International Commercial Law Agreed Terms of Contract, Soft Law and Mandatory Rules in Practice: Letters of Credit University of Oslo Giuditta Cordero Moss, Ph.D., Dr.Juris Prof.ass., International Commercial Law, Oslo University

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)

Structure Applicant – Issuing Bank – Beneficiary Applicant – Issuing Bank – Advising Bank- Beneficiary Applicant–Issuing Bank–Confirming Bank-Beneficiary

Most important elements Irrevocable (art. 6 UCP) Documents to be presented Expiry date Place for presentation Amount of payment, method of payment Date of payment Stale documents Partial shipments Acceptance

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. 3, 4 UCP). Defences based on the underlying transaction are irrelevant Documents should have no references to the contracts regulating the underlying transaction

L/C, UCP 500 and Governing Law Customary law: Apply unless parties exclude them Standard Conditions: Apply only if parties refer to them Art. 6, deemed irrevocable unless the parties have specified the contrary France, Germany: Customary Law UK: Standard Conditions

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

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)

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)

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

Summing up Not always UCP 500 apply UCP 500 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