documentary condition”), compliance with such condition need not be evidenced on any stipulated document. However, if data contained in a stipulated document is in conflict with the non- documentary condition it will be deemed to be a discrepancy.”

I am not in agreement with Kim Sindberg’s recommendations. I believe that the UCP should be as clear, precise and complete as possible. ISBP should not be its ‘crutch’.

Article 15: Complying Presentation

This article has no teeth. It must be a lot more specific.

Sub-article 15(a): Modify to read as, “When an issuing bank determines that a presentation is complying, it must honour within a reasonable time.” (There is no time limit whatsoever, no moral suasion in the UCP today. A lever is required somewhere, as a measure of precaution.)

Sub-article 15(b): Modify to read as, “When a confirming bank determines that a presentation is complying, it must honour or negotiate without delay and forward the documents to the issuing bank within two banking days from the date of such honour or negotiation.

Sub-article 15(c): This sub-article requires redrafting in order to plug several loopholes. A suggested revision is as hereunder:

  1. A nominated bank should determine, and communicate to the presenter by the most expeditious means, within two banking days after the date of presentation to it, whether it wants to take up the documents in a manner as desired by the presenter or refuse to act on its nomination.
  2. In the event that a nominated bank decides to act on its nomination, the provisions of the UCP would apply.
  3. When a nominated bank determines that a presentation is complying, it must honour or negotiate and also forward the documents to the confirming bank or issuing bank within the next two banking days after the date of such honour or negotiation.

Article 16: Discrepant Documents, Waiver and Notice

Sub-articles 16(a) and 16(b) are OK.

Sub-article 16(c) should be reworded to read as, “When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice not more than only a single notice to that effect to the presenter. (Reworded for clarity. People do not seem to grasp the precise meaning of, or the significance attached to, ‘a single notice’.)

Sub-article 16(f): If a nominated bank decides to join the game, it must play by the rules of the game. Therefore, this sub-article must be modified as follows: “If a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.” The rule should apply uniformly to all the banks. A level playing field is only fair to all, a basic necessity.

Article 17 – Original Documents and Copies

Agree with Kim.

Article 18: Commercial invoice

Sub-article 18(a)(iv): The requirement for a signature on the commercial invoice is more of a norm rather than an exception. Customs or most government depts. do not usually accept an invoice that bears no signature. The UCP provides several options for signing – manual, mechanical and electronic. This sub-article should, therefore, be modified to read :”need not should be signed unless the credit specifically waives this requirement.”.

Articles 19 to 31:

No suggestion. The articles should stay in the UCP where they are now.

Article 32: Instalment Drawings or Shipments

I agree with Kim’s draft, subject to the following modifications in red:

If shipment by instalments within their respective given periods is specified, each instalment shall be treated as a separate transaction. An instalment not shipped within a given the period specified cannot be added to subsequent shipments. The issuing bank may, at the time of rejecting the presentation only for the reason that it did not adhere to the schedule, inform the presenter that the credit ceases to be available for that and any subsequent instalment. In case the issuing bank has not informed the presenter that the Credit ceases to be available, the Credit is still available for subsequent shipments provided they are made within their respective given periods as stipulated in the credit.

Article 33, 34:

No suggestion.

Article 35: Disclaimer on Transmission and Translation

The paragraphs should be identified as sub-articles by numbering them individually.

An alternate suggestion to that of Kim’s: The first sentence of the second paragraph could be restructured as follows:

“Irrespective of whether the nominated bank has honoured or negotiated, if that bank determines a presentation as complying by recording that fact on the forwarding letter, and forwards the documents thereafter to the issuing or the confirming bank, the issuing or the confirming bank must honour….”

But… can a presentation be honoured twice, a possibility that’s inherent in the above? A complete redrafting appears necessary.

Article 36 & 37:

No suggestions.

Article 38: Transferable credits

The sequence should be changed for the sake of logical flow. Sub-article 38(b) should be renumbered as 38(a), and 38(a) as 38(b).

The three paragraphs of (revised) sub-article 38(a) should be numbered for ease of identification.

The text of sub-article 38(k) should be modified to say that the second beneficiary is allowed to submit documents direct to the issuing bank under certain circumstances (ref. ICC Banking Commission Opinion Ref. No. 470/1097rev dated 05 Nov 2007). If this is allowed, why not say so in the UCP itself?

Article 39: Assignment of Proceeds

Needs no change.

————-

My views on other issues, related and unrelated, reiterated:

  1. The UCP and ISBP should stay separate, as they are now. The UCP should set the rules, and the ISBP only interpret the UCP (with illustrations, as necessary), nothing more. It should carefully avoid offering new rules or new interpretations of an existing rule.
  2. Radek said, “That’s all why I consider today’s position of ISBP very unhappy. It pretends not to be a set of rules but in reality it is one – it not only provides principles upon which we rely when examining documents by “supplementing” UCP, in some instances it even changes UCP provisions”. I agree with him. Great care should be taken to prevent this from happening.
  3. Radek gave examples too, to underscore his point. I have the same issues with the ISBP which I had voiced quite some time back. The revision would be the right time, therefore, to identify those rules lying hidden in the ISBP and, if required, shift them to the UCP.
  4. Prices of the ICC Publications, including ICC Opinion, should be drastically reduced, and measures taken to distribute them widely. Why can’t these be printed locally? Costs would be much lower. Even if printed locally, the margin of profit for the ICC can still be protected.
  5. The ICC need to examine Xavier’s opinion: “I would also review the rights of the confirming bank. Even the issuing bank is in bankruptcy, [and the CB comes to know of it] must the confirming bank send documents to this issuing bank?” (Or pay the beneficiary? – a bit unfair, in my opinion.)
  6. Of what practical value are the ISBP and the ICC BC Opinions, if you can’t quote/cite them in support of approval or refusal?
  7. If a survey is conducted it would be found that the majority of bankers have very little or no idea about ISBP. (I have experienced it myself.). Many exporters and importers, front-line staff in banks, do not know much about the ISBP or the UCP. I am not exaggerating. Similarly, marine insurance – yes, Institute Cargo Clauses – whazzzzat! Define CIF – a loud “Yes”. How many types of insurance, which one is the seller’s obligation – “What are you talking about?!”
  8. The ICC should launch an intensive drive towards improving awareness and skill levels, right down to the front line staff at banks, the exporters and importers. Large corporate also significantly contribute to the mess. Their sales, marketing and accounts people should be part of this drive for skill-upgrade. Simply publishing ‘rules’ will not do.
  9. Kim’s suggestion: “This is why I suggest making the ISBP available free of charge – or almost free of charge – online!” is what is urgently required. But, it must go hand in hand with a drive to increase awareness among all users. Education and training on a massive scale are necessary. I will be happy to help.

[1] http://lcviews.com/index.php?page_id296  

[2] First published in Trade Services Update Volume 17, Issue 4, October-December 2015, now revised and updated for this book.

[3] Refer to my article What’s draft got to do with documentary credits? for details.

[4] Ibid.

[5] Do LCs have expiry dates?: DCInsight, pp. 16-17, Volume 19 No.2, April-June 2013; appears earlier in this book.

[6] Refer to Article 12, UCP 600 – a critical analysis in this book.

[7] Refer to article Non-documentary condition and data conflict appearing on page XX.

[8] ibid

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