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AUTONOMY IN DOCUMENTARY CREDITS: TIME FOR A NULLITY EXCEPTION?

Lloyd's Maritime and Commercial Law Quarterly

AUTONOMY IN DOCUMENTARY CREDITS: TIME FOR A NULLITY EXCEPTION?

Sanam Saidova*

This article analyses whether English law should recognise a nullity exception to the autonomy principle in documentary credits. It assesses policies in favour of and against this exception and proposes and constructs the nullity exception based on the optimum balance between them. The article advocates the exception based on the objectively determinable criteria conducive to a precise legal analysis, certainty and speedy decision-making. The focus of the proposed test is on whether objectively a problem in a document renders it null and void or, in other words, destroys its essence or whole. The proposed exception is applicable where banks have clear knowledge of the nullity, imposing no duty on them to investigate facts/matters outside the documents.

I. INTRODUCTION

Documentary credits1 are one of the most widely used payment mechanisms in international trade.2 Regulated globally by the International Chamber of Commerce (ICC) Uniform Customs and Practice for Documentary Credits (UCP),3 they are often referred to as the “lifeblood of international commerce”4 and equivalent to cash in hand.5 When a transaction, such as an international sale of goods,6 is financed by a credit, the seller/beneficiary must make a complying presentation to the bank7 to obtain payment.
* Assistant Professor, University of Nottingham. The author is grateful to the anonymous referee for the valuable comments.
1. Also known as “bankers’ commercial credits” or “letters of credit”.
2. See eg MG Bridge (ed), Benjamin’s Sale of Goods, 10th edn (Sweet & Maxwell, London, 2017) (hereafter “Benjamin”), [23.065]; C Murray, D Holloway, D Timson-Hunt (eds), Schmitthoff: The Law and Practice of International Trade, 12th edn (Sweet & Maxwell, London, 2012), 189–190 (with further references).
3. The UCP are a set of standard contractual terms regulating the operation of the credit. First published in 1933, UCP have been revised several times and their current 2007 revision is known as UCP 600. The UCP have attracted global recognition as the best embodiment of international banking practice and most documentary credits worldwide are issued subject to them. All references in this article to UCP are to the current version, unless otherwise indicated.
4. Harbottle (RD) (Mercantile) Ltd v National Westminster Bank Ltd [1978] QB 146, 155 (Kerr J).
6. Documentary credits are also used in many other contexts. See Benjamin, [23.001].
7. This article uses a simple model of a credit transaction: an applicant/buyer, a beneficiary/seller and an issuing bank, referred to as a “bank”. A credit transaction can involve a confirming bank, but this bank’s obligations are analogous to those of the issuing bank. A nominated bank can also be involved in the credit transaction. The distinctions between the banks are only highlighted where necessary.

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