In the sphere of international trade the letter of credit occupies an important place as a method of payment. But a uniform interpretation of the terms used in the credit was not possible for the parties concerned with the transaction due to differences in the usages and terminologies prevailing in the different countries.
The Uniform Customs and Practice for Documentary Credits (UCP) was evolved by the International Chamber of Commerce with a view to serving as a set of rules governing letters of credit which would be accepted universally by all the countries. This paved the way for common understanding of the terms by all par-ties involved, viz., banks, traders, ship owners, insurers, etc.
The UCP first appeared in 1933, but it did not receive universal acceptance, especially by the United Kingdom and Commonwealth countries. It was revised in 1962 and the revised rules were adopted by 175 countries and territories in the world, including the U.K. Hence it could be said that it had received universal acceptance. However, keeping with the policy of the International Chamber of Commerce (ICC) to keep the text updated, it was revised in 1974, 1983 and 1993. The 1993 revision came into force from 1st January 1994.
The UCP is not a piece of law and does not bind the parties unless they subject themselves to it. But in almost all countries where the UCP has been adopted, including India, it is the practice to make it an integral part of the transaction by including the following clause in the letter of credit:
“Except so far as expressly stated, this credit is subject to the ‘Uniform Customs and Practice for Documentary Credits’, 1993 Revision, International Chamber of Commerce Publication No. 500.”
With the addition of the above clause, the parties are bound by the provisions of the UCP except to the extent of certain variations that may be stipulated credit itself. Article 1 of UCP provides that the provisions of UCP in the apply to all documentary credits where they are incorporated into the text of the credit. They are binding on all parties thereto unless otherwise expressly stipulated in the credit. The UCP has attained universal acceptance to such an extent that in case of dispute law courts refer to it for interpretation of related terms.