2.1. The Uniform Customs and Practice for Documentary Credits
Before 1933 some individual efforts were made by different countries®" to put all aspects of the credit in a codified legal framework, but none of them had an international scope. In 1933, for the first time, by the efforts of the International Chamber of Commerce (ICC) at its 7th Congress held in Vienna, the first edition of the Uniform Customs and Practice for Documentary Credit (UCP) was published.®® The ICC Congress was more successful in codifying issues related to
®® Kozolchyk, supra (f.n. 4), pp. 3-4. ®® Kozolchyk, supra (f.n. 4), at p. 4, f.n. 3.
®® Basse and Solve v. Bank o f Australia (1904) 90 L.T. 618; Eilinger, supra (f.n. 22), pp. 35-6. ®" Davis, supra (f.n. 21), p. 10.
®" In 1920 the USA, 1923 Germany and Greece, 1924 France and N oway, 1925 Italy, Czechoslovakia, and Sweden, 1926 Argentine, 1928 Denmark, 1930 Netherlands; Eilinger, supra (f.n. 22), p. 37; Eilinger, E.P., "The Uniform Customs - their nature and the 1983 Revision". L.M.C.L.Q. 1984, pp. 578-606, at p. 578 [hereinafter refened to as the Uniform Customs].
®® It was codified by the 7th Congress of the ICC, Brochure No. 82; it is necessary to mention that there was another attempt for international standardisation in 1929 Congress o f the ICC, held in Amsterdam, but it was not
LCs than in promoting and establishing uniformity, as only certain European countries and some American banks accepted it?®
To achieve uniformity, to improve the capability of the UCP with regard to developments in methods of transportation and communication, the need to recognize appropriate documents, and the need to accept new types of credits such as standby letters of credit and deferred payment credits, the ICC revised the UCP provisions five times within 60 years between 1933-1993.®®
2.2. English and Scottish law
In the United Kingdom (UK), the UCP, beside court cases relevant to LCs, is the only available source related to letters of credit.®® There is no particular Act of Parliament regarding LCs.
2.3. American law
In the USA, the rules relating to letters of credit, beside court cases related to LCs, were codified in Article 5 of the Uniform Commercial Code (UCC).®’ It was successful; Eilinger, the Uniform Customs, ibid, p. 579; Eberth, Singapore Conferences 1990, supra (f.n. 7), p. 6.
®® Eberth, Singapore Conferences 1990, supra (f.n. 7), p. 7; Davidson, Singapore Conferences 1990, supra (f.n. 10), p. 22.
®® See ICCs Publications, Pub. No.l51 (UCP 1951), Pub. No. 222 (UCP 1962), Pub. No. 290 (UCP 1974), Pub. No. 400 (UCP 1983), and Pub. No. 500 (UCP 1993); Buckley, Ross P., "The 1993 Revision o f the Uniform Customs and Practice for Documentary Credits". Geo. Wash. J. Int'l L. & Econ., Vol. 28, 1995, pp. 265-313.
®® The UK and Commonwealth banks accepted the UCP in 1962; Eberth, Singapore conferences 1990, supra (f.n. 7), p. 7; Davidson, Singapore Conferences 1990, supra (f.n. 10), at p. 22 said: "a revised version was adopted by the thirteenth congress o f the ICC in Lisbon in 1951. Although this Revision extended the scope of application o f the UCP in that they were now followed by banks in the USA, they remained limited in their application as the U K and Commonwealth banks were still not adherents (primarily because they feitli the UCP provided for too much discretion in the banks with regard to the acceptance o f shipping documents not expressly mentioned in the letter o f credit). It was not until 11 years later, with a further revision o f the UCP in 1962, that the British banks were induced to adhere."; Eilinger, EP, "Letter of credit". Horn, Norberth and Schmitthoff, CM, "Studies in International Economic Law, The Transactional Law of International Commercial Transactions". Kluwer, 1982, Vol. 2, pp. 241-732 [hereinafter referred to as Ellinger's paper in lEL 1982], at pp. 248-49; Editorial, "B ritish banks accepted the IC C U niform Customs for Commercial Credits". .IBL, 1963, pp. 99-101; Megrah, Maurice, "A uniform code for documentary credit practice?". International and Comparative Law Quarterly, Vol. 8, January 1959, pp. 41-58, at pp. 52-55 (attitude o f British banking) [hereinafter referred to as Megrah's paper 1959].
accepted by most of the states of the USA, but New York, Alabama, Missouri, and Arizona modified UCC before adoption?® In these states UCP 500 has also been applied?®
CONCLUSIONS
The documentary letters of credit system and its importance in international trade are so obvious as to be undeniable?® It is also clear that international provisions concerning the system are mainly customary in nature (UCP 500) and issues not covered by the UCP are covered by law (at national level) chosen by parties to LCs transactions. Therefore, at present the letters of credit system is a mixed system, namely, of international commercial custom and relevant national law. Would such a mixed system be adequate to provide a uniform law concerning LCs? If not, what would be a possible replacement for the present system?
With reference to the first question above, both parts of the letters of credit legal system (namely, UCP 500 and respective national law) have some limitations that undermine its efficiency as a sound platform for a movement towards preparing a unified and codified law of LCs. UCP 500 is limited to some aspects of LCs,
Other rules relate LCs are Articles 1072 to 1082 o f Yugoslav Federal Code o f Obligations o f 1978 (its name might be changed as a result o f recent events in former Yugoslavia) and Articles 367 to 377 o f the new Kuwait Commercial Law that came into force on 25 February 1981; Eberth, Singapore Conferences 1990, supra (f.n. 7), pp. 5-6.
Those states adopt sub-section 4 o f Article 5-114; therefore, the bracket in the last sentence o f sub-section 1 o f Article 5-112 o f the UCC should also be included; see also relevant discussion about UCC later; "U niform Commercial Code". The American Institute, National Conference o f Commissioners on Uniform States Laws, 1972 Official Text, with comments and appendix showing 1972 changes, pp. 417-43 [hereinafter referred to as UCC]; MccuIlough, supra (f.n. 36), at ss 2.05[1], sub-paragraph [e] it is said: "New York, Alabama, Arizona, and Missouri have adopted a nonuniform amendment to Article 5. It reads as follows: "Unless otherwise agreed, this Article 5 does not apply to a letter o f credit or a credit i f by its terms or by agreement, course o f dealing or usage o f trade such letter o f credit or credit is subject in whole or in part to the Uniform Customs and Practice for Commercial Documentaiy Credits fixed by the thirteenth or by subsequent Congress o f the International Chamber o f Commerce.""
UCP 1951 was accepted by banks in the USA; Davidson, Singapore Conferences 1990, supra (f.n. 10), p. 22; for a comparison between Article 5 o f the UCC and UCP 500 see below Chapter V.
®® See discussion concerning history o f LCs under present chapter above.
namely, customs and practices; less attention is paid to legal issues, e.g., fraud and bank's right of security (reasons for such a policy by the ICC are considered later.)®" The ICC has no plans to change its policy regarding the UCP, and the last version of its provisions (UCP 500) uphold such a view. Another point concerning the UCP, from the angle of international law, is the question of the nature of provisions, namely, whether they are customary or contractual in nature. This point assumes importance in case of a dispute in the transaction between parties to a letter of credit contract where nothing precisely refers to the application of the UCP; if the UCP is accepted as an international custom, it automatically governs LCs in the absence of any agreement regarding the applicable law of the contract. By contrast, if the provisions are contractual in nature, as accepted by the ICC in Article 1 of UCP 500,®" a different situation emerges, namely, the UCP is not automatically accepted as the applicable law of LCs unless it is precisely agreed upon. This issue and other points concerning shortcomings of the UCP (discussed later below), generate a serious doubt as to the effective role of its provisions at an international level in respect of the question under consideration.
As to the other part of the mixed system concerning LCs, namely, national law, several points should be noticed; Firstly, it becomes clear that the only exiting codified rule at national level concerning LCs is that of Article 5 of the UCC in the USA. Article 5 is not identical to UCP 500 (their differences are considered below later).®" It is, however, important that parties to international LCs transactions take into consideration that Article 5 of the UCC is applied in most of the states of the USA except New York, Alabama, Missouri and Arizona; parties could face, therefore, regulations different from UCP 500 if the applicable law of their contract is not the law of one of the above mentioned USA states, or nothing is indicated within
51 See Chapter XI, Section B.3.3 (below).
®" See ICC Pub. No. 500 and discussion concerning legal nature o f UCP 500 in Section B.2, Chapter X I (below).
®" See Chapter V (below).
their transaction precisely in respect of the UCP. Secondly, it is obvious that, generally speaking, in most cases the national law of one country is not identical with the national law of another country with different roots, possibly with different national interests. Such a situation can be traced even in countries sharing a common legal tradition, e.g., the UK and the USA.^^ With such a diversity of national laws, it is not surprising that parties to international LCs would possibly obtain different results for similar issues in different jurisdictions. Thirdly, as already stated above, is it reasonable that the international law of LCs, as an important instrument for payment in international trade, has been shaped by national law itself engineered for safeguarding national rather than international interests?^^
In conclusion, for reasons pointed out above and elsew here,the law of LCs at international level is not unified; the rights and obligations of parties to such transactions are far from clarified. This may itself cause confusion and uncertainty between parties to international LCs. There is, therefore, marked need and practical interest for having an international unified and codified set of standards concerning LCs. As to the second question (pointed out earlier), namely, what would be a possible replacement for the present system, it is necessary to know more about the current system before considering a solution; therefore, questions related to letters of credit system (with particular reference to standby letters of credit (SLCs)), UCP 500, Article 5 of the UCC and legal issues related to LCs (common law perspective) are discussed in Chapters ILVIIi.
For examples concerning distinctions between tlie English and American law see relevant discussions in Chapter V I and V II (below).
For more details see relevant discussion (international convention v. international customs) in Section A .3, Chapter X I (below).
For instance see chapter V, Section B (Comparison between Article 5 and UCP 500) below.