NOMINATED BANK’S RIGHT
11.01 In Chapter 10, an examination was made of the Anglo-American courts’ mode of application of their contract choice of law rules to ascertain the law applicable to the beneficiary’s claim for payment under a letter of credit. The focus of this chapter is the manner in which they employ the rules to determine what law governs the right of reimbursement of a nominated bank that has honoured or negotiated a supposedly complying set of documents tendered to it. Consideration will also be given to the related issue of the lex situs of a debt incurred by an issuing bank following its acceptance of documents forwarded to it by a nominated bank pursuant to the terms of the credit.
11.02 We have previously1 noted several shades of the term ‘nominated bank’ as used in banking practice. The present discussion is, however, concerned with the nominated paying bank, in particular a bank authorized by the issuing bank under the terms of a credit to honour the beneficiary’s complying tender of documents either on its behalf or as a confirming bank, or to negotiate or purchase2 the presentation in its own right but without an obligation to do so. In each of these contexts, proper performance of the authorization carries with it the nominated bank’s right to reimbursement of the sum paid out pursuant to the credit, and in many cases includes commission.3 In the normal course of the individual transactions, proper performance is demonstrated by tendering to the issuing bank the documents it honoured or negotiated in compliance with the requirements of the credit.
11.03 Upon receipt of the conforming documents, the issuing bank remits the amount of the credit forthwith if the instrument is sight credit. With regard to deferred payment credit and acceptance credit, however, remittance is due only at a specified date in the future, the shorthand term being the ‘maturity date’.4 Thus if the maturity date, as sometimes happens, is 360 days calculated from a stipulated date,5 then the issuing bank is under no obligation to reimburse the nominated bank until the 360th day arrives.6
11.04 Ordinarily, the buyer, the applicant for the credit in the issuing bank’s country, is the sole party benefited by that clearly substantial waiting period in that it affords the distinct advantage of enabling him to take delivery of the goods shipped pursuant to the credit long before being obligated7 to put the issuing bank in funds to cover the sum named in the credit; but the downside is that it provides him with an opportunity to find fault with the quality of the merchandise (especially if the market has fallen sharply, with no prospect of improvement from all accounts), allege fraud against the beneficiary (who in all probability has already received payment from the nominated bank and justifiably considers the transaction ‘completed’ and ‘closed’, with many of the associated files shredded), and then obtain in a local court an injunction preventing the issuing bank from honouring any reimbursement claim on the credit. When the nominated bank brings an action to enforce the issuing bank’s undertaking, the latter brandishes the court order and asserts that it is excused from liability.
11.05 Whether or not this constitutes a valid and complete answer to the claim is generally determined by what law governs the issuing bank’s obligation to the nominated bank under the credit; if the legal system, the source of the subsisting injunction, does not apply, the defence is doomed to failure. Put more broadly, a court order, a legislative or governmental act would usually furnish an issuing bank with a legal justification for withholding reimbursement inasmuch as the source of the order or act is a legal system that controls the issuing bank’s undertaking to the nominated bank. In practice, the vital choice of law problem commonly encountered in this connection is, therefore, for the forum court to establish what system of law in the eye of its choice of law principles is controlling.
11.06 Very often, this entails choosing from three legal systems, namely, the law of the issuing bank’s country where the authorization to honour or negotiate originates from and where the nominated bank is to present the documents it honoured or negotiated; that of the nominated bank’s locality in which this bank is required by the credit to take up conforming documents delivered to it; and that of the place at which reimbursement is to be effected under the terms of the credit.
11.07 Deciding between these three candidates frequently presents considerable difficulty on account of a multitude of complex policy issues inherently involved. These shall be addressed as they arise in this chapter. But it will be helpful if the respective contexts of the nominated banks as (i) advising bank, (ii) confirming bank, and (iii) non-obligated negotiating bank claiming reimbursement for the money it advanced on the faith of the credit against a tender of documents it examined and thought conforming, are considered separately, particularly because the capacities in which the various banks perform their mandate are not legally identical, and lumping them together may cause unnecessary complications.
11.08 An intermediary bank is routinely asked, normally via the text of a credit it receives from the issuing bank and advised to the beneficiary, to honour on behalf of that bank complying documents that may be tendered to it under the credit. As a matter of common business courtesy, if it is not willing to act on the request it has to inform the issuing bank accordingly without delay.8 Usually, however, the advising bank will accept it by conduct, i.e. by honouring the beneficiary’s documents and forwarding them to the issuing bank as directed in the credit. Upon so acting, a contractual relationship between the parties comes into existence. This relation is generally regarded as constituting the advising paying bank an agent of the issuing bank, the principal.
11.09 As agent,9 the advising bank’s act as to both the requirements of the credit relayed to the beneficiary10 and its eventual decision respecting compliance of the documents binds the issuing bank, its principal.11 Importantly, the reciprocal rights and obligations of the parties are primarily embodied in the terms of the credit; and include, as already noted, the issuing bank’s duty to effect reimbursement if the advising bank has properly discharged its mandate.
(1) The technique adopted in the US
11.10 In the United States, the law governing the issuing bank’s obligation to the advising bank is to be determined by reference to section 5-116 (a) of the Revised Article 5, which requires effect to be given to the applicable law included by the parties in the credit. Now, a credit is often silent on that matter, so the judge is obliged to have recourse to section 5-116 (b). According to this clause, the law of the issuing bank’s location applies. It might be thought that that is an end of the matter, not least as appears from the sub-clause. But it is submitted that it is not. Section 5-103 (c) read in context provides that ‘the effect of [section 5-116 (b)] may be varied by agreement or by a provision’ included in a letter of credit.
11.11 The parties may expressly contract out of the subsection, as for instance where the law of a particular country is selected. Significantly, however, the fact that they have done so may arise by necessary implication from the terms of the credit and the surrounding circumstances which must have been reasonably available to the issuing bank and the advising paying bank at the time the latter honoured its nomination, i.e. at the time of the contract.
11.12 Of course, ascertaining whether in a given case the parties should be taken to have impliedly exercised the right conferred on them by section 5-103 (c) can be quite daunting. But the difficulty is not insurmountable. A possible means of testing if the issuing bank and advising bank presumptively agree the inapplicability of section 5-116 (b) is to identify the possible effects of its application on the reasonable expectations of the parties. If they are such as would defeat the object of their issuer-adviser agency contract relations, then the forum court would be minded to ensure protection of the objectively discernible common intention of the parties and ignore the law selected in terms of section 5-116 (b). It would then search for the law which commercial rationality, convenience, and justice of the case demand; in particular, the law which the parties, as reasonable international bankers, must have contemplated when their contract sprang into existence.
11.13 From the point of view of business common sense, if a person in one country authorizes another person to do something as his or her agent in that country, in the absence of an express stipulation or anything in the circumstances raising an inference to the contrary, both parties are presumed to intend that the act is to be performed in accordance with the local law of that country.12 Accordingly, when an issuing bank qua principal in one jurisdiction invites an advising bank qua agent in another locality to pay on the former’s behalf a specified sum of money against a complying set of documents tendered in that locality, the parties as reasonable business persons, are taken to have intended that the law of the place where the request is to be carried out shall govern the advising bank’s right to reimbursement.
11.14 The basis of this presumption is free from doubt: the very essence of the payment is to assist the issuing bank in fulfilling the necessities of its undertakings to the beneficiary and it is entirely conceivable that the right to reimbursement of the amount paid out will be more adequately and properly protected by the law of the advising bank than that of the issuing bank—with regard to protection, if the other law is applied, as directed by section 5-116 (b), the advising bank would ultimately be at the mercy of the buyer, in that for apparently dubious or unmeritorious reasons he is wont to interfere with the performance of the issuing bank’s reimbursement obligation by procuring local restraining orders. Hence, if the advising bank, as part of safeguarding its interests, had proposed including the law of its locality to govern its reimbursement right at the time the advising bank received the credit together with the request to honour the beneficiary’s conforming presentation, it is extremely unlikely that the issuing bank would have raised any objection.
11.15 Plausibly, therefore, in terms of the object of the invitation extended to the advising bank in the credit and the law which best assures protection to the advising bank’s right, application of section 5-116 (b) would be an outright subversion of the reasonable expectations of the parties. Rather than apply the law of the issuing bank’s location, it is submitted that it is the municipal law at the place of the advising bank that governs their principal-agent relations.
11.16 Ample support for this stance is provided by section 196 of the Restatement (Second) of the Conflict of Laws,13 which lays down general choice of law rules for establishing the applicable law of a contract for the provision of agency services. Considering that the payment made by the advising bank on behalf of the issuing bank against complying documents delivered to it falls into the category of such services, the section is particularly pertinent to the instant matter. According to it, failing an effective expression of choice of the governing law by the parties, the agency contract is under the control of the law of the jurisdiction in which the agent is to render the services. Comment c to the section elaborates on the rationale of the preference for that law as opposed to the law of the principal’s location as follows:
The rendition of the services is the principal objective of the contract, and the place where the services … are to be rendered will naturally loom large in the minds of the parties. Indeed, it can often be assumed that the parties, to the extent that they thought about the matter at all, would expect that the local law of the state where the services … are to be rendered would be applied to determine the [substantive] issues arising under the contract. The state where the services are to be rendered will also have a natural interest in [the issues] and indeed may have an overriding interest in the application to them certain of its regulatory rules.
11.17 The extracted provision is simplicity itself. In addition to what we have earlier considered the probable expectations of the parties, a point indicated in the passage just quoted and worth underscoring is the governmental interest of the advising bank’s country in the enforcement of the bank’s reimbursement claim. It can hardly be denied that an issuing bank’s failure to discharge its reimbursement undertaking to the advising bank impinges upon the financial strength of the latter’s country, because the money which ought to be repaid to it and which it would in turn typically put back into the economy is prima facie being wrongfully withheld in the issuer’s location.
11.18 Which state has a potentially overriding interest in the claim in the event that the contracted place of reimbursement differs from the advising paying bank’s country where the services were intended to be rendered? Without doubt, the answer is likely to vary according to whether the one rather than the other is the forum in which the advising bank elects to bring proceedings. Nevertheless, having regard to the need for protecting the ascertained legitimate expectations of the parties, it would be better to give preference to the place of reimbursement agreed by the parties; so, its law should govern the claim.
11.19 An instructive case is the decision of the Supreme Court of New York Appellate Division in Cantrade Privatbank AG Zürich v Bangkok Bank Public Co Ltd.14 In this case, under a credit issued in Thailand, a Zürich-based advising bank honoured the beneficiary’s presentation in the locality and forwarded the documents to the Thai bank for reimbursement. The bank accepted the documents and instructed the presenting advising bank to claim the sum in question from the issuer Bangkok bank branch in New York. Shortly afterwards, a Thai court enjoined payment on the credit. The Appellate Division15 held that ‘since reimbursement under the credit was to take place in New York’, the state’s interest in the claim asserted against the Thai issuing bank was fundamentally implicated, and therefore compelled the application of New York law rather than Swiss, least of all Thai law. The Thai court orders were accordingly ignored, and judgment entered against the issuing bank.
11.20 An important principle enunciated in the Cantrade Privatbank decision is reasonably clear. The law which governs the advising bank’s right to reimbursement under a credit is that of the jurisdiction in which the issuing bank is to effect reimbursement to the advising bank. In the majority of cases, that jurisdiction will coincide with the advising bank’s locality where the parties desire performance of the agency services to occur, of course on behalf of the issuing bank. But where the services are to be carried out in that place, and reimbursement contractually expected in another jurisdiction, the interests of the designated country for reimbursement, together with its substantive provisions of its law would take precedence over those of the adviser’s location.
11.21 The Cantrade Privatbank decision is, however, not without difficulty. In concluding as it did, the Appellate Division appeared to have attached some importance to the circumstance of the issuing bank having accepted the documents before the restraining orders were given by the Thai court. Six years later, that consideration went to furnish the principal basis for Justice Helen Freedman’s ruling in Banco Amazonas SA v BNP Paribas (Suisse).16 Banco Amazonas, an Ecuadorian bank, brought an application in New York for summary judgment on a standby letter of credit authorizing reimbursement at a New York bank. BNP Paribas, a Swiss issuing bank, had countermanded that authorization and rejected Banco’s apparently complying presentation owing to a subsisting injunction issued by a Geneva court freezing the credit. Holding that ‘the Swiss injunction is probably entitled to recognition by this court, and likely immunizes Paribas from any liability for’ non-payment of the credit, the judge said: ‘In Cantrade Privatbank, the Thai court enjoined the issuing bank after it had already accepted the documents that immediately triggered its obligation to pay. By contrast, the Swiss court enjoined Paribas more than five weeks before Banco Amazonas presented it with a conforming demand for payment’.17
11.22 Taken in context, the forum has no governmental interests in the claim if the issuing bank was yet to receive the advising bank’s complying presentation at the time the orders enjoining payment under the credit were issued; but it will have such interests if by that time acceptance or, at the very least, receipt of the documents, had already been advised. It is suggested that this approach unduly ignores the contractual significance of the stipulation in the credit nominating New York as the place where the claimant advising bank was to be reimbursed the sum on the credit and, therefore, unsound. The fact that an issuing bank has accepted or is still to communicate acceptance of a presentation by the advising paying bank should be treated as irrelevant to the contractual effect of the stipulation in the credit for reimbursement in New York. Consequently, the feature which Justice Freedman regarded as distinguishing Cantrade Privatbank from Banco Amazonas and attached decisive importance to, had no real bearing on the matter for decision, so the court ought to have granted the bank’s reimbursement claim in Banco Amazonas.
(2) Attitudes of the common law and Rome I Regulation
11.23 We have so far been dealing with the American case law. Let us turn to the position at common law and under the Rome I Regulation.18 As earlier seen, the advising bank’s contractual right to reimbursement of the payment it has made on behalf of the issuing bank under a credit is essentially the same as that of an agent claiming commission under a contract of agency. In consequence, the choice of law principles to be employed to determine the governing law of the advising bank’s right of reimbursement are those generally applicable to agency contracts by virtue of decisional law and pursuant to the Regulation.
11.24 At common law, the rule is that insofar as the contract does not include a provision indicative of its governing law, the respective rights and obligations of the parties are as defined by the law of the country where their relationship as principal and agent is created,19 perhaps as opposed to the place at which the agency services are to be rendered. The ground for choosing the locus contractus is far from self-evident in decisional law, albeit the choice has roots reaching back to remote antiquity.20 Just as its value seems to have received no significant challenge in connection with agency contracts generally, application of the rule to the relation of advising paying bank and issuing bank should be free from controversy.
11.25 The common law rule, read in context, dictates that if the letter of credit creating the advising paying bank and issuing bank agency relations lacks governing law (noted previously to be typically the case in credits), ascertainment of the place where that relationship crystallized into a contract holds the key to the applicable law of the reimbursement claim. It is needless to belabour the point already made, that the agency contract usually springs into being the moment the advising bank acts on the issuing bank’s request set forth in the credit by examination of the beneficiary’s documents and, if found to be in apparent good order, acceptance of them; mere receipt and checking of the documents for conformity with the requirements of the credit without honouring them in the stipulated manner does not itself generate the contract.
11.26 It follows therefore that in the eye of common law the legal system governing the advising bank’s right to reimbursement is that of its locality, being the place where the agency contract came into being. Application of the Rome I Regulation would lead to the same conclusion, but by a different route. As an initial matter, to the extent that Article 3 (1) is inapplicable to the credit because the parties have not exercised their choice of the governing law, one has to consider whether the agency contract sought to be enforced by the advising paying bank falls into any of the contracts listed in Article 4 (1) (a) to (h). If so, the applicable law is to be determined by the rule there specified for the contract. Consistently with that general formula, a trawl through the list of particularized contracts reveals Article 4 (1) (b) as covering the adviser’s reimbursement claim, because it arises out of a contract for the provision of services: the advising bank, in taking up the beneficiary’s documents, is primarily providing a service to the issuing bank.21 By virtue of the sub-article,22 the applicable law of the contract is the law of the country where the service provider is located. The issuing bank’s contractual obligation to reimburse the advising bank is therefore governed by the advising bank’s law.
11.27 It seems reasonably clear that in determining the governing law of the advising bank’s reimbursement claim, the common law choice of law rule looks at the place at which the adviser accepts documents in compliance with the terms of the credit, whilst Article 4 (1) (b) of the Regulation regards as conclusive the location of the adviser. These tests are particularly significant not only because their application would normally produce the same result, but also because they are simple and should be easy to apply, even in many complex cases such as transferable letters of credit.23
11.28 By way of illustration, take a credit of the sort covering a shipment of Bonny light sweet crude oil opened in China in favour of a London beneficiary, with a portion of the credit transferred by the advising bank in London to a second beneficiary in Nigeria, the country where exportation of the goods will take place. In accordance with the first beneficiary’s request,24 or more precisely the terms of the credit, the advising bank remits payment to the second beneficiary’s bank in Lagos, and credits the balance to the first beneficiary’s account maintained with a designated London bank. Within a reasonable time afterwards, the advising bank delivers the documents it took up from both the first and second beneficiaries to the Chinese issuing bank for reimbursement of the sum on the prime credit. To the question ‘whose jurisdiction’s law applies to the advising bank’s right of reimbursement?’, common law and the Rome I Regulation afford a clear-cut answer: it is the law of the advising bank’s country, England. For reasons already argued in relation to the position in the United States, if under a particular credit the adviser is empowered to demand reimbursement in some country different from its own (England in the present case), it is suggested that the law of that other country, rather than the law of its location, is to be applied to the adviser’s potential dispute with the Chinese issuing bank.
11.29 So far as the cases shortly to be considered go, a search for the governing law of the confirming bank’s claim for reimbursement from the issuing bank under a credit is far more complex than the preceding situation. Where the confirming bank brings the credit before an American court to enforce it, a threshold step the judge would take is to consider whether the choice of law rule in section 5-116 (a) of the Revised Article 5 as adopted by the forum’s legislature applies. Fundamentally, the section as concerns the present claim articulates, first, that the ‘liability’ of an issuing bank to a confirming bank ‘is governed by the law of the jurisdiction’ set forth ‘by a provision in the letter of credit’ and, second, that the ‘jurisdiction whose law is chosen need not bear any relation to the [letter of credit] transaction’.
11.30 An occasion to determine the correct legal meaning of those sub-clauses in the particular context of litigation initiated by a confirming bank against an issuing bank arose in Banco Nacional de Mexico SA v Societe Generale.25 The claimant confirming bank, BN, sought reimbursement in the New York County Court of some US$36 million it paid out in Mexico to Mexico Federal Electricity Commission, CFE, the beneficiary of a standby letter of credit issued in France by the defendant bank, SG, to secure due and faithful performance by Alstom and Rosarito (AR) of their obligations under a contract for the construction of a power plant in Mexico City. Owing to certain orders obtained by AR from Mexican courts purporting to prohibit payment ‘to anybody’ on the credit, SG refused to reimburse BN. Significantly, however, the credit expressly stipulated for New York law as its governing law.
11.31 Justice Richard B Lowe III recognized that the credit was, by its very explicit choice of law clause ‘governed by the UCP 500 and to be interpreted under New York law’, but nevertheless viewed the whole question of whether the foreign orders constituted a proper basis for SG’s non-performance of its obligation to reimburse BN as turning on ‘the existence of a sufficient nexus’ between New York and the parties’ transaction. Concluding that the requisite connection was non-existent because the credit did not require reimbursement to take place in New York,26 the judge dismissed BN’s claim.
11.32 The Appellate Division reversed this decision and ordered SG to reimburse BN with interest,27 pointing out, quite correctly, that the lower court made a serious ‘error’ in ignoring the provision of section 5-116 (a) of Revised Article that requires application of the law included in a credit, irrespective of the absence of any relationship between the credit and the country to which that law belongs. Obviously the first instance court misapprehended the reach of the power which the subsection gives banks entering into engagements under a letter of credit to choose the law governing the facility. The misapprehension arose most probably because it directed its attention to the related general choice of law provision in Uniform Commercial Code Article 1-105 (1) which denies such freedom to contracting parties. The upshot is that the section 5-116 (a) directive means what it says when a credit explicitly carries its applicable law.
11.33 With the Appellate Division’s ruling, it is reasonable to expect that there will be no further misunderstanding. On the other hand, cases of the instant sort would be decided in the same way under the common law choice of law principles and the Rome I Regulation, since they both require that the forum court utilizing them has to give effect to whatever law is expressed in the credit28 unless any of the few well-known exceptions29 applies.
11.34 To this extent, the position as to the governing law of the confirming bank’s claim for reimbursement from the issuing bank under a credit is perhaps unexceptional. Quite disappointingly, however, in practice such a letter of credit expressly bearing its governing law as did the credit we saw in Banco Nacional is the exception, not the rule. Thus, when the credit under which the confirming bank seeks enforcement of its rights is of the normal type, different rules, principles, and considerations battle for application.
11.35 Under Revised Article 5, the basic choice of law rule is in section 5-116 (b) and provides that the liability of the issuing bank to reimburse the confirming bank for payment made pursuant to the credit ‘is governed by the law of the jurisdiction in which the issuing bank is located’.30 The literal effect of this provision is startling. As the provision stands, and because by virtue of the other portion of the subsection the confirming bank’s obligation to the beneficiary or other nominated bank such as a non-obligated negotiating bank is to be determined by the law of the confirming bank’s place of business; and the confirming bank is ordinarily in the same country as its obliged beneficiary or non-obligated nominated bank, while the issuing bank is in another country. Inevitably, therefore, the confirming bank may be obligated to make payment according to the law regulating its undertaking to the beneficiary or negotiating bank, but not entitled to reimbursement of the money it has been compelled to pay out according to the law governing its right against the issuing bank.31
11.36 In strict commercial terms and as a matter of contract interpretation, section 5-116 (b) in relation to the confirming bank-issuing bank contractual relations, raises the question whether its bare signification is a justifiable legal meaning of the subsection. The UCP and Revised Article 5 make it plain that confirming banks have the same degree of payment or reimbursement obligation as issuing banks under credits. However, the confirmer characteristically assumes the undertaking for an extremely small commission and without any security in support, except the documents representing the goods and the issuer’s promise of reimbursement, whereas the issuing bank typically has as security for the performance of its engagement the credit balance or other assets of its customer, the credit applicant. With these commercial realities in mind, how can it be reasonably supposed that a rational and prudent confirming bank, if asked, would agree to run the twofold risk of being required by the law of its location to honour a tender of documents which that law considers complying, and the risk of the law of the issuing bank’s country precluding reimbursement because in the issuer law’s view, the confirming bank’s right to realize the credit is invalid? The result of imputing such agreement to the confirmer is so commercially unreasonable that the subsection cannot properly be taken as applicable to the confirming bank and the issuing bank contractual relations. Section 5-103 (c) of the Revised Article 5 provides an acceptable means of reaching that conclusion; upon further examination, we would be able to find that it is the law of the jurisdiction in which the confirming bank is to discharge its obligation contained in the credit which ordinarily governs its right to reimbursement from the issuing bank. A little later it will be necessary to elaborate on the commercial undesirability of attributing to the parties, as just and reasonable bankers, a mutual intention to submit to the law at the issuing bank’s locality.
11.37 Worthy of immediate attention is the source of section 5-116 (b), which may help to shed light on its true meaning and effect so far as concerns the prevailing approach to construction of commercial contracts. Conception of the section dates to a recommendation made in a report by the American Bar Association Task Force published three years after a comprehensive revision of the old Uniform Commercial Code Article 532 began on 12 April 1986.33
11.38 In the material portion of the Report,34 the Task Force shared our view already expressed, namely that the lack of a governing clause is typical of letters of credit. It then said: ‘Nearly all credits that contain a choice of law clause choose the law where the issuer is located, which is also the law that would apply to the issuer’s performance of his letter of credit engagement if section 4-102 (2)35 … were applied directly or by analogy. By extension … the undertaking of the confirming bank would be governed by the laws of [its location]’.36 The Task Force further argues that on account of ‘inconsistent’ judicial rulings on this aspect of conflict of laws problems, many of which rulings tend to ignore the peculiar nature of letters of credit, ‘[l]etter of credit law would be well served by’ codifying choice of law rules suitable for the unique character of the issuer’s and confirmer’s engagements under a credit. The Report concluded by offering two options: If it is desired that ‘such rules be consistent with section 4-102 (2) … then, in the absence of an express choice, the law of the place of issuance should apply to the issuer’s obligation to honour the credit’ (“Option A”), and the law of ‘the place of authorized confirmation should control the confirmer’s obligation to honour’.37 But if ‘greater weight is to be given to the desirability of applying only one law to the [issuer’s and confirmer’s undertakings], then, in the absence of an express choice, the law of the place where the credit is made available by payment, acceptance or negotiation against presentation of documents should apply’ (“Option B”).38
11.39 As appears from section 5-116 (b), the Revised Article 5 Drafting Committee39 voted in favour of Option A proffered in the Task Force Report. On the pertinent parts of this report quoted earlier, two observations arise. First, it may well be true that ‘nearly all credits’40 which make provision for the governing law select the law of the issuing bank’s location in relation to domestic letters of credit. However, if the Task Force thought the same can be said of international letters of credit opened outside the US, its assertion must be inaccurate. How many prudent American banks, imbued with safe and sound banking practice, would be comfortable with adding their confirmation to letters of credit issued in a country carrying a baggage of high credit and political risks when the letter of credit has the law of that country as the applicable law? There can be no commercial reason why one should find it surprising that the potential confirming bank usually treats such a credit with considerable suspicion and would refuse to confirm it. It is virtually impossible to imagine a foreign issuing bank rejecting a US bank’s proposal of the law of a US state as the governing law of the credit sought to be confirmed and transmitted to the American exporter beneficiary.