International Commercial Law Agreed Terms of Contract, Soft Law and Mandatory Rules in Practice: Let

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International Commercial LawAgreed Terms of
Contract, Soft Law and Mandatory Rules in
Practice Letters of Credit

• University of Oslo
• Giuditta Cordero Moss, Ph.D., Dr.Juris
• Professor, Oslo University

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Documentary Credits (L/C)

• Broadly adopted payment mechanism in
  international transactions
• Protects sellers interest to obtain agreed price
• Protects buyers interest to obtain agreed goods
• Largely used also for other kinds of payment
  (e.g., performance bond)

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Structure

• Applicant Issuing Bank Beneficiary
• Applicant Issuing Bank Advising Bank-
  Beneficiary
• ApplicantIssuing BankConfirming
  Bank-Beneficiary

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Most important elements

• Irrevocable (art. 10 UCP)
• Documents to be presented
• Expiry date
• Place for presentation
• Amount of payment, method of payment
• Date of payment
• Stale documents
• Partial shipments
• Acceptance

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Most important features

• Bank (issuing or confirming) is obliged to pay if
  documents on their face conform with
  specifications in the instruction
• Obligation is autonomous (art. 4, 5 UCP 600).
  Defences based on the underlying transaction are
  irrelevant
• Documents should have no references to the
  contracts regulating the underlying transaction

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L/C, UCP 600 and Governing Law

• Customary law Apply unless parties exclude them
• Standard Conditions Apply only if parties refer
  to them
• Art. 10, deemed irrevocable unless the parties
  have specified the contrary

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L/C and Overriding Mandatory Rules-I

• Payment upon presentation of documents vs abuse
  of right
• Even if documents were not presented, Swiss bank
  had to pay because other evidence had been
  provided that the goods had been delivered

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L/C and Overriding Mandatory Rules-II

• Payment upon presentation of documents vs
  supervened illegality of payment
• The state of the issuing bank prohibits to effect
  payment, and the advising bank in the US is freed
  from its obligations (Chuidian)

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L/C and Overriding Mandatory Rules-III

• Obligation to issue an L/C and illegality of the
  payment obligation
• The Central Bank of the buyer refuses to
  authorise L/C, and English courts deem payment
  obligations to be valid (Toprak)
• The state of the issuing bank prohibits to effect
  payment, and the advising bank in the US is not
  freed from its obligations (Zeevi)

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L/C and Ordre Public

• Payment upon presentation of documents vs embargo
  affecting the underlying transaction
• The US bank is freed from the obligation to pay

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Summing up

• Not always UCP 600 apply
• UCP 600 may be supplemented by governing law
• Obligations under L/C may be affected by foreign
  exchange regulations
• Obligations under L/C may be affected by embargo