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Copyright © International Chamber of Commerce (ICC). All rights reserved.
( Source of the document: ICC Digital Library )
by Dan Taylor
There are examples of the use of rules of practice similar to the UCP long before the formal development of rules by the International Chamber of Commerce (“ICC”).
Following the enactment of the Federal Reserve Act in the US on 23 December 1913, a number of issues were raised in connection with national and international expansion of the US banking business. With the end of World War I in 1918, world trade started to expand, and many governments began to focus on international trade and improvements in their financial sectors. Total world trade in 1920 was about USD100 billion and had increased from USD40 billion from the beginning of World War I in 1914. Communications were improving and nations were beginning to focus on expanding their trade relationships. In August 1920, the first commercial radio station in the US began operations, and in November the first assembly of the League of Nations was held in Geneva.
A number of banks in New York established study groups to address new services and how to standardize existing banking practice. One such study group was the New York Bankers Commercial Credit Conference chaired by Wilbert Ward, Assistant Vice President at National City Bank of New York (now Citi). This group, comprised of representatives of 34 banks, set out to draft a document which reflected practice in the processing of export commercial letters of credit. In early 1920, this group published the Regulations Affecting Export Commercial Credits adopted by the New York Bankers Commercial Credit Conference of 1920. This document was subscribed to by the 34 named financial institutions that contributed to its text. The regulations addressed issues such as general responsibilities, interpretation of terms, definitions and general customs. Each bank that subscribed to the Regulations advised its correspondent banks overseas that the Regulations would govern its treatment of export credits. Thus, the Regulations Affecting Export Commercial Credits (RAECC) were the first instance of codified banking practice involving letters of credit in the US and, as far as I have been able to ascertain, the first in the world.
The 1920 version of the RAECC specifically incorporated export terms adopted in the US on 16 December 1919. These were later to become known as the American Foreign Trade Definitions. The original organizations that drafted the American Foreign Trade Definitions were: The National Foreign Trade Council, Chamber of Commerce of the USA, National Association of Manufacturers, American Manufacturers Export Association, Philadelphia Commercial Museum, American Exporters and Importers Association, Chamber of Commerce of the State of New York, The New York Produce Exchange and the New York Merchants Association. These definitions existed in practice until the introduction by the International Chamber of Commerce of Incoterms.1
In 1922, Wilbert Ward published a comprehensive work on the use of letters of credit in the United States entitled American Commercial Credits. Contained in the book was a copy of the 1920 RAECC, along with a commentary on the rules and how they related to letter of credit practice in the US.
On 16 January 1924, what is now known as the International Financial Services Association was founded in New York under the name of the Junior Committee.2 In early 1926, the Junior Committee assumed the role of revising the RAECC, since the New York Bankers Commercial Credit Conference was no longer in existence, and the operational forum of the Junior Committee was the logical body to undertake such a revision. On 27 January 1926, the Junior Committee appointed a sub-committee to work on the revision of the 1920 RAECC. At that time it was felt that changes were needed to the RAECC, because changes in practice and case law had developed through litigation involving letters of credit.
During the 1920s, a great deal of litigation and dispute developed surrounding letters of credit in the US Many of cases were the consequence of the 1921 recession and consequent falling prices of imported goods. A number of landmark letter of credit decisions were promulgated in the US during this period.3
At a meeting of the Junior Committee on 14 April 1926, all of the Junior Committee’s member banks agreed to a draft proposed by their sub-committee. As part of the formal approval process, each member bank of the Junior Committee was sent a copy of the proposed RAECC and asked to put an official stamp and authorized signature of the bank on the copy signifying its agreement.4 At the Junior Committee’s meeting on 26 May 1926, all responses had been received, and the RAECC was adopted for implementation on 1 June 1926. Each member bank supplied the organization with the quantity of copies of the RAECC needed, so that each bank could send them to their foreign correspondent banks. Over 15,000 copies were purchased and distributed. During the period 1920–1927, the RAECC were widely distributed by US banks to their correspondents in Europe. In fact, the use of the RAECC by US banks created interest on the part of European banks in drafting similar rules for their export credits.
During the mid 1920s, other countries developed rules similar to those in the US Specifically, Argentina, Czechoslovakia, Denmark, France, Germany, Italy, Norway and Sweden created rules for export commercial credits.5
In 1928, several banks in Copenhagen produced what they entitled the Joint Regulations Governing the Handling of Documentary Credits Opened with the Principal Copenhagen Banks. These “regulations” were similar to those produced in the United States. They were published in January 1928 by the banks listed at the end of the document, and, like the US “Regulations”, were distributed to their correspondent banks.
Adopted by the New York Bankers Commercial Credit Conference of 1920
Payments under Export Commercial Credits advised to the undersigned are made in conformity with the following regulations, which are in accord with the standard practice adopted by the New York Bankers Commercial Credit Conference of 1920:
The original cover of the 1920 Regulations Affecting Export Commercial Credits
Courtesy of the International Financial Services Association, from their original files.
Adopted by the New York Bankers Commercial Credit Conference of 1920 Amended to June 1, 1926
To our Correspondents:
Export Commercial Credits opened through us are treated in conformity with the following regulations:
Opened with the Principal Copenhagen Banks – 1928
DOCUMENTARY credits opened with us will as a rule be advised to the beneficiaries, but it will be stated in such advices that they are nonbinding to us. However, we assume no obligation to advise the beneficiaries unless the credit contains a request to this effect. A binding confirmation will not be given by us unless expressly stipulated. In this connection it is pointed out that a documentary credit opened with us as ‘irrevocable’ will be confirmed by us to the beneficiary, even if we are not expressly requested to do so.
A confirmed credit must contain a definite time limit within which the credit shall be in force. Unconfirmed credits, for which no time limit for the honouring of the documents has been fixed, shall be considered valid until revoked, but not for more than 6 months from the date of the opening of the credit, unless it should appear from the stipulations of the credit that shipment or dispatch of the relative goods may take place at a later date. If a time limit has been fixed for shipment or dispatch of the goods, but not for payment of the documents, the Bank shall be entitled – but not bound – to refuse documents presented later than 14 days after the time limit given for shipment.
Unconfirmed credits may be revoked without reason being given and the Bank shall be entitled at any time to refuse the documents as well as payment, if, at the Bank’s discretion, circumstances might warrant such action.
Expressions as ‘to’, ‘until’, ‘on’, and words of similar import, when used in connection with a time limit, will be interpreted to include the date mentioned. Should the time limit for payment be a Sunday or a legal or bank-holiday the Bank will consider the credit expired at the end of the preceding week-day.
The Bank shall be entitled to transfer a credit to a third party, but will only do so in case the credit has been opened ‘in favour of ….. or order’; however, the Bank shall not be bound to do so, even if the credit has been opened ‘in favour of ….. or order’. The Bank will claim invoice issued by the original beneficiary, but shall be entitled to deviate from this practice in case the credit has been opened as above mentioned.
Should it be desired to have a credit opened with one of our correspondents or another bank, through our intermediary, we reserve ourselves the right to transfer, if required, the entire amount of the credit to the bank in question immediately when opening the credit; and to charge the amount to the account of our principals, without any responsibility on our part for possible refund of the amount. We assume no responsibility for possible errors made by our correspondents.
If no instructions to the contrary be given in the credit, we will accept the following:
Should the credit call for bill of lading we will – unless otherwise instructed – require full set issued to order and endorsed in blank, but we reserve ourselves the right to accept bills of lading issued to our principals or to the purchaser. Should the credit not state the destination of the goods, the Bank reserves its right – but will not be bound – to accept documents showing that the goods have been dispatched to a place other than the domicile of our principals or of the purchaser.
The Bank will not undertake the perusal of the printed wording of bills of lading, insurance policies and/or certificates, etc. but will pay attention only to the particulars filled in and to additional clauses added in writing or type or by stamp impression etc. As a rule such clauses will not be accepted until the authority of our principals has been obtained, but the Bank considers itself entitled to deviate from this practice in case the clause added is considered of minor importance. The Bank will assume no responsibility whatsoever for its judgment in this connection.
In all cases when a time limit for shipment or dispatch of the goods has been fixed, the date of the bill of lading or waybill shall be considered to be the date of shipment or dispatch. Should a bill of lading read: ‘received for shipment’, or words of similar import, and bear a subsequent ‘on board’ endorsement, the date of this endorsement shall he considered to be the date of shipment.
Generally a bill of lading covering a larger quantity than stipulated in the credit will not be honoured even if the beneficiary does not claim payment for more than that part of the quantity for which the credit has been opened; but the right to deviate from this practice is reserved by us.
Should the credit call for ‘insurance policy’ the Bank will interpret this to mean marine insurance policy. If it is required that other risks should be covered, say war, mines, fire, theft etc., this must be expressly stated. Should a credit call for a policy covering ‘all risks’ the Bank will accept only a policy purporting to cover ‘all risks’, but the Bank cannot undertake to define the scope of such general terms.
Should the credit call for warehouse certificate, without specific instructions as to the issue of same, we will require it to be issued by a public institution and in favour of our principals or the purchaser. Insurance documents will not be required by us unless expressly called for by the credit. Should a delivery order be called for, we shall require same to be issued by a bank or banker, or by the shipowners inquestion, or their agents.
Should the credit specify certain descriptions of goods, brands, qualities etc. without special certificates being called for, the Bank will consider it sufficient that such descriptions appear on the invoice bearing the beneficiary’s receipt.
Should the credit stipulate ‘shipping documents’ and a f. o. b. or c. & f. price be given, the Bank will require only invoice and a full set of bills of lading, while, if a c. i. f. price be indicated, a marine insurance policy will be required in addition. Should no price be stated the Bank will generally ask for further instructions from its principals before opening the credit.
Should the credit cover periodical deliveries and should one or more of same not have taken place, the Bank will consider itself entitled to honour documents for subsequent periods only.
The expressions below will be construed as follows:
The documents to be taken up under the credit will be honoured entirely for account of and at the risk of our principals, and the Bank will not assume any responsibility whatsoever for the genuineness, validity or possible irregularities of the documents. Neither will the Bank be responsible for the description, quantity, quality or condition of the goods, for strikes, lock-outs or force-majeure of any description, nor for the beneficiaries’ fulfilment of their obligations of any kind whatsoever.
Further, the Bank will not assume any responsibility for the transmission of the documents honoured. Should the documents be delayed or lost in transit the amount will still have to be paid by our principals in accordance with our statement.
Telegrams dispatched by the Bank, at the request of our principals or in their interest, will be dispatched for their account and risk and the Bank will not be responsible for possible consequences of a telegram not reaching its destination, being delayed in transit or arriving in a mutilated condition, or for wrong interpretation etc.
The Bank reserves its right to communicate with its principals before opening the credit, in case the instructions are deemed insufficient or for any other reason. The Bank will not be responsible for possible consequences of delay in opening the credit, arising therefrom.
Copenhagen, January 1928.
PRIVATBANKEN I KJØBENHAVNAKTIESELSKAB
DEN DANSKE LANDMANDSBANK HYPOTHEK- OG VEKSELBANK AKTIESELSKAB
Incoterms were first published by the International Chamber of Commerce in 1936; however, reference to the American Foreign Trade Definitions continued in use by US banks until 1956
The Junior Committee changed its name to the Committee on Foreign Banking in 1927, then to the Council on International Banking in 1961. In 1989, three separate Councils on International Banking (Council on International Banking, Mid-America Council on International Banking and Western Council on International Banking) were merged to create the US Council on International Banking. In 1998, the name was changed to the International Financial Services Association.
In the U.S., see: Laudisi v. American Exchange National Bank, 122 Misc. 635, 203 N.Y.S. 432 (1924) (established the liability of a bank on drafts); Ernesto Foglino & Co. v. Webster, 217 A.D. 282, 216 N.Y.S. 225 (1926) (established the presumption of irrevocability when a credit is silent); Courteen Seed Co. v. Hongkong Shanghai Banking Corp., 216 A.D. 495, 215 N.Y.S. 525 (1927) (established the right to refuse documents when they are not in compliance with the credit).
Original copies of these agreements are contained in the files of the IFSA.
Despite extensive research efforts, no known copies of these rules other than those of Denmark have been found or are known to exist