UCP Revision – current issues

1. UCP Revision – current issues Vienna May 17, 2006

2. Review Process Basis: NO revision will ever have a dramatic impact on reducing discrepancies as there are factors that occur outside the scope and content of the rules i.e., those linked to document creation and interpretation of terms (thus, the reason for the development of ISBP). The foundation for this revision was a complete review of the opinions given by the Banking Commission during the lifetime of UCP500 to see what, if anything, could be incorporated into the rules that would facilitate a remedy to those queries and negate the need for repetition (and dispute) under UCP600. New or revised articles have, primarily, been based on an assessment of those opinions coupled with a desire to: a) place the onus on the issuer to be precise in their LC terms; and b) reduce the element of interpretation that is inherent in transactions today, thereby creating a level playing field for all parties.

3. Review Process The Drafting process has always been completed on the basis of recognising the consensus opinion and not the views of the minority. Despite popular belief ALL comments have been documented and read at each of the Drafting Group meetings. In a situation where around 40-50 countries are actively providing comments (admittedly varying in degree and detail) 8, 9 or 10 comments in disagreement or offering alternative language does not necessarily create a position that a change will occur. In addition to the sessions at the Banking Commission, the Drafting Group have held 12 separate meetings and thousands of hours in email exchange in creating the draft. The comment regarding locked down articles was to stop the continual drafting of the same words/intent. We could go on for ever unless we draw a line at some point where the intent is agreed but one or two words are not.

4. Comments to March 2006 Draft 50 Countries provided a written response. Of which: 4 indicated no comments - with one signifying they were willing to approve at the May meeting. 25 gave 10 or less comments to the entire draft.

5. Article 2 Definition of Applicant: (1) Is it needed?, (2) Use of the word “Party” or (3) Change “Party” for “Customer” or “Entity”. • Definition of Confirmation: • Add “without recourse” (also Article 8 and 15(b)), (2) Change to “a definite undertaking” (in line with UCP500 Article 9) instead of “an irrevocable undertaking” - relying on interpretation that a credit is always irrevocable. • Definition of Confirming bank: • Add “confirming bank is a nominated bank” – also in all other places where nominated bank is used.

6. Article 2 Definition of Credit: Change to “a definite undertaking” instead of “an irrevocable undertaking”. Make reference to an arrangement ‘however named or described’ – as stated in Article 2 UCP500. Definition of Negotiation: (1) Use of wording in TA569 to describe negotiation, (2) add wording to reflect that the negotiating bank must have acted according to its nomination (3) add wording that negotiation may be effected at any point up until issuing bank fulfils its obligations to reimburse on due date.

7. Articles 2 and 3 Definition of Nominated bank: reference to ‘freely available credit’. Need for a new definition: “and/or” ??? Interpretation of Bank: 6 countries have voted for deletion despite outstanding ICC opinion.

8. Articles 7, 8 and 12(b) Structure of Articles 7 and 8: Can it be simplified?? Inclusion of reference to discounting of a deferred payment undertaking and an accepted draft: June 2005 meeting indicated a majority of countries requesting inclusion of a clause covering the event of discounting under a deferred payment. Some countries are requesting no inclusion.

9. Article 10 Amendments: Time limit or no time limit? Replace lines 280-283 with “The amendment will be deemed to be accepted if the documents presented comply with the terms of the credit as amended, provided that they would not have complied with the terms of the credit prior to the amendment.”

10. Article 14 (a) “on its face”: Following the discussion in Dublin (June 2005) 25 countries agreed to remove reference to "on its face" with 12 disagreeing. The drafting group have since explained that they felt the need to retain in this sub-article. Latest comments reflect only 4 NCs wish it to be removed here also. Removal of “reasonable care”: Drafting Group removed due to the presence of two standards of review – reasonable care and international standard banking practice. Comments reflect 5 NCs wish it to be reinstated.

11. Article 14 (d) and (g) Data in a document and need for linkage: (1) Effect of Position Paper No. 3, (2) previous voting overwhelmingly voted for the position shown in the current draft, (3) should banks review data across documents if the LC does not so specify? A document presented but not required: (1) Definitive statement of disregarding and may be returned to presenter (providing an option) Vs. disregarding and returning or passing forward (2) data in a non-required document conflicting with data in a required document.

12. Article 14 (j) • Addresses of applicant and beneficiary in documents: • Must fully conform to LC details, (2) remove reference to same country, or (3) re-ordering of the Article for better reading. • Re-ordering would give: • “The addresses of the beneficiary and the applicant stated in the documents need not be the same as those stated in the credit or in another document forming part of the same presentation, but must be within the same country as the respective addresses mentioned in the credit. However, where the applicant is required to be shown as consignee or notify party in a transport document, the name and address of the applicant must be as stated in the credit. • Contact details (telefax, telephone, email and the like) stated as part of the address of the beneficiary and the applicant will be disregarded.”

13. Transport Documents Need for equivalent of UCP500 Article 30: 10 NCs have submitted comments that request or support inclusion of such an article. Reference to requirement that the BL be a ‘Document of Title”: 5 NCs requested reference be made.

14. Article 19 (and following through to other Transport Documents) Main issues: Naming of Carrier. Need for the various on board notations. Combining of sea transport articles (including MMTD with exception of Charter Party BL). Transhipment clauses.

15. Article 28 Reference to Underwriter and their signing of insurance documents Comments relating to: risks covered; all risks; and allowance for any exclusion clauses.

16. Article 35 Consider widening the scope of the new provision (in lines 1062-1066) to cater for documents lost in transit where a nominated bank reviews/handles the documents but does not (at their instigation or beneficiary request) take up the nomination to honour or negotiate

17. Next Steps / Actions: Next Steps / Actions: ICC Executive Board Meeting 15 June. To seek advance authority for approval of new UCP on assumption rules approved in October. Next ICC Banking Commission meeting scheduled October 24/25 New draft will be distributed by end of May to National Committees for comment by early/mid July Drafting Group will review comments to “May06” draft to assess whether a further (final) draft is necessary for consideration for approval in October. Commence work on Commentary Implementation