Given that Commercial Law tries to balance
considerations of certainty and
fairness, it follows
that the
law
relating to letters of credit, as part of the general
body of Commercial Law, involves a similar balancing exercise. This thesis argues
that this balance should employ
five basic principles, namely:
(1) party autonomy
(freedom and sanctity of contract);
(2) certainty;
(3) flexibility; (4) fairness; and
(5)
good
faith.
The thesis begins with a brief introduction
to the objectives of the study. Chapter
one
introduces
readers to the basis of
letters of credit and the historical
background. The five basic principles and the tensions between them are examined
in chapter two. Chapter three discusses briefly how these
five basic principles are
applied to the law
regulating
letters of credit. Chapter four focuses on disputes
arising between the
issuing bank and
the beneficiary, evaluating
in particular
the
principle of
independency and the
fraud exception. The most
important doctrine in
the law of
letters of credit, the doctrine of strict compliance
is explored
in
chapter
five. Disputes between
the
issuing bank and
the applicant are examined
in
chapter
six and the standard of compliance governing
the reimbursement agreement
(whether
strict compliance or bifurcated compliance)
is evaluated
in
the
light of
the
basic principles. Chapter seven, deals with disputes between the applicant
(buyer)
and the beneficiary (seller), evaluating the
law on the nature of payment
(whether
absolute-conditional)
in
the light of the basic principles.
The concluding chapter draws on the key points of the thesis to put
forward an
overview as to the adequacy of the law. Essentially, the
law founds itself on
two
cornerstone principles,
the
independency principle and
the doctrine of strict
compliance. Whereas the
former protects the
interests of sellers, the
latter protects
the
interests of buyers. In each case, however, the principle designed for protection (and
certainty) can be
turned
into a principle
licensing unfairness-in one case,
shielding
fraudulent sellers, and
in
the other case shielding bad faith buyers.
In the modern
law,
the central problem
is
to
find
the right way of addressing and
balancing these competing considerations. The main proposals offered
in
the thesis
recommend
that the qualified strict compliance
test be adopted and where actual
fraud has taken place or
is
suspected on reasonable grounds
by
the bank, the
fraud
exception should operate.
In addition, and with a view to striking the right balance
between certainty and
fairness, it is
suggested
that punitive
damages be awarded
exceptionally
in cases where good
faith and gross negligence
have taken place, that
the bifurcated compliance standard should
be adopted where
the
issuer has been
considered
to have acted
in good
faith and without harming the customer, and that
conditional payment be adopted
in
relation
to payment under
documentary credit.
It should be emphasised that the position argued
for in
this thesis
is
that there
should be some marginal adjustment
to the ruling
doctrines. No modification
should be
considered, however, where
the essential certainty of the
law would
be
jeopardised.