Introduction to Part III

PIII.01 In the preceding parts, we explored the measurement of compliance with obligations arising out of a letter of credit and the underlying credit-opening agreement, and the ways in which recovery may be sought by a party who has suffered a financial loss on account of its failure to realize the credit by reason of making a non-conforming tender of documents. The focus of this final part of the study is the means of ascertaining the legal system by which conformity with the obligations and the right to recover damages are determined.

PIII.02 As noted in the previous situations, issuing banks normally honour their payment and reimbursement undertakings to beneficiaries and nominated banks upon receipt of conforming documents; in due course they will be reimbursed by the applicant in accordance with the manner set forth in the credit-opening contract. But in circumstances where an issuing bank refuses to perform its obligation, the aggrieved promisee beneficiary or nominated bank may find itself obliged to launch litigation, of course in the courts of its country (since it is familiar with their workings, albeit it may well be costlier to prosecute a law suit there), against the foreign issuing bank to contest the failure to honour its promise spelt out in the credit, in particular the propriety of the denial of payment or reimbursement.

PIII.03 It sometimes happens that the claimant beneficiary or nominated bank seeking to enforce the engagement embodied in the credit is located in London and the issuing bank is resident abroad with no presence whatsoever in the jurisdiction of the English courts. In that event, it will be necessary for the claimant beneficiary or nominated bank to apply to an English judge for permission to serve the claim form on the issuing bank out of the jurisdiction.1 Showing2 that the claim brought for enforcement is governed by English law may constitute a sufficient reason for the court to grant the application.3

PIII.04 However, the court may well hear the case because the defendant issuing bank is amenable to its jurisdiction in that it is resident there and, compared with some other country, it is clearly the more appropriate forum for the trial of the action;4 or, if the defendant is domiciled in a Member State of the European Union, because it is entitled to do so by virtue of Article 5 (1) (a) of the Brussels I Regulation.5

PIII.05 To resist the proceedings, a potential defence is that its liability for non-performance of its obligation to accept the documents presented to it is excused by reason of a subsisting local injunction;6 or that the claim is statute-barred;7 or that the documents are forgeries and a nullity on the grounds that it has irrefutable evidence that the goods they represented do not exist, and shipment was neither made nor attempted;8 or that the party claiming payment is merely an assignee of the sum named in the credit and affected by the fraud discovered on the part of the beneficiary;9 or that its liability created by the credit has been discharged or extinguished by a municipal legislation or statutory scheme; or, finally, that performance of its undertaking has been rendered impossible by the exchange control regulations of the country where remittance of the funds stated in the credit is to be effected.


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