1. 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

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. 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

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

6. 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

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 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