International Commercial Law A greed Terms of Contract, Soft Law and Mandatory Rules in Practice: Letters of Credit

1. 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

2. Documentary Credits (L/C) • Broadly adopted payment mechanism in international transactions • Protects seller’s interest to obtain agreed price • Protects buyer’s interest to obtain agreed goods • Largely used also for other kinds of payment (e.g., performance bond)

3. Structure • Applicant – Issuing Bank – Beneficiary • Applicant – Issuing Bank – Advising Bank- Beneficiary • Applicant–Issuing Bank–Confirming Bank-Beneficiary

4. 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

5. 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

6. 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

7. 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

8. 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)

9. 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)

10. 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

11. 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