Article

Issues in the upcoming revised ISBP

DCI Why, only five years after the last version of the ISBP was published, was it considered necessary to do another revision of the text?

Collyer The last publication of the ISBP, Publication 681, was issued at the same time as UCP 600, and was essentially only an updating exercise of that publication to remove two or three of the practices that were considered to be no longer appropriate or where the practices had been incorporated into the text of UCP 600. Changes were also made to align the UCP references to the applicable UCP 600 articles and sub-articles. It was not, strictly speaking, a revision of the ISBP Publication 645 itself.

This new revision, five years on, comes when a number of practitioners will consider that we are fast approaching the halfway point through the lifespan of UCP 600. It was felt that now was the right time to document the practices that have become applicable under UCP 600. At the time of the release of Publication 681, the content was based on how we envisaged practice would evolve under UCP 600. Now, with the experience we've accumulated over five years, we know where we need to make some additions or modifications to the ISBP text. And we are making additions as opposed to only deletions or changes to the practices that were applicable during the last five years and the previous years under ISBP 645.

DCI Will there be practices described in the revised ISBP that are not covered by a specific UCP article, such as beneficiary's certificate, inspection and quality certificate and so forth?

Collyer We have expanded the list of documents to provide a more representative view of the type of documents regularly seen in letters of credit. One of the options presented to ICC national committees at the time of seeking approval for the revision was whether we should merely update what was currently in Publication 681 and nothing more than that, or whether by updating we should add new documents and possibly expand the publication into new spheres, such as practices applicable to advising, confirmation, transfers, etc., under letters of credit.

After evaluating comments from national committees, it was decided that we would keep the publication to an expansion of existing practices and the addition of new documents.

In particular, in the upcoming revision, as an example, we will be covering packing lists and weight lists. Whilst these are fairly simple documents, in the context of documents presented under letters of credit, the practices associated with their examination can set a standard under which other documents not covered in the publication should also be examined. So, although we may not be covering every type of document, the principles will have been established in the paragraphs covering analysis, inspection, packing lists, etc.

DCI There is a question that confuses some people concerning the relative weight to assign the UCP and the ISBP. For example, is it acceptable that a bank would refuse documents based on the ISBP alone?

Collyer Ever since the ISBP was first published in 2002 through the 2007 release, we have always said that refusal of documents should be based upon non-compliance of a presentation with the applicable rules of the UCP and/or the terms and conditions of the credit. We do not advocate refusal solely on the basis of the ISBP, and certainly the publication does not advocate this. But that said, it is often reported that some banks have refused based solely on the content of the ISBP.

The ISBP should be read in the context of explaining how the UCP articles are to be applied. A refusal should not simply say, for example, that a bill of lading does not comply with paragraph 114 of the ISBP. What banks should be saying is that the bill of lading indicates that the release of the goods thereunder is subject to the presentation of one or more other bills of lading that do not form part of the same presentation.

They may then use the reference to the ISBP paragraph as a supporting reference tool, but not as a primary reason for the actual refusal.

There is often a question asked as to the relationship of the ISBP to the UCP and the weight of authority that the ISBP conveys. We had this difficulty in 2002 with Publication 645.

It should be noted that the ISBP, although not a set of rules, actually follows the same kind of regime that is in place for ICC rules, i.e., that they go through the same commentary process by the national committees, the various drafting stages and are finally voted upon. Therefore, the publication, in that sense, has the same kind of weight within the Banking Commission and should be considered as a tool for use, not only by banks but also by beneficiaries. I have always been of the view that if a beneficiary understands the practices that banks are expected to follow in the examination of documents, he should be able to prepare his documents, or have other documents issued to that standard, thereby increasing the success rate of first-time presentation.

The reality is that with this new revision we will almost be back to where we were in 2002. I'm sure some banks will say: "UCP 600 has been around since 2007 and here we are in 2013; where is the link between the two publications?" I think we have to make the effort, through the Banking Commission, to show and encourage banks globally to apply, and adhere to, the principles of the revised ISBP that is based on our five years of experience with UCP 600.

DCI To what extent is the language in the revised ISBP influenced by the Banking Commission Opinions that have been decided before or after the last ISBP was published?

Collyer If you look at the content of the ISBP, even the 2002 version, over 80% of the publication was built upon principles that had been discussed and agreed in the ICC Opinions. Therefore, the Opinions play an important role in the establishment of international standard banking practices.

When people speak of how ISBP fits in the UCP, take one example. If you look at the definition of "complying presentation" in article 2 of UCP 600, which refers to a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules [UCP 600] and international standard banking practice, people immediately latch on to the fact that this latter phrase is based solely on the content of ISBP. It certainly is, but this is only one of the elements that go into creating the ISBP. The other elements include the ICC Opinions that don't actually make it into the ISBP because the issues discussed and decided upon in that Opinion are too specific for inclusion in a publication looking at the broader issue of examination. The same is true of the DOCDEX Decisions. All of these sources contribute to establishing "international standard banking practice".

DCI Let's look at a few of the controversial issues. The first concerns the language of documents. What are the issues and the choices here and how could they change the last ISBP?

Collyer The Drafting Group has looked at this quite extensively, and I think the issue here is not just in relation to what language is to apply or how data should be presented in different languages. The current wording in ISBP Publication 681 paragraph 23 states: "it is expected that documents issued by the beneficiary will be in the language of the credit." But an expectation does not always reflect reality.

In my view, this question of language should not create an environment in which the bank would have an absolute right to refuse on questions of language. The onus is clearly on each issuing bank to declare a required or acceptable language(s) in its credit. Of course, one could also argue that documents issued by the beneficiary should be in the language of the credit. But what if they are not?

We have inserted some wording that seeks to cover all the eventualities of language in documents. We have also looked at situations where the field tags, stamps and other pre-printed text may be in a language of the issuer of a document, i.e., a CMR or certificate of origin, but the data that have been inserted is in the required language of the credit. These issues have come up and been answered in previous ICC Opinions. We need to capture these in a new paragraph.

But there are still a number of national committees that contend that instead of saying, as in the current version, that it is expected that documents issued by the beneficiary will be in the language of the credit, we should be saying that they "must" be in the language of the credit.

The ISBP is not a set of rules; therefore the word "must" should not appear in this publication as a requirement in the examination of a document. The ISBP should not be a tool that protects a bank that does not do its job correctly, i.e., does not include clear and precise criteria in the establishment of the terms and conditions of a credit. Clearly the ISBP should explain practice but it should not provide a means whereby banks can be lazy in the way they do things and instead look for a publication like the ISBP to do their job for them.

DCI What about proposed language that would define terms such as "shipping company" or "third party documents not acceptable"? Isn't it a bit odd to define terms when you are trying to discourage their use as bad practice?

Collyer The real question is whether we should put something more detailed about these terms in the ISBP or should avoid referring to such terminology that is seen regularly in a letter of credit. And if we believe that these expressions constitute bad practice, should we just list these expressions without providing more explanation to what they will mean for the issuing bank or for the applicant?

Also, should we be providing a tool in this ICC publication that allows the continued use of poor language when we should be encouraging practitioners to be more explicit? For example, it is common for a letter of credit to require a document issued by a "shipping company". But, the UCP does not refer to such a term. It refers to the likes of a carrier, owner, charterer or their agent that could be seen to issue such documents. Therefore, why does an issuing bank not require the presentation of a document issued by the carrier or its agent? This would have no ambiguity.

By using different terminology, is the applicant or issuing bank inferring that a document may be issued by a party other than the carrier or agent named in the transport document? This is the distinction and point we are making in the draft text for this and other terms, including "third party documents acceptable", where an issuing bank could quite easily explain the meaning of a term that has none under the UCP.

DCI There is a question of the dating of certificates. I understand that some national committees want to state that a certificate is to be signed and dated, whereas now it only has to be signed. What's the logic behind that request?

Collyer I think this is similar to a number of comments that we have had with respect to other documents. When we were revising UCP 500 and declared that commercial invoices need not be signed, some national committees indicated they must be signed and some indicated that they also had to be dated. It seems that if any documents needed to be signed, there was an expectation on the part of some that they were also to be dated.

Going back to your earlier question as to whether there is anything in the ISBP that will overturn what is in the current version, if we were to include this requirement - that a certificate has to be signed and dated - this would be overturning paragraph 13 of the current ISBP, because that paragraph allows for a document to be dated by reference to another document that has already been dated.

DCI A final question that our readers will have a particular interest in: when do you think the next ISBP will be approved and published?

Collyer I hope we will have a document on the table for approval in April 2013 at the Banking Commission meeting that is scheduled to be held in Portugal. If it takes longer, the publication would not be available till 2014. We are now five years into UCP 600, and we need to get something out as soon as possible. Hopefully, if we can get it approved in April, it can be available in July 2013. l

Gary Collyer is Senior Technical Adviser of the ICC Banking Commission. His e-mail is gary@collyerconsulting.com