Factores o causas del sufrimiento

As can be noticed above, there are three relationships in a documentary credit context: firstly, the sale contract between the seller (known as the beneficiary) and the buyer (known as the applicant); secondly, the contract between the buyer and his bank (known as the issuing bank); thirdly, the documentary credit between the issuing bank and the seller.26 Normally a distant seller, who is located in a faraway country, prefers to get the goods’ price from a bank in his country.27

Consequently, the buyer will instruct the issuing bank to request a correspondent bank to represent it in the seller’s country. The involvement of a second bank gives rise to the need for a new contract between the issuing bank and the former.

The obligations of such a bank differ according to the instructions that it receives from the issuing bank which usually emerges from the buyer’s contract with the seller. The corresponding bank might merely advise the seller that a documentary credit has been opened. The correspondent bank in such a context is called an ‘advising bank’ and its worth mentioning that the seller does not acquire any rights against such a bank. However, the correspondent bank might, through the issuing bank’s instructions, add its confirmation to the documentary credit. Such a bank is called the ‘confirming bank’ and in such a context the sellers do acquire rights against this correspondent confirming bank which replaces the issuing bank vis-à-vis its obligations towards the seller but this time in the seller’s country. Moreover, the documentary credit might give the opportunity to the seller to choose any bank or

26 _{Indeed, such a relationship does not acquire the elements which would allow its recognition as a}

contract. Different theories have been advocated to illustrate the nature of this relationship. Yet none has been accepted. See subsection 2.4.1. for more discussion in this point.

27 _{Many factors are behind such an inclination. Firstly, by getting the money from a bank in his}

country, the seller saves the costs of travelling and seeking the money from a foreigner bank or buyer which he is not familiar with. Secondly, if anything went wrong, the presence of such a bank in his country gives the seller a right to sue the bank in his country instead of chasing a bank or a buyer in a foreign country.

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some banks in his country to obtain the price of the goods. In such a context the bank is called the ‘negotiating bank’. For now, it is noteworthy to point out that requesting these banks to enter such contracts is not without its own troubles.28

It is worth noting that documentary credits themselves have many divergent types.29 For this reason Harfield has described them as automobiles because of the variety of types which were created to serve various needs and purposes.30 Two of these types, concerning the documentary credit’s enforceability, are the revocable and irrevocable credits. Where a revocable credit is used, a bank can revoke its promise to the seller. However, where an irrevocable credit is used the bank cannot do so. Therefore, using revocable documentary credits is very rare as it does not provide the seller with the security that he needs.31 Other types of documentary credits are the confirmed and unconfirmed credits. These types of documentary credit indicate the bank’s obligations. If the credit is a confirmed one, the bank is obliged to pay as an issuing bank does. However, if the credit is an unconfirmed one then the bank is called an advising bank, and such a bank is merely required to notify the seller that a documentary credit has been opened in his favour.32

According to their negotiability, documentary credits are divided into transferable and non-transferable credits.33 A transferable credit is rarely used or issued by banks as it would put them in a complicated position. Pertaining to the time of payment, deferred

28 _{More about this point is provided in Chapter 6.} 29

For a good discussion in the types of letters of credit see: Enonchong, N. “The Independence Principle of Letters of Credit and Demand Guarantees” (Oxford University Press, Oxford, 2011) at pp. 17 to 22

30 _{Harfield, H. ‘Who Does What to Whom: The Letter-of-Credit-Mechanism’ [1985] 17 UCCLJ 291, at}

p. 291

31 _{Traders are not using revocable documentary credits anymore. UCP 600 shows that documentary}

credits are confined to irrevocable forms. Article 2 describes this as: “Any arrangement, however named, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation”.

32

Unconfirmed documentary credits, like revocable ones, are rarely used.

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and on-acceptance credits are further types of documentary credits. Documentary credits can also be divided into straight and negotiated credits. A documentary credit is straight if available merely to the beneficiary. On the other hand, it is negotiated if it is available to people other than the beneficiary (e.g., negotiating banks).

Given the scope of this work, it is not intended to examine the different relations and types of documentary credits in a detailed manner. This work’s main focus is the fraud exception in letters of credit, and accordingly the next chapters will examine the notion of fraud irrespective of the special type or relationship within which it exists. Whilst different types and relations are focused on in different parts throughout this work, it is the case that, unless otherwise indicated, irrevocable confirmed credits either issued merely by issuing banks or confirmed by correspondent banks, will constitutes the main focus of this dissertation. This fact emanates from traders’ predominant tendency to use those types of documentary credits which provide sellers with a prompt, certain and secure way of payment. After providing a background on documentary credits, the next section provides a similar background on independent