Independent Guarantees and Stand-by Letters of Credit - Working Group Interim Report 2008

Overview of Activities

[6] At its Annual Meeting in 2007, the Conference was updated on the Working Group’s progress.  It considered a draft uniform implementation act and encouraged the Working Group to continue its work in developing both a draft uniform act implementing the Convention and specific rules to address domestic transactions and all aspects of international ones.

[7] The Working Group has been meeting by weekly conference call since September 2007.  It attended a joint meeting with United States and Mexican colleagues in Denver in November 2007 to attempt to bring about a harmonized approach to implementing this Convention across the Americas.

[8] One member of the Working Group attended the Americas Annual Survey of Letters of Credit Law and Practice Conference in Tampa in March 2008 and participated on a panel that discussed the Convention and its implementation in Canada and in the United.  This forum offered a rare opportunity to consult with letter of credit stakeholders and included participants from both Canada and the United States.  The audience was receptive, there was discussion but no objections were raised.  Participants either spoke in support of the Convention or asked questions.

[9] From February to June 2008, the Working Group held consultation sessions in Montreal, Toronto and Vancouver with key stakeholders, including major Canadian banks, the Canadian Bar Association and the Canadian Bankers Association, on the merits of this project.  The Working Group continues to maintain ongoing discussions with stakeholders.  Although stakeholders have yet to provide the Working Group with their official positions, there seems to be support for the project.

[10] There was general agreement among stakeholders that the current system works well.  Some expressed concerns about making changes to it.  Some seemed to better appreciate the international benefits of ratifying the Convention while others seemed to better appreciate the benefits of adopting domestic rules to increase certainty in addressing domestic transactions and international transactions not covered by the Convention.

[11] Between March and May 2008, the Working Group held two in person drafting meetings.  The objective of these meetings was to discuss and agree on various substantive policy issues which were difficult to discuss by conference call.

[12] The Working Group met the legislative drafters in May 2008 and began discussing various issues surrounding the drafting process and approach.  The legislative drafting began at that time and is scheduled to continue well into the summer.  A final draft uniform act is expected by fall 2008.  The legislative drafters assigned to the project are Hélène Rodrigue and Joanne Papich.

Results of Activities

[13] The Working Group developed a draft uniform act in two parts (attached).  Part 1 establishes domestic rules, basically codifying existing common law and civil law rules that are consistent with the Convention.  It addresses domestic transactions in the area of independent guarantees and letters of credit as well as aspects of international transactions not covered by the Convention.  It will eventually include commentaries.  Part 2 implements the Convention in Canada and includes commentaries.

[14] The United States signed the Convention in 1997 and is currently working towards ratification.  The rules of the Convention are generally consistent with those in Article 5 of the Uniform Commercial Code of the United States.  Because of this congruence, the adoption of the Convention by the United States will cause little change in American law and implementation of the Convention will likely be done primarily through Article 5 (referred to as the “pre-implementation” method).

Next Steps

[15] The Working Group intends to maintain ongoing discussions with stakeholders, including beneficiaries of letters of credit, who have not yet been consulted.

[16] The Working Group expects that once the consultations have been completed and the results have been reviewed, a final draft act and report on the project will be prepared for consideration at the 2009 ULCC Annual Meeting.

[17] The Working Group expects to complete the draft uniform act and commentaries for presentation to the ULCC Annual Meeting in 2009.

[18] The Working Group seeks comments from the Civil Section on the scope of the project, the interview methodology (including its follow up) and the commentary, which the Working Group will be drafting over the next year.

Next Annual Meeting

August 2021

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