title: Documentary letters of credit and related rules under international trade law: A case for action
Creators: name: Khademan, Mahmood
Publisher: name: University of Glasgow
Year: 1996
Subjects: subject: International law, Commerce-Business

description: Letters of credit (LCs) as instruments of payment play an important role in international trade, namely, for bankers as trusted mediators to fill the gap between buyers/ applicants and sellers/ beneficiaries by arranging payments against documents of title (bills of lading). Rules and provisions related to such a system at the international level have always been a focus of attention and have fascinated legal scholars. The present thesis follows a similar concern; its central theme is the present system of law related to LCs at the international level; relevant questions addressed are: (1) what is the present system of law related to LCs?; (2) would such a system be adequate to provide a uniform law concerning LCs?; and (3) if not, what would be a possible replacement for it? The thesis is based on UCP 500 and common law (English, American (particularly Article 5 of the UCC), and Scots law) and considers the relevant questions in four Parts (12 Chapters) in the following order: 1. Part One (three Chapters) studies LCs and the current situation; in that respect, after an introduction (background, rationale and framework of the present research study) a general background about the history and different sources on standards and rules of LCs is presented (Chapter I). More details follow concerning LCs' structure (definition, function, and operation) and principles operative in such a system (principle of strict compliance and doctrine of autonomy) (Chapter II). Standby letters of credit (SLCs) and their history, structure, their similarities and differences from LCs and bank guarantees (BGs) are considered in Chapter ill. It is concluded that the present system of LCs is a mixture of international customary (UCP 500) and national laws. 2. Part Two focuses on the international side of the system (UCP 500). Two chapters (IV and V) try to establish the level of effectiveness of the existing international sources of law regarding the needs of international commercial communities, at present. In that respect, Chapter IV is devoted to the UCP, its structure and related issues which affect applicants, beneficiaries, and bankers in their dealings within the system. A similar approach is followed in Chapter V in a comparison between UCP 500 and Article 5 of the UCC in the United States. The results make obvious that the UCP did not and does not address many issues relevant to LCs. 3. Part Three (Chapters VI-VIII) considers legal issues related to LCs from a common law perspective. In order to achieve this goal bankers' rights and duties/ undertakings in relation to the applicants (the principle of strict compliance, its concept and exceptions) and the beneficiaries (doctrine of autonomy, its concept, connection with a sale and a carriage contracts, and exceptions (particularly fraud and its relevant issues) are discussed (Chapters VI and VII). In the same line the bank's right of security under LCs and relevant issues are considered in Chapter VIII. It is concluded that many issues related to LCs are left to be decided under national rather than international law, and that harms the credibility of the system from an international law point of view. 4. Part Four (Chapters IX-XII) mainly deals with the future of the letters of credit system. In that regard Chapter IX deals with electronic data interchange (EDI) and relevant issues such as definition, related projects, advantages and disadvantages compared with paper-based documents, and with such legal issues as the role of documents in international trade and their impact on the UCP 500. Chapter X, follows a similar purpose by studying UNCITRAL's activities concerning a draft convention on SLCs and BGs, in order to establish the effect of that project over the present LCs' system. Then, issues connected to the possibility of the unification of the law of LCs, namely, current conditions in the world of commerce, meaning of unification and its practical interest, methods and techniques for the unification of law at the international level and obstacles to it, are considered. The next issue for consideration is international legislation and issues related to such an option as a substitute for international customary law (Section A, Chapter XI). In that respect and after considering different available techniques (supranational legislation, convention and model law) in a comparison between international conventions and international customs, reasons for and against each one of them are discussed. In Section B of Chapter XI, another reference is made to the UCP, its legal nature and shortcomings as an international source of law connected to LCs. Lastly, Chapter XII deals with conclusions based on the results of points presented throughout the thesis. It is concluded that for greater certainty, credibility, and reliability on the law of LCs at the international level, the present system (a mixture of international customs and national law) should be replaced by a new system (a mixture of international convention and national law) in order to respond better to the present and future needs of international commercial communities.