IBT - Part 2 Flashcards
What is a contract inter absentes?
“Contracts inter absentes” refers to contracts that are made between parties who are not physically present with each other. These contracts are typically formed through various means of communication or transaction methods where the parties are geographically separated. This can include contracts formed via mail, email, telephone, or other electronic means, where the parties negotiate and agree on terms without meeting face-to-face.
What is a different name for letter of credit?
Documentary credit.
What are the two options you have when you have doubt about the counterparty?
You do not enter into a contract or take a higher price as a seller or a lower price as a buyer.
What is a bill of exchange?
What law governs it?
A party promises to pay another party in the future; use of a negotiable instrument. Governed by national law.
In the letters of credit / demand guarantees, we have discussed three different steps. What are the steps and under what “soft law” are these steps governed?
Collection process: Using the banking system as an intermediary to forward commercial documents. Uniform rules for Collections (URC)
Letter of credit: Using the banking system to hand-over documents and ensure payment under a commercial contract. Uniform Customs and Practices for Documentary Credits (UCP)
Demand guarantee: Using the banking system to ensure payment of a specific sum in the event of non-performance under a commercial contract. Uniform Rules for Demand Guarantees (URDG)
What is the normative framework for documentary credits?
Uniform Customs and Practices for Documentary Credits (UCP) 600
How does the UCP 600 relate to CISG?
The use of the UCP is so wide that they may also be viewed as international trade usages.
How high is the bank’s fee usually in letters of credit?
1%.
What case can be cited for the application of the UCP 600?
With four points (no need to mention here)
Forestal Mimosa v Oriental Credit [1986] 1 WLR 631
What are the four lessons from the Forestal Mimosa v Oriental Credit?
1) Agreement or Trade Usage: To apply UCP rules, there must be either an explicit agreement between the parties to adhere to UCP terms or a recognized trade usage that incorporates UCP standards.
2) Soft Law Nature and Contract Terms: UCP rules are considered soft law instruments that establish default contract terms. Parties can deviate from these terms by mutual agreement, creating a special agreement that supersedes the general UCP provisions.
3) Handling Irreconcilable Inconsistencies: If there is a conflict between the terms of the documentary credit and UCP rules, the preference is to reconcile them if possible. If reconciliation is not feasible and there is an irreconcilable inconsistency, the express terms agreed upon by the parties prevail over UCP rules.
4) Consideration of Financing Mechanism: When interpreting the terms of the agreement, particularly in the context of a financing mechanism like a documentary credit, the court should consider the overarching purpose and function of the financing arrangement in determining the parties’ intentions.
Who are the applicant and beneficiary in letters of credit?
Seller: Beneficiary
Buyer: Applicant
Once a letter of credit has been issued, can it be cancelled or amended?
Art. 10(a) UCP 600: “Except as otherwise provided by Article 38, a credit can neither be amended nor
cancelled without the agreement of the issuing bank, the confirming bank, if any, and the beneficiary.”
What is the role of the advising bank?
An advising bank advises a beneficiary (exporter) that a letter of credit (L/C) opened by an issuing bank for an applicant (importer) is available. An advising bank’s responsibility is to authenticate the letter of credit issued by the issuer to avoid fraud.
Are branches of the same bank considered the same bank under the UCP?
Art. 3 UCP 600: “Branches of a bank in different countries are considered to be separate banks.”
What is the difference of confirming bank and nominating bank?
Confirming bank has the obligation to pay upon presentation of complying documents.
Nominating bank has the option to pay, but no obligation.
What are the five contractual relationships in letters of credit?
Beneficiary (Seller) – Applicant (Buyer)
Applicant (Buyer) – Issuing Bank
Issuing Bank – Confirming Bank/Nominating Bank
Issuing Bank – Beneficiary (Seller)
Confirming Bank – Beneficiary (Seller)
(You can draw a square but don’t forget the connection between the beneficiary (on the left) and the issuing bank).
Which dual role does the confirming bank have?
The confirming bank is also an advising bank. It has the obligation to inform the applicant that the letter of credit has been opened.
The nominating bank does not have that obligation.
What might be a reason for a nominating bank not do honor their option?
Lack of liquidity.
Delete
Delete
Is a letter of credit revocable?
By default (UCP), it is irrevocable. If it was to be made revocable, it has to be expressly mentioned.
What is the difference between a presentation and a complying presentation?
“Presentation means either the delivery of documents under a credit to the issuing bank or nominated
bank or the documents so delivered.”
“Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.”
What, when, where - of a letter of credit
What: Present documents stipulated in the credit
When: Present documents within the stipulated time
Where: Present documents at the nominated/issuing bank
When presenting documents, can it be a copy?
No, it has to be an original. A bank shall treat as an original any document bearing an apparently original signature, mark, stamp, or label of the issuer of the document, unless the document itself indicates that it is not an original. Art. 17 UCP 600.
What is the special rule for the presentation of documents? (It contains a deadline)
They must be presented not later than 21 days after the date of the shipment, but in any event not later than the expiry date of the credit.
What happens if the last day of presentation falls on a banking holiday?
The expiry date or the last day for presentation, as the case may be, will be extended to the first following banking day (art. 29(a) UCP 600).
Does a bank have an obligation to accept a presentation outside its banking hours?
No. Art. 33 UCP 600.
If a bank’s business is interrupted by Acts of God, riots, civil commotions, insurrections, wars, acts
of terrorism, or by any strikes or lockouts or any other causes beyond its control, will it honour or negotiate under a credit that expired during such interruption of its business?
No. Art. 36 UCP 600.
What are the three obligations an issuing or confirming bank has?
1) Verify if presentation is complying.
2) Pay the beneficiary.
3) Deliver the documents to the issuing bank.
Art. 16 UCP 600 contains two important provisions regarding non-complying presentations, which?
Art. 16 UCP 600: “(a) When a nominated bank acting on its nomination, a confirming bank, if any, or the
issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.
(b) When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies.
The “Prima Facie” Compliance provision
Art. 14(a) UCP 600
What are the two leading cases for “compliance in substance”?
Equitable Trust Co of New York v Dawson Partners Ltd [1927] 27 LIL Rep 49
Kredietbank Antwerp v Midland Bank plc [1999] 1 All ER (Comm) 801
The Equitable Trust case posed the following problem:
Credit: Presentation of a certificate of quality: i. produced by expertS and ii. signed by the Batavia Chamber of Commerce
Submitted certificate: Produced by one expert and signed by the Commercial Association of Batavia
What was the court’s finding?
There is no Batavia Chamber of Commerce, but there is a Commercial Association of Batavia. The court held that it can only be understood as the latter (“insightful inspiration”).
However, the document stipulated expertS (plural), but only one certificate was presented. Hence, the presentation was non-complying.
What does the UCP 600 say about the level of compliance of documents? What is the article?
Art. 14(d) UCP 600: “Data in a document, when read in context with the credit, the document itself and international standard banking practise, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit.”
Kredietbank Antwerp v Midland Bank plc [1999] 1 All ER (Comm) 801
Credit: “Draft survey report issued by Griffith Inspectorate at port of loading”
Submitted certificate: Signed on behalf of Daniel C Griffith (Holland) BV; logo on document with the word “INSPECTORATE”; printing beneath the logo “MEMBER OF THE WORLDWIDE INSPECTORATE GROUP. DEDICATED TO THE ELIMINATION OF RISK”
Was this presentation found complying?
What did the judge say?
Yes. It does not need to be the exact same words.
“The requirement of strict compliance is not equivalent to a test of exact literal compliance in all circumstances and as regards all documents. To some extent, therefore, the banker must exercise his own judgment whether the requirement is satisfied by the documents presented to him.”
1) Substantive compliance = strict compliance, not exact literal compliance
2) Banker must exercise his own judgement
