Introduction
The use of documentary credits in support of cross-border trade transactions has been de- 10.01 clining in recent decades, mainly for reasons to do with the associated costs.
A letter of credit can in fact be an expensive form of finance, as it requires an assessment of the risks involved in individual transactions or courses of dealing, as well as burdensome and resource-intensive manual checking of multiple documents. Thus, fees can range from 0.75% to 1.5% of the transaction’s value,[949] and a number of additional charges may apply, including for handling discrepancies.[950] These costs can be significantly reduced if technology were harnessed to ease the risk-assessment process by giving banks greater visibility into business relationships and transaction flows, as well as automating the checking process; but this would require paper documents to be replaced by electronic data. Given that the bank’s position as secured creditor tends to be tied at law to its holding certain documents, however, the legal effects of this transition need to be carefully assessed. Accordingly, this chapter analyses the legal implications for banks of replacing trade documents that have a bearing on its position as secured creditor with electronic data. The focus is upon bills of lading and cargo insurance certificates. This chapter argues that, while considerable certainty as to the bank’s legal position may be achieved through careful contractual arrangements, some question marks inevitably remain that can only be resolved through legislative action.II.
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