The Law and Practice of Documentary Letters of Credit

Dora Neo is an Associate Professor and the founding Director of the Centre for Banking & Finance Law at the Faculty of Law, National University of Singapore.

Letters of credit have retained their role as an instrumentality for the financing of foreign trade. An understanding of the law and practice in point is imperative for lawyers advising business people and bank clients, as well as for the banking and trading communities. The book examines the topic on the basis of the common law system, primarily UK law, and adopts an approach that is analytical and not merely descriptive. Letter of credit transactions are, by their nature, international and most nations have adopted the Uniform Customs and Practices ("UCP") originally promulgated by the International Chamber of Commerce (ICC) in 1933 and updated from time to time. Today, the UCP constitutes a code of internationally accepted rules governing letter of credit transactions. The authors have therefore selectively incorporated some comparative discussion, for instance, of the position in the USA and Europe. The book will be an essential work of reference for commercial lawyers in all the major financial centres of Europe, America and Asia.

Letters of credit have retained their role as an instrumentality for the financing of foreign trade. An understanding of the law and practice in point is imperative for lawyers advising business people and bank clients, as well as for the banking and trading communities. The book examines the topic on the basis of the common law system, primarily UK law, and adopts an approach that is analytical and not merely descriptive.

1. Documentary Credits in PracticeI. BackgroundII. Documentary Credits Distinguished from Similar FacilitiesA. Documentary Credits and Open CreditsB. Letters of Credit with a 'Red Clause'C. Standby Credits and Performance BondsIII. Documentary Credits ClassifiedA. Need for ClassificationB. Revocable and Irrevocable CreditsC. Confirmed and Unconfirmed CreditsD. Straight and Negotiation CreditsE. Transferable and Non-Transferable CreditsF. Revolving (Evergreen) CreditsIV. Use of Bills of ExchangeV. Review of a Transaction2. The Uniform Customs and Other Sources of LawI. Applicable SourcesII. The Uniform Customs and Practice for Documentary Credits (UCP): Their DevelopmentA. Their Background and History up to 1993B. UCP 500 and Related GuidelinesC. UCP 600III. Legal Nature of the UCPA. The Legal Effect of the UCPB. Construction of the UCPC. Application of the UCP in Borderline CasesIV. Usages and Banking PracticeA. Basic PrinciplesB. Effect of Trade Usages on Documentary Credit TransactionsC. Role of Banking PracticeV. Statutes and LawsA. ScopeB. Article 5 of the Uniform Commercial Code (USA)C. Statutory Provisions in Other Jurisdictions3. The Documentary Credit Clause of the Underlying ContractI. Nature of ClauseII. Time at which Credit must be FurnishedIII. Type of Credit to be FurnishedIV. Waiver of Documentary Credit ClauseV. Effect of Opening of Credit and its Dishonour4. Contract between Applicant and Issuing BankI. General Aspects of Legal RelationshipA. Opening the CreditB. Vicarious Performance-Use of Correspondent BanksC. Nature of RelationshipII. Issuing Bank's ObligationsA. Issue and Honour CreditB. The Issuing Bank's MandateC. Autonomy of CreditsD. Non-Conforming Presentation: Duty Not to HonourE. Issuing Bank's Duty of CareIII. Disclaimers and Exclusions of LiabilityA. The UCP ProvisionsB. Effectiveness of Disclaimer Regarding Acts of an Instructed PartyC. Deemed Compliance ClauseIV. Applicant's ObligationsA. Reimbursement for Amounts Payable under the CreditB. Commission and Other ChargesC. Arrangements for Payment by the ApplicantV. Documents as the Issuing Bank's SecurityA. Pledge of Bills of LadingB. Trust Receipts5. Issuing Bank's and Confirming Bank's Contract with BeneficiaryI. Nature and Content of Agreement between Issuing Bank and BeneficiaryA. Form and ContentB. When Does a Binding Contract Arise?C. ConsiderationD. Contracts (Rights of Third Parties) ActE. AmendmentF. Enforceability of ContractII. Obligations of Issuing Bank and Confirming BankA. General IntroductionB. UCP 600 Article 7: Issuing Bank's UndertakingC. UCP 600 Article 8: Confirming Bank's UndertakingD. Autonomy and the Fraud ExceptionIII. Complying Presentation by BeneficiaryA. Presentment of Stipulated Documents: Documentary ComplianceB. Bank's Duty to Examine, Honour or RejectC. Bank Precluded from Claiming Non-Complying PresentationD. Time and Place of PresentationIV. Bank's Liability towards BeneficiaryA. Wrongful DishonourB. Late PaymentC. Defences for Non-PaymentD. Set-offE. Competition between Issuing Bank and Assignee of Proceeds of CreditV. Bank's Right of Recourse against BeneficiaryA. Complying PresentationB. Non-Complying PresentationC. Bills of ExchangeD. Fraud and Misrepresentation6. Autonomy and the Fraud ExceptionI. Autonomy PrincipleII. Statement and Scope of the Fraud ExceptionA. Decision in United City MerchantsB. Scope of the Fraud ExceptionIII. Effect of FraudA. Bank's Refusal to HonourB. Is a Bank Entitled to Reimbursement?C. Will Court Grant Injunction to Stop Payment?D. Bank's Recourse Against BeneficiaryIV. Extension of the Fraud Exception: Other Exceptions to the Autonomy Principle?A. GeneralB. Nullity Exception7. The Correspondent BankI. General IntroductionA. Roles of Correspondent BankB. Overview of Correspondent Bank's Legal PositionC. Correspondent IssuerII. The Advising BankA. Role of Advising BankB. Provisions of the UCPIII. The Nominated BankA. Who is a Nominated Bank?B. No Duty to Honour or NegotiateC. Rights and Liabilities of Nominated BankD. Prepayment of Deferred Payment Credit or Acceptance CreditE. Negotiating BankF. Correspondent Bank and Beneficiary: Payment under ReserveIV. The Confirming BankA. GeneralB. Confirming Bank's Rights and ObligationsC. Silent ConfirmationsV. Recourse by and Against the Correspondent BankA. Issuing Bank's Recourse Against Correspondent BankB. Correspondent Bank's Recourse Against BeneficiaryVI. Applicant's Extra-contractual Options Against Correspondent BankA. No Privity of ContractB. Contracts (Rights of Third Parties) Act (CRTPA)C. An Action in Tort8. The Reimbursing BankI. PracticeII. Relationship of Reimbursing Bank and Issuing BankIII. Relationship of Reimbursing Bank and Claiming BankIV. The Reimbursement ClaimV. Exemption Clauses9. The Beneficiary's BankI. Current PracticeII. Relationship of the Beneficiary with his BankA. Collection and Negotiation DistinguishedB. Silent ConfirmationsC. Bank's Right of Recourse against the BeneficiaryIII. The Rights of the Beneficiary's Bank Against the Issuing BankIV. Clashes, Priorities and Set-offA. Meaning of TermsB. ClashesC. PrioritiesD. Set-offE. Position where the Beneficiary's Bank is a Nominated Bank10. Tender of Documents: General Principles of Documentary ComplianceI. IntroductionII. Examination of DocumentsA. The Bank's Duty of Examine DocumentsB. The Principle of Strict ComplianceC. Consistency of Documents; Data in Documents not to be in ConflictD. Original Documents; Copies of Documents; SignaturesE. Alterations and Corrections to DocumentsF. LanguageG. Limits of Drawing on Credit, Quantities,Unit Price and Partial ShipmentsH. Dates Stipulated in the Credit and Dates on DocumentsI. Non-Documentary ConditionsIII. Time for Examination and Rejection of Discrepant Documents; Rejection Notice; WaiverA. The Time Allowed for Examination and Rejection of DocumentsB. Rejection Notice: Contents and Means of CommunicationC. Preclusionary Effect of Not Acting in Accordance with Article 1611. Compliance with Specific DocumentsI. IntroductionII. The Commercial InvoiceA. UCP 500B. UCP 600III. Transport DocumentsA. Marine or Ocean Bills of Lading (UCP 500)B. Bills of Lading (UCP 600)C. Non-Negotiable Sea WaybillsD. Charterparty Bill of LadingE. Multimodal Transport DocumentsF. Air Transport DocumentsG. Road, Rail or Inland Waterway Transport DocumentsH. Courier and Post ReceiptsI. Transport Documents Issued by Freight ForwardersIV. Certain Issues Common to Transport DocumentsA. Deck CarriageB. FreightC. Consignor of Goods/Beneficiary of CreditD. 'Clean' Transport DocumentsE. Terms and Conditions of CarriageF. Vessels Propelled by Sail OnlyG. Partial Drawings or ShipmentsH. 'Stale' Transport DocumentsI. Attestation or Certification of WeightV. Insurance Documents (UCP 500)A. Type of Insurance CoverB. All Risks Insurance CoverC. Form of Insurance Documents and OriginalsD. Commencement of CoverE. Amount of Insurance CoverF. Excess (Deductible)VI. Insurance Documents (UCP 600)A. IntroductionB. Signature by ProxiesC. OriginalsD. Cover NotesE. Pre-signingF. Amount of CoverageVII. Unspecified Documents (UCP 500)A. Issuers and Data ContentB. Ambiguous InstructionsC. ConsistencyD. DatesE. DraftsVIII. Unspecified Documents (UCP 600)A. 'Not Conflict With'12. Transfer and Assignment of the Proceeds of a Letter of CreditI. Transfer, Back-to-back Credit, Transfer of Drawing Rights and Assignment of Proceeds DistinguishedII. Transfer of Letter of CreditA. The Practice and the Duty of ConfidentialityB. Legal Nature of TransferC. The Regime of Article 38 of UCP 600III. Back-to-Back CreditsA. The Practical Distinction between Transferable and Back-to-Back creditsB. The Position of the Issuing Bank's CorrespondentIV. Assignment of ProceedsA. Object of an Assignment of ProceedsB. The Assignee's Drawing Rights13. Independent Guarantees: Performance Bonds, Standby Credits and Similar UndertakingsI. Introduction and ContextA. Extension of Commercial Credit Principles: Independent GuaranteesB. Independent Guarantees Contrasted with Traditional Common Law GuaranteesC. Historical and Geographical OriginsD. Standby Credits Compared with Independent Guarantees GenerallyE. Interchangeable Usage?F. Importance of Contractual TermsG. Uses of Independent Guarantees and Standby CreditsH. Comparison with Commercial CreditsII. Parties and ContractsIII. Contract between Issuer and BeneficiaryA. Introduction: Balance of PowerB. Construing the Bank's Undertaking: Conditional Upon Proof of Applicant's Default?C. Scope of Guarantee: Which Underlying Obligations are Secured?D. Autonomy and the Fraud ExceptionE. Requirements of a Valid DemandF. Excessive Payment: No Recovery by Issuing BankIV. Contract between Applicant and BeneficiaryA. Control against Unmeritorious CallsB. Final Accounting between the PartiesV. Counter-guaranteesVI. Standard Rules for Independent Guarantees and Standby CreditsA. The UCPB. The ISP 98C. ICC Uniform Rules for Demand Guarantees (URDG)D. UN Convention on Independent Guarantees and Stand-by Letters of Credit (1995)14. The Conflict of Laws relating to Letters of CreditI. IntroductionII. Letters of Credit in the Conflict of LawsA. The Nature of Letter of Credit TransactionsB. The Role of the UCPC. The Role of the Autonomy PrincipleIII. JurisdictionA. European LawB. Common LawIV. Choice of LawA. ContractB. Substance and Procedure: Set-off, Time Bars, Injunctions, etc.C. Transfers, Assignments and SubrogationD. Enforceability of DebtsE. TortsF. RestitutionG. Equitable ClaimsV. Conclusion15. Documentary Credits and the Expert WitnessI. Practice and LawII. Expert Evidence in Banking LawA. When RelevantB. The Basic PrinciplesC. The Expert's RoleD. The Court's PowersE. Who is an Expert?F. Form of Expert's ReportG. Single Joint ExpertIII. The Expert in Letter of Credit Cases