International Commercial Law Agreed Terms of Contract Soft

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 Professor, 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

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