Introduction
Following the commencement of the latest version of the Uniform Customs and Practice 5.01 for Documentary Credits (‘UCP 600'),1 it has been settled that a letter of credit constitutes an irrevocable undertaking by the issuing bank (and by the confirming bank in the context of a confirmed credit) to honour2 a complying presentation.
The condition for performance of the banks' undertaking is beyond doubt, but determining when a presentation is complying comprises the core of letter of credit operations, and all too often forms the subject of serious disputes potentially involving protracted and costly litigation. Difficult issues of considerable commercial and doctrinal importance arise in ascertaining the conformity of tendered documents. What approach should be adopted when construing and applying the UCP? To what aids may appropriate recourse be had when interpreting a provision of a code of banking practice, such as the UCP? Under the UCP, a credit must not be issued available by a draft drawn on the credit applicant; but an inexperienced bank may nevertheless issue a credit of that very sort: would it be competent for the bank to insist on presentation of the draft despite the obviously odd stipulation? How about the legal effect of an unstipulated document appearing among the stipulated documents that are presented? A directive in the UCP's rules of banking practice demands that unstipulated documents be ‘disregarded'. Is there some limit to compliance with that codified instruction? Pursuant to the UCP regime, a place for presentation of documents, other than the issuing bank's counters, counts as an additional place for documentary presentation: can the beneficiary ignore the place specified in the credit for the submission of the documents and remit the documents directly to the issuing bank? Does the beneficiary have a discretion to do so? Consideration of these issues, from an Anglo-American perspective, comprises the main purpose of this chapter. Before proceeding further, however, some introductory observations are desirable.5.02 Letters of credit have a long-established reputation as essential, flexible payment and financing instruments in international sale of goods transactions. The flexibility of this financing device enables the buyer and seller to agree in their sales contract on a letter of credit suitable for their business needs. Proper performance of the buyer's obligations under the contract of sale typically results in the buyer's bank issuing the required letter of credit in favour of the seller, as the credit beneficiary. The establishment of the letter of credit gives rise to two contracts, namely an irrevocable undertaking by the issuing bank to honour[388] a complying presentation and an engagement by the buyer to reimburse the issuing bank as promisee for payment made in accordance with the credit. The issuing bank's undertaking in turn generates two contracts: one with the seller, and the other with a nominated bank, both parties thereby becoming promisees of the undertaking. All three promisees (the issuing bank, the seller, and the nominated bank) face a common daily problem in letter of credit operations: the seller's right to payment under the credit depends on his making a ‘complying presentation'[389] at the counters of the issuing or nominated bank; for the issuing or nominated bank to obtain reimbursement of the sum disbursed under the credit, it must have honoured a ‘complying presentation'[390] and forwarded the documents to its promisor (the buyer vis-a-vis the issuing bank; the issuing bank vis-a-vis a nominated bank). The standard of documentary conformity with the credit required for the presentation to each promisor is strict.[391] Strict compliance does not translate into a test of mirror image, literal compliance in all circumstances, and for every tendered document.
Minor discrepancies between the documents and the credit's terms, or inconsequential irregularities within a set of the documents, afford no valid ground for the presentee to refuse the presentation.[392] A discrepancy that calls for an inquiry, invites litigation, or casts doubts upon the sufficiency of contractual performance evidenced by the document would render the presentation non-conforming and unacceptable. A perennial practical problem lies in the fact that document-checkers, including established documentary credit practitioners, do not always find it possible to distinguish trivial variations from material deviations with mathematical precision.5.03 Usually, the engagement of the buyer to reimburse the issuing bank is contained in an application form for the opening of the requisite letter of credit. Specific sections of the credit opening agreement set out the buyer's instructions to his bank. In the ordinary course of things, those instructions should be reproduced faithfully in the letter of credit itself. Ordinarily, the credit will contain a clause incorporating the UCP 600 by reference. In the US, Revised Article 5 of the Uniform Commercial Code (‘Revised Article 5') applies to letters of credit, if the credit is issued anywhere in the US or, in the case of a credit issued abroad, if it is governed by the law of a US state, as determined by that state's choice of law rules. Accordingly, both Revised Article 5 and UCP 600 can govern such a credit. However, the latter is far more comprehensive than the former and takes precedence[393] in the event of a conflict between them.
Under both codes and at common law, a complying presentation requires the presenteepromisor to discharge its payment or reimbursement undertaking to the presenterpromisee. The various contracts are distinct and separate from one another[394] by reason of the doctrine of autonomy.
A decision by the issuing bank that the set of documents it has honoured complies with the credit's terms does not bind the applicant to whom the issuing bank tenders the documents for reimbursement. Similarly, as discussed below,[395] a nominated bank's acceptance of a presentation will not operate to make the issuing bank liable to honour the documents, unless the nominated bank acted as the issuing bank's agent.[396] Under the autonomy principle, the presentee-issuing bank cannot assert against the presenting party (whether the seller or a nominated bank) any defences that the issuing bank may have against the buyer,[397] or any defences that the buyer may have against the seller under the sale contract. Similarly, a presentee-buyer may not deny reimbursement to the presenting issuing bank because of information that the buyer makes available to the bank about the seller's non-performance or defective performance of the sale contract. If the issuing or nominated bank has honoured a non-complying presentation, either because it did not notice that the documents materially differ in some respect from a stipulation in the letter of credit or the UCP 600, it usually has no right of reimbursement against the presentee party.Non-complying presentations often leave the presenting promisee in an extremely difficult situation, particularly if the price of the underlying goods has collapsed. Occasionally, the presenter of the validly rejected imperfect documents will be an issuing bank or a nonrecourse nominated bank and would be obliged to request the buyer to take the merchandise at a discount or arrange for their resale. Where the promisee is the seller and the irregularity in the documents cannot be rectified before the credit expires, he tends to be at the mercy of the buyer, who may be seeking any opportunity to renegotiate the price or escape the contract of sale altogether.
Alternatively, the seller may have to meet huge storage charges in respect of the goods or cover other financial losses. On the other hand, the opening of the letter of credit stipulated in the sale contract operates only as conditional rather than absolute payment for the relevant goods, unless the parties to the contract expressly or by necessary implication agreed otherwise.[398] It merely suspends, rather than extinguishes, the buyer's payment obligation under the contract of sale. Accordingly, the seller's inability to receive payment under the credit simply restores the buyer's liability for the price, but only in exceptional circumstances.[399] As the buyer has incurred fees in establishing the credit, the seller cannot simply resile from the credit and demand payment from the buyer by presenting documents to him save, for example, where the credit fails to provide the promised payment because of the issuing bank's insolvency.[400] In that event, the buyer's obligation to pay the seller revives on the basis that the buyer undertook to pay by means of a letter of credit with a reliable paymaster, rather than a letter of credit that would not result in payment owing to the issuing bank's insolvency.In many cases, a non-conforming presentation stems from an improper understanding of the ways in which the requirements of a letter of credit interact with the UCP 600's provisions. This chapter provides a principled evaluation of the prevailing approach to that interaction in the Anglo-American courts. Since the UCP 600's requirements are at the core of the parties' various undertakings in the credit transaction, the inquiry necessarily begins by surveying the principles applicable to interpreting such a code. It then considers specific types of problem relating to credit stipulations calling for a draft drawn in a stated form. The final part of the chapter examines the practical implications of the place for documentary presentation under article 6 of the UCP 600.
II.
More on the topic Introduction:
- Introduction
- Introduction
- Introduction
- Introduction
- Introduction
- INTRODUCTION
- Contents
- Contents
- AVIAN CHOLERA
- Hare C., Neo D. (eds.). Trade Finance: Technology, Innovation and Documentary Credit. Oxford University Press,2021. — 417 p., 2021