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Copyright © International Chamber of Commerce (ICC). All rights reserved.
( Source of the document: ICC Digital Library )
by Dan Taylor
At a meeting on 20 October 1926, the Council of the International Chamber of Commerce, at the suggestion of Wilbert Ward, referred the development of regulations on Export Commercial Credits to the Committee on Bills of Exchange and Cheques chaired by Mr Westerman, Vice President of ICC. Mr Ward proposed “that the International Chamber of Commerce could render a practical service to international trade by seeking to obtain international uniformity ... and eliminate many difficulties between bankers and business men” by adopting uniform regulations on export commercial credits. 1Mr Westerman requested that the Committee on Bills of Exchange and Cheques review this issue and added Wilbert Ward, National City Bank of New York, New York, M. Froideval, Director adjoint du Comptoir National d’Escompte, Paris and Jean Gurtler, National City Bank of New York, Paris to the current membership of the Committee. The membership of the Committee on Bills of Exchange and Cheques was listed in Brochure No. 47.2
It should be noted that attending the ICC meetings in the 1920s was quite a task. According to Henry Harfield, Wilbert Ward told him that each trip to Europe for a meeting took about two weeks to get there by ocean vessel, the meetings usually lasted about a week and then it took two weeks to return. To attend each meeting, therefore, required Mr Ward to be away from the bank for five weeks. It was during these trips that he wrote his original book Bank Credits and Acceptances published in 1931.3To put this in perspective, the first transatlantic telephone call was not made until January 1927, and the first transatlantic flight from New York to Paris by Charles Lindbergh took place in May 1927. Wilbert Ward’s first trip to attend an ICC meeting occurred in October 1926.
The Committee on Bills of Exchange and Cheques met on 7 and 8 February 1927 and reviewed a draft of what was then titled the Uniform Regulations on Export Commercial Credits, which was prepared by the Committee based on practices contained in rules already existing in Argentina, Czechoslovakia, France, Germany, Italy, Sweden and the United States (RAECC). The record of the meeting states: “At its meeting on February 7th and 8th, 1927 the Committee considered draft uniform regulations for export commercial credits prepared by the experts on the basis of the practice already obtaining in the abovementioned countries. This draft dealt with the various kinds of credits and the undertakings they imply, with the responsibilities which banks decline to assume, with documents which the banks accept (bills of lading, insurance policies, underwriters’ certificates and invoices, etc.) and with the meaning of certain banking terms and the definitions of certain banking customs.” After an article-by-article discussion of the draft, the Committee requested the Secretary General to send the draft to ICC national committees for their opinions. The draft was sent out with a detailed table showing the regulations already adopted in various countries, prepared by Jean Gurtler of National City Bank of New York’s Paris office.4
The Committee on Bills of Exchange and Cheques met again on 27 April 1927 to consider replies from the following national committees: Belgian, Czechoslovakian, German, Hungarian, Indochinese, Swiss and US. Comments were also received from the Amsterdam Bankers Association. The Committee felt that the responses were not numerous enough to permit it to arrive at international uniformity. It requested that the draft be sent again to the national committees requesting comment and that the work of the committee be extended “until such time as it has carried its work to a logical conclusion”.
At ICC’s Fourth Congress, held in Stockholm from 27 June to 2 July 1927, the Committee on Bills of Exchange and Cheques made its report on the “Standardization of Export Commercial Credits” and presented a draft of the Uniform Regulations on Export Commercial Credits. This draft was printed in ICC Brochure No. 48. The Committee reported that while they had received excellent comments on the draft, the replies from ICC national committees were not numerous enough to arrive at a “really international result”. They requested that the time for comment be extended to allow other national committees to present their views. The Committee on Bills of Exchange and Cheques formally requested the Congress to “extend its mission until such time as it has carried its work to a logical conclusion, that is, until draft Uniform Regulations on Export Commercial Credits ... have been finally prepared”. They also requested the Congress to appeal to all national committees to provide comments.
The application of the RAECC in the US (and later adherence to the UCP), and rules developed in other countries devoted only to export credits, had their reasons. In the days when countries had very limited laws covering letters of credit and rules were being formulated, it was believed that if banks complied with rules only for export credits, they would not run afoul of local laws in the country where examination of documents usually took place. By establishing rules for export credits, negotiating and confirming banks would always be assured of conforming to their national law and national rules established by banking practice.
Presented to ICC’s Fourth Congress Stockholm, Sweden June 27 – July 2, 1927
FORM OF CREDITS
Export Commercial Credits are essentially distinct from sales contracts on which they may be based, and to which the banks are entirely foreign.
Export Commercial Credits are either REVOCABLE, IRREVOCABLE or CONFIRMED IRREVOCABLE.
REVOCABLE CREDITS being only conditional authority to pay, negotiate or accept, no responsibility is assumed by the banks. Such credits may be modified or canceled at any moment without the bank being obliged to notify the beneficiary.
When authority of this nature has been given to a correspondent its modification or cancellation can take effect only upon receipt of notification by the said correspondent, or by the firm to which the latter has transferred the credit.
IRREVOCABLE CREDITS are definite undertakings by a bank in favor of the beneficiary. They can neither be modified nor canceled without the agreement of all concerned.
When banks opening irrevocable credits inform the beneficiary through a correspondent the intervention of the correspondent implies no responsibility on his part towards the beneficiary even if the correspondent’s own address appears in the credit as the place of payment.
CONFIRMED IRREVOCABLE CREDITS are a two-fold banking guarantee – that of the bank opening the credit, and that of the bank confirming the credit and making itself responsible for the undertaking given by the first bank. However, the undertaking of the confirming bank only runs from the date on which confirmation is given. Confirmed irrevocable credits can neither be modified nor canceled without the agreement of all concerned.
Banks will confirm credits to beneficiaries and guarantee the latter, only at the formal request of the bank opening the credit.
In cases where the period for which confirmed irrevocable credits are to remain in force is not stated, the beneficiary will only be advised of the credit for information, and the credit will only be confirmed when the duration of validity has been specified, and this implies no responsibility on the part of the advising bank.
All credits are revocable unless otherwise expressly stated.
Banks will examine all documents and papers with care sufficient to ascertain that on their face they appear to be regular in general form.
When banks receive instructions to pay against documents – shipping documents, or words of similar import – without further specification they will be authorized to honor the following documents in negotiable and transferable form:
Banks have the right to waive insurance papers if the beneficiary furnishes proof satisfactory to them, that the goods are insured by the consignee.
Bills of Lading
Unless otherwise instructed, banks will accept – when bills of lading are required – RECEIVED FOR SHIPMENT or ALONGSIDE Bills of Lading.
For shipments of cotton from the United States, banks are authorized to accept either bills of lading drawn under the Liverpool Convention; Port or Custody Bills of Lading.
Banks will accept ocean bills of lading permitting transshipment, outside the usual printed clauses, on condition that the entire voyage be effected under the responsibility of the signer of the bill of lading, unless the credit
Bills of lading showing goods are stowed “on deck” will be refused.
Forwarders’ bills of lading, railway receipt, duplicate consignment note, postal receipt in each case will be taken to be the date of shipment or dispatch.
When “On Board” shipment is required and such shipment is represented by an “On Board” Bill of Lading, the bill of lading date will be taken as the date when such shipment was effected; if evidenced by “On Board” endorsement, the endorsement date will be so taken.
Bills of lading shall contain no notations qualifying the acceptance of merchandise in apparent good order and condition.
Banks have the right to accept either insurance policies or underwriters’ insurance certificates, even when the credit stipulates the delivery of a policy.
The amount of insurance should be at least equal to the C.I.F. value of the goods, or to the amount of invoice if latter is higher.
In the absence of specifications as to risks to be covered, the banks will accept ordinary maritime insurance “special risks excepted”.
If insurance is required on overland shipments, banks will accept insurance of ordinary transportation risks.
When credits stipulate “insurance against all risks” banks will see that the documents are as complete as possible but cannot be held responsible if certain special risks are not covered.
Date of insurance documents must not be later than date of bills of lading or consignment notes.
Unless otherwise instructed, banks will demand insurance in the currency of the credit.
Invoices must be in the currency of the credit, in the name of the buyer or other appointed person. If the invoice is not in the currency of the credit, the total must be converted into the currency of the credit by the seller.
In case of disparity between the credit and the shipping documents in the description of the goods, the banks will insist that the description appearing upon the invoices shall agree with that of the credit.
When other documents, such as consular invoices, certificates of origin, certificates of weight, of quality or of analysis are called for without further definition, the banks will accept such documents as presented.
As certificates of weight in case of railway carriage, the banks may refer to the notation of weight usually appearing upon railway receipts or upon duplicate consignment notes if officially stamped.
INTERPRETATION OF TERMS
About or “Circa”
This term to be construed as allowing a variation not to exceed 10% more or less. When the merchandise by its nature does not allow the delivery of the exact quantity indicated a leeway of 3% more or less will be allowed.
Unless otherwise instructed, banks will pay for partial shipments, even if their pro-forma value cannot be determined.
If shipment by instalments within given periods is specified, each instalment shall be treated as a separate transaction. The instalments not shipped at the given period cannot be added to subsequent shipments and are ipso facto canceled.
Banks will, however, continue to pay for subsequent shipments on condition that they are made at the given periods.
The period for which all credits, whether revocable, irrevocable or confirmed irrevocable, are to remain in force must be stipulated and this period should not coincide with the latest day for shipment, if such a date is specified.
The words “to”, “until”, “till” and words of similar import are understood to include the date mentioned.
When the last stipulated date for payment falls upon a Sunday or public holiday the payments shall be made on the next succeeding business day.
This does not apply to the last day for shipment which must be respected whatever the day of the week.
The period for which a revocable credit remains in force if no date is specified shall not exceed three months from the date of the notification sent to the beneficiary by the bank with which it is opened; and this bank will refuse payment after three months, unless its customer gives special instructions to the contrary.
“Prompt”, “immediately”, “as soon as possible”, etc. These terms and others of similar import are to be interpreted as a request for shipment and presentation of documents within thirty days from the notification to the beneficiary, unless a date has been stipulated.
When the date of shipment alone is specified in a credit the documents must be presented within a reasonable time. In the case of the credit payable on a certain date, the documents must be presented to the bank during the usual banking hours.
Any extension of the date of shipment shall extend for an equal length of time the date for presentation or negotiation of documents or drafts.
When the credit is for goods sold C.I.F. the freight must be prepaid. However, when no price is indicated the banks have the right to refund the beneficiary, within the limits of the credit, cost of freight, insurance and other expenses on the strength of the invoice.
When the credit is for goods sold F.O.B. the freight must be paid on arrival. When no price is indicated the banks have the right to pay all expenses within the limits of the credit up to loading on board vessel, on the strength of the invoice.
However, when a credit specifies C.I.F., F.O.B., etc. such notations shall not affect the form of shipping documents demanded.
Definition of Date Terms
The terms “first half ”, “last half ” of a month shall be construed as from the 1st to the 15th, and the 16th to the 30th/31st inclusive. The terms “beginning”, “middle” or “end” of month shall be construed as from the 1st to the 10th, the 11th to the 20th and the 21st to the 30th/31st of each month.
When a credit bears “good for one month, six months”, etc., and the customer has not specified the date from which the credit is to run, the credit shall run from the date on which the correspondent sends the notification to the beneficiary.
A credit can only be transferred on the express authority of the customer. In this case the credit can be transferred only once, and on the terms and conditions specified in the original credit, including duration of validity.
When a credit may be transferred to another place, or its terms and conditions changed on the order of the beneficiary, the customer must so specify clearly and state who is to pay the bank charges entailed.
In the case of a transfer to another town, payment may be made at the place to which the credit has been transferred.
In 1929, the Committee on Bills of Exchange and Cheques, now renamed the Committee on Bills of Exchange, Cheques and Commercial Documentary Credits, met in Amsterdam. At that meeting they considered all comments received from ICC national committees. The result of the consideration was a draft of what they entitled Uniform Regulations for Commercial Documentary Credits. This is the last known discussion of drafts of rules regulations by ICC prior to the publication of the first rules in 1933. According to ICC’s records, it seems that during the occupation of Paris by the German army during World War II, many records of ICC were taken home by employees in an attempt to keep them from being destroyed. Unfortunately, many were never returned to the ICC headquarters. Evidently the records from 1929 to 1933 were among those that were not returned.
The wording of ICC’s draft Uniform Regulations for Commercial Documentary Credits is such that it is impossible to obtain verification of the origin of these international rules. It appears, however, that the RAECC 1926 version was an influential model. One must also assume that other sections or language were taken from other national rules, including those developed by the Copenhagen banks. However, since these rules are not available for comparing, only a comparison with the US’s RAECC and the Copenhagen Regulations is possible. While these international regulations were discussed a number of times at meetings of the Committee on Foreign Banking,5 no one knows exactly what happened to the Uniform Regulations for Commercial Documentary Credits. In March of 1931, the US banks were, according to records of their meetings, continuing to discuss the draft Regulations and their objections at meetings.
On 22 September 1932, the Committee on Foreign Banking formed a committee to review the RAECC once more. As part of this committee’s effort, a copy of the RAECC was sent to ICC stating that the RAECC accurately reflected US practice and they should be used as a model for the development of international rules. On 30 March 1933, the final draft of the revised RAECC was sent to the members of the Committee on Foreign Banking for a vote which was, after much discussion, approved and became effective on 15 March 1934.
Uniform Regulations for Commercial Documentary Credits 1929 Draft
A. FORM OF CREDITS
Unless otherwise instr ucted the Banks will interpret the undermentioned terms contained in commercial credits as follows.
D. INTERPRETATION OF TERMS
Adopted by the New York Bankers Commercial Credit Conference of 1920
Amended on 15 March, 1934 Committee on Foreign Banking, New York, N.Y.
To our Correspondents:
Export Commercial Credits are treated in conformity with the following regulations:
ICC Brochure No. 48. Record of Stockholm meeting from 27 June to 2 July 1927
No known copy of Brochure 47 exists.
Wilbert Ward published the first addition of Bank Credits and Acceptances in 1931. Further editions were published in 1948, 1958, 1974 and 1977. The 1958 edition was co-authored by Henry Harfield, and the 1974 and 1977 editions were published by Henry Harfield.
While the draft was included in the record of the meeting, the table was not contained in any of the ICC documents.
In 1927, the Junior Committee changed its name to the Committee on Foreign Banking.